Indian Banking System 201 0






Indian Banking System 201 0


I would take this opportunity to thank Mrs. Bhawana Sharma, Faculty, D.A.V. Institute of Management, Faridabad for being cooperative and helpful guide. A note of thanks is due to all those, too many to single out by names, which have helped in no small measure by cooperating during by providing their valuable time, inputs and assistance. Their support, guidance and motivation were very valuable and encouraging.

Bajrang Kaushik


Indian Banking System 201 0

The introduction and application of the concept of customer services entered in a welcoming way in India only after independence. The banking system in India has come a long way during the last two centuries. Its growth was faster and the coverage wider since 1969. In 1969a major position of banking sector was entrusted to the public sector. This process continued and embraced few private banks in 1980. The transfer of ownership of banks from the public to private was aimed at entrusting the banks with greater responsibilities for the economic development of India by taking banking services to the masses and taking special care of the weaker section of the society and the priority sector of the economy. Though the number of banks offices magnitude and the variety of their operations has grown considerably during the period of near about three decades, but it appears that the banking sector has entered into serious among customers. For overcoming this problem, banking industry should seek introspection and adopt refined management techniques. It has been endeavor of this study to analyze the present state of various banks keeping in view the primary data has been collected regarding the present state of loan schemes in various banks by using a questionnaire.


hereby declare that the project work in my own work and has been carried out under the guidance of Mrs.D.Indian Banking System 201 0 DECLARATION I undersigned Bajrang Kaushik The student of MBA 3rd Sem. This Report has been submitted to M. Bhawana Sharma Faculty Member of DAV Institute of Management of Studies in Faridabad (Haryana). University for Evaluation. Date: Place: Bajrang Kaushik 4 .

Indian Banking System 201 0 5 .


Indian Banking System 201 0 7 .

Indian Banking System 201 0 EXECUTIVE SUMMARY 8 .

the report focus on change factors in Banking Industry as this industry is expected to have major impact on Indian Economy. Strong foreign inflows with Portfolio flows of nearby USD 9.  The high growth sectors are Power where power ministry and local private players announce 9 ultra mega projects (4.  Retail . 9 . Chinese President Hu is expected to visit India.2% being the strongest run in the past 11 years. In Capital Market. This will improve trade and other ties between two of the fastest growing economies. entry of world majors like Wal-Mart & foreign investment allowed in single brand retail and Real Estate with major huge build-out plans and Special Economic Zone policy of government is major driver of growth.a Point of inflection with major Indian corporate announcing plans. it continued the trend of last 5 years where it has averaged around 25% and lastly M&A activity which was at its peak with sectors beyond IT and Pharma making global & domestic acquisitions.Indian Banking System 201 0 EXECUTIVE SUMMARY The Indian Economy is driven by strong fundamentals with GDP growth at 9. As such. the Indian Government has signed nuclear deal with America indicating India’s importance in the global context opening up many opportunities.  Banking in which Banks are allowed to raise hybrid capital which opens new avenues for funding credit growth. Along with this.000 + (50% higher) compared to FY 05-06. The Indian corporate raised USD 6bn by issuing Initial public offer in India and abroad.000 MW each) provides visibility on power & infra front. High Credit growth at 30%.2bn took BSE Sensex to 14. On political front.1% for H1 FY07 – strongest growth in any six months since H1 FY04 and uptrend in Industrial Cycle with Average Index of Industrial Production growth at 10.

Indian Banking System 201 0 INTRODUCTI ON 10 .

The non-institutional or unorganized sources of credit include indigenous bankers and money-lenders. other financial institutions (FIs). An important feature of the credit market is its term structure: (a) Short-term credit (b) Medium-term credit (c) Long-term credit. Information about the unorganized sector is limited and not readily available. In terms of supply of credit. FIs provide mostly medium and long-term funds. The major institutional suppliers of credit in India are banks and non-bank financial institutions (that is.Indian Banking System 201 0 INTRODUCTION In India. While banks and NBFCs predominantly cater for short-term needs. and non-banking finance companies (NBFCs). largely. 11 . financial intermediaries can broadly be categorized as institutional and non-institutional. given the relatively underdeveloped capital market and with little internal resources. firms and economic entities depend. development financial institutions or DFIs). on financial intermediaries to meet their fund requirements.

000 additional RTGS participating banks.000 branch locations of State Bank of India within India.php? fileR=20070925165003043&dir=2007/09/25&secID=livenews ICICI Bank allots equity shares 12 .com/article/techbiz/1038/ IA Bank ties up with SBI for money transfers Sunday.Indian Banking System 201 0 REVIEW OF LITERATURE http://indiapost. 09. and at over 14. 11:59pm (GMT-7) NEW JERSEY: Indus American Bank has tied up with State Bank of India to offer money transfer services to India for its clients.myiris.23. As the largest bank in India. India is one of the biggest destinations for foreign remittances. which will provide expanded services to Indus American Bank customers can expect service at over 14. State Bank of India offers excellent exchange rates which are now available to Indus American Bank http://www. Funds remitted from Indus American Bank would reach recipients typically within 24 hours. Under the new money transfer service.

ICICI Bank (ICICIBANK) was promoted in 1994 by ICICI.HDFC Asset Management Co Ltd said on Tuesday that it will launch a close-ended debt fund on Sept.Indian Banking System 201 0 ICICI Bank allotted 17.Sat Sep 22.38%. HDFC to cut interest rates Economic Times. The two entities subsequently merged to become the largest commercial bank in the private sector. 2000 (ESOS). "The cost of wholesale funding has come down and we are taking a look at passing on the benefits to borrowers. to settle at Rs 569. the Economic Times reported on Saturday.655 at the BSE. 13 . the fund house said. 18. 2007 under the employees stock option sceme. Shares of the company gained Rs 7.800 equity shares of face value of Rs 10 each on Sep. HDFC FMP 18M September 2007. or 1. The total volume of shares traded was 173. an Indian development financial institution.9. 2007 12:50pm IST MUMBAI (Reuters) . India . will be open for subscription till Oct." HDFC Chairman Deepak Parekh was quoted as saying. 8. It will invest at least 60 percent of the assets in debt and money market instruments and the rest in government securities. The report also quoted HDFC Managing Director Keki Mistry as saying the company was looking at a half percentage point cut and that the new rates would be announced next week. The fund. 27.(Tuesday) HDFC Asset Management to launch debt fund on Sept 27 Tue Sep 25.75. 2007 12:14pm IST Mortgage lender Housing Development Finance Corp is likely to cut its interest rates next week.

e.  To know about the various loan schemes of these two banking companies i.  To provide suggestions for better functioning of business. ICICI & SBI.  To find out what are the policies that we have to be adopted to increase the goodwill of the company. It basically tells about how these funds are effectively and efficiently utilized in order to maximize profits.  To study the growth and performance of banking company.Indian Banking System 201 0 OBJECTIVES OF THE STUDY  Today’s banking sector play a dominant role regarding investment decision. 14 .

15 .  To study effective and most popular bank among the customers regarding its services.  To make analysis on the economic benefits provided by various banks.Indian Banking System 201 0 SIGNIFICANCE OF THE STUDY  To make a detailed study of various financial services provide by the different banks.  To analyze customers view point regarding their banks.  To find out the rate of interest of banks and reaction of customers on it.  Suggest the investors whether to invest in shares of Banking Companies.

A few banks have established an outstanding track record of innovation. an enabling policy and regulatory framework will also be critical to their success. profitability and non-performing assets (NPAs). This is reflected in their market valuation. 16 . growth and value creation. innovation. However. India’s banking industry must strengthen itself significantly if it has to support the modern and vibrant economy which India aspires to be. growth and value creation in the sector remain limited to a small part of it. The policy makers. While the onus for this change lies mainly with bank managements. The cost of banking intermediation in India is higher and bank penetration is far lower than in other markets. improved regulations. which comprise the Reserve Bank of India (RBI). have made several notable efforts to improve regulation in the sector. The sector now compares favourably with banking sectors in the region on metrics like growth. Ministry of Finance and related government and financial sector regulatory entities.Indian Banking System 201 0 CONCEPTUALIZATION The last decade has seen many positive developments in the Indian banking sector.

Evolution of Banking Industry and its current status. The banking and finance system will improve competitiveness through a process of consolidation. Banking Challenges It is expected that the Indian banking and finance system will be globally competitive. For this the market players will have to be financially strong and operationally efficient. The report finally ends with valuation of major players in banking Industry and the major challenges faced by this industry. The report also throws a light on them. Capital would be a key factor in building a successful institution. we emphasize the need to act both decisively and quickly to build an enabling. either through mergers and acquisitions through strategic alliances. Technology would be the key to the competitiveness of banking and 17 . In this “white paper”. Various regulatory and reform processes also affect banking industry. A weak banking structure has been unable to fuel continued growth. which has harmed the long-term health of their economies. 1. rather than a limiting.Indian Banking System 201 0 The failure to respond to changing market realities has stunted the development of the financial sector in many developing countries. banking sector in India FOCUS OF THE PROBLEM The research report concentrates on macro and micro factors affecting Banking Industry.

The last decade has seen many positive developments in the Indian Banking Sector. ‘Anywhere’ and ‘Anytime’ banking will be realized truly and fully.Indian Banking System 201 0 finance system. Indian players will keep pace with global leaders in the use of banking technology. The banking industry has moved gradually from a regulated environment to a deregulated market economy. In addition to WTO and Basel II. 2. Banks will have to gear up to meet stringent prudential capital adequacy norms under Basel II. The policy makers. the Free Trade Agreements (FTAs) such as with Singapore. Financial sector would be opened up for greater international competition under WTO. Banks will also have to cope with challenges posed by technological innovations in banking. the research paper approached “Indian Banking System” as the shape of the banking sector will be the result of a strong interplay between the decisions taken by policy makers and actions of bank managements. on-line accessibility will be available to the customers from any part of the globe. The market developments kindled by liberalization and globalization have resulted in changes in the intermediation role of banks. Ministry of Finance and related 18 . greater challenges lie ahead. In this context. Banking Evolution & Regulatory Framework Financial Sector Reforms set in motion in 1991 have greatly changed the face of Indian Banking. While the banking system has done fairly well in adjusting to the new market dynamics. In this context the need for drawing up a Road Map to the future assumes relevance. The pace of transformation has been more significant in recent times with technology acting as a catalyst. may have an impact on the shape of the banking industry. In such a scenario. Banks need to prepare for the changes. which comprise the Reserve Bank of India (RBI).

Internal Hindrances to Banking Industry The research focuses on emphasizing the need of decisively and quickly to build and enabling. while the onus for this change lies mainly with bank managements. and enabling policy and regulatory framework will also be critical to their success. technological intensity of banking. an area where India happens to be a world leader in information technology. a key to sustainability of bank profits as well as their long-term viability. if it has to support the modern and vibrant economy which India aspires to be. cost management. India’s banking industry must strengthen itself significantly. It is wise for Indian banks to exploit this globally state-of-art expertise. recovery management. which is a key to the stability of the banking sector. growth and value creation in the sector remain limited to a small part of it.Indian Banking System 201 0 government and financial sector regulatory entities. 3. The cost of banking intermediation in India is higher and bank penetration is far lower than in other markets. This is reflected in their market valuation. rather than a limiting. The sector now compares favorably with banking sectors in the region on metrics like growth. A few banks have established an outstanding track record of innovation. but its usage by our banking system is somewhat muted. The major challenges ahead for bank management are as follows:  First. innovation.  Second. banking sector in India. improved regulations. However. profitability and non-performing assets (NPAs).  Third. growth and value creation. domestically available. 19 . have made several notable efforts to improve regulation in the sector. to their fullest advantage.

business profile and risk appetite in order to better monitor and manage risks. Banks can.  There may be other events during the Clean and Window Period which may distort the results. risk management. LIMITATION OF THE STUDY  The scope of the study will be restricted to selected Banks. 20 . Fifth. banks strive to retain their client base. This could have led to a biased view and thus affected the analysis. and regulators move out of controls and micro-regulation. formulate ‘early warning indicators’ suited to their own requirements.Indian Banking System 201 0  Fourth. on their part. governance because the quality of corporate governance in the banks becomes critical as competition intensifies.  Many of the respondents did not think hard enough while choosing the specific point.

Indian Banking System 201 0 21 .

Indian Banking System 201 0 RESEARCH METHODOLO GY RESEARCH METHODOLOGY Problem Definition: 22 .

the share can be recommended to conservative investors. Valuation: The project involves valuation of major Indian Banks including ICICI Bank. Then EPS is calculated which is multiplied to Historical P/E to forecast intrinsic value of share. The methodology followed is Target Pricing. Objective: Discover insights into and develop an understanding of the various Macro and Micro Economic Factors that have bearing on the functioning of the Banking sector. SBI and HDFC Bank.Indian Banking System 201 0 To determine and analyze the hidden potential in Banking sector in India so as to suggest the investors whether to invest in shares of Banking Companies. which includes estimating growth rate by regression on historical sales to forecast next year sales. RESEARCH DESIGN 23 . Since the intrinsic value is more than current market price for all the companies. Result: All shares are undervalued and expected to give positive risk adjusted returns to investors. Evaluate the performance of some of the banks based on the past data and forecast the future prospects. earning and Profit and Loss account.

). Once the information was collected. and SBI. Past information and forecasts: Collected the past information in the form of details of the various accounting statements (Income Statement. Resources and Constraints: Resources: Various Publications like  AT Kearney Report. 2005. ICICI Bank. Performance Highlights of Banks (Mumbai).Indian Banking System 201 0 Exploratory Research Design because the problem required an in-depth study of all the related variables. including the sales for the past 10 years (1997-2006). Balance Sheet etc. Other forecasts include the EPS calculation and comparison of forecasted Future Target Price with the Current Market Price.  Company Reports 24 . Various Years. Forecasts are done in relation to the future performance in terms of sales for HDFC Bank. 2005  FICCI Survey on status of Indian Banking Industry – Progress and Agenda Ahead  Indian Banks Association. the next step was to search for resources and constraints with respect to the area of research.  Reserve Bank of India. “Annual Policy Statement for the year 2005-06” (Mumbai).

Indian Banking System 201 0 Constraints:  Lack of time availability with the people involved in any manner with the research especially when decisions were to be made quickly. RBI policies etc. Difficulty in making accurate forecasts because of presence of Economic impediments like inflation. Difficulty in application of Statistical Tools.   25 .

HDFC Bank and State Bank of India. magazines. various journals. profits and accounting ratios deduced from accounting statements. including ICICI Bank.Indian Banking System 201 0 SAMPLING: DESIGN AND PROCEDURE: Sampling Technique: “Convenience Sampling” as a part of Non-Probability sampling by taking the three banks as the major performers in the Indian Banking Sector and highlighters of sector’s overall performance. To review the literature available regarding the subject. related research papers and Internet would be used 26 . Sample Size: Sample Size was restricted to 3. Executing the Sampling Process: Through making a comparison among the various key figures of sales. Method of Data Collection: Secondary Data is collected to carry out the study.

Indian Banking System 201 0 INDIAN ECONOMY 27 .

(a yoy growth of 33%).3% resulting in the trade balance of US$35bn.8% vis-à-vis a basket of six currencies.43% for the week ending December 16. The inflation in the coming weeks may remain high due to lower base effect. The poor performance of the manufacturing sector.3bn (a yoy growth of 49%) brought the balance of payment to US$8.  CRR (Cash Reserve Ratio) hike of 50 bps to absorb Rs.6bn. The CRR rate hike of 50bps came as a surprise but it reflects that RBI’s intention of controlling credit off-take and liquidity management by raising repo and reverse repo rate could not achieve the desired results due to which RBI used CRR rate hike – a new instrument to control liquidity  Exports growth back on track in November 2006. NRI deposits and ECB) at US$20. industry and services to grow at 1. 28 .5% and 10. 10. higher inflation in primary commodities remains.7% Vs – 0.Indian Banking System 201 0 INDIAN ECONOMY-MACRO FACTORS AFFECTING INDIAN BANKING Major Changes in FY 2006-07  Robust economic growth in FY07. Both mining and electricity grew faster than last year at 4% and 9.7% respectively  Rabi season experiences normal monsoon  IIP (Index of Industrial Production) growth dips in October 2006.135bn from the system. Net invisibles grew by 17. GDP is increased by over 8% in FY07.5bn and capital inflows (in the form of FDI.7%. which forms 80% of the IIP index lead to a blip in its robust growth trend for the past 9 months. in H1FY06 exports grew at 23%.6% to US$23.7% respectively  WPI (Wholesale Price Index) rose to 5. Agriculture.1% and 7. from April 2006 to October 2006. the rupee appreciated by 1.  Rupee appreciates further against dollar and yen but continues to depreciate against Euro and pound on an YTD basis as on December 2006. On the basis of the BoP. In real terms. imports at 25.

The Indian economy maintained a strong growth momentum for the third successive year in 2005-06 with real GDP growth accelerating to 8. A consistent increase in domestic investment rate from 23. Source: www. The manufacturing sector – the key growth driver for banking credit.0% during FY06.rbi. Gross Domestic Product: The Indian Economy is driven by the strong fundamentals and uptrend in industrial In FY 06-07.1% in 2004-05 supported a high credit growth witnessed during the past few years. services sector account for major 55% of India GDP followed by 25% in Industrial sector and 20% in agriculture sector.4% 2005-06.0% of GDP in 2001-02 to 30. clocked a healthy growth of 9.Indian Banking System 201 0 The Indian Economy has seen major Macro changes in: 1. FY07 Vs Q2FY06. The services sector recorded double digit growth to contribute nearly three-fourths of incremental GDP. the growth rate in GDP components are as follows: 29 .

0-5. Source: AT Kearney Report. The government is making efforts in liberalizing the guidelines and norms for investment through FDI. 2006 after remaining in the range of 4. WPI Inflation has risen to 5.0% earlier.5% Service: 10.Indian Banking System 201 0 Agriculture: 1. 2005 3. Mainly due to efforts taken by Indian Government. RBI has repeatedly cautioned that maintaining inflation in the target range may call for substantial monetary tightening should crude prices persist at high level.7 2. FDI Confidence Index: Relaxation of foreign direct investment rules has expanded the mountain of capital in every sector of Indian economy. making them more NRI friendly.7% yoy till November 30 .7% Industry: 10. Indian rank 2 nd among all countries in the world on FDI Confidence Index. Inflation: Inflation remained largely benevolent due to investment driven nature of growth and subsidized nature of oil prices as pass-on of international crude price rise remained incomplete in India.45% for the week ended November 18. The money supply has grown by 18.

Fiscal and revenue deficit for April-November 2006 widened to 72.3 per cent.4% of BE. Gross Fiscal Deficit: The gross fiscal deficit (GFD) to GDP ratio for 2005-06 was at 4.7% of BE and 91.5%. 4.7% of BE Vs 74. The revenue deficit.Indian Banking System 201 0 10.7 per cent of GDP in 2005-06.1 per cent as against the budget estimate of 4.0-5.6% of BE and revenue deficit of79. though lower in absolute terms. Source: RBI.8% of BE and 99. The improvement in the GFD was facilitated by a decline in capital outlay and the availability of disinvestment proceeds. Ministry of commerce and Industry 31 . The current levels are much higher than the last month’s fiscal deficit of 58. remained at budgeted level of 2. which poses a significant threat to RBI’s efforts of containing inflation in the desired range of 5. 2006 during the current fiscal.5% of BE respectively in AprilNovember 2005.

During July 06. The real interest rate in developed economies is normally in the range of 232 .4% at present as the market participants believed that US Fed and other central banks worldwide would not only pause rate hikes but soon get into rate the current fiscal at 7. Interest Rate: The yield on dated government securities (G-Sec) has been moving up since the beginning of FY05.12%. it continue to move up to 8.Indian Banking System 201 0 5. Source: RBI Real interest rate indicated by spread between inflation and 10 year benchmark yield has trended in the range of 2-4%.42% but reacted sharply thereafter to once again come down to 7. The yield on 10 year paper began during Q1 to close the quarter at 8.50% but moved up quite sharply cut mode.

Rising Oil prices and Exchange Rate: World over. 33 . stock markets will be the most impacted by negative news flows as other areas where shocks can be absorbed such as the currency. In response to the same. 6. Capital Market: Financial markets in India and globally have seen little volatility over the last few Years. Due to this. 7. Indian companies continue to build value in the balance sheet as newer opportunities emerge through smart capex. This has led to a significant hardening of interest rates over the past 4-5 quarters. The US Fed. etc. The Capital Market has seen balance sheet value being unlocked through monetization of embedded assets. real interest should be higher than those prevailing in more matured economies. which embarked on an aggressive rate hike campaign through 17 consecutive rate hikes of the magnitude of 25 bps. There have been only two spikes in India – in April 2004 when the UPA government came to power and in May 2006. interest rate and corporate bond markets are not free or well developed. inorganic growth and extracting value thru the revenue statement. which has adversely impacted the cost of funds for banks. the central bankers led by US Federal Reserves embarked on withdrawal of monetary accommodation through a series of rate hikes as the rising oil and asset prices threatened the global economies with inflationary pressures. IPOs. demergers. the marginal productivity of capital being much higher in the developing economy like India. several economies including Euro-zone and Japan hiked their key policy rates. However. RBI has hiked the key policy Repo and Reverse Repo rates five times over the past two years.Indian Banking System 201 0 3%. In India.

Indian Banking System 201 0 INDIAN BANKING INDUSTRY 34 .

In terms of supply of credit. and non-banking finance companies (NBFCs). While banks and NBFCs predominantly cater for short-term needs. firms and economic entities depend. largely. financial intermediaries can broadly be categorized as institutional and non-institutional. An important feature of the credit market is its term structure: (a) Short-term credit (b) Medium-term credit (c) Long-term credit. FIs provide mostly medium and long-term funds. The major institutional suppliers of credit in India are banks and non-bank financial institutions (that is. The non-institutional or unorganized sources of credit include indigenous bankers and money-lenders. on financial intermediaries to meet their fund requirements. given the relatively underdeveloped capital market and with little internal resources. Need for Banks Role of Bank 35 .Indian Banking System 201 0 INDIAN BANKING INDUSTRY In India. Information about the unorganized sector is limited and not readily available. development financial institutions or DFIs). other financial institutions (FIs).

Indian Banking System 201 0 Channel household savings Risk Transformation Service Provider Indian Banking Sector Experience India inherited a weak financial system after Independence in 1947. with an asset base of Rs. 1955. More than a quarter of the resources of the Indian banking system thus passed under the direct control of the State. The GoI also felt the need to bring about wider diffusion of banking facilities and to change the uneven distribution of bank lending. 11. The proportion of credit going to industry and trade increased from a high 83% in 1951 to 90% in 1968. and disbursed credit primarily to large corporations. and integrating with it. the All India Rural Credit Survey Committee recommended the creation of a state-partnered and state-sponsored bank by taking over the IBI. Bank failures and mergers resulted in a decline in number of banks from 648 (including 97 scheduled 36 . This increase was at the expense of some crucial segment of the economy like agriculture and the small-scale industrial sector. the development of rural India was given the highest priority. the State Bank of India (Subsidiary Bank) Act was passed (SBI Act). At end-1947. there were 625 commercial banks in India. and the State Bank of India (SBI) was constituted on July 1. Following Independence. Commercial banks mobilized household savings through demand and term deposits. an act was passed in Parliament in May 1955. the former state-owned or state-associate banks. In order to serve the economy in general and the rural sector in particular. The commercial banks of the country including the IBI had till then confined their operations to the urban sector and were not equipped to respond to the emergent needs of economic regeneration of the rural areas. Accordingly.51 billion. enabling the SBI to take over 8 former State-associate banks as its subsidiaries (later named Associates). Subsequently in 1959.

Subsequently. The lop-sided pattern of credit disbursal. it was generally perceived that the operational efficiency of banks was declining. In 1991. each having minimum aggregate deposits of Rs. The nationalization of banks was the culmination of pressures to use the banks as public instruments of development. Banks were characterized by low profitability. 37 . 2. However.15% in the second half of the 1980s.Indian Banking System 201 0 commercial banks or SCBs and 551 non-SCBs) in 1947 to 89 in 1969 (comprising 73 SCBs and 16 non-SCBs).000 million and above. and perhaps the spate of bank failures during the sixties. 500 million. the GoI nationalised another 6 banks2. the GoI nationalized 14 scheduled commercial banks (SCBs). In July 1969. in 1980. The GoI imposed `social control’ on banks. and low capital base. each having deposits of Rs. Average returns on assets were only around 0.5% of assets. The quality of customer service did not keep pace with the increasing expectations. by the 1980s. with the introduction of banking sector reforms as part of the overall economic liberalization in India. high and growing non-performing assets (NPAs). forced the government to resort to nationalization of banks. a fresh era in Indian banking began. Poor internal controls and the lack of proper disclosure norms led to many problems being kept under cover. State-control was considered as a necessary catalyst for economic growth and ensuring an even distribution of banking facilities. and capital aggregated an estimated 1.

track record  Stable industry dynamics  Well-established regulatory framework  Stable/low NPL formation rates Weaknesses:  Continued crowding out effect from govt budget deficit. staff cut. branch cut constraints 38 . combined with accelerating private sector credit demands  Ownership restrictions  Constraints on state-owned banks' micro reforms.Indian Banking System 201 0 INDIAN FINANCIAL SERVICES SECTOR SWOT ANALYSIS Strengths:  Proven asset quality resilience in past downturns  Proven management teams. including HR.

loan growth as multiple of nominal GDP growth  Rising consumer spending. consumer credit business  Rising corporate capex. should earnings delivery disappoint expectations 39 . if not decades. investments  M&A optionality Threats:  "Running on empty" in terms of liquidity  Tightening in global liquidity may trickle down to India  Potentially hawkish RBI stance on inflation/monetary policy  Potential rise in long bond \ yields. educated workforce  Rapid financial deepening.e. of catch-up economics— low per capita income.Indian Banking System 201 0 Opportunities:  Improving secular GDP growth prospects  Establishment of special economic zones likely to promote further industrialization  Years. MTM risk for banks  Potential for valuation pullback. i.

Indian Banking System 201 0 STRUCTURE Of 40 .

the RBI received wide-ranging powers in regards to establishment of new banks. This Act brought the RBI under government control. The scope of the report includes the SCBs only3. maintaining certain standards of banking business. opening and closing of branches of banks. Banks in India can broadly be classified as regional rural banks or RRBs. The SCBs for the purpose of this comment can be classified into the following three categories:  Public sector banks or PSBs (SBI & its associates. mergers and amalgamations of banks.  Private sector banks (old and new). scheduled commercial banks or SCBs. and  Foreign banks 41 . and nationalized banks). and co-operative banks. Under the Act. The Reserve Bank of India Act was passed in 1934 and the RBI was constituted in 1935 as the apex bank. The Banking Regulations Act was passed in 1949. The Act also vested licensing powers and the authority to conduct inspections with the RBI. inspection of banks. central bank. etc.Indian Banking System 201 0 banking STRUCTURE OF THE BANKING SECTOR The banking sector in India functions under the umbrella of the RBI—the regulatory.

45437 cr.48412 cr.73506 cr and UTI Bank of size Rs.49731 cr. In terms of asset size.37473 cr and Rs. Rs. in FY 05-06. SBI & Associated 42 . HSBC and Standard Chartered bank are leaders with asset base of Rs. public sector banks have highest base compared to private and foreign banks. Among private sector banks.251389 cr followed by HDFC Bank of size Rs. among Foreign banks – Citibank. Resp.Indian Banking System 201 0 No. of Banks in India for FY 05-06 29 20 30 8 SBI & Associates Nationalised Ba nks Category of Banks Private Banks Foreign Banks Source: IBA Asset Size of Banks for FY 05-06 ('000 crores) 1327 565 198 201 SBI & Associates Na tionalised Banks Category of Banks Private Banks Foreign Banks Source : IBA In terms of asset size. ICICI Bank is the leader with asset base of Rs.

First. was rising at a rate between 10 and 40 per cent in a number of countries by 2005 (BIS. especially in Asia and Latin America. The recent surge in bank lending has been associated with important changes on the asset side of banks balance sheet. As a result.691872 cr while other banks such as BOB.Indian Banking System 201 0 have asset base of Rs. in real terms.historically the most important component of banks assets – has been weak. Credit Growth The bank lending has expanded in a number of emerging market economies. and substantial bank restructuring.a process that seems to have begun in the mid-1990s 43 . commercial banks continue to hold a very large part of their domestic assets in the form of Government securities . BOI. 2006). Canara Bank and PNB Bank have each more than Rs. Several factors have contributed to the significant rise in bank lending in emerging economies such as strong growth. excess liquidity in banking systems reflecting easier global and domestic monetary conditions. credit to the business sector . Bank credit to the private sector. Second.100000 cr. in recent years. while the share of the household sector has increased sharply in several countries. banks investments in Government securities increased sharply until 2004-05.

Indian Banking System 201 0 44 .


Indian Banking System 201 0 Over the past three years. under compulsion. There was no retail credit then. which is not just a function of economic buoyancy but also the broad-basing of loan demand. Loan growth sustained for very long Source: RBI The slowdown of the mid-1990s hit the banks very hard because corporate. This has recently been articulated by the central bank too: “A contextual analysis of the co-movement between macroeconomic performance and bank credit in the current phase of the business cycle suggests that factors other than demand may also be at work: financial deepening from a low base. which accounted for a lion’s share of bank credit. October 2006). structural shifts in supply elasticity’s. and competitive pressures augmenting the overall supply of credit. rising efficiency of credit markets.” (Reserve Bank of India. banks did not focus on Small and Medium Enterprises and farm lending was done grudgingly. Along with the diversification of the pie that 46 . went into a less profitable and hence a financial restructuring mode. Indian Banking Industry has seen sustained strength in credit growth. Monetary Policy Review.

In the last five years. There is a perceptibly wider participation from other segments during FY05 and FY06. and is yet to see significant resistance. SMEs and the rural folk have accessed credit from other sources at exorbitant interest rates.  Rising funding costs with soft lending rates irrational: Plenty of historical evidence of return of pricing power to banks: Concerns are often expressed about banks’ ability to increase lending rates in the face of competition and government pressure. However. If a substantial portion of loan growth gets driven by the banking system taking away market shares from informal sectors – this is clearly happening to farm credit. growth in industrial credit was almost wholly driven by infrastructure. and hence banks’ rates going by 200-300bps is not so meaningful. it is unlikely that the government will be able to influence the course of interest rates single-handedly. after a long time industry has also started demanding higher levels of credit. Competition from overseas borrowings is a serious factor only with AAA companies. That explains the apparent lack of correlation between rates that have been rising and loan demand. In the five years prior to FY05. banks have managed to move the deposit growth rate from 15-16% to 19. have increased mortgage rate by 200-300bps from the bottom. The reality is that banks. household financial 47 . That PSU banks raised prime lending rates twice in. and banks have reduced exposure to them considerably during the last 3-4 years.20%. SMEs and to a limited extent non-mortgage retail – interest rate considerations influencing demand will be relatively low. which led the mortgage price war.Indian Banking System 201 0 keeps the tempo of demand intact. Government stand is understandably against higher interest rates. Inflexibility of deposit growth a myth: With 100-200bps increase in the card rates of deposits. on a larger base.

The Q4FY07 is expected to be a period of margin pressure. and followed by lending rates. banks are willing to take higher risks. PNB. Investment spreads may increase in future: As long-duration bonds at high interest rates have been coming up for maturity and getting repriced at lower interest rates. which is good for overall asset yields. Accordingly. Banks’ increased risk appetite good for loan yields: The banks’ lending risk appetite has increased significantly over the last five years – banks veering more towards lending at increasing spreads rather than investing in risk-free bonds. taken at higher than card rates. However. HDFC Bank. This is because as the last interestrate cycle showed. and the RBI could be increasing CRR or SLR requirements to further tighten the liquidity. Q4 is also usually a period of tight liquidity.Indian Banking System 201 0 savings have moved out of equities and long-term products to bank deposits in percentage terms. Also. incremental opportunity as more cash from chests moves into bank deposits first before potentially going to other avenues. The point to note here is that component of cash (currency) has marginally risen – that’s the real. SBI and a few others have nevertheless already made a beginning by increasing their prime lending rates after the cash reserve ratio hike by the RBI. deposit costs increase first.  Non – Performing Loans (NPLs): concerns overstated: 48 . the fight for deposits has intensified and it is possible that in Q4FY07 banks could be increasing their exposure to high-cost wholesale deposits. banks will be cautious about the actual implementation of the lending rate increases and may do it in a graduated fashion so as not to invite outright resistance or overt attention from the government. yields on investments have been continuously falling over the last few years.

by increasing standard assets provisioning on these loans to 100bps from 25bps. SBI’s portfolio was distributed between large corporate. with an average loan-to-value of 75%. a 25% fall is theoretically not possible. farm credit and trade. One stark example of this is the largest bank SBI itself. it will mean 1% of the banking system’s loans go bad. Residential mortgages: It is very unlikely in near term that there can be a large-scale increase in delinquencies on loans taken for the first house (typically self-occupied). risk weights from 100% to 150% and instructing banks not to lend unless the developer has “all the permissions. Even if the assumption that 10% of the outstanding mortgages are for the second house and all of that goes bad. SBI’s loan portfolio now quite diversified 49 . Most banks claim that it is in the range of 2-5% of incremental mortgage lending.0% of gross non-food credit of banks as of end-June 2006. Banks have been reluctant to disclose the exact volume of second houses financed. but this is becoming increasingly difficult with a credit bureau now in full swing. typically for investment/speculation. Even if it has been growing at high percentage rates is not material as the base was very low. unless there is a household income problem. Problems can arise more frequently for loans taken for the second house. In the mid 1990s. with little coming from others. In any case. it does not matter to the borrower whether the price of the house he is staying in is rising or falling.Indian Banking System 201 0 Loan growth-NPL The asset price deflation (read real estate prices) may hurting banks’ asset quality has been blown out of proportion. There is a possibility that some individuals have been hiding from banks the fact that they already have one more loan. Commercial real estate: According to figures disclosed by the RBI itself. real estate loans constituted 2. LTV ratios had gone up to more risky levels at the peak of the mortgage boom. Even then. The Sep’06 portfolio looks dramatically different.

000-1. but so have incomes: The apparent disconnect between interest rates rising now for two years and lending not losing steam can be explained by i) rising incomes in case of individuals.000 pa. thereby imparting increased thrust to retail lending.Indian Banking System 201 0 Source: Company data. an explosive growth is underway in the percentage of households earning Rs91. While there are several studies illustrating the household income growth in India. according to National Council for Applied Economic Research. Cost of borrowing has risen. 50 . these levels of increases in interest costs have been easily absorbed by companies. the most prominent individual borrowers for banks.000. and ii) improved corporate profitability through better pricing power. it is a fact that manufactured product inflation has been rising. And with a considerably deleveraged corporate India compared with the early/mid 1990s. The corporate pricing power story is less known because of the media harping on high competition and margin compression. Even the RBI has recently commented on the increased ability of manufacturers to pass on cost increases. While these issues cannot be summarily dismissed.

in a drive to carry on with tremendous expansion in terms of customer base. In future.Indian Banking System 201 0  Technology: The trend in banking is changing from computerization of branches to laying a common platform by having a core banking solution in all the branches. The banks need to realize that they need to maintain different delivery for different generations. banks will need to focus on value-differentiating services by keeping in-Houser their competitive advantages while partnering with others who complement its services. Potential Pitfalls: Banks should not get overwhelmed by the concept of automation and online banking. At the same time. RBI has provided guidelines relating to security and other issues and hopefully.  Banks need to explore newer channels such as SMS. Indian banks need to encompass the extension of all the services that are required and dictated by customers. As the mindset of the Indian customer undergoes a change.  Banks. WAP and 3G mobile telephony applications to facilitate online access to customers. Banks still need to maintain brick-and-mortar locations that people feel comfortable with. Indian banks are looking at internet banking which promises to grow into an alternate self-service channel. 51 . online banking will see a surge in the usage from current 1% to at least 10% in the next couple of years. needs to have employees who are well informed about products and services and are comfortable with technology which requires extensive training. Areas of Improvement: Few challenges associated with technology adoption by banks are:  Indian banks still don’t have the robust systems required for efficient functioning of online banking. The emergence of peer-to-peer money transmission mechanisms (such as Western Union Money Transfer) poses a challenge to current role of bankers and emphasizes the role of robust payment systems like RTGS in maintaining and promoting financial stability.

Indian Banking System 201 0 VALUATION TOOLS 52 .

it expanded its network to 562 branches and 1. networked through VSAT technology. Investitsionno-Kreditny Bank (IKB). Prudential ICICI Asset Management Company Limited and Prudential ICICI Trust Limited. call centers and ATMs. an Indian development financial institution. In 2005. The bank is connected to the SWIFT International network. ICICI Bank started with all the latest technologies to hit the Indian banking industry in the second half of the nineties. It has acquired a small Russian banking entity. which will help boost its corporate business and deposit franchise overseas. namely internet banking. Over 70% of customer induced transactions take place through these electronic channels.  ICICI has entered into strategic alliance with Prudential plc. Initially.000 Internet kiosks and 70 agri-desks have been established in locations with large agricultural markets. ICICI Bank current account customers will have the facility to invest their account surpluses in the liquid fund schemes of Prudential ICICI Asset Management Company and GIC Mutual Fund. of UK for its mutual find business.. A new generation bank.910 automatic sweeping facility which allows current account holders to park their short-term surpluses into liquid mutual funds and earn higher returns. The two entities subsequently merged to become the largest commercial bank in the private sector. The duo has been fairly aggressive through their companies. The bank is also keen to offer its services to the Indian agricultural sector. It continued to expand its electronic channels. and migrate customer transaction volumes to these channels. Over 2. All its branches are fully computerized with the state-of-the-art technology and systems. Lloyds TSB in UK and DBS in Singapore.Indian Banking System 201 0 ICICI Bank: Business ICICI Bank was promoted in 1994 by ICICI Ltd. The bank has also built several strategic alliances with banks like Wells Fargo in USA. mobile banking. 53 .  Developments ICICI Bank launched `Mutual Fund Sweep Account` .

Indian Banking System 201 0

 The bank is in the process of the reverse merger of ICICI with ICICI Bank. The merger of two wholly-owned subsidiaries of ICICI, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank is also underway.  ICRA has assigned an A1+ rating, indicating highest safety in the short-term, to the Rs 500 crore certificates of deposit (CD) programme of ICICI Bank Ltd (IBL). The rating agency said in its report that the rating takes into consideration IBL`s strategic importance to its parent ICICI, IBL`s comfortable profitability and capital adequacy, good control on asset quality.  ICICI Bank has tied up with MasterCard International to launch ICICI Bank MasterCard credit cards. At present ICICI Bank’s credit card base stands at around 5, 50,000, while for debit cards it is 4,50,000. ICICI Bank is the largest card issuer in the market. The bank is adding credit and debit cards at the rate of 1,00,000 per month. The bank had launched the credit card business 2 years back, while the debit card business is relatively new. ICICI Bank is India's second-largest bank with total assets of Rs. 3,562.28 billion (US$ 77 billion) at December 31, 2009 and profit after tax Rs. 30.19 billion (US$ 648.8 million) for the nine months ended December 31, 2009. The Bank has a network of 1,646 branches and about 4,883 ATMs in India and presence in 18 countries. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management. The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany. ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock


Indian Banking System 201 0
Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).

HDFC Bank:
HDFC Bank Ltd was set up in 1994 by India’s leading housing finance company Housing Development Finance Corporation (HDFC). The bank offers a wide range of services which can be classified into three categories namely, treasury, wholesale banking and retail banking services. The bank has a distribution network of 535 (in 228 cities) and 1,323 ATMs and a customer base of 9.6 million as of March 2006. Under wholesale banking, it provides working capital finance, trade services, transactional services and cash management. Treasury function includes foreign exchange & derivatives, money market securities and equities. Retail loan products are auto loans, personal loans and loans for two-wheelers. It also provides depository participant services for retail customers. It was the first Indian bank which launched an international debit card. With products including the Kisan Gold Card, rural supply chain initiatives and commodity finance covering the entire agriculture financing cycle, the bank’s agriculture lending increased by over 60% during the year. The proportion of NPA`s to total advances increased to 0.4 per cent from 0.3 per cent last year. This marginal increase is because of the changing mix of loans as HDFC Bank has a high share of auto loans. The bank’s focus on semi-urban and under banked markets continued with more than half of its retail loans being given in non-metro markets. The bank’s total capital adequacy ratio (CAR) as on March 31, 2006 stood at 11.41% The authorized capital of HDFC Bank is Rs.450 crore (Rs.4.5 billion). The paid-up capital is Rs.311.9 crore (Rs.3.1 billion). The HDFC Group holds 22.1% of the bank's equity and about 19.4% of the equity is held by the ADS Depository (in respect of the bank's American Depository Shares (ADS) Issue). Roughly 31.3% of the equity is held by Foreign Institutional Investors (FIIs) and the bank has about 190,000 shareholders. The shares are listed on the Stock Exchange, Mumbai and the National Stock Exchange. The bank's American Depository Shares are listed on the New York Stock Exchange (NYSE) under the symbol "HDB".

Indian Banking System 201 0

HDFC Bank operates in a highly automated environment in terms of information technology and communication systems. All the bank's branches have online connectivity, which enables the bank to offer speedy funds transfer facilities to its customers. Multi-branch access is also provided to retail customers through the branch network and Automated Teller Machines (ATMs). The Bank has made substantial efforts and investments in acquiring the best technology available internationally, to build the infrastructure for a world class bank. The Bank's business is supported by scalable and robust systems which ensure that our clients always get the finest services we offer. The Bank has prioritised its engagement in technology and the internet as one of its key goals and has already made significant progress in web-enabling its core businesses. In each of its businesses, the Bank has succeeded in leveraging its market position, expertise and technology to create a competitive advantage and build market share.

HDFC Bank offers a wide range of commercial and transactional banking services and treasury products to wholesale and retail customers. The bank has three key business segments:  Wholesale Banking Services: The Bank's target market ranges from large, blue-chip manufacturing companies in the Indian corporate to small & mid-sized corporates and agri-based businesses. For these customers, the Bank provides a wide range of commercial and transactional banking services, including working capital finance, trade services, transactional services, cash management, etc. The bank is also a leading provider of structured solutions, which

providing customers the facility to hold their investments in electronic form. The Bank also has a wide array of retail loan products including Auto Loans. Based on its superior product delivery / service levels and strong customer orientation. The products are backed by world-class service and delivered to customers through the growing branch network. Loans against marketable securities. as well as through alternative delivery channels like ATMs.  Retail Banking Services: The objective of the Retail Bank is to provide its target market customers a full range of financial products and banking services. the HDFC Bank Plus and the Investment Advisory Services programs have been designed keeping in mind needs of customers who seek distinct financial solutions. stock exchange members and banks. NetBanking and Mobile Banking. information and advice on various investment avenues.Indian Banking System 201 0 combine cash management services with vendor and distributor finance for facilitating superior supply chain management for its corporate customers. By March 2009. Phone Banking. the bank 57 . The HDFC Bank Preferred program for high net worth individuals. It is also a leading provider of Depository Participant (DP) services for retail customers. Personal Loans and Loans for Two-wheelers. HDFC Bank was the first bank in India to launch an International Debit Card in association with VISA (VISA Electron) and issues the Mastercard Maestro debit card as well. mutual funds. giving the customer a one-stop window for all his/her banking requirements. The Bank launched its credit card business in late 2001. companies from the domestic business houses and prime public sector companies. It is recognised as a leading provider of cash management and transactional banking solutions to corporate customers. the Bank has made significant inroads into the banking consortia of a number of leading Indian corporates including multinationals.

etc. Bill Payments.Indian Banking System 201 0 had a total card base (debit and credit cards) of over 13 million. These and fine pricing on various treasury products are provided through the bank's Treasury team. industry and commercial banking. The Treasury business is responsible for managing the returns and market risk on this investment portfolio. the bank is required to hold 25% of its deposits in government securities. The Bank is also one of the leading players in the “merchant acquiring” business with over 70. advice and product structures. The Bank's Board of Directors is composed of eminent individuals with a wealth of experience in public policy. The Bank is well positioned as a leader in various net based B2C opportunities including a wide range of internet banking services for Fixed Deposits. Prior to this. and before joining HDFC Bank in 1994 was heading Citibank's operations in Malaysia. Mr. Capoor was a Deputy Governor of the Reserve Bank of India. Jagdish Capoor took over as the bank's Chairman in July 2001. To comply with statutory reserve requirements.000 Point-of-sale (POS) terminals for debit / credit cards acceptance at merchant establishments. Local Currency Money Market & Debt Securities.Foreign Exchange and Derivatives. and Equities. Senior banking professionals with substantial experience in India and abroad head various businesses and functions and report to the Managing Director.  Treasury Within this business. Loans. With the liberalisation of the financial markets in India. the bank believes that its people are a significant competitive strength. has been a professional banker for over 25 years. The Managing Director. Management: Mr. administration. 58 . corporates need more sophisticated risk management information. Aditya Puri. Senior executives representing HDFC are also on the Board. Given the professional expertise of the management team and the overall focus on recruiting and retaining the best talent in the industry. Mr. the bank has three main product areas .

urban and semi-urban branches under Core Banking System(CBS). In recent years. According to the Forbes 2000 listing it tops all Indian companies. 59 . The State Bank of India has had steady growth over its history. the bank has sought to expand its overseas operations by buying foreign banks. With more than 9400 branches and a further 4000+ associate bank branches. State Bank of India has often acted as guarantor to the Indian Government. It is the only Indian bank to feature in the top 100 world banks in the Fortune Global 500 rating and various other rankings. international and NRI products and services.Indian Banking System 201 0 SBI : State Bank of India (SBI) is the largest bank in India. With an asset base of $126 billion and its reach. The bank was nationalized in 1955 with the Reserve Bank of India having a 60% stake. the bank has started Core banking process by which more than 4400+ branched have been completed so far. it is a regional banking behemoth.Following its arch-rival ICICI Bank. the SBI has extensive coverage. Established in 1806 as Bank of Bengal. though it was marred by the Harshad Mehta scam in 1992. It is also. State Bank of India has electronically networked most of its metropolitan. most notably during Chandra Shekhar's tenure as Prime Minister of India. The bank has the largest ATM network in the country having more than 5600 in number [1]. the largest bank in the world. measured by the number of branch offices and employees. it remains the oldest commercial bank in the Indian Subcontinent and also the most successful one providing various domestic. It has laid emphasis on reducing the huge manpower through Golden handshake schemes and computerizing its operations. through its vast network in India and overseas.

000 domestic and 70 foreign offices and branches.Indian Banking System 201 0 Group companies  SBI Capital Markets Ltd  SBI Mutual Fund (A Trust)  SBI Factors and Commercial Services Ltd  SBI DFHI Ltd  SBI Cards and Payment Services Pvt Ltd  SBI Life Insurance Co. Ltd . 60 .The new infrastructure serves as the bank's backbone. over 10. The first and the second phases of the project have already been completed and the third phase is still in progress. State Bank of India launched a project in 2002 to network more than 14. carrying all applications. ATM network.000 by the end of 2008 raising the total number to 8.Bancassurance (Life Insurance)  SBI Funds Management Pvt Ltd According to PM Network. Internet banking and internal e-mail. As of December 2006. The new infrastructure has enabled the bank to further grow its ATM network with plans to add another 3.000 branches have been covered.600. such as the IP telephone network.

Indian Banking System 201 0 MAJOR FINDINGS 61 .

Gross Fiscal Deficit Interest Rate – the UPA government is confident to achieve the budgeted targets. followed by foreign banks (31. Inflation – which has slow down due to falling crude prices. Bank group-wise. 29 Private Banks and 30 Foreign Banks.2 per cent). There are 87 Scheduled Commercial Banks operating in India including 8 Bank of SBI & Associates. 62 .2 per cent). FDI Confidence Index – where India stands II in the world. Indian Banking System is spread through 66000 branches with an asset base of about $270 billion. EURO and Yen and Capital Market – the year is booming for market with FII and mutual fund are pumping money increasing BSE Sensex returns over 50%. public sector banks (13.Indian Banking System 201 0 MAJOR FINDINGS Major Macro – Economic Factors include Gross Domestic Product – which has grown by over 8% in 2005-06.2 per cent).691872 cr. In terms of asset size. 20 Nationalized Banks. Rising Oil prices & Exchange Rate – Indian government and oil companies are relax as oil prices have fallen beside Indian Rupee has strengthen against USD. public sector banks have highest base compared to private and foreign banks.6 per cent) and old private sector banks (12. new private sector banks grew at the highest rate during 2005-06 (43. SBI & Associated have asset base of Rs. In June 2006.

The agriculture and housing sectors were the major beneficiaries. Retail loans as a percentage of gross advances increased from 22.3 per cent at end-March 2005. HDFC Bank and UTI Bank are also in high growth phase. ICICI Bank is the leading market player with change in loans market share in FY02-06 of over 5% and change in deposits market share in FY 02-06 is nearby 2. the relative significance of PSBs declined significantly with their share in total assets of SCBs declining to 72. Bank of Baroda Bank. which witnessed a growth of over 40.5%. which together accounted for more than two-third of incremental priority sector lending in 2005-06.3 per cent at end-March 2006 from 75.Indian Banking System 201 0 As a result.7 per cent in 2005-06 as against 40. Retail loans.75% due to rising interest cost 63 .3 per cent in the previous year. of which 58% growth has seen in service sector and 100% in real estate sector).1 per cent from 12. Credit to the priority sector increased by 33. Micro-Economic Factors affecting Banking Industry: Some of Micro-Economic factors identified in the report are:  Loan Demand in which the Indian Banking Industry has seen sustained strength in credit growth (a 30% increase in Oct 2006.0 per cent in 2004-05 and again in 2005-06. have been the prime driver of the credit growth in recent years.5 per cent in March 2006. Bank of India and Punjab National Bank. Credit to small scale industries also accelerated. The laggards are SBI Bank.5 per cent.3% and Yield on government bonds reduced to 7. while that of new private sector banks increasing to 15. credit spread increase to 3.0 per cent in March 2004 to 25.  Rising funding costs with soft lending rates – Deposits has seen a growth of 22% of which household savings contribute to 43%.

231.The Total bank loans stood at Rs 15. of which housing loans are Rs. conclusion 64 . 1719.Indian Banking System 201 0  Non – Performing Loans (NPLs) .2bn.7bn. However. the Industry’s share of total credit has dropped to 40%  Technology .Indian banks still don’t have the robust systems required for efficient functioning of online banking and Banks need to explore newer channels such as SMS. WAP and 3G mobile telephony applications to facilitate online access to customers.

earning and Profit and Loss account.Indian Banking System 201 0 CONCLUSION The project involves valuation of major Indian Banks including ICICI Bank. All shares are undervalued and expected to give positive risk adjusted returns to investors. Then EPS is calculated which is multiplied to Historical P/E to forecast intrinsic value of share. 65 . Since the intrinsic value is more than current market price for all the companies. which including estimating growth rate by regression on historical sales to forecast next year sales. The methodology followed is Target Pricing. SBI and HDFC Bank. the share can be recommended to conservative investors.

Indian Banking System 201 0 66 .

Report of the Committee on Banking Sector Reforms 67 .Indian Banking System 201 0 BIBLIOGRAPH Y BIBLIOGRAPHY  Company Reports  Government of India. 1998.

Prasad and Saibal Ghosh  Indian Banks Association. Various Years. Various Years. “Annual Policy Statement for the year 2007-08” (Mumbai). Report of the Committee on the Financial System  IMF Working Paper .  Reserve Bank of India (a).Indian Banking System 201 0  Government of India.Competition in Indian Banking by A. 1991.  Indian Banking Association  Ministry of commerce and Industry  Reserve Bank of India. Statistical Tables Relating to Banks in India (Mumbai). Report on Trend and Progress of Banking in India (Mumbai). 68 . Performance Highlights of Banks (Mumbai). Various Years. 2008.  Reserve Bank of India (b).

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