Project Report

A study of Management of Assets and Liabilities in relation to performance and profitability in ICICI bank


Chapter 1: Introduction • • • o • o o o

Introduction of Indian Banking System Structure of Banking Sector Concept of ALM ALM Objectives Risk Management and ALM Credit Risk Market Risk Operational Risk ALM System in Banks – RBI Guidelines 1999

Chapter 2: Review of Literature and Research Methodology • •

o o o o o

Review of Literature Research Methodology Need of Study Objectives of Study Methodology Scope and Need Limitations Chapter scheme

Chapter 3: Overview & Performance of ICICI Bank • o • • • • • • Brief Profile of ICICI Bank Subsidiaries of ICICI Bank Credit Deposit Ratio Loans and Advances Deposit Mobilization Investment Priority Sector Advances Net Interest Margin

• •

Non-Interest Income Conclusions

Chapter 4: Assets Management of ICICI Bank • o o o Measuring Areas of Asset Management Reserve Position Management Investment Management Liquidity Management and Managing Liquidity Risk • Conclusions

Chapter 5: Liabilities Management of ICICI Bank • • • o o o o o • Capital Reserves and Surplus Deposits Fixed Deposit/ Term Deposit Saving Bank Deposit Demand Deposit Borrowings Other Liabilities and Provisions Conclusions

Chapter 6: Profitability Analysis of ICICI Bank

o o o o o •

Analysis of Ratios Income Expenditure Spread Ratios Burden Ratios Net Profit Ratios Conclusions

Chapter 7: Loan Portfolio Management of ICICI Bank • Loan Portfolio Management

o • • • Loan Portfolio Objectives Types of Loans Constituent of Loan Portfolio of Banks Conclusions Chapter 8: Findings and Suggestions • • Findings Suggestions Bibliography 4 .

over the years has gone through various phases after establishment of Reserve Bank of India in 1935 5 .Chapter 1 Introduction Introduction: Indian banking system.

of branches were opened in rural area but the lending activities of the private banks were not oriented towards meeting the credit requirements of the priority/weaker sectors. State-partnered commercial banking institution with an effective machinery of branches spread all over the country. did not provide any remedy. were being deployed in organized sectors of industry and trade. as a result of re-organization of princely States. Though a no. the central bank functions were being looked after by the Imperial Bank of India. professionals and self-employed had to depend on money lenders who used to exploit them by charging higher interest rates. Earlier to creation of RBI. transporters. The scheme however. The bulk of the deposits collected. the Govt. a Scheme of Social Control was set-up whose main function was to periodically assess the demand for bank credit from various sectors of the economy to determine the priorities for grant of loans and advances so as to ensure optimum and efficient utilization of resources. while the farmers. Another evaluation of the banking in India was undertaken during 1966 as the private banks were still not extending the required support in the form of credit disbursal. In 1954 the All India Rural Credit Survey Committee submitted its report recommending creation of a strong. Each leading industrial house in the country at that time was closely associated with the promotion and control of one or more banking companies. Similarly during 1956-59.during the British rule. With the 5-year plan having acquired an important place after the independence. of the then Imperial Bank of India. the economy may need. more particularly to the unorganized sector. The recommendations of this committee led to establishment of first Public Sector Bank in the name of State Bank of India on July 01. 1955 by acquiring the substantial part of share capital by RBI. Statesponsored. In February 1966. the associate banks came into fold of public sector banking. felt that the private banks may not extend the kind of cooperation in providing credit support. 6 . to function as Central Bank of the country. integrated. small entrepreneurs.

deposits of Rs.On July 19.1813 cr and with 4134 branches accounting for 80% of advances. of branches opened in rural/semi-urban centers bringing down the population per bank branch to 12000 appx. however the role of banking in the process of financial intermediation has undergone complete metamorphosis due to changes in the global financial system. During December 1969. While the 1970s and 1980s saw the high growth rate of branch banking net-work. Subsequently in 1980. loans of Rs. multilateral financial organization. RBI introduced the Lead Bank Scheme on the recommendations of FK Narasimham Committee. RRBs were established (on the recommendations of M. During 1976. during 1962 Deposit Insurance Corporation was established to provide insurance cover to the depositors. with the submission of report by the Narasimham Committee on Reforms in Financial Services Sector during 1991. the consolidation phase started in late 80s and more particularly during early 90s. The present banking system in India was evolved to 7 . national government machinery and other sectors of the economy at various other points.28. the Govt.50 cr. Meanwhile. linked operationally to the international. with different risk profiles.2629 cr. The Service Area Approach was introduced during 1989. promulgated Banking Companies (Acquisition and Transfer of Undertakings) Ordinance 1969 to acquire 14 bigger commercial bank with paid up capital of Rs. The banking sector in India consists of vast and diversified network operating at several tiers. 6 more banks were nationalized which brought 91% of the deposits and 84% of the advances in Public Sector Banking. Over the last three decades. In the post-nationalization period. It is now clear that a thriving and vibrant banking system requires a well developed financial structure with multiple intermediaries operating in the market. 1969. Narasimham Committee report) under the sponsorship and support of public sector banks as the 3rd component of multiagency credit system for agriculture and rural development. there was substantial increase in the no.

scheduled (4) Public Sector Banks Regional Rural Banks (28) (88) Private Sector Banks (22) Foreign Banks (30) New Private Sector Banks Sector Banks (7) (15) Old Private 8 . At the apex is the Reserve Bank of India. the central bank of the the financial needs of trade and industry and also to satisfy the credit needs of the institutions of the country. The constituent of the present banking system in India are of varying origin and sizes. 1.1 Structure of Banking Sector: Banking Structure Scheduled Commercial Banks Commercial Banks (168) Non.

The banks included in this schedule list should fulfill two conditions. A private sector bank is made up of all businesses and firms owned by ordinary members of the general public whereas. 1. 5 lac.2 Concept of ALM 9 . artisans and small entrepreneurs. Non-Scheduled Commercial Banks: The banks which are not under the purview of second schedule of RBI Act. The paid capital and collected funds of bank should not be less than Rs. Regional Rural Banks are special in there type. 1934. public sector bank is owned and controlled by a government while the banks owned by foreign entities are called as foreign banks. particularly the small and marginal farmers.SBI Group Nationalized Banks (8) (19) Other Public Sector Banks (1) SBI (1) Subsidiary Banks (7) Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India(RBI) Act. Any activity of the bank will not adversely affect the interests of depositors. The banks provide credit to the weaker sections of the rural areas. 2. 1. agricultural labourers. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act.

• Interest Rate Risk Management. directing. level. • ALM is concerned with strategic management involving all market risks Balance Sheet • It involves in managing both sides of balance sheet to minimize market risk ALM Objectives: • Liquidity Risk Management. other financial services companies and corporations. interest rate risk. Asset Liability Management is a strategic management tool to manage interest rate risk and liquidity risk faced by banks. Banks face several risks such as the liquidity risk. cost and yield of funds of the bank • ALM builds up Assets and Liabilities of the bank based on the concept of Net Interest Income (NII) or Net Interest Margin (NIM). by hedging and by securitization. Liquidity Risk. mix. asset liability management is the practice of managing risks that arise due to mismatches between the assets and liabilities (debts and assets) of the bank. controlling the flow. In banking. • ALM is concerned with strategic management of Balance Sheet by giving due weightage to market risks viz. 10 . • ALM function involves planning.ALM is the process involving decision making about the composition of assets and liabilities including off balance sheet items of the bank / FI and conducting the risk assessment. Banks manage the risks of Asset Liability mismatch by matching the assets and liabilities according to the maturity pattern or the matching the duration. credit risk and operational risk. Interest Rate Risk & Currency Risk.

• Therefore. excessive interest rate risk can pose a significant threat to a bank’s earnings and capital base. liabilities and off-balance-sheet item. • Currency Risk Management It is the risk that the value of an asset/ liability/ financial instrument will change due to changes in FX rates.• Currency Risks Management. Liquidity Risk: Liquidity risk refers to the risk that the institution might not be able to generate sufficient cash flow to meet its financial obligations. Currency risk is 11 . an effective risk management process that maintains interest rate risk within prudent levels is essential to safety and soundness of the bank. It has a direct relation with the volatility of currencies. • Changes in interest rates also affect the underlying value of the bank’s assets. • Profit Planning and Growth Projection. if the currencies are more volatile then the currency risk is higher. • Interest rate risk refers to volatility in Net Interest Income (NII) or variations in Net Interest Margin(NIM). • Though this is normal part of banking business. The factors affecting liquidity risk are: • • • • • • • Over extension of credit High level of NPAs Poor asset quality Mismanagement Non recognition of embedded option risk Reliance on a few wholesale depositors Large undrawn loan commitments • Lack of appropriate liquidity policy & contingent plan Interest Rate Risk Management Interest Rate risk is the exposure of a bank’s financial conditions to adverse movements of interest rates.

there are 3 major types of risks encountered by the banks: 12 . 1. Capital investment in an external market depends largely upon the expected rate of return on the investment as measured relative to the investment currency. As per RBI guidelines issued in 1999. Simple projections will provide a picture of operating results daily. These projections are then translated into the investment currency for comparison with other capital investment opportunities on an equivalent basis. while there is time to correct the cause. It is an organized method of collecting and analyzing bank’s operating information for the purpose of providing the bank manager with the information he needs to effectively manage the bank. It largely depends upon the growth of the sector and the handling of deposits and investments by the bank. It is a simple procedure by which information collected is used to design strategies for the bank. expenditure estimates.3 RISK MANAGEMENT AND ALM Risk is the potentiality that both the expected & unexpected events may have an adverse impact the bank’s capital & earnings. As a result. The expected return is derived almost entirely from volume projections.evaluated using probability distributions. and the resulting cash flow in the operations currency. Profit Planning and Growth Projection Profit planning is must for bank. Bad news will be known almost immediately. It is based on the development of standards for the key costs and revenues in the business and the regular comparison of actual costs and revenues to the standards. It is essential to have an understanding of the risk faced by the bank so as to effectively manage & control them. investment decisions rely almost entirely on translations exposure when considering currency risk.

currency exchange rates and commodity prices. • Country Risk: It is also a type of credit risk where non performance by a borrower or counterparty arises due to constrained or restrictions imposed by a country. (3) Operational Risk: It is the risk of loss resulting from inadequate or failed internal processes. loans are the largest and most obvious source of credit risk.1. It may loosely be comprehended as any risk which is not characterized as market or credit risk. movement in equity and interest rate markets. For most banks. 13 . people and systems or from external events. Market Risk 3. Credit Risk 2. It is most simply defined as the potential of a bank borrower or counter party to fail to meet its obligation in accordance with agreed terms. (2) Market Risk: It is defined as the possibility of loss to a bank caused by the changes in the market variables i. Operational Risk (1) Credit Risk: It is the risk related to the possibility of the default in the repayment obligation by the borrowers of the funds. • Counter Party Risk: It is related to non performance of the trading partners due to counterparty’s refusal and or inability to perform.e.

RBI gave some instruction with reference to the implementation of the guidelines. Also in order to enable the banks to monitor their liquidity on a dynamic basis over a time horizon spanning from 1-90 days. ALM System in Banks – RBI Guidelines 1999 RBI has issued guidelines for ALM system in banks. In regard to foreign currency risk.The Narasimham Committee reports on the banking sector reforms highlighted the weakness in the Indian Banking system and suggested reforms based on the Basel Norms. Banks should give adequate attention to putting in place an effective ALM System. As for the remaining 40% of their assets and liabilities. adoption of a uniform ALM System for all banks may not be feasible. The final guidelines have been formulated to serve as a benchmark for those banks which lack a formal ALM System. for covering 100 14 . Other banks should examine their existing MIS and arrange to have an information system to meet the prescriptions of the new ALM System. Banks which have already adopted more sophisticated systems may continue their existing systems but they should ensure to fine-tune their current information and reporting system so as to be in line with the ALM System suggested in the Guidelines. RBI guidelines for ALM cover the banks’ operations in domestic currency. The statement of short-term Dynamic Liquidity should be prepared as on each reporting Friday and put up to the ALCO/ Top Management within 2/3 days from the close of the reporting Friday. an indicative format is given. headed by the CEO/CMD or the ED. The Management Committee or any specific Committee of the Board should oversee the implementation of the system and review its functioning periodically. banks should follow the instructions contained in Circular AD No. banks should ensure coverage of at least 60% of their liabilities and assets. To begin with. Banks should set up an internal Asset-Liability Committee (ALCO). Keeping in view the level of computerization and the current MIS in banks. 1997 issued by the Exchange Control Department. 52 dated December 27. It is necessary that banks set targets in the interim. banks may include the position based on their estimates.

recognized that varied business profiles of banks in the public and private sector as well as those of foreign banks do not make the adoption of a uniform ALM System for all banks feasible. the central element for the entire ALM exercise is the availability of adequate and accurate information with expedience and the existing systems in many Indian banks do not generate information in the manner required for ALM. accuracy.per cent of their business by April 1. However. They are: • ALM Information Systems o Management Information Systems o Information availability. Simulation and Value at Risk for interest rate risk management. Thus. Collecting accurate data in a timely manner will be the biggest challenge before the banks. The MIS would need to ensure that such minimum information/data consistent in quality and coverage is captured and once the ALM System stabilizes and banks gain experience. adequacy and expediency • ALM Organization o Structure and responsibilities o Level of top management involvement • ALM Process o Risk parameters o Risk identification o Risk measurement o Risk management o Risk policies and tolerance levels (i) ALM Information Systems: ALM has to be supported by a management philosophy which clearly specifies the risk policies and tolerance limits. information is the key to the ALM process. This framework needs to be built on sound methodology with necessary information system as back up. 15 . 2000. It is. they must be in a position to switch over to more sophisticated techniques like Duration Gap Analysis. These range from the simple Gap Statement to extremely sophisticate and data intensive Risk Adjusted Profitability Measurement methods. There are various methods prevalent world-wide for measuring risks. however.

to integrate basic operations and strategic decision making with risk management. internationally. (ii)ALM Organization: a) Successful implementation of the risk management process would require strong commitment on the part of the senior management in the bank. it will take time for banks in the present state to get the requisite information.Liability Committee (ALCO) consisting of the bank's senior management including CEO should be responsible for ensuring adherence to the limits set by the Board as well as for deciding the business strategy of the bank (on the assets and liabilities sides) in line with the bank's budget and decided risk management objectives. regulators have prescribed or are in the process of prescribing capital adequacy for market risks. interest rate. it would be much easier to collect reliable information. Considering the large network of branches and the lack of (an adequate) support system to collect information required for ALM which analyses information on the basis of residual maturity and behavioral pattern. A pre-requisite for this is that banks must have in place an efficient information system. The spread of computerization will also help banks in accessing data. foreign exchange and equity price risks. However.e. in view of the centralized nature of the functions. As banks are aware. 16 . The data and assumptions can then be refined over time as the bank management gain experience of conducting business within an ALM framework. The problem of ALM needs to be addressed by following an ABC approach i. The Board should have overall responsibility for management of risks and should decide the risk management policy of the bank and set limits for liquidity. analyzing the behavior of asset and liability products in the sample branches accounting for significant business and then making rational assumptions about the way in which assets and liabilities would behave in other branches. investment portfolio and money market operations. the introduction of base information system for risk measurement and monitoring has to be addressed urgently.particularly those having wide network of branches but lacking full scale computerization. In respect of foreign exchange. b) The Asset .

for instance. money market vs capital market funding . the ALCO should review the results of and progress in implementation of the decisions made in the previous meetings.c) The ALM Support Groups consisting of operating staff should be responsible for analyzing. it will have to develop a view on future direction of interest rate movements and decide on funding mixes between fixed vs floating rate funds. The business issues that an ALCO would consider. The business and risk management strategy of the bank should ensure that the bank operates within the limits / parameters set by the Board. inter alia. In respect of the funding policy. etc. etc. monitoring and reporting the risk profiles to the ALCO. The ALCO would also articulate the current interest rate view of the bank and base its decisions for future business strategy on this view. wholesale vs retail deposits. The ALCO is a decision making unit responsible for balance sheet planning from risk -return perspective including the strategic management of interest rate and liquidity risks. In addition to monitoring the risk levels of the bank. its responsibility would be to decide on source and mix of liabilities or sale of assets. Each bank will have to decide on the role of its ALCO. its responsibility as also the decisions to be taken by it. will include product pricing for deposits and advances. domestic vs foreign currency funding. Towards this end. (iii)ALM Process: The scope of ALM function can be described as follows: • • • • • Liquidity risk management Management of market risks Trading risk management Funding and capital planning Profit planning and growth projection 17 . The staff should also prepare forecasts (simulations) showing the effects of various possible changes in market conditions related to the balance sheet and recommend the action needed to adhere to bank's internal limits. desired maturity profile and mix of the incremental assets and liabilities. Individual banks will have to decide the frequency for holding their ALCO meetings.

Therefore liquidity has to be tracked through maturity or cash flow mismatches. Banks management should measure not only the liquidity positions of banks on an ongoing basis but also examine how liquidity requirements are likely to evolve under different assumptions. There are many analytical techniques for measurement and management of Interest Rate Risk. liquidity management can reduce the probability of an adverse situation developing. Experience shows that assets commonly considered as liquid like Government securities and other money market instruments could also become illiquid when the market and players are unidirectional. liabilities and off-balance sheet positions get affected due to variation in market interest rates. The interest rate risk when viewed from these two perspectives is known as 'earnings perspective' and 'economic value' perspective. the use of a maturity ladder and calculation of cumulative surplus or deficit of funds at selected maturity dates is adopted as a standard tool. slow pace of computerization in banks and the absence of total deregulation.e. The changes in interest rates affect banks in a larger way. reported profits) by changing its Net Interest Income (NII). Measuring and managing liquidity needs are vital for effective operation of commercial banks.The guidelines given in this note mainly address Liquidity and Interest Rate risks. respectively. In the context of poor MIS. the traditional Gap analysis is considered as a suitable method to measure the Interest Rate Risk in the first 18 . A long-term impact of changing interest rates is on bank's Market Value of Equity (MVE) or Net Worth as the economic value of bank's assets. For measuring and managing net funding requirements. The immediate impact of changes in interest rates is on bank's earnings (i. The phased deregulation of interest rates and the operational flexibility given to banks in pricing most of the assets and liabilities imply the need for the banking system to hedge the Interest Rate Risk. The risk from the earnings perspective can be measured as changes in the Net Interest Income (NII) or Net Interest Margin (NIM). as liquidity shortfall in one institution can have repercussions on the entire system. Interest rate risk is the risk where changes in market interest rates might adversely affect a bank's financial condition. By assuring a bank's ability to meet its liabilities as they become due. The importance of liquidity transcends individual institutions.

that mature/reprice within a specified timeframe are interest rate sensitive. The difficult task in Gap analysis is determining rate sensitivity. assets and offbalance sheet positions into time buckets according to residual maturity or next repricing period. These assets and liabilities are repriced at pre-determined intervals and are rate sensitive at the time of repricing. All investments. advances. The interest rates on advances could be repriced any number of occasions. deposits. While the interest rates on term deposits are fixed during their currency. This includes final principal payment and interim installments. Chapter 2 Review of Literature and Research Methodology Review of Literature and Research Methodology: One of the major imperatives of the financial sector reforms has been to strengthen the banking sector by improving the financial health of banks through better capital adequacy and asset 19 . the advances portfolio of the banking system is basically floating. It is the intention of RBI to move over to the modern techniques of Interest Rate Risk measurement like Duration Gap Simulation and Value at Risk over time when banks acquire sufficient expertise and sophistication in acquiring and handling MIS. The Gap Report should be generated by grouping rate sensitive liabilities. Certain assets and liabilities receive/pay rates that vary with a reference rate. etc. corresponding to the changes in PLR. any principal repayment of loan is also rate sensitive if the bank expects to receive it within the time horizon. Similarly. purchased funds. whichever is earlier. borrowings.

managers can evaluate the impact of alternative decisions on the future risk profiles. These strategies are executed in the form of ALM practices.quality. According to him. ALM is basically a hedging response to the risk in financial intermediation with ALM in place. Many studies have been concluded in India and abroad to investigate the major structural changes in the field of banking and the relevance of ALM for commercial banks in marinating their interest spreads and profitability. Managing the spread income and controlling the risk associated with generating the spread are the crucial part of the ALM process for any Bank. The traditional phase of banks as near financial intermediaries has since altered and Risk management has emerged as the defining attribute. (2000) in the study. Ravi T. has discussed the ALM in different models. duration and risk profile of a bank’s assets and liabilities have an important impact on their growth and profitability. In this context the present chapter is an attempt to review the studies already done and draw some important conclusions that can serve as a guide mark for the study. 2. ”Asset Liability Management”. ALM involves quantification of risks and conscious decision making with regard to asset-liabilities structure in order to maximize interest earning within the framework of perceived risk. He concluded that intense competition for business on the Asset and Liability side coupled with increasing 20 .1 Review of Literature Kumar. With the initiation of the reforms banks were required to evolve strategies rather than ad-hoc fire fighting solutions. ALM is the only solution for the banks to survive in this rapid changing environment where the composition.

The Indian banks need to build on their strengths and reach the desired standards as soon as possible. A. “Issues in Asset Liability Management – III: More on Regulatory Framework”. According to them ALM focused on the net interest income of the institution. profitability and long term viability. He further concluded that to remain competitive Indian financial institutions can not afford to remain aloof and they should evolve necessary system for the adoption of ALM.volatility in both domestic interest rates and foreign exchange rates is putting pressure on the management of banks to maintain spreads. The study found that of the reserved money. relevant and sufficient disclosure of qualitative and quantitative information activities and risk profiles. To achieve transparency a bank must provide accurate. Rajwade. The study showed that deregulation of interest rates. Again RBI’s mechanism for implementing monitoring policy was undergoing changes and refinement. emphasized on the importance of ALM in the planning process. one will have to take a view of the exchange market demand supply in future and this was a very difficult exercise as it depended on many factors such as 21 . Vasant and Joshi. Vinay (2002) in the study. Joshi. “Managing Indian Banks: The Challenges Ahead”. as in a globally competitive environment. V. emphasized on different issues involved in ALM by bank and focused mainly on points arising from the regulatory framework. C. They concluded that bank should take some amount of risk on their asset liability management. around 72% came from holding of foreign currency reserves and around 28% from RBI holdings of government securities. (2002) in the study. the balance sheet must truly highlight the state of the bank’s health. C. The study concluded that fro predicting changes in interest rates. In the light of the recommendations of the Basel Committee. itself was a recent idea and that RBI had an inflation as well as exchange rate target or objective. The principal purpose of ALM has been to control the size of NII. but it should never be on interest rate predictions.

fixation of interest. (2002) in the study. They viewed that a sound ALM system for the bank should encompass review of interest rate outlook. F. review of credit portfolio and credit risk management of foreign exchange operations and management of liquidity risks. “Analysis of Income and Expenditure ion Banks”. 22 . T. Gurumoorthy.sentiment. attempted to analyze the income. revenue diversification initiatives. The objective of the study was to examine whether foreign banks. presented that banking sector reforms on one hand. and Kher. old private sector banks and public sector banks differ significantly in terms of their endowment and risk factors. other political or economic scenario. R. and to some extent. foreign banks. ALM exercised should comprise of prudential management of funds with respect to size and duration minimizing undesirable maturity mismatch to avoid liquidity problem and reducing the gap between risks sensitive assets and rate sensitive liabilities with the given risk taken capacity. “Profitability and Resource use Efficiency in Scheduled Commercial Banks in India: A Comparative Analysis of Foreign New Private Sector. “Asset Liability Management in the Indian Banks”. The study concluded that public sector banks were better endowed in their assets based share capital and share holders equity than most other types of banking institutions in the country. stressed on the objective and aspects of ALM in bank. (2003) in the study. product pricing of both assets and liabilities. strive to increase efficiency and profitability of banking institutions and on the other hand brought the existing banking institutions face to face with global competition. profitability and resource – use efficiency. (2004) in the study. R. on the broader aspects of risk management. which are beyond anybody’s control. old private sector banks and new private sector banks. Old Private Sector and Public Sector Banks”. new private sector banks. In the present context. M. expenditure and operating profit of public sector banks. Qamar. Sehgal.

“Asset Liability Management in Post Indian Banking Sector Reforms”. Simulation Method and Value at Risk Method. The study concluded that ALM has been proved of great use in curtailing NPA’s. project appraisal and recovery mechanism will help to earn the interest income substantially. without proper advance planning. In the study four principal approaches were used to quantify the risk i. The study found the slow pace of computerization was barring the progress of ALM in bank. (2004) in the study. Prasad. The study concluded that there was a need of ALM in India because to maximize income with acceptable risk there was need to emphasize on interest margin/spread. G. Delhi and Haryana. credit risk management. liquidity and capital which were having desired maneurability. M. In this competitive environment the efficient asset liability management. The study showed that process of Globalization has arrived in India. Gap Method. Thimmaiah. “Asset-Liability Management: An emerging trend in Banking Sector”. increasing profitability and facing competition with other banks. investment portfolio. focused on Asset Liability Management in the bank and to some extent on broader aspects of risk management. public sector banks and foreign banks. risk management and management of liquidity risk. followed by old private sector banks. The objective of the study was to review the interest rate. Duration Method. As far as operating profits are concerned the new private sector banks stand first.The new private sector banks have been in the stage of branch expansion and have spent for full fledged internet banking. Thus. the percentage rise in expenditure of the new private sector banks has been greater than that of the other banks. C. The study was based on secondary data and the period of the study was four years.e. The study selected the Nainital Bank Limited as sample which has rendered its services in four states – Uttaranchal. presented the role and importance of asset-liability management in commercial banks. (2005) in the study. This study suggested that the 23 . credit portfolio. Uttar Pradesh. L and Pande.

and Kulkarni. R. They suggested that Bank should diversify the portfolio suitably between the small and large borrowers as this will help in reducing risks. For this Indian Banks need to reorient their credit deployment strategies. He concluded that the financial system has to cope constantly with changes in the broader environment in which it operates and face new challenges that those developments impose on it. yields and risk exposures. “Understanding Risks in Banking: A Note”. S. “Risk Management – An Overview”. cost.commercial banks should improve their Management Information System as per the needs of ALM. (2005) in the study. Bank should think in terms of loan exposures to different regions in the country. discussed the implication of Basel-II Accord on the capital structure of banks. A. (2006) in the study. emphasized that Assets Liability Management should ensure a proper balance between funds mobilization and their deployment with respect to their maturity profiles. R. both geographically and industry-wise which helps them to reduce the portfolio risk of credit. Sharma. “Asset Liability Management Approach in Indian Banks: A Review and Suggestions”. endeavored to discuss the important concepts in tasks management as applicable to banks against the backdrop of Basel-II. capital requirements will increase for those banks that hold high risk assets/ low quality assets and those with low risk assets (high quality assets). It is highly essential to look at credit deployment in terms of managing credit portfolio and its diversification. Bank should withdraw their exposure to sunset industries as their loans may turn into NPA’s. The purpose of Basel-II is to introduce a more risk sensitive capital framework with incentives for good risk management practices. Raghavan. (2007) in the study. a balanced portfolio as well as effective risk management control systems may need less capital requirements. Under Basel-II approach. P. K. Bhasin. The article aims to develop a basic understanding on major risks surrounding a bank institution as also the more 24 .

The period of the study was from 2001-05. K.popular means of managing them. statistical tables relating to banks in India and from RBI bulletins and from Annual Reports. The study compared the observed Banks in terms of total factor productivity growth for the study period. infrastructure and instruments. R. emphasized that banks exerted influence on economic growth and profit was main cause of business. This was probably the reason for negative total factor productivity growth exhibited by them during the observed years. and Kapoor. The observed private sector banks exhibited higher mean technical efficiency relative to the observed public sector banks. The data for the study was collected from IBA Bulletins annual issues and monthly issues.tried to make an asset quality based ranking of selected (28) Indian commercial Banks. The study also showed that if the domestic financial resources of the country were properly channelized towards productive investment then the economy of that country could be fully developed. P. The study concluded that both types of banks were focusing their attention on fee-based activities as opposed to fund based activities. The study analyzed the performance of various private sector banks. The study used data Envelopment Analysis – a Non-Parametric Tool. The study concluded that evaluation of banks in terms of 25 . She concluded that risk management calls for consolidating on the techniques and structures already built rather than going haphazardly for new techniques as effort have been made already to create an environment for all market participants in terms of regulation. Sinha (2007) in the study entitled “Asset Quality Based Ranking of Indian Commercial Bank – a Non-Parametric Approach” . Batra. “Profitability Analysis of New Private Sectors Bank in India”. The study found that the exercise indicated improvement in technical efficiency scores in 2004-05 related to the previous four years. The objective of the study was to evaluate profitability of new private sector banks and to analyze their relative efficiency in India. R. (2008) in the study. The period of the study was five years from 2000-01 to 2005-06. N.

1 Need of the Study: Now a days. The uncertainty of interest rate movements gave rise to interest rate risk. The present study aims to analyze the importance of ALM for banks and its impact on the profitability performance of ICICI bank.profitability was very essential because with the help of profits a business could be flourished to the maximum extent which was the due need for the existence of Business. 2. came liquidity risk and credit risk as interest components of risks for banks. In this context. There is a need to study the various aspects of ALM that directly affect profitability because commercial viability is essential for the existence and growth of banks. The recognition of these risks has brought ALM to the center stage of financial intermediation. Management of net interest is one of the most important means of earning of banks. The choice of asset’s portfolio of banks is expected to be influenced by the kinds of liabilities held by them and vice versa. 1999. Banks are now operating in a fairly deregulated environment and are required to determine on their own.2 Objective of the study: 26 . the ALM has attained tremendous importance in the banking sector. With the RBI framing up a regulatory framework to monitor the ALM from March 31.2 Research Methodology 2. the bank has to identify its assets and liability structure which is not only compatible but also capable to generate net interest revenue that helps is attaining the earning’s objective. Managing the spread income and controlling the risk associated with generating the spread is a vital area of ALM. the Indian banking sector is waking up to the concept of ALM. thereby causing banks to look for processes to manage their risks. interest rate on deposits and advances on a dynamic basis. as it requires simultaneous decisions and maturity structure of the institution.2.2. 2. In the wake of interest rate risk.

The compound annual growth rate is calculated by taking the nth root of the total percentage growth rate. 2. The secondary data has been collected from various sources i. This can be written as follows: 27 . You can think of Compound Annual Growth Rate as a way to smooth out the returns. • To analyse the profitability of the bank. where n is the number of years in the period being considered. The period of the study is from 2003-2004 to 2007-2008.e RBI bulletins. • To suggest the future strategies for assets and liabilities for ICICI bank. IBA bulletins. website of ICICI bank etc.2. It's an imaginary number that describes the rate at which an investment would have grown if it grew at a steady rate. trends & progress of banking sector in India.3 Methodology The study covers ICICI bank. • To study the extent to which the ICICI bank has efficiently managed their assets and liabilities during the period under study.The specific objectives are: • To analyze the growth and performance of ICICI bank. economic surveys. The study is based on secondary data. • To examine the loan portfolio management of the bank. The various methods used are: • Compound Growth Rate: Compound Annual Growth Rate isn't the actual return in reality.

For example. at which a variable grows adjusted for compounding. Financial analysts frequently use historical and projected compound growth rates in analyzing earnings. and dividends. • Trend Analysis: Trend means any general tendency. They help in making horizontal analysis of comparative statements. It reflects the behavior of items over a period of time. sales. It is done to know the trend of available financial institutions. “The term accounting ratio is used to describe significant relationship which exist between figures shown in the balance sheet in a profit and loss account. various trend ratios of different items are calculated for various periods for comparison purpose. Batty. • Ratio Analysis: According to J. 28 . the $100 would earn $7 per year and grow to only $170.The percentage rate. The trend ratios are the index numbers of the movement of reported financial items in the financial statements which are calculated for more than one year. generally stated on an annual basis. a 7% compound growth rate for ten years results in $100 growing to slightly less than $200. For trend analysis. Without compounding. It has major importance in interpretation of financial statements. in a budgetary control system or in any other part of the accounting organization”. It gives information about increase or decrease in the ratios of the data. Analysis of these is called trend analysis.

2. After it ALM System in Banks – RBI guidelines are explained in detail. Market Risk and Operational Risk are discussed.4 Limitations 1. 2.2. In such a case. 29 . the study carries all the limitations inherent with the secondary data.5 Chapter Scheme Chapter 1: Introduction Introduction of Indian Banking System is introduced and then Structure of Banking Sector is discussed. The financial information collected for the present study is entirely secondary in nature. It is used to know inter relationship among figures appearing in the financial statements and to analyze the past performance and to make further projections. Concept of ALM and ALM objectives are discussed in detail. The following are the ratios:  Asset Management Ratios  Liability Management Ratios  Liquidity Ratios  Burden Ratios  Spread Ratios  Profitability Ratios 2. Then is Risk Management and ALM in which Credit Risk. Scope of the study is limited due to the constraint of time and research.The study and interpretation of the relationships between various financial variables by investors or lenders. 2. Ratios are regarded as the true test of earning capacity. financial soundness and operating efficiency of a business organization.

methodology. Saving Bank Deposit. Net Interest Margin.Chapter 2: Review Methodology of Literature and Research This chapter has details of all the literature reviewed and then the research methodology in which rationale of study. first of all ICICI bank’s profile is written and then is information about its subsidiaries with major subsidiaries explained. After that Priority Sector Advances. Deposit Mobilization and Investment are discussed. Then credit deposit ratio. scope and need and limitations are discussed. Deposits are discussed. Loans and Advances. Non-Interest Income and then at then end conclusions from the study of above ratios is discussed Chapter 4: Assets Management of ICICI Bank First of Assets Management is introduced and then in the areas of assets management. Measuring and Managing Liquidity Risk and then at the ends final conclusions from the above study. Fixed Deposit/ Term Deposit. Chapter 6: Profitability Analysis of ICICI Bank In this first of all profitability trends are introduced and then trends in various ratios are discussed. Reserve Position Management. Reserves and Surplus. Liquidity Management. Chapter 3: Overview & Performance of ICICI Bank In this chapter. Investment Management. 30 . Capital. At the end again conclusions made from the study of above ratios are given. objectives of study. Demand Deposit. Chapter 5: Liabilities Management of ICICI Bank In this after introducing Liabilities Management. Borrowings and other Liabilities and Provisions are explained in detail. In deposits. Trends in Income.

Burden Ratios and Net Profit are discussed. Again conclusion at the end. Chapter 7: Loan Portfolio Management of ICICI Bank In this Loan Portfolio Management is introduced and its objectives are discussed.Expenditure. Bibliography 31 . Spread Ratios. Chapter 8: Findings and Suggestions This includes various findings of the study done for the span of five years for ICICI bank and then the list of suggestions made. Then various types of loan are talked about extending to the constituents of Loan Portfolio of Banks and then the final conclusions discussing about the interpretations made from the above study.

Chapter 3 Overview and Performance of ICICI Bank 32 .

ICICI Bank currently has subsidiaries in the United Kingdom. United Arab Emirates. ICICI bank acquired Bank of Madura Limited. 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. In the 1990s. China. The objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. The Bank has a network of about 573 branches and extension counters and over 2. Bangladesh and South Africa. 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 specialized subsidiaries and affiliates in the 33 . ICICI was formed in 1955 at the initiative of the World Bank. 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.000 ATMs. ICICI Bank was originally promoted in 1994 by ICICI Limited. Canada and Russia. both directly and through a number of subsidiaries and affiliates like ICICI Bank.1 Brief Profile of ICICI Bank ICICI Bank is India's second-largest bank. and was its wholly-owned subsidiary. branches in Singapore and Bahrain and representative offices in the United States. the Government of India and representatives of Indian industry. ICICI become the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE. In 1999.3. In 2001. an Indian financial institution. Today.

ICICI Bank concluded India's largest ever securitization transaction of a pool of retail loan assets aggregating to Rs. 34 . A low-cost solution. a pioneering initiative to encourage the contribution of Small and Medium Enterprises to the growth of Indian economy. Also Bank enters Germany. In 2005. In 2007 it introduced a new product . ICICI Bank became the largest retail player in the market to introduce a biometric enabled smart card that allow banking transactions to be conducted on the field. opens its first branch in Frankfurt. In 2008 the major initiative taken is that ICICI Bank enters US.'NRI smart save Deposits' – a unique fixed deposit scheme for nonresident Indians. launches its first branch in New York.areas of investment banking. ICICI Bank subsidiary set up in Russia. It is also the largest deal in Asia (ex-Japan) in 2008 till date and the second largest deal in Asia (ex-Japan & Australia) since the beginning of 2007. ICICI Bank introduced the concept of floating rate for home loans in India. Representative offices opened in Thailand. 48. training and promoting the micro-finance clients and ICICI Bank would finance the clients directly on the recommendation of the MFI. The MFI would undertake the promotional role of identifying.m. financial planning and debt management services.21 billion) in a multi-tranche issue backed by four different asset categories. Indonesia and Malaysia. First rural branch and ATM launched in Uttar Pradesh at Delpandarwa. life and non-life insurance. ICICI Bank launched iMobile. ICICI Bank became the first private entity in India to offer a discount to retail investors for its follow-up offer. In 2006. Financial counseling centre Disha launched.m. this became an effective delivery option for ICICI Bank's micro finance institution partners.96 billion (equivalent of USD 1. from Monday to Saturday. ICICI Bank introduced partnership model wherein ICICI Bank would forge an alliance with existing micro finance institutions (MFIs). venture capital and asset management. a breakthrough innovation in banking where practically all internet banking transactions can now be simply done on mobile phones. ICICI Bank introduced 8-8 Banking wherein all the branches of the Bank would remain open from 8a. Bank became the first Indian bank to issue hybrid Tier-1 perpetual debt in the international markets. to 8 p. Bank and CNBC TV 18 announced India's first ever awards recognising the achievements of SMEs. Disha provides free credit counseling. ICICI Bank opened its 500th branch in India.

Subsidiaries of the ICICI Bank are: Following are the subsidiaries of ICICI: • • • • • • • • • • ICICI Personal Financial Services Limited ICICI Capital Services Limited ICICI Prudential Life Insurance Company ICICI Bank UK. the company’s unaudited New Business Profit (NBP) for fiscal 35 . Hong Kong. 10. In 2004.84 billion in fiscal 2008. in view of business set-up and customer acquisition costs in the initial years as well as reserving for actuarial liability.Hardoi. "Free for Life" credit cards launched wherein annual fees of all ICICI Bank Credit Cards were waived off. Mobile banking service in India launched in association with Reliance Infocomm. Sri Lanka.3% from Rs.7% in the overall industry in fiscal 2008 (on weighted received premium basis) as against 9. 39. Lombard ICICI Securities ICICI Capital Services ICICI Web Trade ICICI Personal Finance Major Subsidiaries are: ICICI Prudential Life Insurance Company ICICI Prudential Life Insurance Company (ICICI Life) continued to maintain its market leadership among private sector life insurance companies with a retail market share of about 12.1% in fiscal 2007. introduced. Russia. Kisaan Loan Card and innovative. ICICI Life’s new business premium (on weighted received premium basis) grew by 68. India's first multi-branded credit card with HPCL and Airtel launched. Bahrain.71 billion in fiscal 2007 to Rs. branches in US. the Max Money. Qatar Dubai International Finance Centre ICICI General Insurance Company. While the growing operations of ICICI Life had a negative impact of Rs. Singapore.31 billion on the Bank’s consolidated profit after tax in fiscal 2008 on account of the above reasons. 66. Life insurance companies worldwide make losses in the initial years. a home loan product that offers the dual benefit of higher eligibility and affordability to a customer. Canada. low-cost ATMs in rural India launched.

At the end of the year.4% from Rs. 0. all insurance companies are required to cede 100% of premiums collected and claims incurred for this segment to the pool.55 billion for March 2008. 543. on account of the new business based on standard assumptions of mortality. The industry also witnessed the formation of the motor third party insurance pool for third party insurance of commercial vehicles. 12.54 billion as compared to Rs. 30.5% over fiscal 2007. all sourcing expenses related to the policy. ICICI AMC achieved a profit after tax of Rs. 33. 8. It is measured as the present value of all the future profits for the shareholders. a growth of 50. ICICI General achieved a profit after tax of Rs.53 billion on the profit of ICICI General. Accordingly. the results of the pool are shared by all insurance companies in proportion to their overall market share in the industry.03 billion in fiscal 2007 to Rs.7% over fiscal 2007. The industry witnessed a slowdown in growth on account of detariffication of the general insurance industry whereby insurance premiums were freed from price controls.8% among private sector general insurance companies and an overall market share of about 11. resulting in a significant reduction in premium rates.81 billion in fiscal 2007. with 36 . on origination of a policy. ICICI Lombard General Insurance Company ICICI Lombard General Insurance Company (ICICI General) enhanced its leadership position with a market share of 29. NBP is a metric for the economic value of the new business written during a defined period. 1. 0. ICICI General’s gross written premium (excluding share of motor third party insurance pool) grew by 11.2008 was Rs. expenses and other parameters. Actual experience could differ based on variance from these assumptions especially in respect of expense overruns in the initial years. ICICI Venture Funds Management Company Limited ICICI Venture Funds Management Company Limited (ICICI Venture) strengthened its leadership position in private equity in India. ICICI Prudential Asset Management Company ICICI Prudential Asset Management Company (ICICI AMC) was the second largest asset management company in India with average assets under management of Rs.03 billion in fiscal 2008.82 billion in fiscal 2008. a growth of 69.45 billion in fiscal 2008. ICICI General is also required to expense upfront. The motor third party pool had a negative impact of Rs.9% during fiscal 2008.

As per the financial statement of ICICI bank for the year ended 200708 ICICI Bank’s credit ratings by various credit rating agencies at March 31. 0.180 million at March 31. 2008.4% from US$ 4.2% from US$ 2. ICICI Bank Canada’s total assets increased by 92.829 million at March 31.7% from US$ 1. 95. 2007 to US$ 8. ICICI Securities Limited and ICICI Securities Primary Dealership Limited The securities and primary dealership business of the ICICI group have been reorganised. ICICI Bank UK’s profit after tax was US$ 38. ICICI Securities achieved a profit after tax of Rs. ICICI Bank Canada ICICI Bank Canada is a full-service direct bank established in Canada as a wholly-owned subsidiary of ICICI Bank. 2008. investment. 1. ICICI Bank Canada recorded a net loss of US$ 14. 2008 are given below: 37 .3 million during fiscal 2008.40 billion. 2007 to US$ 3.812 million at March 31. treasury and trade requirements. 2007 to US$ 3. after taking into account investment valuation charges.90 billion in fiscal 2008 compared to Rs. ICICI Brokerage Services Limited has been renamed as ICICI Securities Limited and has become a direct subsidiary of ICICI Bank. corporate.funds under management of about Rs.868 million at March 31. 2007 to US$ 5. 2008. ICICI Bank UK PLC ICICI Bank UK PLC (ICICI Bank UK) is a full-service bank offering retail and corporate and investment banking services in the UK and Europe. 0. ICICI Securities Limited has been renamed as ICICI Securities Primary Dealership Limited. 2008 while total deposits grew by 84.4 million during fiscal 2008 after taking into account investment valuation charges. and offers a wide range of financial solutions to cater to personal.191 million at March 31.796 million at March 31.50 billion and ICICI Securities Primary Dealership achieved a profit after tax of Rs. commercial. ICICI Venture achieved a profit after tax of Rs.3% from US$ 2.70 billion in fiscal 2007. 1.50 billion at year-end fiscal 2008. Total deposits increased by 77.849 million at March 31. in fiscal 2008.002 million at March 31. ICICI Bank UK’s total assets increased by 81.

59 -----95.4.03 . It is a measure of utilization of resources by banks and has a direct bearing on the size and the loan portfolio.82% 38 . are influenced by the structural transformation of the economy. Although the deployment of credit and time pass of Credit Deposit ratio in general.803 90.6. This ratio indicates the bank aggressiveness to improve income.15 90.Agency Moody’s Investor Service (Moody’s) Standard & Poor’s (S&P) Credit Analysis & Research Limited (CARE) Investment Information and Credit Rating Agency (ICRA) CRISIL Limited Japan Credit Rating Agency (JCRA) Rating Baa2 BBBCARE AAA AAA AAA BBB+ 3.73 Compounded Growth Rate (CGR)= -0.97 85. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Credit Deposit Ratio % Inc/Dec to prev.61 .76 6.35 0. (%) Year 94.2 Credit Deposit Ratio Credit Deposit Ratio indicates the total advances as a percentage of total deposits.

562. 3. for different types of borrowers.31% Positive value of CGR says about the increase in loans and advances over the last five years of study but after 2005-06 the increment rate has declined.71 1.099. Lending an investment operations of a bank are influenced by the magnitude of deposits. while the remainder is in the form of cash and other assets. 3. cash credit. for the fact that equity capital invested in a bank is very insignificant part of the total funds of the bank.202 62.514.562 49.CGR is negative.413 35. It includes working capital and term finance.603.3 Loans and Advances Loans and Advances represent that part of customer deposit which the bank considers may be safely lent. which shows that credit deposit ratio has decreased over the period of study and the above table depicts the same.28 2.693 18.4 Deposit Mobilization Deposits constitute a vital source of funds in a bank which places an almost exclusive reliance on public deposits for its operations.958.113.994. Deposits expansion of the banking system can only be done by co39 .92 Compounded Growth Rate (CGR)= 31. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Loans and Advances (Rs % Inc/Dec to prev.016. letter of credit and bill finance. in ‘000s) Year 643.205 -----964. various forms of bank lending by way of loans (demand loans and term loans) and advances over drafts.07 2.

Classification of investments given in schedule VI:There are three categories: (a) (b) Government Securities Share Debenture and Bonds (c)Immovable properties 40 .486.41 Compounded Growth Rate (CGR)= 32.16 11.509.832.830 2.51 70.312 in % Inc/Dec to prev.330 2. Various types of deposits from public. Year -----48.56 44. banks and another financial institutions are: (a) (b) Demand Deposits Saving Bank Deposits (c)Fixed Deposits Year 2003-04 2004-05 2005-06 2006-07 2007-08 Deposits (Rs ‘000s) 680.273 1.011.operation of all banks and by a willingness on the part of monetary and fiscal authorities to permit such expansion by making additional reserves available.5 Investments Investment is the sacrifice of the certain present value for (possibly uncertain) future value.086.724.334 1.769. 3. there management devised various schemes of deposit mobilization and started providing many facilities to their depositors and the table shows the same.40% CGR shows a favorable response to social obligation.787.136.

The principal objective of investment by a commercial bank is to maximize earnings and to keep the funds liquid and safe. Banks invests in Indian securities as well as foreign securities. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Investments (Rs in % share in % Inc/Dec to ‘000s) total assets prev. Yr (Investments) 455,747,851 34.85 -----546,527,266 30.63 19.91 840,138,822 30.30 53.72 1,206,166,898 30.58 43.56 1,600,467,579 32.95 32.69

Compounded Growth Rate (CGR)= 28.55% CGR is positive showing that investments has increased over the period of study but in the last three years, the rate of increment has decline. Still as a whole, CGR has increased over the total span of five years.

3.7 Priority Sector advances
Priority sector advances is an important element of social banking. It is an advances given by bank to the priority sectors which requires development. If bank fail to meet priority sector lending target through direct lending the bank can invest the shortfall amount. Year 200304 200405 200506 200607 200708 Priority Sector Advances (Rs in ‘000s) 145,307,396 215,591,362 447,310,487 555,491,571 606,025,758 % share total advances 22.56 22.36 28.62 26.27 24.10 in % Inc/Dec to prev. Yr. (Priority Sector Advances) -----48.36 107.48 24.18 9.09


Compounded Growth Rate (CGR)= 33.05% CGR is positive. Thus ICICI has started giving more advances to priority sector but the increment rate has declined over the years and the table also depicts the rising trend.

Net Interest Margin (NIM)

NIM is defined as net interest income divided by average total assets. Net interest margin can be viewed as the ‘spread’ on earning assets. The net income of banks comes mostly from the spreads maintained between total interest income and total interest expense. The higher the spread the more will be the NIM. There exists a direct correlation between risks & return. As a result, greater spreads only imply enhanced risk exposure. But since any business is conducted with the objective of making profits & achieving higher profitability is the target, it is the management of risks that holds key to success & not risk elimination.

Year 2003-04 2004-05 2005-06 2006-07 2007-08

NIM (%) 1.8 2.4 2.4 2.6 2.2

% Inc/Dec to prev. Year -----33.33 0.0 8.33 - 15.38

Compounded Growth Rate (CGR)= 4.09%


Increase in NIM reflects that spread in earning assets has increased over the period of study. Positive CGR says about this and table above too depicts the same.


Non Interest Income

It is also known as fee based income and it has become an important source of income for banks. NII consists of income from commission, exchange and brokerage transaction and other miscellaneous incomes. This stream of revenue is not dependent on the banks. Capital adequacy and consequently, potential to increase this transaction is vast.

Year 2003-04 2004-05 2005-06 2006-07 2007-08

NII (Rs in ‘000s) 45,530,184 70,971,868 111,469,028 163,625,427 259,581,255

% Inc/Dec to prev. Year -----55.87 57.00 46.70 58.64

Compounded Growth Rate (CGR)= 41.64%

CGR is positive and is quite high too which shows a large increase in NII for the bank. This shows that over the past five years noninterest income has increased manifold for the bank and this is clear from the table too.


2. 44 . 4. Deposits shows a favorable response to social obligation. there management devised various schemes of deposit mobilization and started providing many facilities to their depositors. In the recent years. Greater orientation towards investment activities and a aversion to credit risk exposure have deterred banks from undertaking their core functions of providing loans and advances. risk arising out of traditional banking business are on increase and the net interest margin over the period under study is almost at steady rate. 5. market risks associated with the holding of securities has increased. 6. Due to the liberalization and reluctant competition and soft interest rates prevalent in the Indian economy.Conclusions: 1. 3. Loans and Advances: It represent that part of the customer deposit which the bank considers may be safely lent and it shows an increment till 2005-06 and it declines thereafter. Credit Deposit Ratio: It shows the utilization of resources by the bank and has a direct bearing on the size and the loan portfolio. It shows a declining trend which is a matter of concern for the bank. Bank lending policy have an inherent in the size of the ratio. so greater awareness is required while extending loans.

Chapter 4 Assets Management of ICICI Bank 45 .

equity and commodity price risks of a 46 . interest rates. Banks need to address these risks in a structured manner by upgrading their risk management and adopting more comprehensive ALM practices than has been done earlier.Assets Management: While a bank’s asset can be conceptually subdivided into components such as reserves. management policies and decisions should serve to identify and measure the inter-relationships among these elements. investments and loans. In managing its liquidity position a bank is confronted by a trade off between liquidity and profitability. 1999. 10. issued to all scheduled commercial banks. and foreign exchange. As per RBI guidelines. dated Feb. Pierce also questions the traditional measures in view of new techniques by which banks can affect their liquidity – particularly by means of endogenous deposit determination. Recent changes in the structure of bank assets and liabilities place doubt on the significance of traditional liquidity ratios. He suggests that an appropriate concept of liquidity must consider the time dimension involved in selling an asset and demonstrates that the liquidity decision is closely linked to the loansupply function of banks. Because liquid assets often provide zero or low return. According to a article by James L. ALM is also concerned with risk management and provides a comprehensive and dynamic framework for measuring monitoring and managing liquidity. The decisions concerning loan and investment strategies are closely linked to management of bank’s liquidity position and the other element such as the structure and variability of deposits. Mismatch of assets and liabilities is the cause of many risks. capital structure and international operations also are seen to be interrelated with effective asset management. bank manager must constantly analyze the opportunity cost involved in not reducing liquid assets and increasing high yielding assets.

overdrafts and loans repayable on demand Term loans Bills purchased and discounted Secured/unsecured advances Secured by tangible assets Covered by bank/government guarantees Unsecured advances • Fixed assets • Other assets Inter . The focus of the Asset Liability Management should be on the profitability and long term operating adjustments Interest accrued Tax paid in advance/tax deducted at source Stationary and stamps 47 . Components of Assets are: • Cash and balance with RBI Cash in hand Balance with RBI Balances with notice banks and money at call and short • Investments • Advances Cash credits.

(A) Primary reserves: Primary reserves are those non-earning assets of commercial banks made uoto cash or its equivalent. From the liquidity point of view/the primary reserves plays the role of first dayto-day business needs but to comply with the obligation imposed on it by law. Originally.1 Legal reserves The legal reserves represent that portion of the primary reserve which the law requires a bank to maintain. 48 . The objective of primary reserves is to maintain liquidity and solvency. balance with central bank and demand deposits with other banks. The primary objective of reserve position management is minimizing risks & maximizing returns by achieving an optimum risk reward ratio. It consists of cash in hand.1 AREAS OF ASSET MANAGEMENT  Reserve position management  Investment management  Liquidity management 4.- Non – banking assets acquired in satisfaction of claims others 4. legal reserve requirements were expected to compel commercial banks to maintain prudent standards of liquidity which would enable them to meet the withdrawals of deposits in cash. These reserves are computed on the basis of average deposits outstanding on the bank’s books over the short periods (one or two weeks).1. The primary reserves divided into two categories: Legal reserves Working reserves A.1 Reserve position management Reserve position management is based on the statutory requirements along with maintenance of working reserves for operational needs.

The primary function of legal reserve is to serve as a potent control tool in the hands of central banking authority to affect the supply of money. By changing the reserve requirements. satisfy the credit needs of the community.2 Working Reserve Since the legal reserve cannot be depended upon for overcoming ‘’illiquidity’’ crises. & provide protection against unforeseen withdrawals. It is now generally recognized that the legal reserve does not serve as a safty fund to protect banks against the hazards of liquidity. How much of its total deposit liabilities should be held in the form of working reserve is a basic problem which confronts a commercial bank because it involves a trade off between liquidity & profitability. This excess cash reserves held by the banks to fulfill day-to-day business requirements is designated as working reserve. A. commercial banks have to carry cash reserves in excess of the legal minimum reserve to meet the depositors’ claims. and Excess reserve with central bank The principal function of the working reserve is to take care of both regular & exceptional requirements. It consists of : Cash in their own vaults. 49 . the central bank can regulate the magnitude of credit. Demand deposits with other banks.Through the years the above conception of legal reserves has changed. (a) Cash & balance with RBI in current account: It has shown the steady increase in it and it is clear from the table. (b) Balance with other banks in current account: Again the continuous increase in this year by year says about the victory path of ICICI bank. (c)Primary reserves as % of total deposits: This shows the declining trend up to 2005-06 and then it is increasing till 2007-08.

99 5. The shift ability of asset is possible if there is a ready market for it.712 57.407. The principal objective of holding the secondary reserves is to impart adequate liquidity to funds without adversely affecting the profitability of a bank. But it should be 50 .62 ------15. Apart from the high degree of shift ability.953.78 -25.886 12.92 Compounded Growth Rate (Primary Reserves as percentage of Total Reserves)=5.732.632 25.36 37.966.909.Year 200304 200405 200506 200607 200708 Cash & balance with RBI in current account 49.021 Primary % inc. are highly liquid. (B) Secondary Reserves: The aggregate of highly liquid earning assets is designated as the secondary reserves in banking circles.30 6.292.7 10.259.19 7. therefore. an asset must be free from the money rate risk.925 28.346 12. low risk & yield can be included in the secondary reserves. year deposits 8.662 265. Only such assets as fulfill the three conditions of shift ability.103 77.613.235. / reserves as dec. to % of total prev. It must.75 48. comprise such assets as yield some income to the bank and at the same time.394 Balance with other banks in current account 6. Secondary reserve assets must yield income.05% CGR is positive which shows that primary reserves as percentage of total reserves has increased in the past five years but the increase was not continuous as it declined for the first three years and then increased thereafter.488 166.353.the risk arising out of fluctuation in security prices due to variations in interest rate.

23 8 458.91 11.243.emphasized.9 59 Bill discount ed & purchase d Cash Gov.593.3 3 % inc/ dec to the prev yr -----9.035.6 1 62.05 6 335.9 7 51 18. as % of Tota l Dep.2 1 56.299.0 4 49.43 0 107. 64.115.5 25 27.57 6 123. for the sake of income the liquidity attribute should not be foregone.267.9 60 33.6 12 360.66 7 41.681.344.750.916. securitie overdraf s t & loans payable on demand 61.0 77 334.4 59 68.896.00 9 68. The income factor has to receive secondary emphasis while choosing assets for the secondary reserves.254. Constituents are: • Call loans to stock brokers & commercial banks • Short term loans to commercial banks • Short term loans secured against self liquidating assets for blue chips • Investment in treasury bill • Promissory notes to short period maturity • Discounting of usance bills eligible for rediscounting from the RBI • Short period debentures of company with an unimpeachable credit standing.34 4 .8 38 538.32 -9.7 76 717.534. credit. bonds res.9 58 Deb and Sec.995.7 13 56.150.781.809.551. Year 200304 200405 200506 200607 Money at call & short notice & balance with banks 4.8 57 71.554.8 82 318.4 10 258.868.

It includes gilt edged securities & stock exchange securities as well as the shares & bonds of highly reputed companies.458. Year Govt. The principal objective of investment by a commercial bank is to maximize earnings & to keep the funds liquid & safe.903. Investment is then.450.1 5 1.07% CGR is negative and the position of the secondary reserve is different and secondary reserves are more than the primary reserves and the tables shows the declining trend till 2007-08 and small increase in 2007-08.2 Investment management The foremost concern of a bank is to ensure its liquidity by maintaining adequate primary & secondary reserves.0 70 43 49. Classification of investment portfolio is: • Government securities • Approved securities • Shares • Debentures & bonds • Subsidiaries/or joint ventures • Other investments. % Securitie inc/dec Other Approv % inc/dec Shares % inc/dec 52 . As a matter of fact security investment is supposed to act as the third line of defense & to replenish the secondary reserves to meet the unexpected withdrawals of deposit & usual loan demands.03 2 50.447. residual in nature.1.03 3 351. 4.6 827.7 84 68.995.66 Compounded growth rate (Sec Res as % of Total Deposits) (CGR)= -6.200708 91.

82% Compounded Growth Rate (Deb.349 11. 838 538.20 16.9 56 94 35.551.49 Compounded Growth Rate (Govt.88 32.90 97.027.74 38.7 36 13.0 ----42.53 356. 043 to prev ed to prev yr Securiti yr es ----301.829.155 ---- Compounded -20.681. and Bonds) (CGR)= -5.035.2 -20. 612 360.21 Year Deb and Bonds 200304 200405 200506 200607 200708 % Others inc/dec to prev yr 64.37 234.466.916.59 20.89 427.12 601 -99.447.1 78 33.08 318.9 36 49.895.11% Growth Rate (Other Approved Securities) (CGR)= Compounded Growth Rate (Shares) (CGR)= 9.7 17 26 to prev yr ---8.5 -46.115.61 56.893.95 5.473.29% Compounded Growth Rate (others) (CGR)= 53.738.83 40. 59 879 49.887.890 5.56 15. 38 281 45.38 97.4 64.95% 53 . Securities) (CGR)= 21.0 7.28 273. 776 717.02 118. 958 827.s 200304 200405 200506 200607 200708 318.896.418.450.946 16. 32 111 % inc/dec to prev yr ----179.491. 25 766 27.6 98 15. 47.

ratio(%) Year 66.87 48.90% CGR is negative which shows that the deposits have gone down.CGR for various investments over the period shows a positive trend accept other approved securities and debentures and bonds and the table proves the same.78 19. & the table verifies the same.71 -09. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Investment deposit % Inc/Dec to prev. • The variability of loan demands and variability of deposits determine bank’s liquidity needs.1.25 48.94 -----54.3 Liquidity Management • Banks need liquidity to meet deposit withdrawal and to fund loan demands.41 57. 4. • It demonstrates the market place that the bank is safe and therefore capable of repaying its borrowings.05 -19.It represents the ability to accommodate decreases in liability and to fund increases in assets. it can effect the operations of the bank & its expansion etc. 54 . Investment deposit ratio This ratio is commonly used indicator of the investment policy of the bank.10 Compounded Growth Rate (CGR)= -2.51 -0.

arises due to. • It lowers the size of the default risk premium the bank must pay for funds. • It enables bank to avoid the unprofitable sale of assets. • Funding Risk: Need to replace net outflows due to unanticipated withdrawal/non-renewal of deposits arises due to Fraud causing substantial loss • Systemic Risk • Loss of confidence • Liabilities in foreign currencies • Time Risk: Need to compensate for non-receipt of expected inflow of funds. Types of liquidity risk: -Funding Risk -Time Risk -Call Risk.• It enables bank to meet its prior loan commitments. • • Severe deterioration in the asset quality Standard assets turning into non-performing assets Temporary problems in recovery Time involved in managing liquidity • • • Call Risk: 55 .whether formal or informal.

97 -6. Year ------0.61 85.35 90. • Setting tolerance level and limit for liquidity risk. • • Conversion of non-fund based limit into fund based. Measuring and Managing Liquidity Risk • Developing a structure for managing liquidity risk. arises due to. Swaps and options. Year 2003-04 2004-05 2005-06 2006-07 Loan to ratio(%) 94. The following ratios are calculated to assess the liquidity position of the bank: (i) Loan to Deposit Ratio: This ratio indicates the degree of already used available resources by the bank to accommodate the credit needs of the customers. The portion of deposits invested in loan rises with the decline in liquidity. Stock Approach: Stock Approach is based on the level of assets and liabilities as well as off balance sheet exposures on a particular date.Crystallization of contingent liabilities and inability to undertake profitable business opportunities when desirable.15 56 .80 -4.59 95.03 deposit % Inc/Dec to prev.

00 -7.06 9. Year -----11.73 Compounded Growth Rate (CGR)= -0.63 6.82% CGR is negative and is a matter of great concern for the bank as it creates problem for the bank in providing loan to the outsiders and the table verifies the same.06 -13.76 62.58 10.31% CGR is positive but this increase is very small showing the fact that over the years there has been a slight increase in the 57 . Year 2003-04 2004-05 2005-06 2006-07 2007-08 Liquid asset/total asset (%) 6. balances with RBI and money at call in short notice are included under the category of cash and near cash assets (liquid assets).33 % Inc/Dec to prev.2007-08 90. (ii)Liquid Assets to Total Asset Ratio Cash in hand.87 7.76 6. The prudential limit for this ratio has been fixed at five percent.25 Compounded Growth Rate (CGR)= 6.

Year ------19. This ration is commonly used to measure the liquidity of bank.75 23.83 % Inc/Dec to prev.1. Reserve position management: ICICI bank has less primary reserves in relation to deposits. branch adjustment. Current liabilities comprises of bills payable.41 Compounded Growth Rate (CGR)= 0.80 0. The table depicts the declining and rising trend alternatively over the period under study.78 0. (iii) Current Ratio Current assets consist of cash and near cash assets and government securities.81 0. The position in case of secondary 58 . 4. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Current Ratio 0. The table depicts the fluctuating trend over the period under study.49% CGR is positive but this increase is very small showing the fact that over the years current ratio has increased by a small amount only.07 -2. interest accrued and other provisions.4 Conclusions 1.liquid asset to total asset ratio.5 6.65 0.

reserve is different. 2. liquid asset to total asset ratio. increased at a declining rate. Chapter 5 Liabilities Management of ICICI Bank 59 . In general. bank has become cautious with regard to their assetliability mismatch. 3. showed that government securities form a major chunk of the investment portfolio. Liquidity Management: Various liquidity ratios have been calculated to ascertain the liquidity position of the ICICI bank like current ratio. The share of investment in deb. Investment Management: The investment portfolio of the ICICI bank. and bonds has decreased till 2005-06 and increased thereafter. The secondary reserve as percentage to total deposits. Bank has increased investment in shares and its subsidiaries etc. loan to deposit ratio etc.

The sources of funds for the lending and investment activities constitute the liabilities side of bank’s balance sheet. Thus. According to Basel study paper measuring and managing liquidity are the important activities of commercial banks. The liability management involves:(a) Choosing the sources of financing to be used. mismatches occur which can be dangerous for banks. Its purpose is to finance holdings of remunerative assets efficiently and profitably. that is choosing between deposit financing and non-deposit financing (b) Determining the amount of funds needed 60 . Often liabilities are accepted in advance of commitments. liquidity needs to be maintained to avoid the effect of assets liabilities mismatch as liquidity shortfall in a single institution can have re-percussion across the whole banking sector. whereby banks can ensure that they have the ability to meet their liabilities as they come due.Liabilities Management: Liability Management as it was called initially originated in USA and Canada in 70’s. At the time of maturity. such liabilities being deployed subsequently in the acquisition of remunerative assets.

From RBI .From other banks and institutions  Borrowings from outside India  Other Liabilities and Provisions  Bills Payable  Inter Office adjustments  Interest accrued  Others  Contingent Liabilities 5.(c)Obtaining funds at possible cost with the least risk exposure Constituents of Bank Liabilities  The sources of funds for the lending and investment activities constitute liabilities side of balance sheet.  Capital  Reserves and Surplus  Deposits    Demand Deposits Saving Deposits Term Deposits/ Fixed Deposits  Borrowings  Borrowings in India .1 Capital 61 .

43 62 .All Banks need capital and extend fixed assets and business investments.69 Adequacy % Inc/Dec to prev. Banks will have to show in their capital account the various classes of capital viz. Year -----13. to enable trading.77 13. particularly its security investment.61 13. to continue an increase and to maintain the confidence of depositors and to ensure viability in the face of loss arising from inevitable business and political fluctuation and uncertainty particularly in an inflationary climate.35 11. Year 2003-04 2004-05 2005-06 2006-07 Capital (%) 10.36 11. To provide these contingencies the bank must have an adequate capital fund.  Authorized  Issued  Subscribed  Called-Up The capital account will be represented by the paid up capital which will be arrived at after deducting calls and arrears and adding up the paid value of forfeited shares to the called-up capital. Trends in capital adequacy A number of criteria have been devised to determine capital adequacy.42 -12. A bank must have an adequate capital fund to cover the normal hazards inherent in its operations. It may have to incur unforeseen operational losses from time to time or there may be an unanticipated crash in the value of its assets.

06 63 .Share Premium -. Constituents of reserves and surplus:-.395. 5.Contingency Reserve -.199 115. Year -----61.Re-evaluation Reserve -.97 19.Investment fluctuation reserve -.Capital Reserve -.Revenue and other reserves -.012 213.Redemption Reserve -.477 Surplus % Inc/Dec to prev.06 8.General Reserve -.60 85.Statutory Reserve -.2007-08 13.Foreign Currency Translation Reserve Year 2003-04 2004-05 2005-06 2006-07 2007-08 Reserves and (Rs in 000’s) 71.519.945 436.02 89.50 Compounded Growth Rate (CGR)= 6. Adequacy needs to be attained by the bank at any cost.095.487 230. It compliment the capital of the bank and aid in meeting financial commitments of a commercial bank.376.656.2 Reserves and Surplus After the capital.16% CGR is positive and table above depicts capital adequacy ratio. the next item on the liability side of balance sheet of a bank is reserves and surplus.

easy transfer of funds and so on are some of the important attraction offered to the depositors. quarterly or yearly depends on the bank and scheme. 5. Interest is calculated on monthly. children education and marriage. low-risk investors. safety and liquidity. allowing old-age benefits. From the table. loan facility of deposits. Investor can withdraw the money only after the time period. Term deposits is a safe investment and it is therefore a very good option for conservative. trial of luck. Deposits are the vital source of funds for commercial banks which are used in rendering credit services to their customers. Premature withdrawals are also allowed by paying a penalty. Types of deposits: (i) Fixed Deposits/ Term Deposits: Under this scheme money is deposited for a fixed period of time so it is also called Fixed Deposit. incentive of percentage on interest. 64 . Many banks offers loan or overdraft facility as an added features with fixed deposits. Compound rates of interest. the benefit of life insurance cover.60% CGR is positive within the period.Compounded Growth Rate (CGR)= 43. the level of deposits depend primarily on the amount of credit extended by banks in the form of loans and advances.3 Deposits In the commercial banking system. Reserves and Surplus has increased which can help the bank in its expansion for increasing its profit.

828 64.448.48 71.438 1. Year -----48.418.974 107.396 1. Year 2003-04 2004-05 2005-06 Fixed Deposits 000’s) 50.198. Year -----27.092.98 44.749.44 6.625 (Rs in % Inc/Dec to prev.  Fixed Deposit from Banks: The table depicts the rising trend up to 2006-07 and slight decline in 2007-08.18 Compounded Growth Rate (CGR)= 31. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Fixed Deposits 000’s) 474.467.86 67.210. Fixed Deposit from Public: The table depicts a rising trend in the fixed deposit from public.226 704.195.998 (Rs in % Inc/Dec to prev.989.857. over the period under study.770 1.39% It shows the positive trend which is a good sign for the bank and in future bank should adopt such methods which can attract more and more deposits from public.11 65 .131.

Free Telephone Banking etc. (ii)Saving Bank Deposits: This is a kind of demand deposit with limited number of withdrawals during any specific period.722.91% CGR shows fixed deposits from banks has been increased over the past five years. If customer don’t maintain the minimum balance customer has to pay a penalty. Now saving account comes with many features like ATM and Debit Card.556 375. Prepaid mobile charging.36 -15.01 Compounded growth Rate (CGR)= 19.04 54. which can help them in their lending activities.05% CGR is positive and is a good sign for the bank and more and more efforts should be made to increase the same. Year -----39.672 125.571.337 37. Now banks also put some restriction on the minimum balance. Fund Transfer.405 Deposits % Inc/Dec to prev.044 537.246 116.330.089 242. Table finds the rising trend in the saving bank deposits from public and another institutions which is good for the bank. Cheque Book. Free Internet Banking with Bill Pay.22 Compounded growth rate (CGR)= 45.107.26 108.2006-07 2007-08 147.72 43.596. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Saving Bank (Rs in 000’s) 83. 66 .563. Savings Accounts provides principal security and a modest interest rate.024.

225 74.174 -----1.860 -----123. Bank is responsible to return the money on customer’s demand.44 209.492 28.114.353. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Demand Deposits (Rs in % Inc/Dec to prev.06 67 . 000’s) Year 1.799 31.41 Compounded growth rate (CGR)= 27.914.547 46.127 16.  Demand Deposit from Public: Table depicts the rising trend in the demand deposit from the public which helps the bank for lending activities and investment in other key areas.98% CGR is positive which is beneficial for the bank and bank should make such type of policies which attract more and more depositors.158. Investor can withdraw money at any time. Year 2003-04 2004-05 Demand Deposits (Rs in % Inc/Dec to prev.976.693.(iii) Demand Deposits: Here money is not deposited for a specific time period. This account allows you to demand your money at any time.28 159. 000’s) Year 71.75 244.097.  Demand Deposit from Banks: The following data depicts the rising trend in the demand deposits from other banks during the period under study.

(iv) Borrowings: These are of non-depository nature and are useful when a bank temporarily needs for funds then are being being deposited and experiences paucity of funds.23% CGR is positive which is a good sign for the bank and in future bank should follow such types of policies which further increase the demand deposits. has stopped approaching the RBI for borrowings which is clear from the given table.32 18.697. The borrowings can be from the following sources:  Borrowings from RBI: RBI is traditionally the “lender of last resort”.818 137. standby refinance against pledge of government securities in terms of mismatch between sources and uses of funds and discretionary refinance to tide over temporary financial stringencies during the busy season. export credit refinance.31 Compounded growth rate (CGR)= 33. ICICI bank over the years. The RBI usually provides such liquidity to the scheduled commercial banks by way of credit refinance.806.014 4. It provides liquidity to the banks when all other sources of funds have been exhausted.681. Year 2003-04 Borrowings (Rs in 000’s) ------ % Inc/Dec to prev. Year -----68 .63 2.2005-06 2006-07 2007-08 4.419 5.

2004-05 2005-06 2006-07 2007-08 ----------1.53% The borrowings from other banks shows a positive growth rate which means rising of borrowings from them. Year ----28.000 ------ --------------------- Compounded Growth Rate = NIL  Borrowings From Other Banks: In order to transact business.73 54.734 % Inc/Dec to prev. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Borrowings (Rs in 000’s) 36. The following table depicts the rising of borrowings from other banks upto the year 2006-07 but slightly declining trend in 2007-08.413.56 Compounded growth rate (CGR)= 14.605.551 73.752 78. quite frequently.545.138. banks in India.400.412 72.831.39 -7.073 47.  Borrowings From institutions and Agencies: 69 .25 7. open their current accounts with other banks in India and abroad at places where they are not represented and make overdraft arrangements with them on secured or unsecured basis.

999 56.633 49. Year ----81. the declining trend as bank does not rely only on institutions and agencies for borrowings. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Borrowings (Rs in 000’s) 62.241.444.312 41.52 61. EXIM.91 24. NABARD. .958 % Inc/Dec to prev. NHB and DFHI. The following data depicts. Year 2003-04 2004-05 2005-06 Borrowings (Rs in 000’s) 82.694 149. banks supplement their sources by refinancing or bill rediscounting facilities from many financial institutions: IDBI. The table depicts rising trend in all the five years of study.  Borrowings From outside India: ICICI bank also borrows from outside India.631 % Inc/Dec to prev.940 241.424.Apart from borrowings from RBI. It can accessed foreign capital as now FDI has been allowed upto 74%.23 Compounded growth rate (CGR)= -4.52% CGR is negative and thus contribution from institutions and agencies in borrowings has decreased in the last five years.682 40.870.37 70 . SIDBI.618.357.54 -26.884.46 -2. Year -----10.153.

traveler’s cheque.  Bills Payable: It includes drafts. compounded growth rate shows a rising trend. banker’s cheque and other miscellaneous items.2006-07 2007-08 437.845 33. Bills payable has increased up to 2006-07 but it showed a declining trend in 2007-08.02 49. interest accrued and others (including provisions).903 (Rs in % Inc/Dec to prev.412 27.944.957 29.476.  Interoffice Adjustments: 71 .62 19. Year ----65. mail transfers payable.413.04 Compounded growth rate (CGR)= 51.336. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Bills Payable 000’s) 16.872. calligraphic transfers.654 651.184 42. pay-slips.29 27. interoffice adjustments.245 81. therefore ICICI bank has been borrowing from outside India also. (v)Other Liabilities and Provisions: It includes bills payable.065.20% CGR shows that borrowing from outside India has increased over the span as too much dependence on single source may cause problem.05 Compounded growth rate (CGR)= 11.285.65% Over the period.41 -31.

186 64.419.52 Compounded growth rate (CGR)= 14. in 000’s) Year 3.167. The following data is not showing any definite trend.563.18 3. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Interoffice Adjustments (Rs % Inc/Dec to prev.72 -----100.486 -37.691.614.35 26.  Interest Accrued: The interest accrued but not due on deposits and borrowings.293.766 45.418. 72 . Interest accrued has increased significantly during the period under study i.99 14. 000’s) Year 13.000 8.e.496.53 21.233 ----13.408 26.780.The credit balance of the net interoffice adjustments. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Interest Accrued (Rs in % Inc/Dec to prev.493 -1.36% CGR regarding the interest accrued shows a positive trend which should also be considered by the bank.00 4.65% The growth rate of the interoffice adjustments during the period shows positive trend. of five years.337 ----5.542 ----Compounded growth rate (CGR)= 4.

78 168.087. its adequacy needs to be attained by the bank at all costs. with the introduction of Basel-II norms. Hence. Provisions has risen due to the introduction of asset classification and provisioning norms adopted by the bank during the period under study.803 62.096 31.88 Compounded growth rate (CGR)= 30.285.71% CGR is positive and it should be considered by the bank. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Provisions and Others (Rs % Inc/Dec to prev.56 129.4 Conclusions: Liability management has become a vital area of concern for banks today as assets have to be managed in tandem with liability for commercial banks.998.438 ----97. for which more capital has to be provided.144. Moreover. the following observations have been made:1.094. interest tax. in 000’s) Year 60. 73 .056 36. On the basis of the study undertaken with regard to the liabilities of ICICI bank. Capital is the most important constituent of the liability of the bank. Reserves and surplus compliment the capital of the bank and have risen significantly.16 230. tax deducted at source. Provisions and Others: All other liability items like provision for income tax. 2. 5. the operational risk has also come into focus along with credit risk and market risk. provisions etc.683 30.

Deposits from public provide the funds for lending to the bank. with the introduction of liberalized economy. All the types of deposits from public has increased significantly. has been allowed upto 74%. The deposits are the major sources of funds for banks. FDI has paved the way for generating funds 5. Bank has stopped approaching RBI for borrowings. 6. ICICI bank should access foreign capital as now FDI. 4. 7. Moreover. Interest accrued and provisions has increased due to the introduction of asset classification and provisioning norms adopted by ICICI bank as a result of economic reforms. bills payable have increased till 2006-07 and declined in 200708. It should borrow from other banks also as too much dependence on single source may cause problems in the long run. Among the other liabilities and provisions of bank. 74 . There is a need to open the branches in such areas where more deposits can be mobilized. 8.3.

Chapter 6 Profitability Analysis of ICICI Bank 75 .

However in the post nationalization era banks lost their commercial character and social banking concept and pushed motive to the background.Profitability Trends: Up to 1969. banking sector was in the hands of private operators and banks had been pursuing their commercial motive of augmenting their earnings. The reforms sought to improve the bank’s profitability by lowering pre-emption and to strengthen the banking system through the institution of 8% 76 .

As a result. financial markets. when considered as proportions to sales and investment. Market conditions. Overall profit figures do not convey any idea of how effectively the firm is managed. the profit figures disclose the yields or returns. efficiency of activity may be lower than those on manufacturing activity. bank supervisors and adequacy norms. explaining (changes in) the profitability of banks is the implicit or explicit subject of much of the banking literature. The profitability of banks is of interest to bank management. changes in production technology and regulation. And when we employ an efficient 77 . both internationally and vis-à-vis related financial products and industries. The profits are needed by banks for the number of reasons. There are several constraints on the return on sales and investment. When we estimate a market power model. Profitability is the measure of returns generated by the firm on its sales and investment. scale of operations. The RBI bulletin (monthly). As a general rule profitability ratios of a firm should be interpreted after taking into account the firm’s policy and exceptions and the averages of the industry or trade as whole. Today the bank management of India is facing a two faceted challenge to improve their profitability on the one hand and to serve the public in new ways and means with greater efficiency and effectiveness on the other. and dissolving borders. stock exchange directories of listed companies and other generals are useful sources of comparative financial data. This interest is driven by increasing consolidation in the banking sector. we look for – the abuse of – market power as a means of explaining increases and differences in profitability.

Year ----6.61 71. Trends in Profitability Ratios: In order to analyze the context of profitability of the banks. (i) Income (ii) Expenditure (iii) Spread (iv) Burden (v) Net Profit (i) Income (a) Interest Income of Banks: The constituents of bank income are interest and discount.443.08 36. (b) Interest and Discount Income: After the reforms the interest and the discount income has increased in the private sector banks.949.452 146. some indicators have been selected.565 (Rs in % Inc/Dec to prev.337. After the advent of the reforms the trends in the interest income of the private sector banks has increase manifold. we expect sub-optimal management decisions regarding production factors to lead to differences in profitability.495 340.38 48.891 250. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Interest Income 000’s) 92.183 98.82% CGR is positive saying that interest income of banks has increased which is a good and positive sign for a bank.012.37 Compounded growth rate (CGR)= 29. income from investment and interest on balance with RBI and other inter bank balances. The following data shouts about the increasing trend in the increment of 78 .frontier model.141.

27 Compounded growth rate (CGR)= 5. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Interest & discount income % Inc/Dec to prev.875 67.75 68.102 ----69. (Rs in 000’s) Year 61.453.921.142.683.679 68. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Income from investments % Inc/Dec to prev.17% 79 .78 240.700.interest and discount income but the increment has decreased in the last financial year.88 169.16% CGR is quite high which says that interest and discount income has increased over the period and this is good for the bank.83 Compounded growth rate (CGR)= 31.59 34. (c)Income from investments: Though there is net increase in the income in total span of five years but decrease in 2007-08 is a matter of concern.042.266 12.57 40.811.652 44.178 -50.62 101.557 41.900 -9.989.853 ----23.809 69.460.607. (Rs in 000’s) Year 26.

(d) Interest on Cash Balance which are kept with RBI and other inter bank funds: The following data depicts that income has increased till 2006-07 but it decreased slightly in 2007-08 and it is a matter of concern for the bank.183 9. Income from investments decreased during 2004-05 as compared to 2003-04 & it increased during the years 200506 as well as 2006-07 as compared to previous years while it again decreased during the year 2007-08 as compared to 2006-07.433.25 -3.In the past five years. such investments became attractive due to their high yields & non risky nature. Year ----6.21 Compounded growth rate (CGR)= 31.334.42 47. the income from investment has increased and this is a good sign for the organization if viewed over the period. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Interest (Rs in 000’s) 2.950 2.745 % Inc/Dec to prev.037.193.833 3.86% 80 . In the declining interest rate scenario.04 163.876 8.747.

64 958.56 2. Year Income from comm. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Income from other sources % Inc/Dec to prev. building.453 25. exchange and brokerage during five years. sale of lend. exchange and brokerage. exchange transactions. – Income from commission. income derived from dividend.472.09 Compounded growth rate (CGR)= 6. to 81 .247 -57. Brok.806.78 2. income from commissions. Yr. exchange and brokerage Table says about the rising trend in the income from commission.(Rs in 000’s) exch. (e) Income from other sources of Interest: Table shows the flexible trend in income from other sources.278 ----2..269.813.48% CGR is positive during the period. (f) Other Incomes of banks: Other Income refer to all non-interest earnings of bank viz. sale of investment. And % Inc/Dec prev.065 193.835 -12. (Rs in 000’s) Year 1.This positive value of CGR shows that the income on cash balance which are kept with RBI and other inter bank funds has increased over the period. leasing business etc.

79 142.655 32.535 14.66 303.33 Compounded growth rate (CGR)= 41.200304 200405 200506 200607 200708 12.48 -56.546.535 54.432. Year 200304 200405 200506 200607 200708 Income from sale of investment(Rs % Inc/Dec in 000’s) prev. 14.769 34.061.414 67.560 32.178 -46. Yr.24 24.24% Positive value of CGR says that bank is doing a better job to gather income from commission.746.235 20.87 67. – Income from Sale of Investment Table clearly shows the flexibility in the income from the sale of investment i.e.546.673.09 to 82 . exchange and brokerage. in 2004-05 it declined but in 200506 it has increased manifold and then it again declined in 2006-07 and then further increased in 2007-08.35 ----72.042.352 ----7.560.

47 -84.82 to Compounded growth rate (CGR)= -9. Year 200304 200405 200506 200607 200708 Income from Exchange % Inc/Dec Transactions(Rs in 000’s) prev.31% CGR is negative which depicts that the bank is not earning much profits or income from the exchange transactions. 2.08 89.086.142 ----2.279. Yr.Compounded growth rate (CGR)= 19. The bank should adopt different measures to increase the exchange income.781. – Income from Exchange Transactions Table gives information about the income from exchange transactions has increased till 2006-07 but it has declined in 2007-08.31 60.15% CGR is positive and it gives information regarding rising in the investment income during the period of study. (ii) Expenditures 83 .451.079 4.435.218 1.786 33.911 8.

Yr. – Interest on RBI/ Inter Bank Borrowings It shows the increasing trend of the interest on RBI/ Inter bank borrowings during the period under study i.66 109. – Interest expanded on deposits Table depicts that the interest paid by the bank on the deposits which has increased very much till 2006-07 but increment is at a declining rate in 2007-08.753 59.e.606 187.04 82. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Interest expanded 000’s) 30.622.590.04 50.565.224 124.(a) Interest Expanded Interest paid on deposits and borrowings (from RBI and Banks) form a major chunk of total expenses incurred by banks.141 (Rs in % Inc/Dec prev. Year Interest expanded (Rs in % Inc/Dec to 84 .309 32. of five years. It shows that the deposits in the bank has increased over the period.30 to Compounded growth rate (CGR)= 44.220. ----8.194.04% CGR is quite high and says that bank’s interest expanded on deposits has increased in the last five years.

430 -5.309. nearly equal to 50% which shouts about the great increase in interest on RBI and Inter bank borrowings.13 38. -----27.536.976 2.251.34% to CGR is positive and says about the increased interest expanded on other borrowings in the span of five years.15 Compounded growth rate (CGR)= 4.334. 85 .90 Compounded growth rate (CGR)= 48.98 29. Yr.85 35.162 -17.230.888. Yr.532.142 16.659.30 47.2003-04 2004-05 2005-06 2006-07 2007-08 000’s) 3.297 20.291 ----31.065 prev.373.74 409.548 33.140. 38. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Interest exp on other Borrowings % Inc/Dec (Rs in 000’s) prev.290 23.25% CGR is positive and is quite high.833 11.16 40. – Interest Expanded on other Borrowings Table depicts that interest expanded on other borrowings has decreased up to 2005-06 but it increased thereafter.

15 ----19.33% Compounded growth rate (Operating Expenditure) (CGR)= 26. yr ----25. Year 200304 200405 200506 200607 200708 Interest Exp % Inc/Dec to Operating (Rs in billion) prev.28 290.71 41. (Rs billions) 70. the main reason for that is the expansion of the branches by the bank in different areas.87 163.99 65.31% CGR is positive for both interest expenditure as well as operating expenditure. Exp.91 40. (iii) Spread Ratios: 86 .29 % inc/dec to in prev.56 25.– Expenses (Component Wise) Table depicts the interest expenditure has declined up to 2005-06 but it increased manifold in 2006-07 but incremented at a declining rate in 2007-08 while the operating expenditure has also increased till 2006-07 but it declined during 2007-08 .84 -6.58 234.33 -36.69 43.92 253.50 64.47 125. Yr.82 -48.17 35.77 Compounded growth rate (Interest Expenditure) (CGR)= 27.

172. RBI has issued guidelines for banks to disclose certain ratios i.84 10.e.26 170. out of which man power and other expanses are met. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Interest earned/ Avg Working % Inc/Dec funds(%) prev.The difference between interest earned and interest paid constitutes the spread.05 128.10 -22. (a) Interest earned working funds as percentage of average Interest earnings relate to funds based income earned from the traditional banking business i.e interest income. Yr. Interest has declined till 2005-06 but it increased thereafter.27 20.04 ----134.74 to 87 . The ratio of interest earned as percentage of average working funds indicates the rate of income a bank earns on its total assets. non-interest income. service charges etc. hence all spread and burden ratios are calculated in terms of average working funds to enable comparison of all ratios. of lending funds.34 154. form the revenue pool. Spread along with non-interest income earned as commission.27 -4. Hence it is the amount of the spread and its components that is interest earned and interest paid in relation to the average working funds which is significant for the banks to analyze their profitability. Interest earned as percentage of average working funds.

79 88.65% 88 . Year 2003-04 2004-05 2005-06 2006-07 2007-08 Interest paid/ funds(%) 133.Compounded growth rate (CGR)= -0.43 -4. which should be considered by the bank.02 18. Yr.13% Negative CGR says about the declining trend in the interest earned by the bank which should be considered as a matter of concern. -----30.39 92.37 to Compounded growth rate (CGR)= -0. The major constituents of interest expenditure consist of interest paid on deposits.66 109. (b) Interest paid by average working funds Interest expenditure consists of funds based expenditure incurred to earn interest income.07 129.45 23.11 Avg Working % Inc/Dec prev. The trend has declined till 2005-06 but it has increased thereafter. borrowing on balances from RBI and inter bank borrowings.

62 20.39 129. ----20. 89 . Expenditure has increased annually over the period under study.19 Avg % Inc/Dec prev.98 113. provident fund and other current and non-current expenses. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Non-Interest exp/ Working funds(%) 93.22 to Compounded growth rate (CGR)= 10.62 11.CGR is negative for the interest paid as percentage of average working funds. Yr. (iv) Burden Ratios: (a) Non-Interest Expenditure average working funds as percentage of Non-interest expenditure of commercial banks consists of manpower expenses like salaries. allowances.67 2. which is a good sign for the bank.41 116.69% CGR is positive which says that expenditure has increased which is due to the branch expansion.92 156.

Year 2003-04 2004-05 2005-06 2006-07 2007-08 Non-Interest Inc/ Avg Working % Inc/Dec funds(%) prev.78 14.83 Compounded growth rate (CGR)= 8.08 100. NII has increased in the last five years. brokerage.83 1.(b) Non-Interest Income as percentage of average working funds Other incomes of the bank constitute income by way of commission.07 28. exchange.22 97.96 3.95% to CGR is positive over the period of study. Yr. (v) Net-Profit – Profitability Ratios (a) Net-Profit as percentage of total income Profitability of banks can also be related to the total income of the banks.73 ----96. service charges and other miscellaneous receipts. For the bank it is good sign. Total income includes both 90 . 84.19 130.

31 6.18 % Inc/Dec prev.44 10.interest income and non-interest income of the banks. Total deposits consist of fixed saving and demand deposits both for public and banks.55 -12.55 to Compounded growth rate (CGR)= -14. -----6. Year 2003-04 2004-05 2005-06 2006-07 2007-08 Non Profit/ total income(%) 11. It shows declining trend over the period under study.65% CGR shows the negative trend which is a great concern for the bank and bank should take positive measures to improve its position. 91 .36 5. (b) Net Profit as percentage of Total Deposits: The ratio reveals profit per 100 rupee of total deposits.69 9. The ratio shows a declining trend till 2006-07 but increase in 2007-08. Yr.68 -18.90 -31.

35 1.79 1. ----3.32 1. Yr.19 20.22 % Inc/Dec prev.84 -24. -----22.01 1.66 27. (c)Earning per Share: Earning per share is calculated by dividing net profit by number of equity shares. EPS has increased over the period and it fluctuates.Year 2003-04 2004-05 2005-06 2006-07 2007-08 Non Profit/ total deposits(%) 2. So bank should take immediate measures.58 -25.79 to Compounded growth rate (CGR)= -12.06% CGR is negative which shows the deposits which are made are not sufficient for earning profits to the bank.6 % Inc/Dec prev. Year 2003-04 2004-05 Earning Per Share 26. Yr.52 to 92 .

e. As far as interest expanded is concerned.2005-06 2006-07 2007-08 32.07 13. 5.4 Compounded growth rate (CGR) = 8. interest discount income. The share of the operating expenses of the ICICI bank has increased manifold till 2006-07 because bank was initially in the stage of branch expansion and had spent heavily on technology intensive systems. 6.75 7. ICICI bank have installed ATM’s and have been expanding internet banking to their customers since the day of there inception. Bank has recorded a rise in all the sources of interest income i.21 CGR being positive shows increase in the earnings per share during the period under study which is a good sign for the bank. the interest expanded on deposits has increased significantly up to 2006-07 and declined in 2007-08. 93 . (vi) Conclusions: 1.12% 17. The major source of income that is income from income from commission. 4. 2. income on investment. exchange and brokerage. income from balance with RBI and other inter bank funds till 2006-07.5 34.8 39. 3. Foreign exchange income has increased significantly till 2006-07 but it declines in 2007-08. commission has increased significantly for ICICI bank.

10. 94 . the merger as all the indicators of profitability responded in its favor. ICICI bank increased income from major non-fund activities. 8. The non-interest income for ICICI bank scaled new heights to augment their total income. The reforms have granted flexibility to banks in meeting their targets of priority sector lending.7. ICICI bank emerged strong on most of the major parameters of profitability. 9. 11. ICICI bank has been able to consolidate its position after the merger.

95 .

Chapter 7 Loan-Portfolio Management of ICICI Bank

Loan-Portfolio Management:
Lending is the principal business activity for most commercial banks. The loan portfolio is typically the largest asset and the predominate source of revenue. As such, it is one of the greatest sources of risk to a bank’s safety and soundness. Whether due to lax credit standards, poor portfolio risk management, or weakness in the economy, loan portfolio problems have historically been the major cause of bank losses and failures. Effective management of the loan portfolio and the credit function is fundamental to a bank’s safety and soundness. Loan

portfolio management (LPM) is the process by which risks that are inherent in the credit process are managed and controlled. Because review of the LPM process is so important, it is a primary supervisory activity. Assessing LPM involves evaluating the steps bank management takes to identify and control risk throughout the credit process. The assessment focuses on what management does to identify issues before they become problems. This booklet, written for the benefit of both examiners and bankers, discusses the elements of an effective LPM process. It emphasizes that the identification and management of risk among groups of loans may be at least as important as the risk inherent in individual loans. For decades, good loan portfolio managers have concentrated most of their effort on prudently approving loans and carefully monitoring loan performance. Although these activities continue to be mainstays of loan portfolio management, analysis of past credit problems, such as those associated with oil and gas lending, agricultural lending, and commercial real estate lending in the 1980s, has made it clear that portfolio managers should do more. Traditional practices rely too much on trailing indicators of credit quality such as delinquency, nonaccrual, and risk rating trends. Banks have found that these indicators do not provide sufficient lead time for corrective action when there is a systemic increase in risk. Effective loan portfolio management begins with oversight of the risk in individual loans. Prudent risk selection is vital to maintaining favorable loan quality. Therefore, the historical emphasis on controlling the quality of individual loan approvals and managing the performance of loans continues to be essential. But better technology and information systems have opened the door to better management methods. A portfolio manager can now obtain early indications of increasing risk by taking a more comprehensive view of the loan portfolio. Loan Portfolio Objectives: Loan Portfolio objectives establish specific, measurable goals for the portfolio. They are an outgrowth of the credit culture and risk profile. The board of directors must ensure that loans are made with the following three basic objectives in mind: • To grant loans on a sound and collectible basis. • To invest the bank’s funds profitably for the benefit of shareholders and the protection of depositors. • To serve the legitimate credit needs of their communities

Types of Loans:
1. Commercial loans: Loans intended to fulfill the credit needs of

business enterprises, including farm operations, are commercial loans. On the basis of security, commercial loans can be secured or unsecured. Loans can be made at either fixed rate of interest or floating rates. It can be further classified as:(a) Seasonal Loans:

This loan is taken out only for seasonal needs and is repaid when inventory and receivables are partially converted into cash at the end of the seasonal upsurge. (b) Working Capital Loans:

This type of business loan is needed for financing current assets – inventories, receivables and for other operational expenses. The need for working capital may arise for many purposes:(i) (ii) (iii) To finance increasing level of sales. To finance the provision of longer credit terms to customers. To finance large stock holdings.

(c)Term Loans: Bank provide term loans primarily to finance fixed assets such as plant and machinery, construction of factory building, purchase of factory land etc. Loans are sanctioned for a period more than one year, without specific scheduled repayment.
2. Consumer Loans: These are loans granted by banks to individuals

who may feel inclined to purchase articles to improve their standard of living. In broad usage, short and intermediate term consumer loans include both installment credit and noninstallment credit.

(a) The applicant’s ability and willingness to make timely interest and principal payment. Two considerations dominate on financial institutions decisions of whether to approve a mortgage loan application.307.362 447. Yr.3.310. Mortgage Loans: These are specialized form of consumer and commercial lending.571 606. Real Estate Lending.18 9. Constituents of Loan Portfolio of Banks: (a) Priority Sector Lending: The Narasimham committee recommends that the advances to the priority sector should be fixed at the 10% of the total advances has not been accepted by the government. banks have several profitable avenues included in the priority sector to extend loans.591.491. But banks have been given operational autonomy in meeting the priority sector target.48 24. If the target is not achieved then amount equal to the shortfall can be invested in NABARD/ SIDBI. Now.487 555.758 48.025.09 99 .396 -----215. Year 200304 200405 200506 200607 200708 Priority Sector Lending (Rs % Inc/Dec to prev. in ‘000s) (Priority Sector Lending) 145. Table depicts priority sector lending which has increased ery much till 2005-06 but increment has shown a declining trend thereafter. (b) The value of the collateral underlines the loan.36 107.

458. (b) Trends in Cash Credit. there has been a decline in the priority sector lending due to greater flexibility by the bank.593. ‘000s) 61. Year 200304 2004123. Yr. Overdrafts and Loans have increased over the past five years but increment has shown a declining trend from 2006-08 which is a matter of concern for the bank.254.98 08 Compounded Growth Rate (CGR)= 41.077 109.410 101.36 05 2005258.781.82% CC.46 07 2007351.65 06 2006334.670 4.882 29. (c)Trends in Bills Purchased and Discounted 100 .Compounded Growth Rate (CGR)= 33. overdraft & loans payable on demand for all the five years of ICICI bank under study has shown significant increase till 2005-06 but the increment has shown a declining trend thereafter. Overdrafts and Loans: Table depicts that the trends in cash credit.576 ------ CGR shows positive trend and is quite high and is good sign for the bank as Cash Credit.05% CGR is positive over the period of study but since the initiation of reforms. OD and Loans (Rs in % Inc/Dec to prev.344.

344 68.71 101 . bills purchased & discounted.009 -----68.868. (Rs in ‘000s) 18.857 71.033 277.The table exhibits the trends in another vital component of loans & advances i.995.41% Positive value of CGR speaks of the increasing trend in the Bills Purchased and Discounted of ICICI Bank which is a vital component of Loans and Advances. -----38.06 -4.430 107.e. (d) Trends in Term Loans: The table depicts the rising trend in the term loans during all the five years but in 2005-06 the rise in the term loans has been spontaneous than the other years.944.554. Yr.528 772.267.29 Compounded Growth Rate (CGR)= 30.072 % Inc/Dec to prev.17 -33. Yr. Year 200304 2004- Term Loans (Rs in ‘000s) 556.559.00 56.903. Year 200304 200405 200506 200607 200708 Bills Purchased and Discounted % Inc/Dec to prev. The share in 200405 has increased manifold but later on it starts declining.

93.251.13 85. (e) Trends in Secured Advances to total advances: This ratio indicates the proportion of advances granting after securing them. It highlights the declining trend in the ratio from 2003-04 to 200708.659.52 37.38% 102 .21 21.25% CGR depicts that there is increasing trend in the Term Loans over the period under study which is a good sign for the ICICI bank.209.88 Compounded Growth Rate (CGR) = -3.08 Compounded Growth Rate (CGR)= 29.41 -1. Yr.205 1. Year 200304 200405 200506 200607 200708 Secured Adv/ Total Adv (%) % Inc/Dec to prev. The table highlights the trends in the ratio.110.69 -2.39 ------7.017 2.59 79.75 -4.90 78.336 56.009.96 83.223.05 200506 200607 200708 1.

34 -3. with flexibility provided to banks to invest in apex institutions on failure to meet the priority sector targets.43 1. Also it is clear from the table above that there is an increasing trend in the increment too.43 1. Year 200304 200405 200506 200607 200708 Term Loans/ Total Adv (%) 86.13 77.38 78.80 Compounded Growth Rate (CGR) = -1. ------7. it has decreased for first three years & increased thereafter.56% CGR shows there is a declining trend in the above ratio over the five years period. However.91 % Inc/Dec to prev. Conclusions: 1. It is a preferred mode of financing by banks.48 80.49 79. (f) Trends in Term Loans to Total Advances: This ratio indicates the proportion of term loans granted by a bank in the entire advances which is depicted in the table. 103 . Yr.CGR is negative here and shows that secured advances to total advances had a declining trend over the study period. the bank has started lending on commercially viable terms.

104 . overdraft and loans repayable on demand and bills purchased and discounted.e. overdraft and loans payable on demand shown a significant rise till 2005-06 but increment has shown a declining trend thereafter. followed by cash credit.2. 3. The various constituents of loans and advances i. cash credit. Term loans constituted the largest proportion of advances.

Chapter 8 Finding and Suggestions 105 .

decontrol. deregulation.Finding and Suggestions: The introduction of financial and banking sector reforms has brought some major policy measures. deregulation and integration have led to Indian banks and financial institutions into competition both on assets side and liabilities side of balance sheet. liberalizing of control in trade/ foreign exchange etc. Though the ALM process is too complex to practice. duration and risk profile of their assets and liabilities have an important bearing on their growth and profitability. it is perhaps the only solution for the banks to survive in this rapidly changing environment where the composition. forcing them to assume greater and newer risks in their quest for higher returns. 106 .

Bank should move from deposit orientation to profit orientation. 6. It is highly imperative that the private sector banks also shoulder their responsibility towards the priority sector. the shift in focus to profitability rather than the balance sheet doesn’t mean that targeted resource mobilization and asset build up should take a back seat. 5. While providing credit to the priority sector. 4. 107 . The secondary market has not developed commensurately and market liquidity remains an issue. Of balance sheet activities should be undertaken as they generate fee income and increase the non-interest revenue of bank.The narasimham committee report on the banking sector reforms highlighted the weaknesses in the Indian banking system & suggested reforms based on the Basel norms. 7. The decline in the investment in the debentures has been due to the lack of development of corporate bond market. sound principles of lending should be followed by the public sector banks to avoid NPA’s. However. Bank is in dubious position of having more secondary reserves and less primary reserves. ICICI bank which is the largest private sector bank. 3. 2. Bank needs to increase loans so that the loans/ assets ratio reaching the prudential limit of 50%. 8. Suggestions: 1. Bank should follow the essentials of Basel committee regarding the management of interest rate risks to avoid reduction in spread. needs to increase lending to the priority sector as its lending is short of the stipulated target.

11. supportive management & dedicated teams. For reporting data from branches/ other department’s strong management information system should be used. Thus. If 50% of the liabilities are maturing within 1 year but only 10% of the assets are maturing within the same period. it may become temporarily insolvent due to a severe liquidity crisis. ALM is required to match assets & liabilities and minimize liquidity as well as market risk. There should be thorough awareness about ALM among the staff at all levels. Though the financial institution has enough assets.9. 10. Bibliography 108 .

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