PROJECT REPORT ON FINANCIAL ANALYSIS OF BANKING INDUSTRY
SUBMITTED TO,
Prof. Svetlana Tatuskar
SUBMITTED BY, Mukta Agarwal (PG-10-01) Girish Changani (PG-10-09) Apeksha Gohil (PG-10-16) Amit Hiranandani (PG-10-019) Gaurav Rastogi (PG-10-39) Renu Tari (PG-10-50)
1
INDEX Sr No.
Topics
Page no.
1.
Executive Summary
3
2.
Banking Industry in India
4
3.
Top Players in Banking Industry
7
4.
ICICI Bank Background & History
8
5.
Banking products and services
11
6.
Capital Structure
14
7.
Balance sheet & P/L interpretation
15
8.
CAMEL Ratios & Interpretation
20
9.
Recommendations
28
10.
Important News
30
11.
References
33
2
INDEX Sr No.
Topics
Page no.
1.
Executive Summary
3
2.
Banking Industry in India
4
3.
Top Players in Banking Industry
7
4.
ICICI Bank Background & History
8
5.
Banking products and services
11
6.
Capital Structure
14
7.
Balance sheet & P/L interpretation
15
8.
CAMEL Ratios & Interpretation
20
9.
Recommendations
28
10.
Important News
30
11.
References
33
2
Executive Summary
The pace of development for the Indian banking industry has been tremendous over the past decade. As the world reels from the global financial meltdown, India¶s Ind ia¶s banking sector has been one of o f the very few to actually maintain resilience while continuing to provide gro wth opportunities, a feat unlikely to be matched by other developed markets around the world. FICCI conducted a survey on the Indian Banking Industry to assess the competitive advantage off o ffered ered by the banking ba nking sector, as well as the policies po licies and structures required to further stimulate the pace of growth.
1. A majority of the respondents, almost 69% of o f them, felt that the Indian banking Industry was in a very good to excellent shape, with a further 25% feeling it was in good shape and only 6.25% of the respondents feeling that the performance of the industry was just average.
2. This optimism is reflected in the fact that 53.33% of respondents were confident in a growth rate o f 1520% for the banking industry in 2009-10 and a greater than 20% growth rate for 2014-15.
3. Some of the major strengths of the Indian Ind ian banking industry, which makes it resilient in the current economic climate as highlighted by our survey were regulatory system (93.75%), economic growth (75%), and relative insulation from external market (68.75%). (6 8.75%).
4. Respondents perceived ever rising customer expect ations and risk management as the greatest challenge for the industry in the current climate. c limate.
5. 93.75% of our respondents r espondents saw expansion of operations as important in the future, with branch expansion and strategic alliances the most important organic and inorganic means for global expansion respectively.
6. An overwhelming 80% of respondents admitted that the primary strength of NBFCs over banks lies in their ability to provide reach to the t he last mile and were also a lso were unanimous in the need to strengthen NBFCs further.
7. Further, 81.25% also felt that there was further scope for new entrants in the market, as there continue to remain opportunities in unbanked areas. However, 57.14% felt that NBFCs may be allowed to be 3
established as banking institutions but only if adequat e capitalization levels, a tiered license that enables new entrants to enter into specific areas of the business only after satisfactorily achieving set milestones for the prior stages, cap on promoter's holdings and other regulatory limitations are ensured.
Banking Industry in India Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790; both are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India.
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Nationalization Despite
the provisions, control and regulations of Reserve Bank of India, banks in India except the State Bank
of India or SBI, continued to be owned and operated by private persons. By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued about the nationalization of the banking industry. Indira Gandhi, then Prime Minister of India, expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The meeting received the paper with enthusiasm.
Thereafter, her move was swift and sudden. The Government of India issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval on 9 August 1969. A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the Government of India controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the o nly merger between nationalized banks and resulted in the reduction of the number of nationalized banks from 20 to 19. After this, until the 1990s, the nationalized banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy. 5
Some insights about Banking Industry The growth in the Indian Banking Industry has been more qualitative than quantitative and it is expected to remain the same in the coming years. Based on the projections made in the "India Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the report forecasts that the pace of expansion in the ba lancesheets of banks is likely to decelerate. The total assets of all scheduled commercial banks by end-March 2010 is estimated at Rs 40,90,000 crores. That will comprise about 65 per cent of GDP at current market
prices as compared to 67 per cent in 2002-03. Bank assets are expected to grow at an annual composite rate of 13.4 per cent during the rest of the decade as against the growth rate of 16.7 per cent that existed between 1994-95 and 2002-03. It is expected that there will be large additions to the capital base and reserves on the liability side.
The Indian Banking Industry can be categorized into non-scheduled banks and scheduled banks. Scheduled banks constitute of commercial banks and co-operative banks . There are about 67,000 branches
of Scheduled banks spread across India. As far as the present scenario is concerned t he Banking Industry in India is going through a transitional phase.
The Public Sector Banks (PSBs), which are the base of the Banking sector in India account for more than 78 per cent of the total banking industry assets . Unfortunately they are burdened with excessive Non
Performing assets (NPAs), massive manpower and lack of modern techno logy. On the other hand the Private Sector Banks are making tremendous progress. They are leaders in Internet banking, mobile banking, phone banking, ATMs. As far as foreign banks are concerned they are likely to succeed in the Indian Banking Industry.
In the Indian Banking Industry some o f the Private Sector Banks operating are IDBI Bank, ING Vyasa Bank,SBI Commercial and International Bank Ltd, Bank of Rajasthan Ltd. and banks from the Public Sector include Punjab National bank, Vijaya Bank, UCO Bank, Oriental Bank, Allahabad Bank among others. ANZ Grindlays Bank, ABN-AMRO Bank, American Express Bank Ltd, Citibank are some of the foreign banks operating in the Indian Banking Industry.
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Top Players in Banking Industry
Market Capitalization Bank Name
(Rs. In Cr.)
State Bank Of India
168,064.95
ICICI Bank
119,868.81
HDFC Bank
53,884.33
Punjab National Bank
34,997.00
Bank Of Baroda
32,864.80
Axis Bank
31,830.31
Canara Bank
24,852.15
Bank Of India
23,618.62
Union Bank Of India
16,482.00
IDBI
13,261.63
State Bank of India Tops the charts in banking industry followed by ICICI Bank as per Market Capitalization
7
ICICI BANK (INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA)
8
ICICI Bank is a major banking and financial services organization in India. It is the second largest bank in
India and the largest private sector bank in India by market capitalization. The bank also has a network of 2,016 branches (as on 31 March 2010) and about 5,219 ATMs in India and presence in 18 countries, as well as some 24 million customers (at the end of July 2007). ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and specialization subsidiaries and affiliates in the areas of investment banking, life and non- life insurance, venture capital and asset management. (These data are dynamic.) ICICI Bank is also the largest issuer of credit cards in India. ICICI Bank's shares are listed on the stock exchanges at BSE, NSE, Kolkata and Vadodara (formerly Baroda) ; its ADRs trade on the New York Stock Exchange (NYSE). The Bank is expanding in overseas markets and has the largest international balance sheet among Indian banks. ICICI Bank now has wholly owned subsidiaries, branches and representatives offices in 19 countries, including an offshore unit in Mumbai. This includes wholly owned subsidiaries in Canada, Russia and t he UK, offshore banking units in Bahrain and Singapore, an advisory branch in Dubai, branches in Belgium, Hong Kong and Sri Lanka, and representative offices in Bangladesh, China, Malaysia, Indonesia, South Africa, Thailand, the United Arab Emirates and USA. Overseas, the Bank is targeting the NRI (Non-Resident Indian) population in particular.
HISTORY OF ICICI Bank In 1955, The Industrial Credit and Investment Corporation of India Limited (ICICI) was incorporated at the initiative of World Bank, the Government of India and representatives of Indian industry, with the objective of creating a development financial institution for providing medium-term and long-term project financing to Indian businesses. In 1994, ICICI established Banking Cor poration as a banking subsidiary. Formerly known as Industrial Credit and Investment Corporation of India, ICICI Banking Corporation was later renamed as 'ICICI Bank Limited'. ICICI founded a separate legal entity, ICICI Bank, to undertake normal banking o perations taking deposits, credit cards, car loans etc. In 2001, ICICI acquired Bank of Madura (est. 1943). Bank of Madura was a Chettiar bank, and had acquired Chettinad Mercantile Bank (est. 1933) and Illanji Bank (established 1904) in the 1960s. In 2002, The Boards of Directors of ICICI and ICICI Bank approved the reverse merger of ICICI, ICICI Personal Financial Services Limited and ICICI Cap ital Services Limited, into ICICI Bank. After receiving all necessary regulatory approvals, ICICI integrated the group's financing and 9
banking operations, both wholesale and retail, into a single entity. At the same t ime, ICICI started its international expansion by opening representative offices in New York and London. In India, ICICI Bank bought the Shimla and Darjeeling branches that Standard Chartered Bank had inherited when it acquired Grindlays Bank. In 2003, ICICI opened subsidiaries in Canada a nd the United Kingdom (UK), and in the UK it established an alliance with Lloyds TSB. It also opened an Offshore Banking Unit (OBU) in Singapore and representative offices in Dubai and Shanghai. In 2004, ICICI opened a representative office in Bangladesh to tap the extensive trade between that country, India and South Africa. In 2005, ICICI acquired Investitsionno-Kreditny Bank (IKB), a Russia bank with about US$4mn in assets, head office in Balabanovo in the Kaluga region, and with a branch in Moscow. ICICI renamed the bank ICICI Bank Eurasia. Also, ICICI established a branch in Dubai International Financial Centre and in Hong Kong. In 2006, ICICI Bank UK opened a branch in Antwerp, in Belgium. ICICI opened representative offices in Bangkok, Jakarta, and Kuala Lumpur. In 2007, ICICI amalgamated Sangli Bank, which was headquartered in Sangli, in Maharashtra State, and which had 158 branches in Maharashtra and another 31 in Karnataka State. Sangli Bank had been founded in 1916 and was particularly strong in rural areas. With respect to the international sphere, ICICI also received permission from the government of Qatar to open a branch in Doha. Also, ICICI Bank Eurasia opened a second branch, this time in St. Petersburg. In 2008, The US Federal Reserve permitted ICICI to convert its representative office in New York into a branch. ICICI also established a branch in Frankfurt. In 2009, ICICI made huge changes in its organisation like elimination of loss making department and re streching outsourced staff or renegotiate their charges in consequent to the recession. In addition to this, ICICI adopted a massive approach aims for cost control and cost cutting. In consequent of it, compensation to staff was not increased and no bonus declared for 2008-09. On 23 May ICICI Bank announced that it would merge with Bank of Rajasthan through a share-swap in a noncash deal that values the Bank of Rajasthan at about 3,000 crore. ICICI announced that the merger expand ICICI Bank's branch network by 25%.
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ICICI¶s Banking Products & Services ICICI Bank offers variegated services to individual and co rporate clients through its delivery channels, affiliates and subsidiaries. Together with commercial banking services, t his bank provides insurance, asset management, venture capital and investment banking services.
Products and services Services and products of ICICI Bank may be categorized into personal banking, business banking, and NRI (non-resident Indian) banking.
1) Personal banking -
Deposits
in form of savings, recurring, term deposits, senior citizen deposits and
children's depository accounts are there for individual customers. Individual customers can also avail of their housing, automobile, farm equipment, business or personal loan schemes. Personal clients can also invest in mutual funds, or participate in stock trading through ICICI Bank. Deposits
ICICI Bank offers wide variety of Deposit Products to suit your requirements. Convenience of networked branches/ ATMs and facility of E-channels like Internet and Mobile Banking, Select any of our deposit products and provide your details online and our representative will contact you. . Loans ICICI Bank offers wide variety of Loans Products to suit your requirements. Coupled with convenience of networked branches/ ATMs and facility of E-channels like Internet and Mobile Banking, ICICI Bank brings banking at your doorstep. Select any of our loan product and provide your details online and our representative will contact you for getting loans. .
C ards
ICICI Bank offers a variety of cards to suit your different transactional needs. Our range includes Credit Cards, Debit
Cards and Prepaid cards. These cards offer you convenience for your financial transactions like cash
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withdrawal, shopping and travel. These cards are widely accepted both in India and abroad. Read on for details and features of each. . Wealth Management Wealth is the result of a recognized opportunity. We understand this and we work with you to plan and manage your financial opportunities prudently. Not just that, we also extend a host of services so you can remain focused on immediate objectives while we take care of all your wealth management requirements. 2) Business banking
±
Business banking services of ICICI Bank are exhaustive. Project financing, deal
assessment, and land evaluation are investment banking services offered to corporate clients. Global trade and cash management transaction services facilitate remittances and receipts across important cities. Capital market and custodial services enable business houses to participate in equity trading and transfer across major stock markets of world.
Current Account
Get the most powerful Current Account to work for your business. Business Loans
Nothing should limit a growing business. As an entrepreneur, we know how valuable is time and money for you. This is why we offer our support to your company through Business Loans.
Forex
Fluctuations in interest and exchange rates and the price of essential materials can rapidly turn a profitable deal into a loss. To be prepared, you need a partner with proven expertise in international trade and finance. Trade
Letter of Credit, Bank Guarantee, Export Bill Negotiation, Export Finance, Import Finance and Escrow Account. There's a lot you can gain from ICICI Bank. Cash Management Services
ICICI Bank's Cash Management Services helps you make optimum use of your working capital, leveraging the float between faster collections and just-in-time payments.
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3) NRI BANKING Money Transfer
Send money to India through ICICI Bank's complete range of international money transfer services.
Bank Accounts
A perfect solution for the global Indian, ICICI Bank's power-packed and feature-rich bank account for NRIs meets all your banking needs. Investments Be it international or domestic mutual funds, online share trading, structured deposits, private equity or commercial real estate, ICICI Bank offers a range of investment products specially designed for the global Indians. Property Solutions Avail expert advice when you buy a new home. I nsurance
Thinking about securing your family's needs back home? ICICI Bank's insurance products can help you do just that. Loans
Avail loan facility against your deposits.
Apart from these products ICICI has launched new products and services called as ³11@11 ± Experience the next level of technology in banking ³ It includes:
Internet banking with additional features:
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ATM services:
Mobile Banking:
Capital Structure (Rs. in crores)
From the table above we can interpret that ICICI Bank share capital has increased from 1113.25 crore to 1114.85 crore in 2008-09 to 2009-10 respectively.
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OPERTATING RESULT DATA
INTERPRETATION OF P/L A/C
1. Profit before provisions and tax increased by 9.0% from Rs. 89.25 billion in fiscal 2009 to Rs. 97.32 billion in fiscal 2010, this is because due to increase in non lending activities. 2. Provisions and contingencies (excluding provision for tax) increased by 15.2% from Rs. 38.08 billion in fiscal 2009 to Rs. 43.87 billion in fiscal 2010 due to a higher level of specific provisioning on non performing retail loans and restructured corporate loans. Profit before tax increased by 4.5% from Rs. 51.17 billion in fiscal 2009 to Rs. 53.45 billion in fiscal 2010. 3. Profit after tax increased by 7.1% from Rs. 37.58 billion in fiscal 2009 to Rs. 40.25 billion in fiscal 2010.
4. Net interest income decreased by 3.0% from Rs. 83.67 billion in fiscal 2009 to Rs. 81.14 billion in fiscal 2010, primarily may be due to a decrease in average interest-earning assets. 15
5. Non-interest income decreased by 1.6% from Rs. 76.03 billion in fiscal 2009 to Rs. 74.78 billion in fiscal 2010, may be due to a decrease in fee income. 6. Non-interest expense decreased by 16.8% from Rs. 70.45 billion in fiscal 2009 to Rs. 58.60 billion in fiscal 2010, due to a decrease in direct marketing agency expenses from Rs. 5.29 billion in fiscal 2009 to Rs. 1.25 billion in fiscal 2010 and a reduction in salary and other operating expenses from Rs. 65.16 billion in fiscal 2009 to Rs. 57.35 billion in fiscal 2010 on account of overall cost reduction initiatives undertaken by the bank. 7. Other administrative expenses decreased by 17.5% from Rs. 38.64 billion in fiscal 2009 to Rs. 31.87 billion in fiscal 2010 due to overall cost reduction initiatives undertaken by the bank. There was a reduction in expenses on account of printing and stationery, advertisement and publicity and postage and communication expenses in fiscal 2010 as co mpared to fiscal 2009. 8. They use marketing agents, called direct marketing agents or associates, for sourcing retail assets. They include commissions paid to these direct marketing agents of their retail assets in non-interest expense. Due to lower retail disbursements and lower issuance o f new credit cards, direct marketing agency expenses decreased by 76.4% from Rs. 5.29 billion in fiscal 2009 to Rs. 1.25 billion in fiscal 2010. 9. The depreciation of company has reduced from 2.10 billion in 2009 to 1.42 billion in 2010. The percentage change in depreciation is (32.4%).
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FINANCIAL CONDITION ( BALANCE SHEET)
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INTERPRETATION OF BALANCE SHEET
1. The total asset has decreased by 4.2% from Rs. 3,793.01 billion at year-end fiscal 2009 to Rs. 3,634.00 billion at year-end fiscal 2010. 2. Net advances decreased by 17.0% from Rs. 2,183.11 billion at year-end fiscal 2009 to Rs. 1,812.06 billion at year-end fiscal 2010. 3. Total investments increased by 17.3% from Rs. 1,030.58 billion at year-end fiscal 2009 to Rs. 1,208.93 billion at year-end fiscal 2010 primarily due to an increase in non-SLR investments by Rs. 128. 18 billion and investments in government and ot her approved securities by Rs. 50.17 billion. 4. Equity share capital and reserves increased from Rs. 495.33 billion at year-end fiscal 2009 to Rs. 516.18 billion at year-end fiscal 2010 primarily due to annual increase to reserves out of profits. 5. Total deposits decreased by 7.5% from Rs. 2,183.48 billion at year-end fiscal 2009 to Rs. 2,020.17 billion at year-end fiscal 2010 may be due to their strategy. Term deposits decreased from Rs. 1,556.80 billion at year-end fiscal 2009 to Rs. 1,178.01 billion at year-end fiscal 2010. Savings account deposits increased from Rs.410.36 billion at year-end fiscal 2009 to Rs. 532.18 billion at year-end fiscal 2010 and current account deposits increased from Rs. 216.32 billion at year-end fiscal 2009 to Rs. 309.98 billion at year-end fiscal 2010.
6. Borrowings increased from Rs. 931.55 billion at year-end fiscal 2009 to Rs. 942.64 billion at year-end fiscal 2010 may be due to on account of new capital-eligible borrowings. 7. Other liabilities and provisions have decreased by 64.57 %.
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Methodology: The present study of Banks is based on CAMEL Methodology, which evaluates each and every component that is of prime importance from the functioning of the Bank¶s perspective. The model examines the efficiency of banks among these important parameters like Capital Adequacy, Asset Quality, Management, Earnings Quality and Liquidity of Indian Banks which are categorized into Indian Public Sector Banks and Indian Private Sector Banks. Finding & Analysis:
Camel Model
I) Capital Adequacy
Capital adequacy reflects the overall financial position of a bank and also the ability of the management to meet the need for additional capital requirement.
A) Capital Ad equacy Ratio (C A R )
CAR reflects the ability of a bank to deal with probable loan defaults. The RBI guidelines stipulate banks to maintain a CAR of minimum 9%. It is arrived at by dividing the Tier I and Tier II capital by risk-weighted assets. Tier I capital includes equity capital and free reserves. Tier II capital comprises subordinated debt of 57 year tenure. The stronger will be the bank if the CAR is higher.
TIER 1 CAPITAL -A) Equity Capital, B) Disclosed Reserves TIER 2 CAPITAL -A) Undisclosed Reserves, B)General Loss reserves, C)Subordinate T erm Debts Where Risk can
either
be
weighted assets ( )
or
the
respective national
regulator's minimum
total capital requirement
B ) Debt-Equity Ratio (D/E ) Debt-Equity
Ratio is arrived at by dividing the total borrowings and deposits by shareholders¶ net worth, which
includes equity capital and reserves and surpluses.
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The Debt to Equity ratio is used for measuring solvency, and researching the capital structure of the company. It indicates how much the company is leveraged (in debt) by comparing what is owed to what is owned. In other words it measures the company¶s ability to borrow and repay money. The debt to equity ratio is closely watched by creditors and investors, because it reveals the extent to which company management is willing to fund its operations with debt, rather than equity.
C ) Ad vances to Assets ( A DV/ A ST )
This is the ratio of the Total Advances to Total Assets. Total Advances also include receivables. The value of Total Assets excludes the revaluations of all the assets.
Interpretation: BANK NAME
SBI ICICI Bank
Capital Adequacy (2010)
Capital Adequacy (2009)
Capital Adequacy Ratio (%) 13.39
DebtEquity Ratio 1.51
Advances to Asset Ratio (%) 60
Capital Adequacy Ratio (%) 12.97
DebtEquity Ratio 1.45
Advances to Asset Ratio (%) 56.52
19.14
1.85
62
15.92
1,86
57.47
Capital Adequacy Ratio: As we can see from the table above, SBI¶s CAR is increased from 12.97% in 2009 to 13.39% in 2010 which seems to be good but ICICI Bank¶s CAR has increased from 15.92% in 2009 to 19.14% in 2010, which is far better than SBI. The minimum CAR which banks have to maintain is 9% as per RBI¶s Guidelines. Both the banks have maintained CAR above 9%. ICICI Bank has better ability to deal with probable loan defaults. Hence ICICI is better as far as CAR is concerned. Debt-Equity
Ratio: The Debt-Equity ratio of SBI is 1.45 in 2009 as compared to 1.51 in 2010 while ICICI Bank has 1.86 in 2009 as compared to 1.85 in 2010. The debt-equity ratio should be as low as possible. Here we can say that the borrowings of the SBI are less than their deposits are concerned, which is a good sign. We can interpret from the ratio that the SBI is better than ICICI Bank mainly in terms of debt-equity ratio because of lower borrowings and high deposits. Advances to Asset Ratio: An advance to Assets ratio is reflects a bank¶s positions and risk taking ability in lending funds. A higher Advances/Asset ratio shows that the bank is aggressively lending fund and vice versa. A general perception has been that private sector banks are more aggressive lenders as compared to their public sector counterparts. In the table above, we can say that the SBI¶s Advances to Asset Ratio has increased from 56.52% in 2009 to 60% in 2010 while ICICI Bank¶s Ratio has increased fro m 57.47% to 62%. It is clear that ICICI Bank has high risk taking ability, Hence ICICI Bank is better in Advances to Asset Ratio as far is SBI is concerned.
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II) Asset Quality
The asset quality is to ascertain the proportion of non-performing assets as a percentage of the total assets .It also ascertains the NPA movement and the amount locked up in investments as a percentage of the total assets.
How to calculate NPAs:
Gross NPA ± (Balance in Interest Suspense account + DICGC/ECGC claims received and held pending adjustment + Part payment received and kept in suspense account + Total provisions held).
A. Net NP A s to Total A ssets (NNP A s/T A)
It is a measure of the quality of assets in a situation where the management has not provided for loss on NPAs. B. Net NPAs to Net Advances (NNPAs/NA)
Net NPAs are Gross NPAs net of provisions on NPAs and suspense account. C . Percentage change in Net NPAs
This measure gives the movement in Net NPAs in relation to Net NPAs in the previous year. The higher the reduction in Net NPA levels, the better it is for the bank.
Interpretation:
BANK NAME
SBI ICICI Bank
Asset Quality (2010)
Asset Quality (2009)
Net NPAs to Total Assets 1.72
Net NPAs to Net Advances (%) 1.72
Percentage change in Net NPAs (%) 13.8
Net NPAs to Total Assets 0.99
Net NPAs to Net Advances (%) 1.76
Percentage change in Net NPAs (%) 28.66
0.1
2.12
15.65
1.2
2.09
30.46
Asset Quality: An NPA (Non Performing Assets) is an asset, including a leased asset, becomes non-performing when it ceases to generate income from the bank. The Net NPAs to Total Assets ratio indicates us how much Non Performing Assets the bank has to their Total Assets in balance sheet. It is believed that lower the better for the banks in the case of Asset Quality Ratios. 21
The Net NPAs to Total Assets of SBI has increased from 0.99 to 1.72 in 2009 and 2010 respectively which is not a good indication for the bank while ICICI Bank has successfully reduced its Net NPAs to Total Assets from 1.2 to 0.1 in 2009 and 2010 respectively. The Net NPAs to Net Advances Ratio indicates how much Non-performing assets the bank has to their Total Advances. The Net NPAs to Net Advances (%) is reduced from 1.76% to 1.72% for SBI while the Net NPAs to Net Advances (%) for ICICI Bank has increased a bit from 2.09 to 2.12 in 2009 and 2010 respectively. Here SBI is better than ICICI Bank in maintaining their NPAs to Net Advances (%) are concerned. Here the ICICI Bank ratio has increased mainly either because o f higher NPAs or lower Net Advances as compared to their previous year. The Third Ratio i.e. Percentage change in Net NPAs for SBI is 13.8% in year 2009-10 while the Percentage change in Net NPAs for ICICI Bank is 15.65%. Here it indicates that SBI has increased its NPAs by 13.8% from the previous year while ICICI Bank has increased its NPAs by 15.65% from the previous year. Hence we can say SBI is better than ICICI Bank as far as controlling of Increase in NPAs o n a yearly basis.
III) Management Efficiency
Refers to the efficiency of the Management in managing the bank, in all the ratios higher the better: A Total Advances to Total Deposits (T A /TD )
This ratio measures the efficiency of the management in converting the deposits available with the bank (excluding other funds like equity capital, etc.) into advances.
B Profit per Employee (PPE )
This measures the efficiency of the employee. It is arrived at by dividing the net profit of the bank by total number of employees. Higher the ratio means higher the efficiency of the management.
C Return on Net Worth (RoNW )
It is a measure of the profitability of a bank. The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. ROE is expressed as a percentage and calculated as: Return on Equity = Net Income/Shareholder¶s Equity
Net income is for the full fiscal year (before dividends paid to common stock holders but after dividends to preferred stock). Shareholder¶s equity does not include preferred shares. It is also known as ³Return on net worth´ (RONW). 22
Interpretation:
BANK NAME
SBI ICICI Bank
Management Efficiency (2010) Total Advances to Profit Per Total Employee Return on Deposits (Rs.in Net Worth (%) Crore) (%) 78.58 0.02 15.45
89.7
0.11
7.79
Management Efficiency (2009) Total Advances Profit Per to Total Employee Return on Deposits (Rs.in Net Worth (%) Crore) (%) 73.1 0.02 15.74
99.98
0.11
6.97
From the table above, we can say that ICICI Bank is better able to convert its Advances to
Deposits
while SBI
Bank has not done really well in this ratio from 2009 to 2010. But ICICI Bank is having an edge over SBI in this ratio. The Ratio of Total Advances to Total Deposits (%) has increased by 73.1% in 2009 to 78.58% in 2010 for SBI while ICICI Bank¶s Total Advances to Total Deposits was 99.98% in 2009 which is reduced to 89.7% in 2010.
Profit per employee of SBI is far lower than ICICI Bank mainly because of huge no. of employees in SBI as compared to ICICI Bank. The profit per employee of SBI is 0.02 in 2009 as well as in 2010 but the profit for employee of ICICI Bank is 0.11 in both the years.
Return on net worth is definitely higher by good margin of SBI, but the SBI¶s return on Net worth is reduced a bit from 15.74% in 2009 to 15.45% in 2010 while the ICICI Bank has increased its Return on Net worth from 6.97% in 2009 to 7.79% in 2010.
On the whole we can say that except for profit per employee (because of Huge No. of Branches & Employees for SBI) SBI tops in the management efficiency from ICICI Bank.
IV) Earnings Efficiency:
Much of a bank¶s income is earned through non-core activities like investments, treasury operations, and corporate advisory services and so on.
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A Percentage Growth in Net Profit
It is the percentage change in net profit over the previous year.
B Net I nterest Margin (N I M )
Net Interest Margin (NIM) is defined as the difference between interest earned and interest expended as a proportion of average total assets. Interest income includes dividend income. Interest expended includes interest paid on deposits, loans from RBI, and other short-term and long-term loans.
C Non-interest I ncome/Working Funds (N II /WF )
This measures the income from operations other than lending as a percentage of working funds. Working funds: These are total resources (total liabilities or total assets) of a bank as on a particular date. Total
resources include capital, reserves and surplus, deposits, borrowings, other liabilities and provision. A high AWF (Avg. Working Fund) shows a bank¶s total resources strength. There is a school of theory which maintains that working funds are equal to aggregate deposits plus borrowing. However, more pragmatic view in consonance with capital adequacy calculations is, to include all resources and not just deposits and borrowings.
Interpretation: BANK NAME
SBI ICICI Bank
Earnings Efficiency (2010) Percentage Net Growth in Interest Non Interest Net Profit Margin Income/Workin (%) (%) g Fund (%) 49 2.33 1.43
1.08
1.93
2.09
Earnings Efficiency (2009) Percentage Growth in Non Interest Net Profit Net Interest Income/Workin (%) Margin (%) g Fund (%) 35.55 2.93 1.45
-15.91
2.66
1.98
A bank¶s earnings quality reflects its profitability and sustainability of the same. From the table above, we can directly say that the Earning Efficiency of SBI has increased while the earning efficiency of ICICI Bank came to positive from negative year earlier. The Percentage growth in Net Profit of SBI has increased from 35.55% in 2009 to 49% 2010. While ICICI Bank¶s profitability which was negative (-15.91%) in 2009 has performed bit better to 1.08% this year i.e. 2010. We can say that SBI Bank for the year 2010 is better from ICICI Bank.
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Net Interest Margin (NIM) is basically Interest Earned minus Interest Expended on the proportion of Total Assets. The NIM (%) of both the companies has reduced from 2009 to 2010. The NIM (%) of SBI is reduced from 2.93% in 2009 to 1.43% in 2010 while ICICI Bank¶s NIL (%) is reduced from 2.66% in 2009 to 1.93% in 2010. It is clear that the interest earned by these banks is reduced or we can say the interest expended on deposits and borrowings has increased due to this the NIM (%) has reduced.
The non interest income is the income which is earned by the bank other than lending (core) activity. The Non interest income/working fund (%) ratio measures the income from operations other than lending as a percentage of working funds. From the table above, we can interpret that SBI¶s Non Interest Income/Working Fund (%) is reduced from 1.45% in 2009 to 1.43% in 2010 while ICICI Bank¶s Non Interest Income/Working Fund (%) is increased from 1.98% in 2009 to 2.09% in 2010. This is mainly because ICICI is concentrating also on Merchant Banking, Investment Banking, Private Equity, and Underwriter more than the SBI. On the whole SBI is a clear winner as far as Non Interest Income/Working Fund (%) is concerned.
V) Liquidity:
A Liquid A ssets/Demand Deposits (L A /DD )
This account allows you to "demand" your money at any time, unlike a term deposit, which cannot be accessed for a predetermined period (the loan's term). This ratio measures the ability of a bank to meet the demand from demand deposits in a particular year. Higher ratio is better for banks. A demand deposit or bank money refers to the funds held in demand deposit accounts in commercial banks. These account balances are usually considered money and form the greater part of the money supply of a country.
B Liquid A ssets/Total A ssets (L A /T A) Liquid Assets include cash in hand, balance with RBI, balance with other banks (both in India and abroad), and money at call and short notice. The ratio is arrived by dividing liquid assets by total assets. Higher the ratio better it is. C G-secs/Total A ssets (G-Sec/T A)
This ratio measures the proportion of risk-free liquid assets invested in G-Secs as a percentage of the assets held by a bank and is arrived at by dividing liquid assets by total assets. Higher ratio indicates well for the bank.
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Interpretation:
BANK NAME
SBI ICICI Bank
Liquidity (2010)
Liquidity (2009)
Liquid Assets/Demand Deposits (%) 78
Liquid Assets/Total Assets (%) 9
GSecs/Total Assets (%) 22
125
11
19
Liquid Assets/Demand Deposits (%) 94.27
Liquid Assets/Total Assets (%) 10.82
GSecs/Total Assets (%) 23.46
138.53
13.55
16.71
Liquidity is the ability of the bank to meet its financial obligations. A high liquidity ratio indicates a bank¶s comfort level vis-à-vis its ability to manage its obligations, both short-term as well as long-term. Liquidity of a bank can be measured using metrics such as Liquid Assets (LA) to Total Deposits (TD) and LA to Total Assets (TA), G-Sec to Total Assets, etc. In Demand Deposit basically the customer can withdraw the money without any prior notice to depository, it is exactly opposite of term deposit where customer has to give proper notice, and follow the procedure to break the term deposit. We can see from the table that the liquid assets to demand deposits (%) of SBI have reduced from 94.27% to 78% in 2009 and 2010 respectively. The thing is same with ICICI Bank where the liquid assets to demand deposits (%) are reduced from 138.53% to 125% 2009 and 2010 respectively. We can say ICICI Bank is able to maintain its liquid assets are to demand deposits in greater percentage than SBI. ICICI Bank has maintained higher Liquid Assets to Total Assets (%) than SBI. But as we can see from the table that both the companies ratio is decreasing from year 2009 to 2010. SBI has reduced the figure from 10.82% in 2009 to 9% in 2010 while ICICI Bank has reduced this figure from 13.55% to 11%. Here ICICI Bank has an edge over SBI as higher the better.
The liquid assets kept by ICICI Bank is more as compared from the last year, it seems that ICICI Bank is more conservative than SBI from year 2009 to 2010. SBI has reduced the fund kept in G-Secs from 2009 to 2010 while ICICI Bank has increased the fund in risk free assets. This show ICICI Bank is conservative. Still SBI has maintained an edge over ICIC Bank as far as this ratio is concerned.
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Recommendations
Winner of CA MEL Ratios CAMEL Ratios
Winner
CAR
ICICI Bank
Debt-Equity
SBI
Advances to Assets Ratio
ICICI Bank
Net NPAs to Total Assets
ICICI Bank
Net NPAs to Net Advances
SBI
Percentage Change in Net
NPAs
SBI
Total Advances to Total Deposits
ICICI Bank
Profit per Employee
ICICI Bank
Return on Net Worth
SBI
Percentage Growth in Net Profit
ICICI Bank
Net Interest Margin
SBI
Non Interest Income/Working Fund (%)
ICICI Bank
Liquid Assets to Demand Deposits
ICICI Bank
Liquid Assets to Total Assets
ICICI Bank
G-Secs to Total Assets
SBI
Though the bank has been successful in increasing its deposits but to further improve upon such situation it can introduce some new and attractive schemes for public. Such schemes can be in the form of higher rate of interest and shorter maturity period for FD¶s etc.
Net interest is increasing in 2009 but decreasing in 2010. Thus there is no stability in growth of company. Company should reduce or make it competitive the interest on loans to make it attractive. 27
The bank is having a greater reliance on debt capital. The increasing reliance on external equities may prove hazardous in the long run. So in order to remedy this situation bank should increase its focus on internal equities and other sources of internal financing.
To achieve the objective of rural development it should open more and more branches in different rural areas of the country. Bank can appoint commission agents for different area who can encourage general public to invest in the capital of the bank and make more deposits in ICICI Bank.
I found that ICICI generates its major revenue from domestic market. It should increase its operation outside India also.
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Important News
NEWS RELEASE MARCH 21, 2011
ICICI Bank and Intuit launch ³Money Manager´ On-line personal finance management solution
ICICI Bank Ltd, India¶s largest private sector Bank and Intu it, a leading global developer of business and personal finance management solutions, on 21st MARCH, 2011 announced the launch of ³Money Manager´. It is an on-line personal finance management solution which helps banking custo mers understand their spending habits and organize their finances by providing them with details of all their ICICI Bank accounts on a single platform. This web-based solution, available through ICICI Bank's website, delivers the flexibility to focus o n specific details such as earnings, savings, spends and loans. ³Money Manager´ makes it easy for customers to quickly and easily categorize their expenses and set and track a realistic budget to achieve their financial goals.
Mr Rajiv Sabharwal, Executive Director, ICICI Bank Ltd, said, ³Our Bank has always focused on innovation in technology for customer empowerment. Internet Banking is core to our technology prowess and we constantly innovate to provide path-breaking solutions for our customers on-line.´ ³Money Manager´ is a unique personal finance management solution which will give customers convenience o f aggregating their accounts and providing output required for managing expenses.´ ³Money Manager is the latest in a line of Intuit offerings that improve people¶s financial lives so profoundly that they cannot imagine going back to the old way of doing things,´ said Mr Alex Lintner, President, Global Business Division, Intuit Inc. ³Money Manager is unique to India and was specifically built for the market, while leveraging the insights and learning¶s from our Quicken and Mint products. As a result Intuit and ICICI Bank can de liver a world-class offering that addresses the unique needs o f banking customers.´ With ³Money Manager´, ICICI Bank net banking customers can: y
Aggregate all their ICICI Bank Accounts (Savings Account, Credit Cards, Loans, DEMAT etc.) automatically on one screen.
y
It will automatically segregate transactions across different income or expense catego ries. 29
y
Set their monthly budget and monitor the performance of investments.
y
Get custom alerts on their balances, transactions and bill payments
y
³Money Manager´ is currently available for all ICICI Bank Net Banking customers. It is a subscription based product with 90-Day free trial.
NEWS RELEASE JANUARY 12, 2011
ICICI BANK & VODAFONE ESSAR INK PACT FOR FINANCIAL INCLUSION
ICICI Bank Ltd, India¶s largest private sector Bank and Voda fone Essar Ltd, one of the largest Mobile Network Operators in India, today announced a joint initiative to drive financial inclusion in the countr y. Under this tie-up, both entities will offer a bouquet of financial products such as savings accounts, pre-paid instruments and credit products through a mobile phone based platform. This partnership is expected to bring the un-banked and under-banked population into the organized financial services framework and assist in furthering the electronic payments market in India. ICICI Bank will leverage the distribution strength of Vodafone, which manages over 1.5 million retail points for acquiring customers and servicing them. The Reserve Bank of India (RBI) has over the past few years come out with various measures to facilitate banks to achieve the financial inclusion agenda. RBI has allowed banks to appoint for-profit' companies as Business Correspondents (BCs). This tie-up between ICICI Bank and Vo dafone is a step in that direction. The Indian government has been actively pursuing the agenda for inclusive growth to ensure that benefits of the exponential growth phase reach all the sections of the Society. To this effect, financial inclusion has been an important goal that aims to provide access to basic financial services to each and every individual across the country. Such access is essential to initiate growth in the hitherto un-banked sections of the society, eventually resulting in improvement in the per capita household income and the Gross Domestic Product (GDP) of the country. Speaking on the alliance, Ms. Chanda Kochhar, Managing Director & CEO, ICICI Bank Ltd said, ³We are very excited about the partnership with Vodafone, which will help ICICI Bank in deepening its base within the country. Mobile penetration is growing exponentially in the country of which the rural market forms a major contributor.There is a huge potential for offering mobile banking in these regions, which will facilitate access to 30
the financially excluded parts of the society and ensure that benefits from various welfare and gro wth programs of the government reach them along with other financial services and products. Vodafone, with its innovative and customer focus initiatives, is an ideal partner who will help in furthering the cause of financial inclusion in India´. Mr. Marten Pieters, Managing Director & CEO, Vodafone Essar, commented ³the RBI move to allow for-profit companies to be Business Correspondents is a welcome move that will enable the population better access to financial services. With our reach and ability to connect to customers, we are uniquely positioned to aid the financial inclusion agenda of the Government of India and RBI. We are pleased to work with ICICI Bank, which has always strived to o ffer innovative products to its customers.´ Both parties will work out the specific arrangements chart out a go-to-market plan.
LIMITATIONS OF THE STUDY
Lack of practical knowledge about conducting the research.
Don¶t
having any practical knowledge of doing financial analysis
The analysis and interpretation are based on secondary data contained in the published annual reports of ICICI group for the study period, Research Papers, etc.
Due
to the limited time available at the disposable, the study has been confined for a period of 2 years
(2008-2010).
Ratio itself will not completely show the company¶s goo d or bad financial position. The study of financial performance can be only a means to know about the financial condition of the company and cannot show a through picture of the activities of the company.
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