RISK MANAGEMENT IN BANKING

PROJECT REPORT
ON

STUDY ON RISK ATTITUDES OF AXIS BANK’s MANAGEMENT

Submitted By
Ambati.venkatareddy (1226212102)
Borra.Madhav (1226212105)
Ekta Tatyal (1226212107)
MBA (IBF) 2012-14

Under the guidance of
Prof. Ganti Subrahmanyam
Prof. M Subramanyam

1

product and granularity criterion.  BANKEX is based on the free – float methodology of index construction.Axis Bank: AXIS Bank is one of the fastest growing banks in private sector. trading operations. The main Objective of BANKEX is: It is an Index to track the performance of listed equity of Banks It is a suitable benchmark for the Central Government to monitor its wealth on the bourses. project appraisals. Retail banking includes lending to individuals/ small businesses subject to the orientation.  The base date for BANKEX is 1st January 2002. capital market related services. and nonresident Indian (NRI) services. OBJECTIVES 1. This is one of the largest ATM networks in the country. This index consists of major Public and Private Sector Banks listed on BSE. and cash management services. The Bank has a network of over 4. corporate/ wholesale banking and other banking business. The Bank has a very wide network of more than 1042 branches (including 56 Service Branches/ CPCs as on June 30.474 ATMs providing 24 hrs a day banking convenience to their customers. retail banking. equity and mutual funds. and for customers and central funding. derivative trading and foreign exchange operations on the account. financial advisory services. The BSE BANKEX Index is displayed on-line on the BOLT trading terminals nationwide. 2 . BANKEX Bombay Stock Exchange Limited launched "BSE BANKEX Index" on 23 June 2003. The Bank operates in four segments. management of publics issue. 2010). depository. placements and syndication. To find out reasons for fluctuation in Axis Bank stock. Internet banking. automated teller machines (ATM) services. namely treasury. Features: A few important features of the BANKEX are:  BANKEX tracks the performance of the leading banking sector stocks listed on the BSE. corporate advisory services. It also includes liability products. To find out the relationship between Axis banks stock and movement in the Bankex and Sensex. The Bank's registered office is located at Ahmadabad and their Central Office is located at Mumbai. 2. The treasury operations include investments in sovereign and corporate debt. card services. The corporate/ wholesale banking segment includes corporate relationships not included under retail banking.

Indira Gandhi. It is followed by millions of stakeholders and general public all over the world. and a debate had ensued about the nationalization of the banking industry. the then Prime Minister of India. popularly known as BSE. It has achieved massive brand value not only in India but all over the globe.The base value for BANKEX is 1000 points. Its movement is widely tracked because it is easily understandable by all people as it is just a number and investors find it extremely simple to follow. control and regulations of Reserve Bank of India. The first banks were Bank of Hindustan (1770-1829) and The General Bank of India. One can know the relative strength or weakness of the Indian stock market by the movement of Sensex on the Bombay Stock Exchange. Is Sensex a barometer of India’s economy? Sensex is the most popular index in Indian Stock Market. the total number of companies in the Sensex is always kept at thirty. it had emerged as a large employer. The composition of Sensex changes dynamically – existing companies are excluded and new companies are added on a regular basis. 14 stocks which represent 90% of total market capitalization of all banking sector stocks listed on BSE are included in the index. expressed the intention of the Government of 3 . It is no wonder it has become an integral part of India’s economy and has become leading economic indicator in India. It is the most popular stock market index in India. established 1786 and since defunct. this is just a start-up or a springboard for several investors who are testing the stock markets for the first time in India. continued to be owned and operated by private persons. it is not necessary that it is a barometer of India’s growing economy Banking in India: In the modern sense originated in the last decades of the 18th century. However. The index is determined on a real time basis through BSE online trading (BOLT) terminals. market experts. promoters. It is synonymous with the strength of financial markets. Despite the provisions. brokers and several other stakeholders not only in India but across the world. However. Sensex is an index of equity shares of India’s top 30 companies representing 12major sectors in India. the Indian banking industry had become an important tool to facilitate the development of the Indian economy. It is just a number and the value of Sensex is closely followed by a number of investors. SENSEX: Sensex is basically an indicator of the health of the stock markets in India. By the 1960s. At the same time. As Such. banks in India except the State Bank of India or SBI. It has attained iconic status in India in the last three decades.

banking in India was generally fairly mature in terms of supply. Actual error square= α + β (Change in volume) + ε 4. Indian banks are considered to have clean. which has seen rapid growth with strong contribution from all the three sectors of banks. By 2010. Sensex and Volume of shares. SOURCES OF DATA Monthly reports of axis Bank from Jun 2008 to Jun 2013 were retrieved from the internet. product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. The meeting received the paper with enthusiasm. with minimal pressure from the government. strong and transparent balance sheets relative to other banks in comparable economies in its region. Return on Bankex= α + β ( Return on Sensex) + ε 3. Return on stock = α + β ( Return on Bankex) + ε 2. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true. This move. revitalized the banking sector in India. along with the rapid growth in the economy of India. Regression is the attempt to explain the variation in a dependent variable using the variation in independent variables. ICICI Bank and HDFC Bank. Use of prowess for getting the values of Bankex. FORMULA USED Regression equations used 1. government banks. which later amalgamated with Oriental Bank of Commerce. 4 . In the early 1990s. private banks and foreign banks. the then government embarked on a policy of liberalization.India in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalization. and included Global Trust Bank (the first of such new generation banks to be set up). Actual error= α + β ( Estimated error) + ε Regression: A statistical procedure used to find relationships among a set of variables. namely. These came to be known as New Generation tech-savvy banks. UTI Bank (since renamed Axis Bank). The Reserve Bank of India is an autonomous body. licensing a small number of private banks. In terms of quality of assets and capital adequacy.

099961514 F-value 253. can be predicted from the variables Bankex actual.93).  T-Value (15. i.7809031 Significance level 7.  The Adjusted R square is used to estimate the expected shrinkage in R square that would not generalize to the population because our solution is over –fitted to the data set by including too many independent variables .810764548 P-value 7.81 means that 81% of the variance in the observed values of the dependent variable is explained by the model.e the higher the returns of Bankex.57157E-23  Value of R square. and 19% of those differences remain unexplained because so many other factors influence the axis bank actual. we can conclude that the relationship between the axis bank actual and Bankex actual is significant.810764548.57157E-23 T-value 15.These values are very close. anticipating minimal shrinkage based on this indicator.93050229 α 0. the higher the returns of Axis and vice-versa 5 .813971929 Adjusted R2 0. which indicates that 81% of the variance in axis bank actual.0018464 β 1.Observation 1: Dependent Variable(Y) = axis bank actual Independent Variable(X) =Bankex actual H0: Axis bank actual is not depends on bankex actual H1: Axis bank actual is depends on bankex actual After running the regression the result which we got are: Regression 1 Dependent variable axis bank actual Independent variable Bankex actual N 60 R2 0.  R square of 0.813971829and the Adjusted R square= .R square = .

00 means that there is a 0% chance that the relationship emerged randomly and a 100% chance that the relationship is real.007153469 β 1. This is the “Significance F”value in Excel.12433277 α 0.05 at 95% confident interval H0 rejected Observation 2: Dependent Variable(Y) = Bankex actual Independent Variable(X) = Sensex actual H0: Bankex actual not depends on senex actual H1: Bankex actual depends on senex actual After running the regression the result which we got are: Regression 2 Dependent variable Bankex actual Independent variable Sensex actual N 60 R2 0. A p-value of 0. some other statistical programs call it by other names. It tells you how likely it is that the coefficient for that independent variable emerged by chance and does not describe a real relationship. As with the p-value. the lower the significance F value.847344613 P-value 1.  The value of significance F is 0. This measures the likelihood that the model as a whole describes a relationship that emerged at random.  There is also a significance level for the model as a whole.46133E-25 6 .00 which is less than 0.  F≤ 0.309211549 F-value 328. the greater the chance that the relationships in the model are real.849931993 Adjusted R2 0.4914383 Significance level 1.46133E-25 T-value 18. rather than a real relationship. Each independent variable has another number attached to it in the regression result its “p-value” or significance level.05 hence it indicates that the relationship among variables in the model is real. The p-value is a percentage.

00 means that there is a 0% chance that the relationship emerged randomly and a 100% chance that the relationship is real.05 hence it indicates that the relationship among variables in the model is real. anticipating minimal shrinkage based on this indicator.  T-value (18. It tells you how likely it is that the coefficient for that independent variable emerged by chance and does not describe a real relationship. A p-value of 0.12). i.R square = .84 means that 84% of the variance in the observed values of the dependent variable is explained by the model. the higher the returns of Axis and vice-versa.849931993and the Adjusted R square= . which indicates that 84% of the variance in Bankex actual. Value of R square.  The value of significance F is 0.  R square of 0.  The Adjusted R square is used to estimate the expected shrinkage in R square that would not generalize to the population because our solution is over –fitted to the data set by including too many independent variables .847344613.05 at 95% confident interval H0 rejected Observation 3: Dependent Variable (Y) = error square Independent Variable(X) = volume change H0: Error square not depends on volume change H1: Error square depends on volume change After running the regression the result which we got are: 7 . can be predicted from the variables senex actual. we can conclude that the relationship between the bankex actual and senex actual is significant. These values are very close.  Each independent variable has another number attached to it in the regression result its “p-value” or significance level. and 16% of those differences remain unexplained because so many other factors influence the banex actual.e the higher the returns of Bankex.  F≤ 0.00 which is less than 0. The p-value is a percentage.

51 means that there is a 51% chance that the relationship emerged randomly and a 49% chance that the relationship is real. A p-value of 0.510707554  Value of R square.438005724 Significance level 0.51which is greater than 0.005249649 β 0.  The value of significance F is 0.26% of those differences remain unexplained because so many other factors influence the error square.05 at 95% confident interval H0 is accepted 8 .Regression 3 Dependent variable error square Independent variable volume change N 60 R2 0.  Each independent variable has another number attached to it in the regression result its “p-value” or significance level.00749522and the Adjusted R square= -0.74% of the variance in error square of Axis. It tells you how likely it is that the coefficient for that independent variable emerged by chance and does not describe a real relationship. The p-value is a percentage. anticipating minimal shrinkage based on this indicator.74% of the variance in the observed values of the dependent variable is explained by the model.661820009 α 0. R square = .  F≥ 0.05 hence it indicates that the relationship among variables in the model is not real.  R square of 0.00084 F-value 0.510707554 T-value 0. and 99. which indicates that 0.  T-value (0. Thus.009616931 P-value 0. These values are not very close.009616931.66).009 means that The is used to estimate the expected shrinkage in R square that would not generalize to the population because our solution is over – fitted to the data set by including too many independent variables. we can conclude that the relationship between the estimated error of Axis and volume of Axis stocks traded in the market are not significant. can be predicted from the variables volume change of Axis.00749522 Adjusted R 2 -0.  Adjusted R square -0.0074 means that 0.

These values are very close. 9 .999882254 F-value 856639.R square = .99 means that 99% of the variance in the observed values of the dependent variable is explained by the model.2758E-122 T-value 925.00513866 β 0.Observation 4: Dependent Variable (Y) = Axis Actual error Independent Variable(X) = Axis estimate error H0: Actual error not depends on estimate error H1: Actual error depends on estimate error After running the regression the result which we got are: Regression 4 Dependent variable Axis Actual error Independent variable Axis estimate error N 60 R 2 0.  The Adjusted R square is used to estimate the expected shrinkage in R square that would not generalize to the population because our solution is over –fitted to the data set by including too many independent variables .  T-value (925.999931131 P-value 1.2758E-122  Value of R square.99and the Adjusted R square= . anticipating minimal shrinkage based on this indicator. which indicates that 99% of the variance in Actual error can be predicted from the variables estimate error.  R square of 0.5483482 α 0.54).99.999932298 Adjusted R2 0.7448 Significance level 1. and 1% of those differences remain unexplained because so many other factors influence the actual error. we can conclude that the relationship between the Axis Actual error and Axis estimate error is significant.

Yet while establishing the relation between Bankex & SENSEX the error was minimized to the extent of 8%.  F ≤ 0.  The value of significance F is 0. While analyzing the facts it was figured out that the error occurs in between Axis Bank & Bankex results to be around 10%.00 which is less than 0.05 hence it indicates that the relationship among variables in the model is real. Each independent variable has another number attached to it in the regression result its “p-value” or significance level. It tells you how likely it is that the coefficient for that independent variable emerged by chance and does not describe a real relationship. 10 .05 at 95% confident interval H0 is rejected Conclusion: Axis Bank is co-related with Bankex & SENSEX. But the error still prevails due to the change in demand and supply constrain. if we conglomerate all the above factors in our model the error part would be limited to zero. On further research it was seen that. Bankex & SENSEX are highly affecting the Axis Bank’s shares.00 means that there is a 0% chance that the relationship emerged randomly and a 100% chance that the relationship is real. The p-value is a percentage. Hence it can be said that. A p-value of 0.