Beruflich Dokumente
Kultur Dokumente
SUBMITTED TO: MAHARISHI DAYANAND UNIVERSITY, ROHTAK IN THE FULFILMENT OF DEGREE OF MBA (SESSION 2008-2010)
SUBMITTED TO: SUBMITTED BY: THE CANTROLLER OF EXAM KAUSHIK M.D.U., ROHTAK (FINAL)
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BAJRANG MBA
ACKNOWLEDGEMENT
I would take this opportunity to thank Mrs. Bhawana Sharma, Faculty, D.A.V. Institute of Management, Faridabad for being cooperative and helpful guide. A note of thanks is due to all those, too many to single out by names, which have helped in no small measure by cooperating during by providing their valuable time, inputs and assistance. Their support, guidance and motivation were very valuable and encouraging.
Bajrang Kaushik
PREFACE
The introduction and application of the concept of customer services entered in a welcoming way in India only after independence. The banking system in India has come a long way during the last two centuries. Its growth was faster and the coverage wider since 1969. In 1969a major position of banking sector was entrusted to the public sector. This process continued and embraced few private banks in 1980. The transfer of ownership of banks from the public to private was aimed at entrusting the banks with greater responsibilities for the economic development of India by taking banking services to the masses and taking special care of the weaker section of the society and the priority sector of the economy. Though the number of banks offices magnitude and the variety of their operations has grown considerably during the period of near about three decades, but it appears that the banking sector has entered into serious among customers. For overcoming this problem, banking industry should seek introspection and adopt refined management techniques. It has been endeavor of this study to analyze the present state of various banks keeping in view the primary data has been collected regarding the present state of loan schemes in various banks by using a questionnaire.
DECLARATION
I undersigned Bajrang Kaushik The student of MBA 3rd Sem. hereby declare that the project work in my own work and has been carried out under the guidance of Mrs. Bhawana Sharma Faculty Member of DAV Institute of Management of Studies in Faridabad (Haryana). This Report has been submitted to M.D. University for Evaluation.
Date: Place:
Bajrang Kaushik
Table of contents
S. No. 1. 2.
EXECUTIVE SUMMERY INTRODUCTION: REVIEW OF LITERATURE OBJECTIVES OF THE STUDY SIGNIFICANCE OF THE STUDY CONCEPTULIZATION
FOCUS OF THE PROBLEM
Indian Particulars
3.
20-24
4.
INDIAN ECONOMY:
MACRO FACTORS AFFECTING INDIAN BANKING
25-31
SECTOR
5.
INDIAN BANKING INDUSTRY: NEED FOR BANKS INDIAN BANKING SECTOR EXPERIENCE
INDIAN FINANCIAL SERVICES SECTOR SWOT
32-37
6.
38-41
7.
MICRO FACTORS AFFECTING INDIAN BANKING INDUSTRY: LOAN DEMAND RISING FUNDING NON-PERFORMING LOANS TECHNOLOGY
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42-48
8.
49-57
EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
The Indian Economy is driven by strong fundamentals with GDP growth at 9.1% for H1 FY07 strongest growth in any six months since H1 FY04 and uptrend in Industrial Cycle with Average Index of Industrial Production growth at 10.2% being the strongest run in the past 11 years. On political front, the Indian Government has signed nuclear deal with America indicating Indias importance in the global context opening up many opportunities. Along with this, Chinese President Hu is expected to visit India. This will improve trade and other ties between two of the fastest growing economies. In Capital Market, Strong foreign inflows with Portfolio flows of nearby USD 9.2bn took BSE Sensex to 14,000 + (50% higher) compared to FY 05-06. The Indian corporate raised USD 6bn by issuing Initial public offer in India and abroad. High Credit growth at 30%, it continued the trend of last 5 years where it has averaged around 25% and lastly M&A activity which was at its peak with sectors beyond IT and Pharma making global & domestic acquisitions.
The high growth sectors are Power where power ministry and local private players
announce 9 ultra mega projects (4,000 MW each) provides visibility on power & infra front.
Retail - a Point of inflection with major Indian corporate announcing plans, entry of world
majors like Wal-Mart & foreign investment allowed in single brand retail and Real Estate with major huge build-out plans and Special Economic Zone policy of government is major driver of growth.
Banking in which Banks are allowed to raise hybrid capital which opens new avenues for
funding credit growth. As such, the report focus on change factors in Banking Industry as this industry is expected to have major impact on Indian Economy.
INTRODUCTI ON
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INTRODUCTION
In India, given the relatively underdeveloped capital market and with little internal resources, firms and economic entities depend, largely, on financial intermediaries to meet their fund requirements. In terms of supply of credit, financial intermediaries can broadly be categorized as institutional and non-institutional. The major institutional suppliers of credit in India are banks and non-bank financial institutions (that is, development financial institutions or DFIs), other financial institutions (FIs), and non-banking finance companies (NBFCs). The non-institutional or unorganized sources of credit include indigenous bankers and money-lenders. Information about the unorganized sector is limited and not readily available. An important feature of the credit market is its term structure: (a) Short-term credit (b) Medium-term credit (c) Long-term credit. While banks and NBFCs predominantly cater for short-term needs, FIs provide mostly medium and long-term funds.
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REVIEW OF LITERATURE
http://indiapost.com/article/techbiz/1038/ IA Bank ties up with SBI for money transfers Sunday, 09.23.2007, 11:59pm (GMT-7) NEW JERSEY: Indus American Bank has tied up with State Bank of India to offer money transfer services to India for its clients. Under the new money transfer service, which will provide expanded services to Indus American Bank customers can expect service at over 14,000 branch locations of State Bank of India within India, and at over 14,000 additional RTGS participating banks. Funds remitted from Indus American Bank would reach recipients typically within 24 hours. As the largest bank in India, State Bank of India offers excellent exchange rates which are now available to Indus American Bank customers. India is one of the biggest destinations for foreign remittances. http://www.myiris.com/newsCentre/newsPopup.php? fileR=20070925165003043&dir=2007/09/25&secID=livenews
ICICI Bank allots equity shares ICICI Bank allotted 17,800 equity shares of face value of Rs 10 each on Sep. 18, 2007 under the employees stock option sceme, 2000 (ESOS).ICICI Bank (ICICIBANK) was promoted in 1994 by ICICI, an Indian development financial institution. The two entities subsequently merged to become the largest commercial bank in the private sector.
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HDFC Asset Management to launch debt fund on Sept 27 Tue Sep 25, 2007 12:50pm IST MUMBAI (Reuters) - HDFC Asset Management Co Ltd said on Tuesday that it will launch a close-ended debt fund on Sept. 27. The fund, HDFC FMP 18M September 2007, will be open for subscription till Oct. 8. It will invest at least 60 percent of the assets in debt and money market instruments and the rest in government securities, the fund house said. HDFC to cut interest rates Economic Times, India - Sat Sep 22, 2007 12:14pm IST Mortgage lender Housing Development Finance Corp is likely to cut its interest rates next week, the Economic Times reported on Saturday. "The cost of wholesale funding has come down and we are taking a look at passing on the benefits to borrowers," HDFC Chairman Deepak Parekh was quoted as saying. The report also quoted HDFC Managing Director Keki Mistry as saying the company was looking at a half percentage point cut and that the new rates would be announced next week.
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tells about how these funds are effectively and efficiently utilized in order to maximize profits.
To study the growth and performance of banking company. To find out what are the policies that we have to be adopted to increase the goodwill of the
company.
To provide suggestions for better functioning of business. To know about the various loan schemes of these two banking companies i.e. ICICI & SBI.
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CONCEPTUALIZATION
The last decade has seen many positive developments in the Indian banking sector. The policy makers, which comprise the Reserve Bank of India (RBI), Ministry of Finance and related government and financial sector regulatory entities, have made several notable efforts to improve regulation in the sector. The sector now compares favourably with banking sectors in the region on metrics like growth, profitability and non-performing assets (NPAs). A few banks have established an outstanding track record of innovation, growth and value creation. This is reflected in their market valuation. However, improved regulations, innovation, growth and value creation in the sector remain limited to a small part of it. The cost of banking intermediation in India is higher and bank penetration is far lower than in other markets. Indias banking industry must strengthen itself significantly if it has to support the modern and vibrant economy which India aspires to be. While the onus for this change lies mainly with bank managements, an enabling policy and regulatory framework will also be critical to their success. The failure to respond to changing market realities has stunted the development of the financial sector in many developing countries. A weak banking structure has been unable to fuel continued growth, which has harmed the long-term health of their economies. In this white paper, we emphasize the need to act both decisively and quickly to build an enabling, rather than a limiting, banking sector in India
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1. Banking Challenges It is expected that the Indian banking and finance system will be globally competitive. For this the market players will have to be financially strong and operationally efficient. Capital would be a key factor in building a successful institution. The banking and finance system will improve competitiveness through a process of consolidation, either through mergers and acquisitions through strategic alliances. Technology would be the key to the competitiveness of banking and finance system. Indian players will keep pace with global leaders in the use of banking technology. In such a scenario, on-line accessibility will be available to the customers from any part of the globe; Anywhere and Anytime banking will be realized truly and fully. In this context, the research paper approached Indian Banking System as the shape of the banking sector will be the result of a strong interplay between the decisions taken by policy makers and actions of bank managements.
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2. Banking Evolution & Regulatory Framework Financial Sector Reforms set in motion in 1991 have greatly changed the face of Indian Banking. The banking industry has moved gradually from a regulated environment to a deregulated market economy. The market developments kindled by liberalization and globalization have resulted in changes in the intermediation role of banks. The pace of transformation has been more significant in recent times with technology acting as a catalyst. While the banking system has done fairly well in adjusting to the new market dynamics, greater challenges lie ahead. Financial sector would be opened up for greater international competition under WTO. Banks will have to gear up to meet stringent prudential capital adequacy norms under Basel II. In addition to WTO and Basel II, the Free Trade Agreements (FTAs) such as with Singapore, may have an impact on the shape of the banking industry. Banks will also have to cope with challenges posed by technological innovations in banking. Banks need to prepare for the changes. In this context the need for drawing up a Road Map to the future assumes relevance. The last decade has seen many positive developments in the Indian Banking Sector. The policy makers, which comprise the Reserve Bank of India (RBI), Ministry of Finance and related government and financial sector regulatory entities, have made several notable efforts to improve regulation in the sector. The sector now compares favorably with banking sectors in the region on metrics like growth, profitability and non-performing assets (NPAs). A few banks have established an outstanding track record of innovation, growth and value creation. This is reflected in their market valuation. However, improved regulations, innovation, growth and value creation in the sector remain limited to a small part of it. The cost of banking intermediation in India is higher and bank penetration is far lower than in other markets. Indias banking industry must strengthen itself significantly, if it has to support the modern and vibrant economy which India aspires to be, while the onus for this
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3. Internal Hindrances to Banking Industry The research focuses on emphasizing the need of decisively and quickly to build and enabling, rather than a limiting, banking sector in India. The major challenges ahead for bank management are as follows:
First, cost management, a key to sustainability of bank profits as well as their long-term
viability.
Second, recovery management, which is a key to the stability of the banking sector. Third, technological intensity of banking, an area where India happens to be a world leader in
information technology, but its usage by our banking system is somewhat muted. It is wise for Indian banks to exploit this globally state-of-art expertise, domestically available, to their fullest advantage.
Fourth, risk management, Banks can, on their part, formulate early warning indicators suited
to their own requirements, business profile and risk appetite in order to better monitor and manage risks. Fifth, governance because the quality of corporate governance in the banks becomes critical as competition intensifies, banks strive to retain their client base, and regulators move out of controls and micro-regulation.
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RESEARCH METHODOLO GY
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RESEARCH METHODOLOGY
Problem Definition: To determine and analyze the hidden potential in Banking sector in India so as to suggest the investors whether to invest in shares of Banking Companies.
Objective: Discover insights into and develop an understanding of the various Macro and Micro Economic Factors that have bearing on the functioning of the Banking sector. Evaluate the performance of some of the banks based on the past data and forecast the future prospects.
Valuation:
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Result: All shares are undervalued and expected to give positive risk adjusted returns to investors. Since the intrinsic value is more than current market price for all the companies, the share can be recommended to conservative investors.
RESEARCH DESIGN
Exploratory Research Design because the problem required an in-depth study of all the related variables. Past information and forecasts: Collected the past information in the form of details of the various accounting statements (Income Statement, Balance Sheet etc.), including the sales for the past 10 years (1997-2006). Forecasts are done in relation to the future performance in terms of sales for HDFC Bank, ICICI Bank, and SBI. Other forecasts include the EPS calculation and comparison of forecasted Future Target Price with the Current Market Price. Once the information was collected, the next step was to search for resources and constraints with respect to the area of research.
Reserve Bank of India, 2005, Annual Policy Statement for the year 2005-06 (Mumbai). Company Reports
Constraints:
Lack of time availability with the people involved in any manner with the research especially when decisions were to be made quickly. Difficulty in application of Statistical Tools. Difficulty in making accurate forecasts because of presence of Economic impediments like inflation, RBI policies etc.
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Method of Data Collection: Secondary Data is collected to carry out the study. To review the literature available regarding the subject; various journals, magazines, related research papers and Internet would be used
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INDIAN ECONOMY
the manufacturing sector, which forms 80% of the IIP index lead to a blip in its robust growth trend for the past 9 months. Both mining and electricity grew faster than last year at 4% and 9.7% Vs 0.1% and 7.7% respectively
WPI (Wholesale Price Index) rose to 5.43% for the week ending December 16; higher
inflation in primary commodities remains. The inflation in the coming weeks may remain high due to lower base effect.
CRR (Cash Reserve Ratio) hike of 50 bps to absorb Rs.135bn from the system. The CRR
rate hike of 50bps came as a surprise but it reflects that RBIs intention of controlling credit off-take and liquidity management by raising repo and reverse repo rate could not achieve the desired results due to which RBI used CRR rate hike a new instrument to control liquidity Exports growth back on track in November 2006. On the basis of the BoP, in H1FY06 exports grew at 23%, imports at 25.3% resulting in the trade balance of US$35bn. Net invisibles grew by 17.6% to US$23.5bn and capital inflows (in the form of FDI, NRI deposits and ECB) at US$20.3bn (a yoy growth of 49%) brought the balance of payment to US$8.6bn, (a yoy growth of 33%). Rupee appreciates further against dollar and yen but continues to depreciate against Euro and pound on an YTD basis as on December 2006. In real terms, from April 2006 to October 2006, the rupee appreciated by 1.8% vis--vis a basket of six currencies.
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Source: www.rbi.org.in In FY 06-07, services sector account for major 55% of India GDP followed by 25% in Industrial sector and 20% in agriculture sector. FY07 Vs Q2FY06, the growth rate in GDP components are as follows: Agriculture: 1.7% Industry: 10.5% Service: 10.7 2. FDI Confidence Index: Relaxation of foreign direct investment rules has expanded the mountain of capital in every sector of Indian economy. The government is making efforts in liberalizing the guidelines and norms for investment through FDI, making them more NRI friendly. Mainly due to efforts
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3. Inflation:
Inflation remained largely benevolent due to investment driven nature of growth and subsidized nature of oil prices as pass-on of international crude price rise remained incomplete in India. WPI Inflation has risen to 5.45% for the week ended November 18, 2006 after remaining in the range of 4.0-5.0% earlier. RBI has repeatedly cautioned that maintaining inflation in the target range may call for substantial monetary tightening should crude prices persist at high level. The money supply has grown by 18.7% yoy till November 10, 2006 during the current fiscal, which poses a significant threat to RBIs efforts of containing inflation in the desired range of 5.0-5.5%.
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5. Interest Rate:
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Source: RBI Real interest rate indicated by spread between inflation and 10 year benchmark yield has trended in the range of 2-4%. The real interest rate in developed economies is normally in the range of 2-3%. However, the marginal productivity of capital being much higher in the developing economy like India. Due to this, real interest should be higher than those prevailing in more matured economies.
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World over, the central bankers led by US Federal Reserves embarked on withdrawal of monetary accommodation through a series of rate hikes as the rising oil and asset prices threatened the global economies with inflationary pressures. The US Fed, which embarked on an aggressive rate hike campaign through 17 consecutive rate hikes of the magnitude of 25 bps, several economies including Euro-zone and Japan hiked their key policy rates. In response to the same, RBI has hiked the key policy Repo and Reverse Repo rates five times over the past two years. This has led to a significant hardening of interest rates over the past 4-5 quarters, which has adversely impacted the cost of funds for banks.
7. Capital Market:
Financial markets in India and globally have seen little volatility over the last few Years. There have been only two spikes in India in April 2004 when the UPA government came to power and in May 2006. In India, stock markets will be the most impacted by negative news flows as other areas where shocks can be absorbed such as the currency, interest rate and corporate bond markets are not free or well developed. The Capital Market has seen balance sheet value being unlocked through monetization of embedded assets, demergers, IPOs, etc. Indian companies continue to build value in the balance sheet as newer opportunities emerge through smart capex, inorganic growth and extracting value thru the revenue statement.
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Role of Bank
Risk Transformation
Service Provider
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The nationalization of banks was the culmination of pressures to use the banks as public instruments of development. The GoI imposed `social control on banks. However, by the 1980s, it was generally perceived that the operational efficiency of banks was declining. Banks were characterized by low profitability, high and growing non-performing assets (NPAs), and low capital base. Average returns on assets were only around 0.15% in the second half of the 1980s, and capital aggregated an estimated 1.5% of assets. Poor internal controls and the lack of proper disclosure norms led to many problems being kept under cover. The quality of customer service did not keep pace with the increasing expectations. In 1991, a fresh era in Indian banking began, with the introduction of banking sector reforms as part of the overall economic liberalization in India.
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Weaknesses:
Continued crowding out effect from govt budget deficit, combined with accelerating private sector credit demands Ownership restrictions Constraints on state-owned banks' micro reforms, including HR, staff cut, branch cut constraints
Opportunities:
Improving secular GDP growth prospects Establishment of special economic zones likely to promote further industrialization Years, if not decades, of catch-up economics low per capita income, educated workforce Rapid financial deepening, i.e. loan growth as multiple of nominal GDP growth Rising consumer spending, consumer credit business Rising corporate capex, investments
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Threats:
"Running on empty" in terms of liquidity Tightening in global liquidity may trickle down to India Potentially hawkish RBI stance on inflation/monetary policy Potential rise in long bond \ yields, MTM risk for banks Potential for valuation pullback, should earnings delivery disappoint expectations
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STRUCTURE Of banking
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Nationalised Banks
Category of Banks
Private Banks
Foreign Banks
Source: IBA
Na tionalised Banks
Category of Banks
Private Banks
Foreign Banks
Source : IBA In terms of asset size, among Foreign banks Citibank, HSBC and Standard Chartered bank are leaders with asset base of Rs.45437 cr, Rs.37473 cr and Rs.48412 cr. Resp. in FY 05-06. Among private sector banks, ICICI Bank is the leader with asset base of Rs.251389 cr followed by HDFC Bank of size Rs.73506 cr and UTI Bank of size Rs.49731 cr. In terms of asset size, public sector banks have highest base compared to private and foreign banks. SBI & Associated have asset base
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Credit Growth
The bank lending has expanded in a number of emerging market economies, especially in Asia and Latin America, in recent years. Bank credit to the private sector, in real terms, was rising at a rate between 10 and 40 per cent in a number of countries by 2005 (BIS, 2006). Several factors have contributed to the significant rise in bank lending in emerging economies such as strong growth, excess liquidity in banking systems reflecting easier global and domestic monetary conditions, and substantial bank restructuring. The recent surge in bank lending has been associated with important changes on the asset side of banks balance sheet. First, credit to the business sector - historically the most important component of banks assets has been weak, while the share of the household sector has increased sharply in several countries. Second, banks investments in Government securities increased sharply until 2004-05. As a result, commercial banks continue to hold a very large part of their domestic assets in the form of Government securities - a process that seems to have begun in the mid-1990s
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MICRO FACTORS
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Source: RBI
The slowdown of the mid-1990s hit the banks very hard because corporate, which accounted for a lions share of bank credit, went into a less profitable and hence a financial restructuring mode. There was no retail credit then, banks did not focus on Small and Medium Enterprises and farm lending was done grudgingly, under compulsion. Along with the diversification of the pie that
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Plenty of historical evidence of return of pricing power to banks: Concerns are often expressed about banks ability to increase lending rates in the face of competition and government pressure. The reality is that banks, which led the mortgage price war, have increased mortgage rate by 200-300bps from the bottom, and is yet to see significant resistance. That PSU banks raised prime lending rates twice in. Competition from overseas borrowings is a serious factor only with AAA companies, and banks have reduced exposure to them considerably during the last 3-4 years. Government stand is understandably against higher interest rates. However, it is unlikely that the government will be able to influence the course of interest rates single-handedly.
Inflexibility of deposit growth a myth: With 100-200bps increase in the card rates of deposits, banks have managed to move the deposit growth rate from 15-16% to 19- 20%, on a larger base. In the last five years, household financial
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Loan growth-NPL
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Source: Company data, Cost of borrowing has risen, but so have incomes: The apparent disconnect between interest rates rising now for two years and lending not losing steam can be explained by i) rising incomes in case of individuals, thereby imparting increased thrust to retail lending, and ii) improved corporate profitability through better pricing power. While there are several studies illustrating the household income growth in India, according to National Council for Applied Economic Research, an explosive growth is underway in the percentage of households earning Rs91, 000-1,000,000 pa, the most prominent individual borrowers for banks. The corporate pricing power story is less known because of the media harping on high competition and margin compression. While these issues cannot be summarily dismissed, it is a fact that manufactured product inflation has been rising. Even the RBI has recently commented on the increased ability of manufacturers to pass on cost increases. And with a considerably de-leveraged corporate India compared with the early/mid 1990s, these levels of increases in interest costs have been easily absorbed by companies.
Technology:
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VALUATION TOOLS
ICICI Bank:
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business. The duo has been fairly aggressive through their companies, Prudential ICICI Asset Management Company Limited and Prudential ICICI Trust Limited. The bank is also keen to offer its services to the Indian agricultural sector. Over 2,000 Internet kiosks and 70 agri-desks have been established in locations with large agricultural markets.
Developments
ICICI Bank launched `Mutual Fund Sweep Account` - an automatic sweeping facility which allows current account holders to park their short-term surpluses into liquid mutual funds and earn higher returns. Initially, ICICI Bank current account customers will have the facility to invest their account surpluses in the liquid fund schemes of Prudential ICICI Asset Management Company and GIC Mutual Fund.
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crore certificates of deposit (CD) programme of ICICI Bank Ltd (IBL). The rating agency said in its report that the rating takes into consideration IBL`s strategic importance to its parent ICICI, IBL`s comfortable profitability and capital adequacy, good control on asset quality. ICICI Bank has tied up with MasterCard International to launch ICICI Bank MasterCard credit cards. At present ICICI Banks credit card base stands at around 5, 50,000, while for debit cards it is 4,50,000. ICICI Bank is the largest card issuer in the market. The bank is adding credit and debit cards at the rate of 1,00,000 per month. The bank had launched the credit card business 2 years back, while the debit card business is relatively new. ICICI Bank is India's second-largest bank with total assets of Rs. 3,562.28 billion (US$ 77 billion) at December 31, 2009 and profit after tax Rs. 30.19 billion (US$ 648.8 million) for the nine months ended December 31, 2009. The Bank has a network of 1,646 branches and about 4,883 ATMs in India and presence in 18 countries. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries and affiliates in the areas of investment banking, life and nonlife insurance, venture capital and asset management. The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany. ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).
HDFC Bank:
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Business:
HDFC Bank offers a wide range of commercial and transactional banking services and treasury products to wholesale and retail customers. The bank has three key business segments:
Wholesale Banking Services:
The Bank's target market ranges from large, blue-chip manufacturing companies in the Indian corporate to small & mid-sized corporates and agri-based businesses. For these customers, the Bank provides a wide range of commercial and transactional banking services, including working capital finance, trade services, transactional services, cash management, etc. The bank is also a leading provider of structured solutions, which combine cash management services with vendor and distributor finance for facilitating superior supply chain management for its corporate customers.
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The objective of the Retail Bank is to provide its target market customers a full range of financial products and banking services, giving the customer a one-stop window for all his/her banking requirements. The products are backed by world-class service and delivered to customers through the growing branch network, as well as through alternative delivery channels like ATMs, Phone Banking, NetBanking and Mobile Banking. The HDFC Bank Preferred program for high net worth individuals, the HDFC Bank Plus and the Investment Advisory Services programs have been designed keeping in mind needs of customers who seek distinct financial solutions, information and advice on various investment avenues. The Bank also has a wide array of retail loan products including Auto Loans, Loans against marketable securities, Personal Loans and Loans for Two-wheelers. It is also a leading provider of Depository Participant (DP) services for retail customers, providing customers the facility to hold their investments in electronic form. HDFC Bank was the first bank in India to launch an International Debit Card in association with VISA (VISA Electron) and issues the Mastercard Maestro debit card as well. The Bank launched its credit card business in late 2001. By March 2009, the bank had a total card base (debit and credit cards) of over 13 million. The Bank is also one of the leading players in the merchant acquiring business with over 70,000 Point-of-sale (POS) terminals for debit / credit cards acceptance at merchant establishments. The Bank is well positioned as a leader in various net based B2C opportunities including a wide range of internet banking services for Fixed Deposits, Loans, Bill Payments, etc.
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Within this business, the bank has three main product areas - Foreign Exchange and Derivatives, Local Currency Money Market & Debt Securities, and Equities. With the liberalisation of the financial markets in India, corporates need more sophisticated risk management information, advice and product structures. These and fine pricing on various treasury products are provided through the bank's Treasury team. To comply with statutory reserve requirements, the bank is required to hold 25% of its deposits in government securities. The Treasury business is responsible for managing the returns and market risk on this investment portfolio.
Management:
Mr. Jagdish Capoor took over as the bank's Chairman in July 2001. Prior to this, Mr. Capoor was a Deputy Governor of the Reserve Bank of India. The Managing Director, Mr. Aditya Puri, has been a professional banker for over 25 years, and before joining HDFC Bank in 1994 was heading Citibank's operations in Malaysia. The Bank's Board of Directors is composed of eminent individuals with a wealth of experience in public policy, administration, industry and commercial banking. Senior executives representing HDFC are also on the Board. Senior banking professionals with substantial experience in India and abroad head various businesses and functions and report to the Managing Director. Given the professional expertise of the management team and the overall focus on recruiting and retaining the best talent in the industry, the bank believes that its people are a significant competitive strength.
SBI :
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According to PM Network, State Bank of India launched a project in 2002 to network more than 14,000 domestic and 70 foreign offices and branches. The first and the second phases of the project have already been completed and the third phase is still in progress. As of December 2006, over 10,000 branches have been covered.The new infrastructure serves as the bank's backbone, carrying all applications, such as the IP telephone network, ATM network, Internet banking and internal email. The new infrastructure has enabled the bank to further grow its ATM network with plans to add another 3,000 by the end of 2008 raising the total number to 8,600.
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MAJOR FINDINGS
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MAJOR FINDINGS
Major Macro Economic Factors include Gross Domestic Product which has grown by over 8% in 2005-06, FDI Confidence Index where India stands II in the world, Inflation which has slow down due to falling crude prices, Gross Fiscal Deficit Interest Rate the UPA government is confident to achieve the budgeted targets, Rising Oil prices & Exchange Rate Indian government and oil companies are relax as oil prices have fallen beside Indian Rupee has strengthen against USD, EURO and Yen and Capital Market the year is booming for market with FII and mutual fund are pumping money increasing BSE Sensex returns over 50%. In June 2006, Indian Banking System is spread through 66000 branches with an asset base of about $270 billion. There are 87 Scheduled Commercial Banks operating in India including 8 Bank of SBI & Associates, 20 Nationalized Banks, 29 Private Banks and 30 Foreign Banks. In terms of asset size, public sector banks have highest base compared to private and foreign banks. SBI & Associated have asset base of Rs.691872 cr. Bank group-wise, new private sector banks grew at the highest rate during 2005-06 (43.2 per cent), followed by foreign banks (31.2 per cent), public sector banks (13.6 per cent) and old private sector banks (12.2 per cent). As a result, the relative significance of PSBs declined significantly with their share in total assets of SCBs declining to 72.3 per cent at end-March 2006 from 75.3 per cent at end-March 2005, while that of new private sector banks increasing to 15.1 per cent from 12.5 per cent. Credit to the priority sector increased by 33.7 per cent in 2005-06 as against 40.3 per cent in the previous year. The agriculture and housing sectors were the major beneficiaries, which together accounted for more than two-third of incremental priority sector lending in 2005-06. Credit to small scale industries also accelerated. Retail loans, which witnessed a growth of over 40.0 per cent in 2004-05 and again in 2005-06, have been the prime driver of the credit growth in recent years. Retail loans as a percentage of gross advances increased from 22.0 per cent in March 2004 to 25.5 per cent in March 2006.
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Micro-Economic Factors affecting Banking Industry: Some of Micro-Economic factors identified in the report are: Loan Demand in which the Indian Banking Industry has seen sustained strength in credit growth (a 30% increase in Oct 2006, of which 58% growth has seen in service sector and 100% in real estate sector). Rising funding costs with soft lending rates Deposits has seen a growth of 22% of which household savings contribute to 43%, credit spread increase to 3.3% and Yield on government bonds reduced to 7.75% due to rising interest cost Non Performing Loans (NPLs) - The Total bank loans stood at Rs 15,231.7bn, of which housing loans are Rs. 1719.2bn. However, the Industrys share of total credit has dropped to 40% Technology - Indian banks still dont have the robust systems required for efficient functioning of online banking and Banks need to explore newer channels such as SMS, WAP and 3G mobile telephony applications to facilitate online access to customers.
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conclusion
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CONCLUSION
The project involves valuation of major Indian Banks including ICICI Bank, SBI and HDFC Bank. The methodology followed is Target Pricing, which including estimating growth rate by regression on historical sales to forecast next year sales, earning and Profit and Loss account. Then EPS is calculated which is multiplied to Historical P/E to forecast intrinsic value of share. All shares are undervalued and expected to give positive risk adjusted returns to investors. Since the intrinsic value is more than current market price for all the companies, the share can be recommended to conservative investors.
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BIBLIOGRAPH Y
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BIBLIOGRAPHY
Company Reports Government of India, 1998, Report of the Committee on Banking Sector Reforms Government of India, 1991, Report of the Committee on the Financial System IMF Working Paper - Competition in Indian Banking by A. Prasad and Saibal Ghosh Indian Banks Association, Various Years, Performance Highlights of Banks (Mumbai). Indian Banking Association Ministry of commerce and Industry Reserve Bank of India, 2008, Annual Policy Statement for the year 2007-08 (Mumbai). Reserve Bank of India (a), Various Years, Report on Trend and Progress of Banking in India (Mumbai). Reserve Bank of India (b), Various Years, Statistical Tables Relating to Banks in India (Mumbai).
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