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Chapter 1 Executive Summary


Analysis and interpretation of the



has now

become an important technique of credit appraisal. Though the basic technique of appraisal remains the same in all the cases but the approach and the emphasis in analysis vary. Analysis of financial statement is necessary because it help in depicting the financial position on the basis of past and current records. Analysis of financial statement helps in making the future decision and strategies. Therefore, it is very necessary for every organization whether it is a financial or manufacturing etc. to make financial statement and to analysis it. ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly owned subsidiary. Income statements of the ICICI motors for years 99-00 to 05-06 are the business mirrors, which reflect the financial position and operating strength and weakness of the concern. Income statement analysis which is done by using ratio analysis and trend analysis give the true picture of the company. Cost reduction is the true medicine for the revival of the company during the decline of the company which is studied in this project. The big positive of the cost reduction initiative goes beyond the statistics of money saved. The crisis unified the company. Companies have emerged from this as phoenix


In order to understand and analysis Ratio I have used profit and loss and balance sheet of both banks. The analysis showed various aspect of bank regarding their financial system. Observation also indicated most widely emphasized goal of the firm is to maximize the value of the firm to it’s to meet the long term and short term requirements. Funds are invariably required to carry on the various activities of a business. on the basis of ratio analysis I have suggested some issues which will helpful to bank regarding their financial systems analysis of financial statements helped me to know how ration analysis helps the banker to know the financial position of the business. Among the various tools for evaluating the financial statements, ratio analysis is the most widely used tool, as it helps us to measure the financial and operational performance of any business. In this project, the concepts of Cost reduction are used in such a manner that it can be made more effective, emphasizing more on the role of management, explaining the factor behind success and failure of such analysis within the organization, accentuating its application in Banking Sector and also highlighting Cost reduction concept, cost reduction process & strategies and so on. There is a case study on Cost reduction programmers in ICICI Bank.


Chapter 2



Every financial manager is involved in financial decision making and financial planning in order to take right decision at right time, he should be equipped with sufficient past and present information about the firm and its operations and how it is changing overtime. Much of this information that is used by financial manager to take various decisions and to plan for the future is derived from the financial statements. The project, is to analyze the financial statements and to study different ratios over the period of 5 years to determine the financial position of ICICI Bank. Financial analysis involves the use of various financial statements. These statements do several things. First, the balance sheet summarizes the assets, liabilities and owners equity of a business at moment in time, usually the end of a year or a quarter. Next the income statement summarizes the revenues and expenses of the firm over a period of time while balance sheet represents a snapshot of the firm s financial position at a moment in time. Financial management is planning and controlling of financial resources of a firm with a specific objective. Since, financial management as a separate discipline is of recent origin, it is still in a developing stage. It is very crucial for an organization to manage its funds effectively and efficiently. Financial management has assumed greater importance today as the financial strategies required to survive in the competitive environment have become very important.


In the financial markets also new instruments and concepts are coming and one must say that a finance manager of today is operating in a more complex environment. A study of theories and concepts of financial management has therefore become a part of paramount importance for academics as well as for practitioners but there are many concepts and theories about which controversies exist as no unanimous opinion is reached as yet. The project, further aims at discussing and understanding the concepts of financial management of ICICI Bank; the functions expect to be performed by the financial management as well as the objectives of financial managements.


Chapter 3 Objective of study


Objective of study • To Analysis ICICI Bank Financial Statement • To understand the importance of financial statement analysis, calculate the ratios, and also analyze them. • To study the ICICI Bank financial position and market standing through the ratio Analysis and cost reduction programmes • Through the net profit ratio and other profitability ratio, understand the profitability position of ICICI bank. • Evaluating company’s performance relating to Financial Statement Analysis. • To know the liquidity position of the company, with the help of Current ratio. • How the Cost Reduction process works.


Chapter 4 Research Methodology


Research methodology Research Methodology is a systematic method of discovering new facts or verifying old facts, their sequence, inter-relationship, casual explanation and the natural laws which governs them. It covers the systematic approach concerning generalization and the formulation of the theory. Different stages involved in research consists of enacting the problem, formulating a hypothesis, collecting the facts or data, analyzing the facts and reaching certain conclusion either in the form of solution towards the concerned problem or in generalization for some theoretical formulation. The main objective of the study is to determine and analyze the financial position by two ways: 1. Primary Data: • Ratio Calculation • Graphical Representation • Interviews with finance manager.


2. Secondary Data: Secondary data consist of the information that already exists or someone has collected it for specific purpose. This data was collected by: • The company profile was collected from website of • Books related to Financial Management. • Reference to the various report, material, published by the company.


Chapter 5 Limitations of the study


Limitations of the study • The limitations of the study can be as follows in the process of the research. • Companies are being heisted to provide to right or valid data which is mush important for study. • Consumption Time frame • Primary data can be bias depending upon the individuals view • Dynamic market economy and business opportunities • Position of Indian economy in coming years


Chapter 6

Review of literature

Strategic and Financial Performance Implications of Global Sourcing Strategy: A contingency Analysis 14

“ Using a contingency model of global sourcing strategy, this study investigated the moderating effects of sourcing – related factors on the relationship between sourcing strategy and a product’s strategic and financial performance. The results lent some support to the contingency model of global sourcing strategy in that product innovation, process innovation and asset specificity were significant moderator variables for financial, but not strategic , performance. However, the results provided no support for bargaining power of suppliers and transaction frequency as moderator variables. In other words, in achieving high financial performance for a product, whether a particular sourcing strategy should be used for a particular product depended on the levels of product innovation , process innovation and asset specificity” Several unique financial characteristics differentiate a cooperative from an investor-oriented firm (IOF). When evaluating the cooperative’s performance, comparing a cooperative’s financial position with an IOF can be misleading for those unfamiliar with these characteristics. This report was written to help boards and managers assess the financial performance of their cooperatives and to familiarize potential creditors with the unique financial characteristics and performance of cooperatives.


This study discusses the differences in financial management and goals of cooperatives versus IOFs. It starts by discussing the contents of the various cooperative financial statements and follows with a view of common sizing statements for analysis. Next, it reviews the usefulness of standard financial ratios applied to the cooperative framework. A brief review shows what lenders look for when analyzing potential borrowers. Finally, financial ratios are developed to build on these standards with an eye toward a comprehensive understanding of a cooperative s performance. Ratios will be related to data during the last 18 years from the largest agricultural cooperatives.


Environmental and Financial Performance Literature “ We review the growing literature relating corporate environmental performance to financial performance. We seek to identify achievements and limitations of this literature and to highlight areas for further research. Our primary interest is to assess the adequacy of the literature in informing corporate managers how, when, and where to make pro-environment investments that will pay off with financial returns for long-term shareholders. To do so , we create a conceptual framework that maps the influence of regulators, public health scientists , environmental advocates , consumers, employees, and other interested parties upon corporate financial returns. Our decision has relevance to all parties interested in influencing corporate actions affect the environment .”


Financial System Analysis: A Functional View by Mariko FUJII (Research Center for Advanced Economic Engineering, University of Tokyo) The Financial system plays a fundamental role in the economic system in facilitating the transfer of resources and provision of settlement services, liquidity and price information, among others. Under the recent economic situations where uncertainty of future economic variables have more widely prevailed, the function to provide tools for trading and sifting risks has increased its importance. Depending on how such mechanism is provided, economic welfare of the agents may differ substantially. Functional approach to the financial systems is quite helpful to examine the role of specific institutions and design of the financial system and to evaluate them in the light of current economic developments. In this note, the functions of financial systems are reviewed from the viewpoints described above and the modern developments of financial institutions are considered for evaluation. Banks and financial markets are two basic structures that consist of the financial system, and they may be distinct in the way they perform the financial functions. In recent years, financial markets seem to have increased their relative weight in many economies because they can deal with a wide variety of products to trade risks, which have been made available by virtue of the advancement of technologies, but also can aggregate opinions through the decentralized decision-making processes. These characteristics of financial markets, in comparison with banks, are inherent in market 18

mechanism itself, and may work well under rapidly changing and rather uncertain economic conditions. As a matter of course, banks and financial markets are both essential to the economy and interacting each other. Some of relatively newly developed financing methods such as venture capital and securitization could be regarded as resulting products of the interactions of banks and financial markets. It is important to understand under what conditions a particular financial structure of institutions emerges. For this purpose, the analysis to deal with banks and financial markets in a consolidated framework is interesting and would be the direction of future research.


Chapter 7 Introduction to Financial Analysis


7.1.1 Introduction: A Financial Statement is a compilation of data, which is logically and consistently organized according to accounting principles. Its purpose is to convey an understanding of some financial aspects of a business firm. It shows a position at a movement in time, as in the case of balance sheet, or reveals a series of activities over a given period of time, as in the case of an income statement. Financial statements are the major means through which firms present their financial situation to stock holders, creditors and general public. The majority of firms which include extensive financial statements in their annual reports, which receive wide distribution. Nature of financial statement Analysis: Financial Statement Analysis consist of the application of analytical tools and techniques to the data in financial statements in order to derive from them measurements and relationships that are significant and useful for decision making. The process of financial analysis can be described in various ways, depending on the objectives to be obtained. Financial analysis can be used as a preliminary screening tool in the selection of stocks in the secondary market. It can be used as a forecasting tool for future financial conditions and results. It may be used as a process of evaluation and diagnosis of managerial, operating or other problem areas. Above all, financial analysis reduces reliance on intuition, guesses and thus narrows the areas of 21

uncertainty that is present in all decision making processes. Financial analysis does not lesson the need for judgment but rather establishes a sound and systematic basis for its rational application. Sources of Financial Information: The financial data needed in financial analysis come from many sources. The primary source is the data provided by the firm itself in its annual report and required disclosures. The annual report comprises the income statement, the balance sheet, and the statement of cash flows, as well as footnote to these statements. Besides this information such as the market price of securities publicly traded corporations can be found in the financial 20 press and the electronic media daily. The financial press also provides information to stock price indices for industries and for market as a whole.

7.1.2 History of financial Analysis 22

Analysis of financial statements has had its greatest growth since 1990 s. A major impetus came from increasing need from increasing need on the part of grantors of commercial credit such as bankers, financial institutions etc, to understand the condition of their customer. At the same time businessman need to understand their own conditions of their own enterprise in order to assure its survival in stress of competition. Satisfaction of these needs has been assisted by the continuous development of accounting as a science and passing of income tax law in1993. This required preparation of balance sheets and income statements, as they are the basic statements required for the income tax purpose. Thus a reasonably reliable data from which typical financial ratios could be calculated has become increasingly available. Between 1919 and 1929 four men pioneered in development of financial ratios. These where James bliss who published a book on this subject in 1923. Alexander wall, head of Robert Morris associates and Raymond W Dunning, published a work on this subject in 1928 and Roy Foulke, who made some of the first detailed compilations and studies between 1925 and 1928.


Users of Accounting Information The list of categories of readers and users of accounts includes the following people and groups of people: • Investors • Lenders • Managers of the organization • Employees • Suppliers and other trade creditors • Customers • Governments and their agencies • Public • Financial analysts • Environmental groups • Researchers: both academic and professional

7.1.3 Advantages of Financial Statement Analysis 24

There are various advantages of financial statements analysis. The major benefit is that the investors get enough idea to decide about the investments of their funds in the specific company. Secondly, regulatory authorities like International Accounting Standards Board can ensure whether the company is following accounting standards or not. Thirdly, financial statements analysis can help the government agencies to analyze the taxation due to the company. Moreover, company can analyze its own performance over the period of time through financial statements analysis. 7.1.4 Limitations of Financial Statement Analysis: Comparison of one company with another can provide valuable clues about the financial health of an organization. Unfortunately, differences in accounting methods between companies sometimes make it difficult to compare the companies financial data. For example if one firm values its inventories by LIFO method and another firm by the average cost method, then direct comparison of financial data such as inventory valuations and cost of goods sold between the two firms may be misleading. Sometimes enough data are presented in foot notes to the financial statements to restate data to a comparable basis. Otherwise, the analyst should keep in mind the lack of comparability of the data before drawing any definite conclusion.


7.2 The Principal Tools of Analysis: In the analysis of financial statements, the analyst can have a variety of tools available from which he can choose the best suited to his specific purpose. The following are the important tools of analysis. The Principles Tools/Techniques of Financial Analysis:


Figure 1 Classification of Financial Analysis

Tools Financial Analysis


Trend Analysis

Common size statement

Comparative Statement

Ratio Analysis


7.2.1 Trend Analysis An aspect of technical analysis that tries to predict the future movement of a stock based on past data. Trend analysis is based on the idea that what has happened in the past gives traders an idea of what will happen in the future. There are three main types of trends: short-, intermediate- and longterm. Trend Analysis Analysts make a trend analysis of performance over the past five to ten years to get an overall picture. Trend analysis is made in respect of sales, cost of sales, gross profit, net profit (before tax), net profit (after tax), net worth, debt, dividend policy, bonus and Rights issues, return on net worth, earnings per share, etc. 7.2.2 Common Size Statements Definition and Explanation of Vertical Analysis and Common Size Statements: Vertical analysis is the procedure of preparing and presenting common size statements. Common size statement is one that shows the items appearing on it in percentage form as well as in dollar form. Each item is stated as a percentage of some total of which that item is a part. Key financial changes and trends can be highlighted by the use of common size 28

statements. Common size statements are particularly useful when comparing data from different companies.

The information it contains in the selection, reclassification and summarization of the data contained in profit and loss account and balance sheet, it is no way replacement of either these statements. To provide a comparative view of movement of funds by the statement of changes in financial position is prepared for the period covered by the profit and loss account as well as the corresponding previous period. 7.2.3 Comparative Statement Comparative statements are financial statements that cover a different time frame, but are formatted in a manner that makes comparing line items from one period to those of a different period an easy process. This quality means that the comparative statement is a financial statement that lends itself well to the process of comparative analysis. Many companies make use of standardized formats in accounting functions that make the generation of a comparative statement quick and easy. The benefits of a comparative statement are varied for a corporation. Because of the uniform format of the statement, it is a simple process to compare the gross sales of a given product or all products of the company with the gross sales generated in a previous month, quarter, or year. Comparing generated revenue from one period to a 29

different period can add another dimension to analyzing the effectiveness of the sales effort, as the process makes it possible to identify trends such as a drop in revenue in spite of an increase in units sold. Along with being an excellent way to broaden the understanding of the success of the sales effort, a comparative statement can also help address changes in production costs. By comparing line items that catalog the expense for raw materials in one quarter with another quarter where the number of units produced is similar can make it possible to spot trends in expense increases, and thus help isolate the origin of those increases. This type of data can prove helpful to allowing the company to find raw materials from another source before the increased price for materials cuts into the overall profitability of the company. A comparative statement can be helpful for just about any organization that has to deal with finances in some manner. Even non-profit organizations can use the comparative statement method to ascertain trends in annual fund raising efforts. By making use of the comparative statement for the most recent effort and comparing the figures with those of the previous year’s event, it is possible to determine where expenses increased or decreased, and provide some insight in how to plan the following year’s event.


7.2.4 Ratio Analysis: This is the important tool available to financial analyst for their work. An accounting ratio shows the relationship in mathematical terms between two interrelated accounting figures. Fundamental Analysis has a very broad scope. One aspect looks at the general (qualitative) factors of a company. The other side considers tangible and measurable factors (quantitative). This means crunching and analyzing numbers from the financial statements. If used in conjunction with other methods, quantitative analysis can produce excellent results. Ratio analysis isn't just comparing different numbers from the balance sheet, income statement, and cash flow statement. It's comparing the number against previous years, other companies, the industry, or even the economy in general. Ratios look at the relationships between individual values and relate them to how a company has performed in the past, and might perform in the future. A ratio is one figure express in terms of another figure. It is a mathematical yardstick that measures the relationship two figures, 31

which are related to each other and mutually interdependent. Ratio is express by dividing one figure by the other related figure. Thus a ratio is an expression relating one number to another. It is simply the quotient of two numbers. MEANING OF RATIO ANALYSIS: Ratio analysis is the method or process by which the relationship of items or group of items in the financial statement are computed, determined and presented. Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial health and profitability of business enterprises. Ratio analysis can be used both in trend and static analysis. There are several ratios at the disposal of an annalist but their group of ratio he would prefer depends on the purpose and the objective of analysis. While a detailed explanation of ratio analysis is beyond the scope of this section, we will focus on a technique, which is easy to use. It can provide you with a valuable investment analysis tool. This technique is called cross-sectional analysis. Cross-sectional analysis compares financial ratios of several companies from the same industry. Ratio analysis can provide valuable information about a company's financial health. A financial ratio measures a company's performance in a specific area. For example, you could use a ratio of a company's debt to its equity to measure a company's leverage. By comparing the leverage ratios of two companies, you can determine which 32

company uses greater debt in the conduct of its business. A company whose leverage ratio is higher than a competitor's has more debt per equity. You can use this information to make a judgment as to which company is a better investment risk. However, you must be careful not to place too much importance on one ratio. You obtain a better indication of the direction in which a company is moving when several ratios are taken as a group. OBJECTIVE OF RATIOS Ratio is work out to analyze the following aspects of business organization1. Solvency• Long term • Short term • Immediate 2. Stability 3. Profitability 4. Operational E) Credit standing 5. Structural analysis 6. Effective utilization of resources 7. Leverage or external financing 8. Standardize financial information for comparisons 9. Evaluate current operations efficiency 10. Compare performance with past performance 33

11. Compare performance against other firms or industry standards. 12. Study the efficiency of operations efficiency 13. Study the risk of operations OF RATIO: Since a ratio is a mathematical relationship between to or more variables accounting figures, such relationship can be expressed in different ways as follows – A] As a pure ratio: For example the equity share capital of a company is Rs. 20,00,000 & the preference share capital is Rs. 5,00,000, the ratio of equity share capital to preference share capital is 20,00,000: 5,00,000 or simply 4:1. B] As a rate of times: In the above case the equity share capital may also be described as 4 times that of preference share capital. Similarly, the cash sales of a firm are Rs. 12,00,000 & credit sales are Rs. 30,00,000. so the ratio of credit sales to cash sales can be described as 2.5 [30,00,000/12,00,000] or simply by saying that the credit sales are 2.5 times that of cash sales.


C] As a percentage: In such a case, one item may be expressed as a percentage of some other item. For example, net sales of the firm are Rs.50,00,000 & the amount of the gross profit is Rs. 10,00,000, then the gross profit may be described as 20% of sales [ 10,00,000/50,00,000] STEPS IN RATIO ANALYSIS The ratio analysis requires two steps as follows: 1] Calculation of ratio 2]Comparing the ratio with some predetermined standards. The standard ratio may be the past ratio of the same firm or industry’s average ratio or a projected ratio or the ratio of the most successful firm in the industry. In interpreting the ratio of a particular firm, the analyst cannot reach any fruitful conclusion unless the calculated ratio is compared with some predetermined standard. The importance of a correct standard is oblivious as the conclusion is going to be based on the standard itself.

35 TYPES OF COMPARISONS The ratio can be compared in three different ways – 1] Cross section analysis: One of the way of comparing the ratio or ratios of the firm is to compare them with the ratio or ratios of some other selected firm in the same industry at the same point of time. So it involves the comparison of two or more firm’s financial ratio at the same point of time. The cross section analysis helps the analyst to find out as to how a particular firm has performed in relation to its competitors. The firms performance may be compared with the performance of the leader in the industry in order to uncover the major operational inefficiencies. The cross section analysis is easy to be undertaken as most of the data required for this may be available in financial statement of the firm. 2] Time series analysis: The analysis is called Time series analysis when the performance of a firm is evaluated over a period of time. By 36

comparing the present performance of a firm with the performance of the same firm over the last few years, an assessment can be made about the trend in progress of the firm, about the direction of progress of the firm. Time series analysis helps to the firm to assess whether the firm is approaching the long-term goals or not. The Time series analysis looks for (1) important trends in financial performance (2) shift in trend over the years (3) significant deviation if any from the other set of data. 3] Combined analysis: If the cross section & time analysis, both are combined together to study the behavior & pattern of ratio, then meaningful & comprehensive evaluation of the performance of the firm can definitely be made. A trend of ratio of a firm compared with the trend of the ratio of the standard firm can give good results. For example, the ratio of operating expenses to net sales for firm may be higher than the industry average however, over the years it has been declining for the firm, whereas the industry average has not shown any significant changes. The combined analysis as depicted in the above diagram, which clearly shows that the ratio of the firm is above the industry average, but it is decreasing over the years & is approaching the industry average. 37 PRE-REQUISITIES TO RATIO ANALYSIS In order to use the ratio analysis as device to make purposeful conclusions, there are certain pre-requisites, which must be taken care of. It may be noted that these prerequisites are not conditions for calculations for meaningful conclusions. The accounting figures are inactive in them & can be used for any ratio but meaningful & correct interpretation & conclusion can be arrived at only if the following points are well considered. 1) The dates of different financial statements from where data is taken must be same. 2) If possible, only audited financial statements should be considered, otherwise there must be sufficient evidence that the data is correct. 3) Accounting policies followed by different firms must be same in case of cross section analysis otherwise the results of the ratio analysis would be distorted. 4) One ratio may not throw light on any performance of the firm. Therefore, a group of ratios must be preferred. This will be conductive to counter checks.


5) Last but not least, the analyst must find out that the two figures being used to calculate a ratio must be related to each other, otherwise there is no purpose of calculating a ratio CLASSIFICATION OF RATIO


Figure 2 Classification of Ratio 40









Accounting ratios express the relationship between figures taken from financial statements. Figures may be taken from Balance Sheet , P& P A/C, or both. One-way of classification of ratios is based upon the sources from which are taken. 1] Balance sheet ratio: If the ratios are based on the figures of balance sheet, they are called Balance Sheet Ratios. E.g. ratio of current assets to current liabilities or ratio of debt to equity. While calculating these ratios, there is no need to refer to the Revenue statement. These ratios study the relationship between the assets & the liabilities, of the concern. These ratio help to judge the liquidity, solvency & capital structure of the concern. Balance sheet ratios are Current ratio, Liquid ratio, and Proprietary ratio, Capital gearing ratio, Debt equity ratio, and Stock working capital ratio. 2] Revenue ratio: Ratio based on the figures from the revenue statement is called revenue statement ratios. These ratio study the relationship between the profitability & the sales of the concern. Revenue ratios are Gross profit ratio, Operating ratio, Expense ratio, Net profit ratio, Net operating profit ratio, Stock turnover ratio.


3] Composite ratio: These ratios indicate the relationship between two items, of which one is found in the balance sheet & other in revenue statement. There are two types of composite ratiosa) Some composite ratios study the relationship between the profits & the investments of the concern. E.g. return on capital employed, return on proprietors fund, return on equity capital etc. Other composite ratios e.g. debtors turnover ratios, creditors turnover ratios, dividend payout ratios, & debt service ratios BASED ON FUNCTION: Accounting ratios can also be classified according to their functions in to liquidity ratios, leverage ratios, activity ratios, profitability ratios & turnover ratios. 1] Liquidity ratios: It shows the relationship between the current assets & current liabilities of the concern e.g. liquid ratios & current ratios. Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year) obligations. The ratios, which indicate the liquidity of a company, are Current ratio, Quick/Acid-Test ratio, and Cash ratio. These ratios are discussed below


2] Leverage ratios: It shows the relationship between proprietors funds & debts used in financing the assets of the concern e.g. capital gearing ratios, debt equity ratios, & Proprietory ratios. 3] Activity ratios: It shows relationship between the sales & the assets. It is also known as Turnover ratios & productivity ratios e.g. stock turnover ratios, debtors turnover ratios.

4] Profitability ratios: a) It shows the relationship between profits & sales e.g. operating ratios, gross profit ratios, operating net profit ratios, expenses ratios b) It shows the relationship between profit & investment e.g. return on investment, return on equity capital.

5] Coverage ratios:


It shows the relationship between the profit on the one hand & the claims of the outsiders to be paid out of such profit e.g. dividend payout ratios & debt service ratios.

BASED ON USER: 1] Ratios for short-term creditors: • Current ratios • liquid ratios • stock working capital ratios etc. 2] Ratios for the shareholders: • Return on proprietors fund • return on equity capital etc.


LIQUIDITY RATIO: Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year) obligations. The ratios, which indicate the liquidity of a company, are Current ratio, Quick/Acid-Test ratio, and Cash ratio. These ratios are discussed below


CURRENT RATIO Meaning: This ratio compares the current assests with the current liabilities. It is also known as ‘working capital ratio’ or ‘ solvency ratio’. It is expressed in the form of pure ratio. E.g. 2:1


Formula: Current Ratio = Current Assets / Current Liabilities Significance: The current assests of a firm represents those assets which can be, in the ordinary course of business, converted into cash within a short period time, normally not exceeding one year. The current liabilities defined as liabilities which are short term maturing obligations to be met, as originally contemplated, with in a year. Current ratio (CR) is the ratio of total current assets (CA) to total current liabilities (CL). Current assets include cash and bank balances; inventory of raw materials, semifinished and finished goods; marketable securities; debtors (net of provision for bad and doubtful debts); bills receivable; and prepaid expenses.

Current liabilities consist of trade creditors, bills payable, bank credit, provision for taxation, dividends payable and outstanding expenses. This ratio measures the liquidity of the current assets and the ability of a company to meet its short-term debt obligation. CR measures the ability of the company to meet its CL, i.e., CA gets converted into cash in the operating cycle of the firm and provides the funds needed to pay for CL. The higher the current ratio, the greater the short-term solvency. This compares assets, which will become liquid within 48

approximately twelve months with liabilities, which will be due for payment in the same period and is intended to indicate whether there are sufficient short-term assets to meet the short- term liabilities. Recommended current ratio is 2: 1. Any ratio below indicates that the entity may face liquidity problem but also Ratio over 2: 1 as above indicates over trading, that is the entity is under utilizing its current assets. LIQUID RATIO: Meaning: Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratio compare the quick assets with the quick liabilities. It is expressed in the form of pure ratio. E.g. 1:1. The term quick assets refer to current assets, which can be converted into, cash immediately or at a short notice without diminution of value.

Formula: Liquid ratio = Quick Assets / Current Liabilities Significance:


Quick Ratio (QR) is the ratio between quick current assets (QA) and CL. QA refers to those current assets that can be converted into cash immediately without any value strength. QA includes cash and bank balances, short-term marketable securities, and sundry debtors. Inventory and prepaid expenses are excluded since these cannot be turned into cash as and when required. QR indicates the extent to which a company can pay its current liabilities without relying on the sale of inventory. This is a fairly stringent measure of liquidity because it is based on those current assets, which are highly liquid. Inventories are excluded from the numerator of this ratio because they are deemed the least liquid component of current assets. Generally, a quick ratio of 1:1 is considered good. One drawback of the quick ratio is that it ignores the timing of receipts and payments. EARNING PER SAHRE:Meaning: Earnings per Share are calculated to find out overall profitability of the organization. An earnings per Share represents earning of the company whether or not dividends are declared. If there is only one class of shares, the earning per share are determined by dividing net profit by the number of equity shares.EPS measures the profits available to the equity shareholders on each share held.


Formula: Earning per share = NPAT / Number of equity share Significance: The higher EPS will attract more investors to acquire shares in the company as it indicates that the business is more profitable enough to pay the dividends in time. But remember not all profit earned is going to be distributed as dividends the company also retains some profits for the business DIVIDEND PAYOUT RATIO:Meaning: Dividend Pay-out Ratio shows the relationship between the dividend paid to equity shareholders out of the profit available to the equity shareholders. Formula: Dividend Pay out ratio = Dividend per share / Earning per share *100


Significance: D/P ratio shows the percentage share of net profits after taxes and after preference dividend has been paid to the preference equity holders. CAPITAL GEARING RATIO:Meaning: Gearing means the process of increasing the equity shareholders return through the use of debt. Equity shareholders earn more when the rate of the return on total capital is more than the rate of interest on debts. This is also known as leverage or trading on equity. The Capital-gearing ratio shows the relationship between two types of capital viz: - equity capital & preference capital & long term borrowings. It is expressed as a pure ratio. Formula: Capital gearing ratio = Preference capital+ secured loan / Equity capital & reserve & surplus


Significance: Capital gearing ratio indicates the proportion of debt & equity in the financing of assets of a concern. If the amount of fixed cost bearing capital is more than the equity share capital including reserves an undistributed profits), it will be called high capital gearing and if it is less, it will be called low capital gearing. The high gearing will be beneficial to equity shareholders when the rate of interest/dividend payable on fixed cost bearing capital is lower than the rate of return on investment in business. Thus, the main objective of using fixed cost bearing capital is to maximize the profits available to equity shareholders. PROFITABILITY These ratios help measure the profitability of a firm. A firm, which generates a substantial amount of profits per rupee of sales, can comfortably meet its operating expenses and provide more returns to its shareholders. The relationship between profit and sales is measured by profitability ratios. There are two types of profitability ratios: Gross Profit Margin and Net Profit Margin.


GROSS PROFIT RATIO:Meaning: This ratio measures the relationship between gross profit and sales. It is defined as the excess of the net sales over cost of goods sold or excess of revenue over cost. Formula: Gross profit ratio = Gross profit / Net sales * 100 Significance: This ratio shows the profit that remains after the manufacturing costs have been met. It measures the efficiency of production as well as pricing. This ratio helps to judge how efficient the concern is I managing its production, purchase, selling & inventory, how good its control is over the direct cost, how productive the concern , how much amount is left to meet other expenses & earn net profit.


NET PROFIT RATIO:Meaning: Net Profit ratio indicates the relationship between the net profit & the sales it is usually expressed in the form of a percentage. Formula: Net profit ratio = NPAT / Net sales * 100 Significance: This ratio shows the net earnings (to be distributed to both equity and preference shareholders) as a percentage of net sales. It measures the overall efficiency of production, administration, selling, financing, pricing and tax management. Jointly considered, the gross and net profit margin ratios provide an understanding of the cost and profit structure of a firm.


RETURN ON CAPITAL EMPLOYED:Meaning: The profitability of the firm can also be analyzed from the point of view of the total funds employed in the firm. The term fund employed or the capital employed refers to the total long-term source of funds. It means that the capital employed comprises of shareholder funds plus long-term debts. Alternatively it can also be defined as fixed assets plus net working capital. Capital employed refers to the longterm funds invested by the creditors and the owners of a firm. It is the sum of long-term liabilities and owner's equity. ROCE indicates the efficiency with which the long-term funds of a firm are utilized. Formula: Return on capital employed = NPAT / Capital employed * 100 Significance : These ratios determine how quickly certain current assets can be converted into cash. They are also called efficiency ratios or asset utilization ratios as they measure the efficiency of a firm in managing assets. These ratios are based on the relationship between the level


of activity represented by sales or cost of goods sold and levels of investment in various assets FINANCIAL These ratios determine how quickly certain current assets can be converted into cash. They are also called efficiency ratios or asset utilization ratios as they measure the efficiency of a firm in managing assets. These ratios are based on the relationship between the level of activity represented by sales or cost of goods sold and levels of investment in various assets. The important turnover ratios are debtors turnover ratio, average collection period, inventory/stock turnover ratio, fixed assets turnover ratio, andtotal assets turnover ratio. These are described below:


DEBTORS TURNOVER RATIO (DTO) Meaning: DTO is calculated by dividing the net credit sales by average debtors outstanding during the year. It measures the liquidity of a firm's debts. Net credit sales are the gross credit sales minus returns, if any, from customers. Average debtors are the average of debtors at the beginning and at the end of the year. This ratio shows how rapidly debts are collected. The higher the DTO, the better it is for the organization. 58

Formula: Debtors turnover ratio = Credit sales / Average debtors Significance: This ratio indicates the speed with which the amount is collected from debtors. The higher the ratio, the better it is, since it indicates that amount from debtors is being collected more quickly. The more quickly the debtors pay, the less the risk from bad- debts, and so the lower the expenses of collection and increase in the liquidity of the firm. By comparing the debtors turnover ratio of the current year with the previous year, it may be assessed whether the sales policy of the management is efficient or not. Average collection period This ratio indicates the time with in which the amount is collected from debtors and bills receivables. Formula: Average collection period = debtors + bills receivable / credit sales per day


Here, credit sales per day = net credit sales of the year / 365 Average collection period can also be calculated on the bases of ‘debtors turnover ratio’. The Formula will be: Average collection period = 12 months or 365 days / debtors turnover ratio Significance: This ratio shows the time in which the customers are paying for credit sales. A higher debt collection period is thus, an indicates of the inefficiency and negligence on the part of management. On the other hand, if there is decrease in debt collection period, it indicates prompt payment by debtors which reduces the chance of bad debts. INVENTORY OR STOCK TURNOVER RATIO (ITR) Meaning: ITR refers to the number of times the inventory is sold and replaced during the accounting period.


Formula: Stock Turnover Ratio = COGS / Average stock Significance: ITR reflects the efficiency of inventory management. The higher the ratio, the more efficient is the management of inventories, and vice versa. However, a high inventory turnover may also result from a low level of inventory, which may lead to frequent stock outs and loss of sales and customer goodwill. For calculating ITR, the average of inventories at the beginning and the end of the year is taken. In general, averages may be used when a flow figure (in this case, cost of goods sold) is related to a stock figure (inventories). FIXED ASSETS TURNOVER (FAT) The FAT ratio measures the net sales per rupee of investment in fixed assets. Formula: Fixed assets turnover = Net sales / Net fixed assets 61

Significance: This ratio measures the efficiency with which fixed assets are employed. A high ratio indicates a high degree of efficiency in asset utilization while a low ratio reflects an inefficient use of assets. However, this ratio should be used with caution because when the fixed assets of a firm are old and substantially depreciated, the fixed assets turnover ratio tends to be high (because the denominator of the ratio is very low).

PROPRIETORS RATIO: Meaning: Proprietary ratio is a test of financial & credit strength of the business. It relates shareholders fund to total assets. This ratio determines the long term or ultimate solvency of the company. In other words, Proprietary ratio determines as to what extent the owner’s interest & expectations are fulfilled from the total investment made in the business operation. Proprietary ratio compares the proprietor fund with total liabilities. It is usually expressed in the form of percentage. Total assets also know it as net worth.


Formula: Proprietary ratio = Proprietary fund / Total fund Significance: This ratio should be 33% or more than that. In other words, the proportion of shareholders funds to total funds should be 33% or more. A higher proprietary ratio is generally treated an indicator of sound financial position from long-term point of view, because it means that the firm is less dependent on external sources of finance. If the ratio is low it indicates that long-term loans are less secured and they face the risk of losing their money. STOCK WORKING CAPITAL RATIO: Meaning: This ratio shows the relationship between the closing stock & the working capital. It helps to judge the quantum of inventories in relation to the working capital of the business. The purpose of this ratio is to show the extent to which working capital is blocked in inventories. The ratio highlights the predominance of stocks in the current financial position of the company. It is expressed as a percentage. 63

Formula: Stock working capital ratio = Stock / Working Capital Significance: Stock working capital ratio is a liquidity ratio. It indicates the composition & quality of the working capital. This ratio also helps to study the solvency of a concern. It is a qualitative test of solvency. It shows the extent of funds blocked in stock. If investment in stock is higher it means that the amount of liquid assets is lower. DEBT EQUITY RATIO: MEANING: Debt equity ratio is also called as leverage ratio. Leverage means the process of the increasing the equity shareholders return through the use of debt. Leverage is also known as ‘gearing’ or ‘trading on equity’. Debt equity ratio shows the margin of safety for long-term creditors & the balance between debt & equity. Formula: Debt equity ratio = Total long-term debt / fund 64 Total shareholders

Significance: This ratio is calculated to assess the ability of the firm to meet its long term liabilities. Generally, debt equity ratio of is considered safe. If the debt equity ratio is more than that, it shows a rather risky financial position from the long-term point of view, as it indicates that more and more funds invested in the business are provided by longterm lenders. The lower this ratio, the better it is for long-term lenders because they are more secure in that case. Lower than 2:1 debt equity ratio provides sufficient protection to long-term lenders. RETURN ON PROPRIETOR FUND: Meaning: Return on proprietors fund is also known as ‘return on proprietors equity’ or ‘return on shareholders investment’ or ‘ investment ratio’. This ratio indicates the relationship between net profit earned & total proprietors funds. Return on proprietors fund is a profitability ratio, which the relationship between profit & investment by the proprietors in the concern. Its purpose is to measure the rate of return on the total fund made available by the owners. This ratio helps to judge how efficient the


concern is in managing the owner’s fund at disposal. This ratio is of practical importance to prospective investors & shareholders. Formula: Return on proprietors fund = NPAT / Proprietors fund * 100 CREDITORS TURNOVER RATIO: It is same as debtors turnover ratio. It shows the speed at which payments are made to the supplier for purchase made from them. It is a relation between net credit purchase and average creditors. Formula : Credit turnover ratio = Net credit purchase / Average creditors Average age of accounts payable = Months in a year / Credit turnover ratio Significance: Both the ratios indicate promptness in payment of creditor purchases. Higher creditors turnover ratio or a lower credit period enjoyed signifies that the creditors are being paid promptly. It enhances credit worthiness of the company. A very low ratio indicates that the company is not taking full benefit of the credit period allowed by the creditors. 66 Uses of Ratio analysis • To evaluate performance, compared to previous years and to competitors and the industry • To set benchmarks or standards for performance • To highlight areas that need to be improved, or areas that offer the most promising future potential • To enable external parties, such as investors or lenders, to assess the creditworthiness and profitability of the firm Advantage of ratio analysis • Helpful in analysis of financial statements. • Helpful in comparative study. • Helpful in locating the weak spots of the business. • Helpful in forecasting. • Estimate about the trend of the business. • Fixation of ideal standards. • Effective control. • Study of financial soundness.

67 Limitations of Ratio analysis • There is considerable subjectivity involved, as there is no “correct” number for the various ratios. Further, it is hard to reach a definite conclusion when some of the ratios are favorable and some are unfavorable. • Ratios may not be strictly comparable for different firms due to a variety of factors such as different accounting practices or different fiscal year periods. Furthermore, if a firm is engaged in diverse product lines, it may be difficult to identify the industry category to which the firm belongs. Also, just because a specific ratio is better than the average does not necessarily mean that the company is doing well; it is quite possible rest of the industry is doing very poorly. • Ratios are based on financial statements that reflect the past and not the future. Unless the ratios are stable, it may be difficult to make reasonable projections about future trends. Furthermore, financial statements such as the balance sheet indicate the picture at “one point” in time, and thus may not be representative of longer periods. • Financial statements provide an assessment of the costs and not value. For example, fixed assets are usually shown on the balance sheet as the cost of the assets less their accumulated


depreciation, which may not reflect the actual current market value of those assets. • Financial statements do not include all items. For example, it is hard to put a value on human capital (such as management expertise). And recent accounting scandals have brought light to the extent of financing that may occur off the balance sheet. • Accounting standards and practices vary among countries, and thus hamper meaningful global comparisons.


Chapter 8


8.1 Profile 70

ICICI Bank is India's second-largest bank with total assets of about Rs.1,67,659 crore at March 31, 2005 and profit after tax of Rs. 2,005 crore for the year ended March 31, 2005 (Rs. 1,637 crore in fiscal 2004). ICICI Bank has a network of about 560 branches and extension counters and over 1,900 ATMs. 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 areas of investment banking, life and non-life insurance, venture capital and asset management. 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. ICICI Bank currently has subsidiaries in the United Kingdom and Canada, branches in Singapore and Bahrain and representative offices in the United States, China, United Arab Emirates, Bangladesh and South Africa. ICICI Bank's equity shares are listed in India on the Stock Exchange, Mumbai and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE). As required by the stock exchanges, ICICI Bank has formulated a Code of Business Conduct and Ethics for its directors and employees. 71

At April 4, 2005, ICICI Bank, with free float market capitalization of about Rs. 308.00 billion (US$ 7.00 billion) ranked third amongst all the companies listed on the Indian stock exchanges. ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. In the 1990s, 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, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE.


After consideration of various corporate structuring alternatives in the context of the emerging competitive scenario in the Indian banking industry, and the move towards universal banking, the managements of ICICI and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic alternative for both entities, and would create the optimal legal structure for the ICICI group's universal banking strategy. The merger would enhance value for ICICI shareholders through the merged entity's access to low-cost deposits, greater opportunities for earning fee-based income and the ability to participate in the payments system and provide transactionbanking services. The merger would enhance value for ICICI Bank shareholders through a large capital base and scale of operations, seamless access to ICICI's strong corporate relationships built up over five decades, entry into new business segments, higher market share in various business segments, particularly fee-based services, and access to the vast talent pool of ICICI and its subsidiaries. In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI and two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by shareholders of ICICI and ICICI Bank in January 2002, by the High Court of Gujarat at Ahmedabad in March 2002, and by the High Court of Judicature at Mumbai and the Reserve Bank of India in April 2002. Consequent to the merger, the ICICI group's financing and banking operations, both wholesale and retail, have been integrated in a single entity. 73

8.2 Vision and Mission of ICICI Bank Ltd. Vision of ICICI Bank:

Mission : 74

We will leverage our people, technology, speed and financial capital to: • Be the banker of first choice for our customers by delivering high quality, world-class products and services. • Expand the frontiers of our business globally. • Play a proactive role in the full realization of India’s potential. • Maintain a healthy financial profile and diversify our earnings across businesses and geographies. • Maintain high standards of governance and ethics. • Contribute positively to the various countries and markets in which we operate. • Create value for our stakeholders.



ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry. The principal objective was In to the create 1990s, a development financial institution for providing ICICI transformed its business from a medium-term and long-term project financing to Indian businesses. development financial institution offering only project finance to a diversified financial services group offering a wide variety of products and services, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE. After consideration of various corporate structuring alternatives in the context of the emerging competitive scenario in the Indian banking industry, and the move towards universal banking, the managements of ICICI and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic alternative for both entities, and would create the optimal legal structure for the ICICI group's universal banking strategy. The merger would enhance value for 76

ICICI shareholders through the merged entity's access to low-cost deposits, greater opportunities for earning fee-based income and the ability to participate in the payments system and provide transactionbanking services. The merger would enhance value for ICICI Bank shareholders through a large capital base and scale of operations, seamless access to ICICI's strong corporate relationships built up over five decades, entry into new business segments, higher market share in various business segments, particularly feebased services, and access to the vast talent pool of ICICI and its subsidiaries. In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI and two of its whollyowned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by shareholders of ICICI and ICICI Bank in January 2002, by the High Citst of Gujarat at Ahmedabad in March 2002, and by the High Citst of Judicature at Mumbai and the Reserve Bank of India in April 2002. Consequent to the merger, the ICICI group's financing and banking operations, both wholesale and retail, have been integrated in a single entity. ICICI Bank has formulated a Code of Business Conduct and Ethics for its directors and employees.

As on June 30, 2008 CMP: - 955.45

FY’08 Target Price: - 1,710 77

Incorporation Year Managing Director Registered Office

1994 K. V. Kamath Landmark, Race Course Circle, Alakapuri, Vadodra-390007, Gujrat 91-265-2339923/25/27/28 91-265-2339926 10 532174 A ICICIBANK ICICIBC IN ICBK.BO INE090A01013 1 BSE, NSE, NYSE 03 Jun/Jul Jul

Telephone Fax Website Face Value [Rs] BSE Code BSE Group NSE Code Bloomberg Reuters ISIN Demat Market Lot Listing Financial Year End Book Closure Month AGM Month


Table :1 Background Of ICICI 8.4 BOARD MEMBERS • Mr. N. Vaghul, Chairman • Mr. Uday M. Chitale • Mr. Sridar Iyengar • Mr. Lakshmi N. Mittal • Mr. Anupam Puri • Mr. Vinod Rai • Mr. Somesh R. Sathe • Mr. M.K. Sharma 79

• Mr. P.M. Sinha • Prof. Marti G. Subrahmanyam • Mr. T.S.Vijayan • Mr. V. Prem Watsa • Mr. K.V. Kamath, Managing Director & CEO • Ms. Lalita D. Gupte, Joint Managing Director • Ms. Kalpana Morparia, Deputy Managing Director • Ms. Chanda Kochhar, Executive Director • Dr. Nachiket Mor, Executive Director


Why ICICI Bank Leads

ICICI bank envisaged retail banking as a key area of strategic emphasis for it — with the share of the retail business (both on the funding and asset sides) growing strongly year after year— the share of retail business, particularly retail assets. It appears to be following a business strategy that is quite different from the high-volume and commodity-style approach of AXIS Bank and HDFC Bank. That strategy also has its pluses in terms of the relatively higher margins in some segments of the retail business and the in-built credit risk diversification (and mitigation) achieved through 80

a widely dispersed retail credit portfolio. ICICI Bank has been able to maintain the quality of its loan portfolio for a decent time period now.

8.6 SUBSIDIARIES/JOINT VENTURE/ ASSOCIATES  Domestic Subsidiaries • ICICI Brokerage Services Limited. • ICICI Distribution Finance Private Limited. • ICICI Home Finance Company Limited. • ICICI Investment Management Company Limited.


• ICICI Trusteeship Services Limited. • Prudential ICICI Trust Limited.


Table 2: Subsidiaries ICICI Venture Funds Management Company Ltd.

Manages funds that provide venture capital to start-up companies and undertake private equity investments. Engaged in equity underwriting,

ICICI Primary Dealership Ltd.

brokerage and primary dealership in government securities. Leading Investment Banking

ICICI Securities Ltd.

Organization. Leading third party BPO service

First Source Solutions Ltd.

provider. Retail market share of about 28%

ICICI Prudential Life Insurance Company Ltd.

in new business by private sector life insurance companies during FY 2007. Market share of about 34% in

ICICI Lombard General Insurance Company Ltd.

gross written premium among the private sector general insurance companies during FY2007. Among the top two mutual funds in India in terms of total funds

ICICI Prudential Asset Management Company

under management in the Indian 83 Mutual Fund Industry for FY07 with a market share of over 11%. (Source: AMFI)

 International Subsidiaries • ICICI Bank Canada. • ICICI Bank Eurasia Limited Liability Company. • ICICI International Limited. • ICICI Securities Holding Inc*. • ICICI Securities Inc*. • ICICI Bank UK Limited.



Awards in 2009

ICICI Bank For the third year in a row ICICI Bank has won The Asset Triple A Country Awards for Best Domestic Bank in India ICICI Bank won the Most Admired Knowledge Enterprises (MAKE) India 2009 Award. ICICI Bank won the first place in "Maximizing Enterprise Intellectual Capital" category, October 28, 2009 Ms Chanda Kochhar, MD and CEO was awarded with the Indian Business Women Leadership Award at NDTV Profit Business Leadership Awards , October 26, 2009. ICICI Bank received two awards in CNBC Awaaz Consumer Awards; one for the most preferred auto loan and the other for most preferred credit Card, on September 30, 2009 Ms. Chanda Kochhar, Managing Director & CEO ranked in the top 20 of the World's 100 Most Powerful Women list compiled by Forbes, August 2009 Financial Express at its FE India's Best Banks Awards, honoured Mr. K.V. Kamath, Chairman with the Lifetime Achievement Award , July 25, 2009 ICICI Bank won Asset Triple A Investment Awards for the Best Derivative House, India. In addition ICICI Bank were Highly 85

commended , Local Currency Structured product, India for 1.5 year ADR GDR linked Range Accrual Note., July 2009 ICICI bank won in three categories at World finance Banking awards on June 16, 2009 Best NRI Services bank Excellence in Private Banking, APAC Region Excellence in Remittance Business, APAC Region ICICI Bank Mobile Banking was adjudged "Best Bank Award for Initiatives in Mobile Payments and Banking" by IDRBT, on May 18, 2009 in Hyderabad. ICICI Bank's b2 branchfree banking was adjudged "Best E-Banking Project Implementation Award 2008" by The Asian Banker, on May 11, 2009 at the China World Hotel in Beijing. ICICI Bank bags the "Best bank in SME financing (Private Sector)" at the Dun & Bradstreet Banking awards 2009. ICICI Bank NRI services wins the "Excellence in Business Model Innovation Award" in the eighth Asian Banker Excellence in Retail Financial Services Awards Programme. ICICI Bank's Rural Micro Banking and Agri-Business Group wins WOW Event & Experiential Marketing Award in two categories "Rural Marketing programme of the year" and "Small Budget On Ground Promotion of the Year". These awards were given for Cattle Loan 'Kamdhenu Campaign' and "Talkies on the move campaign' respectively.


ICICI Bank's Germany Branch has been certified by "Stiftung Warrentest". ICICI Bank is ranked 2nd amongst 57 savings products across 19 banks ICICI Bank Germany won the yearly banking test of the investor magazine €uro in the "call money “category. The ICICI Bank was awarded the runner's up position in Gartner Business Intelligence and Excellence Award for Asia Pacific for its Business Intelligence functions. ICICI Bank's Organisational Excellence Group was recently awarded ISO 9001:2008 certification by TUV Nord. The scope of certification comprised processes around consulting and capability building on methods of quality & improvements. ICICI Bank has been awarded the following titles under The Asset Triple A Country Awards for 2009: • Best Transaction Bank in India • Best Trade Finance Bank in India • Best Cash Management Bank in India • Best Domestic Custodian in India ICICI Bank has bagged the Best Cash Management Bank in India award for the second year in a row. The other awards have been bagged for the third year in a row. ICICI Bank Canada received the prestigious Canadian Helen Keller Award at the Canadian Helen Keller Centre's Fifth Annual Luncheon in Toronto. The award was given to ICICI Bank its long-standing support to this unique training centre for people who are deaf-blind.


Chapter 9

Data analysis and interpretation


9.1.1 Comparative Profit AND Loss a/c % Increase & Decrease (3.08)

2008 Rs. cr INCOME Operating Income EXPENSES Financial Expenses Personal Expenses Selling Expenses Administrative Expenses TOTAL OPER. EXPENSES OPERATING PROFIT Other Recurring Income

2009 Rs. cr

Increase & Decrease




23,484.24 2,078.90 1,750.60 6,447.32

22,725.93 1,971.70 669.21 7,475.63

(758.31) (107.20) (1,081.39) 1,028.31

(3.23) (5.16) (61.77) 15.95












4.04 89


5,772.43 -509.77 578.35 5,703.85 1,611.73 4,092.12

5,738.55 -511.17 678.60 5,571.13 1,830.51 3,740.62

(33.88) (1.40) 100.25 (132.72) 218.78 (351.50)

(0.59) 0.27 17.33 (2.33) 13.57 (8.59)

Table 3 : Comparative Profit AND Loss a/c

Interpretation : 90

By analyzing the summarized profit & loss account of ICICI Bank, the following trends are presented:

Operating profit decreased to 5.24% for 2008 to 2009 due to recession. which is less than as compared to increased to Rs. 5,874 crore for 2007 from Rs. 3,888 crore for 2006

• •

Profit after tax decreased to 8.59 for 2008 to 2009 Profit before tax decrease by 2.33% in 2009 from 2009. it’s increased to Rs. 132.72Billion for 2008 from Rs. 36.48 Billion for FY2007 which is also less than as compared to increased to Rs. 3,648 crore for 2007 from Rs. 3,097 crore for 2006.

Provisions and contingencies (excluding provision for tax) increased to 0.27%.

• Other Recurring Income of ICICI bank increased in 2009 by 4.04% from 2008.


9.1.2 COMPARATIVE Balance Sheet % Increase & Decrease

2008 Rs. cr CAPITAL & LIABILITIES Owned Funds Equity Share Capital Preferential Share Capital Reserves & Surplus Loan Funds Deposits Borrowings made by the bank TOTAL ASSETS Cash & Balances with RBI Money at call and Short Notice Investments Advances Fixed Assets 8,663.60

2009 Rs. cr

Increase & Decrease

1,112.68 350.00 45,357.53

1,113.29 350.00 48,419.73

0.61 0.00 3,062.20

0.05 0.00 6.75 (10.67) 2.55 (5.98)

244,431.05 218,347.82 (26,083.23) 65,648.43 67,323.69 1,675.26

356,899.69 335,554.53 (21,345.16)






3,766.63 (8,396.03) (6,970.53)

43.48 (7.53) (3.24) 92

111,454.34 103,058.31 215,060.94 208,090.41

Gross Block Accumulated Depreciation Net Block Net Current Assets TOTAL

7,036.00 2,927.11 4,108.89 31,129.77

7,443.71 3,642.09 3,801.62 34,384.06

407.71 714.98 (307.27) 3,254.29

5.79 24.43 (7.48) 10.45 (5.98)

356,899.69 335,554.53 (21,345.16)

Table 4 : Comparative Balance Sheet

Interpretation : By analyzing the balance sheet of ICICI Bank, the following trends are presented:


• Our total assets asset increased by 10.45% billion at year-end fiscal 2009 from year-end fiscal 2008.It show that company had purchase current asset within 2008-09. • Decrease in cash balance with bank in 2009 is less than in the previous year 2008. • But decrease in investment in 2009 is also less than the previous year. • Increase in advances in 2008 from Rs 2256.16 Billion to Rs1958.66 Billion in 2007. • Erstwhile ICICI borrowings is increasing in years 2009 but rate of decreasing is less in 2008 i.e. 18% but in 2007 it is 31%. • Our equity share capital and reserves at year-end fiscal 2009 increased to Rs. 0.05 billion as compared to 2008 • Total deposits increased by 6.0% to Rs. 2,444.31 billion at year-end fiscal 2008 from Rs. 2,305.10 billion at year-end fiscal 2007.

9.2.1 Trend Analysis of Profit and Loss with base year 2005 2005 Rs. cr 2006 Rs. cr 2007 Rs. cr 2008 Rs. cr 2009 Rs. cr 94

INCOME Operating Income EXPENSES Financial Expenses Personel Expenses Selling Expenses Administrati ve Expenses TOTAL OPER. EXPENSES OPERATIN G PROFIT Other Recurring Income ADJUSTED PBDIT Provisions Depreciatio n ADJUSTED PBT Taxes ADJUSTED






100 100 100

146.06 146.77 139.77

248.95 219.25 289.45

357.40 281.92 290.94

345.86 267.38 111.22





















100 100 100 100 100 100

119.43 263.72 105.66 122.15 106.61 126.19




-4898.84 -5927.56 -5943.84 92.28 157.33 188.55 149.21 97.97 225.51 308.76 203.86 114.95 220.26 350.67 186.35 95

PAT Table 5 : Trend Analysis of Profit and Loss with base year 2005


T e dP A r n /L /c
40 0 30 5 30 0 20 5 % 20 0 10 5 10 0 5 0 0 20 05 20 06 20 07 ya er O E A IN IN O E PR T G C M A JU T DP D D S E B IT A JU T DP T D SE A
Figure 1 Trend of P/L

20 08

20 09



Interpretation : 1) TOTAL INCOME:The total income of the company is continuously increased from 100% to 333.40% in the last three years from 2005-06 to 2007-08 because of highly increase in the service revenue. The total income is less increased because of decrease in the other income from 309.17 to 65.58. 2) EXPENSES:The operating expenses of the company is increasing in last 5 years from 100% to 358.61 % because of the highly increase in the network operating expenses from 2208.19milion to 10469.53 million, advertisement and business promotion expense and administrative expenses. It was comparatively highly increase than the total income so it inversely affects the profit margin of the company 3) PBDIT:The profit before financial charges, amortization expenses and taxes increases from 100% to 183.44% but it increases less than sales increases because of highly increase in the operating expenses.


4) PBT:The PBT of the company was continuously increased in last three years from 2005-06 to 2007-08 because of the comparatively less increased in the financial charges and the amortization expenditures. The profit before tax is increased in the 2007-08 than 2006-07 because of decrease in the financial charges. In 2008-09 decrease from 225.51 to 220.26

5) PAT:The PAT of the company is increasing from 100% to 203.86%till 2008 because of continuously increase in the profit before tax. It expresses the satisfactory situation for the company and one can say that company has high ability to operate the business efficiently. But in 2009 PAT decreases upto 186.35because of increase in expenses.

9.2.2 Trend Analysis of Balance Sheet with base year 2005


2005 % CAPITAL & LIABILITIES Owned Funds Equity Share Capital Preferential Share Capital Reserves & Surplus Loan Funds Deposits Borrowings made by the bank TOTAL FUNDS AVAILABLE ASSETS Cash & Balances with RBI Money at call and Short Notice Investments Advances Fixed 100 100 100 100 100

2006 %

2007 %

2008 %

2009 %











100 100 100

180.44 165.38 114.84

198.2 230.93 152.8

383.96 244.87 195.71

227.15 132.27 174.77









123.09 141.71 160.72

279.64 180.75 211.95

131.56 220.76 241.66

153.35 144.04 145.49 100

Assets Gross Block Accumulated Depreciation Net Block Capital Work-inprogress Net Current Assets TOTAL FUND EMPLYED

100 100 100 100

108.02 133.63 98.58 153.62

113.99 159.66 97.161 196.95

127.33 196.77 101.75 0

124.72 183.22 95.501 0











Table 6: Trend Analysis of Balance Sheet with base year 2005


C p a a dL b y a it l n ia ilit
40 5

40 0

30 5

30 0

20 5

20 0 10 5 10 0 5 0 0 20 05 20 06 20 07 20 08

ya er 20 09

E u yS a eC p a q it h r a it l Dp s s e o it

Pee e t lS a eC p a r f r n ia h r a it l B r o in s or w g

R s r e &S r lu e ev s u p s N tW r h e ot

Figure 2 Trend of Capital & Liability


As t s es
50 0 40 5 40 0 30 5 30 0 % 20 5 20 0 10 5 10 0 5 0 0 20 05 20 06 20 07 Y as er 20 08 20 09

C s &B la c sw hR I a h a n e it B In e t e t v s m ns N tB c e lo k T t l F nE p y d o a u m lo e

M n ya c ll a dS o tN t e o e t a n h r o ic A v ne da c s N tC r e tA s t e ur n s e s

Figure 3 : Trend of Asset


INTERPRETATION:1) SHARE HOLDER’S FUND:The share holders fund of the company increases from 100% to 492.72% in the last five years the share holders’ fund was increased because the company had issued bonus share. And also issues the additional shares. 2) LOAN FUNDS:The loan fund of the company increases fromv100% to 307.04% (including secured & unsecured loan) the company has increased in the secured loan till 2008 but decreased in the 2009. 3)Total fund employed : The net worth of the company increased from 100% to 244.01% in 2008 because highly increased in the shareholder’s fund. but it’s become 148.37


APPLICATION OF FUND:1) FIXED ASSETS Company’s fixed assets increased from 100% in the year 2004-05 to 101.75% in 2007-08 and it’s become 95.501% 2) INVESTMENT:The investment of the company increased from 100% to 220.76% in 2007-08 and 144.04% in 2008-09 because of the company has invested its capital in stock market, mutual fund & subsidiary company. 3) CURRENT ASSETS, LOANS & ADVANCES: The current assets, loans and advances of the company increased because of highly increased in the cash& bank balance. 4) CURRENT LIABILITIES:The current liabilities and provisions of the company decreased because of decreased in the short term loan and in creditors.


9.3 Ratio Analysis CURRENT RATIO Formula : Current Ratio = Current Assets / Current Liabilities

2005 Current Assets Current Liabilities Current Ratio 11115.99 21796.06 0.51

2006 15642.79 25230.31 0.62

2007 23551.85 38609.59 0.61

2008 31129.77 43235.79 0.72

2009 343484.06 440364.18 0.78

Table 7: Current Ratio


Current Ratio



0.62 0.72 0.61

Figure 4 : Current Ratio Interpretation :





• The Current Ratio of the Company decreased in 2008-09 from 0.72 to 0.78 because of increase in the loans and advances from 310079.48 to 285671.51 and increase in sundry Assets from 31,129.77 to 34,384.06. • The Current Ratio of the Company decreases in 2007-08 up to from 0.61 to .072 because of the increase in Cash and Bank Balance from 18,706.88 to 29,377.53. 107

• The Committee appointed by the R.B.I recommended a satisfaction current ratio is 1.33:1 the company’s current ratio is raising continuously so it is satisfactory.

LIQUID RATIO: Liquid ratio = Quick Assets / Current Liabilities

Quick Assets Current Liabilities Liquid ratio

2005 2006 2007 2008 2009 108544.38 167539.26 233201.92 277573.77 2615763.23

21796.06 4.98

25230.31 6.64

38609.59 6.04

43235.79 6.42

440364.18 5.94

Table 8: Liquid Ratio


Q ic R t u k aio

54 .9

48 .9

62 .4 64 .0

64 .6






Figure 5: Liquid Ratio Interpretation : • As the standard ratio the quick ratio of 1:1 is satisfactory. • The quick ratio of the company is decreasing from 6.42 to 5.94 in 2008-09 because of increase in sundry creditors and decrease in the loans and advances. • The quick ratio of the company is decreasing because of decrease in cash bank balance. • This situation express the company’s has less quick assets which are used to meet the quick liability of the current, thus company may come in trouble for a short period of time.


EARNING PER SAHRE Formula: Earning per share = NPAT / Number of equity share

NPAT No. of Equity share Earning per share

2005 2,007.28 73.67

2006 2,532.95 88.98

2007 2,995.00 89.93

2008 4,092.12 111.27

2009 3,740.62 111.27






Table 9: Earning per share





28.55 37.37 34.59






Figure 6 :Earning per share

INTERPRETATION:• This yield can be used by a Share holder while making decisions about the investment on comparison to other alternative investments. • The E.P.S. when compared to the current market price of the share ,gives measure of the rate of yield . • The E.P.S. of the company is currently decreasing because of the decreasing in the net worth during recession.


• The earning per share of the IDEA CELLULAR LIMITED is continuously increased in the year from 2005-06 to 2006-07 because of highly increased in the net profit. • Then it was also increased in the year 2007-08 because of the increased in the net profit and relatively less percentage increase in the no.of equity share. • The EPS is continuously increase which express that the company is effectively uses its capital and also efficiently uses the loan funds instead of the owner’s fund. It was good for the share holder’s of the company and they get the satisfactory return. Return on capital employed Return on capital employed = NPAT / Capital employed * 100 2005 NPAT Capital employed Return on capital 2.72 employed 2.85 3.33 3.68 3.36 2006 2007 2008 2009

2,007.28 2,532.95 2,995.00 4,092.12 3,740.62 736.75 889.83 899.34 1,112.68 1,113.29

Table 10: Return on capital employed 112

Return on capital emplyed



18% 23% 21%






Figure 7: Return on capital employed Interpretation: • This is another ratio to judge the efficiency and effectiveness of the company like profitability ratio. • The income from services is greaterly increased compared with the previous year and the total capital employed includes 113

capital and reserves & surplus. Due to huge increase in the net profit the capital employed is also increased along with income from services. Both are effected in the increment of the ratio of current year.

Proprietary ratio

Formula : Proprietary ratio = Proprietary fund / Total fund

2005 Proprietary





12,549.95 22,205.99 24,313.26 46,470.21 49,533.02 fund Total fund 17,460.89 24,577.16 42,258.73 60,507.30 51,920.39 Proprietary 0.72 0.90 0.58 0.77 0.95 ratio

Table 11: Proprietary ratio


Po r t r r t r pie a y aio



0.9 0.77 0.58

20 05
Figure 8 :Proprietary ratio

20 06

20 07

20 08

20 09


Interpretation: • The proprietary ratio establishes the relationship between shareholders funds to total assets. It determines the long-term solvency of the firm. This ratio indicates the extent to which the assets of the company can be lost without affecting the interest of the company. • The share holder’s funds include capital and reserves and surplus. The reserves and surplus is increased due to the increase in balance in profit and loss account, which is caused by the increase of income from services. • Total assets, includes fixed and current assets. The fixed assets are reduced because of the depreciation and there are no major increments in the fixed assets. The current assets are increased compared with the year 2007. Total assets are also increased than precious year, which resulted an increase in the ratio than older.


Chapter 10

Cost Reduction

10.1.1 Introduction : 117

In today’s competitive world Corporate and businesses are struggling to maintain profits and healthy bottom lines .Cost of production, fuel, raw material and human resources is rising each year. These developments have prompted people to look for Cost reduction Ideas & methods. Those who have opted for focused cost reduction strategies have survived those who could not managed have perished. In recent economic down turn it becomes more important to make cost reduction program a major initiative in industry .Companies are finding it difficult to retain people and are laying off people which is unprecedented in recent history of industrial recession. Companies have to develop its own cost reduction program for savings without cutting jobs . “Cost cutting is no longer the solution to sustainable profitability, the key to success is finding creative ways to prevent cost.” Cost reduction program is policy of cutting costs to improve profitability. It may be implemented when a company is having financial problems and must "tighten its belt." In some cases, the firm is initiating a policy to eliminate waste and inefficiency. A cost reduction program may detract from the quality of earnings when significant cuts are made in discretionary cost. Cost reduction refers to the real and permanent reduction in the unit cost of the goods manufactured or services rendered.


10.1.2 DEFINITION Amount of money used when purchasing a car that is paid up front in order to get lower monthly lease payments. This can come from the trade-in value of the previous car, or from a cash down payment. “Cost reduction is to be understood as the achievement of real and permanent reductions in the unit cost of the goods manufactured or services rendered without impassing their suitability for the use that is intended” - ICWA London. Reduction in the cost of product must be brought about by the elimination of wasteful and resources employed in its design, manufacture, sale and distribution. Reduction in quality of a product or the range of its uses cannot be regarded as fitting cost reduction. Cost reduction must be an attitude of mind throughout the organization. it must be organised and controlled by a senior manager, with a team of skilled people able to analyses and record business activity and find ways improves the methods used. So that costs are reduced and output increased.


How to reduce cost?  Elimination of waste  Improving operations.  Increasing Productivity.  Cheaper materials.  Improved Standards of Quality.

COST REDUCTION CAN BE EFFECTED BY EITHER OF THE FOLLOWING WAYS: (i) By reduction in unit cost of production: This is usually brought by elimination of wasteful and nonessential elements in the design of products and from techniques and practices carried out .(Any reduction in costs due to changes in Government policy like reduction in taxes or duties or due to price agreements do not come into the area of cost reduction as these are not real and permanent reductions) (ii) By increasing productivity: This refers to increase in the volume of output with the expenditure product. 120 remaining the same. But this should not be achieved at the cost of the characteristics and quality of the

10.1.3 Cost control : Cost control is concerned with keeping the expenditure within acceptable limits. Its major assumption is that costs are in control unless costs exceed budget or standard by an excessive amount. DIFFERENCES REDUCTION COST CONTROL Controls costs achievement of COST REDUCTION towards Represents real and permanent decrease in costs. It is a planned process. It is a corrective function. BETWEEN COST CONTROL AND COST


decrease in costs. target or goals. It is a routine exercise. It is a preventive function.

Table 12: Differences between Cost Control & Cost Reduction


10.1.4 TECHNIQUES OF COST REDUCTION 1. VALUE ANALYSIS: Value analysis is the identification of un necessary cost i.e. cost that neither provides quality, nor use, nor life, nor appearance, nor customer satisfaction. Thus value analysis attacks costs at production stage. 2. ECONOMIC BATCH QUANTITY: (EBQ) EBQ is that point where carrying costs equals set up cost approximately. At this point the total cost will also be minimum. 3. ECONOMIC ORDER QUANTITY: (EOQ) EOQ is the quantity fixed at a point where total cost of ordering and the cost of carrying the inventory will be minimum. 4. ACTIVITY BASED COST MANAGEMENT: ABC assumes that resource-consuming activities cause costs. Its aim is to directly control the activities that cause costs, rather than cost. By managing activities that cause costs, costs will be managed in the long run. Cost causing activities – designing, engineering, manufacturing, marketing, etc. 122

5. JUST-IN-TIME APPROACH: (JIT) The aims of JIT are to produce the required items, at the required quality and in the required quantities, at the precise time they are required. JIT helps in cost reduction by – a. elimination of non-value-added activities, b. zero inventory, c. zero defects, d. zero breakdowns, e. single batch ordering. Though the above goals are unlikely to be achieved, it represent targets and create a climate for continuous improvement and excellence. 6. TOTAL QUALITY MANAGEMENT: (TQM) TQM works on the philosophy that all business functions are involved in a process of continuous quality improvement. TQM reduces cost by producing the products correctly the first time rather than wasting resources making substandard items and incurring additional expenditure on inspection, rework and scrapping. It helps organisations to achieve their quality goals by providing reports and measures that will improve quality. TQM aims at a customer-oriented process of continuous improvement


that focuses on delivering products or services of consistent high quality in a timely fashion.

7. SUPPLY CHAIN MANAGEMENT: (SCM) SCM attempts to build a cost effective chain beginning with the ultimate customer and links all the previous suppliers under one platform. An effective SCM eliminates most of the activities in between customers and raw material suppliers along with associated costs. Most of the non-core activities are outsourced and hence fixed costs are kept minimal. Close interaction between the corporate R&D and the suppliers facilitates continuous improvements in product design, process methodologies, etc. resulting in customer value enhancement and cost reduction. A rupee spent on the supply chain can give more value than a rupee spent on marketing. The supply chain is part of the service offering. 8. PERT ANALYSIS: Program Evaluation Review Technique (PERT) reduces cost by giving an optimum schedule for the activities necessary to complete a project.


10.1.5 Non-Conventional Approach for cost reduction :  Material Cost – Cost reductions thru’ o Material cost E-sourcing • Discovery of new sources • Competitive pressures • Rationalisation of suppliers o Thrust on Value Engineering • Re-Visiting Designs • Application oriented engineering o Product Life Cycle Management  Manpower Cost o Right-sizing of Employees – VRS Schemes o Optimum utilisation of Manpower • Transition from Machine engagement time to ManEngagement time. o Productivity-linked wage settlements o Adopting new concepts • MOST • CELL Layout  Cost Management Initiatives  Selling and Distribution  Funding Cost 125

10.1.6 Cost Reduction Process 1) Analysis 2) Examination. 3) Developing Solution. 4) Selecting a solution. 5) Obtaining agreement.

9.1.7 Implementing Cost reduction program  Set realistic goals  Develop cost reduction program consulting all  Do an ROI analysis  Implement the cost reduction program  Measure actual results with goals  Continue the process until the set goals are achieved  Explore all options, not only BPR/technology(consider off shoring and outsourcing


Figure 3 Cost Reduction Program Structure







Cost Reduction

Figure 4 Benefit of Cost reduction 128

10.1.9 Fish Bone Diagram for cost reduction program

Figure 5 Fish bone Diagram for Cost Reduction


10.1.10 Precautions in Implementations 1) Must be planned soundly . 2) Appropriate to organization. 3) Requires cooperation and coordinated efforts. 4) Reluctance should be recognized and dealt with. 5) Programs should be clearly communicated. 6) Should not have undesirable effects on external parties. 7) Unnecessary costs can be reduced not eliminated. 8) Is expensive and complicated to implement


10.1.11 Advantages of Cost Reduction A. To a particular concern     Improves profits. Improves financial position. Improves competitive capabilities. Serves as an index of efficiency.

B. To the Industry  One company serves as a trend setter for the other companies. C. To the Nation  Efficient utilization of Scarce Resources .

 High taxes can be levied by the government.  Retaining the markets and gaining new buyers.  Combating inflation.


10.1.12 A few applications of cost reduction strategies.

1. Freeze in hiring . 2. Personal awareness to cost cutting. 3. No bonuses or pay hikes. 4. Night home drops and pick ups are charged. 5. Reducing off-shore trainings. 6. Outlook comm. Used in Place of Bharti

1. 2. 3. 4. 5. 6.

The share ownership plan discount scrapped Reducing work hours for trainees. Delay in fresher joining the company. WFR carried out. Paycut of 5%. Annual shutdown of a week extended to a fortnite


1. Shutting down older fabrication units. 2. Freeze in hiring. 3. Reduced travel expenses,using video chats &voice chats as alternatives. 4. Reducing/reusing inventory. 5. Increasing personal awareness. 6. Avoiding discretionery expenditures.

1. Introduction of new cost effective technology. 2. Process re-aligning. 3. Re-engineering of product. 4. Restructuring of workforce. 5. Rationalizing input costs.


10.2 Cost Reduction Program of ICICI Bank Ltd.
With pressures on the spreads and the competition in the urban markets increasing rapidly, banks need to develop new ways to sustain profitability & reduce costs. Banks led to a plethora of new products, hence becoming a one stop shop for all financial solutions. Moreover, the entries of several other foreign banks in India are acting as a strong signal to the domestic players to pull up their socks to face the new competitors.


10.2.1 Areas for cost reductions in ICICI Bank Ltd.

A e so m k g o tr d c io s r a f a in c s e u t n
None 7%

Other* 8% Telecom 11%

Personnel, 37%

Facilities 18% Technologies 19%

Figure 9: Areas for Cost Reduction in ICICI Bank Not surprisingly, personnel, as the largest expense in the Bank, is targeted most often for cost reductions. The additional categories rank fairly closely to the typical makeup of ICICI bank budgets as well. *Of those selecting “other,” increasing efficiencies was most often cited. 10.2.2 Cuts in ICICI Bank Ltd. are as follows : 135

S s1 erie

R u in s p is h d ou t ed c g u erv or ea c n U in ou ou eda en s g ts rc g ts R u in s p orts ic h d ou t ed c g u p erv es ea c n U in p rt -tim a en s ga e g ts U in a -h ea e ts s g t om g n R u in te h olog c ts ed c g c n y os R u in a e t h a c n ed c g g n e d ou t R u in a ed c g ttritio n

1% 6 1% 6 2% 0 2% 4 3% 3 3% 6 4% 2 5% 3

Figure 10 : Cuts in ICICI Bank Initially surprising, reducing attrition, tops the list of specific planned cuts, followed closely by reducing headcount. Half of those reducing headcount are also reducing attrition. Many people questioned shared that reducing headcount was often not replacing those lost by attrition or using part-time or home agents, as opposed to actively reducing positions. Additionally, only a little more than a third of those reducing agents are also reducing supervisors.


9.2.3 The various Cost Reduction strategies of ICICI bank ltd. are as follows : A. Interest on Deposits B. Bringing down other costs

A. Interest on Deposits • Increasing CASA % For a bank with a large network, if each branch can contribute more low-cost deposits, the bank will become cost-effective as deposits represent a very stable source of funds – Low volatility. It is one major weapon with which banks can face the threat of any competitor in the banking industry. While foreign banks are not constrained for funds, public & private sector banks will have to learn to operate with lesser margins in some transactions, and also improve cost effectiveness. It is virtually impossible to run an effective retail bank of any size without a culture of deposit gathering and deposit growth. Hence, the availability of these low-cost funds reduces the burden of the bank to acquire funds at a high costs & therefore helps in reducing banks overall cost.


Short – Term Fixed Deposits

Short term fixed deposits helps bank; maximize their bottom lines by reducing their costs. For instance, if a client makes a one-week deposit, and then extends the deposit by another and then another week, a bank is able to use the capital for three weeks while it only has to pay a one-week interest rate, which is always much lower a one-month interest rate. It is also believed that if banks refuse short-term deposits, they might miss out on idle capital. Moreover the interest rate for one-week term and less-than-one-month term deposits is lower than the rates for medium- and long-term deposits which favor the banks bottom line. However, ‘adjusting the interest rate curve’ will have the following impact. • First, interest rates will be put in order: longer-term deposits will have higher interest rates than shorter-term deposits. • Second, the low interest rates for short-term deposits will encourage clients to make long-term deposits, thus helping banks reduce capital mobilization costs. If banks can reduce capital mobilization costs, they will be able to slash lending interest rates.


Increasing Float Funds

Increased fund availability provides more opportunities to take advantage of the float on the electronic deposit. Banks can now leverage these additional funds by investing in other services or financial earnings instrument. The challenge posed by banks is to learn how to invest that money in the optimum area for increased revenue growth. B. Bringing down other costs • Staff Costs Wages are a major chunk of a banks cost and banks must try minimizing this by improving productivity per employee of the bank. Foreign banks touch the peak with 19.71% of their total expenses incurred towards wages compared to 10.34% in case of ICICI’s in 2007-2008. Wages have a direct impact on the profits of the bank & a bank can significantly improve their profits by reducing their expenditure on wages.


Cost on Technology and Utilities Although most companies abandon their investments in technology altogether during harsh times, automation can mean lower cost of human resources, less paper use and faster operations, all resulting in substantial cost savings. Companies which can find ways to make better use of their existing IT systems or make minimal investments with substantial impact can create considerable cost savings through such efforts. Adoption of Technology can lead to business transformation and cost advantage in the long term. For instance, Oracle Financial Services Applications enable financial institutions to automate processes to reduce finance and accounting costs, cut IT costs, manage by fact and improve operational efficiency. With ICICI bank ltd. State Bank of India, UTI Bank and Development Credit Bank Ltd has successfully implemented Oracle Financial Services Applications (OFSA) in India.

Online Banking Online banking uses modern computer technologies to offer the users convenient banking facilities. This facility eliminates the need of a customer to personally visit the bank’s branch for any sort of transaction. It also eliminates the necessity of doing any paper140

based work and saves considerable time for the bank & the users. Banks largely benefit from the online banking facilities. Besides offering their users the convenience of banking, the online banking system means significant cost savings for the banks. With such an automatic system in place, banks need not hire employees specialized in handling paper work and teller interactions. This reduces the banks’ operating costs considerably, translating into significant cost savings over the long-term. • Optimize Cash Management Cash is, ultimately, the inventory of financial institutes, and as in all industries, effective management of cost of inventory results in decreased costs. By optimizing levels of cash in ATM machines and across branches as well as automating transactions as much as possible, ICICI banks decrease their cash handling maintenance costs as well as their opportunity costs.

Communication Cost Although traditional mass marketing and advertising activities can be effective ways for increasing overall awareness and interest, they are not the most cost effective means for marketing. Tailored marketing activities targeted at only the relevant audience can substantially decrease the cost of communications while boosting 141

response rates. Companies should move more towards targeted activities in promoting their products and services, cutting down their marketing budgets while keeping and even improving their effectiveness. Communications also includes tele-communication cost which can be significantly reduced by integrating all existing communications networks into a single integrated network with voice over IP (VoIP) and eliminate redundant charges. The savings are realized in four major areas: Cost reduction of new data/voice circuits Elimination of intercompany long distance Reduction of local dial tone service at branches Strategic implementation of enterprise-wide call-routing patterns. • Stationery & Other Cost Optimum utilization of stationery can considerably decrease operating costs. As an example, Citigroup recently posted a costcutting memo, advising that 'staff should print black and white and on double sided paper'. Similarly memos going out all around the world, with reminders - to not print documents for reading, to turn off lights when leaving office etc can result in cost cutting for banks. • Transaction Cost Over the years, most banks treated customer channel migration as a priority, seeking out means to decrease crowd at the branches as well as to reduce cost of transaction. With the downturn, this has 142

become even more critical…the cost to serve a customer via the internet pales in comparison to branch service costs. Numerous methods (i.e. loyalty program incentives, higher interest rates, etc.) can be used to drive the migration of customers to lower cost channels. From a pure profitability point of view, not all customers are equal, and, they should not be treated equally. Retention of high value and high potential customers are far more critical than individual mass customers, especially in times of economic downturn. Companies should focus their limited marketing budgets on getting, retaining and growing these customers as much as they can. At the other end of spectrum is the below zero customers, who have negative impact on the company bottom-line. ICICI bank also consider ways for selectively 'firing' these customers, unless they have the potential to grow into profitable customers. Consider Channel Close Down and Relocations ICICI Banks should be looking into closure of their unprofitable channels, ATMs and branches, in order to decrease cost of sales and services. With decreasing market demand and changing customer needs, certain branches, ATMs and channels can become redundant with limited potential, or, expensive to maintain. Relocation is also an alternative to a close down, which can significantly decrease cost of rent and maintenance.


Chapter 11



This study is carried out with the objective of analyzing the financial performance of ICICI Bank to examine and understand the role of finance in the growth of the company and also to find out the cost reduction program during recession. This chapter attempts to highlight the findings of the study. • The comparative statement shows that the Operating Income of the year 2008 are very high compared to the past. But in 2009 it’s reduces due to recession. • The profit before interest and tax is in positive during the period of study excluding the year 2009 because of low operating income in the corresponding year. • The sales, PBIT, PBT, PAT all shows the increasing trend during the period under review. It depicts that the company is working with more efficiency. • The repayment of loan funds which reduces the interest charges • The interest and finance charges in the year 2007 are one third of 2001. It made a favorable impact towards the company. • Return on Investment fluctuates more due to the charges in the operating profit of the company. • Net Profit ratio shows increasing trend. It depicts that the efficiency is maintained in sales value and operating expenses. 145

• Fixed Assets turnover ratio shows the increasing trend. It depicts that the company’s fixed assets are utilized properly. • Working Capital turnover ratio depicts the increasing trend shows from 2002 to 2004 and then slope downwards due to holding high cash and bank balance after the year 2005. • The ideal current ratio is 2 which the firm obtains only after the year 2005 it shows the positive impact. • The ideal liquid ratio is 1 which is also obtained by the firm only after the year 2005, which enables the company to meet the emergency requirements. • Proprietary ratio of the company fluctuates during the period of study. It shows the change in the value of reserves and surplus in the form of shareholders’ fund.


Chapter 12



SUGGESTIONS Some of the recommendation and suggestion are as follows: • The attention is required on the areas of growth,

profitability ,service level and building talent. • To increase the profit of bank, bank should decrease their operating expenses and increase their income. • To increase its liquidity, bank should keep some more cash in its hand instead of giving more and more advances. • Introduce quality consciousness and standardization of the work system and procedures. • Make manager competitive and introduce spirit of marketorientation and culture of working for customer satisfaction. • There is need to build the knowledge and skill base among the employees in the context of technology. • Performance aspects aspects. • It is high time to focus on work than the work-achieved. • Bank should increase its retail portfolio. • Bank should manage its all risk such as credit, market and operational risk properly and should be managed by a person who are highly skilled and qualified. Bank should pay attention on its subsidiary “ICICI Prudential Life Insurance Company Limited” 148 measure should not only cover financial i.e. quantitatively aspects but also the qualitative

Chapter 13



CONCLUSION The balance-sheet along with the income statement is an important tools for investors and many other parties who are interested in it to gain insight into a company and its operation. The balance sheet is a snapshot at a single point of time of the company’s accounts- covering its assets, liabilities and shareholder’s equity. The purpose of the balance-sheet is to give users an idea of the company’s financial position along with displaying what the company owns and owes. It is important that all investors know how to use, analyze and read balance-sheet. P & L account tells the net profit and net loss of a company and its appropriation. In the case of ICICI Bank, during fiscal 2008, the bank continued to grow and diversify its assets base and revenue streams. Bank maintained its leadership in all main areas such as retail credit, wholesale business, international operation, insurance, mutual fund, rural banking etc. Continuous increase in the number of branches, ATM and electronic channels shows the growth take place in bank. Trend analysis of profit & loss account and balance sheet shows the % change in items of p & l a/c and balance sheet i.e. % change in 2009 from 2008 and % change in 2007 from 2006. It shows that all items are increased mostly but increase in this year is less than as compared to increase in previous year. In p & l a/c, all items like interest income, non-interest income, interest expenses, operating expenses, operating profit, profit before tax and after tax is 150

increased but in mostly cases it is less than from previous year but in some items like interest income, interest expenses, provision % increase is more. Similarly in balance sheet some item is less than previous year and in some items it is more. Ratio analysis of financial statement shows that bank’s current ratio is better than the quick ratio and fixed/worth ratio. It means bank has invested more in current assets than the fixed assets and liquid assets. Bank have given more advances to its customer and they have less cash in their hand. Profitability ratio of bank is lower than as compared to previous year. Return on equity is better than the return on assets. Therefore analysis shows that cash inflow is more than the cash outflow in ICICI Bank. Thus, the ratio analysis and trend analysis shows that ICICI Bank’s financial position is good. Bank’s profitability is increasing but not at high rate. Bank’s liquidity position is fair but not good because bank invest more in current assets than the liquid assets. As we all know that ICICI Bank is on the first position among all the private sector bank of India in all areas but it should pay attention on its profitability and liquidity. Bank’s position is stable.





14.1 Balance sheet of ICICI Bank Ltd. Balance Sheet Rs. Cr Period & 2009/03 2008/03 2007/03 months CAPITAL & LIABILITIES Owned Funds Equity Share 1,113.29 1,112.68 899.34 Capital Share Application Money Preferential Share Capital Reserves 350.00 & 48,419.7 350.00 350.00 350.00 350.00 0.00 0.00 0.00







Surplus 3 Loan Funds 218,347. Deposits 82 Borrowings 67,323.6 made by the 9 bank 335,554. TOTAL 53 ASSETS

45,357.53 23,413.92 21,316.16 11,813.20 244,431.0 230,510.1 165,083.1 5 9 7


65,648.43 51,256.03 38,521.91 33,544.50 356,899.6 306,429.4 226,161.0 146,263.2 9 8 8 4


Cash Balances


17,536.3 3 12,430.2 3

29,377.53 18,706.88 8,934.37 6,344.90

with RBI Money at call and Notice Investments Advances Short

8,663.60 18,414.45 8,105.85 6,585.07

103,058. 111,454.3

91,257.84 71,547.39 50,487.35 31 4 208,090. 215,060.9 188,614.0 143,029.8 88,991.75 41 4 1 9

Fixed Assets Gross Block 7,443.71 7,036.00 6,298.56 5,968.57 5,525.65 Accumulated 3,642.09 2,927.11 2,375.14 1,987.85 1,487.61 Depreciation Less: Revaluation 0.00 Reserve Net Block Capital Work-in0.00 0.00 0.00 0.00

3,801.62 4,108.89 3,923.42 3,980.72 4,038.04 0.00 0.00 189.66 147.94 96.30

progress Net Current 34,384.0 Assets 6 Miscellaneou s not off TOTAL Expenses written 0.00

31,129.77 23,551.85 15,642.79 11,115.99





335,554. 356,899.6 306,429.4 226,161.0 146,263.2 53 9 8 8 4 154

Number Equity shares

of 111.27 111.27 89.93 88.98 73.67

outstanding (Cr.) Bonus component in Equity Capital Notes: Contingent 0.00 0.00 0.00 0.00 0.00

840,670. 401,114.9 199,771.4 134,920.9 107,311.4 1 0.00 1 0.00 9 0.00 6 0.00

liabilities 63 Book Value of Unquoted 0.00 Investments Market Value of Quoted 0.00







7.9 Profit and Loss of ICICI Bank Profit and Loss Rs. Cr Period & 2009/03 2008/03 2007/03 2006/03 2005/03 months INCOME Operating 38,250.3 39,467.9 28,457.1 17,517.8 11,838.1 Income EXPENSES Financial Expenses Personel 9 2 3 3 0

22,725.9 23,484.2 16,358.5

9,597.45 6,570.89 3 4 0 1,971.70 2,078.90 1,616.75 1,082.29 737.41 156

Expenses Selling Expenses Administrativ e Expenses Capitalized Expenses


1,750.60 1,741.63 840.98


7,475.63 6,447.32 4,946.69 2,727.18 1,248.31 0.00 0.00 0.00 0.00 0.00

TOTAL OPER. 32,842.4 33,761.0 24,663.5 14,247.9 EXPENSES OPERATING PROFIT Other Recurring Income ADJUSTED PBDIT 330.64 65.58 309.17 466.02 8 7 7 0


5,407.91 5,706.85 3,793.56 3,269.94 2,679.78


5,738.55 5,772.43 4,102.73 3,735.96 3,128.25 -509.77 578.35 0.00 -421.30 544.78 0.00 22.68 623.79 0.00 8.60 590.36 0.00

Provisions -511.17 Depreciation 678.60 Other Write 0.00 offs ADJUSTED PBT Taxes

5,571.13 5,703.85 3,979.25 3,089.49 2,529.29 1,830.51 1,611.73 984.25 556.53 522.00 157

ADJUSTED PAT Non-recurring items Other cash Adjustments REPORTED Non-

3,740.62 4,092.12 2,995.00 2,532.95 2,007.28 17.51 65.61 115.22 7.12 -2.08






3,758.13 PAT APPROPRIATIONS Equity 1,224.58 Dividned Preference 0.00 Dividend Retained 4,818.07 Earnings

4,157.73 3,110.22 2,540.07 2,005.20

1,227.70 901.17 0.00 0.00

759.33 0.00

632.96 0.00

3,778.63 2,349.39 1,862.46 1,335.22


Chapter 15


Books • COST ACCOUNTING AND FINANCIAL MANAGEMENTR.M.Kishore • Investment Analysis & Portfolio Management- Prasanna Chandra


• Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2007). Intermediate Accounting (12th ed.). Hoboken, NJ: John Wiley & Sons • “Finance Management” by Khan& Jain, Fifth Edition, published by Tata Mc Graw-Hill Publishing Company Limited. • Weygandt, J. J., Kieso, D. E., & Kell, W. G. (1996). Accounting Principles (4th ed.). New York, Chichester. • Groppelli, Angelico A.; Ehsan Nikbakht (2000). Finance, 4th ed. Barron's Educational Series • Financial Statement Analysis by K. R. Subramanyam and John J. Wild • Financial Analysis and Modeling Using Excel and VBA (Wiley Finance) by Chandan Sengupta • News Papers: • Economic Times • Business Standard

Magazines: • Capital Market • Dalal Street • Bank Quest • Cost reduction handbook 160

Websites: • • • • • • • • • • • •