PROJECT REPORT A STUDY ON PERFORMANCE EVALUATION OF ICICI AND SBI USING FUNDAMENTAL AND TECHNICAL ANALYSIS

Report submitted in partial fulfillment of the requirement for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION OF ANNA UNIVERSITY Submitted by

KARTHIGAINATHAN.A
Reg. No. 91005631030 Under Guidance of Mr.M.SIVA KUMAR M.B.A.,M.Phil., Lecturer

Department of Management Studies

P.S.N.A. COLLEGE OF ENGINEERING & TECHNOLOGY
DINDIGUL-624 622, TAMILNADU
JULY-2007 Department of management studies
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P.S.N.A. College of engineering & technology
Dindigul-624 622, Tamilnadu.

This is certify that is a bonafide record of summer project By A.KARTHIGAINATHAN Reg.no.91005631030 Submitted in partial fulfillment of the requirement for the award of degree of the MASTER OF BUSINESS ADMINISTRATION OF ANNAUNIVERSITY, CHENNAI

Place: Dindigul Date :

HOD Department of management Studies

Signature of Faculty Guide:

Examiner:

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CERTIFICATE
I hereby certify that the project (BA1770) report submitted to the Anna University in partial fulfillment of the requirement for the award of the degree of Master of business administration is based on project undertaken by A.KARTHIGAINATHAN under my guidance.

Name of the Guide Mr.M.SIVA KUMAR MBA,M.Phil., Lecturer Department of Management Studies, P.S.N.A. College of Engineering & Technology, Dindigul-624 622, Tamilnadu. Place: Dindigul Date :

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DECLARATION BY STUDENT
I A.KARTHIGAINATHAN the undersigned hereby declare that this summer project titled “A STUDY ON PERFORMANCE EVALUATION OF ICICI AND SBI USING FUNDAMENTAL AND TECHNICAL ANALYSIS” is submitted in partial fulfillment of the requirements for the award of Master of business administration, Anna University, Chennai.

Place: Dindigul Date :

A.KARTHIGAINATHAN Reg.no:91005631030

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ACKNOWLEDGEMENT
My very special gratitude and heart felt thanks to our beloved Chairperson, for her blessings and best wishes to carry out my project work. I would like to express my deep gratitude to our Director and principle Dr.K.Thyagarajah who is responsible for moulding our thinking to complete this project. It is my great pleasure to express my sincere gratitude and thanks to my heads of the department Dr. M. Renganathan, for his valuable guidance and help. I am extremely thankful to my project guide Mr.M.Siva Kumar, MBA.,M.Phil., Department of management studies for imitating keen interest and giving valuable guidance at every stage of this project. I wish to express my sincere thanks to the company guide Mr.S.Anand, Investment Advisor, Kotak Securities, Madurai, who is my external guide for his kind support and guidance to complete my project. I wish to express my sincere thanks to Mr.Madhavan, Professor, Manonmaniam Sundharanar University, Thirunelveli, who is my external guide for his kind support and guidance to complete my project. I am also thankful to all the faculty members of the Department of management studies for their kind and valuable cooperation during the course of the project. I would also like to thank my parents, Friends and well wishers who encourage me to complete this project successfully.

Date:

Signature of the Candidate (A.KARTHIGAINATHAN)

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1 3. 5.1 1.5 1. 19.3. 17.6 1.3. 31. 28. 12.8 2. 14.3 3. 10.3.3. 40.1 2. 6.4 1. 20.11 2. 1.b 3. 29.6. 30. 27.2 1.7 2. 33. 24. 37. 38.3 2.3 1. 1.1. 18.9 2.2 3. 34.2 3. 39.3.13.2 1. 11.6.3.5 No Chapter – 1 Introduction Company Profile Product Profile The Industry Growth Background Management Shareholding & Liquidity Key area of Operation Strategy & New Developments ICICI Profile 1 2 3 4 4 5 5 6 8 8 11 11 11 11 12 13 13 21 22 22 23 26 27 29 34 35 35 36 39 39 40 41 42 42 43 46 47 Chapter .2 3. 22.13 2. 9.6 2. 32.10 2.3.1.4 2. 2. 16. 1.2 Scope of the study Objective of the study Period of the study Limitation of the study Methodology Fundamental analysis Economical analysis Industrial analysis Banking Industrial analysis Monitory Policy CRR Liquidity Management Indian Financial Sector SWOT analysis Budget 2007 -2008 overview Secure Banking Key Ratio Interpretation (SBI) Interpretation (ICICI) Chapter – 3 Technical analysis ICICI Bank Outlook SBIN Outlook Finding Suggestion ICICI Bank SBI Bank Conclusion Bibliography 6 .1 2.12 2.3. 4.3.4 3.7 2.No.a 3.13. 21. 3.2 2. 23.1 1.1 3.6. 25.1 2.3 2. 26. 8. 13. 15.2 2. 7. 35. 36.3.5 2.

CHAPTER 1 1. What India need is not a large number of small banks. There are plenty of changes occurs daily. When. price-earning multiplies and of course the performance of the economy matters.Leeladhar. V. Whether or not the sectors actually opens up in 2009. but growth through mergers and acquisition. Most of researcher’s conclusion is. said at Indian Banking Associations Jan 31 Seminar on “Indian Banks and the Global change” there is growing realization that the ability to cope with possible downside risks would depend among others on the soundness of the financial system and the strength of Individual participation”. We start corelating the Gross Domestic product (GDP) growth of emerging markets are supposed to reflect the health of the economy where India emerges as a key player. and better using technology to make banking more accessible and efficient. Evidently. Form the Investors point of view earning growth. Though a dramatic changes sweeping through the industry for some years now in the rise of India’s Public sector bank and private sector still it should fuel its grow to open up eyes towards open market.1 INTRODUCTION With the economy surging. India is arguably the best placed amongst the entire emerging market lot. 7 . According to Reserve bank of India’s banking review of 2004 – 2005 there was a notable pick up in demand from industry for investments and a surge in exports. In this scenario. While we look at the sensex breach the 10. things are getting better in the Banking Industry. Not Just through organic growth. As the RBI’s deputy Governor. banks should use that as an opportunity to get their growth strategies in place. but a small number of large banks. widening the product and services port folio. India is still cagey about foreign investments in banks.000 level for the first time it was yet another sign the India as a market for global liquidity had arrived. the industry’s focus now is on scaling up both domestically and in markets abroad.

225 billion and employs over 9. to life insurance.The various group companies include: Kotak Mahindra Capital Company Limited Kotak Mahindra Securities Limited Kotak Mahindra Inc Kotak Mahindra (International) Limited Global Investments Opportunities Fund Limited Kotak Mahindra (UK) Limited Kotak Securities Limited Kotak Mahindra Old Mutual Life Insurance Company Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra Trustee Company Limited Kotak Mahindra Investments Limited Kotak Forex Brokerage Limited Kotak Mahindra Private-Equity Trustee Limited Kotak Mahindra Prime Limited Kotak Securities Ltd. it services a customer base of over around 2. and the AUM across the group is around Rs.1. offering complete financial solutions that encompass every sphere of life. the group caters to the financial needs of individuals and corporates. London. Dubai and Mauritius. has been the largest in IPO distribution. is India's leading stock broking house with a market share of around 8. the group has a net worth of over Rs. 2006.2 million.5 % as on 31st March. 8 . With a presence in 282 cities in India and offices in New York. to stock broking. From commercial banking. catering to every segment of the industry.600 employees in its various businesses. As on December 31. to mutual funds. Kotak Securities Ltd. The group specializes in offering top class financial services. to investment banking.3.100 crore.2 COMPANY PROFILE The Kotak Mahindra Group Kotak Mahindra is one of India's leading financial institutions.

1. Sectoral research and Company Specific Equity Research combined with a strong and well networked sales force which helps deliver current and up to date market information and news.The portfolio Management Services provide top class service .com. Kotak Securities Ltd is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).Best Provider of Portfolio Management: Equities The company has a full-fledged research division involved in Macro Economic studies. Kotaksecurities.78% shareholding as on September 06. Reserve Bank of India (RBI) is the largest shareholder in the bank with 59.Largest Distributor of IPO's Finance Asia Award (2004). Portfolio Management from Kotak Securities comes as an answer to those who would like to grow exponentially on the crest of the stock market .7% stake followed by overseas investors including GDRs with 19. 9 . Kotak Securities has 195 branches servicing more than 2.India's best Equity House Finance Asia Award (2005)-Best Broker In India Euromoney Award (2005)-Best Equities House In India Finance Asia Award (2006). SBI is the largest commercial bank in India and accounts for approximately 18% of the total Indian banking business and the group account for 25% of the total Indian banking business. the online division of Kotak Securities Limited offers Internet Broking services and also online IPO and Mutual Fund Investments. providing dual benefit services wherein the investors can use the brokerage services of the company for executing the transactions and the depository services for settling them.20.3 PRODUCT PROFILE State Bank of India (SBI) has history of more than 200 years of existence. The central bank.Best Broker In India Euromoney Award (2006) .with the backing of an expert. catering to the high end of the market. Kotak Securities Limited manages assets over 2500 crores of Assets Under Management (AUM) .The accolades that Kotak Securities has been graced with include: Prime Ranking Award (2003-04).000 customers and a coverage of 231 Cities. RBIs stake in the bank is likely to be transferred to the Government of India (GOI).

74% over HIFY06 while the bank reported a net profit of Rs.624 ATMs. The bank also has the largest network of 5. Gross NPL of gross loans stood at 3.5bn. commercial and retail banking services in India.end 2006. margins of the bank declined by 8bps to 3. registering a decline of 18.69 bn as of September 2006.74% and Tier –II of 3.3% in FY 01 to over 47.14bn. Contribution of low cost deposit to total deposit during the period too has moved up sharply from 36. 4. with low cost deposits registering an impressive GAGR of 15.68bn at the end of September 2006. ve years to reach Rs3.67% The bank has provided for 54.100bn as subordinate debt during the next few months. The total asset size of the bank reported a CAGR of 9.938.19.1 THE INDUSTRY GROWTH The industry growth during the same period was around 28% • The bank’s asset quality has improved over the past few years. 2. The bank also has cushion to raise RS40bn in the form of hybrid.2% over the past years stood at Rs.6% in FY06. In HIFY07. 1. Indian central bank namely Reserve Bank of India (RBI) 10 .4% during the period FY01 –FY06 and stood at Rs. currentand saving account (CASA ) contribution in HIFY07 has declined to 43. Credit off take of the bank has been lower than the Indian banking industry during the past few years.06% of its NPLs as on Sep. The bank provides a full range of corporate. To augment its CAR to provide a stable platform for further growth. the bank the plans to raise upto Rs.755 branches of its associated banks.89 %) at the end of HIFY07.8bn. the bank reported net interest income (NII) of Rs.3. 1. 182.800.832.SBI has the largest distribution network in India spread across every nook and corner of India.67% during the same period.3. As on September 06.32 • The capital adepuacy ratio of the bank stood at 12. However.63% (Tier –I of 8.061 branches which include 4. in existenxe for more than 200 years.cantly increasing cost of funds and hensce margin contraction.2 BACKGROUND State Bank of India is the largest and one of the oldest commercial bank in India. signi. On a sequential basis. Since the last 5 years the bank has showed continued growth in its core business. the bank has 14.65% thereby. The total credit book of the bank grew at a CAGR of 18.4% during the same period.57% as of Sep-end 2006 while net NPLs stood at 1. which is below the industry average of around 68% • Total deposits of the bank grew at a CAGR of 94% over the last. representing a growth fo 2.

Kenya and Indonesia.9% in FY02 to 3.646bn with the public holding (other than promoters) at 40.000 branches (including subsidiaries) Apart form Indian network it also has a network of 73 overses of.40% in FY06 and currently is at 3. 2006. In recent past. correspondent relationship with 520 International banks in 123 countries.Bhatt is the Chairman of the bank.32% 1. With this type of strong base.3. Net Interest Income of the bank has witnessed a CAGR of 13.is the major share holder of the bank with 59. SBI group accounts for around 25% of the total business of the banking industry while it accounts for 35% of the total foreign exchange in India. The management’s thrust on growth of the bank in terms of network and size would also ensure encouraging prospects in time to come. Mr. The board in addition to monitoring corporate performance also carries out functions such as approving the business plan.774 as on 31 st March.O. 29.7% stake followed by overseas investors including GDRs with 19. SBI has acquired banks in Mauritius. net interest margin (NIM) of the bank has gone up from as low as as2.3.3%.51% are of. Mr. The bank had total staff strength of 198. 45. The bank is listed on the Bombay stock Exchange. Indian financial 11 .S. Recently.T.Bhatt was Managing Director at State Bank of Travancore Mr. Chennai Stock Exchange and Ahmedaoad stockeExchange while its GDRs are listed on the London stock Exchange.19% clerical staff and the remaining 25. Kolkata stock Exchange. SBI has the largest branch and ATM network of over 14. reviewing and approving the annual budgets and borrowing limits and axing exposure limits.3 MANAGEMENT The bank has 14 directors on the Board and is responsible for the management of the bank’s business.P. Prior to this appointment. 1. The Positions of CFO and the head of treasury have been segregated.30% were sub-staff.7% stake.4 SHAREHOLDING & LIQUIDITY Reserve Bank of India is the largest shareholder in the bank with 59. ces in 30 countries in all time zones. Of this. the senior management of the bank has been broadened considerably. SBI has displayed a continued performance in the last few years in scaling up its ef.3% during the last years.cers. The bank is capitalized to the extend of Rs. and new heads for rural banking and for corporate development and new business banking have been appointed. Bhattacharya is the managing Director of the bank and known for hisvast experience in the banking industry. ciencly levels.78% stake as on September 06. During the same period.

3% while Indian public held Just 8. SBI the 526. In the first half of FY2007.ces and 679 12 . Mid Corporate Group b. 1.3 mm shares outstanding and going by the actual trading volume.3. RBI is the monetary authority and having majority shareholding re.2007 bank’s market capitalization stood at Rs.93bn.177 branches.ict of interest.ces. 4 Sub-of.institutions held 12.5 KEY AREAS OF OPERATIONS The business operations of SBI can be broadly classed into the key income generating areas such as National Banking. a. The daily share turnover during the year 2006 was 0. Scale with the bank clocking further gains. Project Finance c. Leasing b. But the sentiment in the sock market improved in the first six months of the current. International Banking.1. Now the government is rectifying the above error by transferring RBI’s holding to inself. National Banking The national banking group has 14 administrative circles encompassing a vast network of 9. & Treasury operations. the Stock’s liquidity seems to have decreased in the past two years. Post this.0% Which will further improve its CAR and Tier I ratio. SBI will have afurther headroom to dilute the GOl’s stake from 59. 93mm shares exchanged hasnds.ects con.6bn.39% witnessed in 2005. Key Business Areas of the Bank a) Corporate Banking The corporate banking segment of the bank has total business of around Rs. 12 exchange bureaus.22% down from 0.643.7% to 51. SBI has created various Strategic Business Units (SBU) in order to streamline its operations. as of January 12. 104 satellite of.2% of the stock. Shareholding Pattern of the Bank as on 30th September 2006 Source : SBI As of Sep 2006. Corporate Banking.

755 branches of its seven Associate Banks dominates the banking industry in India.3. d. SBI has installed ATMs at Male. even it.ces. Muscat and Colombo Of. 25 foreign offices were successfully switched over to Finacle software. Treasury The bank manages an integrated treasury covering both domestic and foreign exchange markets. at Gaborone. The bank diversified it operations more actively into alternative revenue streams in order to offset the losses in. the treasury operation of the bank has become more active amidst rising interest rate scenario. International Banking SBI has a network of 73 overseas of.061 branches including 4. This group consists of four business group which are enumerated below: b. the remotest corners of the country.1. Out of the total branches. The bank is keen to implement core banking solution to its international branches also. through its various subsidiaries. In recent years. In Indonesia. The reoganization seeks to enhance the efficiencies in use of manpower resources an increase maneuverability of banks operations in the markets both domestic as well as international. e.2. Reorganisation of the treasury processes at domestic and global levels is also being undertaken to leverage on the operational synergy between business units and network. 809 are specialized branches. Small & Medium Enterprises b. SBI acquired 76% shareholding in Giro Commercial Bank Limited in Kenya and PT Indomonex Bank Ltd. SBI has installed ATMs at Male Muscat and Colombo of. The bank incorporated a company SBI Botswana Lte. Agricultural Banking c. provides a whole range of 13 . robust credit growth and liquidity constraints. In addition to banking.xed income portfolio. to reach out to customers. the Group.cex. In recent years.ces in 30 countries in all time zones and correspondent relationship with 520 international banks in 123 countries.extension counters. Personal Banking SBU b. In recent years. Associates & Subsidiaries The State Bank Group with a network of 14. During FY06.

Security trading and primary dealership in the Money Market. meeting best global practices and standards in bankings and service delivery. Non – Banking Subsidiaries/ Joint Ventures i. Mutual Funds. ii. ICICI Bank offers a wide range of banking products 14 . 1. SBI life SBI Capital Markets Limited (SBICAP) SBI DFHI LTD SBI Cards & Payments Services Pvt.3.1. increase productivity. It has a network of about 614 branches and extension counters and over 2. and manage risk better. Factoring. (SBIFMPL)_ Human Resources 1. while adjusting to the changing circumstances and interest rate environment.financial services which includes life Insurance. it has been moving swiftly to implement real time on-line banking. iv. SBI had increased its benchmark lending rates by 50 basis points to 11.5 percent. which are paying more for deposits as a way of encouraging investors to save. Major innovations and initiatives are in the arena of technology.2.200 ATMs. iii. Associates Banks e. Despite intense competition and pressure on spreads it has maintained and Improved its NIM. After having computerized all its branches. Credit card. As a part of its strategy to stay ahead of the competition.3. (SBICSPL) SBI Funds Management (P) Ltd. v. e.Ltd. service delivery channels and human resource to efficiently serve bank customers across the globe The bank maintains its drive on the technology front to enhance customer service. The bank has maintained its record of profitability. it has set in motion a series of steps to transform itself into a modern. f.6 STRATEGY AND NEW DEVELOPMENTS Though a publis sector bank.7 ICICI BANK PROFILE ICICI Bank is India’s second-largest bank. world-class banking organiztation. this lending rate increase is dure to the rising cost of funds for banks. technology enabled customer-centric. banking products and processes. Merchant Banking.

ICICI Bank has formulated a Code of Business Conduct and Ethics for its directors and employees. with free float market capitalization* of about Rs. and was its wholly-owned subsidiary. ICICI’s shareholding in ICICI Bank was reduced to 46% through a public offering of shares in Indian fiscal 1998. an Indian financial institution. from non-Japan Asia to be listed on the NYSE. ICICI Bank was originally promoted in 1994 by ICICI Limited. amalgamation in fiscal 2001.00 billion ranked third amongst all the companies listed on the Indian Stock exchanges. Russia and Canada. Bahrain. venture capital and asset management. ICICI Bank’s equity shares are listed in India on the 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).and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking. United Arab Emirates. and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. an equity offering in the form of ADRs listed on the NYSE in fiscal 2000. ICICI Bank. China. the Government of India and representatives of Indian industry. At June 5. Our UK Subsidiary has established a branch in Belgium. South Africa and Bangladesh. branches in Singapore. ICICI Bank is the most valuable bank in India in terms of market capitalization. ICICI Bank set up its international banking group in fiscal 2002 to cater to the cross border needs of clients and leverage on its domestic banking strengths to offer products internationally. 15 . ICICI Bank currently has subsidiaries in the United Kingdom. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. ICICI was formed in 1955 at the initiative of the World Bank. both directly and through a number of subsidiaries an affiliates like ICICI Bank. ICICI Bank’s acquisition of Bank of Madura Limited in all-stock. Sri Lanka and Dubai International Finance Centre and representative offices in the United States. life and nonlife insurance. In 1999. 480. Hong Kong. ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services group offering a wide variety of products and services. ICICI become the first Indian company and the first bank or financial institution. In the 1990s.

with ICICI Bank The merger was approved by shareholders of ICICI and ICICI Bank in January 2002. both wholesale and retail. the managements of ICII and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic alternative for both entities. particularly fee-based services. have been integrated in a single entity. and the move towards universal banking. The merger would enhance value for ICICI Bank shareholders through a large capital base and scale of operations. greater opportunities for earning fee-based income and the ability to participate in the payments system and provide transaction-banking services. The merger would enhance value for ICICI shareholders through the merged entitty’s access to low-cost deposits. *Free float holding excludes all promoter holdings. a’ lowing stake holders to access information on ICICI Bank at their convenience. In October 2001. 16 . seamless access to ICICI’s strong corporate relationships built up over five decades. the ICICI group’s financing and banking operations. ICICI Bank’s dedicated investor relations personal play a proactive role in disseminating information to both analysts and investors and respond to specific queries. strategic investments and cross holdings among public sector entities. and would create the optimal legal structure for the ICICI group’s universal banking strategy. ICICI Bank disseminates information on its operation and initiatives on a regular basis. entry into new business segments. and access to the vast talent pool of ICICI hand its subsidiaries. The ICICI Bank website serves as a key investor awareness facility. hither market share in various business segments. and by the High Court of Judicature at Mumbai and the Reserve Bank of India in April 2002.After consideration of various corporate structuring alternatives in the context of the emerging competitive scenario in the Indian banking industry. the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI Personal Financial Services Limited and ICICI Capital Services Limited. Consequent to the merger.

2.3 PERIOD OF THE STUDY: For the purpose of the study 5 years period starting from the financial year mar 2002 to march 2006 in considered.1 SCOPE OF THE STUDY : The project entitled “A Study on the performance evaluation of SBI and ICICI based and fundamental and technical analysis” will enable from the investors point of view to refer the performance of the Banks. com no other efforts have been made to verify their correctness. The approach to behavior of share price is based on long time view. • • Due to paucity of time important factors has been analysed and discussed. To study the performance of ICICI and SBI 2. their relative growth and thereby decide on to buy or sell the particular slab.4 LIMITATIONS OF THE STUDY: • This study is based on the secondary data collected form the kotak securities.2 OBJECTIVES OF THE STUDY: PRIMERY OBJECTIVE • To analyse the various factors which influence the share price of SBI and ICICI bank SECONDREY OBJECTIVE • • • To analyze the market value of SBI and ICICI bank To offer suggestions and recommendations based on the findings. 17 . The year 2005-2006 is chosen as a terminal year since only upto this period reliable time series data were available for the variables dealt in the study.CHAPTER 2 2. This study will also help to identify the bank that is lagging behind in its performane. 2.

Non interest income / total funds (%) 10. Net interest income / total funds (%) 9. Interest income / total funds (%) 7. Interest expended / interest earned (%) 4. Global research study is also adhered. 2. Operating expenses / total funds (%) 11. Analysis Overlook: Fundamental analysis and technical analysis are taken into consideration.5 METHODOLOGY DATA COLLECTION Secondary data: All secondary data has been collected from the kotak securities. website of stockcharts. The required information are also collected form respective bulletins of RBI. The key ratios considered of SBI and ICICI Bank considered includes 1. Cash / deposit (%) 3.com. Net profit / total funds (%) 18 . Profit before provision / total funds (%) 12. Investment/deposit (%) 2. Operating expenses / total income (%) 6. Other income / total income (%) 5. website of government of India.• There limitations do not undermine either the scope of the study on the analysis and inference. Interest expended / total funds (%) 8. Ration analysis The ratio analysis expresses the relationship of the financial ratios in percentages which are collected form the Balance sheet and profit and loss account.

6 FUNDAMENTAL ANALYSIS INTRODUCTION Fundamental analysis is the study of economic factor industrial environment and the factor related to the company. investment. SLR. stable prices. If it is the other way round. and the flow of the industry.1 ECONOMIC ANALYSIS 19 .6. Volume is favorable on the upswing. and infrastructure facilities which provides a best environment for common stock investment Industrial analysis growth follow a pattern. Company analysis explains of the profile of SBI and ICICI bank and then deals with the ratio analysis of both the banks 2. This replicates the banking industry monitory policy. CPR. With the help of several indicators they analysis the relationship between price – volume and supply-demand for the overall market and the individual stock. trend reversals can be expected. This chapter of fundamental analysis consists of Economic analysis Banking industry analysis Profile of SBI Profile of ICICI Ratio analysis of SBI Ratio analysis of ICICI Economic analysis with favorable GDP with savings. 2. balance of payment.Technical Analysis It is the process of identifying trend reversal at an earlier stage to formulate the buying and selling strategy. the number of shares traded is greater than before and on the downside the number of shares traded dwindles.

stock price are low. the industry can also be expected to show rapid growth and vice versa. the surging pattern in agriculture continued with growth estimated at 6. the outlook is distinctly up beat. The rise in the savings rate in 2005-06 was due to private corporate and the household sector. and made a negative contribution to the overall saving rate. while the share of agriculture in GDP decline to 18. 71. The higher growth trends.7% in the two resent year. Vigorous growth with strong macroeconomic fundamentals has characterized developments in the Indian economy in 2006-2007 so far. the share of industry and service improved to 26. a redeeming feature of recent years is that the savings of the public sector. which had been negative until 2002-03.7 percentage points.0 percentage point and 0. and services maintained on the industrial segment.The level of economy has an impact on investment in many ways.0% and 9. When the level of economic activity is low. increased by 1.4 percent in 2005 – 06. The savings rate for 2005-06. The positive saving of Rs. The private corporate sector has financed a 20 . As a result. If the economic growth rapidly.2% in2005-2006 and 2006-2007 shows a positive sign. which as proportion of GDP. particularly in manufacturing boosted sentiments with in the country and abroad.1%.5%. However. Growth of 9. SAVINGS AND INVESTMENT The gross domestic savings as a proportion of GDP shows an increasing trend with the saving ration rising from 26.0% targeted by the tenth plan (2002-2003 to 2006-2007).1 per cent in 2004-05 and 32. The overall macro economic fundamentals are robust. 31.0% relative to 8. has been placed at 8.7 per cent in 2003-04. The ratcheting up of growth observed in recent years in reflected in the eleventh five year target of an average annual growth of 9. The entire residual contribution came from industry. The Indian economy has shown a sharp rise in the savings rate of the private corporate sector for tour years. as per the quick estimates. particularly with tangible progress towards fiscal consolidation and a strong balance of payment position. Services contributed as much as 68.4% and 55. With an up surge in investment. However.1 per cent. respectively. and when the level of economic activity is high. the stock price are high reflecting the prosperous outlook for sales and profit of the firms.6% of the overall average growth in GDP in the last five years.0% and 2. there are some genuine concerns on the inflation front.262 crore in 2005-06 (QE) is largely attributable to the higher savings of nondepartmental as well as departmental enterprises. was positive for the third successive year in 2005-06. in 2006-2007.4 per cent in 2002-03 to 29.

5 per cent of GDP in 2005-2006.1 per cent in 2003-04. there was a step up in the rate of gross domestic capital formation (GDCF) or investment from 28 per cent of GDP to 31. PFCE as a proportion of GDP declined from 63. Physical savings as a proportion GDP has declined steadily from a high of 12. private final consumption expenditure (PFCE) at current prices as a proportion of GDP.7 percentage point of the 1.4 percent of GDP in 2004 – 05 .1 per cent in 2002-03 to 62.3 percentage points increase in gross domestic savings rate between 2004-05 and 2005 – 06 has come from the household sector.0 per cent in 2004-05. increased to 11.7 per cent in 2005-06. with the rise in the rate of gross domestic savings between 2003.3 per cent in 2002-03 to 39. This decline has also been accompanied by substantial changes in terms of the shares of different commodity groups. Financial savings. and further to 58.4 per cent in 2026. a construction boom with residential buildings financed from housing loans form banks and the progressive maturing of the domestic financial markets. As much as 0.9 per cent in 2002-03 to 11. on the other hand. 60.2 per cent between 2003-04 and 2004-05. The increase in savings rate is what is to be expected with higher growth rate of the economy and a declining dependency ratio. As the savings rate has gone up.4 percent in 2003-04 to 10.1 per cent in 2004-05.04 and 2004-05. The other major items of importance. Progressive maturing of the domestic financial markets has provided shift in the household portfolio in the three years ending in 2005-06.7 per cent in 2005-06. more than recovered to 11. GDCF at constant prices base: 1999-200) as a proportion of GDP is consistently lower than the corresponding proportion at current prices. after declining from 11. While Housing loans from banks has tended to increase household savings in physical form and depress financial savings.3 per cent to 10. beverages and tobacco came down from 43.large part of its investment in the on-going long capex cycle from such retained earnings or savings.8 per cent in 2002-03 to 19.4 per cent in 2005-06.9 per cent in 2006 to 68.7 per cent in 2005-06.0 per cent in 2004-05. has shown a declining trend particularly from 2001-02. In PFCE. after declining from 11. This differential may reflect the greater increase in the prices of capital goods relative to the general 21 .5 per cent of GDP leading to a savings investment gap or a current account deficit of 0. the share of food. transport and communication. as a proportion of PFCE. namely. with the proportion of population in the working age group of 15-64 years increasing steadily from 62. Government final consumption expenditure GFCE). rose from 15. the demographic dividend in the form of high savings rate is likely to continue.

is a Cause of concern. But this appears to have undergone a virtuous Transformation with investment rather than private consumption being he Main source of GDP growth in the latest two years of 2004-05 and 2005. poor agricultural performance. The recent spurt of activity in food processing and Integration of the supply chain from the farm gate to the consumer’s plate Has the potential 22 . imbalance in fertilizer use. Low investment. low Agricultural growth has serious implications for the ‘inclusiveness’ of Growth. on a base of 6. This may indicate a recent pick up in fresh investment for creating additional capacity through fixed capital formation. GDP growth in India in the post-reform period was driven mostly by Private final consumption expenditure or PFCE growth.0 per cent.8 percentage point contribution of investment to 13. can complicate maintenance of price stability with Supply-side problems in essential commodities of day-to-day Consumption. AGRICULTURE After an annual average of 3. respectively.0 per cent in the first five years of the New millennium starting 2001-02.price level. PFCE Contributed more than one half of the growth every year until 2001-02.1 percentage point for the first time in recent years.. Furthermore. The percentage point contribution of investment in the growth of GDP at current market prices of 13. In terms of contribution to growth of GDP at current market prices. with growing technological sophistication of the production processes in the economy in general and manufacturing in particular. low seeds Replacement rate. investment continued to provided the lead during 2004-05 and 2005-6. particularly in the private sector. growth of agriculture at only 2. it had again dominated GDP Growth in 2003-04. irrespective of the choice of constant or current prices as the weights. respectively. a distorted incentive system and low post-harvest value Addition continued to be a drag on the sector’s performance.1 per cent growth in GDP at current market prices in 2004-05 exceeded the corresponding contribution of private final consumption expenditure at 6. Data on consumption and investment in the national accounts available until 2005-05 show that the 6. With imports growing faster than exports. from the demand side. . with more Than half the population directly depending on this sector. the external balance continued to have a negative contribution to GDP growth in recent years.0 per cent growth in the previous year. But. as the current year Has demonstrated.06 . were 7. the direction of change from year to year remains unaltered.1 per cent in 2004-05 and 2005-06.6 per cent and 7.1 per cent and 14. After falling below one half in 2002-03.7 per Cent in 2006-07.

On January 22. However. The minimum support price (MSP) of wheat raised by Rs.4 per cent in the WPI Basket. Wheat.2 per cent to overall inflation of6. State Trading Corporation. fruits and vegetables.of redressing some of the root causes such as low Investment. export was banned from June 22. sugar and Edible oils by a combination of enhanced imports. Prices of primary commodities. edible oils. Including manufactured products such as sugar and edibleoils.2 per cent and non-food articles at 12. 2007. 2007.0Per cent. the impact of duty-free import of wheat and pulses in rolling the domestic prices back was limited. In wheat. mainly food. and exports were banned from February 9. the mineral Subgroup recorded the highest year-on-year inflation at 18.2 per cent. private trade as permitted to import wheat at zero duty from September 9. and as a matter of abundant precaution. 2006. Further.50 Per quintal and announced well in advance of the sowing season to bring additional acreage under wheat. first in August 2006 and later in January 2007. Followed by food articles at 12. Regulation of commodity futures markets was strengthened for wheat. Duty on palm group of oils. various metals and machinery items. was reduced by 20-22. With a firming up of international prices. mainly food. 2007 remained at 5 per cent. tendered overseas for 55 lakh tonnes of wheat. In pulses. prices of primary commodities. have been on the rise in 2006-07 23 . sugar and pulses. Food articles contributed as much as 27. export restrictions and Fiscal concessions.7 per cent on February 3. INFLATION with a shortfall in domestic production vis-à-vis domestic demand and hardening of international prices. 2007. the parastatal. and National Agricultural Cooperative Marketing Federation (NAFED) purchased urad and moong overseas. further duty cuts were announced for Portland cement. average inflation in the 2 weeks ending on February 3. But such imports unproved domestic market discipline. an Condiments and spices have been the major contributors to the higher Inflation rate of primary articles.2007. poor quality seeds. pulses.98 per cent. Starting with a rate of 3. 2006. Government closely monitored prices every week and initiated Measures to enhance domestic availability of wheat. which meets more than a half of the domestic demand –supply shortfall in edible oils.5 percentage points in a phased sequence. Within the primary group. have been on the rise In 2006-07 so for. Food articles have a high weight of 15. the in flation rate in 2006-07 has been on a general upward trend with intermittent decreases. futures trading was banned in urad and tur from January 24. pulses. imports were allowed at zero duty from June 8. tariff values of these oils for import duty assessment were frozen. and little postharvest processing.

Food articles have a high weight of 15. The pass –through to consumers was restricted to just 12.2 per cent and non-food articles at 12. average inflation in the 52 weeks ending on February 3. the inflation rate in 2006-07 has been on a general upward trend with intermittent decreases. To stop the hemorrhaging of public sector oil companies’ finances. there was an unavoidable upward revision of retail selling prices of petroproducts on June 6. 2 and Re. non-oil import growth decelerated to a moderate 18. primarily because of high bullion prices leading to a decline in import balance. reflecting in part the ongoing investment boom and the high international petroleum price. after remaining in surplus till 2003-04.7 per cent on February 3. FOREIGN IMPACT oil prices The international annual average price of the Indian basket of crude (about 60 per cent of Oman/Dubai and 40 per cent of Brent).98 per cent.5 per cent in a three way burden sharing arrangement among consumers. the mineral subgroup recorded the highest year-on-year inflation at 18. domestic prices of petrol (motor spirit) and high diesel were reduced by Rs. respectively. pluses. However.so far. 2000-01. Balance of payment In the balance of payments. Including manufactured products such as sugar and edible oils.7 billion. India’s exports (in US dollar terms and 24 . imports (in US dollar terms and customs basis) had grown by 33. 2006. A spurt in inflation like in the current year has been observed in the recent past in 1997-98. 2003-04. Government and oil marketing companies. 2007 . on August 8. and resulted in reserve accretion. Starting with a rate of 3. has turned negative since 2004-05. 2006.7 per cent in the first nine months of the current year. 2007. but imports grew even faster.2 per cent to overall inflation of 6.4 per cent in the WPI basket.0 per cent.28 per barrel. 2007 remained at 5 per cent. Exports grew fast.. In 2005-06. and condiments and spices have been the major contributors to the higher inflation rate of primary articles.8 per cent. 2006. and 2004-05. imports grew by 36. edible oils. followed by food articles at 12. fruits and vegetables.2 billion and US$11. In the first nine months of the current year.3 per cent. in 2005-06 and in the first half of 2006-07. and again by the same amounts with effect from February 16. after remaining more or less stable in 2002-04 at around US$27. Within the primary group. capital flows more than made up for the current account deficits of US$9.2 per cent.1. The current account deficit reflected the large and growing trade deficit in the last two years. food articles contributed as much as 27. respectively with effect from November 30. While petroleum imports continued to grow rapidly. With the softening of international petroleum prices. Wheat.

after remaining buoyant until 2005-06. India with a market capitalization of 91. The BSE sensex.4 per cent in 2005-06 followed by 98. rallied from a low 8.000 points. fluctuated from year to year. 2007. on average.5 per cent of GDP on January 12. Aggregate mobilization. with about 6 IPOs every month. The rally from the 13. FII flows. These debt flows. however. Net 25 .4 per cent in April –September 2006. technology and market access advantages through acquisitions overseas. there were large ‘other flows’ (delayed export receipts and others) accounting for a sizeable proportion of net capital flows. 2007 the strength of the market microstructure from large retail participation continued. The growth rate was 27. Fill flows are reported to have turned positive again in the second half of the current year. Buovancy of exports was driven from major trading partners. has remained in the range of 39. especially through private placements and Initial Public Offerings (IPOs). In the three-year period. external assistance and external commercial borrowing (ECBs) –two major debt-creating flows. During 200607. Foreign investment. the dominant variety of portfolio flows.724 on February 9. The positive sentiments were manifest also in most indicators such as resource mobilized through the primary market. exports gained momentum to grow by an estimated 36. During 205-06. This was even after gross outflows under FDI with domestic corporate entities seeking a global presence to harness scale. After being outflows in the previous two years.5 per cent to RS. 2002-05. were 25 per cent in 2004-05 and 18 per cent in 2005-06.1 per cent to 79.769 crore in calendar year 2006. FDI and FII Capital flows into India remained strong.3 per cent in the first nine months to reach US$89. growth of 23. as a proportion of capital flows. turned into net outflows in the first half of 2006-07. after a slow start. 161. There was strong growth in foreign direct investment (FDI) flows (net). as a proportion of total capital flows. grew by 30. with three-quarters of such flows in the form of equity.929 on June 14.customs basis) have been growing at a high rate of more than 20 per cent since 2002-03.000 mark to the 1400 mark in only 26 trading from the fastest ever climb of 1. stockindex of the Bombay Stock Exchange (BSE). THE CAPITAL MARKET Bullish sentiments in the domestic capital market is foreseen. The composition of flows. 2006 to an alltime intra-day high of 14.4 per cent.picked up in 2004-05. India’s exports crossed the US$100 billion mark.3 per cent in the last four years ending in 2005-06.5 billion.

particularly mobile. registered a growth of 8.950 crore in 2006. ‘trade. Among the three sub-sector of services. While nearly 60 percent of these resources would come from the public sector and/or through public-private partnership (PPP). Services sector growth has continued to be broad-based. accelerated delivery. played a key role in such growth. other indicators of market sentiments. There was. The sharp rise in mobilization by mutual funds was due to buoyant inflows under both income/debt-oriented schemes and growth/equity oriented schemes. petroleum refinery products. hotels. higher productivity.04. and recovery of user charges. Based on the number of projects that have been approved or are under consideration. 1. a growth declaration in cargo handled at major maritime ports (both exports and imports) and airports (exports). enhanced social service. crude oil. such as equity returns and price/earnings ratio also continued to be strong and supportive of growth. along with the ‘value for money’ continues to remain critical. The negative inflows in 2004 turned positive for the public sector mutual funds in 2005 and accelerated in 2006.3 per cent. however. INFRASTRUCTURE On the transport and communication front. clear customer focus. Further. The potential benefits expected from PPP are : cost-effectiveness.mobilization of resources by mutual funds increased by more than four-fold from Rs. The upbeat mood of the capital markets.454 crore in 2005 to Rs. 25. Investment requirements for infrastructure during the Eleventh Five Year plan are estimated to be around US$ 320 billion. Overall index of six core industries – electricity. it is estimated that a leveraging of nearly six times could be achieved through this route. and cement. coal. Reflecting the improved growth prospects of the economy was partly also a result of steady progress made on the infrastructure front. impressive progress in information technology (IT) and IT-enabled services. both rail and road traffic. transport and communication services’ has continued to boost the sector by growing at double-digit rates for the forth successive year (table 1. the additionally of resources that PPP would bring. railways maintained its nearly double-light growth in the first nine months of the current year. and fast addition to existing stock of telephone connections. 26 . The news of gas discoveries in the Krishna Godavari (KG) basin under New exploration and Licensing Policy (NELP) in recent months was an encouraging development in the country’s pursuit of reduced impot dependence in hydrocarbons.2).

and does not adequately capture the signs of industrial resurgence. and after accelerating to over 9. The earlier statement of GDCF for 2004-2005 of 30.2 INDUSTRY ANALYSIS The lower contribution of industry to GDP growth relative to services in recent year is partly because of its lower share in GDP.6. YoY. manufacturing. industry has never consistently grown at over 7. as a proportion of the corresponding growth in services. had it not been for a relatively disappointing performance of the other two sub-sector. from a low of 2. released by CSO in their advance estimates.4% in 2002-2003 and 2003-2004. The growth of industry.5% in the next two years. namely mining and quarrying.Growth in financial services (comprising banking. and electricity. Investment reflect a high degree of business optimism. the momentum has been maintained with a growth of 11. touched 10. Since 1951-1952. Now stand upgraded to 31. Industrial growth would have been even higher. gas and water supply.1% and 7. Within industry.7 percent in 2004-05 and 10.1 percent in 2006-2007. revived to 7.0% per year for more than three years in a row before 2004-2005.7 % in the last seven years. The revival in gross domestic capital formation (GDCF) that commenced in 2002-2003 has been followed by a sharp rise in the rate of investment in the for four consecutive years. insurance.0% in 2006-2007. with the solitary exception of the festive month of October. Growth on industrial sector.5% in the quick estimates. real estate and business services). the growth impulses in the sector seem to have spread to manufacturing.9% on the average between 1991-1992 and 1999-2000. after dipping to 5.6 percent in 2003-2004 bounced back to 8. respectively. has been growing at double digit rates every month since march 2006. accounting to the monthly index of industrial production (IIP) available until 2006.1%. improved to 88.9 percent in 2005-2006. The current growth phase shows a sharp rise in the rate of investment in the economy. 2.7% in 2001-2002. This sharp increase in the investment rate has sustained the industrial performance and reinforces the outlook for growth 27 . which was78.

Concomitantly.8 per cent in the corresponding period of 2005. 13. 2006 2.3 BANKING INDUSTRY ANALYAIS Bank credit has continued to grow at a pace.2. 2006). Banks’ SLR Investments. expectations of the Private corporate sector of higher increase in prices of both inputs and Outputs. at 11.0 per cent t end-march 2006 and 16. Expansion in the residency.based new monetary aggregate (NM3) – which.0 per cent a year ago. reports of growing strains on domestic capacity utilization. acceleration in inflation. partly Reflecting lower 28 . and additional absorption of liquidity under the MSS. and Challenges emanating from capital flows and consequent impact on Increasing liquidity. 2007 over March 31. have declined further from their end-March 2006 levels. Other development in the Domestic economy impacting upon the decision to increase the CRR Included growth in real GDP. On a fiscal year basis too. accelerated to 20. the Reserve Bank raised cash Reserve ratio (CRR) by 50 basis points in two phases with effect from the Fortnight beginning December 23. beginning December 23. Furthermore. 2006. 2006 and January 6. The Reserve Bank continued to modulate market liquidity with the help ofLAF repo and reverse repos and issuance of securities under the Market Stabilisation Scheme (MSS). reflecting strong demand conditions. year-on-year (Y-o-Y).9 per cent. on December 8.6. The increase in the CRR is estimated to have absorbed banks’ resources to the extent of Rs. inter alia does not directly reckon non-resident foreign currency deposits such as India Millennium Deposits (IMDs) and FCNR (B)-was lower than M3. M3 growth during 2006-07 so far (January 5.500 crore. broad many growth has remained above the Indicative trajectory . decided to increase the CRR by 50 basis points in two stages – 25 basis points each effective the fortnights. 2007 from 17. sustained growth in credit offtake. Taking into account. these trends in monetary aggregates.06 (January 6.7 MONETARY POLICY Broad money (M3) growth. was higher than that of 8. 2006 over Apirl1. 2007. Sustained Growth of bank credit was accommodated by acceleration in deposit Growth. inter alia. 2005). as a proportion of their net demand and time liabilities (NDTL). the Reserve Bank.4 per cent as on January 5.

immediate measures and willingness to take recourse to all possible measures in response to evolving circumstances promptly. with inflation based on the various consumer price indices being higher than WPI. a majority of respondents from the private corporate sector expect higher increase in prices of both inputs and outputs. that: “Furthermore. but the overall impact on Inflation expectations requires to be monitored and moderated.Real GDP growth at 9.8 CRR The Reserve Bank in its Mid-Term Review of Annual Policy Statement for the year 200607 (October 31.November 2006 will moderate inflation. there were a Number of significant developments. The objective is to continue to maintain conditions of stability that contribute to sustaining the momentum of growth on an enduring basis. the monetary policy stance and measures will need to be in a process of careful rebalancing and timely adjustment”. The reduction in prices of petrol and diesel in end.recourse to call/term funding from financial institutions. inter alia. Increase in WPI inflation. However. and will continue to be accommodated by net Capital flows. Continued high growth in non-food bank. 2006) noted. Towards this objective. The External sector continues to be strong and current account deficit is likely To be close to the trend. 29 . Growth in liquidity aggregate L 1 was lower that that in NM3 on account Of decline in postal deposits. it is necessary to recognize the challenges Emanating from capital flows and consequent impact on increasing Liquidity. As per the RBI s Industrial Outlook survey. Subsequent to the announcement of the Mid-term Review. 4. particularly on the domestic front. acceleration in money supply (M3 ) growth and reserve money growth and absorption of additional liquidity under the market stabilization scheme(MSS) 3. 2. These included: 1. There were reports of growing strains on domestic capacity Utilization.1 per cent in the first half of 2006-07. containing inflation expectations in the current environment and consolidating gains achieved so far in regard to stability would warrant appropriate. A seasonal decline in prices of food articles could moderate the inflation Pressures but the WPI inflation excluding food articles remains at Elevated levels.2 per cent during July-September 2006 and 9. There were also reports that expansion of capacity is Underway but the realization could be constrained over the next two years. 2.

Growth in time deposits also appears to have benefited from the Recently introduced tax benefits under section 80C for deposits with Maturity of five years and above. Growth in time deposits of scheduled commercial banks accelerated to 22. however. apart from Acceleration in economic activity. growth in demand deposits (19. 2007 from 16. Decided to increase the cash reserve ratio (CRR) of the scheduled Commercial banks. This.75 per cent in March 2006 to 6. Amongst its major components. Rates offered by private sector banks on deposits of similar maturity increased from a range of 5. regional rural banks (RRBs). Acceleration in growth in October 2006 could be partly attributed to the early onset of festival Season currency demand during the current year. significantly higher than that in the previous year. Concomitantly.2 per cent) as on January 5. On a year-on-year asis.75 per cent to 6.75-6. both currency and time deposits Contributed to acceleration in growth in M3 year-year basis growth in Currency with the public increased from 15. growth in non-food credit decelerated marginally to 16. non-food Credit of scheduled commercial banks (SCBs) registered a growth of 31.50-7.8 per cent as on January 5.25 per cent in January 2007. On a fiscal Year basis.2006 to a peak of 19. In view of the Acceleration in deposits. Growth in aggregate deposits accelerated to 21. 2007. 2006 and January 6. an amount of about Rs.9 per cent (y-o-y) as on January 5. As a result of the ncreases in CRR on liabilities to banking system.9 per Cent as on January 5. on the back of higher Accretion to time deposits.75 per cent over the same period.the same rate as a year ago. Accertion to time deposits was. 2006. 2007. on December 8. Commercial sector’s demand for bank credit has continued To remainstrong during 2006-07 so far.7 per cent).0 per cent a year ago.75-9. as On January 5.500 crore Of resources of banks would be absorbed.Operative banks and scheduled primary (urban) co-operative banking System by 50 basis points of their net demand and time liabilities NDTL ) In two stages-25 basis points each effective from fortnights beginning December 23. could be attributed to higher interest Rates on deposits as well as tax benefits. 2007. 13.4 per cent as on January 6. 2007 from 7. Interest rates on time deposits of 1-3 years maturity offered by public sector banks increased from a range of 5.In view of the above.2 per cent a year ago. the ncremental credit 30 . the Reserve Bank. 2007 from 15. postal deposits have witnessed a significant decline since end march 2006.4 per cent as on October 27. 2007 was of a lower order than a year ago (28.5 per cent a year ago. On a y-o-y basis.2 Per cent as on January 5. scheduled state co. with unchanged interest Rates. y-o-y.75-8.1 per cent. 2006 before moderating to 16.

1 percent a year ago. Finally. now withstanding some sluggishness in the third quarter. absorbed 5 per cent of incremental non-food credit. Sources of funds financing their requirement. 43. 12 per cent by ‘other Retail loans’.6 percent as against a decline of 0. the incremental redit-deposit ratio was around 93 per Cent (y-o-y) as compared with 108 per cent a year ago scheduled Commercial banks’ food credit has recorded a modest rise (5. Mobilisation of resources through equity issuances abroad ADRs /DGRs ) during April-December 2006 (Rs. 15. Resources raised thorough domestic equity issuances during the first nine months of 2006-2007 (Rs. Over the same period. With incremental investment in gilts not keeping pace with the high growth in 31 . 843 crore) were more than double of that in the corresponding period of 2005-2006.9 per cent) During 2006-07 (up to January 5.deposit ratio of SCBs. which increased by 84 per Cent. reflecting the need to meet statutory requirements. About 34 per cent of incremental Non-food credit was absorbed by industry. Apart From bank credit. Profits after tax during the second quarter of 2006-2007 were higher than those in each of the five preceding quarters. recouse to external commercial borrowings (ECBs) during the first half of 2006-2007 was almost double of that in the corresponding period of 2005-2006. 2007) reflecting lower order of Procurement of food grains. amounts raised from the primary market picked up during the third quarter of 2006-2007.031 crore during April-September 2006. commercial banks’ investments in gilts increased by 5. After remaining subdued during the second quarter. 34. 8. 23.551 crore during April-September 2005 to Rs. with net disbursement under ECBs increasing from Rs. On a y-o-y basis. 2007.019 crore) were 55 percent higher than that in the same period of 2005. 2007).222 crore in contrast to a decline of Rs. Profits after tax of select non-financial nongovernment companies during April-September 2006 were almost 40 percent higher than those in the first half of 2005-2006.3 percent a year ago. Loans to commercial real estate. y-o-y. the corporate sector continued to rely on non-bank.580 crore a year ago. has exhibited some moderation in recent months. After remaining above/around 100 per cent for the most part since October 2004. commercial bank’s investments in gifts witnessed a large expansion of Rs. growth in commercial banks’ NDLT accelerated to 20. As on January 5. In the fiscal year 2006-2007 (up to January 5. internal sources of funds continued to provide large financing support to the domestic corporate sector during the first half of 2006-2007. Mogbilisation theough issuances of commercial papers during April-December 2006 was more than three times of that a year ago. Disaggregated data available up to October 2006 show that credit Growth has been largely broad-based.7 percent from 18. 17.

96. Reserve money movements over the course of the year reflected the Reserve Bank’s market operations. Excess SLR investments of SCBs fell to Rs. LAF and CRR. y-o-y.6 percent a year ago. 622 crore during the corresponding period of 2005 –206 2.615 crore. 2007) as compared with an increase of Rs. During 2006-2007 so far Central Government deposits with te Reserve Bank have increased by Rs.407 crore as on January 5.963 crore during the fiscal year 2006-2007 ( up to January 19. unwinding of the Center’s surplus balances with the Reserve Bank’s purchase of foreign exchange from authorized dealers led to ample liquidity into the banking system.0 percent. Reserve Money Reserve money expanded by 20.6 percent of their NDLT as on January 5. 32 . largely reflecting variations in cash balances of the Governments and capital flows. Adjusted for the first round effect of the hike in the CRR.615 crore during 20062007 (up to January 19. 2007) as against an increase of Rs. During the first quarter. This was mirrored in an increase in the LAF reverse repo balances. thus.9 LIQUIDITY MANAGEMENT The Reserve Bank continued to ensure the appropriate liquidity is maintained in the system so that all legitimate requirements of credit are met.NDLT. Liquidity management emerged to be more complex during the past year. 3. Towards this end.435 crore in the corresponding period of 2005-2006. 2007 as compared with 14. 10. increased by Rs. 2007 from Rs. 6. as on January 19. commercial bank’s holdings of Government securities declined to 28.4 percent as on Janurary 29. 50.9 percent a year ago. 2007 fron 31.166 crore during the fiscal year 2006-2007 (up to January 19. and using all the policy instruments as its disposal flexibly. the Reserve Bank’s holdings of Government securities increased by Rs. 2007) as against an increase of Rs. consistent with the objective of price and financial stability.029 crore a year ago.185 crore during the corresponding period of the previous year Mirroring the liquidity management operations through LAF. 11. However. particularly for productive purposes. with greater variation in market liquidity. the Reserve Bank continued with its policy of active demand management of liquidity through OMO including MSS. 2007. Funds raised through equity issuances in the primary market as well as higher internal reserves also enabled banks to fund strong credit demand.3 percent at the end o-March 2006 and 32. 1. The Reserve Bank’s foreign currency assets (net of revaluation) increased by Rs. reserve money growth was 17.68. 27. The Reserve Bank’s net credit to the Centre. 80.

255 crore as on December 6. Average daily net injection of liquidity by the Reserve Bank moderated to Rs.262 crore and Rs. 25. Well – established regulatory frame work 33 .190 crore as on January 24.10 INIDAN FINANCIAL SECTOR SWOT ANALYSIS Strengths 1. partly reflecting market purchases of foreign exchange by the Reserve Bank. in view of some build-up of Centre’s cash balances with the Reserve Bank during August 2006. however. This was mirrored in balances under LAF reverse repos.937 crore during October 2006 and November 2006.682 crore as on December 29. 73. and the increase in the CRR by 501 basis points in two phases. 716 crore as on December 15. as liquidity pressures eased partly on account of reduction in the Centre’s balance with the Reserve Bank from Rs. advance tax outflows (with concomitant increase in the Centre’s surplus cash balances with the Reserve Bank from Rs. 2007. respectively. Stable industry dynamics 4. Liquidity pressures eased by end-October 2006 following soje decline in Centre’s surplus cash balances. however. liquidity conditi8ons.615 crore during December 13-21. 2. the Reserve Bank injected liquidity into the system through repo operations from December 12. 42.585 crore during December 22-29. 2006. proven asses quality resilience in past downturns. liquidity conditions turned tight on account of advance tax outflows and festival season currency demand. 2007). 65. 2006). 10. 2006). turned tight from the second week of December 2006 largely due to payments for auctioned Central Government securities. 48. 2007. 2006 to Rs. 2006. Liquidity conditions eased during November 2006.However. In view of the prevailing liquidity conditions. Net outstanding balance under LAF repos was Rs. 1. Average daily net injection of liquidity by the Reserve Bank increased from Rs. net injection of liquidity was witnessed only on two occasions (October 20 and October 23. The Reserve Bank injected liquidity through repo on eight occasions between mid September 2006 and end-October 2006. Beginning mid September 2006. 2006 to Rs. which increased to Rs. Prove management teams.634 crore on December 22. 9. 2. 34. 2006 in contrast to the average daily absorption of Rs. 5. track record 3. 814 crore during January 2007 (up to January 20. 10.2006 to Rs.528 crore as on January 19. the absorption under LAF reverse repose witnessed some decline during the second quarter.

Continued crowding out effect form Govt. potential rise in long bond yields.5. 3. Establishment of special economic zone likely to promote further industrialization 3. Reduction in reserve requirements: key swing factor for liquidity and hence for sustaining growth momentum. Weakness. Rapid financial deepening. 5. Stable / low NPL formation rates. Rising consumer spending. if not decades. should earnings delivery disappoint expectations. “Running on empty’ in terms of liquidity 2. MTM risk for banks 5. 6. Potentially hawkish RBI stant on inflation/monetary policy 4. Our echonomist believes that the risk is less. Tightening in global liquidity may trickle down to Inida 3. Improving secular GDP growth prospectus 2. 5. Key risk factors 1. Rising corporate capex. Opportunities 1. Potential for further tightening in the short term. 4. M&A optimality. Key challenges 1. i. potential for valuation pullback.e. of catch-up economics – low per capita income. Liquidity : Deposit growth sustaining momentum and loan growth moderating to 25% from the current level of 30% 2. consumer credit business. Years. loan growth as multiple of nominal GDP growth. educated work force. Ownership restrictions 34 . Key issues/swing factors 1. Policy risks: Moderating in inflation outlook. budget deficit.t be a shock factor. investments 7. combained with accelerating private credit demands 2. Interest rate outlook some headwind from policy rate hike but won. 4. Loan growth : Moderation needed more for maintaining industry dynamics.

979 crore. acceleration in growth rate inmanufacturing from 8.4% and investment rate at 33.512 habitation. 16.400 crore 35 . provision of Rs. average inflation in 2006-2007 estimated at between 5. 19.677 crore for 2% interest subvention for short-tem crop loans.5% in 2004-2005 to 9% in 2006-2007.8%.3% Income and Savings : per capita income in 2005-2006.3% foreign exchange reserves at US$ 180 billion. Inflation : Growth in bank credit. increased by 7.000 houses under construction. AGRICULTURE Farm credit : Target of Rs. until December 2006 drinking water provided to 55.1% and further to 11. average growth in agriculture during Tenth Plan estimated at 2.000 crore for 2007-2008 with an addition of 50 lakh new farmers to the banking system.000 hectares to be created. by 29. 15.4% last year. a special plan being implemented over a period of three years in 31 especially distressed districts in four states involving a total amount of Rs. additional irrigation potential of 2. staff cut. faster employment creation. In 2006-2007.6% expansion in money supply (M3) by 21. 1. 12.3.400. and supply constraints in some essential commodities – consequently. Constraints on state. pressure on domestic pri8ces by global commodity prices. savings rate estimated at 32. growth rate of approximately 10% by the end of plan period. and balance to be covered by the end of the year. about Rs. 000 villages.7% to 9.3% and in services sector from 9.2 and 5.000 rural houses constructed with 914. ELEVENTH FIVE YEAR PLAN Objectives : “Faster and more Inclusive Growth”. average growth rate in the three ears of the UPA Government at 8. branch cut constraints.4% vis-à-vis 4.owned banks micro including HR.758 villages covered so far under the Rajiv Gandhi Grameen Vidyutikaran Yojana. year on year.2%.6% to 9. growth of 4% in the agriculture sector.198 kilometers of rural roads completed and 783. during three year period.8% and further to 11.054 villages provided with telephone against target of 20. 225. reducing disparities across regions and ensuring access to basic physical infrastructure and health and education services to all.6% growth target for the Tenth Plan of 8% will be nearly achieved. of this. 12. in real terms.11 BUDGET 2007-2008 OVERVIEW BUDGET 2007-2008 Improvement in GDP growth rate from 7. 2.4%.

121 crore to Rs. Water Resources Management : Restoring Water Bodies : World Bank loan agreement signed with TamilNadu for Rs. special plan includes a scheme with proposed provision of Rs. foundation and certified seeds. outlay to be increased from Rs.763 water bodies having a command area of 400. 50 crore to Rs. 153 crore for induction of high yielding milch animals and related activities.182 crore to resore 5. Accelerated Irrigation Benefit Programme : 35 projects likely to be completed in 2006-2007 and additional irrigation potential of 900. Government to fund the expansion of Indian Institute of Pulses Research. a pilot programme to be implemented for delivering subsidy directly to farmer. provision for ATMA to increase from Rs.580 crore. 11. 500 crore.000 hectares.000 crore including grant component to State Governments of Rs.350 crore. Agriculture Technology Management Agency (ATMA) now in place in 262 districts to be extended to another 300 districts.to be on water related schemes. 3. Agricultural Insurance : National Agricultural Insurance Scheme to be continued for Kharif and Rabi 2007-2008 with a provision of Rs. spices. 2. an increase from Rs. 230 crore. Pulses and Maize Development programme to be expanded with sharper focus on scaling up the production of breeder. 7. Extension System : New programme to be drawn up that will replicate earlier Training and Visit (T&V) programme. oil palm. a weather based crop insurance scheme to 36 . 100 crore for the new Rainfed Area Development Programme.000 hectares to be created. Mission for Pulses : Integrated Oilseeds.000 hectares. Plantation Sector : Financial mechanisms for re-plantation and rejuvenation to be put in place for coffee. cashew and coconut. rubber. 2. Kanpur. Rainfed Area Development Programme: Proposed allocation of Rs. and offer the other producers a capital grant or concessional financing to double production of certified seeds within a period of three years. agreement for Andhra Pradesh expected to be concluded in March 2007 to cover 3000 water bodies with a command area of 250. Fertiliser Subsidies : Based on study to be conducted.

667 crore. budgetary support for APDRP to increase from Rs.8 billion.000 crore to Rs. 650 crore to Rs.7 percent in April-January. 20062007. road-cum rail bridge at Bogibee. 100 crore to be made in 2007-2008 INVESTMENT : Gross domestic capital formation in 2005-2006 grew by 23. 3. other initiatives include facilitating setting up of merchant power plants by private developers and private participation in transmission projects. 2. Accelerated Power Development and Reforms being restructured to cover all district headquarters and town with a population of more than 501.000 crore made in exploration. 3. Coal : 26 coal blocks with reserves of 8. 10. INFRASTRUCTURE : Power : Seven more Ultra Mega Power Projects under process and at least two to be awarded by July.053 crore through internal and extra budgetary resources in 2007-2008. National Highways . Provision for National Highway Development Programme to increase from Rs.970 crore. fund to contribute upto 75% of preparatory expenditure in the form of interest free loan to be recovered from the successful bidder. to be taken up as an national project. Central Public Sector To invest Rs.983 crore. INDUSTRY Petroleum and Naural Gas :162 production contracts awarded.945 crore to Rs. 2007.5 billion and outpaced portfolio investment of US$ 6. allocation to increase from Rs. Assam.000. 9. over Brahmaputra.361 crore and loans of Rs. foreign direct investment amounted to US $ 12. Rajiv Gandhi Grameen Vidyutikaran Yojana. 165.be started by Agricultural Insurance Corporation on a pilot basis as an alternative to NAIS allocation of Rs. 100 crore to be set up to quicken project preparation. Public Private Partnership and Vialibility Gap Funding : Revolving fund with a corpus of Rs.581million tones and four lignite blocks with reserves of 755 million tones allotted to Government companies and approved end users. definition of specific end use to be enlarged to include underground coal gasification and coal liquefaction. Government to provide equity support of Rs. investment of Rs. 97. 23 coal bed methane blocks awarded for exploration. 800 crore. 16. 37 .

22. Small & Medium Enterprises : Increase in outstanding credit from Rs. 423 crore to Rs. 20. health insurance scheme to be extended to more weavers and also to be enlarge to include ancillary workers. 135. SERVICE SECTOR Foreign Trade : Merchandise exports expected to cross US $ 125 billion by the end of the current fiscal.000 to Rs. while remaining the owner and occupying the house throughout his/her lifetime. Tourism . 911 crore. echnology Upgradation Fund scheme to continue with provision of Rs.Textiles : Provision for Scheme for Integrated Textiles Parks to increase from Rs. Coir Industry :Scheme for modernization and technology upgradation with special emphasis to major coir producing States announced with a proposed provision of Rs. 520 crore. allocation for the sector to be enhanced from Rs. 241 crore to Rs 321 crore. Handlooms : Additional 100-150 clusters to be taken up in 2007-2008. Provision for tourist infrastructure to increase from Rs. and those which have a negative net worth to be recapitalized. Securitisation and Reconstruction of Financial Assets and Enforcement of Securitisation of Interest (SARFAESH) Act to be extended to loans advanced by RRBs. 173.50 crore.000 per beneficiary. 5.500 to Rs. Regional Rural Banks : To open at least one branch in 80 uncovered districts in 2007-2008 \. 15.000 and limit of housing loan to be raised from Rs. limit of loan to be raised from Rs. FINANCIAL SECTOR Banking : Under Differential Rate of Interest scheme providing finance at a rate of 4% to weaker sections of the community engaged in gainful occupations. 460 crore at end December 2006. 425 crore. 189 crore to Rs. 38 . Housing Loans : National Housing Bank to introduce ‘reverse mortgage’ under which a senior citizen who is owner of a hose can avail of a monthly stream of income against mortgage of his/her house. to be permitted to accept NRE/FCNR deposits. 6.200 crore to Rs.

without repayment or servicing of the loan. Micro Financial Sector (Development and Regulation) Bill and a comprehensive Bill to amen insurance laws to be introduced in Budget Session. RBI and NABARD. idea of self Regulating Organisations (SRO) to be taken forward for different market participants under regulations to be made by SEBI. with initial funding to be contributed by Government. enabling mechanism to be put in place to permit Indian companies to unlock a part of their holdings in group companies for meeting their financing requirements by issue of Exchangable Bonds Innovative Financing for Infrastructure : Funds from National Small Savings Fund may also now be borrowed by India Infrastructure Finance Company Limited. and (ii) borrow funds from the RBI. 500 crore. each fund to have an overall corpus of Rs. other three public sector insurance companies to offer a similar product to senior citizens. solely for capital expenditure outside India. mutual funds to be permitted to launch and operate dedicated infrastructure funds. invest such funds in highly reated collateral securities and provide ‘credit wrap’ insurance to infrastructure projects in India for raising resources in international markets. Capital Markets : PAN to be made sole identification number for all participants in securities market with an alpha-numeric prefix or suffix to distinguish a particular kind of account. a Financial Inclusion Technology Fund to be also established to meet costs of technology adoption. Financial Inclusion: A Financial Inclusion Fund to be established with NABARD for meeting cost of development and promotional interventions. and securities lending and borrowing to facilitate deliver. individuals to be permitted to invest in overseas securities through Indian mutual funds. short selling settled by delivery. Insurance : Exclusive health insurance scheme for senior citizens offered by National Insurance Company. by institutions to be allowed. or to co-finance their ECBs for such projects. SOLUTION OVERVIEW 39 . regulations to be put in place to allow creation of mortgage guarantee companies. suggestions of Deepak Parekh Committee to be examined for establishment of two wholly owned overseas subsidiaries of IIFCL with objectives to (i) borrow funds form RBI and lend to Indian companies implementing infrastructure projects in India.

the strategic partnership between ICICI Bank and Infosys that started in 1994 has grown stronger and the close collaboration has resulted in many innovations.5 times. The Scalable and open systems based architecture. enable Finance to successfully manage the resultant increase in transaction levels from 400. Over the years. The bank followed it up with offering several e-Commerce services like Bill Payments. This reduction in routine transactions through the branch has enable ICICI Bank to aggressively use its branch network as customer acquisition units. passwords. NOR from their consequent unauthorized use. brokerage. only 25 percent of all transactions take place through branches and 75 percent through other deliver channels. 2. Funds Transfers and Corporate Banking over the net. Do not share their User Ids. cards. card numbers on PINs with anyone. mutual funds. Another key challenge was managing transaction volumes. With Financial. it was the first bank in India to offer Internet Banking with Finacle’s ebanking solution and established itself as a leader in the Internet and eCommerce space. call center and data were housing systems. in 1997. the bank currently has the ability to process 0. Between 2000 and 2004. the bank has been able to successfully move over 70 percent of routine banking transactions from the branch to the other delivery channels. The Internet is a critical element of ICICI Bank’s award winning multi-channel strategy that is one of the main engines of growth for the bank. 40 . Currently.12 SECURE BANKING ICICI Secure online banking experience • • It strives provide a secure banking environment. Financial needed to seamlessly integrate with multiple applications such as credit cards. With the ICICI group having several companies under its umbrella. provided the customers. first by acquiring Bank of Madura followed by a reverse merger of the bank with its parent organization.27 million cheques per day and manage 7000 concurrent users. underwent a phase of organic and inorganic growth.One of the biggest challenges for Financial was ensuring straight through processing (STP) of most of the financial transactions. For instantance.000 transactions a day in 2000 to nearly 201 million by 2005 with an associated growth in peak volumes by 5. On an average. which is among the highest in the world. ICICI Bank adds 300. ICICI Bank. thus increasing overall efficiency.000 customers as month. ICICI Limited.

to the interest income ratio declined consistently from 63. • Interest expenses. 2.29% in 2004 to 57% in 2005. The ratio analysis helps the investor to study the individual parameters like profitability. Not interest income’s key contributor is the other income. Incomes from foreign exchange transactions are also recorded.1 (A) INTERPRETATION SBI-RATIO ANALYSIS • Net interest incoming growth is due to Low cost deposits which helped the bank in containing its costs of funds. 41 . 2. Firewall (Virtual electronic fence that prevents unauthorized access to the ICICI Bank server) • • • Verisign Digital Certificate Two levels of passwords for executing Financial Transactions Secured Funds Transfer & Bill Payment. • The bank would sustain Net interest income ratio and can marginally improve on it because of its resource mobilization power and cost control measure. liquidity leverage and the value of the stock. • • • Credit off take of the bank has been lower than the Indian banking industry. During 2006.• • ICICI Bank employs a range of security features for its Online Banking services.3% on a year basis which helped contain the cost of funds. Other income includes the fees and commission income. low cost deposit grew by 19..13 KEY RATIOS RATIO ANALYSIS [SBI] The financial statements of the company reveal the needed information for the investor to make investment decision.13.

9 bn compared to Rs.2 (A) INTERPRETATION ICICI – RATIO ANALYSIS 42 . • During 2005-2006. 2. because of the stagnant net profit ratio. • • A sizeable increase of operating expenses is being notices. 5.3%) from March 2005-March 2005March 2006. • Operating expenses by 6% over the previous years (Mar 2005) which shows a decline (69%). • New department growth in every branch by introducing new technologies with computerized improvement. natural retirement. there has been a significant decline in profits from trading in investments to Rs. • Employee expenses.62% while increase in deposit was at 9. which shows reduction in. RONW is very much declined to an extent of (12. because its growth was not adequate enough to work the increase in the total funds.13. As of SBI launched VRS scheme.98. It is also note worthy that the bank has total staff strength of 1. • • High investment is made in core banking facilities New technology products coupled with quick turn around time (TAT) have enabled midcorporate group to increase its business substantially. staff accounts nearly 5000 employees.6% • SBI group is continuously losing their market share in deposits since the opening up of the banking sector to their private counterparts. also grew. 17.774 as on 31st Mar 2006.• The ratio of non-interest income is on the decline trend excepting the year 2004. • • Investment/deposit ratio was on the declining trend excepting the year Mar 2004. The increase in investment during Mar 2004 was at 18.75 bn in the previous. which always contributed substantial chunk of the total operating expenses. The reduction in investment ratio was mainly due to deployment of funds under advances.

3 billion in 2005 and an increase of 50 basic points in the six month period ended sep 30. on automobile loans and other retail loans are reported separately under “Not interest expense”.3% from 1511.5% increase in other income. 2006.5% decline in house income.41(2004) 27.7 billion in the six-months period ended sep 30. These commissions are expended and not amortized over the live of the loan. exchange and brokerage and a 12. • In Feb 2006. 2354. • Other income decreased comparatively [25. • All direct marketing agency expenses. • Cost of funds to 6. 2006. offset. benchmark rate for floating home loans has increased by 150 points in the same period. This is due to the increase in allowances (626) in spite of prime leading rate increase by 225 basic points in the period of 2005-2006. 2006 from 5.8% in the six month period ended sep 30. In accordance with RBI guidelines for Accounting for securitization of standard assets.72 (2006)] which includes the unrealized gain/loss on certain derivative transaction.56% in the end. ICICI accounts for any loss arising on Securitization immediately at the time of sale and the profit/premium arising on account of securitization is amortized over the life of the asset. • Interest income/total funds have increased from 6. • Non interest has increased and is stable during 2005-2006 due to increase in commission.39% to 6. • Interest expenses has increase during 2005-2006 is primarily due to an increase of 55.• Net Interest Income / Total funds has increased primarily reflecting an increase of the average volume of Interest learning assets. • Total deposits increased consequence to the general increases in interest rates reflecting a tight systemic liquidity scenario and increase in deposit rates for retail and other customers in Fiscal 2006.2% in average interest-bearing liabilities to Rs.33 (2005) 26. increase in transaction banking fee and fee income. The lower capital gain 43 . due to growth in retail banking fee income arising form retail assets like home loans and credit cards and retail liability product income like account servicing charges. in part by a 22. 2006 is primarily due to an Increase in the average Interest earning assets.

3.39 billion in fiscal 2006. • The number of savings deposit and deposits from outside India has increased to a good extent. call centre expenses and technology expenses.853) March 2006 to (1. • With effect from the quarter ended Dec 31.52% decreasing trend is foreseen. • The number of branches excluding foreign branch and OBVSL and extension counter increased to 614 at March 31. • Employee expenses have been increased primarily due to the number of employees. 44 . • Provisions and contingencies (excluding provisions for tax) increases in primarily due to the significantly higher level of amortization of premium on government securities in fiscal 2006. • Operating profit before provision and tax ratio increase of 2. 2005 RBI increased the requirement of general provisioning on standard loans (excluding loans to agriculture sector and small and medicines enterprises) to 0. credit card related expenses.99. But her profit per employee is being decreased (1.115. • Operating expenses increases are primarily due to the increased volume of business. investments in government securities and lower level of writ backs in fiscal 2006. the bank has made general provision of Rs. 2006 from 562 at March 31.40% compared to 0.23% form 2.157) March 2005 to the extent 10. in accordance with this. 2005.25% applicable till September 30. primarily in retail banking and includes maintenance of ATMs.is a result of the sharp fall in the equity markets in May 2006 and adverse conditions in the debt markets. increase in fee income increase in treasury income and of operating expenses.09% (2005) is primarily due to increase in net interest income.2005.

45 . Short term investor can initiate a buy above 920 with a target of 995 – 1055. The level of 920 is crucial since the short term Bullish trend will be confirmed.1. only if the price sustains above 920.CHAPTER 3 3. Indicator Analysis: Moving Average (14 Day) is on positive note and RSI started moving towards North. If the stock slips below this support level.1 TECHINICAL ANALYSIS OF ICICI AND SBIN 3. Since Moving averages being a lagging indicator. ICICI BANK Outlook I would recommend a buy only above 830 on close basis.a. Major support for the stock is at 800. The continuation pattern negates immediate bearish momentum on the stock and it’s advisable to buy at declines. it has considered secondary in Analysis. we can see further levels of 730 – 630 – 597. At present the stock trades in the Indecisive zone on intraday basis. The above targets are fixed based on leading Indicator Analysis and the trend following.

The current level is crucial for the stock to hold the support of 885. At current levels. 46 . If that proves to be successful. it is advisable to unwind all long positions at the right shoulder top (1330-1350) Indicator Analysis: Moving Average (14 Day) is on positive note and RSI started moving towards North. This could become a complete head and shoulder pattern in coming months. 4.The above chart is the weekly chart for ICICI BANK.2 SBIN Outlook The weekly pattern suggest a short term bullishness on the stock with a price target of 1300. there could be greater chances of bounce back from 885. A close below 885 could drag the stock towards south to the target zone of 660. Since Moving averages being a lagging indicator. it has considered secondary in Analysis.

3.24 % Over mar2005 _ mar 2006 Both the bank investment deposit ratio is on the declining trend Both the banks has shown better utilization of cash portfolio ICICI bank Interest expences to interest earned remains the same Over 2 Years whereas SBI shows reduction Other Income ratio remains fluctuation in both the banks Operating expences to total income shows a decresing trend in ICICI bank whereas it was on the rising side in SBI Interest income to total funds shows rising mode in ICICI whereas In SBI more or less it remains at the level. Short term investor can initiate a buy above 920 with a target of 995 – 1055. The ratio of interest expences to total funds shows an increase in Value in ICICI Bank whereas in SBI interest expences shows a Rising mode The ratio of Non Interest income remains the same for ICICI for The past 2 Years whereas in SBI at shows a decline The stock witness some selling pressure in the coming days in ICICI Bank whereas the stock witnessed a huge selling pressure • From the top and bounced back from the major support of 800 • The continuation pattern negates immediate bearish momentum on the stock and it’s advisable to buy at declines. FINDINGS • • • • • • • • • • • • • ICICI and SBI credit deposit ratio is on the side though ICICI banks shows a little decreasing trend to the exten of 2.2. 47 .

benefit immensely form a positive operating Environment.a. • Market related revenues is believed to contribute 14% . • ICICI is viewed as it is benefited from the procyclicality effect of The economic cycle as its borrowers in the legacy project financing Activity witnessed their debt servicing ability increasing considerably. Negotiating higher subvention form manufacturers of cutting Distribution costs. • ICICIB enjoys a dominant market position across customer Categories in retail lending. • ICICI –as a player focused on maintaining and /or improving Market share in key business segments. The strong market position and robust Demand for consumer financing vests significant pricing power With ICICIB is believed either by allowing a hike in lending rats. It is believed that the profitability of this segment has improved as a Result of lower loan loss provisions and lower taxable rates of Income from this source.Will. ICICI BANK: 1. as the back 48 .3. ICICB has an adverse mismatch profile between assets and Liabilities. High volatility in interest rates could adversely effect Profitability in the short term. Pricing power in consumer financing segment profitability Against potential shocks. in our view. buoyant Market – related revenues and a benign environment for asset quality. SUGGESTIONS 3. • • Strong pricing power and a balance sheet that is significantly Biased towards retail lending buffers ICICB’s profitability from Potential shocks in the bank’s funding cost. particularly retail lending.3. Best play in a buoyant environment – Favorable macro.15% to ICICIB’s operating revenues and have boosted its preprovision RoAA. however. Buoyant environment to sustain the contribution from market -related revenues is expected and hence the operating profitability. 2. Expectations is on the procyclical benefit To continue and hence profitability of legacy lending to be sustained At levels seen earlier.3.

the bank’s NIM will Likely show improvement. but we recommend buy ICICIB for growth Reasons and not for the relative valuation appeal. increasing penetration of life insurance and improving operating efficiency. and ICICIB. It is not so much about ICICIB versus HSFC or HDFCB. like other large players in the private sector. 3. • The life insurance business of ICICIB has been incurring losses On an accounting basis due to continued investment in expznding The sacle and scope of the business. But given the bank’s spread and size. enjoys Favorable conditions arising from a restrictive regulatory/policy Environment towards new entrants and foreign banks and slow Pace of reforms for state-owned banks is believed.3. Increasing contribution from strategic investments – Yet another driver • The value accruing from subsidiaries to be 17% of ICICIB’s Current market capitization.2%) • In a bid to protect its profitability. But . 3. these businesses is Believed to hold significant upside potential as they achieve scale Economies. This phenomenon to play out through FY1002E and FY2009E is expected. This to rise to 20% of ICICIB’s target Price over the next 12 months is expected with banking and life Insurance being the key drivers. Market Has rewarded both strategies: ICICIB’s broad-based strategy allows capturing value across the Value chain in a customer segment. SBI has embarked on a Selective growth strategy. for quite some time. both in terms of loans and Deposits. SBI 1. would be difficult to pursue a 49 . • The asset management and venture capital fund of ICICB makes A negligible contribution currently.book gets Reprised at new lending rates upon maturity. but about Their respective operating metrics and growth conditions. the extent of loss over the Past 18 months has been staggering. In line with consensus.b. particularly for deposits (2. Potential headwind to price performance from loss of market share and weaker RoAA • SBI’ has been losing market share. 4. The life insurance business is Believed in creating wealth for its shareholders through market Share gains. however.

However..Term catalysts. Growth expectations for SBI are below that of consensus (21% CAGR through FY2009E versus consensus 15% CAGR) is Believed News flow about reduction of government holding in SBI to 15% And amendment to the SBI subsidiary act could be potential short. Non recurring revenues and costs masked this condition in FY2005 and FY2006. • SBI’s size and potential to improve efficiency may sway Consensus opinion. The latter is more Likely that the former. 2. The Expectoration is the core operating profits to rebound past Y2004 levels in FY2008 E. on YoY basis. there are no catalysts to drive earnings Strongly is viewed. Consensus is overestimating revenues by Either assuming higher loan growth or NIM. significant volatility in net profit Growth is expected The estimates are below that of consensus for FY2009E and FY2009E by 10%.selective growth strategy unless It reconciles to a significant loss a market share over time. Lack of exceptional Income/cost elements and need to raise loan loss provisions from Very low levels will likely cause volatility in earnings growth Through FY2009E. • Challenges are compounded by weaker profitability. The forecast says12% CAGR in net profit through FY2009E. the deep value inherent makes the Investment case compelling . Although there is potential to Improve performance. SBI would likely utilize the excess liquidity over The next 12 months. in our view. it remains unrealized thus far. Consensus appears to be positive about excess liquidity that SBI Has reserve holding are significantly higher than minimum Required level. 3. However. Significant downward revision to consensus estimates for Operating revenues and profits over the past 12 months. Value inherent. in research view.limited upside to growth expectations in the medium term Believe SBI’s growth will remain volatile. but catalysts limited Investors will maintain a growth bias in the Indian market. Excess liquidity provides upside only in the Short term is viewed. 50 . Convinced Size and potential is convincing. the focus of the market will be on Earnings is believed.

As long as the Constraints remain. it will be at a disadvantage to peers in the Private sector is believed • There have a few incremental changes such as introduction of Voluntary retirement scheme for employees. significantly disadvantages as We except to see consolidation within the private sector. there Changes tend to drain the productive resources rather than Eliminating redundancy is viewed. 51 . Reforms could be a trigger-assigning a low probability.4. it will leave State-owned banks. • • SBI is viewed as it will need flexibility in reorganizing its Distribution network and human resources. Should this come to fruition. However. • The RBI has chalked out a roadmap for opening up the sector to Foreign banks in 2009. including SBIS.

CONCLUSION This study on investment decision is conducted by analyzing and Comparing ICICI Bank and SBI based on fundamental analysis and Technical Analysis. the key driver of stock performance of ICICI potential.4.3. This indicates that. Bank shows an Increasing trend where as underperformance of SBIS hows a decreasing trend besides its high 52 . The initial investment summary cover with a Buy rating to ICICI Bank and a sell rating to SBI based on strategic investment using the Analysis.

3. Ltd • Book of Readings.org.in www. “Security Analysis and portfolio Management” Vikas Publishing House Pvt.in www.com www. The financial express Sanjoy Narayan “Indian’s Best Banks – KPMG Survey” Website: www.gov. ICFAI university Reports • • • Report on Kotak Securities research on the ICICI Bank and SBI Report on “Indian Economic Survey 2006-2007” Goldmen sachs Global Investment Reasearch Journal • • Ernst and Young.stockcharts.com 53 .5. “India’s Best Banks”. BIBLIOGRAPHY Books • Punithiavathy pandian.nseindia.rbi. “Security Analysis”.

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