SUMMER TRAINING PROJECT REPORT

ON
"A STUDY ON INDIAN BANKING SYSTEM OF AXIS
BANK"

Under the guidance of

Mr. KARUN SIR
(Sales Manager)
Submitted in partial fulfillment for the award of
Degree of Master of Business Administration
From Dr. A.P.J. Abdul Kalam Technical University, Lucknow

BY
PUSHPENDRA SINGH
ROLL NO: 2301240700054

INSTITUTE OF CO-OPERATIVE & CORPORATE

MANAGEMENT, RESEARCH AND TRAINING
21/467, RING ROAD, INDIRA NAGAR, LUCKNOW-226016

i
 Phone: 2716431, 2716092
Fax: (0522) 2716092

Institute of Co-operative & Corporate

Management, Research and Training
467, Sector-21, Ring Road, Indira Nagar, Lucknow-226 016

CERTIFICATE

This is to certify that “PUSHPENDRA SINGH” a student of Master of Business

Administration (MBA) Programmes (Batch 2023-25) of this Institute has
undergone Summer Training in the MR. KARUN SIR & CO. to 15th October 2024
to 15 December 2024 and carried out a study titled "A STUDY ON INDIAN
BANKING SYSTEM OF AXIS BANK”. She has prepared a report on the study
carried out by her in the organization.
The student has also made a presentation before a panel of experts at the Institute.

Certified Ms. Farhana Jamal

Dr. K. Anbumani ASSISTANT PROFESSOR

ii
Principal, ICCMRT

iii
iv
 DECLARATION

I, PUSHPENDRA SINGH a student of Master of Business Administration (MBA)

Program at the Institute of Co- operative & Corporate Management Research and
Training, Lucknow hereby declare that all the information, facts and figures used
in this research project titled "A STUDY ON INDIAN BANKING SYSTEM OF
AXIS BANK” have been collected by me. I also declare that this project report has
been prepared by me and the same has never been submitted by the undersigned
either in part or in full to any other University or Institute or published earlier.

I confirm that this project report is my own original work and that I have not
copied anything from other published or unpublished work without their
permission.

This information is true to the best of my knowledge and belief.

PUSHPENDRA SINGH
MBA III SEM.
ROLL NO. 2301240700054

v
 ACKNOWLEDGEMENT

I owe thanks to many people who have helped and supported me during the
completion of this project.
I would like to express my deep sense of gratitude to Mr. Rajeev Yadav Sir
Director of ICCMRT, Lucknow and to Dr. K. Anbumani Sir, Principal of
ICCMRT, Lucknow. for their valuable support and guidance for the completion of
my Project.
I would also like to thank Ms. Farhana Jamal ma’am, Assistant Professor,
faculty guide, for guiding and correcting various documents with attention and care
without whom this research report has been a distant reality.
I am thankful to Mr. KARUN SIR (Sales MANAGER) who helped me at all
stage during the course of my project.
I would also like to thank all faculty members for their support and guidance,
thanks and appreciation to the helpful people at ICCMRT for their support.
I extend my heartfelt thanks to my family and well-wishers as well.

PUSHPENDRA SINGH
MBA III SEM.
ROLL NO. 2301240700054

vi
EXECUTIVE SUMMARY

vii
 EXECUTIVE SUMMARY

The Indian Economy is driven by strong fundamentals with GDP growth at 9.1% for H1 FY07 –
strongest growth in any six months since H1 FY04 and uptrend in Industrial Cycle with Average
Index of Industrial Production growth at 10.2% being the strongest run in the past 11 years.
On political front, the Indian Government has signed nuclear deal with America indicating
India’s importance in the global context opening up many opportunities. Along with this,
Chinese President Hu is expected to visit India. This will improve trade and other ties between
two of the fastest growing economies.
In Capital Market, Strong foreign inflows with Portfolio flows of nearby USD 9.2bn took BSE
Sensex to 14,000 + (50% higher) compared to FY 05-06. The Indian corporate raised USD 6bn
by issuing Initial public offer in India and abroad. High Credit growth at 30%, it continued the
trend of last 5 years where it has averaged around 25% and lastly M&A activity which was at its
peak with sectors beyond IT and Pharma making global & domestic acquisitions.

 The high growth sectors are Power where power ministry and local private players
announce 9 ultra mega projects (4,000 MW each) provides visibility on power & infra
front.
 Retail - a Point of inflection with major Indian corporate announcing plans, entry of
world majors like Wal-Mart & foreign investment allowed in single brand retail and Real
Estate with major huge build-out plans and Special Economic Zone policy of government
is major driver of growth.
 Banking in which Banks are allowed to raise hybrid capital which opens new avenues for
funding credit growth.

As such, the report focus on change factors in Banking Industry as this industry is expected to
have major impact on Indian Economy.

viii
 TABLE OF CONTENTS

S. NO. TOPIC PAGE NO.

1. INTRODUCTION 1-5
2. COMPANY PROFILE 6-26
3. OBJECTIVE OF THE STUDY 27-28
4. RESEARCH METHODOLOGY 29-36
5. REVIEW OF LITERATURE 37-45
6. ANALYSIS AND INTERPRETATION 46-69
7. FINDINGS 70-76
8. SUGGESTIONS AND 77-82
RECOMMENDATIONS
9. CONCLUSION 83-88
10. LIMITATION 89-92
11. BIBLIOGRAPHY 93-94
12. APPENDICES 95-103

ix
INTRODUCTI
ON

1
 INTRODUCTION

In India, given the relatively underdeveloped capital market and with little internal
resources, firms and economic entities depend, largely, on financial intermediaries
to meet their fund requirements. In terms of supply of credit, financial
intermediaries can broadly be categorized as institutional and non-institutional.
The major institutional suppliers of credit in India are banks and non-bank
financial institutions (that is, development financial institutions or DFIs), other
financial institutions (FIs), and non-banking finance companies (NBFCs). The non-
institutional or unorganized sources of credit include indigenous bankers and
money-lenders. Information about the unorganized sector is limited and not readily
available.

An important feature of the credit market is its term structure:

(a) Short-term credit
(b) Medium-term credit
(c) Long-term credit.

While banks and NBFCs predominantly cater for short-term needs, FIs provide
mostly medium and long-term funds.

[Link]

IA Bank ties up with SBI for money transfers

2
Sunday, 09.23.2007, 11:59pm (GMT-7)

NEW JERSEY: Indus American Bank has tied up with State Bank of India to
offer money transfer services to India for its clients. Under the new money transfer
service, which will provide expanded services to Indus American Bank customers
can expect service at over 14,000 branch locations of State Bank of India within
India, and at over 14,000 additional RTGS participating banks.

Funds remitted from Indus American Bank would reach recipients typically within
24 hours. As the largest bank in India, State Bank of India offers excellent
exchange rates which are now available to Indus American Bank customers. India
is one of the biggest destinations for foreign remittances.

[Link]
fileR=20070925165003043&dir=2007/09/25&secID=livenews

ICICI Bank allots equity shares

ICICI Bank allotted 17,800 equity shares of face value of Rs 10 each on Sep. 18,
2007 under the employees stock option sceme, 2000 (ESOS).ICICI Bank
(ICICIBANK) was promoted in 1994 by ICICI, an Indian development financial
institution. The two entities subsequently merged to become the largest
commercial bank in the private sector.

Shares of the company gained Rs 7.75, or 1.38%, to settle at Rs 569.9. The total
volume of shares traded was 173,655 at the BSE.(Tuesday)

HDFC Asset Management to launch debt fund on Sept 27

Tue Sep 25, 2007 12:50pm IST

3
MUMBAI (Reuters) - HDFC Asset Management Co Ltd said on Tuesday that it
will launch a close-ended debt fund on Sept. 27.

The fund, HDFC FMP 18M September 2007, will be open for subscription till Oct.
8. It will invest at least 60 percent of the assets in debt and money market
instruments and the rest in government securities, the fund house said.

HDFC to cut interest rates

Economic Times, India - Sat Sep 22, 2007 12:14pm IST

Mortgage lender Housing Development Finance Corp is likely to cut its interest
rates next week, the Economic Times reported on Saturday.

"The cost of wholesale funding has come down and we are taking a look at passing
on the benefits to borrowers," HDFC Chairman Deepak Parekh was quoted as
saying.

The report also quoted HDFC Managing Director Keki Mistry as saying the
company was looking at a half percentage point cut and that the new rates would
be announced next week.

4
 SIGNIFICANCE OF THE STUDY

 To make a detailed study of various financial services provide by the

different banks.

 To analyze customers view point regarding their banks.

 To study effective and most popular bank among the customers regarding its

services.

 To find out the rate of interest of banks and reaction of customers on it.

 To make analysis on the economic benefits provided by various banks.

 Suggest the investors whether to invest in shares of Banking Companies.

5
 CONCEPTUALIZATION

The last decade has seen many positive developments in the Indian banking sector.
The policy makers, which comprise the Reserve Bank of India (RBI), Ministry of
Finance and related government and financial sector regulatory entities, have made
several notable efforts to improve regulation in the sector. The sector now
compares favourably with banking sectors in the region on metrics like growth,
profitability and non-performing assets (NPAs). A few banks have established an
outstanding track record of innovation, growth and value creation. This is reflected
in their market valuation. However, improved regulations, innovation, growth and
value creation in the sector remain limited to a small part of it.

The cost of banking intermediation in India is higher and bank penetration is far
lower than in other markets. India’s banking industry must strengthen itself
significantly if it has to support the modern and vibrant economy which India
aspires to be. While the onus for this change lies mainly with bank managements,
an enabling policy and regulatory framework will also be critical to their success.

The failure to respond to changing market realities has stunted the development of
the financial sector in many developing countries. A weak banking structure has
been unable to fuel continued growth, which has harmed the long-term health of
their economies. In this “white paper”, we emphasize the need to act both
decisively and quickly to build an enabling, rather than a limiting, banking sector
in India

6
 FOCUS OF THE PROBLEM

The research report concentrates on macro and micro factors affecting Banking

Industry, Evolution of Banking Industry and its current status. Various regulatory

and reform processes also affect banking industry. The report also throws a light

on them.

The report finally ends with valuation of major players in banking Industry and the

major challenges faced by this industry.

1. Banking Challenges

It is expected that the Indian banking and finance system will be globally

competitive. For this the market players will have to be financially strong and

operationally efficient. Capital would be a key factor in building a successful

institution. The banking and finance system will improve competitiveness through

a process of consolidation, either through mergers and acquisitions through

strategic alliances. Technology would be the key to the competitiveness of banking

and finance system. Indian players will keep pace with global leaders in the use of

banking technology.

7
In such a scenario, on-line accessibility will be available to the customers from any

part of the globe; ‘Anywhere’ and ‘Anytime’ banking will be realized truly and

fully. In this context, the research paper approached “Indian Banking System” as

the shape of the banking sector will be the result of a strong interplay between the

decisions taken by policy makers and actions of bank managements.

2. Banking Evolution & Regulatory Framework

Financial Sector Reforms set in motion in 1991 have greatly changed the face of

Indian Banking. The banking industry has moved gradually from a regulated

environment to a deregulated market economy. The market developments kindled

by liberalization and globalization have resulted in changes in the intermediation

role of banks. The pace of transformation has been more significant in recent times

with technology acting as a catalyst.

While the banking system has done fairly well in adjusting to the new market

dynamics, greater challenges lie ahead. Financial sector would be opened up for

greater international competition under WTO. Banks will have to gear up to meet

stringent prudential capital adequacy norms under Basel II. In addition to WTO

and Basel II, the Free Trade Agreements (FTAs) such as with Singapore, may have

an impact on the shape of the banking industry. Banks will also have to cope with

challenges posed by technological innovations in banking. Banks need to prepare

8
for the changes. In this context the need for drawing up a Road Map to the future

assumes relevance.

The last decade has seen many positive developments in the Indian Banking

Sector. The policy makers, which comprise the Reserve Bank of India (RBI),

Ministry of Finance and related government and financial sector regulatory

entities, have made several notable efforts to improve regulation in the sector.

The sector now compares favorably with banking sectors in the region on metrics

like growth, profitability and non-performing assets (NPAs). A few banks have

established an outstanding track record of innovation, growth and value creation.

This is reflected in their market valuation. However, improved regulations,

innovation, growth and value creation in the sector remain limited to a small part

of it. The cost of banking intermediation in India is higher and bank penetration is

far lower than in other markets. India’s banking industry must strengthen itself

significantly, if it has to support the modern and vibrant economy which India

aspires to be, while the onus for this change lies mainly with bank managements,

and enabling policy and regulatory framework will also be critical to their success.

3. Internal Hindrances to Banking Industry

9
The research focuses on emphasizing the need of decisively and quickly to build

and enabling, rather than a limiting, banking sector in India. The major challenges

ahead for bank management are as follows:

 First, cost management, a key to sustainability of bank profits as well as their

long-term viability.

 Second, recovery management, which is a key to the stability of the banking

sector.

 Third, technological intensity of banking, an area where India happens to be a

world leader in information technology, but its usage by our banking system is

somewhat muted. It is wise for Indian banks to exploit this globally state-of-art

expertise, domestically available, to their fullest advantage.

 Fourth, risk management, Banks can, on their part, formulate ‘early warning

indicators’ suited to their own requirements, business profile and risk appetite

in order to better monitor and manage risks.

Fifth, governance because the quality of corporate governance in the banks

becomes critical as competition intensifies, banks strive to retain their client base,

and regulators move out of controls and micro-regulation.

10
COMPANY
PROFILE

11
 COMPANY PROFILE

Axis Bank was the first of the new private banks to have begun operations in 1994,

after the Government of India allowed new private banks to be established. The

Bank was promoted jointly by the Administrator of the specified undertaking of

the Unit Trust of India (UTI - I), Life Insurance Corporation of India (LIC) and

General Insurance Corporation of India (GIC) and other four PSU insurance

companies, i.e. National Insurance Company Ltd., The New India Assurance

Company Ltd., The Oriental Insurance Company Ltd. and United India Insurance

Company Ltd.

The Bank as on 30th June, 2011 is capitalized to the extent of Rs. 874 corers with

the public holding (other than promoters and GDRs) at 52.87%.

The Bank's Registered Office is at Ahmadabad and its Central Office is located at

Mumbai. The Bank has a very wide network of more than 2402 branches (on 31st

March, 2014). The Bank has a network of over 12,922 ATMs (as on 31st March,

2014) providing 24 hrs a day banking convenience to its customers. This is one of

the largest ATM networks in the country. The Bank has strengths in both retail and

corporate banking and is committed to adopting the best industry practices

internationally in order to achieve excellence.

12
 Board of Directors

PERSON DESIGNATION

Akshaya Kumar Panda President

Amit Talgeri Chief Risk Officer

Amitabh Chaudhry CEO

Amitabh Chaudhry Managing Director & CEO

B Babu Rao Nominee Director

Ganesh Sankaran Group Executive

Girish Paranjpe Independent Director

Girish V Koliyote Co. Secretary & Compl. Officer

Girish V Koliyote Secretary

Himadri Chatterjee President

J P Singh President

Jairam Sridharan CFO & Group Executive

Ketaki Bhagwati Independent Director

Pralay Mondal Group Executive

Prashant Joshi President

Rajesh Dahiya Executive Director

Rajiv Anand Executive Director

13
Rakesh Makhija Non [Link] Time Chairman

Ravi Narayanan President

Rohit Bhagat Independent Director

Rudrapriyo Ray President

S Vishvanathan Independent Director

Sanjay Silas President

Sidharth Rath Group Executive

Stephen Pagliuca Nominee Director

14
 Vision 2020 And Core Values

VISION 2020:

To be the preferred financial solutions provider excelling in customer delivery through insight,
empowered employees and smart use of technology

Core Values:

 Customer Centricity

 Ethics

 Transparency

 Teamwork

 Ownership

15
 INTRODUCTION OF AXIS BANK

Commercial banking services which includes merchant banking, direct Finance

infrastructure finance, venture capital fund, advisory, Trusteeship, forex, treasury

and other related financial services. As on 31-Mar-2014, the Group has 2402

branches, extension counters and 12,922 automated teller machines (ATMs). Axis

Bank was the first of the new private banks to have begun Operations in 1994,

after the Government of India allowed new Banks to be established. The Bank

was promoted jointly by the Administrator of the specified undertaking of the Unit

Trust of India (UTI - I), Life Insurance Corporation of India (LIC) and General

Insurance of India (GIC) and other four PSU insurance companies, National

Insurance Ltd., The New India Assurance Company Ltd., The Oriental Insurance

Company Ltd. and United India Insurance Company Ltd. The Bank today is

capitalized to the extent of Rs. 359.76 with the public holding (other than

promoters) at 57.79%.TheBank's Registered Office is at Ahmadabad and its

Central office is located at Mumbai. The Bank has a very wide network of more

than 2402 branches and Extension Counters (as on 31th march 2014). The Bank

has a network of over 12922 ATMs (as on 31th march 2014) providing 24 hrs a

day banking convenience to its customers. This is one of the largest ATM

networks in the country. The Bank has strengths in both retail and corporate

16
banking and is committed to adopting the best industry practices internationally in

order to achieve excellence.

History of Axis bank

1993: The Bank was incorporated on 3rd December and Certificate of Business on

14th December. The Bank transacts banking business of All description. UTI Bank

Ltd. was promoted by Unit Trust of India, Life Insurance Corporation of India,

General Insurance Corporation of India And its four subsidiaries. The bank was

the first private sector bank to Get a license under the new guidelines issued by the

RBI.

1997: The Bank obtained license to act as Depository Participant with NSDL and

applied for ion with SEBI to act as `Trustee to Debenture Holders'. Rupees 100

crores was contributed by UTI, the Rest from LIC Rs 7.5 crores, GIC and its four

subsidiaries Rs 1.5 crores Each.

1998: The Bank has 28 branches in urban and semi urban areas as on 31st July. All

the branches are fully computerized and networked Through VSAT. ATM services

are available in 27 branches. The Bank Came out with a public issue of 1, 50,

00,000 No. of equity shares of Rs 10 each at a premium of Rs 11 per share

aggregating to Rs 31.50 Crores and Offer for sale of 2, 00, 00,000 No. of equity

17
shares for cash at a price of Rs 21 per share. Out of the public issue 2, 20,000

shares Were reserved for allotment on preferential basis to employees of UTI

Bank. Balance of 3, 47, 80,000 shares were offered to the public. The Company

offers ATM cards, using which account-holders can withdraw Money from any of

the bank's ATMs across the country which is interconnected by VSAT. UTI Bank

has launched a new retail product with operational flexibility for its customers.

UTI Bank will sign a co-brand agreement with the market, leader, Citibank NA for

entering into the highly promising credit card business. UTI Bank promoted by

India's Pioneer mutual fund Unit Trust of India along with LIC, GIC and its four

Subsidiaries.

1999: UTI Bank and Citibank have launched an international cobranded Credit

card. UTI Bank and Citibank have come together to launch an international co-

branded credit card under the MasterCard Umbrella. UTI Bank Ltd has

inaugurated an offsite ATM at Ashok Nagar Here, taking the total number of its

offsite ATMs to 13.m

2000: The Bank has announced the launch of Tele-Depository Services

For Its depository clients. UTI Bank has launch of `connect', its Internet Banking

Product. UTI Bank has signed a memorandum of understanding with

[Link] for e-broking activities of the site. [Link] financial

18
Securities Ltd., an e-broking outfit is Typing up with UTI Bank for a banking

interface. Geojit Securities Ltd, the first company to start online trading services,

has signed a MoU with UTI Bank to enable investors to buy\sell demat stocks

through the company's website. India bulls have signed a memorandum of

understanding with UTI Bank. UTI Bank has entered into an agreement with Stock

Holding Corporation of India for providing loans against shares to SCHCIL's

customers and funding investors in public and rights issues. ICRA has upgraded

the rating UTI Bank's Rs 500 crore certificate of deposit programmed to A1+. UTI

Bank has tied up with L&T [Link] for providing customized online trading

solution for brokers.

2001: UTI Bank launched a private placement of non-convertible Debentures to

rise up to Rs 75 crores. UTI Bank has opened two offsite ATMs and one extension

counter with an ATM in Mangalore, taking its Total number of ATMs across the

country to 355. UTI Bank has recorded a 62 per cent rise in net profit for the

quarter ended September 30, 2001, at Rs 30.95 crore. For the second quarter ended

September 30, 2000, the net profit was Rs 19.08 crore. The total income of the

bank During the quarter was up 53 per cent at Rs 366.25 crore.

2002: UTI Bank Ltd has informed BSE that Shri B R Barwale has Resigned as a

Director of the Bank w.e.f. January 02, 2002. A C Shah, Former chairman of Bank

19
of Baroda also retired from the bank’s board In the third quarter of last year. His

place continues to be vacant. M Damodaran took over as the director of the board

after taking in the Reins of UTI. B S Pandit has also joined the bank’s board

subsequent to The retirement of K G Vassal. UTI Bank Ltd has informed that Shri

Paul Fletcher has been appointed as an Additional Director Nominee of CDC

Financial Service (Mauritius) Ltd of the Bank. And Shri Donald Peck has Been

appointed as an Additional Director (nominee of South Asia Regional Fund) of the

Bank. UTI Bank Ltd has informed that on laying Down the office of Chairman of

LIC on being appointed as Chairman of SEBI, Shri G N Bajpai, Nominee Director

of LIC has resigned as a Director of the Bank.

2003: UTI Bank Ltd has informed BSE that at the meeting of the Board Of

Directors of the company held on January 16, 2003, Shri R N Bharadwaj,

Managing Director of LIC has been appointed as an Additional Director of the

Bank with immediate effect. - UTI Bank, the Private sector bank has opened a

branch at Nellore. The banks Chairman and Managing Director, Dr P.J. Nayak,

inaugurating the bank Branch at GT Road on May 26. Speaking on the occasion,

Dr Nayak Said. This marks another step towards the extensive customer banking

Focus that we are providing across the country and reinforces our Commitment to

bring superior banking services, marked by Convenience and closeness to

20
customers. -UTI Bank Ltd. has informed The Exchange that at its meeting held on

June 25, 2003 the BOD have Decided the following: 1) to appoint Mr. A T

PannirSelvam, former CMD of Union Bank of India and Prof. Jayanth Verma of

the Indian Institute of Management, Ahmadabad as additional directors of the

Bank with immediate effect. Further, Mr. PannirSelvam will be the Nominee

director of the Administrator of the specified undertaking of The Unit Trust of

India (UTI-I) and Mr. JayanthVerma will be an Independent Director. 2) To issue

Non-Convertible Unsecured Redeemable Debentures up to Rs.100 crs, in one or

more tranches as The Bank's Tier - II capital. -UTI has been authorized to launch

16 ATMs On the Western Railway Stations of Mumbai Division. -UTI filed suit

Against financial institutions IFCI Ltd in the debt recovery tribunal at Mumbai to

recover Rs.85cr in dues. -UTI bank made an entry to the Food Credit Programme;

it has made an entry into the 59 cluster which includes private sector, public

sector, old private sector and cooperative banks. –ShriAjeet Prasad, Nominee of

UTI has resigned as the director of the bank. -Banks Chairman and MD Dr. P. J.

Nayak inaugurated a new branch at Nellore.-UTI bank allots shares under

Employee Stock Option Scheme to its employees. -Unveils pre-paid travel card

'Visa Electron Travel Currency Card' -Allotment of 58923 equity shares of Rs 10

each under ESOP. -UTI Bank ties up with UK govt fund for contract farm in -Shri

B S Pandit, nominee of the Administrator of the Specified Undertaking of the Unit

21
Trust of India (UTI-I) has resigned as a director from the Bank w.e.f November

12, 2003. -UTI Bank unveils new ATM in Sikkim.

2004: Comes out with Rs. 500 mn Unsecured Redeemable Non- Convertible

Debenture Issue, issue fully subscribed -UTI Bank Ltd has informed that ShriAjeet

Prasad, Nominee of the Administrator of the Specified Undertaking of the Unit

Trust of India (UTI - I) has been Appointed as an Additional Director of the Bank

w. e. f. January 20, 2004.-UTI Bank opens new branch in Udupi-UTI Bank, Geojit

in pact for Trading platform in Qatar -UTI Bank ties up with Shriram Group Cos -

Unveils premium payment facility through ATMs applicable to LIC UTI Bank

customers –Metal junction (MJ)- the online trading and Procurement joint venture

of Tata Steel and Steel Authority of India (SAIL)- has roped in UTI Bank to start

off own equipment for Tata Steel. -DIEBOLD Systems Private Ltd, a wholly

owned subsidiary of Diebold Incorporated, has secured a major contract for the

supply of ATMs an services to UTI Bank -HSBC completes acquisition of 14.6%

stake in UTIBank for .6 m -UTI Bank installs ATM in Thiruvananthapuram –

LaunchesRemittance Card' in association with Remit2India, a Web site

offeringmoney transfer services

2005: - UTI Bank enters into a banc assurance partnership with Bajaj Allianz

General for selling general insurance products through its Branch network. -UTI

22
Bank launches its first Satellite Retail Assets Centre (SRAC) in Karnataka at

Mangalore.

2006: -UBL sets up branch in Jaipur -UTI Bank unveils priority banking Lounge.

23
Management of Axis bank

Promoters: Axis Bank Ltd. has been promoted by the largest and the Best Financial Institution

of the country, UTI. The Bank was set up with A capital of Rs. 115 crore, with UTI contributing

Rs. 100 Crore, LIC - Rs. 7.5 Crore and GIC and its four subsidiaries contributing Rs. 1.5 Crore

Each SUUTI - Shareholding 27.02%Erstwhile Unit Trust of India was set Up as a body

corporate under the UTI Act, 1963, with a view to Encourage savings and investment. In

December 2002, the UTI Act, 1963 was repealed with the passage of Unit Trust of India

(Transfer of Undertaking and Repeal) Act, 2002 by the Parliament, paving the way For the

bifurcation of UTI into 2 entities, UTI-I and UTI-II with effect from1st February 2003. In

accordance with the Act, the Undertaking specified as UTI I has been transferred and vested in

the Administrator Of the Specified Undertaking of the Unit Trust of India (SUUTI), who

Manages assured return schemes along with 6.75% US-64 Bonds, 6.60% ARS Bonds with a

Unit Capital of over Rs. 14167.59 crores. The Government of India has currently appointed Shri

K. N. Prithviraj as the Administrator of the Specified undertaking of UTI, to look after and

Administer the schemes under UTI where Government has continuing Obligations and

commitments to the investors, which it will uphold.

24
 PRODUCT OF AXIS BANK

Easy Access Saving Account

 Saving Account for Women

 Prime saving Account

 Senior Citizens Saving Account

 Priority Banking

 Corporate Salary Account

 Trust /NGOs Saving Account

 Resident Foreign Currency Account

 Online Trading Account

 Current Account

 Term Deposits

 Locker Facilities

 NRI Services

 Depository Services

25
  Financial Advisory Services

 Wealth Management Services

 Insurance Solutions – Life and General

 Retail Loans

 Credit Loans

 Travel Currency Cards

 Remittance Cards

 Gift Cards

Customer service in Banking Operations

Cheque Drop Box Facility

RBI's Committee on Procedures and Performance Audit on Public Services has

recommended that both the drop box facility and the facility for acknowledgement

of the cheques at the regular collection counters should be available to customers

and no branch should refuse to give an acknowledgement if the customer tenders

the chequ es at the counters.

26
Issue of Cheque Books: The Committee has observed that some banks do not

allow depositors to collect their cheque book at the branch but insist on

dispatching the cheque book by courier to the depositor. Further, it is stated by the

Committee that the depositor is forced to sign a declaration that a dispatch by the

courier is at the depositor's risk and consequence and that the depositor shall not

hold the bank liable in any manner whatsoever in respect of such dispatch of

cheque book. Committee has observed this as an unfair practice and advised banks

to refrain from obtaining such undertakings from depositors. Banks should also

ensure that cheque books are delivered over the counters on request to the

depositors or his authorized representative.

Statement of Accounts / Pass Books: The Committee has noted that banks

invariably show the entries in depositor’s passbooks / statement of accounts as "By

Clearing" or "By Cheque". Further, in the case of Electronic Clearing System

(ECS) and RBI Electronic Funds Transfer (RBIEFTR) banks invariably do not

provide any details even though brief particulars of the remittance are provided to

the receiving bank. In some cases computerized entries use sophisticated codes

which just cannot be deciphered. With a view to avoiding inconvenience to

depositors, banks are advised to avoid such inscrutable entries in passbooks

statements of account and ensure that brief, intelligible particulars are invariably

27
entered in passbooks / statements of account. Banks may also ensure that they

adhere to the monthly periodicity prescribed by us while sending statement of

accounts.

Traditional banking activities:

Banks act as payment agents by conducting checking or current accounts for

customers, paying cheques drawn by customers on the bank, and collecting

cheques deposited to customers' current accounts. Banks also enable customer

payments via other payment methods such as telegraphic

 Transfer, EFTPOS, and ATM. Banks borrow money by accepting funds

 Deposited on current accounts, by accepting term deposits, and by

 Issuing debt securities such as banknotes and bonds. Banks lend

 Money by making advances to customers on current accounts, by

 Making installment loans, and by investing in marketable debt

 Securities and other forms of money lending. Banks provide almost all

 Payment services, and a bank account is considered indispensable by

 Most businesses, individuals and governments. Non-banks that provide

28
  Payment services such as remittance companies are not normally

 Considered an adequate substitute for having a bank account. Banks

 Borrow most funds from households and non-financial businesses, and

 Lend most funds to households and non-financial businesses, but nonbank

Lenders provide a significant and in many cases adequate

 Substitute for bank loans, and money market funds, cash management

 Trusts and other non-bank financial institutions in many cases provide

 An adequate substitute to banks for lending savings .

Accounting for bank accounts

Bank statements are accounting records produced by banks under the Various

accounting standards of the world. Under GAAP and IFRS there Are two kinds of

accounts: debit and credit. Credit accounts are Revenue, Equity and Liabilities.

Debit Accounts are Assets and Expenses. This means you credit a credit account

to increase its Balance and you debit a debit account to increase its balance. This

Also means you debit your savings account every time you deposit Money into it

29
(and the account is normally in deficit), while you credit Your credit card account

every time you spend money from it (and the account is normally in

credit).However, if you read your bank statement, it will say the opposite—that

you credit your account when you deposit money, and you debit it when you

withdraw funds. If you have cash in your account, you have a positive (or credit)

balance; if

you are overdrawn, you have a negative (or deficit) balance. The reason for this is

that the bank, and not you, has produced the bank statement. Your savings might

be your assets, but the bank's liability, so they are credit accounts (which should

have a positive balance). Conversely, your loans are your liabilities but the bank's

assets, so they are debit accounts (which should have a also have a positive

balance).Where bank transactions, balances, credits and debits are discussed

below, they are done so from the viewpoint of the account holder—which is

traditionally what most people are used to seeing.

Economic functions

1. Issue of money, in the form of banknotes and current accounts Subject to

cheque or payment at the customer's order. These claims on banks can act as

money because they are negotiable and/or repayable on demand, and hence valued

30
at par. They are effectively transferable by mere delivery, in the case of banknotes,

or by drawing a cheque that the payee may bank or cash.

2. Netting and settlement of payments – banks act as both collection and paying

agents for customers, participating in interbank clearing and settlement systems to

collect, present, be presented with, and pay payment instruments. This enables

banks to economies on reserves held for settlement of payments, since inward and

outward payments offset each other. It also enables the offsetting of payment flows

between geographical areas, reducing the cost of settlement between them.

3. Credit intermediation – banks borrow and lend back-to-back on their own

account as middle men

4. Credit quality improvement – banks lend money to ordinary commercial and

personal borrowers (ordinary credit quality), but are high quality borrowers. The

improvement comes from Diversification of the bank's assets and capital which

provides a buffer to absorb losses without defaulting on its obligations.

However, banknotes and deposits are generally unsecured; if the bank gets into

difficulty and pledges assets as security, to raise the funding it needs to continue to

operate, this puts the note holders and depositors in an economically subordinated

position.

31
5. Maturity Transformation – banks borrow more on demand debt and short

term debt, but provide more long term loans. In other words, they borrow short and

lend long. With a stronger credit quality than most other borrowers, banks can do

this by aggregating issues (e.g. accepting deposits and issuing banknotes) and

redemptions (e.g. withdrawals and redemptions of banknotes), maintaining

reserves of cash, investing in marketable securities that can be readily converted to

cash if needed, and raising replacement funding as needed from various sources

(e.g. wholesale cash markets and securities markets).

Banking channels

Banks offer many different channels to access their banking and other

services:

A branch, banking centre or financial centre is a retail location where a bank or

financial institution offers a wide array of faceto- face service to its customers.

ATM is a computerized telecommunications device that provides a financial

institution's customers a method of financial transactions in a public space without

the need for a human clerk or bank teller. Most banks now have more ATMs than

branches, and ATMs are providing a wider range of services to a wider range of

users. For example in Hong Kong, most ATMs enable anyone to deposit cash to

32
any customer of the bank's account by feeding in the notes and entering the

account number to be credited. Also, most ATMs enable card holders from other

banks to get their account balance and withdraw cash, even if the card is issued by

a foreign bank.

Mail is part of the postal system which itself is a system wherein written

documents typically enclosed in envelopes, and also small packages containing

other matter, are delivered to destinations around the world. This can be used to

deposit cheques and to send orders to the bank to pay money to third parties.

Banks also normally use mail to deliver periodic account statements to customers.

Telephone banking is a service provided by a financial institution which allows

its customers to perform transactions over the telephone. This normally includes

bill payments for bills from major billers (e.g. for electricity).

Online banking is a term used for performing transactions, payments etc. over

the Internet through a bank, credit union or building society's secure website.

Mobile banking is a method of using one's mobile phone to conduct simple

banking transactions by remotely linking into a banking network.

Video banking is a term used for performing banking transactions or

professional banking consultations via a remote video and audio connection. Video

33
banking can be performed via purpose built banking transaction machines (similar

to an Automated teller machine), or via a videoconference enabled bank branch.

KYC (KNOW YOUR CUSTOMER)

As per KYC guideline the RBI has advised banks to follow KYC guidelines of

RBI mandates banks to collect three proofs from their customers they are

1 Photograph

2 Proof of Identity

3 Proof of address

Accordingly, Axis bank has framed its KYC procedure according to which, a

photograph and documentary proof of personal identification and address proof are

required t be provided. The account Opening form Provides the nature of

documents required / procedure to be followed for opening a new account. You

may also log in to our website [Link] for such information which is

displayed product wise.

Present Status of the Organization-

AXIS BANK has always looked at technology as a key facilitator to provide better

customer service and ensured that its ‘IT strategy’ follows the ‘Business strategies

34
as to arrive at “Best Fit”. The bank has made rapid strides in this direction. Along

with the achievement of 100%branch computerization, one of the major

achievements of the Bank is covering all the branches of the Bank under Core

Banking Solution (CBS), thus covering 100% of its business and providing

‘Anytime Anywhere’ banking facility to all customers including customers of

more than 2000 rural branches. The bank has also been offering Internet banking

services to the customers of CBS branches like booking of tickets, payment of bills

of utilities, purchase of airline tickets [Link] developing a cost effective

alternative channels of delivery, the bank with more than 12922 ATMs has the

largest ATM network amongst Nationalized Banks.

With the help of advanced technology, the Bank has been a frontrunner in the

industry so a fare the initiatives for Financial Inclusion is concerned. With its

policy of inclusive growth in the Indo-Genetic belt, the Bank’s mission is

“Banking for Unbanked”. The Bank has launched a drive for biometric smart card

based technology enabled Financial Inclusion with the help of Business

Correspondents/Business Facilitators (BC/BF) so as to reach out to the last mile

customer. The BC/BF will address the outreach issue while technology will

provide cost effective and transparent services. The Bank has started several

innovative initiatives for marginal groups like rickshaw pullers, vegetable vendors,

35
dairy farmers, construction workers; [Link] Bank has already achieved 100%

financial inclusion in 21,408 villages. Backed by strong domestic performance, the

bank is planning to realize its global aspirations. In order to increase its

international presence, the Bank continues its selective foray in international

markets with presence in Honking, Dubai, Kazakhstan, UK, Shanghai, Singapore,

Kabul and Norway. A second branch in Honking at Kowloon was opened in the

first week of April’09. Bank is also in the process of establishing its presence in

China, Bhutan, DIFC Dubai, Canada and Singapore. The bank also has a joint

venture with Everest Bank Ltd. (EBL), Nepal.

36
Future Expansion of the Organization

Under the long term vision, Bank proposes to start its operation in Fiji Island,

Australia and Indonesia. Bank continues with its goal to become a household

brand with global expertise. Amongst Top 1000 Banks in the World, ‘The Banker’

listed AXIS at 250th place. Further, AXIS is at the 1166th position among 48

Indian firms making it to a list of the world’s biggest companies compiled by the

US magazine ‘Forbes

Departments of the Organization

 Finance

 Personal Administration

 Human Source

 Sales & Marketing

 Retailing

 Treasury Management

37
OBJECTIVES OF THE STUDY

38
 OBJECTIVES OF THE STUDY

 Today’s banking sector play a dominant role regarding investment decision.

It basically tells about how these funds are effectively and efficiently utilized

in order to maximize profits.

 To study the growth and performance of banking company.

 To find out what are the policies that we have to be adopted to increase the

goodwill of the company.

 To provide suggestions for better functioning of business.

 To know about the various loan schemes of these Axis Bank.

39
 RESEARCH
METHODOLO
GY

40
 RESEARCH METHODOLOGY
Problem Definition:

To determine and analyze the hidden potential in Banking sector in India so as to

suggest the investors whether to invest in shares of Banking Companies.

Objective:

Discover insights into and develop an understanding of the various Macro and

Micro Economic Factors that have bearing on the functioning of the Banking

sector.

Evaluate the performance of some of the banks based on the past data and forecast

the future prospects.

Valuation:

The project involves valuation of major Indian Banks including ICICI Bank, SBI

and HDFC Bank. The methodology followed is Target Pricing, which includes

estimating growth rate by regression on historical sales to forecast next year sales,

41
earning and Profit and Loss account. Then EPS is calculated which is multiplied to

Historical P/E to forecast intrinsic value of share.

Result:

All shares are undervalued and expected to give positive risk adjusted returns to

investors. Since the intrinsic value is more than current market price for all the

companies, the share can be recommended to conservative investors.

RESEARCH DESIGN

Exploratory Research Design because the problem required an in-depth study of all

the related variables.

Past information and forecasts:

Collected the past information in the form of details of the various accounting

statements (Income Statement, Balance Sheet etc.), including the sales for the past

10 years (1997-2006). Forecasts are done in relation to the future performance in

terms of sales for HDFC Bank, ICICI Bank, and SBI. Other forecasts include the

EPS calculation and comparison of forecasted Future Target Price with the Current

Market Price.

Once the information was collected, the next step was to search for resources and

constraints with respect to the area of research.

42
Resources and Constraints:

Resources:

Various Publications like

 AT Kearney Report, 2005

 FICCI Survey on status of Indian Banking Industry – Progress and Agenda

Ahead

 Indian Banks Association, Various Years, Performance Highlights of Banks

(Mumbai).

 Reserve Bank of India, 2005, “Annual Policy Statement for the year 2005-

06” (Mumbai).

 Company Reports

Constraints:

 Lack of time availability with the people involved in any manner with the

research especially when decisions were to be made quickly.

 Difficulty in application of Statistical Tools.

 Difficulty in making accurate forecasts because of presence of Economic

impediments like inflation, RBI policies etc.

43
 SAMPLING: DESIGN AND PROCEDURE:

Sampling Technique:

“Convenience Sampling” as a part of Non-Probability sampling by taking the three banks as

the major performers in the Indian Banking Sector and highlighters of sector’s overall

performance.

Sample Size:

Sample Size was restricted to 3, including ICICI Bank, HDFC Bank and State Bank of India.

Executing the Sampling Process:

44
Through making a comparison among the various key figures of sales, profits and accounting

ratios deduced from accounting statements.

Method of Data Collection:

Secondary Data is collected to carry out the study. To review the literature available regarding

the subject; various journals, magazines, related research papers and Internet would be used

45
 INDIAN
ECONOMY

INDIAN ECONOMY-MACRO FACTORS AFFECTING INDIAN

BANKING

Major Changes in FY 2006-07

 Robust economic growth in FY07. GDP is increased by over 8% in FY07;

Agriculture, industry and services to grow at 1.7%, 10.5% and 10.7%

respectively

 Rabi season experiences normal monsoon

46
 IIP (Index of Industrial Production) growth dips in October 2006. The poor

performance of the manufacturing sector, which forms 80% of the IIP index

lead to a blip in its robust growth trend for the past 9 months. Both mining

and electricity grew faster than last year at 4% and 9.7% Vs – 0.1% and

7.7% respectively

 WPI (Wholesale Price Index) rose to 5.43% for the week ending December

16; higher inflation in primary commodities remains. The inflation in the

coming weeks may remain high due to lower base effect.

 CRR (Cash Reserve Ratio) hike of 50 bps to absorb Rs.135bn from the

system. The CRR rate hike of 50bps came as a surprise but it reflects that

RBI’s intention of controlling credit off-take and liquidity management by

raising repo and reverse repo rate could not achieve the desired results due to

which RBI used CRR rate hike – a new instrument to control liquidity

 Exports growth back on track in November 2006. On the basis of the BoP, in

H1FY06 exports grew at 23%, imports at 25.3% resulting in the trade

balance of US$35bn. Net invisibles grew by 17.6% to US$23.5bn and

capital inflows (in the form of FDI, NRI deposits and ECB) at US$20.3bn (a

yoy growth of 49%) brought the balance of payment to US$8.6bn, (a yoy

growth of 33%).

47
  Rupee appreciates further against dollar and yen but continues to depreciate

against Euro and pound on an YTD basis as on December 2006. In real

terms, from April 2006 to October 2006, the rupee appreciated by 1.8% vis-

à-vis a basket of six currencies.

The Indian Economy has seen major Macro changes in:

1. Gross Domestic Product:

The Indian Economy is driven by the strong fundamentals and uptrend in

industrial cycle. The Indian economy maintained a strong growth momentum

for the third successive year in 2005-06 with real GDP growth accelerating to

8.4% 2005-06. The services sector recorded double digit growth to contribute

nearly three-fourths of incremental GDP. A consistent increase in domestic

investment rate from 23.0% of GDP in 2001-02 to 30.1% in 2004-05 supported

a high credit growth witnessed during the past few years. The manufacturing

sector – the key growth driver for banking credit, clocked a healthy growth of

9.0% during FY06.

48
 Source: [Link]

In FY 06-07, services sector account for major 55% of India GDP followed by

25% in Industrial sector and 20% in agriculture sector.

FY07 Vs Q2FY06, the growth rate in GDP components are as follows:

Agriculture: 1.7%

Industry: 10.5%

Service: 10.7

2. FDI Confidence Index:

Relaxation of foreign direct investment rules has expanded the mountain of

capital in every sector of Indian economy. The government is making efforts in

liberalizing the guidelines and norms for investment through FDI, making them

49
more NRI friendly. Mainly due to efforts taken by Indian Government, Indian

rank 2nd among all countries in the world on FDI Confidence Index.

Source: AT Kearney Report, 2005

3. Inflation:

Inflation remained largely benevolent due to investment driven nature of

growth and subsidized nature of oil prices as pass-on of international crude

price rise remained incomplete in India. WPI Inflation has risen to 5.45% for

the week ended November 18, 2006 after remaining in the range of 4.0-5.0%

earlier. RBI has repeatedly cautioned that maintaining inflation in the target

range may call for substantial monetary tightening should crude prices persist at

high level. The money supply has grown by 18.7% yoy till November 10, 2006

50
during the current fiscal, which poses a significant threat to RBI’s efforts of

containing inflation in the desired range of 5.0-5.5%.

4. Gross Fiscal Deficit:

The gross fiscal deficit (GFD) to GDP ratio for 2005-06 was at 4.1 per cent as

against the budget estimate of 4.3 per cent. Fiscal and revenue deficit for April-

November 2006 widened to 72.8% of BE and 99.7% of BE Vs 74.7% of BE

and 91.5% of BE respectively in April-November 2005. The current levels are

much higher than the last month’s fiscal deficit of 58.6% of BE and revenue

deficit of79.4% of BE. The improvement in the GFD was facilitated by a

decline in capital outlay and the availability of disinvestment proceeds. The

revenue deficit, though lower in absolute terms, remained at budgeted level of

2.7 per cent of GDP in 2005-06.

Source: RBI, Ministry of commerce and Industry

51
5. Interest Rate:

The yield on dated government securities (G-Sec) has been moving up since the

beginning of FY05. The yield on 10 year paper began during Q1 to close the

quarter at 8.12%. During July 06, it continue to move up to 8.42% but reacted

sharply thereafter to once again come down to 7.4% at present as the market

participants believed that US Fed and other central banks worldwide would not

only pause rate hikes but soon get into rate the current fiscal at 7.50% but

moved up quite sharply cut mode.

52
Source: RBI

Real interest rate indicated by spread between inflation and 10 year benchmark

yield has trended in the range of 2-4%. The real interest rate in developed

economies is normally in the range of 2-3%. However, the marginal productivity

of capital being much higher in the developing economy like India. Due to this,

real interest should be higher than those prevailing in more matured economies.

6. Rising Oil prices and Exchange Rate:

World over, the central bankers led by US Federal Reserves embarked on

withdrawal of monetary accommodation through a series of rate hikes as the

53
rising oil and asset prices threatened the global economies with inflationary

pressures. The US Fed, which embarked on an aggressive rate hike campaign

through 17 consecutive rate hikes of the magnitude of 25 bps, several

economies including Euro-zone and Japan hiked their key policy rates. In

response to the same, RBI has hiked the key policy Repo and Reverse Repo

rates five times over the past two years. This has led to a significant hardening

of interest rates over the past 4-5 quarters, which has adversely impacted the

cost of funds for banks.

7. Capital Market:

Financial markets in India and globally have seen little volatility over the last

few Years. There have been only two spikes in India – in April 2004 when the

UPA government came to power and in May 2006. In India, stock markets will

be the most impacted by negative news flows as other areas where shocks can

be absorbed such as the currency, interest rate and corporate bond markets are

not free or well developed. The Capital Market has seen balance sheet value

being unlocked through monetization of embedded assets, demergers, IPOs, etc.

Indian companies continue to build value in the balance sheet as newer

opportunities emerge through smart capex, inorganic growth and extracting

value thru the revenue statement.

54
55
 INDIAN
BANKING
INDUSTRY

INDIAN BANKING INDUSTRY

In India, given the relatively underdeveloped capital market and with little internal

resources, firms and economic entities depend, largely, on financial intermediaries

56
to meet their fund requirements. In terms of supply of credit, financial

intermediaries can broadly be categorized as institutional and non-institutional.

The major institutional suppliers of credit in India are banks and non-bank

financial institutions (that is, development financial institutions or DFIs), other

financial institutions (FIs), and non-banking finance companies (NBFCs). The non-

institutional or unorganized sources of credit include indigenous bankers and

money-lenders. Information about the unorganized sector is limited and not readily

available.

An important feature of the credit market is its term structure:

(a) Short-term credit

(b) Medium-term credit

(c) Long-term credit.

While banks and NBFCs predominantly cater for short-term needs, FIs provide

mostly medium and long-term funds.

Need for Banks

57
 Role of Bank

Channel Risk Service

household savings Transformation Provider

Indian Banking Sector Experience

India inherited a weak financial system after Independence in 1947. At end-1947,

there were 625 commercial banks in India, with an asset base of Rs. 11.51 billion.

Commercial banks mobilized household savings through demand and term

deposits, and disbursed credit primarily to large corporations. Following

Independence, the development of rural India was given the highest priority. The

commercial banks of the country including the IBI had till then confined their

operations to the urban sector and were not equipped to respond to the emergent

needs of economic regeneration of the rural areas. In order to serve the economy in

general and the rural sector in particular, the All India Rural Credit Survey

Committee recommended the creation of a state-partnered and state-sponsored

58
bank by taking over the IBI, and integrating with it, the former state-owned or

state-associate banks. Accordingly, an act was passed in Parliament in May 1955,

and the State Bank of India (SBI) was constituted on July 1, 1955. More than a

quarter of the resources of the Indian banking system thus passed under the direct

control of the State. Subsequently in 1959, the State Bank of India (Subsidiary

Bank) Act was passed (SBI Act), enabling the SBI to take over 8 former State-

associate banks as its subsidiaries (later named Associates).

The GoI also felt the need to bring about wider diffusion of banking facilities and

to change the uneven distribution of bank lending. The proportion of credit going

to industry and trade increased from a high 83% in 1951 to 90% in 1968. This

increase was at the expense of some

crucial segment of the economy like agriculture and the small-scale industrial

sector. Bank failures and mergers resulted in a decline in number of banks from

648 (including 97 scheduled commercial banks or SCBs and 551 non-SCBs) in

1947 to 89 in 1969 (comprising 73 SCBs and 16 non-SCBs). The lop-sided pattern

of credit disbursal, and perhaps the spate of bank failures during the sixties, forced

the government to resort to nationalization of banks. In July 1969, the GoI

nationalized 14 scheduled commercial banks (SCBs), each having minimum

aggregate deposits of Rs. 500 million. State-control was considered as a necessary

59
catalyst for economic growth and ensuring an even distribution of banking

facilities. Subsequently, in 1980, the GoI nationalised another 6 banks2, each

having deposits of Rs. 2,000 million and above.

The nationalization of banks was the culmination of pressures to use the banks as

public instruments of development. The GoI imposed `social control’ on banks.

However, by the 1980s, it was generally perceived that the operational efficiency

of banks was declining. Banks were characterized by low profitability, high and

growing non-performing assets (NPAs), and low capital base. Average returns on

assets were only around 0.15% in the second half of the 1980s, and capital

aggregated an estimated 1.5% of assets. Poor internal controls and the lack of

proper disclosure norms led to many problems being kept under cover. The quality

of customer service did not keep pace with the increasing expectations. In 1991, a

fresh era in Indian banking began, with the introduction of banking sector reforms

as part of the overall economic liberalization in India.

60
INDIAN FINANCIAL SERVICES SECTOR

SWOT ANALYSIS

61
 INDIAN FINANCIAL SERVICES SECTOR

SWOT ANALYSIS

Strengths:

 Proven asset quality resilience in past downturns

 Proven management teams, track record

 Stable industry dynamics

 Well-established regulatory framework

 Stable/low NPL formation rates

Weaknesses:

 Continued crowding out effect from govt budget deficit, combined with

accelerating private sector credit demands

 Ownership restrictions

 Constraints on state-owned banks' micro reforms, including HR, staff cut,

branch cut constraints

Opportunities:

 Improving secular GDP growth prospects

62
  Establishment of special economic zones likely to promote further

industrialization

 Years, if not decades, of catch-up economics— low per capita income,

educated workforce

 Rapid financial deepening, i.e. loan growth as multiple of nominal GDP

growth

 Rising consumer spending, consumer credit business

 Rising corporate capex, investments

 M&A optionality

Threats:

 "Running on empty" in terms of liquidity

 Tightening in global liquidity may trickle down to India

 Potentially hawkish RBI stance on inflation/monetary policy

 Potential rise in long bond \ yields, MTM risk for banks

 Potential for valuation pullback, should earnings delivery disappoint

expectations

63
STRUCTURE
Of
banking
STRUCTURE OF THE BANKING SECTOR

64
The banking sector in India functions under the umbrella of the RBI—the regulatory, central

bank. The Reserve Bank of India Act was passed in 1934 and the RBI was constituted in 1935 as

the apex bank. The Banking Regulations Act was passed in 1949. This Act brought the RBI

under government control. Under the Act, the RBI received wide-ranging powers in regards to

establishment of new banks, mergers and amalgamations of banks, opening and closing of

branches of banks, maintaining certain standards of banking business, inspection of banks, etc.

The Act also vested licensing powers and the authority to conduct inspections with the RBI.

Banks in India can broadly be classified as regional rural banks or RRBs, scheduled commercial

banks or SCBs, and co-operative banks. The scope of the report includes the SCBs only3.

The SCBs for the purpose of this comment can be classified into the following three categories:

 Public sector banks or PSBs (SBI & its associates, and nationalized banks);

 Private sector banks (old and new); and

 Foreign banks

65
 Source: IBA

Source : IBA

In terms of asset size, among Foreign banks – Citibank, HSBC and Standard Chartered bank are

leaders with asset base of Rs.45437 cr, Rs.37473 cr and Rs.48412 cr. Resp. in FY 05-06. Among

private sector banks, ICICI Bank is the leader with asset base of Rs.251389 cr followed by

66
HDFC Bank of size Rs.73506 cr and UTI Bank of size Rs.49731 cr. In terms of asset size,

public sector banks have highest base compared to private and foreign banks. SBI & Associated

have asset base of Rs.691872 cr while other banks such as BOB, BOI, Canara Bank and PNB

Bank have each more than Rs.100000 cr.

67
 Credit Growth

The bank lending has expanded in a number of emerging market economies, especially in Asia

and Latin America, in recent years. Bank credit to the private sector, in real terms, was rising at a

rate between 10 and 40 per cent in a number of countries by 2005 (BIS, 2006). Several factors

have contributed to the significant rise in bank lending in emerging economies such as strong

growth, excess liquidity in banking systems reflecting easier global and domestic monetary

conditions, and substantial bank restructuring.

The recent surge in bank lending has been associated with important changes on the asset side of

banks balance sheet. First, credit to the business sector - historically the most important

component of banks assets – has been weak, while the share of the household sector has

increased sharply in several countries. Second, banks investments in Government securities

increased sharply until 2004-05. As a result, commercial banks continue to hold a very large part

of their domestic assets in the form of Government securities - a process that seems to have

begun in the mid-1990s

68
 MICRO
FACTORS

69
 MICRO FACTORS AFFECTING INDIAN

BANKING INDUSTRY

 Loan Demand:

Over the past three years, Indian Banking Industry has seen sustained strength in credit growth,

which is not just a function of economic buoyancy but also the broad-basing of loan demand.

This has recently been articulated by the central bank too:

“A contextual analysis of the co-movement between macroeconomic performance and bank

credit in the current phase of the business cycle suggests that factors other than demand may

also be at work: financial deepening from a low base; structural shifts in supply elasticity’s;

rising efficiency of credit markets; and competitive pressures augmenting the overall supply of

credit.” (Reserve Bank of India, Monetary Policy Review, October 2006).

Loan growth sustained for very long

70
 Source: RBI

The slowdown of the mid-1990s hit the banks very hard because corporate, which

accounted for a lion’s share of bank credit, went into a less profitable and hence a

financial restructuring mode. There was no retail credit then, banks did not focus

on Small and Medium Enterprises and farm lending was done grudgingly, under

compulsion. Along with the diversification of the pie that keeps the tempo of

demand intact, after a long time industry has also started demanding higher levels

of credit. In the five years prior to FY05, growth in industrial credit was almost

wholly driven by infrastructure. There is a perceptibly wider participation from

other segments during FY05 and FY06.

71
If a substantial portion of loan growth gets driven by the banking system taking

away market shares from informal sectors – this is clearly happening to farm

credit, SMEs and to a limited extent non-mortgage retail – interest rate

considerations influencing demand will be relatively low. SMEs and the rural folk

have accessed credit from other sources at exorbitant interest rates, and hence

banks’ rates going by 200-300bps is not so meaningful. That explains the apparent

lack of correlation between rates that have been rising and loan demand.

 Rising funding costs with soft lending rates irrational:

Plenty of historical evidence of return of pricing power to banks:

Concerns are often expressed about banks’ ability to increase lending rates in the

face of competition and government pressure. The reality is that banks, which led

the mortgage price war, have increased mortgage rate by 200-300bps from the

bottom, and is yet to see significant resistance. That PSU banks raised prime

lending rates twice in. Competition from overseas borrowings is a serious factor

only with AAA companies, and banks have reduced exposure to them considerably

during the last 3-4 years. Government stand is understandably against higher

72
interest rates. However, it is unlikely that the government will be able to influence

the course of interest rates single-handedly.

Inflexibility of deposit growth a myth:

With 100-200bps increase in the card rates of deposits, banks have managed to

move the deposit growth rate from 15-16% to 19- 20%, on a larger base. In the last

five years, household financial savings have moved out of equities and long-term

products to bank deposits in percentage terms. The point to note here is that

component of cash (currency) has marginally risen – that’s the real, incremental

opportunity as more cash from chests moves into bank deposits first before

potentially going to other avenues.

The Q4FY07 is expected to be a period of margin pressure. This is because as the

last interest-rate cycle showed, deposit costs increase first, and followed by lending

rates. Q4 is also usually a period of tight liquidity, and the RBI could be increasing

CRR or SLR requirements to further tighten the liquidity. Also, banks will be

cautious about the actual implementation of the lending rate increases and may do

it in a graduated fashion so as not to invite outright resistance or overt attention

from the government. HDFC Bank, PNB, SBI and a few others have nevertheless

already made a beginning by increasing their prime lending rates after the cash

reserve ratio hike by the RBI. However, the fight for deposits has intensified and it

73
is possible that in Q4FY07 banks could be increasing their exposure to high-cost

wholesale deposits, taken at higher than card rates.

Banks’ increased risk appetite good for loan yields:

The banks’ lending risk appetite has increased significantly over the last five years

– banks veering more towards lending at increasing spreads rather than investing in

risk-free bonds. Accordingly, banks are willing to take higher risks, which is good

for overall asset yields.

Investment spreads may increase in future:

As long-duration bonds at high interest rates have been coming up for maturity and

getting re-priced at lower interest rates, yields on investments have been

continuously falling over the last few years.

 Non – Performing Loans (NPLs): concerns overstated:

Loan growth-NPL

The asset price deflation (read real estate prices) may hurting banks’ asset quality

has been blown out of proportion.

Residential mortgages:

74
It is very unlikely in near term that there can be a large-scale increase in

delinquencies on loans taken for the first house (typically self-occupied); unless

there is a household income problem, it does not matter to the borrower whether

the price of the house he is staying in is rising or falling. Even then, with an

average loan-to-value of 75%, a 25% fall is theoretically not possible. LTV ratios

had gone up to more risky levels at the peak of the mortgage boom.

Problems can arise more frequently for loans taken for the second house, typically

for investment/speculation. Banks have been reluctant to disclose the exact volume

of second houses financed. Most banks claim that it is in the range of 2-5% of

incremental mortgage lending. There is a possibility that some individuals have

been hiding from banks the fact that they

already have one more loan, but this is becoming increasingly difficult with a

credit bureau now in full swing. Even if the assumption that 10% of the

outstanding mortgages are for the second house and all of that goes bad, it will

mean 1% of the banking system’s loans go bad. Commercial real estate: According

to figures disclosed by the RBI itself, real estate loans constituted 2.0% of gross

non-food credit of banks as of end-June 2006. Even if it has been growing at high

percentage rates is not material as the base was very low. In any case, by

increasing standard assets provisioning on these loans to 100bps from 25bps, risk

75
weights from 100% to 150% and instructing banks not to lend unless the developer

has “all the permissions.

One stark example of this is the largest bank SBI itself. In the mid 1990s, SBI’s

portfolio was distributed between large corporate, farm credit and trade, with little

coming from others. The Sep’06 portfolio looks dramatically different.

SBI’s loan portfolio now quite diversified

Source: Company data,

Cost of borrowing has risen, but so have incomes:

76
The apparent disconnect between interest rates rising now for two years and

lending not losing steam can be explained by i) rising incomes in case of

individuals, thereby imparting increased thrust to retail lending, and ii) improved

corporate profitability through better pricing power.

While there are several studies illustrating the household income growth in India,

according to National Council for Applied Economic Research, an explosive

growth is underway in the percentage of households earning Rs91, 000-1,000,000

pa, the most prominent individual borrowers for banks.

The corporate pricing power story is less known because of the media harping on

high competition and margin compression. While these issues cannot be summarily

dismissed, it is a fact that manufactured product inflation has been rising. Even the

RBI has recently commented on the increased ability of manufacturers to pass on

cost increases. And with a considerably de-leveraged corporate India compared

with the early/mid 1990s, these levels of increases in interest costs have been

easily absorbed by companies.

 Technology:

77
The trend in banking is changing from computerization of branches to laying a

common platform by having a core banking solution in all the branches. At the

same time, Indian banks are looking at internet banking which promises to grow

into an alternate self-service channel. As the mindset of the Indian customer

undergoes a change, Indian banks need to encompass the extension of all the

services that are required and dictated by customers. In future, banks will need to

focus on value-differentiating services by keeping in-Houser their competitive

advantages while partnering with others who complement its services. The

emergence of peer-to-peer money transmission mechanisms (such as Western

Union Money Transfer) poses a challenge to current role of bankers and

emphasizes the role of robust payment systems like RTGS in maintaining and

promoting financial stability.

Areas of Improvement:

Few challenges associated with technology adoption by banks are:

 Indian banks still don’t have the robust systems required for efficient

functioning of online banking. RBI has provided guidelines relating to

security and other issues and hopefully, online banking will see a

surge in the usage from current 1% to at least 10% in the next couple

of years.

78
 Banks need to explore newer channels such as SMS, WAP and 3G

mobile telephony applications to facilitate online access to customers.

 Banks, in a drive to carry on with tremendous expansion in terms of

customer base, needs to have employees who are well informed about

products and services and are comfortable with technology which

requires extensive training.

79
Potential Pitfalls:

Banks should not get overwhelmed by the concept of automation and online

banking. The banks need to realize that they need to maintain different delivery for

different generations. Banks still need to maintain brick-and-mortar locations that

people feel comfortable with.

80
 VALUATION
TOOLS

ICICI Bank:

81
Business

ICICI Bank was promoted in 1994 by ICICI Ltd., an Indian development financial

institution. The two entities subsequently merged to become the largest

commercial bank in the private sector. A new generation bank, ICICI Bank started

with all the latest technologies to hit the Indian banking industry in the second half

of the nineties. All its branches are fully computerized with the state-of-the-art

technology and systems, networked through VSAT technology. The bank is

connected to the SWIFT International network. In 2005, it expanded its network to

562 branches and 1,910 ATMs. It continued to expand its electronic channels,

namely internet banking, mobile banking, call centers and ATMs, and migrate

customer transaction volumes to these channels. Over 70% of customer induced

transactions take place through these electronic channels. It has acquired a small

Russian banking entity, Investitsionno-Kreditny Bank (IKB), which will help boost

its corporate business and deposit franchise overseas. The bank has also built

several strategic alliances with banks like Wells Fargo in USA, Lloyds TSB in UK

and DBS in Singapore.

 ICICI has entered into strategic alliance with Prudential plc. of UK for its

mutual find business. The duo has been fairly aggressive through their

companies, Prudential ICICI Asset Management Company Limited and

Prudential ICICI Trust Limited. The bank is also keen to offer its services to

82
 the Indian agricultural sector. Over 2,000 Internet kiosks and 70 agri-desks

have been established in locations with large agricultural markets.

 Developments

ICICI Bank launched `Mutual Fund Sweep Account` - an automatic

sweeping facility which allows current account holders to park their short-

term surpluses into liquid mutual funds and earn higher returns. Initially,

ICICI Bank current account customers will have the facility to invest their

account surpluses in the liquid fund schemes of Prudential ICICI Asset

Management Company and GIC Mutual Fund.

 The bank is in the process of the reverse merger of ICICI with ICICI Bank.

The merger of two wholly-owned subsidiaries of ICICI, ICICI Personal

Financial Services Limited and ICICI Capital Services Limited, with ICICI

Bank is also underway.

 ICRA has assigned an A1+ rating, indicating highest safety in the short-

term, to the Rs 500 crore certificates of deposit (CD) programme of ICICI

Bank Ltd (IBL). The rating agency said in its report that the rating takes into

consideration IBL`s strategic importance to its parent ICICI, IBL`s

comfortable profitability and capital adequacy, good control on asset quality.

83
  ICICI Bank has tied up with MasterCard International to launch ICICI Bank

MasterCard credit cards. At present ICICI Bank’s credit card base stands at

around 5, 50,000, while for debit cards it is 4,50,000. ICICI Bank is the

largest card issuer in the market. The bank is adding credit and debit cards at

the rate of 1,00,000 per month. The bank had launched the credit card

business 2 years back, while the debit card business is relatively new.

ICICI Bank is India's second-largest bank with total assets of Rs. 3,562.28 billion

(US$ 77 billion) at December 31, 2009 and profit after tax Rs. 30.19 billion (US$

648.8 million) for the nine months ended December 31, 2009. The Bank has a

network of 1,646 branches and about 4,883 ATMs in India and presence in 18

countries. ICICI Bank offers a wide range of banking products and financial

services to corporate and retail customers through a variety of delivery channels

and through its specialised subsidiaries and affiliates in the areas of investment

banking, life and non-life insurance, venture capital and asset management. The

Bank currently has subsidiaries in the United Kingdom, Russia and Canada,

branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and

Dubai International Finance Centre and representative offices in United Arab

Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our

UK subsidiary has established branches in Belgium and Germany.

84
ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the

National Stock Exchange of India Limited and its American Depositary Receipts

(ADRs) are listed on the New York Stock Exchange (NYSE).

HDFC Bank:

HDFC Bank Ltd was set up in 1994 by India’s leading housing finance company

Housing Development Finance Corporation (HDFC). The bank offers a wide range

of services which can be classified into three categories namely, treasury,

wholesale banking and retail banking services. The bank has a distribution network

of 535 (in 228 cities) and 1,323 ATMs and a customer base of 9.6 million as of

March 2006.

Under wholesale banking, it provides working capital finance, trade services,

transactional services and cash management. Treasury function includes foreign

exchange & derivatives, money market securities and equities. Retail loan products

are auto loans, personal loans and loans for two-wheelers. It also provides

depository participant services for retail customers. It was the first Indian bank

which launched an international debit card.

With products including the Kisan Gold Card, rural supply chain initiatives and

commodity finance covering the entire agriculture financing cycle, the bank’s

85
agriculture lending increased by over 60% during the year. The proportion of

NPA`s to total advances increased to 0.4 per cent from 0.3 per cent last year. This

marginal increase is because of the changing mix of loans as HDFC Bank has a

high share of auto loans.

The bank’s focus on semi-urban and under banked markets continued with more

than half of its retail loans being given in non-metro markets. The bank’s total

capital adequacy ratio (CAR) as on March 31, 2006 stood at 11.41%

The authorized capital of HDFC Bank is Rs.450 crore (Rs.4.5 billion). The paid-up

capital is Rs.311.9 crore (Rs.3.1 billion). The HDFC Group holds 22.1% of the

bank's equity and about 19.4% of the equity is held by the ADS Depository (in

respect of the bank's American Depository Shares (ADS) Issue). Roughly 31.3% of

the equity is held by Foreign Institutional Investors (FIIs) and the bank has about

190,000 shareholders. The shares are listed on the Stock Exchange, Mumbai and

the National Stock Exchange. The bank's American Depository Shares are listed on

the New York Stock Exchange (NYSE) under the symbol "HDB".

Technology:

86
HDFC Bank operates in a highly automated environment in terms of information

technology and communication systems. All the bank's branches have online

connectivity, which enables the bank to offer speedy funds transfer facilities to its

customers. Multi-branch access is also provided to retail customers through the

branch network and Automated Teller Machines (ATMs).

The Bank has made substantial efforts and investments in acquiring the best

technology available internationally, to build the infrastructure for a world class

bank. The Bank's business is supported by scalable and robust systems which

ensure that our clients always get the finest services we offer.

The Bank has prioritised its engagement in technology and the internet as one of its

key goals and has already made significant progress in web-enabling its core

businesses. In each of its businesses, the Bank has succeeded in leveraging its

market position, expertise and technology to create a competitive advantage and

build market share.

Business:

HDFC Bank offers a wide range of commercial and transactional banking services

and treasury products to wholesale and retail customers. The bank has three key

business segments:

 Wholesale Banking Services:

87
 The Bank's target market ranges from large, blue-chip manufacturing

companies in the Indian corporate to small & mid-sized corporates and agri-

based businesses. For these customers, the Bank provides a wide range of

commercial and transactional banking services, including working capital

finance, trade services, transactional services, cash management, etc. The

bank is also a leading provider of structured solutions, which combine cash

management services with vendor and distributor finance for facilitating

superior supply chain management for its corporate customers.

Based on its superior product delivery / service levels and strong customer

orientation, the Bank has made significant inroads into the banking consortia

of a number of leading Indian corporates including multinationals,

companies from the domestic business houses and prime public sector

companies. It is recognised as a leading provider of cash management and

transactional banking solutions to corporate customers, mutual funds, stock

exchange members and banks.

 Retail Banking Services:

The objective of the Retail Bank is to provide its target market customers a

full range of financial products and banking services, giving the customer a

one-stop window for all his/her banking requirements. The products are

88
backed by world-class service and delivered to customers through the

growing branch network, as well as through alternative delivery channels

like ATMs, Phone Banking, NetBanking and Mobile Banking.

The HDFC Bank Preferred program for high net worth individuals, the

HDFC Bank Plus and the Investment Advisory Services programs have been

designed keeping in mind needs of customers who seek distinct financial

solutions, information and advice on various investment avenues. The Bank

also has a wide array of retail loan products including Auto Loans, Loans

against marketable securities, Personal Loans and Loans for Two-wheelers.

It is also a leading provider of Depository Participant (DP) services for retail

customers, providing customers the facility to hold their investments in

electronic form.

HDFC Bank was the first bank in India to launch an International Debit Card

in association with VISA (VISA Electron) and issues the Mastercard

Maestro debit card as well. The Bank launched its credit card business in

late 2001. By March 2009, the bank had a total card base (debit and credit

cards) of over 13 million. The Bank is also one of the leading players in the

“merchant acquiring” business with over 70,000 Point-of-sale (POS)

terminals for debit / credit cards acceptance at merchant establishments. The

Bank is well positioned as a leader in various net based B2C opportunities

89
 including a wide range of internet banking services for Fixed Deposits,

Loans, Bill Payments, etc.

 Treasury

Within this business, the bank has three main product areas - Foreign

Exchange and Derivatives, Local Currency Money Market & Debt

Securities, and Equities. With the liberalisation of the financial markets in

India, corporates need more sophisticated risk management information,

advice and product structures. These and fine pricing on various treasury

products are provided through the bank's Treasury team. To comply with

statutory reserve requirements, the bank is required to hold 25% of its

deposits in government securities. The Treasury business is responsible for

managing the returns and market risk on this investment portfolio.

Management:

Mr. Jagdish Capoor took over as the bank's Chairman in July 2001. Prior to this,

Mr. Capoor was a Deputy Governor of the Reserve Bank of India. The Managing

Director, Mr. Aditya Puri, has been a professional banker for over 25 years, and

before joining HDFC Bank in 1994 was heading Citibank's operations in Malaysia.

The Bank's Board of Directors is composed of eminent individuals with a wealth of

experience in public policy, administration, industry and commercial banking.

90
Senior executives representing HDFC are also on the Board.

Senior banking professionals with substantial experience in India and abroad head

various businesses and functions and report to the Managing Director. Given the

professional expertise of the management team and the overall focus on recruiting

and retaining the best talent in the industry, the bank believes that its people are a

significant competitive strength.

SBI :

State Bank of India (SBI) is the largest bank in India. It is also, measured by the

number of branch offices and employees, the largest bank in the world. Established

in 1806 as Bank of Bengal, it remains the oldest commercial bank in the Indian

Subcontinent and also the most successful one providing various domestic,

international and NRI products and services, through its vast network in India and

overseas. With an asset base of $126 billion and its reach, it is a regional banking

behemoth. The bank was nationalized in 1955 with the Reserve Bank of India

having a 60% stake. It has laid emphasis on reducing the huge manpower through

Golden handshake schemes and computerizing its operations.

State Bank of India has often acted as guarantor to the Indian Government, most

notably during Chandra Shekhar's tenure as Prime Minister of India. With more

91
than 9400 branches and a further 4000+ associate bank branches, the SBI has

extensive coverage. State Bank of India has electronically networked most of its

metropolitan, urban and semi-urban branches under Core Banking System(CBS).

The bank has the largest ATM network in the country having more than 5600 in

number [1]. The State Bank of India has had steady growth over its history, though

it was marred by the Harshad Mehta scam in [Link] its arch-rival ICICI

Bank, the bank has started Core banking process by which more than 4400+

branched have been completed so far. In recent years, the bank has sought to

expand its overseas operations by buying foreign banks. It is the only Indian bank

to feature in the top 100 world banks in the Fortune Global 500 rating and various

other rankings. According to the Forbes 2000 listing it tops all Indian companies.

Group companies

 SBI Capital Markets Ltd

 SBI Mutual Fund (A Trust)

 SBI Factors and Commercial Services Ltd

 SBI DFHI Ltd

 SBI Cards and Payment Services Pvt Ltd

 SBI Life Insurance Co. Ltd - Bancassurance (Life Insurance)

92
  SBI Funds Management Pvt Ltd

According to PM Network, State Bank of India launched a project in 2002 to

network more than 14,000 domestic and 70 foreign offices and branches. The first

and the second phases of the project have already been completed and the third

phase is still in progress. As of December 2006, over 10,000 branches have been

[Link] new infrastructure serves as the bank's backbone, carrying all

applications, such as the IP telephone network, ATM network, Internet banking

and internal e-mail. The new infrastructure has enabled the bank to further grow its

ATM network with plans to add another 3,000 by the end of 2008 raising the total

number to 8,600.

93
 MAJOR
FINDINGS

MAJOR FINDINGS

94
Major Macro – Economic Factors include Gross Domestic Product – which has

grown by over 8% in 2005-06, FDI Confidence Index – where India stands II in

the world, Inflation – which has slow down due to falling crude prices, Gross

Fiscal Deficit Interest Rate – the UPA government is confident to achieve the

budgeted targets, Rising Oil prices & Exchange Rate – Indian government and oil

companies are relax as oil prices have fallen beside Indian Rupee has strengthen

against USD, EURO and Yen and Capital Market – the year is booming for market

with FII and mutual fund are pumping money increasing BSE Sensex returns over

50%.

In June 2006, Indian Banking System is spread through 66000 branches with an

asset base of about $270 billion. There are 87 Scheduled Commercial Banks

operating in India including 8 Bank of SBI & Associates, 20 Nationalized Banks,

29 Private Banks and 30 Foreign Banks. In terms of asset size, public sector banks

have highest base compared to private and foreign banks. SBI & Associated have

asset base of Rs.691872 cr. Bank group-wise, new private sector banks grew at the

highest rate during 2005-06 (43.2 per cent), followed by foreign banks (31.2 per

cent), public sector banks (13.6 per cent) and old private sector banks (12.2 per

cent).

As a result, the relative significance of PSBs declined significantly with their share

in total assets of SCBs declining to 72.3 per cent at end-March 2006 from 75.3 per
95
cent at end-March 2005, while that of new private sector banks increasing to 15.1

per cent from 12.5 per cent.

Credit to the priority sector increased by 33.7 per cent in 2005-06 as against 40.3

per cent in the previous year. The agriculture and housing sectors were the major

beneficiaries, which together accounted for more than two-third of incremental

priority sector lending in 2005-06. Credit to small scale industries also accelerated.

Retail loans, which witnessed a growth of over 40.0 per cent in 2004-05 and again

in 2005-06, have been the prime driver of the credit growth in recent years. Retail

loans as a percentage of gross advances increased from 22.0 per cent in March

2004 to 25.5 per cent in March 2006.

ICICI Bank is the leading market player with change in loans market share in

FY02-06 of over 5% and change in deposits market share in FY 02-06 is nearby

2.5%. HDFC Bank and UTI Bank are also in high growth phase. The laggards are

SBI Bank, Bank of Baroda Bank, Bank of India and Punjab National Bank.

Micro-Economic Factors affecting Banking Industry: Some of Micro-

Economic factors identified in the report are:

 Loan Demand in which the Indian Banking Industry has seen sustained

strength in credit growth (a 30% increase in Oct 2006, of which 58% growth

has seen in service sector and 100% in real estate sector).

96
 Rising funding costs with soft lending rates – Deposits has seen a growth of

22% of which household savings contribute to 43%, credit spread increase to

3.3% and Yield on government bonds reduced to 7.75% due to rising

interest cost

 Non – Performing Loans (NPLs) - The Total bank loans stood at Rs

15,231.7bn, of which housing loans are Rs. 1719.2bn. However, the

Industry’s share of total credit has dropped to 40%

 Technology - Indian banks still don’t have the robust systems required for

efficient functioning of online banking and Banks need to explore newer

channels such as SMS, WAP and 3G mobile telephony applications to

facilitate online access to customers.

97
conclusion

CONCLUSION

98
The project involves valuation of major Indian Banks including ICICI Bank, SBI and HDFC
Bank. The methodology followed is Target Pricing, which including estimating growth rate by
regression on historical sales to forecast next year sales, earning and Profit and Loss account.
Then EPS is calculated which is multiplied to Historical P/E to forecast intrinsic value of share.
All shares are undervalued and expected to give positive risk adjusted returns to investors. Since
the intrinsic value is more than current market price for all the companies, the share can be
recommended to conservative investors.

99
LIMITATION OF THE
STUDY

100
 LIMITATION OF THE STUDY

 The scope of the study will be restricted to selected Banks.

 Many of the respondents did not think hard enough while choosing the specific point.
This could have led to a biased view and thus affected the analysis.
 There may be other events during the Clean and Window Period which may distort the
results.

101
BIBLIOGRAPH
Y

102
 BIBLIOGRAPHY

 Company Reports

 Government of India, 1998, Report of the Committee on Banking Sector Reforms

 Government of India, 1991, Report of the Committee on the Financial System

 IMF Working Paper - Competition in Indian Banking by A. Prasad and Saibal Ghosh

 Indian Banks Association, Various Years, Performance Highlights of Banks (Mumbai).

 Indian Banking Association

 Ministry of commerce and Industry

 Reserve Bank of India, 2008, “Annual Policy Statement for the year 2007-08” (Mumbai).

 Reserve Bank of India (a), Various Years, Report on Trend and Progress of Banking in
India (Mumbai).

 Reserve Bank of India (b), Various Years, Statistical Tables Relating to Banks in India
(Mumbai).

103