THE INDIAN BANKING SECTOR REVIEW THE INDIAN BANKING SECTOR REVIEW
Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. For the past three decades India's banking system has several outstanding achievements to its credit. It is no longer confined to only metropolitans or cosmopolitans in India; in fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India's growth process. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalisation of 14 major private banks of India. Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dial a pizza. Money has become the order of the day. Post independence In 1948, the Reserve Bank of India, India's central banking authority, was nationalized, and it became an institution owned by the Government of India. In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India." The Banking Regulation Act also provided that no new bank or branch of an existing bank may be opened without a license from the RBI, and no two banks could have common directors. Liberalisation : The new policy shook the Banking sector in India completely. Bankers, till this time,
were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of functioning. In the early 1990s the then Narsimha Rao government embarked on a policy of liberalisation and gave licenses to a small number of private banks, which came to be known as New Generation tech-savvy banks, which included banks such as Global Trust Bank (the first of such new generation banks to be set up)which later amalgamated with Oriental Bank of Commerce, UTI Bank(now re-named as Axis Bank), ICICI Bank and HDFC Bank. Current situation
Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with the Government of India holding a stake), 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 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. Over the last four years, Indias economy has been
on a high growth trajectory, creating unprecedented opportunities for its banking sector. Most banks have enjoyed high growth and their valuations have appreciated significantly during this period. Looking ahead, the most pertinent issue is how well the banking sector is positioned to cater to continued growth. A holistic assessment of the banking sector is possible only by looking at the roles and actions of banks, their core capabilities and their ability to meet systemic objectives, which include increasing shareholder value, fostering financial inclusion, contributing to GDP growth, efficiently managing intermediation cost, and effectively allocating capital and maintaining system stability.
BANKING STRUCTURE IN INDIA
The banking institutions in the organized sector, commercial banks are the oldest institutions, some them having their genesis in the nineteenth century. Initially they were set up in large numbers, mostly as corporate bodies with shareholding with private individuals. Today 27 banks constitute a strong Public Sector in Indian Commercial Banking. Commercial Banks operating in India fall under different sub categories on the basis of their ownership and control over management; I.
Public Sector Banks
Public Sector Banks emerged in India in three stages. First the conversion of the then existing Imperial Bank of India into State Bank of India in 1955, followed by the taking over of the seven associated banks as its subsidiary. Second the nationalization of 14 major commercial banks in 1969and last the nationalization of 6 more commercial Bank in 1980. Thus 27 banks constitute the Public Se ctor Banks. II.
New Private Sector Banks
After the nationalization of the major banks in the private sector in 1969 and 1980, no new bank could be setup in India for about two decades, though there was no legal bar to that effect. The Narasimham Committee on financial sector reforms recommended the establishment of new banks of India. RBI thereafter issued guidelines for setting up of new private sector banks in India in January 1993. These guidelines aim at ensuring that new banks are financially viable and technologically up to date from the start. They have to work in a professional manner, so as to improve the image of commercial banking system and to win the confidence of the public. Eight private sector banks have been established including banks sector by financially institutions like IDBI, ICICI, and UTI etc. III.
Local Area Banks
Such Banks can be established as public limited companies in the private sector and can be promoted by individuals, companies, trusts and societies. The minimum paid up capital of such banks would be 5 crores with promoters contribution at least Rs. 2 crores. They are to be set up in district towns and the area of their operations would be limited to a maximum of 3 districts. At present, four local area banks are functional, one each in Punjab, Gujarat, Maharashtra and Andhra Pradesh.
IV.
Foreign Banks
Foreign commercial banks are the branches in India of the joint stock banks incorporated abroad. There number was 38 as on 31.03.2009. Scheduled Commercial Banks in India The commercial banking structure in India consists of: V.
Scheduled Commercial Banks in India
Unscheduled Banks in India Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section42 (6) a) of the Act. "Scheduled banks in India" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but does not include a co-operative bank". "Non-scheduled bank in India" means a banking company as defined in clause (c) of section 5 of the Banking Re gulation Act, 1949 (10 of 1949), which is not a scheduled bank". VI.
Cooperative Banks
Besides the commercial banks, there exists in India another set of banking institutions called cooperative credit institutions. These have been made in existence in India since long. They undertake the business of banking both in urban and rural areas on the principle of cooperation. They have served a useful role in spreading the banking habit throughout the country. Yet, there financial position is not sound and a majority of cooperative banks has yet to achieve financial viability on a sustainable basis. The cooperative banks have been set up under various Cooperative Societies Acts enacted by State Governments. Hence the State Governments regulate these banks. In 1966, need was felt to regulate their activities to ensure their soundness and to protect the interests of depositors According to the RBI in March 2009, number of all Scheduled Commercial Banks (SCBs) was 171 of which, 86 were Regional Rural Banks and the number of Non-Scheduled Commercial Banks including Local Area Banks stood at 5. Taking into account all banks in India, there are overall 56,640 branches or offices, 893,356 employees and 27,088 ATMs. Public sector banks made up a large chunk of the infrastructure, with 87.7 per cent of all offices, 82 per cent of staff and 60.3 per cent of all automated teller machines (ATMs).
SWOT ANALYSIS OF BANKING SECTOR STRENGTH
Indian banks have compared favorably on growth, asset quality and profitability with other regional banks over the last few years. The banking index has grown at a compounded annual rate of over 51 per cent since April 2001 as compared to a 27 per cent growth in the market index for the same period.
Policy makers have made some notable changes in policy and regulation to help strengthen the sector. These changes include strengthening prudential norms, enhancing the payments system and integrating regulations between commercial and co-operative banks.
Bank lending has been a significant driver of GDP growth and employment. Extensive reach: the vast networking & growing number of branches & ATMs. Indian banking system has reached even to the remote corners of the country.
In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region.
WEAKNESS
Public Sector Banks need to fundamentally strengthen institutional skill levels especially in sales and marketing, service operations, risk management and the overall organisational performance ethic & strengthen human capital.
Old private sector banks also have the need to fundamentally strengthen skill levels.
The cost of intermediation remains high and bank penetration is limited to only a few customer segments and geographies.
Structural weaknesses such as a fragmented industry structure, restrictions on capital availability and deployment, lack of institutional support infrastructure, restrictive labour laws, weak corporate governance and ineffective regulations beyond Scheduled Commercial Banks (SCBs), unless industry utilities and service bureaus.
Refusal to dilute stake in PSU banks:
The government has refused to dilute its stake in PSU banks below 51% thus choking the headroom available to these banks for raining equity capital.
Impediments in sectoral reforms: Opposition from Left and resultant cautious approach from the North Block in terms of approving me rger of PSU banks may hamper their growth prospects in the medium term.
OPPORTUNITY
The market is seeing discontinuous growth driven by new products and services that include opportunities in credit cards, consumer finance and wealth management on the retail side, and in fee-based income and investment banking on the wholesale banking side. These require new skills in sales & marketing, credit and operations.
With increased interest in India, competition from foreign banks will only intensify.
Given the demographic shifts resulting from changes in age profile and household income, consumers will increasingly demand enhanced institutional capabilities and service levels from banks.
New private banks could reach the next level of their growth in the Indian banking sector by continuing to innovate and develop differentiated business models to profitably serve segments like the rural/low income and affluent/HNI segments; actively adopting acquisitions as a means to grow and reaching the next level of performance in their service platforms. Attracting, developing and retaining more leadership capacity
Foreign banks committed to making a play in India will need to adopt alternative approaches to win the race for the customer and build a value-creating customer franchise in advance of regulations potentially opening up post 2009.
Reach in rural India for the private sector and foreign banks. Liberalisation of ECB norms: The government also liberalised the ECB norms to permit financial sector entities engaged in infrastructure funding to raise ECBs. This enabled banks and financial institutions, which were earlier not permitted to raise such funds, explore this route for raising cheaper funds in the overseas markets. Hybrid capital: In an attempt to relieve banks of their capital crunch, the RBI has allowed them to raise perpetual bonds and other hybrid capital securities to shore up their ca pital. If the new instruments find takers, it would help PSU banks, left with little headroom for raising equity. THREATS
Threat of stability of the system: failure of some w eak banks has often threatened the stability of the system.
Rise in inflation figures which would lead to increase in interest rates.
Increase in the number of foreign players would pose a threat to the P ublic Sector Bank as well as the private players.
Key players
Andhra Bank State Bank of India Allahabad Bank Vijaya Bank Punjab National Bank HDFC Bank UTI Bank ICICI Bank
Kotak Mahindra Bank Centurion Bank of Punjab Citibank Standard Chartered Bank HSBC Bank State Bank of Mysore American Express Bank ABN AMRO
Vision of banks in India
The banking scenario in India has already gained all the momentum, with the domestic and international banks gathering pace.
The focus of all banks in India has shifted their approach to 'cost', dete rmined by revenue minus profit. (This means that all the resources should be used efficiently to better the productivity and ensure a win-win situation.)
To survive in the long run, it is essential to focus on cost saving. (Previously, banks focused on the 'revenue' model which is equal to cost plus profit.)
Post the banking reforms, banks shifted their approach to the 'profit' model. ( which meant that banks aimed at higher profit maximization.)
Focus of banks in India
The banking industry is slated for growth in future with a more qualitative rather than quantitative approach.
The total assets of all scheduled commercial banks by end-March 2010 is projected to touch Rs 40,90,000 cr. This is going to comprise around 65% of GDP at current market prices as compared to 67% in 2002-03.
The bank's assets are estimated to grow at an annual composite rate of growth of 13.4% during the rest of the decade as against 16.7% between 1994-95 and 2002-03.
Barring the asset side, on the liability perspective, there will be huge additions to the capital base and reserves.
People will rely more on borrowed funds, pace of deposit growth slowing down side by side. However, advances and investments would not see a healthy growth rate.
BANKING SECTOR CURRENT PERFORMANCE OF INDIAN BANKING SECTOR
Indian Banking sector is dominated by Public sector banks (PSBs) which accounted for 72.6% of total advances for all SCBs as on 31st March 2008. PSBs have rapidly expanded their foot prints after nationalisation of banks in India in 1969 and further in 1980. Although there is a restrictive entry/expansion for private and foreign banks in India, these banks have increased their presence and business over last 5 years. Peculiar characteristic of Indian banks unlike their western counterparts such as high share of household savings in deposits (57.4% of total deposits), adequate capitalisation, stricter regulations and lower leverage makes them less prone to financial crisis, as was seen in the western
world in mid FY09. The Scheduled Commercial Banks (SCBs) in India have shown an impressive growth from FY04 to the mid of FY09. Total deposits, advances and net profit grew at CAGR of 19.6%, 27.4% and 20.2% respectively from FY03 to FY08. Banking sector recorded credit growth of 33.3% in FY05 which was highest in last 2 and half decades and credit growth in excess of 30% for three consecutive years from FY04 to FY07, which is best in the banking industry so far. Increase in economic activity and robust primary and secondary markets during this period have helped the banks to garner larger increase in their fee based incomes.
A significant improvement in recovering the NPAs, lowest ever increase in
new NPAs combined with a sharp increase in gross advances for SCBs translated into the best asset quality ratio for banking sector in last two decades. Gross NPAs to gross advances ratio for SCBs decreased from the high of 14% in FY2000 to 2.3% in FY08. Within the group of banks, foreign and private sector banks grew at higher rate than the industry from FY03 to FY08 primarily because of lower base effect and rapid expansion undertaken by these banks. In FY09, overall growth in credit and deposits was led by PSBs. However, growth of private and foreign banks was significantly lower in FY09 due to their high exposure to stressed sectors and problem at parent level for foreign banks. Unsecured bank credit has risen over the years and stood at 23.3% of bank credit in FY08 as compared to just 10.9% in FY2000. Lending to sensitive sector has also grown at CAGR of 46.1% from FY05 to FY08. In the backdrop of the economic downturn, CARE Research feels that the excellent performance seen in last five years ended FY08 will be difficult to repeat in coming years. The liquidity crisis that swept the heavyweights of global financial sector off their feet in FY09 did affect the entities in Indian banking sector as well, albeit marginally. Other than the temporary crunch after bankruptcy of Lehman Brothers, the global financial meltdown was weathered by banks in India with relative ease. The monetary stimuli (reduction in repo rate, cash reserve ratio (CRR) and statutory liquidity ratio (SLR)) offered to the banks by the RBI made things easier. Despite the severe liquidity pressure and poor credit appetite at the retail and corporate levels, Indian banks managed to grow their advances and deposits by 24% Year on Year (YOY) and 22% YoY respectively in FY09. The growth was mainly driven by a sharp expansion in term deposits and growth in agricultural and large corporate credit. Having said that , higher delinquency levels in retail credit and debt restructuring took its toll on the sector. There WILL BE A CHART
Indian banks also enjoyed higher levels of money supply, credit and deposits as a percentage of GDP in FY09 as compared to that in FY08 showing improved maturity in the financial sector. Despite poor pricing power lower cost of funds helped Indian banks grow their net interest margins in FY09. While few like ICICI Bank chose to reduce their balance sheet size, most entities chose to reasonably grow their franchise as well as assets. Public sector banks outdid their private sector counterparts in terms of growth and franchise expansion in the last fiscal. Improved capital adequacy also helped banks to comfortably comply with Basel II. The higher efficiency levels were the hallmarks of better performance of Indian banks last year. Most banks had to restructure some loans in their portfolio during FY09 which deferred their interest income. Further the PSU banks had also to provide for the loss of interest on the agri-loans waived by the government. With lesser avenues of credit disbursal, banks had to park most of the liquidity available with them with the RBI. At the end of FY09, banks' investment in SLR securities increased to 28.1% of total deposits from 27.8% in FY08 and higher than the RBI prescribed level of 24%.
Feeble credit offtake coupled with the fear of bad loans going up in the scenario of economic slowdown prompted banks to park their surplus funds with the RBI. In FY09, as per the RBI mandate, all foreign banks operating in India and Indian banks having operational presence outside India migrated to the Basel II norms. All other commercial banks have been encouraged to migrate to these approaches not later than FY10. CARE Research expects that with the downturn in the economy, credit and deposit growth will moderate in coming years. Credit growth will be led by spending on the infrastructure while retail credit will show a moderate growth.
Margin pressures due to lag effect of rate cuts between
interest rate on deposits and advances, lower treasury gains and core fee income and increasing in provisions for NPAs is likely to put pressure in the bottom line of the banks. Going forward, PSBs which are close to the required lower level of government stake and have concentrated presence in particular region are likely to consider its merger with other PSB as an important option if they want to sustain the growth seen in past. With the downturn in the economy, CARE Research expects that credit and deposit growth will moderate in coming years. Credit growth will be led by spending on the infrastructure while retail credit will show a moderate growth. Margin pressures due to lag effect of rate cuts between interest rate on deposits and advances, lower treasury gains and core fee income and increasing in provisions for NPAs is likely to put pressure in the bottom line of the banks.
INTRODUCTION TO FUNDAMENTAL ANALYSIS INTRODUCTION TO FUNDAMENTAL ANALYSIS
Fundamental Analysis involves examining the economic, financial and other qualitative and quantitative factors related to a security in order to determine its intrinsic value. It attempts to study everything that can affect the security's value, including macroeconomic factors (like the overall economy and industry conditions) and individually specific factors (like the fi nancial condition and management of companies). Fundamental analysis, which is also known as quantitative analysis, involves delving into a companys financial statements (such as profit and loss account and balance sheet) in order to study various financial indicators (such as revenues, earnings, liabilities, expenses and assets). Such analysis is usually
carried out by analysts, brokers and savvy investors. Many analysts and investors focus on a single number--net income (or earnings)--to evaluate performance. When investors attempt to forecast the market value of a firm, they frequently rely on earnings. Many institutional investors, analysts and regulators believe earnings are not as relevant as they once were. Due to nonrecurring events, disparities in measuring risk and management's ability to disguise fundamental earnings problems, other measures beyond net income can assist in predicting future firm earnings. Two Approaches of fundamental analysis
While carrying out fundamental analysis, investors can use either of the following approaches 1. Top-down approach: In this approach, an analyst investigates both international and national economic indicators, such as GDP growth rates, energy prices, inflation and interest rates. The search for the best security then trickles down to the analysis of total sales, price levels and foreign competition in a sector in order to ide ntify the best business in the sector. 2. Bottom-up approach: In this approach, an analyst starts the search with specific businesses, irrespective of their industry/region. How does fundamental analysis works?
Fundamental analysis is carried out with the aim of predicting the future performance of a company. It is based on the theory that the market price of a security tends to move towards its 'real value' or 'intrinsic value.' Thus, the intrinsic value of a security being higher than the securitys market value represents a time to buy. If the value of the security is lower than its market price, investors should sell it. The steps involved in fundamental analysis are: 1. Macroeconomic analysis, which involves considering currencies, commodities and indices. 2. Industry sector analysis, which involves the analysis of companies that are a part of the sector. 3. Situational analysis of a company. 4. Financial analysis of the company. 5. Valuation The valuation of any security is done through the discounted cash flow (DCF) model, which takes into consideration: 1. Dividends received by investors 2. Earnings or cash flows of a company 3. Debt, which is calculated by using the debt to equity ratio and the current ratio (current assets/current liabilities) Benefits of fundamental analysis
Fundamental analysis helps in: 1. Identifying the intrinsic value of a security. 2. Identifying long-term investment opportunities since it involves real-time data. 2.
. Identifying long-term investment opportunities since it involves real-time data.
Drawbacks of fundamental analysis
The drawbacks of fundamental analysis are:
Too many ecnomic indicators and extensive macroeconomic data can confuse novice investors.The same set of information on macroeconomic indicators can have varied e ffects on the same currencies at different times.It is beneficial only for long-term investments Fundamental Analysis Tools
These are the most popular tools of fundamental analysis. 1.Earnings per Share EPS 2.Price to Earnings Ratio P/E 3.Projected Earning Growth PEG 4.Price to Sales P/S 5.Price to Book P/B 6.Dividend Payout Ratio 7.Dividend Yield 8.Book Value 9.Return on Equity
Ratio analysis
financial ratios are tools for interpreting financial statements to provide a basis for valuing securities and appraising financial and management performance. A good financial analyst will build in financial ratio calculations extensively in a financial modeling exercise to enable robust analysis Financial ratios allow a financial analyst to: 1. Standardize information from financial statements across multiple financial years to allow comparison of a firms performance over time in a financial model.
2. Standardize information from financial statements from different companies to allow an apples to apples comparison between firms of differing size in a financial model. 3. Measure key relationships by relating inputs (costs) with outputs (benefits) and facilitates comparison of these relationships over time and across firms in a financial model. In general, there are 4 kinds of financial ratios that a financial analyst will use most frequently, these are: 1. Performance ratios 2. Working capital ratios 3. Liquidity ratios 4. Solvency ratios These 4 financial ratios allow a good financial analyst to quickly and efficiently address the following questions or concerns: 1) Performance ratios y
What return is the company making on its capital investment?
y
What are its profit margins?
2) Working capital ratios y
How quickly are debts paid?
y
How many times is inventory turned?
3) Liquidity ratios y
Can the company continue to pay its liabilities and debts?
4) Solvency ratios (Longer term) y
What is the level of debt in relation to other assets and to equity?
y
Is the level of interest payable out of profits
Technical analysis is the practice of anticipating price changes of a financial instrument by analyzing prior price changes and looking for patterns and relationships in price history. Since all the investors in the stock market want to make the maximum profits possible, they just cannot afford to ignore either fundamental or technical analysis. The price of a security represents a consensus. It is the price at which one person agrees to buy and another agrees to sell. The price at which an investor is willing to buy or sell depends primarily on his expectations. If he expects the security's price to rise, he will buy it; if the inve stor expects the price to fall, he will sell it. These simple stateme nts are the cause of a major challenge in forecasting security prices, because they refer to human expectations. As we all know firsthand, humans expectations are neither easily quantifiable nor predictable. If prices are based on investor expectations, then knowing what a security should sell for (i.e., fundamental analysis) becomes less important than knowing what other investors expect it to sell for. That's not to say that knowing what a security should sell for isn't important--it is. But there is usually a fairly strong consensus of a stock's future earnings that the average investor cannot disprove.
WHY ONLY FUNDAMENTAL ANALYSIS Long-term Trends
Fundamental analysis is good for long-term investments based on long-term trends, very long-term. The ability to identify and predict long-term economic, demographic, technological or consumer trends can benefit patient investors who pick the right industry groups or companies. Value Spotting
Sound fundamental analysis will help identify companies that represent a good value. Some of the most legendary investors think long-term and value. Graham and Dodd, Warren Buffett and John Neff are seen as the champions of value investing. Fundamental analysis can help uncover companies with valuable assets, a strong balance sheet, stable earnings, and staying power. Business insights
One of the most obvious, but less tangible, rewards of fundamental analysis is the development of a thorough understanding of the business. After such pains taking research and analysis, an investor will be familiar with the key revenue and profit drivers behind a company. Earnings and earnings expectations can be potent drivers of equity prices. Even some technicians will agree to that. A good understanding can help investors avoid companies that are prone to shortfalls and identify those that continue to deliver. In addition to understanding the business, fundamental analysis allows investors to develop an understanding of the key value drivers and companies within an industry. A stock's price is heavily influenced by its industry group. By studying these groups, investors can better position themselves to identify opportunities that are high-risk (tech), low-risk (utilities), growth oriented (computer), value driven (oil), non-cyclical (consumer staples), cyclical (transportation) or incomeoriented (high yield). Knowing Who's Who
Stocks move as a group. By understanding a company's business, investors can better position themselves to categorize stocks within their relevant industry group. Business can change rapidly and with it the revenue mix of a company. This has happened with many of the pure internet retailers, which were not really internet companies, but plain retailers. Knowing a company's business and being able to place it in a group can make a huge difference in relative valuations. The charts of the technical analyst may give all kinds of profit alerts, signals and alarms, but theres little in the charts that tell us why a group of people make the choices that create the price patterns.
HDFC BANK
COMPANY PROFILE
Housing Development Finance Corporation Limited, more popularly known as HDFC Bank Ltd, was established in the year 1994, as a part of the liberalization of the Indian Banking Industry by Rese rve Bank of India (RBI). It was one of the first banks to receive an 'in principle' approval from RBI, for setting up a bank in the private sector. The bank was incorporated with the name 'HDFC Bank Limited', with its registered office in Mumbai. The following year, it started its operations as a Scheduled Commercial Bank. Today, the bank boasts of as many as 1412 branches and over 32 75 ATMs across India. AMALGAMATIONS In 2002, HDFC Bank witnessed its m erger with Times Bank Limited (a private sector bank promoted by Bennett, Coleman & Co. / Times Group). With this, HDFC and Times became the first two private banks in the New Generation Private Sector Banks to have gone through a merger. In 2008, RBI approved the amalgamation of Centurion Bank of Punjab with HDFC Bank. With this, the Deposits of the me rged
entity became Rs. 1,22,000 crores, while the Advances were Rs. 89,000 crores and Balance Sheet size was Rs. 1,63,000 crores.
There will be IS and BS and Ratio PERFORMANCE
HIGHLIGHTS
y
Net profit has grown 41.2% to 2245cr in 2009 from 1590 in 2008 largely due to treasury gains.
y
ROE is 17.2% in 2009 as compared to 17.7% in 2008.
y
ROA is 1.4% in 2009 which is unchanged from last year.
y
Net interest spread is 10.39 in 2009 as compared to 11.30 in 2008.
y
NIM is 4.9% in 2009 which is unchanged from last year.
y
P/E IS 28.38% in 2009 as compared to 30.4% in 2008.
y
The banks CAR stood at comfortable 15.4% as at 30th June2009, with tier I at 10.6%.
y
Warrant conversion by HDFC Ltd will further boost the tier I capital adequacy.
y
CASA ratio is maintained at 45% this year.
y
The NPA in 2008 was 903.64 crores.
OUTLOOK AND VALUATION
I believe that HDFC Bank is among the most competitive banks in the Banking Se ctor and is poised to maintain its profitable growth over the long term. I believe that the Banks competitive advantages, driving gains in CASA market share and traction in multiple Fee Revenue streams, can support up to 5% higher core sustainable RoEs vis-à-vis sectoral averages over the long term, creating a material margin of safety in our Target valuation multiples. We should maintain our view that the substantial inorganic and organic network expansion since 3QFY2008 will enable the Bank regain strong traction in CASA Deposits and Fee Income market share gains over the next 1-2 years, especially once the macro-environment starts improving, progressively restoring financial parameters like CASA ratio and RoE back to p re-merger levels. While HR and IT integration of the eCBoP branches has been completed, it is likely to take the Bank 12-18 months for productivity improvements to scale up closer to levels of i ts own branches, so that merger benefits start accruing to its Bottom-line.
HIERARCHY FOR CHOOSING BANKING STOCK FOR INVESTMENT 1) HDFC Bank Ltd
HDFC Bank is among the most competitive bank in the Banking Sector and is poised to maintain its profitable growth over the long term. Network expansion since 3QFY2008 will enable the Bank regains strong traction in CASA Deposits and Fee Income. Market share gains over the next 1-2 years. While HR and IT integration of the centurion bank of Punjab branches has been completed, it is likely to take the Bank 12-18 months for productivity improvements to scale up closer to levels of its own branches, so that merger benefits start accruing to its Bottom-line. The bank stock is likely to get highest return comparatively with other bank. 2) ICICI Bank Ltd
The banks strategy of strengthening its profitability by expanding branch network, replacing bulk deposits with retail deposits and improving CASA ratio. These measures are likely to result in margin improvement and subsequent increase in medium-term ROEs from the current levels. Looking at the nd
future growth this bank is 2 most preferred stock for investing. 2) SBI LTD
Banks balance sheet is coming to Rs10 trill ion. SBI has maintained its leadership position across financial product and had aggressively expanded its book in recent past and had gained market share. SBI currently has 1111 branches and plans to add 1000 branches this fiscal catering to over 50000 vi llages. It is also aiming at extending banking services to 100000 un banked villages in FY 10 Key risk to bank is1) sharper than expected asset quality deterioration, 2) Slower credit growth, 3) Margin compression. 4)Punjab National Bank Ltd
PNB Ltd has been ranked on 5th position in prefere nce this is because there is asset quality concerns could continue to weigh in overseas branches. The bank is growing rapidly on the international front and plans to continue its growth globally. It has already acquired permission from RBI to open further branches abroad especially one in DIFC, Dubai. Although it is a positive sign, there is a concern of FOREX losses that could be reported by the bank in t he future quarters due to adverse fluctuation in currency. Further spreads in countries abroad may not be as hea lthy as in India and asset quality concerns could continue to weigh in overseas branches. CONCLUSION y
Fundamental analysis can be valuable, but it should be approached with caution. If you are reading research written by a sell-side analyst, it is important to be familiar with the analyst behind the report.
y
We all have personal biases, and every analyst has some sort of bias. There is nothing wrong with this, and the research can still be of great value.
y
Learn what the ratings mean and the track record of an analyst before jumping off the deep end.
y
Corporate statements and press releases offer g ood information, but they should be read with a healthy degree of skepticism to separate the facts from the spin.
y
Press releases don't happen by accident; they are an important Personal Research tool for companies.
y
Investors should become skilled readers to weed out the important information and ignore the hype.
