Professional Documents
Culture Documents
SUBMITTED TO: MAHARISHI DAYANAND UNIVERSITY, ROHTAK IN THE FULFILMENT OF DEGREE OF MBA (SESSION 2008-2010)
SUBMITTED TO: SUBMITTED BY: THE CANTROLLER OF EXAM KAUSHIK M.D.U., ROHTAK (FINAL)
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BAJRANG MBA
ACKNOWLEDGEMENT
I would take this opportunity to thank Mrs. Bhawana Sharma, Faculty, D.A.V. Institute of Management, Faridabad for being cooperative and helpful guide. A note of thanks is due to all those, too many to single out by names, which have helped in no small measure by cooperating during by providing their valuable time, inputs and assistance. Their support, guidance and motivation were very valuable and encouraging.
Bajrang Kaushik
PREFACE
The introduction and application of the concept of customer services entered in a welcoming way in India only after independence. The banking system in India has come a long way during the last two centuries. Its growth was faster and the coverage wider since 1969. In 1969a major position of banking sector was entrusted to the public sector. This process continued and embraced few private banks in 1980. The transfer of ownership of banks from the public to private was aimed at entrusting the banks with greater responsibilities for the economic development of India by taking banking services to the masses and taking special care of the weaker section of the society and the priority sector of the economy. Though the number of banks offices magnitude and the variety of their operations has grown considerably during the period of near about three decades, but it appears that the banking sector has entered into serious among customers. For overcoming this problem, banking industry should seek introspection and adopt refined management techniques. It has been endeavor of this study to analyze the present state of various banks keeping in view the primary data has been collected regarding the present state of loan schemes in various banks by using a questionnaire.
DECLARATION
I undersigned Bajrang Kaushik The student of MBA 3rd Sem. hereby declare that the project work in my own work and has been carried out under the guidance of Mrs. Bhawana Sharma Faculty Member of DAV Institute of Management of Studies in Faridabad (Haryana). This Report has been submitted to M.D. University for Evaluation.
Date: Place:
Bajrang Kaushik
Table of contents
S. No. 1. 2.
EXECUTIVE SUMMERY INTRODUCTION: REVIEW OF LITERATURE OBJECTIVES OF THE STUDY SIGNIFICANCE OF THE STUDY CONCEPTULIZATION FOCUS OF THE PROBLEM LIMITATION OF THE STUDY
Indian Particulars
3.
20-24
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25-31
5.
INDIAN BANKING INDUSTRY: NEED FOR BANKS INDIAN BANKING SECTOR EXPERIENCE INDIAN FINANCIAL SERVICES SECTOR SWOT
32-37
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38-41
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MICRO FACTORS AFFECTING INDIAN BANKING INDUSTRY: LOAN DEMAND RISING FUNDING NON-PERFORMING LOANS TECHNOLOGY
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42-48
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VALUATION TOOLS:
49-57
EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
The Indian Economy is driven by strong fundamentals with GDP growth at 9.1% for H1 FY07 strongest growth in any six months since H1 FY04 and uptrend in Industrial Cycle with Average Index of Industrial Production growth at 10.2% being the strongest run in the past 11 years. On political front, the Indian Government has signed nuclear deal with America indicating Indias importance in the global context opening up many opportunities. Along with this, Chinese President Hu is expected to visit India. This will improve trade and other ties between two of the fastest growing economies. In Capital Market, Strong foreign inflows with Portfolio flows of nearby USD 9.2bn took BSE Sensex to 14,000 + (50% higher) compared to FY 05-06. The Indian corporate raised USD 6bn by issuing Initial public offer in India and abroad. High Credit growth at 30%, it continued the trend of last 5 years where it has averaged around 25% and lastly M&A activity which was at its peak with sectors beyond IT and Pharma making global & domestic acquisitions. The high growth sectors are Power where power ministry and local private players announce 9 ultra mega projects (4,000 MW each) provides visibility on power & infra front. Retail - a Point of inflection with major Indian corporate announcing plans, entry of world majors like Wal-Mart & foreign investment allowed in single brand retail and Real Estate with major huge build-out plans and Special Economic Zone policy of government is major driver of growth. Banking in which Banks are allowed to raise hybrid capital which opens new avenues for funding credit growth. As such, the report focus on change factors in Banking Industry as this industry is expected to have major impact on Indian Economy.
INTRODUCTI ON
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INTRODUCTION
In India, given the relatively underdeveloped capital market and with little internal resources, firms and economic entities depend, largely, on financial intermediaries to meet their fund requirements. In terms of supply of credit, financial intermediaries can broadly be categorized as institutional and non-institutional. The major institutional suppliers of credit in India are banks and non-bank financial institutions (that is, development financial institutions or DFIs), other financial institutions (FIs), and non-banking finance companies (NBFCs). The non-institutional or unorganized sources of credit include indigenous bankers and money-lenders. Information about the unorganized sector is limited and not readily available. An important feature of the credit market is its term structure: (a) Short-term credit (b) Medium-term credit (c) Long-term credit. While banks and NBFCs predominantly cater for short-term needs, FIs provide mostly medium and long-term funds.
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REVIEW OF LITERATURE
http://indiapost.com/article/techbiz/1038/ IA Bank ties up with SBI for money transfers Sunday, 09.23.2007, 11:59pm (GMT-7) NEW JERSEY: Indus American Bank has tied up with State Bank of India to offer money transfer services to India for its clients. Under the new money transfer service, which will provide expanded services to Indus American Bank customers can expect service at over 14,000 branch locations of State Bank of India within India, and at over 14,000 additional RTGS participating banks. Funds remitted from Indus American Bank would reach recipients typically within 24 hours. As the largest bank in India, State Bank of India offers excellent exchange rates which are now available to Indus American Bank customers. India is one of the biggest destinations for foreign remittances. http://www.myiris.com/newsCentre/newsPopup.php? fileR=20070925165003043&dir=2007/09/25&secID=livenews
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HDFC Asset Management to launch debt fund on Sept 27 Tue Sep 25, 2007 12:50pm IST MUMBAI (Reuters) - HDFC Asset Management Co Ltd said on Tuesday that it will launch a close-ended debt fund on Sept. 27. The fund, HDFC FMP 18M September 2007, will be open for subscription till Oct. 8. It will invest at least 60 percent of the assets in debt and money market instruments and the rest in government securities, the fund house said. HDFC to cut interest rates Economic Times, India - Sat Sep 22, 2007 12:14pm IST Mortgage lender Housing Development Finance Corp is likely to cut its interest rates next week, the Economic Times reported on Saturday. "The cost of wholesale funding has come down and we are taking a look at passing on the benefits to borrowers," HDFC Chairman Deepak Parekh was quoted as saying. The report also quoted HDFC Managing Director Keki Mistry as saying the company was looking at a half percentage point cut and that the new rates would be announced next week.
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tells about how these funds are effectively and efficiently utilized in order to maximize profits.
To study the growth and performance of banking company. To find out what are the policies that we have to be adopted to increase the goodwill of
the company.
To provide suggestions for better functioning of business. To know about the various loan schemes of these two banking companies i.e. ICICI &
SBI.
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CONCEPTUALIZATION
The last decade has seen many positive developments in the Indian banking sector. The policy makers, which comprise the Reserve Bank of India (RBI), Ministry of Finance and related government and financial sector regulatory entities, have made several notable efforts to improve regulation in the sector. The sector now compares favourably with banking sectors in the region on metrics like growth, profitability and non-performing assets (NPAs). A few banks have established an outstanding track record of innovation, growth and value creation. This is reflected in their market valuation. However, improved regulations, innovation, growth and value creation in the sector remain limited to a small part of it. The cost of banking intermediation in India is higher and bank penetration is far lower than in other markets. Indias banking industry must strengthen itself significantly if it has to support the modern and vibrant economy which India aspires to be. While the onus for this change lies mainly with bank managements, an enabling policy and regulatory framework will also be critical to their success.
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1. Banking Challenges It is expected that the Indian banking and finance system will be globally competitive. For this the market players will have to be financially strong and operationally efficient. Capital would be a key factor in building a successful institution. The banking and finance system will improve competitiveness through a process of consolidation, either through mergers and acquisitions through strategic alliances. Technology would be the key to the competitiveness of banking and
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2. Banking Evolution & Regulatory Framework Financial Sector Reforms set in motion in 1991 have greatly changed the face of Indian Banking. The banking industry has moved gradually from a regulated environment to a deregulated market economy. The market developments kindled by liberalization and globalization have resulted in changes in the intermediation role of banks. The pace of transformation has been more significant in recent times with technology acting as a catalyst. While the banking system has done fairly well in adjusting to the new market dynamics, greater challenges lie ahead. Financial sector would be opened up for greater international competition under WTO. Banks will have to gear up to meet stringent prudential capital adequacy norms under Basel II. In addition to WTO and Basel II, the Free Trade Agreements (FTAs) such as with Singapore, may have an impact on the shape of the banking industry. Banks will also have to cope with challenges posed by technological innovations in banking. Banks need to prepare for the changes. In this context the need for drawing up a Road Map to the future assumes relevance. The last decade has seen many positive developments in the Indian Banking Sector. The policy makers, which comprise the Reserve Bank of India (RBI), Ministry of Finance and related
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3. Internal Hindrances to Banking Industry The research focuses on emphasizing the need of decisively and quickly to build and enabling, rather than a limiting, banking sector in India. The major challenges ahead for bank management are as follows: First, cost management, a key to sustainability of bank profits as well as their long-term viability. Second, recovery management, which is a key to the stability of the banking sector. Third, technological intensity of banking, an area where India happens to be a world leader in information technology, but its usage by our banking system is somewhat muted. It is wise for Indian banks to exploit this globally state-of-art expertise, domestically available, to their fullest advantage.
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RESEARCH METHODOLO GY
RESEARCH METHODOLOGY
Problem Definition:
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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, 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
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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
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Lack of time availability with the people involved in any manner with the research especially when decisions were to be made quickly. Difficulty in application of Statistical Tools. Difficulty in making accurate forecasts because of presence of Economic impediments like inflation, RBI policies etc.
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Method of Data Collection: Secondary Data is collected to carry out the study. To review the literature available regarding the subject; various journals, magazines, related research papers and Internet would be used
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INDIAN ECONOMY
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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.
Source: www.rbi.org.in In FY 06-07, services sector account for major 55% of India GDP followed by 25% in Industrial sector and 20% in agriculture sector. FY07 Vs Q2FY06, the growth rate in GDP components are as follows:
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3. Inflation: Inflation remained largely benevolent due to investment driven nature of growth and subsidized nature of oil prices as pass-on of international crude price rise remained incomplete in India. WPI Inflation has risen to 5.45% for the week ended November 18, 2006 after remaining in the range of 4.0-5.0% earlier. RBI has repeatedly cautioned that maintaining inflation in the target range may call for substantial monetary tightening should crude prices persist at high level. The money supply has grown by 18.7% yoy till November
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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 AprilNovember 2005. The current levels are much higher than the last months 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.
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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.
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 232
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 rising oil and asset prices threatened the global economies with inflationary pressures. The US Fed, which embarked on an aggressive rate hike campaign through 17 consecutive rate hikes of the magnitude of 25 bps, several economies including Euro-zone and Japan hiked their key policy rates. In response to the same, RBI has hiked the key policy Repo and Reverse Repo rates five times over the past two years. This has led to a significant hardening of interest rates over the past 4-5 quarters, which has adversely impacted the cost of funds for banks. 7. Capital Market: Financial markets in India and globally have seen little volatility over the last few Years. There have been only two spikes in India in April 2004 when the UPA government came to power and in May 2006. In India, stock markets will be the most impacted by negative news flows as other areas where shocks can be absorbed such as the currency, interest rate and corporate bond markets are not free or well developed. The Capital Market has seen balance sheet value being unlocked through monetization of embedded assets, demergers, IPOs, etc. Indian companies continue to build value in the balance sheet as newer opportunities emerge through smart capex, inorganic growth and extracting value thru the revenue statement.
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Role of Bank
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Risk Transformation
Service Provider
The nationalization of banks was the culmination of pressures to use the banks as public instruments of development. The GoI imposed `social control on banks. However, by the 1980s, it was generally perceived that the operational efficiency of banks was declining. Banks were characterized by low profitability, high and growing non-performing assets (NPAs), and low capital base. Average returns on assets were only around 0.15% in the second half of the 1980s, and capital aggregated an estimated 1.5% of assets. Poor internal controls and the lack of proper disclosure norms led to many problems being kept under cover. The quality of customer service did not keep pace with the increasing expectations. In 1991, a fresh era in Indian banking began, with the introduction of banking sector reforms as part of the overall economic liberalization in India.
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Weaknesses:
Continued crowding out effect from govt budget deficit, combined with accelerating private sector credit demands Ownership restrictions Constraints on state-owned banks' micro reforms, including HR, staff cut, branch cut constraints
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Threats:
"Running on empty" in terms of liquidity Tightening in global liquidity may trickle down to India Potentially hawkish RBI stance on inflation/monetary policy Potential rise in long bond \ yields, MTM risk for banks Potential for valuation pullback, should earnings delivery disappoint expectations
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STRUCTURE Of
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banking
STRUCTURE OF THE BANKING SECTOR
The banking sector in India functions under the umbrella of the RBIthe 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
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Nationalised Ba nks
Category of Banks
Private Banks
Foreign Banks
Source: IBA
Na tionalised Banks
Category of Banks
Private Banks
Foreign Banks
Source : IBA In terms of asset size, among Foreign banks Citibank, HSBC and Standard Chartered bank are leaders with asset base of Rs.45437 cr, Rs.37473 cr and Rs.48412 cr. Resp. in FY 05-06. Among private sector banks, ICICI Bank is the leader with asset base of Rs.251389 cr followed by HDFC Bank of size Rs.73506 cr and UTI Bank of size Rs.49731 cr. In terms of asset size, public sector banks have highest base compared to private and foreign banks. SBI & Associated
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Credit Growth
The bank lending has expanded in a number of emerging market economies, especially in Asia and Latin America, in recent years. Bank credit to the private sector, in real terms, was rising at a rate between 10 and 40 per cent in a number of countries by 2005 (BIS, 2006). Several factors have contributed to the significant rise in bank lending in emerging economies such as strong growth, excess liquidity in banking systems reflecting easier global and domestic monetary conditions, and substantial bank restructuring. The recent surge in bank lending has been associated with important changes on the asset side of banks balance sheet. First, credit to the business sector - historically the most important component of banks assets has been weak, while the share of the household sector has increased sharply in several countries. Second, banks investments in Government securities increased sharply until 2004-05. As a result, commercial banks continue to hold a very large part of their domestic assets in the form of Government securities - a process that seems to have begun in the mid-1990s
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MICRO FACTORS
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Source: RBI
The slowdown of the mid-1990s hit the banks very hard because corporate, which accounted for a lions share of bank credit, went into a less profitable and hence a financial restructuring mode. There was no retail credit then, banks did not focus on Small and Medium Enterprises and farm lending was done grudgingly, under compulsion. Along with the diversification of the pie that
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Inflexibility of deposit growth a myth: With 100-200bps increase in the card rates of deposits, banks have managed to move the deposit growth rate from 15-16% to 19- 20%, on a larger base. In the last five years, household financial
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Source: Company data, Cost of borrowing has risen, but so have incomes: The apparent disconnect between interest rates rising now for two years and lending not losing steam can be explained by i) rising incomes in case of individuals, thereby imparting increased thrust to retail lending, and ii) improved corporate profitability through better pricing power. While there are several studies illustrating the household income growth in India, according to National Council for Applied Economic Research, an explosive growth is underway in the percentage of households earning Rs91, 000-1,000,000 pa, the most prominent individual borrowers for banks. The corporate pricing power story is less known because of the media harping on high competition and margin compression. While these issues cannot be summarily dismissed, it is a fact that manufactured product inflation has been rising. Even the RBI has recently commented on the increased ability of manufacturers to pass on cost increases. And with a considerably deleveraged corporate India compared with the early/mid 1990s, these levels of increases in interest costs have been easily absorbed by companies.
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VALUATION TOOLS
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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. ICICI Bank has tied up with MasterCard International to launch ICICI Bank MasterCard credit cards. At present ICICI Banks credit card base stands at around 5, 50,000, while for debit cards it is 4,50,000. ICICI Bank is the largest card issuer in the market. The bank is adding credit and debit cards at the rate of 1,00,000 per month. The bank had launched the credit card business 2 years back, while the debit card business is relatively new. ICICI Bank is India's second-largest bank with total assets of Rs. 3,562.28 billion (US$ 77 billion) at December 31, 2009 and profit after tax Rs. 30.19 billion (US$ 648.8 million) for the nine months ended December 31, 2009. The Bank has a network of 1,646 branches and about 4,883 ATMs in India and presence in 18 countries. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries and affiliates in the areas of investment banking, life and 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. ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock
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HDFC Bank:
HDFC Bank Ltd was set up in 1994 by Indias 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 banks 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 banks focus on semi-urban and under banked markets continued with more than half of its retail loans being given in non-metro markets. The banks 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".
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Technology:
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: 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
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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 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
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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. 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.
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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 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 1992.Following 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.
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According to PM Network, State Bank of India launched a project in 2002 to network more than 14,000 domestic and 70 foreign offices and branches. The first and the second phases of the project have already been completed and the third phase is still in progress. As of December 2006, over 10,000 branches have been covered.The new infrastructure serves as the bank's backbone, carrying all applications, such as the IP telephone network, ATM network, Internet banking and internal 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.
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MAJOR FINDINGS
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MAJOR FINDINGS
Major Macro Economic Factors include Gross Domestic Product which has grown by over 8% in 2005-06, FDI Confidence Index where India stands II in the world, Inflation which has slow down due to falling crude prices, Gross Fiscal Deficit Interest Rate the UPA government is confident to achieve the budgeted targets, Rising Oil prices & Exchange Rate Indian government and oil companies are relax as oil prices have fallen beside Indian Rupee has strengthen against USD, EURO and Yen and Capital Market the year is booming for market with FII and mutual fund are pumping money increasing BSE Sensex returns over 50%. In June 2006, Indian Banking System is spread through 66000 branches with an asset base of about $270 billion. There are 87 Scheduled Commercial Banks operating in India including 8 Bank of SBI & Associates, 20 Nationalized Banks, 29 Private Banks and 30 Foreign Banks. In terms of asset size, public sector banks have highest base compared to private and foreign banks. SBI & Associated have asset base of Rs.691872 cr. Bank group-wise, new private sector banks grew at the highest rate during 2005-06 (43.2 per cent), followed by foreign banks (31.2 per cent), public sector banks (13.6 per cent) and old private sector banks (12.2 per cent).
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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). 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
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conclusion
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CONCLUSION
The project involves valuation of major Indian Banks including ICICI Bank, SBI and HDFC Bank. The methodology followed is Target Pricing, which including estimating growth rate by regression on historical sales to forecast next year sales, earning and Profit and Loss account. Then EPS is calculated which is multiplied to Historical P/E to forecast intrinsic value of share. All shares are undervalued and expected to give positive risk adjusted returns to investors. Since the intrinsic value is more than current market price for all the companies, the share can be recommended to conservative investors.
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BIBLIOGRAPH Y
BIBLIOGRAPHY
Company Reports Government of India, 1998, Report of the Committee on Banking Sector Reforms
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