Summer Training Report

On

“NMDC Equity Research Report, Indian Banking Sectoral Report

& Axis Bank Equity Research Report”

At

“Equivaluesearch”

Submitted By:

Ayushi Pandey
2021PBA9248

DEPARTMENT OF MANAGEMENT
STUDIES
NETAJI SUBHAS UNIVERSITY OF TECHNOLOGY
NEW DELHI
 CERTIFICATE

TO WHOMSOEVER IT MAY CONCERN

This is to certify that the Summer Project Study Report, titled “NMDC Equity
Research Report, Indian Banking Sectoral Report & Axis Bank Equity Research
Report” submitted by Ms. Ayushi Pandey as partial fulfillment of the requirements
for the two-year MBA (2021-2023) from Department of Management Studies,
Netaji Subhas University of Technology, New Delhi is a bonafide work carried out
by the student. This Summer Project Study is his/her original work and has not
been submitted to any other University/Institute.

Equity Research Analyst

Mr. Saumitra Mondal

 DECLARATION BY THE STUDENT

I, Ayushi Pandey, a student of MBA batch (2021-23) declare that the project
entitled “NMDC Equity Research Report, Indian Banking Sectoral Report & Axis
Bank Equity Research Report” is my own work conducted under the supervision
of Mr. Saumitra Mondal, Equivalue Search, as a partial fulfilment of Summer
Internship Program for the course of MBA submitted to Department of
Management Studies, NSUT, New Delhi.

I further declare that to the best of my knowledge the project does not contain any
part of any work which has been submitted for any other project either in this
University or in any other without proper citation.

Ayushi Pandey

2021PBA9248
 ACKNOWLEDGEMENT

I would like to avail this opportunity to extend my sincere gratitude to everyone

who has been instrumental in helping me on the completion of this endeavor
without their active guidance, help, encouragement, and cooperation this project
would have never attained its current form.

I would like to thank my reporting manager, Mr. Saumitra Mondal, Equity

Research Analyst for his continuous support and guidance throughout my project
work.

I would also like to thank my faculty mentor, Mr. Saurav Brahma, for always
being there as a support and guiding me whenever it was required.

I extend my gratitude to Department of Management Studies, NSUT for giving

me this opportunity. I also acknowledge with a deep sense of reverence the support
that my family and friends have extended me. They were instrumental in the
development of an environment for me to grow and develop.

Yours Sincerely,

Ayushi Pandey

2021PBA9248
NMDC
Equity Research Report

Ayushi Pandey
2021PBA9248
National Mineral Development Corporation (NMDC), a Navratna Public Sector Enterprise under
the Ministry of Steel, Government of India is the single largest producer of iron ore in India. It
owns and operates highly mechanized iron ore mines in Chhattisgarh and Karnataka and has its
registered office at Hyderabad, Telangana. NMDC is considered to be one of the low-cost
producers of iron ore in the world. It also operates the only mechanized diamond mine in India at
Panna, Madhya Pradesh. NMDC is also setting up a 3 MT integrated steel plant at Nagarnar,
Chhattisgarh.

The Company is producing about 35 MTPA of iron ore from its major iron producing units i.e.
from Bailadila Sector in Chhattisgarh and Donimalai in Bellary-Hospet region in Karnataka. NMDC
envisages to have an iron ore production capacity of 100 MT by FY30.

All of NMDC mining complexes have been rated 5 Star by Indian Bureau of Mines, Ministry of
Mines which is a testimony to its scientific and sustainable mining practices.

NMDC has its own R&D Centre at Hyderabad which is recognized as a Centre of Excellence by
UNIDO. All the NMDC mines and R&D Centre have ISO & EMS accreditations.

NMDC has a legacy of meeting as well as surpassing the commitments and expectations of its
stakeholders. Throughout its existence of about 64 years, NMDC has endeavoured to positively
uplift the lives of communities around its areas of operations. The sentiment that Social
Responsibility is an integral part of the wealth creation process and can enhance business
competency, maximizes the value of wealth creation to society and thereby contribution to Nation
Building is ingrained in the core philosophy of NMDC.

Operational Presence:
 Bailadila Iron Ore Mine, Kirandul Complex, South Bastar district, Dantewada (C.G.)Steel
 Bailadila Iron Ore Mine, Bacheli Complex, South Bastar district, Dantewada (C.G.)
 Donimalai Iron Ore Mine, Donimalai, Bellary district, Karnataka (at December 2019
suspended for over a year due to a royalty dispute)[7]
 Diamond Mining Project, Majhgawan, Panna (M.P.)

NMDC Ltd. is diversified into other raw materials for the steel industry such as low silica
limestone. Production of dead burnt magnesite and further value addition is under study through
its subsidiary J K Mineral Development Corporation Limited. NMDC Ltd. has taken over a silica
sand mining and beneficiation project from Uttar Pradesh State Mineral Development
Corporation Ltd. The plant is designed to produce beneficiated high purity silica sand to a
capacity of 300,000 tonnes per year as the raw material for production of float/sheet glass.
A memorandum of understanding has been signed between NMDC, Indian Rare Earths Limited,
(IRE) and Andhra Pradesh Mineral Development Corporation to establish a joint venture for the
development of Bheemunipatnam Beach Sand. The project envisages mining of beach sands,
setting up of mineral separation plant for ilmenite concentrate and a downstream value addition
plant for conversion of ilmenite into synthetic rutile/TiO2 slag/TiO2 pigment with pig iron as by-
product.

Product Portfolio:
NMDC is currently involve in the exploration of

Iron ore, Copper, Rock phosphate, limestone, dolomite, gypsum, bentonite, magnesite, diamond,
tin, tungsten, graphite, etc.

Industry Overview:
As of October 2021, India was the world's second-largest producer of crude steel, with an output
of 9.8 MT. In FY22 (till January), the production of crude steel and finished steel stood at 98.39
MT and 92.82 MT, respectively. In FY22, crude steel production in India is estimated to increase
by 18%, to reach 120 million tonnes, driven by rising demand from customers. The growth in the
Indian steel sector has been driven by the domestic availability of raw materials such as iron ore
and cost-effective labour. Consequently, the steel sector has been a major contributor to India's
manufacturing output.

The Indian steel industry is modern, with state-of-the-art steel mills. It has always strived for
continuous modernisation of older plants and up-gradation to higher energy efficiency levels.

Market Share:
COMPANY MARKET CAP ( in crore rupees )
JSW Steel 139,268.16
Tata Steel 1,32,766.18
Hindalco 90,673.42
Jindal Steel 38,084.99
NMDC 36,236.94
SAIL 31,309.38
APL Apollo 29,891.78
 KIOCL 12,094.25
Tata Steel BSL 9,332.51
Shyam Metalics 8,031.22

Sector Consumption:

Steel Consumption as on 03/2020

Building and Construction Engineering and Packaging Infrastructure Automotive

In India as of 2020, Building and Construction sector has consumed 40%, followed by
Infrastructure at 30%, Enginering and Packaging at 20% and Automotive at 10%.

Global scenario of Steel and Iron ore Industries:

After a turmoil in the first half of 2020 in the iron & steel industry across the globe under the
impact of Covid-19 & strict lockdowns, the industry has shown a sharp recovery by the initiatives
taken by governments in different countries to curve the growth of Covid-19 & support the
economy by increasing the spendings, especially in infrastructure. Construction activity in China
has shown some unexpected resilience mainly due to financial stimulus into infrastructure projects
by Government to boost the economy & in turn steel demand. Steel use in China expanded while
it contracted in the rest of the world and 2020 ended with only a minor contraction in world steel
demand.

Total world crude steel production was 1877.5 MT in 2020 with a marginal growth from last years
production of 1874.4 MT. China contributed to 1064.8 MT in 2020 with a growth of about 7%
from 995.4 MT in 2019. However, the rest of the world has seen a fall in production of crude steel
by 7.5% reaching to 812.7 MT in 2020.
With the increase in demand for steel from developed economies post-pandemic & continuous
increase in demand from China, steel prices have increased significantly in Q1 2021-22 and
leading to an increase in demand for iron ore. Although the supply of iron ore from Brazil has
improved, trade tensions between China & Australia have added up to the red-hot prices of iron
ore. Iron ore prices for the benchmark 62% index were hovering around $215-220/t during June-
July’21.

Iron ore prices have seen a sharp correction in the last 1 month with the price falling from the
level of $220/ t to $136/t (from July end to Aug end) for benchmark 62% Fe index. The fall in
prices is mainly due to high Brazilian shipments coupled with steel production cuts in China under
environmental restrictions. However, prices of steel have not seen any major correction in the
recent past due to an increase in demand from developed nations after recovery from Covid as
well as demand for steel for increased infrastructure spending by various governments.

In the EU, flash flooding, particularly in Germany, has resulted in steel companies being unable to
fulfill orders. Damage at mills appears minor, but transport and distribution links have been
impacted. This supply disruption has provided support to steel prices in the near term. US end-
user steel demand fundamentals remain robust and will remain strong in short term. The current
production level is still lagging demand, which leaves room for further upside in steel production
and imports in H2. If the demand & prices of steel will not cool down in near future, it will
provide buoyant support to iron ore demand & prices.

Climate change will equally influence the iron & steel industry. Apart from China, the
decarbonization of the European steel industry is gaining pace. ArcelorMittal announced that it
plans for its Spanish Sestao

EAF to use ~50% fossil-free H-DRI and become zero carbon emissions by 2025 at this location.
The industry is also focused on substantially improve efficiency, maximizing scrap use and
developing breakthrough technologies to curb down carbon emission.

Global crude steel production is forecasted to increase by around 6% year-on-year to reach about
1990 MT in 2021, despite production cuts in China under the impact of environmental
sustainability. Steel demand & production will remain buoyant in 2022 & will observe marginal
growth over 2021. However, the production of crude steel & hot metal will follow a negative
trend in long term under the impact of environmental concerns. Chinese crude steel production is
expected to increase by 4.9% in 2021 & 0.3 % in 2022.

Even if Chinese steel demand remains subdued, lackluster seaborne iron ore supply is likely to
keep iron ore prices at elevated levels over the next few months. It is projected that prices for
iron ore will stabilize between $120-140/t for the rest of the year due to a bearish outlook from
the property and infrastructure sectors. Prices will fall further in the coming years with the
increase in supply from new capacity addition and prices will float around $ 80-90/t in long term.

Pandemic has accelerated some key trends, which will bring about shifts in steel demand. The
iron & steel industry will see exciting opportunities from rapid developments through
digitization and automation, infrastructure initiatives, reorganization of urban centers and energy
transformation.

Raw Material Requirements:

Iron ore is a key raw material used for producing steel besides coking coal. To produce every 1
million tonne (MT) of steel, almost double amount of iron ore is required. NMDC former chairman
and managing director (CMD) N Baijendra Kumar termed the development as "positive" for the
domestic steel industry.

Another 7 MT of iron ore will be back into the supply chain, he said adding that NMDC
contributes about 18-20 per cent to India's total iron ore requirement annual. When asked for his
comments, Jayanta Roy, senior vice-president and group head (corporate sector ratings) of ICRA,
said, "This should be good for the industry, definitely."

This will also rectify the demand-supply balance. Besides, the production at Donimalai will replace
the iron ore being brought into Karnataka from other states, Roy said. Further, the prices of iron
ore are also expected to cool down, he said. As per industry data, the values for 62Fe (ore with 62
per cent iron content) reached about USD 172 per tonne by the middle of December. This level
was last recorded in early 2013.

NMDC, under the steel ministry, is the country's largest iron ore miner. The company, which has
been in the business of mining iron ore for over six decades, produces about 35 MT iron ore from
its three iron ore complexes in the country — one in Donimalai in Karnataka and two are in the
Dantewada district of Chhattisgarh.

In 2018, NMDC suspended iron ore mining at the Donimalai mine following a decision of the
state government to impose 80 per cent premium on the iron ore sales from the mine.

The capacity of Donimalai mine is 7 MTPA. The mine has reserves of about 90-100 million tonne
(MT) which may last for 15-20 years.
Company’s Annual Performance FY22:
India’s mining major National Mineral Development Corporation (NMDC), under Ministry of Steel
produced 42.19 million tonnes and sold 40.56 million tonnes of iron ore during the financial year
2021-22. With this, the company registered the strongest ever growth in its history, of 24% over
last fiscal’s production of 34.15 million tonnes and a 22% growth over the 33.25 million tonnes
sold in FY21.

While crossing the 42 million tonne milestone, the largest iron ore producer of the country also
delivered the best ever annual financial results. In FY22, it recorded a turnover of Rs. 25,882 crore
against Rs. 15,370 crore in the previous year, a 68% move upwards. NMDC reported a Profit
Before Tax (PBT) of Rs. 12,981 crore for FY 2021-22, 46% growth over FY 2020-21’s Rs. 8,902
crore. Profit After Tax (PAT) at Rs. 9,398 crore for the year similarly reflects a robust growth of
50% over PAT of Rs. 6,253 crore achieved in the previous financial year. The public sector
company also paid its highest ever dividend of 1474% during FY22.

Concluding the year with a strong performance, NMDC produced 13.86 MnT during the Q4 FY
2021-22 as against 12.31 MnT in the CPLY, a growth of 13%, while realising a 11% growth in sales
of 12.29 MnT of iron ore to 11.09 MnT sold in Q4 of FY 2020-21. For the fourth quarter of the
financial year, turnover stood at Rs. 6,702 crore while PBT and PAT were clocked at Rs. 2,880 crore
and Rs. 1,815 crore respectively.

The Audited Financial Results for the year 2021-22 were approved by the Board of Directors of
the Company under the Chairmanship of Shri Sumit Deb, CMD, NMDC in its meeting held on May
26, 2022. Commenting on the impressive performance, Shri Sumit Deb, CMD, NMDC said, “This
performance reflects the commitment of NMDC to make India truly AtmaNirbhar. We start this
fiscal with a continued sense of focus and expect to complete important projects and deliver a
stronger and sustained performance, owing to our focus on automation and digital initiatives that
will catalyse our operations.

Debt Profile:
Zooming in on the latest balance sheet data, we can see that NMDC had liabilities of ₹55.4b due
within 12 months and liabilities of ₹15.0b due beyond that. On the other hand, it had cash of
₹61.5b and ₹21.4b worth of receivables due within a year. So it can boast ₹12.6b more liquid
assets than total liabilities. This surplus suggests that NMDC has a conservative balance sheet, and
could probably eliminate its debt without much difficulty. Simply put, the fact that NMDC has
more cash than debt is arguably a good indication that it can manage its debt safely.
On top of that, NMDC grew its EBIT by 50% over the last twelve months, and that growth will
make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are
analysing debt. But ultimately the future profitability of the business will decide if NMDC can
strengthen its balance sheet over time. So if you want to see what the professionals think, you
might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper
profits; it needs cold hard cash. While NMDC has net cash on its balance sheet, it's still worth
taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to
help us understand how quickly it is building (or eroding) that cash balance. In the last three
years, NMDC's free cash flow amounted to 35% of its EBIT, less than we'd expect. That weak cash
conversion makes it more difficult to handle indebtedness.

Source: Simplywall.st

Merger, De-merger and Acquisition updates:

In a BSE filing, NMDC said NMDC Steel is its wholly-owned subsidiary, which currently does not
have any business operations.

"The board of directors of NMDC Limited, at its meeting held today, approved the Scheme of
Arrangement for Demerger between NMDC Limited (Demerged Company) and NMDC Steel
Limited (Resulting Company) and their respective shareholders...," the miner said.

Shareholding Pattern:
Promoter holding stands at 60.79% , FII holding at 6.9%, Mutual funds holding at 5.6%,
Institutional Holding at 28.6% and rest by others.

Financials:
Annual Results ( In Crores )

Mar-22 Mar-21 Mar-20 Mar-19 Mar-18

Total Revenue 26,600.1 15,719.1 12,213 12,741 12,134.6
Operating Expenses 13,292.7 6,574.2 5,688.8 5,222.7 5,806.1
Operating Profit 12,589 8,795.9 6,010.4 6,930 5,808.8
Operating profit Margin 47.33% 55.95% 49.21% 54.39% 47.87%
Total Expenses 13,618.6 6,818.8 5,993.1 5,541.9 6,099.3
EBITDA 13,307.3 9,145.7 6,524.2 7,518.3 6,328.3
EBITDA Margin 50.03% 58.18% 53.42% 59.01% 52.15%
Interest 39.1 16.8 9.9 40.3 37.1
Depreciation 286.9 227.8 294.4 278.9 256
Profit before Tax 12981.4 8,901.1 6,123.5 7,199.1 6,179.7
Tax 3,582.2 2,648.4 2,512.6 2,556.5 2,373.3
Net Profit 9,399.2 6,252.6 3,610.9 4,642.5 3,806.3
Net Profit Margin 36.31% 40.68% 30.85% 38.19% 32.76%
Basic EPS 32.1 20.6 11.8 14.7 12

Balance Sheet:

Particulars Mar-22 Mar-21 Mar-20 Mar-19 Mar-18

Shareholder’s Funds 34,987 29,884 27,673 26,044 24,417
Non Current Liabilities 2,386 1,088 437 186 328
Current Liabilities 6,934 9,723 9,075 9,864 9,331
Minority interest 13 14 8 14 15
Equity and Liablity 44,321 40,709 37,193 36,108 34,092
Non Current Assets 28,510 25,921 23,977 21,331 19,441
Current Assets 15,811 14,787 13,216 14,776 14,650
Misc. Exp. Not w/o - - - - -
Total Assets 44,321 40,709 37,193 36,108 34,092
Financial Ratios:

Return Ratios
Mar-21 Mar-20 Mar-19 Mar-18
Return On Equity % 21.71 13.41 18.38 16.18
Return on Capital Employed % 29.65 22.41 28.19 26.16
Return on Assets % 16.04 9.83 13.21 11.47
Solvency Ratios
Current Ratio 1.43 1.38 1.43 1.51
Quick Ratio 1.52 1.46 1.50 1.57
Total Debt to Asset % 4.9% 1.52% 1.01% 1.47%
Total Debt to Equity Ratio 0.07 0.02 0.01 0.02
Valuation Ratios
Price to Earnings Ratio 6.31 6.86 6.90 9.86
Price to Book Ratio 1.33 0.89 1.22 1.54
Price to Cash Flow Ratio 5.46 11.52 7.97 11.12
EV to EBIT Ratio 4.01 3.69 3.82 5.24
EV to EBITDA Ratio 3.91 3.52 3.68 5.04
Market Cap To Sales Ratio 2.58 2.09 2.62 3.23

Production and Sales:

Sector Monthly Cumulative

Production (MT) Sales (MT) Production (MT Sales (MT)
Mar’21 Mar’22 Mar’21 Mar’22 Mar’21 Mar’22 Mar’21 Mar’22
Chhattisgarh 3.68 3.98 3.00 3.21 29.94 26.60 29.18 25.82
Karnataka 1.30 0.59 1.21 0.87 12.21 7.55 11.52 7.43
Total 4.98 4.57 4.21 4.08 42.15 34.15 40.70 33.25

Government Focus on Industry:

Increasing per capita steel consumption and production of special steel as well as enhancing raw
material security will remain the key focus areas of the government in 2022.

Minister of State (MoS) Faggan Singh Kulaste said the focus will also be on finding new markets
as the production of steel continues to grow in the country.

As per the National Steel Policy 2017, the government has set a target to ramp up the country's
crude steel production output to 300 million tonnes (MT) by 2030. The policy also seeks to
increase the domestic per capita steel consumption to the level of 160 kg by 2030.
In an interview with PTI, Kulaste said the per capita steel consumption in the country is at around
72.3 kg at present, while the capacity is at 143.9 MTPA (million tonnes per annum), and the
focus will also be on increasing the output of special steel.

According to the minister, the Indian steel sector is full of opportunities, and the country must
aim to grab the numero uno position in quality steel production.

The ministry has already directed the public sector undertakings (PSUs) and private players to
take measures to cut imports of special steel.

In 2021, ''We signed an MoU with Russia for (to diversify) the supply of coking coal. Players are
already using it. The talks with Mongolia are progressing (for the supply of coking coal). PSUs and
private players have been directed to increase their Capex and outputs,'' the minister said.

Besides iron ore, coking coal is another key raw material used for making steel. The industry
remains dependent on imports from a select group of countries like Australia and South Africa to
meet 85 per cent of their coking requirement.

Industry body Indian Steel Association (ISA) said the finished steel demand in India is expected to
be up by around 16.7 per cent to reach around 104 million tonnes by the end of 2021, and by
the end of next year, it will be at 111 million tonnes.

ISA Secretary-General Alok Sahay said crude steel production during January-November 2021
period stood at 104.91 million tonnes, and finished steel production and consumption was at
97.882 million tonnes and 93.057 million tonnes, respectively.

''We expect 124-125 million tonnes of crude steel output by 2022-end. Economies have been
affected globally by the pandemic and India has been no exception.

''However, Indian economy rebounded back very quickly and steel industry also was put back on
rails with the revival of domestic demand growth. Upfront liquidity in infrastructure projects in the
pipeline coupled with the government's emphasis on close project monitoring is driving the steel
demand in 2022,'' he said.

ISA is the apex industry body representing the domestic steel players. In a statement, the state-
owned Steel Authority of India Ltd (SAIL) said 2021 was a challenging year for the company and
the entire industry. In the April-June period of the passing year, the company faced one of the
''severest calamities'' in the form of the coronavirus pandemic. However, in 2022, SAIL said it
would aim to reduce the borrowings of the company. Its gross borrowings stood at Rs 22,478
crore as of September 30, and the same was at Rs 35,350 crore at the end of March this year.
Outlook:
NMDC might be 5th in the list of market cap but it is not anywhere behind in business. From
signing MOUs with Andhra Pradesh Mineral Corporation to taking over Silica Sand Mining
projects, NMDC has been doing great in expanding business over the years. Having itself involved
in exploration of multiple minerals, NMDC has created a better position for itself in the market.

Indian Steel industry has been on 2nd spot in list of major producers. Demand for iron and steel
is going to be ever growing as India is a developing nation and all those industries which need to
do well for India to become a developed nation, consume a huge amount of iron and steel.

Though environmental concerns are likely to negatively impact steel industries in the long term,
there is a global demand for steel and iron ore which tend to be increasing. Demand and prices
of iron ore are likely to stabilize in the near term due to bearish outlook from property and
infrastructure sector. All this happening at global level, NMDC stands to be benefitted in
domestic region because there will be an increasing demand for steel in India. And Besides coal,
iron is one of the basic raw materials of producing steel. NMDC already contributes around 18-
20% of total Indian Iron ore requirement and stands to be the largest iron ore miner of India.

NMDC has performed very well in the FY21-22 compared to the year before in terms of Turnover,
PBT and PAT. It also achieved highest dividend paid out by the company ever in the same
financial year. As far as debt is concerned, NMDC shows a surplus of receivables or payables. This
surplus looks good on paper for now, but to pay off dues the company might have to perform
better to increase the numbers of EBIT which has grown over 50% over the last 12 months,
indicating a positive sign.

Share holding pattern standing with promoters at 60.79% , strong annual results and balance
sheet and promising financial ratios are key factors that say NMDC is a fantastically performing
company on papers. While NMDC’s own measures to increase business, production capacities and
to stand out as largest iron ore producer promises its long journey off the papers too.

Government actions like trying to find more markets for steel, increasing steel production under
National Steel Policy 2017, directing companies to cut import of steel and several other measures
benefiting steel industries will tend to benefit iron ore industry, iron being one of the raw
materials to produce steel.

Overall outlook for NMDC after considering all the factors, seems to be positive in the long run.
Company is doing the best in their capacity to improve in all aspects of business and a little help
from government measures will take the company a long way in future.
Key Managerial People:

Shri Sumit Deb

Chariman cum Managing Director

Shri Amitava Mukherjee Shri Somnath Nandi Shri Dilip Kumar Mohanty
Director ( Finance ) Director ( Technical ) Director ( Production )

Smt. Rasika Chaube Smt. Sukriti Likhi Shri. Sanjay Tandon

Government Director Government Director Independent

Director
Dr.Anil Sadashivrao Kamble Shri Vishal Babber Shri Sanjay Singh

Independent Director Independent Director Independent

Director

Shri B. Vishwanath, IRSS Shri A S Pardha Saradhi

Chief Vigilance Officer Executive Director &

Company Secretary

Equity Research Report by,

Ayushi Pandey

2021PBA9248
INDIAN BANKING SECTOR
SECTORAL REPORT
AYUSHI PANDEY

2021PBA9248
Let’s take a look at the evolution of banking in India from the time the first bank was established
in India to the current mobile banking era–what happened in between. The history of banking in
India can be broadly classified as:

 Pre-independence Phase (1770-1947)

 Post-independence Phase (1947-till date): To understand this phase better, we’ll break it
down further into:
 Pre-nationalisation Phase (1947-1969)
 Post-nationalisation Phase (1969-1991)
 Liberalisation Phase (1991-till date)

The Pre-independence Phase (1770-1947):

The organized banking sector in India dates back to more than a century before independence
when the Bank of Hindustan–the first bank of India was established in 1770 in the then Indian
capital, Calcutta. It failed in due course and was liquidated in 1832. Subsequently, several banks
like General Bank of India (1786-1791), and the Oudh Commercial Bank (1881-1958) established
during the pre-independence era didn’t last very long either.

The Bank of Bengal, Bank of Bombay, and Bank of Madras established by the East India Company
during the early to mid-1800s–together known as the Presidential Banks were later merged in
1921 to form the Imperial Bank of India. It was later nationalised in 1955 and named the State
Bank of India (SBI). In 1959, the SBI was given charge of 7 subsidiary banks making it India’s
largest Public Sector Bank (PSB).

As many as 600 banks were founded during this period. While many major banks failed to work
due to a lack of proper management skills, machines, and technology which led to time-
consuming processes and human errors leaving the Indian account holders fraud-prone. A few
banks survived the test of time and exist even today:

 Allahabad Bank- 1865

 Punjab National Bank – 1894
 Bank of India, Canara Bank - 1906
 Bank of Baroda - 1908
 Central bank of India -1911

Between 1906 and 1911, inspired by the Swadeshi movement several local businessmen and
political figures established banks for the Indian community. Many of these are still operational.
During the First World War (1914-1918), till the end of the Second World War (1939-1945), and
until two years later until the independence of India, the banking system witnessed turbulent
times leading to the collapse of a large number of banks.

The Post-independence Phase (1947-1991):

Post-independence, the evolution of the Indian banking system continued when the Government
of India (GOI) adopted the approach of a mixed economy in 1948 with an extensive intervention
into markets to strengthen the economy. The Reserve Bank of India (est. 1935) was nationalised in
1949 and it was empowered to regulate, control, and inspect the banks in India.

Nationalisation in 1969:

In the 1960s the RBI had become a large employer and the Indian banking industry had begun
playing an important role in supporting economic development. Yet, except for SBI, most banks
continued to be run by private entities.

The Government of India issued the Banking Companies (Acquisition and Transfer of
Undertakings) Ordinance, 1969 and nationalized the 14 largest commercial banks at that time:

 Allahabad bank ( now Indian Bank )

 Bank of Baroda
 Bank of India
 Bank of Maharashtra
 Central bank of India
 Canara Bank
 Dena bank ( now Bank of Baroda )
 Indian Bank
 Indian Overseas Bank
 Punjab National bank
 Syndicate Bank ( now canara bank )
 Uco Bank
 Union bank of India
 United Bank of India ( now PNB )

Nationalisation in 1980:

The second wave of Nationalisation followed in 1980 with 6 more commercial banks.

 Andhra bank ( now Union Bank of India )

 Corporation Bank ( now Union Bank of India )
  Oriental Bank of Commerce ( now PNB )
 Punjab and Sind Bank
 New Bank of India ( now PNB )
 Vijaya Bank ( now Bank of Baroda )

Reasons for nationalisation of banks in India:

The nationalisation of Indian banks was a major development in the course of the evolving Indian
banking industry. To understand the impact it caused and played a major role in shaping the
industry, let’s deep-dive into the scenarios that led to it. There was a dire need to:

 Promote the economic development of the country

 Develop confidence in the banking system of India
 Prevent the concentration of economic power in the hands of a select few
 Improve the efficiency of the banking industry
 Create a socio-economic balance
 Mobilize the national savings and channel them into productive purposes
 Sectors such as exports, agriculture, and small-scale industries were lagging behind
 Serve the large masses of the rural population.

Positive impacts of nationalisation:

The nationalisation of the Indian banks was a major milestone in the evolution of banking in India
that played a major role in guiding its future course. Currently, there are 19 nationalised banks in
India. Here’re a few benefits that made a difference:

 Better outreach: The penetration of banks increased when branches were opened in the
remotest corners of the country
 Increased savings: With the opening of new branches, since more people had access to
banks, the average domestic savings increased twofold
 Surged public deposits: The increased reach of banks helped small industries, agriculture,
and the export sector grow leading to a proportionate increase in public deposits
 Increased efficiency: The added accountability led to improved efficiency and increased
public confidence
 Empowered small scale industries (SSIs): The SSIs received a boost resulting in
considerable growth in the economy
 Provided employment opportunities: RBI, post its nationalisation had already set a
precedence of becoming one of the largest employers. This continued further with more
banks following the lead.
  Improved agricultural sector: Marginal farmers could receive credit from banks at
economic rates which gave a massive boost to India’s agricultural sector.

Liberalisation in 1991:

In 1991, the GOI adopted economic liberalisation that brought about a massive change in its
economic policies to enhance the participation of private and international investments. The RBI
approved 10 private banks:

 Global Trust Bank ( now oriental Bank of Commerce)

 ICICI Bank
 HDFC Bank
 UTI Bank ( Axis bank )
 Bank of Punjab
 Indusind Bank
 Centurion Bank
 IDBI Bank
 Times Bank
 Development Credit Bank

In a few years, Kotak Mahindra Bank (2001), Yes Bank (2004), IDFC (2015), and Bandhan (2015)
banks joined the league.

Positive impacts of liberalisation:

Here’s how liberalisation revolutionised the Indian banking picture:

 Revitalized the banking sector and led to the rapid and strong growth of government
banks, private banks and foreign banks
 A modern and tech-based approach started setting into traditional banks
 Paved path for Payments banks
 Small finance banks came into existence
 The digitalisation of bank transactions and operations became a norm
 Foreign banks such as Bank of America, Citibank, HSBC, etc. set up branches in India.
Currently, there are 46 international banks in the country.

Nationalisation of banks took a pause, instead, the Indian banking sector witnessed several
mergers in the public sector banks in the following years:
Bank Mergers in India Post Liberalisation:
2017 – SBI Merger ( largest PSB )
 State Bank of Patiala
 State Bank of Hyderbad
 State Bank of Bikaner & Jaipur
 State Bank of Mysore
 State Bank of Travancore

2019 – Bank of Baroda Merger ( 3rd largest PSB )

 Dena Bank
 Vijaya Bank

Punjab National Bank Merger ( 2nd largest PSB )

 Oriental Bank of Commerce

 United Bank of India

Union Bank of India Merger

 Andhra Bank
 Corporation Bank

Indian Bank Merger: ( 7th largest PSB )

 Allahabad Bank

2020- Canara Bank Merger ( 4th largest PSB )

 Syndicate Bank

Structure of the Indian Banking System:

Reserve Bank of India is the central bank of the country and regulates the banking system of
India. The structure of the banking system of India can be broadly divided into scheduled banks,
non- scheduled banks and development banks. Banks that are included in the second schedule of
the Reserve Bank of India Act, 1934 are considered to be scheduled banks.

All scheduled banks enjoy the following facilities:

 Such a bank becomes eligible for debts/loans on bank rate from the RBI
 Such a bank automatically acquires the membership of a clearing house.
  All banks which are not included in the second section of the Reserve Bank of India Act,
1934 are Non-scheduled Banks. They are not eligible to borrow from the RBI for normal
banking purposes except for emergencies.

Scheduled banks are further divided into commercial and cooperative banks.

Commercial Banks:

The institutions that accept deposits from the general public and advance loans with the purpose
of earning profits are known as Commercial Banks. Commercial banks can be broadly divided into
public sector, private sector, foreign banks and RRBs.

In Public Sector Banks the majority stake is held by the government. After the recent
amalgamation of smaller banks with larger banks, there are 12 public sector banks in India as of
now. An example of Public Sector Bank is State Bank of India.

Private Sector Banks are banks where the major stakes in the equity are owned by private
stakeholders or business houses. A few major private sector banks in India are HDFC Bank, Kotak
Mahindra Bank, ICICI Bank etc.

A Foreign Bank is a bank that has its headquarters outside the country but runs its offices as a
private entity at any other location outside the country. Such banks are under an obligation to
operate under the regulations provided by the central bank of the country as well as the rule
prescribed by the parent organization located outside India. An example of Foreign Bank in India
is Citi Bank.

Regional Rural Banks were established under the Regional Rural Banks Ordinance, 1975 with the
aim of ensuring sufficient institutional credit for agriculture and other rural sectors. The area of
operation of RRBs is limited to the area notified by the Government. RRBs are owned jointly by
the Government of India, the State Government and Sponsor Banks. An example of RRB in India is
Arunachal Pradesh Rural Bank.

Cooperative Banks:

A Cooperative Bank is a financial entity that belongs to its members, who are also the owners as
well as the customers of their bank. They provide their members with numerous banking and
financial services. Cooperative banks are the primary supporters of agricultural activities, some
small- scale industries and self-employed workers. An example of a Cooperative Bank in India is
Mehsana Urban Co-operative Bank.

At the ground level, individuals come together to form a Credit Co-operative Society. The
individuals in the society include an association of borrowers and non-borrowers residing in a
particular locality and taking interest in the business affairs of one another. As membership is
practically open to all
inhabitants of a locality, people of different status are brought together into the common
organization. All the societies in an area come together to form a Central Co-operative Banks.

Cooperative banks are further divided into two categories - urban and rural. Rural cooperative
Banks are either short-term or long-term. Short-term cooperative banks can be subdivided into
State Co- operative Banks, District Central Co-operative Banks, Primary Agricultural Credit
Societies.

Long-term banks are either State Cooperative Agriculture and Rural Development Banks
(SCARDBs) or Primary Cooperative Agriculture and Rural Development Banks (PCARDBs).

Urban Co-operative Banks (UCBs) refer to primary cooperative banks located in urban and semi-
urban areas.

Development Banks:

Financial institutions that provide long-term credit in order to support capital-intensive

investments spread over a long period and yielding low rates of return with considerable social
benefits are known as Development Banks. The major development banks in India are; Industrial
Finance Corporation of India (IFCI Ltd), 1948, Industrial Development Bank of India' (IDBI) 1964,
Export- Import Banks of India (EXIM) 1982, Small Industries Development Bank Of India (SIDBI)
1989, National Bank for Agriculture and Rural Development (NABARD) 1982.

The banking system of a country has the capability to heavily influence the development of a
country’s economy. It is also instrumental in the development of rural and suburban regions of a
country as it provides capital for small businesses and helps them to grow their business. The
organized financial system comprises Commercial Banks, Regional Rural Banks (RRBs), Urban Co-
operative Banks (UCBs), Primary Agricultural Credit Societies (PACS) etc. caters to the financial
service requirement of the people. The initiatives taken by the Reserve Bank and the Government
of India in order to promote financial inclusion have considerably improved the access to the
formal financial institutions. Thus, the banking system of a country is very significant not only for
economic growth but also for promoting economic equality.
Market Size
The Indian banking system consists of 12 public sector banks, 22 private sector banks, 46 foreign
banks, 56 regional rural banks, 1485 urban cooperative banks and 96,000 rural cooperative banks
in addition to cooperative credit institutions. As of September 2021, the total number of ATMs in
India reached 213,145 out of which 47.5% are in rural and semi urban areas.

In FY18-FY21, bank assets across sectors increased. Total assets across the banking sector
(including public and private sector banks) increased to US$ 2.48 trillion in FY21.

In FY21, total assets in the public and private banking sectors were US$ 1,602.65 billion and US$
878.56 billion, respectively.

During FY16-FY21, bank credit increased at a CAGR of 0.29%. As of FY21, total credit extended
surged to US$ 1,487.60 billion. During FY16-FY21, deposits grew at a CAGR of 12.38% and
reached US$ 2.06 trillion by FY21. Bank deposits stood at Rs. 162.41 trillion (US$ 2.17 trillion) as of
December 31, 2021.

According to India Ratings & Research (Ind-Ra), credit growth is expected to hit 10% in 2022-23
which will be a double-digit growth in eight years. According to the RBI, bank credit stood at Rs.
116.8 lakh crore (US$ 1.56 trillion) on 31st December 2021. As of February 2022, credit to non-food
industries stood at Rs. 114.10 trillion (US$ 1.53 trillion).
Investments
Key investments and developments in India’s banking industry include:

 As of February 21, 2022, the number of bank accounts—opened under the government’s
flagship financial inclusion drive ‘Pradhan Mantri Jan Dhan Yojana (PMJDY)’—reached
44.63 crore and deposits in the Jan Dhan bank accounts totalled Rs. 1.58 trillion (US$
21.25 billion).
 On November 09, 2021, RBI announced the launch of its first global hackathon'HARBINGER
2021 – Innovation for Transformation' with the theme ‘Smarter Digital Payments’.
 In November 2021, Kotak Mahindra Bank announced that it has completed the acquisition
of a 9.98% stake in KFin Technologies for Rs. 310 crore (US$ 41.62 million).
 In July 2021, Google Pay for Business has enabled small merchants to access credit
through tie-up with the digital lending platform for MSMEs—FlexiLoans.
 In December 2020, in response to the RBI’s cautionary message, the Digital Lenders’
Association issued a revised code of conduct for digital lending
 On November 6, 2020, WhatsApp started UPI payments service in India on receiving the
National Payments Corporation of India (NPCI) approval to ‘Go Live’ on UPI in a graded
manner.
 In October 2020, HDFC Bank and Apollo Hospitals partnered to launch the ‘HealthyLife
Programme’, a holistic healthcare solution that makes healthy living accessible and
affordable on Apollo’s digital platform.
 In 2019, banking and financial services witnessed 32 M&A (merger and acquisition)
activities worth US$ 1.72 billion.
 In March 2020, State Bank of India (SBI), India’s largest lender, raised US$ 100 million in
green bonds through private placement.
 In February 2020, the Cabinet Committee on Economic Affairs gave its approval for
continuation of the process of recapitalization of Regional Rural Banks (RRBs) by providing
minimum regulatory capital to RRBs for another year beyond 2019-20 - till 2020-21 to
those RRBs which are unable to maintain minimum Capital to Risk weighted Assets Ratio
(CRAR) of 9% as per the regulatory norms prescribed by RBI.
Porter’s 5 forces
Porter's Five Forces is a business analysis model that helps to explain why various industries are
able to sustain different levels of profitability. The model was published in Michael E. Porter's
book, "Competitive Strategy: Techniques for Analyzing Industries and Competitors" in 1980.1 The
Five Forces model is widely used to analyze the industry structure of a company as well as its
corporate strategy. Porter identified five undeniable forces that play a part in shaping every
market and industry in the world, with some caveats. The five forces are frequently used to
measure competition intensity, attractiveness, and profitability of an industry or market.

Porter's five forces are:

1. Competition in the industry

2. Potential of new entrants into the industry

3. Power of suppliers

4. Power of customers

5. Threat of substitute products

Competition in the Industry:

The first of the five forces refers to the number of competitors and their ability to undercut a
company. The larger the number of competitors, along with the number of equivalent products
and services they offer, the lesser the power of a company. Suppliers and buyers seek out a
company's competition if they are able to offer a better deal or lower prices. Conversely, when
competitive rivalry is low, a company has greater power to charge higher prices and set the terms
of deals to achieve higher sales and profits.

Potential of New Entrants Into an Industry:

A company's power is also affected by the force of new entrants into its market. The less time
and money it costs for a competitor to enter a company's market and be an effective competitor,
the more an established company's position could be significantly weakened. An industry with
strong barriers to entry is ideal for existing companies within that industry since the company
would be able to charge higher prices and negotiate better terms.

Power of Suppliers:

The next factor in the five forces model addresses how easily suppliers can drive up the cost of
inputs. It is affected by the number of suppliers of key inputs of a good or service, how unique
these inputs are, and how much it would cost a company to switch to another supplier. The fewer
suppliers to an industry, the more a company would depend on a supplier. As a result, the
supplier has more power and can drive up input costs and push for other advantages in trade. On
the other hand, when there are many suppliers or low switching costs between rival suppliers, a
company can keep its input costs lower and enhance its profits.

Power of Customers:

The ability that customers have to drive prices lower or their level of power is one of the five
forces. It is affected by how many buyers or customers a company has, how significant each
customer is, and how much it would cost a company to find new customers or markets for its
output. A smaller and more powerful client base means that each customer has more power to
negotiate for lower prices and better deals. A company that has many, smaller, independent
customers will have an easier time charging higher prices to increase profitability.

Threat of Substitutes:

The last of the five forces focuses on substitutes. Substitute goods or services that can be used in
place of a company's products or services pose a threat. Companies that produce goods or
services for which there are no close substitutes will have more power to increase prices and lock
in favorable terms. When close substitutes are available, customers will have the option to forgo
buying a company's product, and a company's power can be weakened.

Understanding Porter's Five Forces and how they apply to an industry, can enable a company to
adjust its business strategy to better use its resources to generate higher earnings for its
investors.

Government Initiatives for Banking Sector

 National payments corporation India (NPCI) has plans to launch UPI lite this will provide
offline UPI services for digital payments. Payments of upto Rs. 200 (US$ 2.67) can be
made using this.
 In the Union budget of 2022-23 India has announced plans for a central bank digital
currency (CBDC) which will be possibly known as Digital Rupee.
 National Asset reconstruction company (NARCL) will take over, 15 Non performing loans
(NPLs) worth Rs. 50,000 crores (US$ 6.70 billion) from the banks.
 In November 2021, RBI launched the ‘RBI Retail Direct Scheme’ for retail investors to
increase retail participation in government securities.
  The RBI introduced new auto debit rules with a mandatory additional factor of
authentication (AFA), effective from October 01, 2021, to improve the safety and security
of card transactions, as part of its risk mitigation measures.
 In September 2021, Central Banks of India and Singapore announced to link their digital
payment systems by July 2022 to initiate instant and low-cost fund transfers.
 In August 2021, Prime Minister Mr. Narendra Modi launched e-RUPI, a person and
purpose- specific digital payment solution. e-RUPI is a QR code or SMS string-based e-
voucher that is sent to the beneficiary’s cell phone. Users of this one-time payment
mechanism will be able to redeem the voucher at the service provider without the usage
of a card, digital payments app, or internet banking access.
 As per Union Budget 2021-22, the government will disinvest IDBI Bank and privatise two
public sector banks.
 Government smoothly carried out consolidation, reducing the number of Public Sector
Banks by eight.

Strategies adopted by RBI for Financial Inclusion in India

 No frill accounts - Basic banking no-frills account is with nil or very low minimum
balance as well as charges were promoted to make such accounts accessible to vast
sections of the population. Banks have been advised to provide small overdrafts in such
accounts.
 Know-your-customer (KYC) norms Relaxation - The banks were permitted to take any
evidence as to the identity and address of the customer to their satisfaction.
 Business correspondents (BCs) Model - RBI permitted banks to engage business
facilitators (BFs) and BCs as intermediaries for providing financial and banking services i.e.
to provide doorstep delivery of services, especially cash in-cash out transactions.
 Enhanced Technology Usage - RBI has advised banks to make effective use of
information and communications technology (ICT), to provide doorstep banking services
through the BC model where the accounts can be operated by even illiterate customers
by using biometrics, thus ensuring the security of transactions and enhancing confidence
in the banking system.
 Implementation Electronic Benefits Transfer (EBT) - RBI has advised banks to implement
EBT by leveraging ICT-based banking through BCs to transfer social benefits electronically
to the bank account of the beneficiary and deliver government benefits to the doorstep of
the beneficiary, thus reducing dependence on cash and lowering transaction costs.
  General purpose Credit Card facilities - The purpose of the GCC scheme is to provide
hassle-free credit to banks‟ customers up to Rs.`25,000 at their rural and semi-urban
branches based on the assessment of cash flow without insistence on security, purpose or
end use of the credit.
 Simplified branch authorization and Opening of branches in unbanked rural centres-
Domestic scheduled commercial banks were permitted by RBI to freely open branches in
tier III to tier VI centres with a population of less than 50,000 under general permission,
subject to reporting.

Public vs Private sector Banks

One cannot but be struck by the apparent irony in recent banking system trends in India and the
United States. Spurred by a lack of financial inclusion, a public banking movement is rapidly
gaining traction in the United States, a bastion of free markets. In contrast, India, a prime example
of state intervention and government-owned-bank dominance, seems to be quickly warming to
the idea of bank privatisation.

The debate on the benefits and costs of public versus private banks is not new. Dating back to
Alexander Gerschenkron in 1962, the development view sees government presence in the banking
sector as a means to overcome market failures in the early stages of economic development. The
core idea is that government-owned banks can improve welfare by allocating scarce capital to
socially productive uses. By contrast, the political view argues that vested interests can
commandeer the lending apparatus to achieve political goals. Political or special interest capture
can distort credit allocation and reduce allocative efficiency in government-owned banking
systems.

Persuaded by the evidence that government ownership in the banking sector leads to lower levels
of financial development and growth, waves of banking sector privatisations swept across
emerging markets in the 1990s. The policymaker consensus saw bank privatisation as an efficient
means to achieve economic and financial development. Indeed, cross-country evidence suggests
that bank privatisations improved both bank efficiency and profitability — specifically, increasing
solvency and liquidity whilst reducing troubled or non-performing assets. India is, therefore,
somewhat late to the game.

Public sector Banks (PSBs) dominate Indian banking, controlling over 60 per cent of banking
assets. The private-credit to GDP ratio, a key measure of credit flow, stands at 50 per cent, much
lower than international benchmarks — in the US it is 190 per cent, in the UK 130 per cent, in
China 150 and in South Korea it is 150 per cent. The quality of credit is problematic as well.
India’s Gross NPA ratio was 8.2 per cent in March 2020, with striking differences across PSBs
(10.3 per cent) and
private banks (5.5 per cent). The end result is much lower PSB profitability compared to private
banks. Clearly, the rationale for privatisation stems from these considerations.

While the United States epitomises the private banking model, a nationwide public banking
movement is coming into vogue —this includes recently introduced state bills from California to
New York. If modelled along the lines of the Bank of North Dakota, America’s only public bank,
reports suggest that public banks can contribute to state revenues, support community banks,
fund public infrastructure projects, and help small businesses grow by offering lower interest rates
and lower fees.

The public banking movement can also help with efficient government transfers and financial
inclusion via universal checking accounts. According to pre-pandemic data from the Federal
Deposit Insurance Corporation (FDIC), 5.4 per cent of the households in the United States are
unbanked. India is no stranger to the imperative for digital financial inclusion. The Jana Dhan
Yojna (PMJDY) is a flagship scheme designed to overcome slippages in delivering transfer
payments to ultimate beneficiaries. The programme is administered primarily through
government-owned banks.

The stellar success of Indian PSBs in implementing the PMJDY while missing the mark on creating
high-quality credit highlights a critical divide between the asset and the liability side of a bank.
Banks provide two functions at a fundamental level: Payments and deposit-taking on the liability
side and credit creation on the asset side. The payment services function, a hallmark of financial
inclusion, is similar to a utility business — banks can provide this service, a public good, at a low
cost universally. The lending side, in contrast, is all about the optimal allocation of resources
through better credit evaluation and monitoring of borrowers. Private banks are more likely to
have the right set of incentives and expertise in doing so. It comes as no surprise that the PSBs in
India are better at providing the public good functions, whereas private banks seem better suited
for credit allocation.

The optimal mix of the banking system across public and private boils down to what you need
out of your banking system and the particular friction your economy faces. When the wedge
between social and private benefits is large, as with financial inclusion, there is a strong case for
public banks. At this stage, inefficiency in capital allocation seems to be a bigger issue for the
Indian banking sector, whereas, in the US, the debate is centred around the public goods aspects
of banking. Therefore, it may make sense for the US to think hard about public banks that can be
used for financial inclusion in line with the success of PMJDY in India. On the other hand, selective
privatisation of inefficient PSBs is a welcome move for India’s banking sector.
Impact of Covid19 on Banking Sector
Bank Revenues in the Crisis and Beyond:

The transaction banking industry has been in steady growth mode for the better part of a
decade. In 2020, the global pandemic brought that to a screeching halt. Over the past 10 years,
global transaction banking revenue pools grew 2% CAGR, topping $400 billion in 2018 and 2019.
In 2020, we expect the pools to decline 6% on a year-over-year basis. These declines should not
last long. In fact, we are projecting a return to growth in 2021 in these three areas:

 Cash management: A relatively rapid recovery in volume and the positive impact of
stabilizing interest rates on expanded deposits leads to a projected 6% increase in
revenues in 2021.
 Global trade: Economic activity gradually returns to normalcy, restoring the business to its
growth trajectory in 2021 and beyond. As corporates reposition, supply chain continues to
outpace traditional trade finance as a revenue driver.
 Security services: Although competitive pressures keep a limit on revenue growth, the
industry starts a cycle of steady expansion. Driving that gradual growth are new fee-based
products in data services, ETF servicing, and other areas, and a post-COVID surge in
demand for outsourcing.

COVID-19: Impact on Bank Clients:

As banks plan strategies for 2021 and beyond, they must take into account how fallout from the
pandemic has altered client perspectives and behaviors in three key areas.

Liquidity is king. As the economic consequences of a global shutdown unfold, companies’ desire
to preserve liquidity will be one of the defining features of the marketplace in 2021 and beyond.

Operational risk is real. Before the pandemic, corporate strategy was driven in large part by the
quest for operational efficiency. After COVID-19, operational risk will play a much bigger role in
corporate planning.

The digital drive is just beginning. If there is one bright spot in 2020, it might be the near-
overnight adoption of digital tools that make doing business easier and cheaper.

The New Imperative: Delivering Digital Value:

As COVID-19 pushed most business and social interaction to digital channels, banks will no longer
have the option of waiting to see how big tech investments play out for rivals. To plot the right
course, banks must understand how and where technology investments actually generate returns.
The next question to address: Which investments will have the strongest impact on those
potential
returns? To some extent, the answer will differ from bank to bank—but across all banks, client
experience is one area in which technology investments consistently deliver attractive ROI. The
reason is simple: Client experience is a key driver of share of wallet.

Long-Term Scenario: Institutional Banking/Securities Services:

In institutional banking, the long-term goal will be to commercialize an end-to-end platform to

meet the needs of institutions looking to outsource the middle/back office entirely. Industry
consolidation caused by the COVID-19 crisis could accelerate the process. M&A could create one
or more “super providers,” able to integrate the entire institutional servicing value chain from
front office to back. Through it all, the wildcard of tokenization - which is developing on a parallel
but almost entirely separate track - will have the potential to upend these evolving models at any
point.

Long-Term Scenario: Corporate & Transaction Banking:

Banks will have to hit the reset button on business practices created for a “normal” interest rate
environment. Case in point: cash management, where banks will have to reintroduce fee-based
models to preserve profitability. There will be pushback from corporates, but over the long term,
there is likely to be an equilibrium in the spirit of “co-opetition” to preserve the economics of the
industry. Banks will also need a complete revamp of coverage and engagement models that
includes rethinking the RM role, re-skilling their bankers, and retooling their processes in a way
that harnesses technology and data to create real value for clients. Finally, banks will have to
acknowledge the fact that they cannot go it alone. The proliferation of fintech and techfin
providers in payments, working capital and other areas is splintering the client ecosystem, and
banks will have to partner with at least some providers to capture a meaningful portion of the
modern ecosystem.
Key Ratios

PARTICULARS CASA% CAR% RETURN ON ASSTES%

HDFC Bank 48.16 18.9 1.78

ICICI Bank 46.16 19.16 1.65
Kotak Mahindra Bank 60.47 22.69 1.43
State Bank of India 44.51 13.85 0.65
Axis Bank 44.84 18.54 1.1
Central Bank of India 49.21 13.84 0.27
IDBI Bank 50.47 19.06 0.83
Union Bank of India 36.47 14.48 0.44
Indian Overseas Bank 43.43 13.83 0.57
Punjab and Sind Bank 33.80 18.54 0.85

Indian Credit Card Industry

India has traditionally been a debit card market. However, the growth in credit card issuance in
the last decade has changed this narrative and credit cards are being used prominently. This
growth is further accelerated by the various products and services being offered by FIs, and such
products are being increasingly used by customers, especially the millennial population.

Credit card issuance has grown significantly in India at a compound annual growth rate (CAGR) of
20% in the last four years. The number of credit cardholders increased from 29 million in March
2017 to 62 million1 in March 2021. It has further grown by 26% and 23% respectively in 2019 and
2020. However, the COVID-19 pandemic affected the growth rate of India’s credit card industry
and it grew by only 7% in 2020–21. The growth rate is expected to improve marginally in FY21–22
but will remain slow due to the restrictions on card issuance by some large banks and payments
networks.

Similarly, credit card transactions were growing at a CAGR of 16% till 2019–20 but went back to
the 2018–19 levels in FY20–21, as depicted in the figure above. The growth rate was low during
the first half of 2020–21 though it gained momentum during the second half.

Unified Payments Interface (UPI) has become one of the most popular payments systems in India.
The volume of UPI transactions was much higher compared to debit or credit cards in 2020–21.
However, the value of transactions recorded was similar for all the three modes of payments
during the same period. A total of 31 card issuers in India have issued approximately 62 million
cards till now. Out of the 31 issuers, the top six have a market share of around 81% while the rest
account for the remaining 19%, as per RBI data released in March 2021.2

Income from interest accounts for the highest of the total revenue earned by card issuers.
Approximately 40–50% of the card revenue comes from interest income which is paid by
approximately 15–20% of the revolving customers. The issuer charges interest ranging between
18– 42% from customers depending on the product that they are using.3

Interchange income is earned from the fee charged by the issuer to process every credit card
transaction. Interchange income is paid by the acquirer to the issuer from the MDR earned by the
acquirer by charging the merchant for every transaction. Typically, the issuer charges around 1.2–
2% as interchange fee for different card and customer segments. This contributes to around 20–
25% of the overall revenue earned by the card issuer.

The remaining revenue is earned by the issuer through various fees and charges like joining/
annual fee, over-limit fee, late payment fee, cash advance fee, cheque/NACH bounce fee, EMI
conversion fee and foreclosure. The issuer also earns revenue from interest levied on various
transactions, balance conversion, loan above allocated/within limits, etc.

Veerappa Moily Committee Report on Indian Banking

NPAs of public sector banks: The Committee noted that the problem of high loan write-offs and
NPAs, combined with low asset growth, is more severe for public sector banks (PSBs) than private
banks. However, it stated that once most of the larger NPAs get resolved as per the Insolvency
and Bankruptcy Code or other mechanisms, the situation will become better for PSBs. In this
regard, the Committee observed that the present crisis is transient and should not warrant
privatisation of public sector banks.

The Committee expressed concern about limited improvements in the short-term earnings of PSBs
as a result of NPAs. To help in pre-empting frauds by structured sharing of credit information and
follow-up action among banks, it recommended the formulation of a law to set up a Public Credit
Registry.

Lowering of Capital to Risk-weighted Assets Ratio (CRAR) requirement: The Committee noted
that RBI’s requirement of a minimum CRAR of 9%, to prevent banks from becoming highly
leveraged, is 1% higher than the Basel III norms for internationally active banks. This is applicable
to all PSBs, even though nine of them do not operate internationally. The Committee observed
that such a high CRAR requirement is impractical for these banks, and a relaxation would (i)
release
capital of approximately Rs 5.34 lakh crore, (ii) grow loans and generate an additional Rs 50,000
crore of income annually, and (iii) avoid the need for capital infusion in these banks.

Banks under Prompt Corrective Action (PCA): The Committee observed that 11 PSBs have been
placed under the PCA framework by the RBI based on factors such as capital inadequacy and high
NPAs. These banks have restricted lending and deposit-taking capabilities as a result. Despite the
imposition of PCA, recoveries in these banks have either been stagnant, or grown marginally. The
Committee recommended that the RBI should provide a roadmap to these banks to enable them
to come out of PCA and resume normal operations.

Further, it observed that bringing more banks under PCA would affect both the banking sector
and the economy at large, by aggravating the problem of credit availability. It recommended that
banks under PCA be closely monitored, and restrictions be relaxed and reviewed, especially for
banks where even retail banking is prohibited. It also recommended that RBI’s knee-jerk reactions
to fraud, like discontinuing Letters of Undertaking that provide cheap credit, should be avoided,
as they hinder credit growth.

Performance of the National Company Law Tribunals (NCLT): The Committee noted that
resolution of larger NPAs under the Insolvency and Bankruptcy Code (IBC) have been taking much
longer than the stipulated time period of 270 days. It recommended that NCLTs’ resources be
increased to enable them to dispose of such cases swiftly.

Further, the Committee observed that several lenders have had to take unduly large ‘haircuts’
(difference between loan amount and the value of the collateral) for some of their loans. It
recommended that a reasonable base price should be fixed for bidding so that large ‘haircuts’ can
be avoided by creditors in the course of the IBC process in NCLT.

Powers of the RBI in case of PSBs: The Committee noted that the RBI had stated that some
powers available to the RBI under the Banking Regulation Act, 1949 are not available in the case
of PSBs. These include: (i) removing and appointing Chairman and Managing Directors of banks,
(ii) superseding the Board of Directors, and (iii) granting licences. The Committee also noted that
the RBI can, however, (i) inspect the bank, (ii) consult with the government on appointing senior
bank officials, and (iii) have a nominee on a PSB’s management committee. In this regard, the
Committee recommended that the government should constitute a high powered committee to
evaluate the powers of the RBI with respect to PSBs as provided under various statutes.

Incentives for PSB employees: The Committee recommended that higher remuneration be given
to senior management of PSBs, as there exists a wide gap with their private sector counterparts.
Further, an overlap should be provided between tenures of successive CEOs to facilitate smoother
transition. The retirement age of CEOs of PSBs should be increased to 70 years (similar to private
banks) to utilise the expertise of senior bankers. Further, criminality of bankers should not be
presumed for decisions taken in the normal course of business, and bankers should be afforded a
chance of explaining their decision before any actions are taken.

Future of Indian Banking Sector

With the augmentation of digital technologies, consumers have become more demanding of
virtual experiences in today’s time. The pandemic has only amplified the need for easy access to
banking products, services and information and surged the need for stress-free access to banking
products and services. The future of banking will be driven by major technological changes and
will transform drastically. The future of banking is ‘Digital’. The COVID-19 pandemic has re-
designed our lives in terms of how we shop, work, even how we bank, and this has led to a major
change in customer behaviour.

However, the digitization of the banking sector is not quite sudden. Financial sector digitization
began in the early 90s when Automated Teller Machine (ATM) and Electronic Fund Transfers (EFT)
were introduced. Consequently, internet banking was permitted in India, followed by the National
Electronic Fund Transfer (NEFT), Immediate Payment System (IMPS), RTGS, etc. Lately, India has
been heavily relying on the UPI or digital wallet payment system. Intending to digitize the
economy, the Government brought in demonetization in 2016, and then GST was introduced in
2017. With such bold initiatives, the Government of India has voiced its intention loud and clear –
to make the banking and financial services sector truly digital. Furthermore, these steps have
conceded incredible results. The transactions through debit and credit cards, UPI platforms have
seen an upsurge, especially over last year due to the pandemic.

As India’s banking industry experiences major positive changes, the country’s banks are also
altering. They are heavily investing in digital technologies to be at par with leading global
competitors.

While for a common man, digitization of banking services may mean digitizing payments and
receipts, but it actually encompasses lot of other activities too. Just like any other business or
organisation, banks also have vendors and customers. In the last few years, banks have been
thoughtfully improving their tech quotient to cater to both customers as well as vendors. Under
these circumstances, banks and other financial institutions have encouraged the implementation
of technology in almost all functions of banking, whether it be credit rating, CIBIL score,
investment banking, lending, borrowing, private banking, consumer service and loans, etc. This has
resulted in employee productivity improvement and providing better consumer experiences.

Multiple technology solution providers in the Indian market are also assisting banks and other
financial institutions to ramp up their technology game. These solution providers help banks to
assess their current technology footprint and suggest appropriate technology that can be used to
accelerate their digital business. Some examples of the latest technology used are:

Vendor management for banks: Application Programming Interface known as API makes vendor
management easier for banks ensuring reconciliation between vendor invoices received and
vendor invoices uploaded on the GST portal amongst other benefits.

Digital lending through DSA: DSA or Direct Selling Agents act like loan agents for banks. They
reach out to potential customers or borrowers and handle their end-to-end loan processing.

There are multiple benefits of digital banking such as:

Improved accountability: Since each transaction has a record and is easy to track, the
transactions become transparent. With transparency follows accountability. These two together
create a safe and secure banking space for the citizens of the country.

Improved tax revenues: Digital transactions make certain that tax frauds and evasions are kept in
check. Since every transaction is tracked electronically, the odds of suppressing income and
evading taxes reduce significantly. Enhanced tax collections mean a better development rate for
the nation.

Wider reach of banking services: In the past, banking was considered only for the affluent and
educated working class. Rural India, which is a larger part of the population, did not have
adequate access to banking services. However, the scenario has completely transformed in the last
few years. The rural as well as the urban customers, who were not proficient with the banking
domain are also using digital payments to a large extent. This has been a very exciting journey for
the Indian economy as even a small roadside vendor now has a bank account and accepts
payments through digital wallets.

Convenience: The convenience of digital banking is noteworthy. Payments and receipts can be
made with a click of a button from anywhere with a fully secured gateway. Furthermore, apart
from receipts and payments, other digitization technologies have eased out the bank’s
compliances and smoothened the service rendering process.

The Start-up age: Indian start-ups in just four months in 2021 raised approximately 7.8 billion,
despite the second COVID-19 wave. Our country is leading the start-up space globally. With
several start-ups coming up and growing each day, it is only natural and crucial for the banks,
which usually fund these start-ups, to become equally tech–reliant.

The Government of India has taken multiple steps and measures to enable better and more
accessible banking experiences. With the growth trajectory seeming optimistic, the Indian banks,
both private and public are comprehending the importance of using digital technologies such as
RPA’s, Artificial Intelligence, Machine Learning. These technologies open new possibilities. Financial
institutions including banks would have to re-assess their digital strategy to check if they are
capable of meeting future needs. Besides, what also needs to be done is to outline the roadmap
to challenge such technology disruption. Precisely, transaction banks are changing their digital
investment attention from one that is largely internal to one that is externally driven. Beyond
technical abilities, banks are now more than ever closely considering the needs of their clients.

Conclusion
From nationalisation of various banks to multiple mergers of various banks, Indian Baking System
has come a long way. Structure of Banking sector includes Commercial Banks, Cooperative Banks
and Development Banks. Indian Banking sector can been as one of the widest and vast sectors in
Indian which contains 12 public sector banks, 22 private sector banks, 46 foreign banks, 56
regional rural banks, 1485 urban cooperative banks and 96,000 rural cooperative banks in
addition to cooperative credit institutions. We can say that Banking sector has grown at fair pace
between the years 2016 and 2021.

Pradhan Mantri Jan Dhan Yojana, HARBINGER 2021 – Innovation for Transformation, deals by
corporates like whatsaspp, Kotak Bank and HDFC Bank have brought investments in the sector
forming a base for further development.

Government initiatives like Loan takeover by NARCL, launch of RBI retail direct scheme, AFA,
launch of e-RUPI, consolidation of public sector banks and many more have proved the positive
outlook by government on the industry. RBI has also adopted various strategies like No frill
accounts, Know your customer, Electronic Benefits transfer, etc to make sure the banking sector is
able to cater to needs of general public in the right and efficient manner.

When it comes to public vs private sector banks, we cannot rule out the fact that public sector
banks control over 60% of Indian Banking Assets. But when it comes to profitability, we must
agree that private banks are way ahead than PSBs. In the need it comes to the point where we
need a proper mix of both PSBs and Private sector banks so that they contribute in their own
ways towards betterment of the sector as a whole.

Covid19 have impacted the banking sector on a different level. But these impacts lead to new
ways of banking for example digitisation of various procedures and these solutions have resulted
in ease of banking for customers in the long run irrespective of any pandemic. Even after covid,
private sector banks like HDFC, Kotak, ICICI,etc have continued to perform on their decent pace
as usual. Kotak Mahindra Bank stands tall with highest casa ratio while HDFC Bank has been
successful at a higher return on assets percentage.
While covid19 slightly affected the credit market, it could not do much damage as the card
industry has grown significantly over the last 4 to 6 years. Not only card issuance, but even the
credit transactions have grown over the time indicating a new trend and development in the
banking sector.

There might be some setbacks in the form of Public sector banks and some policies and
strategies adopted by RBI. These points are duely mentioned in the Veerappa Moily committee
report. Some setbacks can be noted as poor performance of NCLT, lack of incentives for PSBs
officials. But despite these setbacks the sector as a whole stands to be growing at a decent rate
with the help from quality service by private sector banks, timely and apt inititaives by
government organisations and digital reforms by RBI. In conclusion the future of Banking Sector
looks healthy as digital banking tends to improve quality of banking in every aspects such as
convenient procedures, lending, payments, reach of services, improved tax revenues, etc. We look
up to the banking sector to grow and prosper in coming years.

Sectoral Report by,

AYUSHI PANDEY
2021PBA9248
AXIS BANK
EQUITY RESEARCH REPORT

AYUSHI PANDEY
2021PBA9248
Axis Bank is the third largest private sector bank in India. The Bank offers the entire spectrum of
financial services to customer segments covering Large and Mid-Corporates, MSME, Agriculture
and Retail Businesses.

Axis Bank is one of the first new generation private sector banks to have begun operations in
1994. The Bank was promoted in 1993, jointly by Specified Undertaking of Unit Trust of India
(SUUTI) (then known as Unit Trust of India), Life Insurance Corporation of India (LIC), General
Insurance Corporation of India (GIC), National Insurance Company Ltd., The New India Assurance
Company Ltd., The Oriental Insurance Company Ltd., and United India Insurance Company Ltd.
The shareholding of Unit Trust of India was subsequently transferred to SUUTI, an entity
established in 2003.

With a balance sheet size of Rs.11,75,178 crores as on 31st March 2022, Axis Bank has achieved
consistent growth and with a 5-year CAGR (2016-17 to 2021-22) of 14% each in Total Assets &
Advances and 15% in Deposits.

Operational Presence:

The Bank has a large footprint of 4,758 domestic branches (including extension counters) with
10,990 ATMs & 5,972 cash recyclers spread across the country as of 31st March 2022. The Bank
has 6 Axis Virtual Centers with over 1,500 Virtual Relationship Managers as of 31st March 2022.
The Overseas operations of the Bank are spread over eight international offices with branches in
Singapore, Dubai (at DIFC), and Gift City-IBU; representative offices in Dhaka, Dubai, Abu Dhabi,
Sharjah and an overseas subsidiary in London, UK. The international offices focus on Corporate
Lending, Trade Finance, Syndication, Investment Banking, Liability Businesses, and Private
Banking/Wealth Management offerings.

Product Portfolio:

• Savings Account
• Salary Account
• Current Account

Accounts • Axis Dirct Invest Account

• Safe Deposit Locker
• Safe Custody
• National Pension System
• Pension Disbursement Account
• Sukanya Samridhi Yojana
• Axis Active
 • Express FD
• Fixed Deposits

Deposits • Recurring Dposits

• Tax Saver Fixed Deposits
• Fixed Deposit Plus
• Auto Fixed Deposit

• Credit card
• Debit Card
• Pre-Paid Cards
• Transit Cards

Cards
• Commercial Credit Card
• Commercial Debit Card
• Digital Payments
• My Design- Customise your card
• Credit Card Control Center
• Debir Card Total Control

• Mutual Funds
• Demat Accounts
• RBI Floating rate Bonds
• PPF
Investment • Atal pension Yojana
s • IPO Smart
• Future Planning Solutions
• Kisan Vikas Patra

Other than above mentioned products Axis bank also offers all types of loans, Insurances, Forex
Products and many more.

Its Agri and Rural Banking section provides loans and banking services like Tractor Loan, Gold
loan, Farmer Funding, MSME Samriddhi Loans, etc.
Industry Overview
As per the Reserve Bank of India (RBI), India’s banking sector is sufficiently capitalised and well-
regulated. The financial and economic conditions in the country are far superior to any other
country in the world. Credit, market and liquidity risk studies suggest that Indian banks are
generally resilient and have withstood the global downturn well.

Indian banking industry has recently witnessed the roll out of innovative banking models like
payments and small finance banks. RBI’s new measures may go a long way in helping the
restructuring of the domestic banking industry.

The digital payments system in India has evolved the most among 25 countries with India’s
Immediate Payment Service (IMPS) being the only system at level five in the Faster Payments
Innovation Index (FPII).*

The Indian banking system consists of 12 public sector banks, 22 private sector banks, 46 foreign
banks, 56 regional rural banks, 1485 urban cooperative banks and 96,000 rural cooperative banks
in addition to cooperative credit institutions As of September 2021, the total number of ATMs in
India reached 213,145 out of which 47.5% are in rural and semi urban areas.

In FY18-FY21, bank assets across sectors increased. Total assets across the banking sector
(including public and private sector banks) increased to US$ 2.48 trillion in FY21. In FY21, total
assets in the public and private banking sectors were US$ 1,602.65 billion and US$ 878.56 billion,
respectively.

During FY16-FY21, bank credit increased at a CAGR of 0.29%. As of FY21, total credit extended
surged to US$ 1,487.60 billion. During FY16-FY21, deposits grew at a CAGR of 12.38% and
reached US$ 2.06 trillion by FY21. Bank deposits stood at Rs. 162.41 trillion (US$ 2.17 trillion) as of
December 31, 2021.

According to India Ratings & Research (Ind-Ra), credit growth is expected to hit 10% in 2022-23
which will be a double-digit growth in eight years. According to the RBI, bank credit stood at Rs.
116.8 lakh crore (US$ 1.56 trillion) on 31st December 2021. As of February 2022, credit to non-
food industries stood at Rs. 114.10 trillion (US$ 1.53 trillion).
Company Performance FY 21-22:
Q4FY22

 Net profit at `4,118 crores, up 54% YOY & 14% QOQ

 Operating profit grew 13% YOY & 5% QOQ, NII grew 17% YOY & 2% QOQ, NIM stood at
3.49%
 Fee income grew 11% YOY and 12% QOQ, Retail fee grew 14% YOY and 14% QOQ

FY22

 Net profit at `13,025 crores, up 98% YOY

 NII grew 13% YOY; Fee income grew 22% YOY

Strong growth witnessed in customer acquisitions, driving healthy deposit growth

 Added 2.4 mn new liability relationships in Q4, up 30% YOY & 11% QOQ, 8.6 mn for
FY22, up 29% YOY
 On period end basis, CASA grew 16% YOY & 7% QOQ; CASA ratio stood at 45%

Wealth Management business Burgundy continues to show strong growth

 Total AUMs over `2.6 trillion up 22% YOY with Burgundy Private AUMs at `86,959 crores
up 74% YOY
 Burgundy Private now covers over 3,490 families up from 1,666 families in last one year

Loan growth delivered across focused business segments

 Retail loans grew 21% YOY and 9% QOQ, SBB and Rural loans grew 60% YOY and 29%
YOY respectively
 SME loans grew 26% YOY and 13% QOQ
 Mid-corporate book grew 45% YOY & 13% QOQ

Retain strong positioning in Payments and Digital Banking

 Credit cards - incremental market share stood at around 17%*; spends were up 46% YOY
& 3% QOQ
 The Bank crossed a significant milestone of 2 million Flipkart Axis Bank Credit Cards in force
 15% market share in UPI transactions and 19% in UPI P2M acquiring
 Among the highest rated mobile apps with ratings of 4.6**, mobile banking market share
stood at 14%
Well capitalized with adequate liquidity buffers

 Overall capital adequacy ratio (CAR) for FY22 stood at 18.54% with CET 1 ratio of 15.24%
 COVID provisions of `5,012 crores, not in CAR calculation provides additional cushion of
60 bps
 Average Liquidity Coverage Ratio (LCR) during Q4FY22 was over 116%, excess SLR2 of
`96,190 crores

Declining net slippages and NPA’s, moderating credit costs, limited restructuring

 Net slippages declined 75% QOQ, Net slippage ratio (annualized) at 0.13%, improved 42
bps QOQ
 Annualized credit cost for Q4FY22 at 0.32%, declined by 116 bps YOY & 12 bps QOQ,
PCR healthy at 75%
 GNPA at 2.82% declined by 88 bps YOY & 35 bps QOQ, NNPA at 0.73% declined 32 bps
YOY & 18 bps QOQ,
 On an aggregated basis3 , Coverage ratio at 132%
 Covid-19 restructuring implemented loans at 0.52% of GCA, amongst the lowest in the
industry

Bank’s domestic subsidiaries deliver strong performance, combined FY22 PAT grew 44% to
`1,195 crores

 Axis AMC’s FY22 PAT grew 47% YOY to `357 crores, AAUM growth of 32% YOY
 Axis Capital FY22 PAT stood at `200 crores, up 20% YOY.

 Axis Finance FY22 PAT grew 72% YOY to `364 crores; asset quality remains stable, with
near zero restructuring
 Axis Securities FY22 PAT at `232 crores, was up 40% YOY

Profit & Loss Account: Period ended 31st March 2022

Operating Profit and Net Profit

The Bank’s operating profit for the quarter grew 13% YOY and 5% QOQ to `6,466 crores. Net profit
grew 54% from `2,677 crores in Q4FY21 to `4,118 crores in Q4FY22.

Net Interest Income and Net Interest Margin

The Bank’s Net Interest Income (NII) grew 17% YOY and 2% QOQ to `8,819 crores. Net interest
margin (NIM) for Q4FY22 stood at 3.49%.
Other Income

Fee income for Q4FY22 grew 11% YOY and 12% QOQ to `3,758 crores. Retail fees grew 14% YOY
and 14% QOQ; and constituted 66% of the Bank’s total fee income. Retail assets (excl. cards) fees
grew 41% YOY and 16% QOQ. The corporate & commercial banking fees together grew 7% YOY
and 10% QOQ. The trading profits and miscellaneous income for the quarter stood at `231 crores
and `234 crores respectively. Overall, non-interest income (comprising of fee, trading profit and
miscellaneous income) for Q4FY22 stood at `4,223 crores, up 19% YOY and 10% QOQ.

Provisions and contingencies

Specific loan loss provisions for Q4FY22 were `602 crores compared to `790 crores in Q3FY22. The
Bank has not utilized Covid provisions during the quarter. The Bank holds cumulative provisions
(standard + additional other than NPA) of `12,428 crores at the end of Q4FY22. It is pertinent to
note that this is over and above the NPA provisioning included in our PCR calculations. These
cumulative provisions translate to a standard asset coverage of 1.77% as on 31st March, 2022. On
an aggregated basis, our provision coverage ratio (including specific + standard + additional +
Covid provisions) stands at 132% of GNPA as on 31st March, 2022. Credit cost for the quarter
ended 31st March, 2022 stood at 0.32%, declining by 116 bps YOY and 12 bps QOQ.

In Crore Rupees

Financial Performance Q4FY22 Q4FY21 Growth % FY22 FY21 Growth %

Net Interest Income 8,819 7,555 17% 33,132 29,329 13%

Other Income 4,223 3,541 19% 15,221 12,264 24%

-Fee Income 3,758 3,376 11% 13,001 10,686 22%
-Trading income 231 22 957% 1,626 1,218 34%
-Miscellaneous Income 234 143 64% 593 360 65%

Operating Revenue 13,042 11,096 18% 48,353 41,503 17%

Core Operating Revenue* 12,812 11,079 16% 46,705 40,279 16%
Operating Expenses 6,576 5,359 23% 23,611 18,375 28%
Operating Profit 6,466 5,737 13% 24,742 23,128 7%
Core Operating Profit* 6,235 5,720 9% 23,094 21,903 5%

Net Profit/(Loss) 4,118 2,677 54% 13,025 6,588 98%

EPS Diluted annualised in Rs 54.27 35.37 42.35 22.09
Return on Average Assets 1.46% 1.11% 1.21% 0.70%
(annualised)
Return on Equity 15.87% 11.72% 12.91% 7.55%
Balance Sheet:
Particulars FY22 FY21
CAPITAL AND LIABLITIES
Capital 614 613
Reserves and Surplus 1,14,411 1,00,990
Employee Stock Option Outstanding ( net ) 149 -
Deposits 8,21,721 6,97,986
Borrowings 1,85,134 1,42873
Other Liabilities and Provisions 53,149 44,336
TOTAL 11,75,178 9,86,798
ASSETS
Cash and Balances with RBI and Banks and Money at Call and 1,10,987 61,730
Short Notice
Investments 2,75,597 2,26,120
Advances 7,07,696 6,14,399
Fixed Assets 4,572 4,245
Other Assets 76,326 80,304
TOTAL 11,75,178 9,86,798

The Bank’s balance sheet grew 19% YOY and stood at `11,75,178 crores as on 31st March 2022.
The total deposits grew by 19% YOY on quarterly average balance (QAB) basis and 18% YOY on
period end basis. On QAB basis, savings account deposits grew 19% YOY and 2% QOQ, current
account deposits grew 19% YOY and 3% QOQ; and retail term deposits (RTD) grew 6% YOY and
declined 1% QOQ. On QAB basis, CASA and RTD deposits put together grew 13% YOY and 1%
QOQ. On QAB basis, the share of CASA plus RTD deposits in total deposits stood at 81% as of
31st March 2022.

The Bank’s advances grew 15% YOY and 6% QOQ to `7,07,696 crores as on 31st March 2022. The
Bank’s loan to deposit ratio stood at 86%. Retail loans grew 21% YOY and 9% QOQ to `3,99,891
crores and accounted for 57% of the net advances of the Bank. The share of secured retail loans
was ~ 80%, with home loans comprising 36% of the retail book. Home loans, Small business
Banking and Rural loans portfolio grew 18% YOY, 60% YOY, & 29% YOY respectively. Unsecured
personal loans and credit card advances grew 15% YOY and 19% YOY respectively. SME loan book
grew 26% YOY and 13% QOQ to `77,067 crores. 96% of the SME book is secured with
predominantly working capital financing, and is well diversified across geographies and sectors.
Corporate loan book grew 4% YOY and was flat QOQ to `2,30,738 crores. 88% of corporate book
is now rated A- and above with 92% of incremental sanctions in FY22 being to corporates rated
A- and above.
The book value of the Bank’s Investments portfolio as on 31st March 2022, was `2,75,597 crores,
of which `2,24,763 crores were in government securities, while `45,143 crores were invested in
corporate bonds and `5,691 crores in other securities such as equities, mutual funds, etc. Out of
these, 70% are in held till maturity (HTM) category, while 28% of investments are available for sale
(AFS) and 2% are in held for trading (HFT) category.

Payments and Digital

The Bank issued 1.1 million new credit cards in Q4FY22, highest ever for the quarter in Bank’s
history, taking the overall new card additions to 2.7 mn for the year. The Bank crossed a
significant milestone of 2 million Flipkart Axis Bank Credit Cards in force, making it one of the
fastest growing co-branded portfolios since its launch in July 2019. During the quarter, the Bank
also entered into a strategic partnership with Airtel that will provide it an opportunity to offer
credit cards and various digital financial offerings to Airtel’s 340 million customers.

Axis Bank continues to remain among the top players in the Retail Digital banking space.

 122% - YOY growth in total UPI transaction value in Q4FY22. Market share in UPI
transactions at 15%
 97% - YOY growth in mobile banking transaction volumes in Q4FY22, with market share
of 14%
 91% - Share of digital transactions in the Bank’s total financial transactions by individual
customers in FY22
 70% - SA accounts opened through tab banking in FY22
 68% - Retail term deposits (by volume) opened digitally in FY22
 46% - New mutual fund SIPs sourced (by volume) through digital channels in FY22.

The Bank’s focus remains on reimagining end-end journeys and transforming the core and
becoming a partner of choice for ecosystems. The Bank now has over 80 partnerships across
ecosystem and has over 300 APIs hosted on its API Developer Portal. On WhatsApp banking, the
Bank now has over 4 million customers on board since its launch in 2021. We have ~ 5.6 million
non-Axis Bank customers using our Axis mobile and Axis Pay apps.
Wealth Management Business – Burgundy
The Bank’s wealth management business has seen strong growth and is among the largest in
India with assets under management (AUM) of over `2,60,768 crores as at end of 31st March 2022.
Burgundy Private for the high and ultra-high net worth clients, covers over 3,490 families from
1,666 families in last one year. The AUM for Burgundy Private increased 74% YOY to `86,959
crores.

Capital Adequacy and Shareholders’ Funds

The shareholders’ funds of the Bank grew 4% QOQ and stood at `1,15,025 crores as on 31st
March 2022. Under Basel III, the Capital Adequacy Ratio (CAR) and CET1 ratio as on 31st March
2022 were 18.54% and 15.24% respectively. Additionally, the Bank held `5,012 crores of COVID
provisions, not considered for CAR calculation providing cushion of 60 bps over the reported CAR.
The Book value per equity share increased from `332 as of 31st March, 2021 to `375 as of 31st
March, 2022.

Asset Quality
As on 31st March, 2022 the Bank’s reported Gross NPA and Net NPA levels were 2.82% and 0.73%
respectively as against 3.17% and 0.91% as on 31st December 2021. Gross slippages during the
quarter were `3,981 crores, compared to `4,147 crores in Q3FY22 and `5,285 crores in Q4FY21 (as
per IRAC norms). Recoveries and upgrades from NPAs during the quarter were `3,763 crores
Consequently, the net slippages in NPAs (before write-offs) for the quarter of `218 crores as
compared to `860 crores in Q3FY22 and `1,822 crores in Q4FY21. The net slippages in retail were
`193 crores, commercial banking was `85 crores and wholesale banking were negative `60 crores.
In addition to recoveries and upgrades previously mentioned, recoveries from written off accounts
were `719 crores. Hence on aggregate, the slippages were lower than recoveries, upgrades and
collections from written off accounts. The Bank in the quarter wrote off NPAs aggregating `1,696
crores.

As on 31st March 2022, the Bank’s provision coverage, as a proportion of Gross NPAs stood at
75%, as compared to 72% as at 31st March 2021 and 72% as at 31st December 2021.

The fund based outstanding of standard restructured loans implemented under resolution
framework for COVID-19 related stress (Covid 1.0 and Covid 2.0) declined during the quarter and
as at 31st March 2022 stood at `4,029 crores that translates to 0.52% of the gross customer
assets. The Bank carries a provision of ~ 24% on restructured loans, which is in excess of
regulatory limits.
Key Subsidiaries’ Performance
The Bank’s domestic subsidiaries delivered strong performance with reported total PAT of `1,195
crores, up 44% YOY.

 Axis AMC: Axis AMC continued to strengthen its positioning driven by strong leadership
team and innovative product launches. Axis AMC’s average AUM for the quarter grew by
32% YOY to `2,59,818 crores. Its FY22 PAT grew 47% YOY to `357 crores from `242 crores
in FY21.
 Axis Finance: Axis Finance has been investing in building a strong customer focused
franchise. Retail book constituted 33% of total loans while the focus in wholesale business
continues to be on well rated companies and cash flow backed transactions. Axis Finance
remains well capitalized with Capital Adequacy Ratio of 20%. The asset quality metrics
remain stable with net NPA at 0.46% with near zero restructuring. Axis Finance Q4FY22
PAT was `113 crores, up 56% YOY. FY22 PAT grew 72% YOY to `364 crores from `211
crores in FY21.
 Axis Capital: Continued to maintain its leadership position in ECM. Axis Capital completed
44 ECM transactions in FY22. It’s PAT for FY22 grew by 20% YOY.
 Axis Securities: Axis Securities’ broking revenues for Q4FY22 & FY22 grew 36% and 56%
YOY to `179 crores `662 crores respectively, net profit for Q4FY22 & FY22 grew by 21%
and 40% YOY to `58 crores and `232 crores respectively

Strengths
Strong capital position with demonstrated ability to raise capital:

Capitalisation is strong, with sizeable networth of Rs 1,07,083 crore as on September 30, 2021 (Rs
1,01,603 crore as on March 31, 2021). Tier-I capital adequacy ratio (CAR) and overall CAR were
comfortable at 17.54% and 20.04%, respectively, as on same date (16.47% and 19.12%,
respectively, as on March 31, 2021). Capitalisation is also supported by the bank's demonstrated
ability to raise equity. The bank had raised Rs 10,000 crore in fiscal 2021 through a qualified
institutional placement and had raised Rs 12,500 crore in fiscal 2020. Healthy networth also
cushions credit growth and helps maintain adequate cover against net non-performing assets
(NPAs). Net worth to net NPA ratio stood at 14.9 times as on September 30, 2021 and has
improved from 9.1 times as on March 31, 2020. Given the bank's healthy cash accrual and
demonstrated ability to raise capital, it is likely to maintain healthy capitalisation to support overall
credit risk profile of the bank and also adequately cover for asset-side risks, while pursuing credit
growth over the medium term.
Healthy resource profile:

The resource profile remains healthy, with share of stable low-cost current and savings account
(CASA) deposits at 44% of total deposits as on September 30, 2021 (45% as on March 31, 2021,
41% as on March 31, 2020 and 44% as on March 31, 2019). Although there was a drop in the
share of CASA deposits from March 31, 2018, the overall retail term deposits (retail term deposits/
total term deposits) remain stable at 83% (based on quarterly average balance) as on September
30, 2021. This contributes to competitive cost of deposits and cushions the net interest margin.
The bank has a strong focus on increasing the CASA share and has been ramping up their branch
network to effectively target the retail customer base.

With a network of 4,679 branches (domestic, including extension counters) and a strong digital
footprint, the bank is expected to sustain a healthy resource profile over the medium term.

Strong market position:

Axis Bank is amongst the top three private sector banks, with a market share of around 5% in
advances and deposits as on September 30, 2021. Advances recorded a compound annual growth
rate (CAGR) of ~13% over the five fiscals through 2021, mainly contributed by stronger growth in
retail loans (~19% CAGR). Also, the loan portfolio is well balanced with retail loans constituting
56% of loans, followed by corporate (34%) and small and medium enterprise (SME; 10%) loans, as
on September 30, 2021. Share of the retail portfolio has grown sharply to 56% as on September
30, 2021, from 27% as on March 31, 2013. Further, around 69% of the retail loans are now being
sourced by existing customers; which should support healthy growth rates.

The bank has also retained its strong position in the debt syndication business, which continues
to support expansion in fee income. With healthy capitalisation, well spread out branch network,
diverse product offerings, and a strong digital footprint, market share is expected to improve over
the medium term.

Weaknesses:
Average asset quality:

The bank’s overall asset quality remains average, though the gross NPAs as a percentage of total
advances has been declining over the last few quarters and stood at 3.53% as on September 30,
2021. The improving trend was primarily due to significant stress in the corporate loan book
already being recognised coupled with higher upgradation and recoveries (Upgradations and
recoveries of Rs 7,300 crore in the six months of fiscal 2022 as against Rs 2,634 crore in the
corresponding period
of the previous fiscal). However, over the near-to-medium term, the asset quality will remain
susceptible to Covid-19 related stress and will remain a monitorable.

Bank restructured portfolio amounting to Rs 4,461 crore (0.7% of gross advances) as on

September 30, 2021 under both the covid restructuring schemes announced by RBI. Provision
coverage ratio (excluding technical write-offs) stood at 70% as on September 30, 2021 (72% as on
March 31, 2021).

Ability to manage asset quality, in both the corporate and retail loan portfolios amidst the
challenging macro environment will remain key a rating monitorables over the near-to-medium
term.

Government Initiatives for Banking Sector

 National Asset reconstruction company (NARCL) will take over, 15 non-performing loans
(NPLs) worth Rs. 50,000 crores (US$ 6.70 billion) from the banks.
 National payments corporation India (NPCI) has plans to launch UPI lite this will provide
offline UPI services for digital payments. Payments of upto Rs. 200 (US$ 2.67) can be
made using this.
 In the Union budget of 2022-23 India has announced plans for a central bank digital
currency (CBDC) which will be possibly known as Digital Rupee.
 National Asset reconstruction company (NARCL) will take over, 15 Non performing loans
(NPLs) worth Rs. 50,000 crores (US$ 6.70 billion) from the banks.
 In November 2021, RBI launched the ‘RBI Retail Direct Scheme’ for retail investors to
increase retail participation in government securities.
 The RBI introduced new auto debit rules with a mandatory additional factor of
authentication (AFA), effective from October 01, 2021, to improve the safety and security
of card transactions, as part of its risk mitigation measures.
 In September 2021, Central Banks of India and Singapore announced to link their digital
payment systems by July 2022 to initiate instant and low-cost fund transfers.
  In August 2021, Prime Minister Mr. Narendra Modi launched e-RUPI, a person and
purpose- specific digital payment solution. e-RUPI is a QR code or SMS string-based e-
voucher that is sent to the beneficiary’s cell phone. Users of this one-time payment
mechanism will be able to redeem the voucher at the service provider without the usage
of a card, digital payments app, or internet banking access.
 As per Union Budget 2021-22, the government will disinvest IDBI Bank and privatise two
public sector banks.
 Government smoothly carried out consolidation, reducing the number of Public Sector
Banks by eight.

Outlook
Being 3rd largest Indian Private sector bank, Axis Bank stands toe to toe with its competitors with
the help of its wide range of products catering to the needs of both retail and agri customers,
wide spread presence across multiple nations and the support from consistently growing Indian
Banking Sector as a whole.

The company has performed very well in case of its Net Profit both Quarter on Quarter and Year
on Year on Year. Decent growth can been seen this year in CASA, new liability relationships, retail
loans, rural loans, SME loans, and credit card market share and spending. Where as it managed to
retain 15% market share in UPI transactions.

Excellent growth in Net Profit, reduction in loans loss provisions, growth in prime lending business
and growing balance sheet reflect strong and healthy operations of the company. Axis Bank has
also made sure to be updated with the technology. Their digital payment services have shown
tremendous growth and have retained a decent market share.

All the subsidiaries of Axis bank have reported fair growth in the past year. Ability to raise capital,
strong market position and healthy resources serve as strengths for the company. Whereas asset
quality and liquidity tend to show some weaknesses. Anyhow Axis Bank is capable enough to turn
their weaknesses to their fortune.

Major role in development of any company is played by its nation’s government. Indian
government has taken all the necessary steps from taking over loans to launching new schemes.
From lauching UPI lite to launching digital currency and so on. Timely and consistent bold steps
from government have helped the Indian Banking System come a long way. Though there is a
long way to go, we expect Axis bank to grow along the Indian Banking system under its capable
leadership.
In conclusion, keeping in mind all the positives and some negatives about the company, we can
say that Axis bank is a rapidly growing company which has the potential to become a market
leader in due time. Even being a little behind in the market share, the company stands tall among
its competitors. Hence, overall outlook for the company is positive ahead.

Key Managerial People

Rakesh Makhija Amitabh Chaudhary

Director and Non Executive Chairman Managing Director & Chief Executive Officer

S Vishvanathan Ketaki Bhagwati Rajiv Anand

Director Director Deputy Managing Director

 Ganesh Sankaran Neeraj Gambhir

Group Exective Group Executive

Wholesale Banking Coverage Group Treasury, Markets & Wholesale Banking Products

Equity Research Report By,

AYUSHI PANDEY

2021PBA9248