FUNDAMENTAL ANALYSIS OF BANKING INDUSTRY IN INDIA project report Submitted to
Punjab Technical University in partial fulfillment of the requirements for the degree of
Master of Business Administration(MBA)
By Amandeep kaur
(University. Roll.NO.80103317102)
Department of Business Management Guru Nanak Institute Of Management & Technology (GNIMT) Ludhiana-141002 2010
1
CERTIFICATE-1
This is to certify that the Project Report Entitled
FUNDAMENTAL ANALYSIS OF BANKING INDUSTRY IN INDIA
Submitted in partial fulfillment of the requirements for the degree of Master of Business Administration(MBA)
By Amandeep kaur
(University. Roll.NO.80103317102) Has been prepared under my supervision and guidance and no part of it has been submitted for the award of my other degree and that the work has been published in any journal ,magazine or book.
Dr. Harmeet Kaur Lecturer GNIMT
2
CERTIFICATE-1
This is to certify that the Project Report Entitled
FUNDAMENTAL ANALYSIS OF BANKING INDUSTRY IN INDIA
Submitted in partial fulfillment of the requirements for the degree of Master of Business Administration(MBA)
By Amandeep kaur
(University. Roll.NO.80103317102) Has been prepared under my supervision and guidance and no part of it has been submitted for the award of my other degree and that the work has been published in any journal ,magazine or book.
Dr. Harmeet Kaur Lecturer GNIMT
2
CERTIFICATE-2 This project Report
Of Amandeep kaur University Roll. No.(80103317102)
Titled
FUNDAMENTAL ANALYSIS OF BANKING INDUSTRY IN INDIA Is approved And is acceptable in Quality and form
Dr. H S Singha
External Examiner
Director GNIMT
Dr. Harmeet Kaur
Lecturer GNIMT
ACKNOWLEDGMENT
3
Concentration, dedication, hard work & application are essential but not the only factors to achie achieve ve the the desi desire red d goal goal.. Th Ther eree mu must st be suppl supplem ement ented ed by guidan guidance ce,, assi assist stanc ancee and and cooperative of people to make it a success. Every complete successful assignment is the result of many hands joined together. .I am highly indebted indebted to Dr. Harmeet Harmeet Kaur Lecturer Lecturer of GNIMT Ludhiana, Ludhiana, who gave me weighty guidance in the study. It was really nice experience to work in his guidance and helping me in knowing practical practical things, which was my main objective, objective, before entering the corporate world. I since sincere rely ly thank thank Dr. Dr. (Col (Col.) .) H.S. H.S. Singh Singhaa (Dir (Direc ecto tor, r, GNIM GNIMT) T) who who has give given n me an opportunity to show my skills and bag a great source of experience. It is warmth and efforts of my teachers, friends and well wishers who has been a source of strength and confidence for me in the endeavor. Finally, yet importantly, we would like to than thank k almi almigh ghty ty for for bles blessi sing ng me to do and and comp comple lete te this this proj projec ect. t. Th Thro roug ugh h this this acknowledgement I would like to grab the opportunity to thank all those, who helped me from the start of the project, to its end. It is
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ABSTRACT
Investment decisions , in all sectors have been gaining paramount: importance, warranting the investors to be continuously cautious of risk and return involved in the same. The Indian Banking sector has been witnessing bizarre changes in the terms of new product and services and stiff competition as well. The sort of IPOs that have been taking place in banking sector amazing. The present study attempts to analyzing the profitability of the selected 10 banks. The variable for the study is the banks that are Allahabad Bank, Axis Bank, SBI, PNB, BOI, IOB, HDFC,IDBI, BOB, BOB. The study brings the comparative efficiency of the selected banks. These are the most popular tools of fundamental analysis. They focus on earnings, growth, and value in the market. For convenience, I have broken them into separate articles. Each article discusses related ratios. Earnings per Share – EPS, Price to Earnings Ratio – P/E ,Projected Earning Grow th – PEG, Price to Sales – P/S , Price to Book – P/B, Dividend Payout Ratio , Book Value, Return on Equity.
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CONTENTS
Chapter 1.
Topic INTRODUCTION
Page 7-16
2.
REVIEW OF LITERATURE
17
3.
RESEARCH METHODOLOGY
18-20
4.
RESULTS AND DISCUSSION
21-42
5.
SUMMARY
43-44
6.
REFERENCES
45
APPENDIX VITAE
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CHAPTER:-1 INTRODUCTION
Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. When applied to futures and Fo rex, it focuses on the overall state of the economy, interest rates, production, earnings, and management. When analyzing a stock, futures contract, or currency using fundamental analysis there are two basic approaches one can use; bottom up analysis and top down analysis.[1] The term is used to distinguish such analysis from other types of investment analysis, such as quantitative analysis and technical analysis. Fundamental analysis is performed on historical and present data, but with the goal of making financial forecasts. There are several possible objectives: •
to conduct a company stock valuation and predict its probable price evolution,
•
to make a projection on its business performance,
•
to evaluate its management and make internal business decisions,
•
to calculate its credit risk.
Use by different portfolio styles
Investors may use fundamental analysis within different portfolio management styles. •
•
•
•
•
•
•
Buy and hold investors believe that latching onto good businesses allows the investor's asset to grow with the business. Fundamental analysis lets them find 'good' companies, so they lower their risk and probability of wipe-out.
Managers may use fundamental analysis to correctly value 'good' and 'bad' companies. Even 'bad' companies' stock goes up and down, creating opportunities for profits. Managers may also consider the economic cycle in determining whether conditions are 'right' to buy fundamentally suitable companies. Contrarian investors distinguish "in the short run, the market is a voting machine, not a weighing machine"[2]. Fundamental analysis allows you to make your own decision on value, and ignore the market. Value investors restrict their attention to under-valued companies, believing that 'it's hard to fall out of a ditch'. The value comes from fundamental analysis.
Managers may use fundamental analysis to determine future growth rates for buying high priced growth stocks. Managers may also include fundamental factors along with technical factors into computer models (quantitative analysis).
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Top-down and bottom-up
Investors can use either a top-down or bottom-up approach. •
The top-down investor starts his analysis with global economics, including both international and national economic indicators, such as GDP growth rates, inflation, interest rates, exchange rates, productivity, and energy prices. He narrows his search down to regional/industry analysis of total sales, price levels, the effects of competing products, foreign competition, and entry or exit from the industry. Only then he narrows his search to the best business in that area.
The bottom-up investor starts with specific businesses, regardless of their industry/region. Under Fundamental framework following three types of analysis is undertaken Procedures
The analysis of a business' health starts with financial statement analysis that includes ratios. It looks at dividends paid, operating cash flow, new equity issues and capital financing. The earnings estimates and growth rate projections published widely by Thomson Reuters and others can be considered either 'fundamental' (they are facts) or 'technical' (they are investor sentiment) based on your perception of their validity. The determined growth rates (of income and cash) and risk levels (to determine the discount rate) are used in various valuation models. The foremost is the discounted cash flow model, which calculates the present value of the future •
dividends received by the investor, along with the eventual sale price. (Gordon model)
•
earnings of the company, or
•
cash flows of the company.
The amount of debt is also a major consideration in determining a company's health. It can be quickly assessed using the debt to equity ratio and the current ratio (current assets/current liabilities). The simple model commonly used is the Price/Earnings ratio. Implicit in this model of a perpetual annuity (Time value of money) is that the 'flip' of the P/E is the discount rate appropriate to the risk of the business. The multiple accepted is adjusted for expected growth (that is not built into the model). Growth estimates are incorporated into the PEG ratio but the math does not hold up to analysis. Its validity depends on the length of time you think the growth will continue. Computer modelling of stock prices has now replaced much of the subjective interpretation of fundamental data (along with technical data) in the industry. Since about year 2000, with the power of computers to crunch vast quantities of data, a new career has been invented. At some funds (called Quant Funds) the manager's decisions have been replaced by proprietary mathematical models Fundamental Analysis Tools
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These are the most popular tools of fundamental analysis. They focus on earnings, growth, and value in the market. For convenience, I have broken them into separate articles. Each article discusses related ratios. •
Earnings per Share – EPS
•
Price to Earnings Ratio – P/E
•
Projected Earning Growth – PEG
•
Price to Sales – P/S
•
Price to Book – P/B
•
Dividend Payout Ratio
•
Dividend Yield
•
Book Value
•
Return on Equity
No single number from this list is a magic bullet that will give you a buy or sell recommendation by itself, however as you begin developing a picture of what you want in a stock, these numbers will become benchmarks to measure the worth of potential investments. INDIAN BANKING INDUSTRY
Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India which started in 1786, and the Bank of Hindustan, both of which are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India. Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank , established in 1865 and still functioning today, is the oldest Joint Stock bank in India. It was not the first though. That honor belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Simla. When the American Civil War stopped the supply of cotton to Lancashire from the Confederate States, promoters opened banks to finance trading in Indian cotton. With large 9
exposure to speculative ventures, most of the banks opened in India during that period failed. The depositors lost money and lost interest in keeping deposits with banks. Subsequently, banking in India remained the exclusive domain of Europeans for next several decades until the beginning of the 20th century. Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and Pondichery, then a French colony, followed. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center. The Bank of Bengal, which later became the State Bank of India. The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank , established in Lahore in 1895, which has survived to the present and is now one of the largest banks in India. Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial and other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities. The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian joint stock banks. All these banks operated in different segments of the economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks were generally under capitalized and lacked the experience and maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments." The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank , Bank of Baroda, Canara Bank and Central Bank of India. The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina Kannada and Udupi district which were unified earlier and known by the name South Canara ( South Kanara ) district. Four nationalised banks started in this district and also a leading private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking". From World War I to Independence
The period during the First World War (1914-1918) through the end of the Second World War (1939-1945), and two years thereafter until the independence of India were challenging for Indian banking. The years of the First World War were turbulent, and it took its toll with banks simply collapsing despite the Indian economy gaining indirect boost due to war-related economic activities. At least 94 banks in India failed between 1913 and 1918 as indicated in the following table: 10
Years
1913 1914 1915 1916 1917 1918
Number of banks that Authorized failed capital (Rs. Lakhs) 12 274 42 710 11 56 13 231 9 76 7 209
Paid-up Capital (Rs. Lakhs) 35 109 5 4 25 1
Post-independence
The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing banking activities for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The Indian Banking industry, which is governed by the Banking Regulation Act of India, 1949 can be broadly classified into two major categories, •
non-scheduled banks and
•
scheduled banks.
Scheduled banks comprise commercial banks and the co-operative banks. In terms of ownership, commercial banks can be further grouped into nationalized banks, the State Bank of India and its group banks, regional rural banks and private sector banks (the old/ new domestic and foreign). These banks have over 67,000 branches spread across the country. The first phase of financial reforms resulted in the nationalization of 14 major banks in 1969 and resulted in a shift from Class banking to Mass banking. This in turn resulted in a significant growth in the geographical coverage of banks. Every bank had to earmark a minimum percentage of their loan portfolio to sectors identified as “priority sectors”. The manufacturing sector also grew during the 1970s in protected environs and the banking sector was a critical source. The next wave of reforms saw the nationalization of 6 more commercial banks in 1980. Since then the number of scheduled commercial banks increased four-fold and the number of bank branches increased eight-fold.
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After the second phase of financial sector reforms and liberalization of the sector in the early nineties, the Public Sector Banks (PSB) s found it extremely difficult to compete with the new private sector banks and the foreign banks. The new private sector banks first made their appearance after the guidelines permitting them were issued in January 1993. Eight new private sector banks are presently in operation. These banks due to their late start have access to state-ofthe-art technology, which in turn helps them to save on manpower costs and provide better services. During the year 2000, the State Bank Of India (SBI) and its 7 associates accounted for a 25 percent share in deposits and 28.1 percent share in credit. The 20 nationalized banks accounted for 53.2 percent of the deposits and 47.5 percent of credit during the same period. The share of foreign banks (numbering 42), regional rural banks and other scheduled commercial banks accounted for 5.7 percent, 3.9 percent and 12.2 percent respectively in deposits and 8.41 percent, 3.14 percent and 12.85 percent respectively in credit during the year 2000. Currently, India has 96 scheduled commercial banks (SCBs) - 27 public sector banks (that is with the Government of India holding a stake), 31 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively
BANKING STRUCTURE IN INDIA
INDIAN ECONOMY
The economy of India is the twelfth largest economy in the world by nominal value and the fourth largest by purchasing power parity (PPP). In the 1990s, following economic reform from the socialist-inspired economy of post-independence India, the country began to experience rapid economic growth, as markets opened for international competition and investment. In the 21st century, India is an emerging economic power with vast human and
12
natural resources, and a huge knowledge base. Economists predict that by 2020, India will be among the leading economies of the world. India was under social democratic-based policies from 1947 to 1991. The economy was characterised by extensive regulation, protectionism, and public ownership, leading to pervasive corruption and slow growth. Since 1991, continuing economic liberalisation has moved the economy towards a market-based system. A revival of economic reforms and better economic policy in 2000s accelerated India's economic growth rate. By 2008, India had established itself as the world's second-fastest growing major economy. However, the year 2009 saw a significant slowdown in India's official GDP growth rate to 6.1% as well as the return of a large projected fiscal deficit of 10.3% of GDP which would be among the highest in the world. India's large service industry accounts for 62.6% of the country's GDP while the industrial and agricultural sector contribute 20% and 17.5% respectively. Agriculture is the predominant occupation in India, accounting for about 52% of employment. The service sector makes up a further 34%, and industrial sector around 14%. The labor force totals half a billion workers. Major agricultural products include rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep, goats, poultry and fish. Major industries include telecommunications, textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, information technology enabled services and software. India's per capita income (nominal) is $1032, ranked 139th in the world, while its per capita (PPP) of US$2,932 is ranked 128th. Previously a closed economy, India's trade has grown fast. India currently accounts for 1.5% of World trade as of 2007 according to the WTO. According to the World Trade Statistics of the WTO in 2006, India's total merchandise trade (counting exports and imports) was valued at $294 billion in 2006 and India's services trade inclusive of export and import was $143 billion. Thus, India's global economic engagement in 2006 covering both merchandise and services trade was of the order of $437 billion, up by a record 72% from a level of $253 billion in 2004. India's trade has reached a still relatively moderate share 24% of GDP in 2006, up from 6% in 1985. Despite robust economic growth, India continues to face many major problems. The recent economic development has widened the economic inequality across the country. Despite sustained high economic growth rate, approximately 80% of its population lives on less than $2 a day (PPP). Even though the arrival of Green Revolution brought end to famines in India, 40% of children under the age of three are underweight and a third of all men and women suffer from chronic energy deficiency.
OBJECTIVES OF THE STUDY •
To take investment Decisions cautiously after studying risks involved in the same.
13
•
To acquire practical exposure of financial analysis of an enterprise.
•
To analyze the profitability position of the sample Banks.
•
To know the soundness and Resilient of the Indian Banking Sector.
•
To know the Growth Trends of the selected Banks.
•
To study the crucial Role of Banks in India’s Economic Development.
CHAPTER:-2
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REVIEW OF LITERATURE
Literature review is a study involving a collection of literature in a selected area of research in which the researcher has limited experiences, and critical examination and comparison of them to have a better understanding. It also helps the researchers to update the past data, data sources and results and identify the gaps, if any in the researches. Thus the review in the present study consist of the ones discussed below and they reveal that there are very scant studies in India emphasizing on the fundamental analysis of banking sector. In this study John Colnan (1994), Senior Research Analyst from SHAN Stockbroking’s Research Department provides some briefs pointers on what information to look for and how to make sense of what is available. Mark P.Bauman (1996) conducted a study named, “A Review of Fundamental Analysis Research in Accounting.” This paper has outlined the development of fundamental valuation model and reviewed related empirical work. First, an accounting-based expression for a firm’s equity value has been developed into a rich theoretical framework. They verified its descriptive validity regarding the mapping of accounting numbers into stock prices. This paper identified three major issues associated with practical implementation of the model; the prediction of future profitability, the length of appropriate forecast horizon, and the determination of the appropriate discount rate. Jim Burg(1999) Conducted a study – “Fundamental Analysis Using Internet”. This study Examined that fundamental analysis looks at the fundamental issues that drive the value of the particular company. These issues include its financial position, its industry sector and the current economic environment. The objective was to identify companies that may be considered undervalued in the market with a view to investing when the time is right . in this study, Jim Berg outlined more about what Fundamental analysis is and how it could be used. Jon Lynch conducted a study, “Share Market Analysis-Fundamental vs Technical Analysis”’, which reveals that in recent times, there has been a bigger push towards stock market research, which is being conducted by private individuals. This has been possible through the vast amount of information on the Australian stock market, now available online to any subscriber. This article explains the difference between the fundamental and technical analysis; the most common methods adoped to conduct research on the performance of stock market.Vanstone B. Finnie G. and Tan C. (2004) conducted a study entitled- “Enhancing Security Selection in the Australian Stock Market Using Fundamental Analysis and Neural Network”. This paper Examines Financial trading from the aspect of security selection. This paper also examines the practice of fundamental analysis and demonstrates how neural networks can be practically employed to enhance the fundamentalist selection process.
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CHAPTER:-3 RESEARCH METHODOLOGY 3.1 RESEARCH DESIGN
The present study adopts an analytical and descriptive research design. The data of the sample companies (for a period of five years from 2005 to 2009) has been collected from the annual reports and the balance sheet published by the companies and the websites of the companies. 3.2 DATA COLLECTION METHODS
The data has been collected from annual reports, balance sheets published by the companies and the websites of the companies. The major data of the economy has been collected from the Magazines and newspapers. 3.3 SAMPLING PLAN
A finite sample size of Ten Banks listed on the BSE- Bankex) has been selected for the purpose of the study. That are Allahabad bank, Axis Bank, Bank of Baroda, BOI, SBI, PNB, ICICI, HDFC,IDBI, IOB. 3.4 DATA ANALYSIS TECHNIQUE Ratio analysis: Ratios have been calculated for the past five years for the purpose of analysis. The variables used in the analysis of the data are
Earning Per Share (EPS) Operating Profit Margin (OPM) Net Profit Margin (NPM) Debt Equity Ratio (DER) Return On Equity (ROE) Price Earning Ratio (PER) Return On Assets (ROA)
Earnings Per Share =
Prifit After Tax – Preference Dividends No. of Outstanding Equity Shares
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Net Profit Margin
= Profit After Tax * 100 Net Sales
Debt Equity Ratio = Total Debt(Long term + Short term) Equity (Equity + Preference) Or Total Debt Net Worth Return On Equity
= Profit After Tax – Preference Dividends * 100 Paid – Up Equity Capital + Reserves Or
ROE = Worth
Net Profit Margin*Total Asset Turnover Ratio*Total Assets to Net
Dividend Payout Ratio = Earning Per Share Dividends Per Share
Return On Assets =
Earnings after Taxes and Preferred Dividends * 100 Total Assets
3.5 LIMITATIONS OF THE STUDY
Some limitations of the study are as follows it can be due to any reason: •
•
Absence of Standard universally Accepted Termology. Incorrect information or the incomplete information is also the limitation of the study because sometime companies does not provide the right information.
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•
•
•
•
•
•
•
Different methods are adopted by the different persons while analyzing the particular company or industry so Biasness is there in the result. Study is purely based upon the past performance of the companies and Indusry that can be misunderstood. Study does not baste on the facts it is just baste on the figures that can’t be true. The present study adopts an analytical and descriptive research design. That is also one of the limitations. The study may not include all the factors that are important for the analysis. In the study only few tools that the ratios are used on the basis of only that ratios one cannot judge the profitability or the efficiency of the companies or the industry. The study is not providing the fair knowledge about the investment and the risk involved in the same.
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CHAPTER:-4 ANALYSIS AND DISCUSSIONS ANALYSIS OF INDIAN ECONOMY
The analysis of the economy is a very difficult task there are many factors that effects the indian economy that can be Inflation, GDP, National Income, Per capita income, FDI, sectoral growth that can be in the Agriculture, communication or Manufacturing etc. in this study the Inflation and GDP are taken as a base for the analysis. Understanding the Indian economy is more difficult than it ever was, In this section we undertake an objective analysis of the economy. The material is sourced legaly from the RBI, Ministry of Finance and the Centre for Monitoring the Indian Economy (CMIE). It provides the various inputs on economic conditions of the country.
Table no.4.1 Source: CSO data on components of GDP (2004-05 base year) As shown in the table the combination of the Agriculture, communication and Manufacturing. The trend shows that there is a growth in the communication sector as compare to the other that are declining in the year 2008-09.
Analysis of Indian Economy Base Year: 1999-00 = FY01 FY02 FY03 FY04 FY05 100
FY06
Nominal GDP (Rs bn) 21,024 22,811 24,581 27,655 31,266
35,672 41,257
Real GDP growth (%) 4.4
5.8
3.8
8.5
7.5
9.0
9.4
Nominal GDP (US$431
456
473
514
552
602
911
19
FY07
bn) Per capita GDP (US$) 438
579
819
2,375 2,574 2,773 2,930 -
-
-
Per capita GNP (PPP, 2,420 2,580 2,730 2,840 US$)
-
-
Pvt Consumption growth
10.7
12.7
GDP (PPP, US$ bn)
Final Expdt7.1
434
8.9
436
488
533
5.4
10.9
8.9
Sectoral composition of GDP (%)
Agriculture and allied 23.7 activities
23.2
20.8
21.0
19.6
18.3
17.6
Industry
26.3
25.6
26.7
26.4
27.3
27.6
27.7
Services
50.0
51.2
52.6
52.5
53.2
54.1
54.7
Value added at constant prices (%)
Agriculture
-0.2
6.3
-7.2
10.0
0.7
6.0
2.7
Industry
6.4
2.7
7.1
7.4
9.8
9.6
10.9
Services
5.7
7.2
7.4
8.5
9.6
9.8
11
Inflation Annual Averages (%) FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 Wholesale Price Index All Commodities 12.5
Primary Articles
8.1
4.6
4.4
5.9
3.3
7.2
3.7
3.4
5.4
6.4
4.4
15.7 8.3
8.4
2.7
12.0 1.1
2.9
3.7
3.3
4.2
3.7
2.9
Fuel, Power, Light 8.9 and Lubricants Manufactured Products
5.2
12.2 8.6
10.3 13.8 3.2
9.0
28.5 9.1
5.6
6.3
10.0
9.5
2.1
2.7
3.3
2.7
5.6
6.3
3.1
2.9
4.4
Consumer Price Index
20
1.9
Industrial Workers 10.3 - General Index
10.0 9.4
6.8
13.1 3.4
3.8
4.3
4.0
3.9
3.8
4.4
9.1
3.4
11.0 4.4
-0.3
1.1
3.2
3.9
2.4
4.0
9.3
6.9
11.3
5.6
5.1
3.8
3.7
3.6
4.7
(1982=100) Agricultural/Rural 12.0 10.7 Labourers (1986-87=100) Urban Non Manual Employees -9.5 General Index
9.5
4.5
Currency The Indian rupee is the only legal tender accepted in India. The exchange rate as on 23 March 2010 is 45.40 INR the USD, 61.45 to a EUR, and 68.19 to a GBP.
The Rupee hit a record low during early 2009 on account of global recession. However, due to a strong domestic market, India managed to bounce back sooner than the western countries. Since September 2009 there has been a constant appreciation in Rupee versus most Tier 1 currencies. On 11 January 2010 Rupee went as high as 45.50 to a United states dollar and on 10 January 2010 as high as Rupee 73.93 to a British Pound. A rising rupee also prompted Government of India to buy 200 tonnes of Gold from IMF. Foreign direct investment in India As the fourth-largest economy in the world in PPP terms, India is a preferred destination for foreign direct investments (FDI); India has strengths in telecommunication, information technology and other significant areas such as auto components, chemicals, apparels, pharmaceuticals, and jewellery. India's recently liberalized FDI policy (2005) allows up to a 100% FDI stake in ventures. In March 2005, the government amended the rules to allow 100 per cent FDI in the construction business. FDI inflows into India reached a record $19.5 billion in fiscal year 2006-07 (April-March), according to the government's Secretariat for Industrial Assistance. This was more than
21
double the total of US$7.8bn in the previous fiscal year. The FDI inflow for 2007-08 has been reported as $24 billion and for 2008-09, it is expected to be above $35 billion. Income and consumption
Percentage of population living under the poverty line of $1 (PPP) a day, currently 356.35 rupees a month in rural areas (around $7.4 a month). As of 2005: •
•
•
•
85.7% of the population lives on less than $2.50 (PPP) a day, down from 92.5% in 1981. This is much higher than the 80.5% in Sub-Saharan Africa. 75.6% of the population lives on less than $2 a day (PPP), which is around 20 rupees or $0.5 a day in nominal terms. It was down from 86.6%, but is still even more than the 73.0% in Sub-Saharan Africa. 24.3% of the population earned less than $1 (PPP, around $0.25 in nominal terms) a day in 2005, down from 42.1% in 1981. 41.6% of its population is living below the new international poverty line of $1.25 (PPP) per day, down from 59.8% in 1981. The World Bank further estimates that a third of the global poor now reside in India.
Interpretation:
Since 1990 India has emerged as one of the fastest-growing economies in the developing world; during this period, the economy has grown constantly, but with a few major setbacks. This has been accompanied by increases in life expectancy, literacy rates and food security. While the credit rating of India was hit by its nuclear tests in 1998, it has been raised to investment level in 2007 by S&P and Moody's. In 2003, Goldman Sachs predicted that India's GDP in current prices will overtake France and Italy by 2020, Germany, UK and Russia by 2025 and Japan by 2035. By 2035, it was projected to be the third largest economy of the world, behind US and China. In 2009 India purchased 200 Tons of Gold for $6.7 Billion from IMF as a total role reversal from 1991. GDP in 2009 was $1.242 trillion which shows the growth at 67%. Inflation as on Feb.2010 was 9.89% which is rising day by day. Exports $155 billion F.O.B (2009) Imports $232.3 billion F.O.B (2009) FDI stock $156.30 billion (31Dec.2009)
22
INDUSTRY ANALYSIS
Industry analysis involves the analysis of different growth opportunities in the economy in relative to the other industries. The study is based upon the analysis of the Indian banking industry. For this study the performance of the Scheduled Commercial Banks is analyzed. In this Industry Analysis, the past, present and future of the Banking Industry has outlined. As we approach the 225th anniversary of the Country, our Nations financial industry has never seen a time such as this. The US and other economies are growing and technology has changes how business is conducted. The opportunities for this Industry are amazing and progress that will hopefully be made should invigate our country and others during this new Millennium. Infrastructure Development of SCBs in India
Indicators No.of banks Total branches [a]urban branches [b]rural branches Population
June1969 89 8262
June1979 75 30202
June1989 78 57699
March1999 301 64939
March2006 222 69417
March2007 -----73836
3108
9024
13519
17914
23271
26792
5154
21178
44281
47025
46146
47044
64
21
14
15
16
-----
23
per office[000] Deposite per office
---
---
2.44
10.71
29.80
35.68
Table no.4.2 Interpretation Infrastructure Development
The number of SCB’s has increase from 89 in 1969 to 301 in 1999.But in later years the number of SCB’s has decreased due to the merger and acquisition taking place in the banking system.There has been an increase in the urban as well as rural Branches from 3108 and 5154 in 1969 to 26792 and 47044 in 2007 respectively. The population per office has coe down from 64 in 1969 to 2006. This table reveals that the deposits per office has increased from 2.44 crore in june 1989 to Rs. 35.68 crore in 2007. Indian banking Industry has done remarkably well in developing its Infrastructure
Total Credits and Deposits of SCBs
Indicators
June1969
June1979
June1989
March1999
March2006
March2007
Total deposits Demand deposits Time deposits Total Credits Credit / deposit ratio Deposit per capita(in rs.)
4646
28671
147854
722203
2109049
2611933
March March 2008 2009 3196939 3834110
2104
---
---
117423
364640
429731
524310
2542
---
---
604780
1744409
2182203
2672630 3311025
3599 77.5
19116 65.87
89080 60.32
368837 51.1
1507077 70.1
1947100 73.94
2417006 --73.88 72.39
---
417
1788
7264
19069
23279
28093
Table no.4.3 Source: Money and Banking Centre for Monitoring Indian Economy. Interpretation
24
523085
33225
This table shows that the analytical results of the credit and deposits by SCBs operating in INDIA. Demand deposits of SCB’s have increased from Rs. 52,3085crore in 2009. However , time deposits of banks have increased from Rs. 2,542crore to Rs. 33,11,025crore in same period. The growth of time deposits in absolute term has been more than demand deposits. Total credits of SCBs has increased from Rs.3,599crore in 1969 to Rs. 24,17,006crore in 2008. Deposits per capita has increased from Rs. 4,17crore in 1969 to Rs.33,225crore,While credit deposits ratio has decreased from 77.5 to 72.39 during the same period. The growth of the credit and deposits has therefore, been significant over the period under study.
Rural Credit by SCBs
Indicators Rural credit (Rs. Crore) %Share of Rural Credit Total Credit
June1969 55
June1979 1661
June1989 14553
March1999 53909
March2006 199423
March2007 235704
March2008 323133
1.5
8.4
16.2
14.1
13.17
12.11
13.37
3609
19822
89361 382425 Table no.4.4
1513842
1947099
2417006
Source: Money and Banking Centre for Monitoring Indian Economy various issues. Interpretation
The credit as well as rural credit has increased from Rs. 3609crore and Rs. 55crore in June 1969 to Rs. 24,17,006crore and Rs.3,23,133crore in March 2008 respectively. The proportion of rural credit to Total Credit has also increased from 1.5% to 13.37% in same period. Rural credit has however decreased from 16.2 in 1989 to the present level of 13.37.
25
Ratio as % of GDP and Investment in Government Security to Total Deposits
Indicators
Investment in govt. sector to deposit ratio (%) Credit/ GDP ratio (in %)
June 1971
June 1979
June 1989
March 1999
March 2006
March 2007
March 2008
March 2009
23.07
24.51
25.39
31.26
33.23
29.71
29.99
30.14
10.90
17.51
22.62
22.82
45.91
51.10
54.66
56.26
Table no.4.5 Source: Money and Banking Centre for Monitoring Indian Economy various issues.
Interpretation
Investment in Govt. Securities to deposit ratio as % to GDP ratios are important indicators of growth of banking industry. Both ratios have increased from 23.07 % and 10.90 % in June 1971 to 30.14 % and 56.26 % in March 2009 respectively. The Composition of NPAs of Scheduled Commercial Banks.
Item Gross NPA (Rs. In Crore)
1998 48,306
2008 55,842
2009 67,497
Gross NPA(%)
14.78
2.39
2.42
Net NPA(Rs. In Crore)
23,013
24,891
30,924
Table no.4.6 Source: The Economic Challanger Pp14
26
Interpretation
The table shows the compositions of INDIAN BANKING INDUSTRY. The gross and net NPAs of Indian banks have increase from 48,306crore and 23,013crore in 1998 to 67,497crore and 30,924crore in 2009 respectively. But in term of ratio the gross NPA has decreased from 14.78 % in 1998 to 2.42 % in 2009.
Banking Profitability:(Return of assets)
(As Percentage) Country
2002
2003
2004
2005
2006
2007
China
0.1
0.3
0.5
0.6
0.7
1.0
India
0.8
1.0
1.1
0.9
0.6
0.9
Table no.4.7 Source: Indian Journal of Finance.Pp360.
Interpretation
This table shows the banking profitability as returns on assets , for India and China. The table shows that the ROA ratio of INDIAN BANKING INDUSTRY has always been more than that for China.
There is adequate evidence to show that over a period,and particulrarly during the last decade,sustained efforts by the governtment,Reserve Bank Of India and banks themselves have resulted in making the indian banking sector not only sound enough but also resilient enough to face challenges produce both by internationel finacial system as well as the indion economic developments.That is why the banking system in the India remained largely unaffected by the globel financial crisis which had forced the developed countries like USA and UK to bailout banks with large sovereignsupport. Stress test findings for Indian banks by the RBI proved’a strong resilience of the finacial system in the face of the severe externel contagion from the globel finacial crisis.It is a measure of great achievement for the RBI that as at end – march 2009,all the Indian scheduled commercial banks had migrated to the simpler approaches available under the Basel 2nd framework.
27
Banking Segment in the Indian Financial System:
Notwithstanding significant expansion of the capital market over a period particularly during the last two decades, bank intermediation continues to dominate the financial system. The financial sector in India has seven major components: Commercial banks, Urban Co-operative Banks (UCBs), rural financial institutions,NonBanking Financial Companies(NBFCs), Housing Finance Companies(HFCs), Development Financial Institution (DFIs) and the Insurance sector. Commercial Banks accounts for around 60% of the total assets of the financial sector. Together with Co-Operative banks, the banking sector accounts for nearly 70% of the total assets of Indian financial institutions.
At the end March 2009 •
•
•
•
•
Scheduled Commercial Banks (SCBs) comprised 27 public sector banks(State Bank of India and its 6 associates, 19 nationalised banks and the IDBI Bank Limited), 7 new private sector banks and 31 foreign banks. Besides ,there are 4 local area banks, 86 RRBs, and 1721 UCBs, Public Sector Banks (PSBs) share was 71.9% in total assets; 76.6% in total deposits, 75.3% in total advances and 69.9% in total investment of SCBs. The Ratio of assets of SCBs to GDP was 98.5%. Bank Deposit as a proportion of GDP wasn56% from 29% in the end of March 2000. There were 64,608 bank branches of which 39,376 were of nationalized banks, 16,062 of the State Bank Group ,4673 of old private sector banks, 4,204 of new private sector banks and 293 of the foreign bamks. In total there were 43,651 ATMs which constituted of Branches of SCBs.
28
Soundness indicator of select bank groups: 2001 and 2009 (end March)
Soundness Indicators
2001
2009
All scheduled commercial banks(SCBs)
11.4
13.2
Public Sector Banks(PSBs)
11.2
12.3
National Banks
10.2
12.1
New Private Sector Banks(NPSBs)
11.5
15.1
6.20
1.1
Capital Adequacy: CRAR (capital to Risk Weighted Asset Ratio)
Non Performing Assets(NPAs)NNPA(Net NPA to Net Advances Ratio)
SCBs
29
PSBs
6.70
0.7
Nationalised Banks
7.01
0.7
NPSBs
3.10
1.3
SCBs
11.40
2.3
PSBs
12.40
2.0
Nationalised Banks
12.16
1.8
NPSBs
5.10
2.8
SCBs
2.64
1.7
PSBs
2.72
1.5
Nationalised Banks
2.76
1.5
NPSBs
1.75
2.2
Return On Equity(ROE)
9.61*
13.3
Return On Assets(ROA)
.50
1.0
Gross NPAs( GrossNPA to Gross Advances Ratio)
Operational Efficiency (Operating expenses to Assets Ratio)
Profitability
*Low due to VRS payments by PSBs. Subsequently it was more than 13.0% . Table no.4.8
INTERPRETATION
Capital Adequacy and asset quality of Indian banks, the two crucial parameters reflecting the soundness of the Banking institutions, have shown a significant improvement during the last dacade in Particular. CAPITAL ADEQUACY: The overall Capital to Risk weighted Assets Ratio (CRAR) for all the Scheduled Commercial Banks has increased to 13.2% at the end March 2009 from 11.4% as at end March 2001. For PSBs also the CRAR has also increased from 11.2% to 12.3% during the decade. Leverage ratio for Indian banks risen from about 4.1% in March 2001 to reach a level of 6.3% by March 2009. ASSET QUALITY: The most significant improvement indicating enhanced soundness of theIndian Banking System has been a sharp fall in the ratio of non performing assets (NPA)
30
to Gross advances. The gross NPA ratio for SCBs touched an all time low at 2.3 % at end March 2009. For PSBs also the reduction in the gross NPA ratio in sharp from 12.4% to 2.0% during the decade. For SCBs the NNPA ratio reduced to 1.1% as at end- March 2009 from 6.2% at end March 2001. Finally, it is important to note that even against a close possibility of significantslippage in NPAs as a consequence to international financial turmoil, the slippage for Indian banks during the year 2008-2009 was moderate when compared to the problem faced by banks all over the World. COMMERCIAL SOUNDNESS:
Return on Assets(ROA): The commercial soundness of Banking Systemgets reflected from the ROA which was 1.0% at the end 2008 and 1.02% at end March 2009. ROE defined as the ratio of net after tax to total equity capital, is used as an alternative measure of profitability reflecting efficiency with which capital is being uesd by bank. The ROE of SCBs increased to 13.2% during 2008-09 from 12.5% in 2007-08 despite the pressure on profitability owing to external circumstances. EFFICIENCY:
Operational efficiency of the Indian banking system as reflected by the ratio of operating expenses to total assets(intermediation cost ratio) has been consistently improving particularly for the PSBs. Thus the intermediation cost ratio for SCBs has fallen to 1.8% as at the end March 2009 from 2.64 as at end March 2001. For PSBs also the decline is from 2.72% to 1.5% only during the decade. Finally, a study in an RBI Report (Report on Currency and finace: 2006-08), using the data envelopment analysis (DEA) has shown that there has been a significant improvement in efficiency levels across the bank groups since the initiation of reforms. INTERNATIONAL BANKING TURMOIL AND INDIAN BANKING
Owing to some important regulatory, supervisory andprecautionary measures taken by the banking system, the Indian Banks could be insulated from the international banking and financial crises. Benchmarking of Indian Banking Sector:
Country 1 India
Return Assetss 2 1.0*
on Gross NPL to CRAR Gross Advances 3 4 2.3* 13.0*
31
Provision to Capital NPL Assets 5 6 52.6* 6.4**
to
China UK Germany
1* -0.5* 0.3**
*: Data Pertains to 2008.
1.8 1.6* 2.7** Table no.4.9
12.0* 12.9* 12.9**
134.3 54.6^ 56.7*
5.4 4.4 4.5*
**: Data Pertains to 2007. ^: Data Pertain to 2006.
Note: Data Pertains to 2009. Based on : Global Financial Stability report, October 2009, IMF. Source: Trend and Progress in Indian Banking 2008-09(RBI 2009) An Overall Assesment
A comprehencive self assessment of India’s Banking Sector by the Committee of Financial Sector Assessment (CFSA) in its report jointly prepared and released by the Government of India and RBI in March 2009, found that: “Banks have shown a healthy growth rate and an improvement in performance as is evident from capital adequacy, asset liquidity, earnings and efficiency indicators.”
CHAPTER:-4 Company Analysis
Financial ratio analysis provide for last 5-years plus most recent quarter in depth financial analysis, allowing for vital comparisons that are not possible when dealing with a single number. The insight gained through financial analysis of multi year financial ratios will assist in gaining vital understanding of any given company or industry. Earning per Share
Allahabad Axis year bank Bank SBI HDFC ICICI IDBI BOB BOI PNB IOB 2005 15.63 11.83 81.79 27.55 27.22 6.36 23.08 6.98 44.70 11.96 2006 15.81 17.41 83.73 35.64 28.55 7.75 28.83 14.39 45.56 14.38 32
2007 2008 2009
16.79 21.82 17.21
23.4 29.94 50.57
86.29 106.56 143.67
43.29 44.87 52.77
34.59 37.37 33.78
8.7 10.06 11.85
28.18 39.41 61.14
23.04 38.26 57.26
48.82 64.94 97.97
100.4
Average
17.45
26.63
1
18.51 22.07 24.34 18.2
40.82
32.30
8.94
36.13
27.99
60.39
5
Table no.4.21
Interpretation
Investors or Analysts are primarily interested in the profitability and the Leverage position of the company. The EPS Show the profitability of the company. A company with an erratic profitability record is perceived to have a higher degree of business. The measure of EPS can be analyzed that the SBI is having the higher profitability because the EPS is higher than from all other companies/ banks. Net Profit Margin(%)
Year 2005 2006 2007 2008 2009 Average
Allahabad Axis bank Bank SBI HDFC ICICI IDBI BOB BOI PNB IOB 15.31 14.33 11.56 17.77 16.32 9.39 9.77 5.08 13.84 14.27 16.92 13.47 11.21 15.55 14.12 8.47 10.76 8.63 14.50 16.44 14.65 12.01 10.12 13.57 10.81 8.74 10.22 10.48 12.53 16.18 13.69 12.22 11.65 12.82 10.51 7.84 10.38 13.96 12.68 13.94 9.43 13.31 12.03 11.35 9.74 6.71 12.86 15.89 13.76 11.87 14 13.07 11.31 14.21 12.30 8.23 10.79 10.81 13.46 14.54 Table no.4.23
Interpretation
Net Profit Margin indicates how much a company is able to earn after accounting for all the indirect expenses to every rupee of revenue. The data in the table reveals that HDFC outperformed other banks in terms of net profit margin. The highest NPM of HDFC is 17.77 in 2005, which of ICICI, Allahabad Bank, Axis bank, IOB, SBI, PNB, BOB, IDBI and BOI are 16.32%, 15.31%, 14.33%, 14.27%, 13.84%, 11.56%, 9.77%, 9.39% and 5.08% respectively. On average basis , the NPM of Indian Overseas bank is 14.54% the highest followed by HDFC(14.21% ) , Allahabad Bank(14% ), and other banks. IDBI is having the lowest NPM among the sample banks with 8.3%. In 2009 BOI is having the highest NPM and PNB is having the 2nd highest, but in average we can conclude that IOB ,Allahabad bank and HDFC are the most efficient companies in controlling indirect expenses in comparison to others. 33
Return on Assets(ROA): Return on Assets measures the overall efficiency of the capital invested in business. It indicate what the yield is for every rupee invested in assets.
Table no.4.24
Allahabad Axis Year bank Bank SBI HDFC ICICI IDBI BOB BOI PNB IOB 2005 1.20 0.86 0.94 1.66 1.20 1.51 0.71 0.36 1.12 1.2 2006 1.28 0.98 0.89 1.52 1.01 0.63 0.93 0.63 0.99 1.3 2007 1.11 0.90 0.80 1.52 0.90 0.62 0.72 0.79 0.95 1.2 2008 1.18 0.98 0.93 1.19 1.04 0.57 0.80 1.13 1.04 1.1 2009 0.79 1.23 0.95 1.22 0.99 0.50 0.98 1.34 1.26 1.11 Average 1.11 0.99 0.90 1.42 1.03 0.77 0.83 0.85 1.07 1.2 Interpretation Among all the Ten Banks, HDFC has achieved the highest yield of 1.66% in 2005 and 1.52% in 2006 and 2007. The data in the Table indicate that BOI registered the lowest ROA of .36% in the year 2005 and IDBI of .50% in 2009. The average ROA of HDFC is highest among the other banks, IOB is having the 1.23% and Allahabad Bank is having 1.11% after the HDFC. While that of IDBI, BOB, BOI, Axis Bank and SBI are bit lower. Thus HDFC and IOB are more efficient in generating yield over assets and hence their overall efficiency is better than other sample companies. Credit Deposit Ratio: This ratio indicate the performance of loan- assets created by Banks from the deposits received. The amount of the bank loans divided by the amounts of its deposits at any given time.
Allahabad year bank 2005 50.52 2006 56.35 2007 65.19 2008 69.39 2009 69.30 Average 62.15
Axis Bank 47.40 52.79 52.85 65.94 68.89 57.57
SBI 52.55 62.11 73.44 77.51 74.97 68.12
HDFC ICICI 64.87 89.17 65.79 87.59 66.08 83.83 65.28 84.99 66.64 91.44 65.73 87.40 Table no.4.26
34
IDBI 73.10 238.79 166.12 124.35 100.13 140.49
BOB 51.20 59.04 65.67 68.72 72.78 63.48
BOI 67.99 70.15 70.21 73.51 75.47 71.47
PNB 56.33 60.60 65.97 70.55 72.88 65.27
IOB 53.08 63.27 68.60 70.22 73.36 65.71
Interpretation
This ratio based on that higher the ratio the more the Bank is relying on borrowed funds, which are generally more Costly than most type of the deposits. Table shows that In 2006 IDBI is having the highest ratio that is 238.79. On the average IDBI is having the highest ratio it means it is relying on the borrowed funds. Axis Bank is having least ratio which represents that it is not more relying on the borrowed funds.
Debt Equity Ratio: This ratio indicate a measure of a Company Financial Leverage, calculated
by dividing its total liabilities by S/H equity. This ratio indicate what proportion of equity and debt company is using to finance its assets.
Year 2005 2006 2007 2008 2009 Average
Allahabad Axis bank Bank SBI HDFC ICICI IDBI BOB BOI PNB IOB 17.51 13.17 15.25 8.04 7.98 2.58 14.45 18.33 13.14 18.1 13.33 13.97 13.75 10.53 7.45 4.08 11.94 19.46 13.19 16.5 13.30 17.28 13.92 10.62 9.50 6.05 14.44 20.86 13.79 17.7 13.65 9.99 10.96 8.76 5.27 10.74 13.77 17.00 15.44 17.7 14.52 11.49 12.81 9.75 4.42 15.10 14.99 16.1 15.96 16.8 14.46 13.18 13.34 9.54 6.92 7.71 13.91 18.35 14.30 17.4 Table no.4.27
Interpretation
Debt Equity Ratio helps in assessing the financial risk of a firm. A company with the high Debt-Equity Ratio that mean the bank is more relying on borrowed funds, which are generally more costly than most type of the deposits. Table shows that BOI is having the highest DER as 20.86% in 2007 and on average it is also having the highest DER as compare to other banks. It means BOI is more relying on the borrowed funds.
CHAPTER:-5 FINDINGS
35
There are some major findings related to the Economy, Industry and Company which are as follows: In 2007-08 Average Inflation was around 4.66%, rate was lower than Av. Inflation of financial year 2006-07. In 2007-08 fiscal high prices of food items were primary cause behind the high rate of inflation. That high rate of inflation had to be controlled by banning a no. of necessary commodities as well as various financial steps. High prices of oil were responsible for proportionatly high rate of inflation in2008-09. Real GDP growth is Increasing that was 4.4% in 2001-02 and 9.4% in 2007-08 which is a good indicator. The rupee hit a record low during early 2009 on account of global recession. The industry is highly fragmented with 30 banking units contributing to almost 50% of deposits and 60% of advances. Industry estimates indicate that out of 274 commercial banks operating in the country, 223 banks are in the public sector and 51 are in the private sector By 2008, India had established itself as the world's second-fastest growing major economy. However, the year 2009 saw a significant slowdown in India's official GDP growth rate to 6.1% as well as the return of a large projected fiscal deficit of 10.3% of GDP which would be among the highest in the world. India's large service industry accounts for 62.6% of the country's GDP while the industrial and agricultural sector contribute 20% and 17.5% respectively. Agriculture is the predominant occupation in India, accounting for about 52% of employment. India's per capita income (nominal) is $1032, ranked 139th in the world, while its per capita (PPP) of US$2,932 is ranked 128th. • •
The Earning Per Share of SBI is substantially higher than the other banks for the data taken from 2005-09. In 2009 BOI is having the highest NPM and PNB is having the 2nd highest, but in average we can conclude that IOB ,Allahabad bank and HDFC are the most efficient companies in controlling indirect expenses in comparison to others. HDFC and IOB are more efficient in generating yield over assets and hence their overall efficiency is better than other sample companies. CHAPTER:-6 Concusion and Suggessions
36
The most important factor that affects the value of a company is its earnings. Earnings are the profit a company makes, and in the long run no company can survive without them. It makes sense when you think about it. If a company never makes money, it isn't going to stay in business. Public companies are required to report their earnings four times a year (once each quarter). Major Challenges and Issues Facing the Indian Banking Industry. •
•
•
•
•
•
•
Rural and semi-urban India is expected to account for 58.33% of the insurance sector by 2010. Rural and semi-urban India is expected to account for 58.33% of the insurance sector by 2010. The ATM outlets in India increased at a CAGR of 53.99% to reach 20,000 in 2006 from 2000. Rural and semi-urban centers account for 66% of total bank branches. Bankable household India is anticipated to grow at a CAGR of 28.10% during 2007-2011. Banking sector investment in Information Technology is expected grow at 18% in 2007 from last year. Pension fund industry in India grew at a CAGR of 122.44% from 1999-00 to 200607.
Opportunities
The Banking sector is considered the most lucrative option in today’s job market. In the industry, a position in Treasury or Forex is considered right on top and this is followed by careers in Private Banking, Investment Banking and Retail Banking. One could work in a variety of areas in banking industry including Recurring Deposit account, banking officer, probationary officer, loan officer, assessor, personal loan officer, home loan officer, home loan agent, loan manager, mortgage loan underwriter, loan processing officer, accountant, product marketing and sales executive, and customer service executive among others.In the Financial Services, some of the important jobs include that of a stockbroker who is essentially a person who buys and sells securities on behalf of individuals and institutions for some commission. While some brokers like to practice with individual clients others work for institutions. Brokers who work for institutional investors are often called securities traders. Many prefer to work as dealers, advisors and securities analysts. Security analysts are those who advise companies on floatation’s of shares as they are expected to have sound knowledge of capital markets.
37
SUGGESTIONS
Some suggestions through which the banking industry can improve their performance more that are: •
Improve governance.
•
Raise educational achievement
•
Increase quality and quantity of universities
•
Control inflation
•
Introduce a credible fiscal policy
•
Liberalize financial markets
•
Increase trade with neighbors
•
Increase agricultural productivity
•
Improve infrastructure and
•
Improve environmental quality.
38
CHAPTER:-6 SUMMARY
Fundamental analysis of the Indian Banking Indusrty the Study is based on the Analysis of three things that are: •
Economy Analysis
•
Industry Analysis
•
Company Analysis
Economy Analysis includes the study of GDP, Inflation Rate, Money Supply and Growth Rate. Industry analysis includes the Study of Capacity, Market Position, Govt. policy and Changes etc. Company analysis includes the Study of Financial and Non Finacial. OBJECTIVES OF THE STUDY •
To take investment Decisions cautiously after studying risks involved in the same.
•
To acquire practical exposure of financial analysis of an enterprise.
•
To analyze the profitability position of the sample Banks.
•
To know the soundness and Resilient of the Indian Banking Sector.
•
To know the Growth Trends of the selected Banks.
•
To study the crucial Role of Banks in India’s Economic Development.
METHODOLOGY The present study adopts an analytical and descriptive research design. The data of the sample companies (for a period of five years from 2005 to 2009)has been collected from the annual reports and the balance sheet published by the companies and the websites of the companies.
A finite sample size of Ten Banks listed on the National Stock Exchange(NSE) has been selected for the purpose of the study. That are 39
•
Allahabad Bank
•
Axis Bank
•
SBI
•
HDFC
•
ICICI
•
IDBI
•
BOB
•
BOI
•
PNB
•
IOB
DATA COLLECTION
Financial Statements are thr raw data collected from various websites such as www.moneycontrol.com, www.investopedia.com, www.rbi.org and other company websites. TOOLS USED FOR ANALYSIS
Study of the three major factors of indian economy that are Agriculture, Communication and manufacturing for study of past performance of economy with context to GDP, Inflation and money supply etc. Ratios have been calculated for the past five years for the purpose of analysis.
40
BIBLIOGRAPHY
Jim Burg(1999) Conducted a study – “Fundamental Analysis Using Internet”. Jon Lynch conducted a study, “Share Market Analysis-Fundamental vs Technical Analysis”’, Mark P.Bauman (1996) conducted a study named, “A Review of Fundamental Analysis Research in Accounting.” www.countrydata.com www.developmentgateway.com www.investopedia.com www.moneycontrol.com www.rbi.org www.worldbank.org.
41
