Economic-Industry-

Company
Analysis of
Indian Banking Sector

Submitted By :
Shray Taneja
PGDM 2009 - 11
KHR2009PGDMF089
In Partial Fulfillment of 2 Years Full Time Post Graduate
Diploma in Management
Under the Guidance of : Under the Guidance
of :
Mr . Prem Khatri Prof . Priti
Bakhshi
Founder & CEO Associate Professor
Cafemutual
ITM
 CAFEMUTUAL
• A new start-up
• It is a media company
• Focusing on distributors of financial
services
• Providing information and education
• To launch a website focused on
mutual funds
Economic Analysis
 Indian Economy
India ’ s GDP witnessed
– Overview
high growth and was the The sound
Indian economy
second fastest growing performance th of
is the 4
• The Indian economy has witnessed
GDP after China each industry
largest in
segment is
an unprecedented growth….terms
leadingoftoPPP
USD
the–
3 . 548robust
overall
trillion
performance in of
2009
the Indian
economy

Source :
Central Statistical
Organization
 Current Indicators
• RBI estimates GDP growth in FY2010
between 7.2-7.5%
• Industrial production revives; average
growth of 10.4% in FY2010 against
2.7% in FY2009
• Net FII inflow of USD 30 bn in FY2010 as
against net outflow in FY2009
• Rupee appreciation of 11.4% vis-à-vis
US dollar during FY2010
• Comfortable systemic liquidity and
growing Exports
• WPI inflation increased to 9.9% in Mar
2010
 Indian Economy – Banking
(Positive)
• New players in the banking space
expected
• Infusion of Rs.16,500 Cr to public sector
banks to maintain tier-I capital
• Increase emphasis on infrastructure:
Financing to rise to Rs. 20000 cr
• Net market borrowing lower than
expectation: Reduce pressure on long
term bond yields
• Extension of 6-months for the repayment
of loans under agri-debt relief scheme
st
In d u stry A n a lysis
 Financial Year 2009 – 10
• New banking licenses, new players,
more competition thus leading to
better savings and lending rates
• Results for the Indian banking industry
were in line with expectations
• Structural improvement in the CASA to
38% from 34% y-o-y basis
• Increasing CRR ratio and migration to
base rate from the current PLR
system were on the negative side
• Bond yield will have negative impact
•
 Updates
• Expansion in Rural segments: Micro
Finance
• Payment of interest on daily balance:
Higher outflow to Banks
• Biometric ATM’s will replace the
conventional ATM’s
• Cheques will gradually be phased out
and replaced by RTGS (Real Time
Gross Settlement) and NEFT (National
Electronic Fund Transfer)
• At least 5 more International Banking
giants will set up operations in India
Pillar I Pillar II Pillar
 Challenges
• International Financial Reporting
Standards (IFRS) Convergence
• Deregulation: Banking market
extremely competitive
• Diffused Customer loyalty
• Competency Gap
•
 Options to cope with the
challenges
• State of the art technology
• Leveraging the branch network and
sales structure
• Focusing on fee based income
• Aggressive forays in the retail
advances segment of home and
personal loans
• Improving the asset quality as per
Basel II norms
• Innovating Products: Credit Analytics
Systems
C o m p a n y A n a lysis
 Introduction
 ICICI Bank  State Bank of
• India’s 2nd Largest India
banks with total • India's largest
assets worth US banking group with
$91.07 billion assets worth US
• Ranked 219 as per $188.56 billion
Forbes Global 2000 • Ranked 219 as per
list of companies Forbes Global 2000
• 2000 branches and list of companies
about 5219 ATMs in • 12496 branches and
India about 16294 ATMs
• Client Sales Simulator in India
• Go Green – • Branches in 32
‘Chlorophyll’ nations
 The Base Rate system
• Base Rate are:
§ Cost of deposits
§ Adjustment for the negative carry in
respect of CRR and SLR
§ Unallocatable overhead cost e.g.
directors’ and auditors’ fees
§ Profit margin
• Banks not permitted to resort to any
lending below the Base Rate
• Actual lending rates= Base Rate +
borrower-specific charges
• Both banks have set its base rate for
loans at 7.5 percent
 S B I is h a vin g a ra p id
g ro w th in its d e p o sits
 A s S B I h a s la rg e r
n e tw o rk o f b ra n ch e s
and ATM s
 Pe o p le in In d ia tru st
th e p u b lic se cto r
b a n ks o ve r th e p riva te
se cto r o n e s
 T h e a ve ra g e a n n u a l
in te re st in co m e w a s
a p p rox . R s. 4 9 7 2 cro re
 IC IC I B a n k ’ s in co m e
w a s w e lla b o ve th e
in d u stry a ve ra g e a t
a ro u n d R s. 2 5 7 0 0
cro re
 B u t stillS B I h a d it a t
 B o u n ce b a ck o f IC IC I
B ank has been
p h e n o m e n a l o ve r th e
p re vio u s ye a r
 Prim a rily d u e to a n
in cre a se in tre a su ry
in co m e , a d e cre a se in
n o n - in te re st
exp e n se s, d e cre a se in
n e t in te re st in co m e ,
a n d d e cre a se in fe e
in co m e
 Pro fit o f S B I h a s
d ip p e d sig n ifica n tly
T h o u g h O p e ra tin g
Pro fit, N e t In te re st
In co m e , O th e r In co m e
in cre a se d But Loan
loss provision,
 An indicator of how well  Increased CASA implies
earnings support the dividend that the bank earn a higher
payment interest than it has to pay
 RBI has raised the cap on  Stable low cost deposit
banks’ dividend payout ratio base as it will get higher
from 33.33% to 40% interest from its
 ICICI Bank is large, stable depositors and have
and mature company as it excessive cash to give
offers a high D/P ratio. loans and advances
 D/P ratio of 23% for SBI  The banks are urged by
is because of its growing the finance minister to
trajectory increase their CASA
 It is retaining some part deposits to 40% of the
of the cash for future total deposits
expansionary purposes and has
a conservative approach in
wake
 RoEofisanother financial
a measure of the returns generated on
crisis
shareholder funds
 Also an indicator of financial strength
 Companies with high RoE are more likely to generate
incremental cash to fund capital expenses and are better
placed to raise debt at fine rates
 The CAMELS FRAMEWORK
 U se fu l in d ica to r o f  R B I p re scrib e s
co rp• oCra te e fficie n cy ADEQUACY B a n ks to m a in ta in a
- CAPITAL
 It sh o w s th e m in ( C R A R ) o f 9 %
re ve• nAu e-aASSET
co m p a n yQUALITY w ith re g a rd to cre d it,
g e n e ra te s fro m its m a rke t a n d
• M - MANAGEMENT SOUNDNESS
a sse ts o p e ra tio n a lrisk
 S•B IE is -a EARNINGS
b e tte r & PROFITABILITY
H ig h ra tio : B a n ks a re
in ve stm e n t p ro sp e ct in co m fo rta b le
a s i•tsLre-tuLIQUIDITY
rn o n a sse t p o sitio n to a b so rb
is in• cre
S a-siSENSITIVITY
n g o ve r th e lo sse s,RISK
TO MARKET so u n d n e ss
ye a rs a n d re silie n ce
 Th e d e clin e in C a p ita la d e q u a cy
ra tio n fo r IC IC I B a n k ra tio o f th e IC IC I B a n k
co u ld b e b e ca u se w a s w e lla b o ve th e
m a n a g e m e n t is n o t in d u stry a ve ra g e

 T h u s, th e y h a ve to
in d u stry a ve ra g e
h ig h e r N PA th a n th e
 B o th b a n ks h a ve
in cre a se d
ca rryin g co st is
p ro fita b ility , a n d
 It re d u ce s
p rin cip a lre p a ym e n t
th e fo rm o f in te re st o r
fo r a b a n k w h e th e r in
g e n e ra te a n y in co m e
h a s ce a se d to
a s a lo a n a sse t, w h ich
 A n N PA is d e fin e d
The CAMELS FRAMEWORK
 M e a su re s a
co m p a n y ’ s p ro fits
co m p a re d to its e n tire
in ve stm e n t
 H ig h R O A firm s:
m o re p ro fita b le , g ro w
fa ste r w ith o u t
b o rro w in g o r se llin g
a d d itio n a lsh a re s to
ra ise ca p ita l
 In d ia n b a n ks
o p e ra te a t a n
a ve ra g e o f a ro u n d 1 %
 R O A o f 1 . 1 3 % IC IC I
B a n k h a s p e rfo rm e d
m u ch b e tte r th a n th e
e n tire in d u stry
 The CAMELS FRAMEWORK
Sensitivity to Market Risk Is u se d
 to stu d y
liq u id ity p o sitio n o f
Refers to the risk that changes in market conditions
th e b a n k
could adversely impact earnings and/or capital.
H ig h ra tio : La rg e
The primary risk in most banks is interest rate risk (IRR)
a m o u n ts o f liq u id
IRR depends on many factors including: ca sh to m e e t clie n ts
§ Maturity ca sh w ith d ra w a ls
§ Repricing characteristics  IC IC I b a n k m a d e a
h u g esuch
§ The presence of embedded options, a m as
o uloan
nt of
b u sin e ss b y g ra n tin g
prepayments, interest rate caps
lo a n s & a d va n ce s
It is a director responsibility to ensure that the level of
 S B I: p la yin g sa fe in
risk taken is appropriate for the institution and to
te rm s o f its d e p o sits
ensure that the risk is well understood
& conserving cash for
If the bank is taking on higher levels of IRR, it will need
a n y u n fa vo ra b le
to maintain higher levels of capital and have higher
Capital Market Performance

IC IC I B a n k SB I
 Bibliography
• Annual Report of ICICI bank
• Annual Report of SBI
• Reserve Bank of India
• BSE Plus
• Union Budget
• Money Control
• Mckinsey Report
• Central Statistical Organization
• www.icicibank.com
• www.statebankofindia.com
• www.google.com/finance
• www.fdic.gov
Thank You