CHAPTER – 1

INTRODUCTION

1
 INTRODUCTION
Asset Liability Management (ALM) is a strategic approach of managing the balance sheet
dynamics in such a way that the net earnings are maximized. This approach is concerned
with management of net interest margin to ensure that its level and riskiness are
compatible with the risk return objectives of the ICICI Bank . If one has to define Asset
and Liability management without going into detail about its need and utility, it can be
defined as simply “management of money” which carries value and can change its shape
very quickly and has an ability to come back to its original shape with or without an
additional growth. The art of proper management of healthy money is ASSET AND
LIABILITY MANAGEMENT (ALM).

The Liberalization measures initiated in the country resulted in revolutionary changes in

the sector. There was a shift in the policy approach of from the traditionally administered
market regime to a free market driven regime. This has put pressure on the earning
capacity of co-operative, which forced them to foray into new operational areas thereby
exposing themselves to new risks.
As major part of funds at the disposal of come from outside sources, the management is
concerned about RISK arising out of shrinkage in the value of asset, and managing such
risks became critically important to them. Although co-operative are able to mobilize
deposits, major portions of it are high cost fixed deposits. Maturities of these fixed
deposits were not properly matched with the maturities of assets created out of them. The
tool called ASSET AND LIABILITY MANAGEMENT provides a better solution for
this.

ASSET LIABILITY MANAGEMENT (ALM) is a portfolio management of assets and

liability of an organization. This is a method of matching various assets with liabilities on
the basis of expected rates of return and expected maturity patter.

In the context of ALM is defined as “a process of adjusting liability to meet loan

demands, liquidity needs and safety requirements”. This will result in optimum value of
the, at the same time reducing the risks faced by them and managing the different types of
risks by keeping it within acceptable levels.

2
What is Asset and Liability Management (ALM)?
Asset and liability management (ALM) is a practice used by financial institutions to
mitigate financial risks resulting from a mismatch of assets and liabilities. ALM strategies
employ a combination of risk management and financial planning and are often used by
organizations to manage long-term risks that can arise due to changing circumstances.
 

 
The practice of asset and liability management can include many factors, including
strategic allocation of assets, risk mitigation, and adjustment of regulatory and capital
frameworks. By successfully matching assets against liabilities, financial institutions are
left with a surplus that can be actively managed to maximize their investment returns and
increase profitability.
 
Summary
 Asset and liability management (ALM) is a practice used by financial
institutions to mitigate financial risks resulting from a mismatch of assets and
liabilities.

3
  By strategically matching of assets and liabilities, financial institutions can
achieve greater efficiency and profitability while also reducing risk.
 Some of the most common risks addressed by ALM are interest rate risk and
liquidity risk.
 
Understanding Asset and Liability Management
At its core, asset and liability management is a way for financial institutions to address
risks resulting from a mismatch of assets and liabilities. Most often, the mismatches are a
result of changes to the financial landscape, such as changing interest rates or liquidity
requirements.
A full ALM framework focuses on long-term stability and profitability by maintaining
liquidity requirements, managing credit quality, and ensuring enough operating capital.
Unlike other risk management practices, ALM is a coordinated process that uses
frameworks to oversee an organization’s entire balance sheet. it ensures that assets are
invested most optimally, and liabilities are mitigated over the long-term.
Traditionally, financial institutions managed risks separately based on the type of risk
involved. Yet, with the evolution of the financial landscape, it is now seen as an outdated
approach. ALM practices focus on asset management and risk mitigation on a macro
level, addressing areas such as market, liquidity, and credit risks.
Unlike traditional risk management practices, ALM is an ongoing process that
continuously monitors risks to ensure that an organization is within its risk tolerance and
adhering to regulatory frameworks. The adoption of ALM practices extends across the
financial landscape and can be found in organizations, such as banks, pension funds, asset
managers, and insurance companies.
 
Pros and Cons of Asset and Liability Management
Implementing ALM frameworks can provide benefits for many organizations, as it is
important for organizations to fully understand their assets and liabilities. One of the
benefits of implementing ALM is that an institution can manage its liabilities strategically
to better prepare itself for future uncertainties.
Using ALM frameworks allows an institution to recognize and quantify the risks present
on its balance sheet and reduce risks resulting from a mismatch of assets and liabilities.
By strategically matching assets and liabilities, financial institutions can achieve greater
efficiency and profitability while reducing risk.
4
The downsides of ALM involve the challenges associated with implementing a proper
framework. Due to the immense differences between different organizations, there is no
general framework that can apply to all organizations. Therefore, companies would need
to design a unique ALM framework to capture specific objectives, risk levels,
and regulatory constraints.
Also, ALM is a long-term strategy that involves forward-looking projections and datasets.
The information may not be readily accessible to all organizations, and even if available,
it must be transformed into quantifiable mathematical measures.
Finally, ALM is a coordinated process that oversees an organization’s entire balance
sheet. It involves coordination between many different departments, which can be
challenging and time-consuming.
 

 
Examples of ALM Risk Mitigation
Although ALM frameworks differ greatly among organizations, they typically involve the
mitigation of a wide range is risks. Some of the most common risks addressed by ALM
are interest rate risk and liquidity risk.
 

5
Interest Rate Risk

Interest rate risk refers to risks associated with changes to interest rates, and how
changing interest rates affect future cash flows. Financial institutions typically hold assets
and liabilities that are affected by changing interest rates.
Two of the most common examples are deposits (assets) and loans (liabilities). As both
are impacted by interest rates, an environment where rates are changing can result in a
mismatching of assets and liabilities.
 
Liquidity Risk

Liquidity risk refers to risks associated with a financial institution’s ability to facilitate
it’s present and future cash-flow obligations, also known as liquidity. When the financial
institution is unable to meet its obligations due to a shortage of liquidity, the risk is that it
will adversely affect its financial position.
To mitigate the liquidity risk, organizations may implement ALM procedures to increase
liquidity to fulfill cash-flow obligations resulting from their liabilities.
 
Other Types of Risk

Aside from interest and liquidity risks, other types of risks are also mitigated through
ALM. One example is currency risk, which are risks associated with changes to exchange
rates. When assets and liabilities are held in different currencies, a change in exchange
rates can result in a mismatch.
Another example is capital market risk, which are risks associated with changing equity
prices. Such risks are often mitigated through futures, options, or derivatives.

6
NEED FOR THE STUDY
 The prime importance of the study is to analyze the maintenance of asset and liability.

 To have practical knowledge of asset and liability management in the company.

 The findings of the study can be used as secondary data for the various future study
purposes.

7
OBJECTIVES OF THE STUDY
 To understand the problems involved in maintaining and managing assets and
liabilities.

 To determine the financing pattern of the assets at ICICI bank.

 To enable the efficient utilization of the available funds and proper management
of the assets and liabilities.

 To analyze the correlation between the various assets and liabilities.

8
SCOPE OF THE STUDY:
In this study the analysis based on ratios to know asset and liabilities management under
ICICI BANK and to analyze the growth and performance of ICICI BANK by using the
calculations under asset and liability management based on ratio.

Tools of ALM:
There are different tools for Asset and Liability Management.

1. Gap Analysis,

2. Duration Analysis,

3. Value-at-risk method, and 

4. Risk management.

1. Gap Analysis:
Basically Assets and Liabilities both are rate sensitive in different degree. It is therefore
necessary to identify the rate sensitivity among different groups of assets and liabilities
and match identical groups of assets with liabilities. In the ALM process, Gap is generally
used for quantifying the rate sensitive groups only (as compared to rate insensitive groups
of liabilities like current deposits, float funds etc.)
In other words, GAP is the “excess” of interest sensitive assets over interest sensitive
liabilities or vice – versa> If Risk sensitive liabilities and Risk sensitive Assets are equal
when difference of two (GAP RSA-RSL) becomes NIL, Net Interest Margin (NIM) is
free from any effect of interest rates movements.
2. Duration Method:
Under this method, impact of changes in interest rate on the market value of assets and
liabilities is considered. Duration analysis is carried out with respect to cash flows and
average maturity.
3. Value-at-risk (VAR) method:
This method is variant of the practice of ‘Market-to Market’ approved securities based on
Yield- to Maturity.

9
4. Risk Management:

Under this process, the risk profiles of assets and liabilities are evaluated to ensure that
they are within the acceptable levels of risk. The availability of hedging mechanisms (e.g.
derivative instruments) would facilitate risk management.
The Reserve Bank of India issues specific guidelines to be followed by banks for
managing their respective. Asset and Liability Management. Although the principles of
managing assets and liability based on Basel committee have been given above some
important points of the guidelines issued by RBI (these are reviewed periodically to suit
the changing atmosphere of the monetary and economic policies of the government)

10
RESEARCH METHODOLOGY

The present study has been conducted on the basis of secondary data and is descriptive in
its nature. The study period is confined to a period of five financial years from 2008-09 to
2012-13. The required secondary data for the study was collected through different
websites, annual reports of ICICI, different journals. The researcher selected ICICI
limited for the study. To make the analysis meaningful advanced statistical tools like –
Ratios, Mean and percentages were applied. To test hypothesizes the correlationwas
applied with the help of SPSS.21 Software package.

METHODOLOGY OF THE STUDY

The study of ALM Management is based on two factors.
1. Primary data collection.
2. Secondary data collection

PRIMARY DATA COLLECTION:

The sources of primary data were

 The chief manager – ALM cell

 Department Sr. manager financing & Accounting

 System manager- ALM cell

Gathering the information from other managers and other officials of the ICICI

SECONDARY DATA COLLECTION:

Collected from books regarding, journal, and management containing relevant

information about ALM and Other main sources were

 Annual report of the ICICI

 Published report of the ICICI
 RBI guidelines for ALM.

11
LIMITATIONS OF THE STUDY

1. The published information used in the study may not be accurate and unbiased.
2. Not much information of the company was revealed as the executive personal
wanted certain information to be confidential.
3. Only monetary aspects of the company have been taken into consideration.
4. The study is restricted to one profit center of the company, due to the time and
geographical constraints.

12
 CHAPTER – 2
REVIEW OF LITERATURE

13
 REVIEW OF LITERATURE
Jayanthi M and Other (2023)

The authors in their paper titled; “Asset Liability Management” have opined that, since
financial sector reforms in India, banks are now operating in a fairly deregulated
environment and are required to determine on their own, interest rates on deposits and
advances. Intense competition coupled with increasing volatility in the interest rates
exposed the banks to several major risks in the course of their business viz, credit risk,
interest rate risk, foreign exchange risk, equity/ commodity price risk, liquidity risk and
operational risks. The banks need to be precisely aware of the risks to which they are
exposed, and the tools that are available for managing such risks. For a bank the risk
management process primarily involves Asset-Liability Management (ALM). ALM is
an attempt to match the assets and liabilities in terms of their maturities and interest
rates sensitivities so that the risk arising from such mismatches – mainly interest rate
risk and liquidity risk- can be contained within the desired limit. It is the task of ALM
not to avoid risk, but to manage it, to keep different types of risk within

Anbalagan M and Other(2022)

The Authors in their paper presented “Analysis of Deposits and Advances of Selected
Private Sector Commercial Banks” have evaluated that the problem resilience of the
banking sector was marked by improvement in the capital base, asset quality and
profitability. Even though the Public Sector Commercial Banks (PSCBs) have the
maximum share of banking industry, the role of Private Sector Commercial Banks (Pvt.
SCBs) is very important in the economic development of India, particularly Tamil
Nadu. This study covers a period of 11 years from 2001- 02 to 2011-12. In order to
know the significant difference in the growth rates of deposits and advances of various
TNB Pvt. SCBs, Kruskal-Wallis Test is used

Makkar A and Other ( 2021)

Authors present paper titled “Interest Rate Risk of Selected Indian Commercial Banks:
An Application of GAP Analysis Model”, have identified that the problem of interest
rate risk in Indian commercial banks. GAP analysis model is used to measure the
interest rate risk for the period 2008-09 to 2010-11. The interest rate risk arises from

14
timing differences in the reprising of banks’ assets and liabilities and off-balance sheet
instruments. The GAP analysis helps to forecast the bank’s financial standing for
different risk-taking strategies under various economic scenarios. The findings of the
study reveal that rate-sensitive assets and rate sensitive liabilities are increasing for all
the selected banks. The study concludes that HDFC Bank is the best bank on the basis
of positive gap of residual maturity of its assets and liabilities. State Bank of India
(SBI),Punjab National Bank (PNB) and ICICI Bank have negative balance in all these
time buckets. On the basis of these results, the study finds that SBI, PNB and ICICI
Bank are exposed to interest rate risk. On comparing the combined performance
of all public andprivate sector banks, private sector banks are in a better position
compared to the public sector banks. Public sector banks have to be careful about the
rate-sensitive assets and liabilities to avoid interest rate risk.

Priya. P (2022)

A study on the titled of “Financial Position of Scheduled Commercial Banks in India” ,

have opined that the banking is a part of financial service sector. Indian Banking sector
is evolving at a fast pace, with a tremendous opportunity to enter new markets and
newer businesses by delivering high class customer service. Banking is getting
redefined through new technologies. The four major trends altering the banking industry
are consolidation, universalizing, development of new technologies and globalization of
operations. The importance of banks in economic development of nations cannot be
overemphasized. Enhancing efficiency and performance of the banking system is a key
objective of economic reforms of many countries including India. Banking industry in
India has also achieved a new height with the changing times. The use of technology
has brought a revolution in the working style of the banks. Nevertheless, the
fundamental aspects of banking i.e. trust and the confidence of the people on the
institution remain the same.

Goel C and Other (2021)

Efficiency and profitability of the banking sector in India has assumed primal
importance due to intense competition, greater customer demands and changing banking
reforms. Since competition cannot be observed directly, various indirect measures in the
form of simple indicators or complex models have been devised and used both in theory

15
and in practice. This study attempts to measure the relative performance of Indian
banks. For this study, we have used public sector banks and private sector banks. We
know that in the service sector, it is difficult to quantify the output because it is
intangible.

Singh K. (2020)

In the paper, “Asset Liability Management in Banks A Dynamic Approach” The Author
pointed out In India asset liability mismatch in balance sheet of commercial banks
posed serious challenges as the banks use traditional methods of recording assets and
liabilities at the book value. The liberalization process in the economy coupled with
multifaceted global developments exposed banks for various kinds of risks viz. interest
rate risk, liquidity risk, exchange risk, operational risk etc. which have direct impact on
their operations, profitability and efficiency to compete with.

Kavitha N. (2019),

The authors Study titled “An assessment - asset and liability management of scheduled
commercial banks in India”. In this paper examines management of asset-liability in
banking sector. The main objective of the study is to present the optimal mix of asset
and liability of Scheduled Commercial Banks in India.

16
 CHAPTER – 3
THEOREOTICAL
FRAMEWORK

17
ASSET LIABILITY MANAGEMENT (ALM) SYSTEM:

In the normal course, there exposed to credit and market risks in view of the asset liability
transformation. With the liberalization in the Indian financial markets over the last few
years and growing integration of domestic markets and with external markets the risks
associated with operations have become complex, large, requiring stragic management.
Are now operating in a fairly deregulated environment and are required to determine on
their own, interest rates on deposits and advance in both domestic and foreign currencies
on a dynamic basis. The interest rates on investments in government and other securities
are also now market related. Intense competition for business involving both the assets
and liabilities, together with increasing volatility in the domestic interest rates, has
brought pressure on the management maintain a good balance among spreads,
profitability and long-term viability. Impudent liquidity management can put earnings and
reputation at great risk. These pressures call for structured and comprehensive measures
and not just adahoc action. The management of has to base their business decisions on a
dynamic and integrated risk management system and process, driven by corporate
strategy. Are exposed to several major risks in course of their business-credit risk,
interest rate and operational risk therefore important than introduce effective risk
management systems that address the issues related to interest rate, currency and liquidity
risks.
Need to address these risks in a structured manner by upgrading their risk management
and adopting more comprehensive Asset-Liability management (ALM) practices than has
been done hitherto. ALM among other functions, is also concerned with risk management
and provides a comprehensive and dynamic framework for measuring, monitoring and
managing liquidity interest rate, foreign exchange and equity and commodity price risk of
a that needs to be closely integrated with the business strategy. It involves assement of
various types of risks altering the asset liability portfolio in a dynamic way in order to
manage risks.

The initial focus of the ALM function would be to enforce the risk management
discipline, viz., and managing business after assessing the risks involved.
In addition, the managing the spread and riskiness, the ALM function is more
appropriately viewed as an integrated approach which requires simultaneous decisions
about asset/liability mix and maturity structure.
18
RISK MANAGEMENT IN ALM:

Risk management is a dynamic process, which needs constant focus and attention. The
idea of risk management is a well-known investment principle that the largest potential
returns are associated with the riskiest ventures. There can be no single prescription for
all times, decisions have to be reversed at short notice, which is often used to mean
uncertainty, creates both opportunities and problems for business and individuals in
nearly every walk of life.
Risk sometimes is consciously analyzed and managed, other times risk is simply
ignored, perhaps out of lack of knowledge of its consequences. If loss regarding risk is
certain to occur, it may be planned for in advance and treated as to definite, known
expense. Businesses and individuals may try to avoid risk of loss as much as possible or
reduce its negative consequences.
Several types of risks that affect individuals and businesses were introduced,
together with ways to measure the amount of risk. The process used to systematically
manage risk exposure is known as RISK MANAGEMENT. Whether the concern is with
a business or an individual situation, the same general steps can be used to systematically
analyze and deal with risk.

STEPS IN RISK MANAGEMENT:

 Risk identification
 Risk evaluation
 Risk management technique
 Risk measurement
 Risk review decisions

Integrated or enterprise risk management is an emerging view that recognizes the

importance of risk, regardless of its source, in affecting a firm ability to realize its
strategic objectives. The detailed risk management process is as follows;

RISK IDENTIFICATION:

19
 The first step in the risk management process is to identify relevant exposures to
risk. This step is important not only for traditional risk management, which focuses on
uncertainty of risks, but also for enterprise risk management, where much of the focus is
on identifying the firm’s exposures from a variety of sources, including operational,
financial, and strategic activities.

RISK EVALUATION:

For each source of risk that is identified, an evaluation should be performed. At

this stage, uncertainty of risks can be categorized as to how often associated losses are
likely to occur. In addition to this evaluation of loss frequency, an analysis of the size, or
severity, of the loss is helpful. Consideration should be given both to the most probable
size of any losses that may occur and to the maximum possible losses that might happen.

RISK MANAGEMENT TECHNIQUES:

The results of the analyses in second step are used as the basis for decisions
regarding ways to handle existing risks. In some situations, the best plan may be to do
nothing. In other cases, sophisticated ways to finance potential losses may be arranged.
The available techniques for managing risks are GAP Analysis, VAR Analysis, Heinrich
Domino theory etc., with consideration of when each technique is appropriate.

RISK MEASUREMENT:

Once risk sources have been identified it is often helpful to measure the extent of
the risk that exists. As pert of the overall risk evaluation, in some situations it may be
possible to measure the degree of risk in a meaningful way. In other cases, especially
those involving individuals computation of the degree of risk may not yield helpful
information.

20
RISK REVIEW DECISIONS:

Following a decision about the optimal methods for handling identified risks, the
business or individual must implement the techniques selected. However, risk
management should be an ongoing process in which prior decisions are reviewed
regularly. Sometimes new risk exposures arise or significant changes in expected loss
frequency or severity occur. The dynamic nature of many risks requires a continual
scrutiny of past analysis and decisions.

DIMENSIONS OF RISK

Specifically two broad categories of risk are the basis for classifying financial services
risk.
(1) Product market Risk.
(2) Capital market Risk.

Economists have long classified management problems as relating to either The

Product Markets Risks or The Capital Markets Risks.

TOTAL FINANCIAL SERVICES FIRMS RISK.

Total Risk
(Responsibility of CEO)

Business Risk Financial Risk

Product Market Risk Capital Market Risk

(Responsibility of the (Responsibility of the
Chief Operating Officer) Chief Financial Officer)

21
 Credit Interest rate
Strategic Liquidity
Regulatory Currency
Operating Settlement
Human resources Basis
Legal
(I).PRODUCT MARKET RISK:
This risk decision relate to the operating revenues and expenses of the form that
impact the operating position of the profit and loss statements which include crisis,
marketing, operating systems, labor cost, technology, channels of distributions at strategic
focus. Product Risks relate to variations in the operating cash flows of the firm, which
affect Capital Market, required Rates of Return.
(1) CREDIT RISK
(2) STRATEGIC RISK
(3) COMMODITY RISK
(4) OPERATIVE RISK
(5) HUMAN RESOURCES RISK
(6) LEGAL RISK
Risk in Product Market relate to the operational and strategic aspects of managing
operating revenues and expenses. The above types of Product Risks are explained as
follows.

1. CREDIT RISK:

The most basic of all Product Market Risk in a or other financial intermediary is
the erosion of value due to simple default or non-payment by the borrower. Credit risk
has been around for centuries and is thought by many to be the dominant financial
services today. intermediate the risk appetite of lenders and essential riskiness of
borrowers. Manage this risk by, (A) making intelligent lending decisions so that expected
risk of borrowers is both accurately assessed and priced; (B) Diversifying across
borrowers so that credit losses are not concentrated in time; (C) purchasing third party
guarantees so that default risk is entirely or partially shifted away from lenders.

22
(2). STRATEGIC RISK:

This is the risk that entire lines of business may succumb to competition or
obsolescence. In the language of strategic planner, commercial paper is a substitute
product for large corporate loans. Strategic risk occurs when is not ready or able to
compete in a newly developing line of business. Early entrants enjoyed a unique
advantage over newer entrants. The seemingly conservative act of waiting for the market
to develop posed a risk in itself. Business risk accrues from jumping into lines of business
but also from staying out too long.

(3). COMMODITY RISK:

Commodity prices affect and other lenders in complex and often unpredictable
ways. The macro effect of energy price increases on inflation also contributed to a rise in
interest rates, which adversely affected the value of many fixed rate financial assets. The
subsequent crash in oil prices sent the process in reverse with nearly equally devastating
effects.
(4). OPERATING RISK:

Machine-based system offer essential competitive advantage in reducing costs and

improving quality while expanding service and speed. No element of management
process has more potential for surprise than systems malfunctions. Complex, machine-
based systems produce what is known as the “black box effect”. The inner working of
system can become opaque to their users. Because developers do not use the system and
users often have not constitutes a significant Product Market Risk. No financial service
firm can small management challenge in the modern financial services company.

(5). HUMAN RESOURCES RISK:

Few risks are more complex and difficult to measure than those of personnel policy;
they are Recruitment, Training, Motivation and Retention. Risk to the value of the Non-
Financial Assets as represented by the work force represents a much more subtle of risk.
Concurrent with the loss of key personal is the risk of inadequate or misplaced motivation

23
among management personal. This human redundancy is conceptually equivalent to
safety redundancy in operating systems. It is not inexpensive, but it may well be cheaper
than the risk of loss. The risk and rewards of increased attention to the human resources
dimension of management are immense.

(6). LEGAL RISK:

This is the risk that the legal system will expropriate value from the shareholders
of financial services firms. The legal landscape today is full of risks that were simply
unimaginable even a few years ago. More over these risks are very hard to anticipate
because they are often unrelated to prior events which are difficult and impossible to
designate but the management of a financial services firm today must have these risks at
least in view. They can cost millions.

(II). CAPITAL MARKET RISK:

In the Capital Market Risk decision relate to the financing and financial support of
Product Market activities. The result of product market decisions must be compared to the
required rate of return that results from capital market decision to determine if
management is creating value. Capital market decisions affect the risk tolerance of
product market decisions related to variations in value associated with different financial
instruments and required rate of return in the economy.

1. LIQUIDITY RISK

2. INTEREST RATE RISK

3. CURRENCY RISK

4. SETTLEMENT RISK

5. BASIS RISK

24
1. LIQUIDITY RISK:
For experienced financial services professionals, the foremost capital market risk is
that of inadequate liquidity to meet financial obligations. The obvious form is an inability
to pay desired withdrawals. Depositors react desperately to the mere prospect of this
situation.

They can drive a financial intermediary to collapse by withdrawing funds at a rate

that exceeds its capacity to pay. For most of this century, individual depositors who lost
faith inability to repay them caused failures from liquidity. Funds are deposited primarily
as a financial of rate. Such funds are called “purchased money” or “headset funds” as
they are frequently bought by employees who work on the money desk quoting rates to
institutions that shop for the highest return. To check liquidity risk, firms must keep the
maturity profile of the liabilities compatible with that of the assets. This balance must be
close enough that a reasonable shift in interest rates across the yield curve does not
threaten the safety and soundness of the entire firm.

2. INTEREST RATE RISK:

In extreme conditions, Interest Rate fluctuations can create a liquidity crisis. The
fluctuation in the prices of financial assets due to changes in interest rates can be large
enough to make default risk a major threat to a financial services firm’s viability. There’s
a function of both the magnitude of change in the rate and the maturity of the asset. This
inadequacy of assessment and consequent mispricing of assets, combined with an
accounting system that did not record unrecognized gains and losses in asset values,
created a financial crisis. Risk based capital rules pertaining to have done little to mitigate
the interest rate risk management problem. The decision to pass it off; however is not
without large cost, so the cost benefit tradeoff becomes complex.

3. CURRENCY RISK:

The risk of exchange rate volatility can be described as a form of basis risk among
currencies instead of basis risk among interest rates on different securities. Balance sheets
comprised of numerous separate currencies contain large camouflaged risks through
financial reporting systems that do not require assets to be marked to market. Exchange

25
rate risk affects both the Product Markets and The Capital Markets. Ways to contain
currency risk have developed in today’s derivative market through the use of swaps and
forward contracts. Thus, this risk is manageable only after the most sophisticated and
modern risk management technique is employed

4. SETTLEMENT RISK:
5.
Settlement Risk is a particular form of default risk, which involves the competitors.
Amounts settle obligations having to do with money transfer, check clearing, loan
disbursement and repayment, and all other inter- transfers within the worldwide monetary
system. A single payment is made at the end of the day instead of multiple payments for
individual transactions.

6. BASIS RISK :
7.
Basis risk is a variation on the interest rate risk theme, yet it creates risks that are less
easy to observe and understand. To guard against interest rate risk, somewhat non
comparable securities may be used as a hedge. However, the success of this hedging
depends on a steady and predictable relationship between the two no identical securities.
Basis can negate the hedge partially or entirely, which vastly increases the Capital Market
Risk exposure of the firm

RISK MANAGEMENT SYSTEM:

Assuming and managing risk is the essence of business decision-making. Investing in a

new technology, hiring a new employee, or launching a marketing campaign is all
decisions with uncertain outcomes. As a result all the major management decisions of
how much risk to take and how to manage the risk.

The implementation of risk management varies from business to business, from one
management style to another and from one time to another. Risk management in the
financial services industry is different from others. Circumstances, Institutions and
Managements are different. On the other hand, an investment decision is no recent history
of legal and political stability, insights into the potential hazards and opportunities.

26
Risk management can be integrated into a risk management system. Such a system can be
utilized to manage the trading position of a small-specialized division or an entire
financial institution. The modules of the system can be implemented with different
degrees of accuracy and sophistication.

RISK MANAGEMENT SYSTEM:

Dynamics of risk factors

Cash flows Arbitrage

Generator Pricing Model

Price and Risk

Profile Of Contingent Claims

Dynamic Risk Target

Trading Rules Optimizer Risk Profile
Fig 3.1.2
3.2 RISK MANAGEMENT SYSTEM
Arbitrage pricing models range from simple equations to large scale numerically
sophisticated algorithms. Cash flow generators also vary from a single formula to
a simulator that accounts for the dependence of cash flows on the history of the
risk factors.

27
Financial engineers are continuously incorporating advances in econometric
techniques, asset pricing models, simulation techniques and optimization
algorithms to produce better risk management systems.

The important ingredient of the risk management approach is the treatment of risk
factors and securities as an integrated portfolio. Analyzing the correlation among
the real, financial and strategic assets of an organization leads to clear
understanding of risk exposure. Special attention is paid to risk factors, which
translate to correlation among the values of securities. Identifying the correlation
among the basic risk factors leads to more effective risk management.

Maturity Preference mismatch, Default, Currency Preference mis-match, Size of

transaction and Market access and information.

RISK MANAGEMENT IN ICICI

They were required by the to introduce effective risk management systems to cover
Credit risk, market risk and Operations risk on priority.

Narasimham committee II, advised to address market risk in a structured manner by

adopting Asset and Liability Management practices with effect from April 1st 1989.

Asset and liability management (ALM) is “the Art and Science of choosing the best mix
of assets for the firm’s asset portfolio and the best mix of liabilities for the firm’s liability
portfolio”. It is particularly critical for Financial Institutions.

For a long time it was taken for granted that the liability portfolio of financial firms was
beyond the control of the firm and so management concentrated its efforts on choosing
the asset mix. Institutions treasury department used the funds provided by deposits to
structure an asset portfolio that was appropriate for the given liability portfolio.

With the advent of Certificate of Deposits (CDs), had a tool by which to manipulate the
mix of liabilities that supported their Asset portfolios, which has been one of the active
management of assets and liabilities.

28
Asset and liability management program evolve into a strategic tool for management, the
main elements of the ALM system are:

 ALM INFORMATION.
 ALM ORGANISATION.
 ALM FUNCTION.

ALM INFORMATION

ALM is a risk management tool through which Market risk associated with business are
identified, measured and monitored to maintain profits by restructuring Assets and
Liabilities. The ALM framework needs to be built on sound methodology with necessary
information system as back up. Thus the information is key element to the ALM process.

There are various methods prevalent worldwide for measuring risks. These range from
the simple Gap statement to extremely sophisticate and data intensive Risk adjusted
profitability measurement (RAPM) methods. The central element for the entire ALM
exercise is the availability of adequate and accurate information.

However, the existing systems in many Indian do not generate information in manner
required for the ALM. Collecting accurate data is the biggest challenge before the,
particularly those having wide network of branches, but lacking full-scale
computerization.
Therefore the introduction of these information systems for risk measurement and
monitoring has to be addressed urgently.
The large network of branches and the lack of support system to collect information
required for the ALM which analysis information on the basis of residual maturity and
behavioral pattern, it would take time florin the present state to get the requisite
information.

The government hastily introduced the first phase of reforms in the financial and banking
sectors after the economic crisis of 1991. This was an effort to quickly resurrect the health
of the banking system and bridge the gap between Indian and global banking
development. Indian Banking, in particular PSB’s suddenly woke up to the realities of the

29
situation and to face the burden of the surfeit of their woes. Simultaneously major
revolutionary transitions were taking place in other sectors of the economy on account the
ongoing economic reforms intended towards freeing the Indian economy from
government controls and linking it to market driven forces for a quick integration with the
global economy. Import restrictions were gradually freed. Tariffs were brought down and
quantitative controls were removed. The Indian market was opened for free competition
to the global players. The new economic policy in turn revolutionalised the environment
of the Indian industry and business and put them to similar problems of new mixture Of
opportunities and challenges. As a result we witness today a scenario of banking, trade
and industry in India, all undergoing the convulsions of total reformation battling to kick
off the decadence of the past and to gain a new strength and vigor for effective links with
the global economy. Many are still languishing unable to get released from the old set-up,
while a few progressive corporate are making a niche for themselves in the global
context.

During this decade the reforms have covered almost every segment of the
financial sector. In particular, it is the banking sector, which experienced major reforms.
The reforms have taken the Indian banking sector far away from the days of
nationalization. Increase in the number of banks due to the entry of new private and
foreign banks; increase in the transparency of the banks' balance sheets through the
introduction of prudential norms and norms of disclosure; increase in the role of the
market forces due to the deregulated interest rates, together with rapid computerization
and application of the benefits of information technology to banking operations have all
significantly affected the operational environment of the Indian banking sector.

In the background of these complex changes when the problem of NPA was
belatedly recognized for the first time at its peak velocity during 1992-93, there was
resultant chaos and confusion. As the problem in large magnitude erupted suddenly banks
were unable to analyze and make a realistic or complete assessment of the surmounting
situation. It was not realized that the root of the problem of NPA was centered elsewhere
in multiple layers, as much outside the banking system, more particularly in the transient
economy of the country, as within. Banking is not a compartmentalized and isolated
sector delinked from the rest of the economy. As has happened elsewhere in the world, a
distressed national economy shifts a part of its negative results to the banking industry. In

30
short, banks are made ultimately to finance the losses incurred by constituent industries
and businesses. The unprepared ness and structural weakness of our banking system to act
to the emerging scenario and de-risk itself to the challenges thrown by the new order,
trying to switch over to globalization were only aggravating the crisis. Partial perceptions
and hasty judgments led to a policy of ad-hoc-ism, which characterized the approach of
the authorities during the last two-decades towards finding solutions to banking ailments
and dismantling recovery impediments. Continuous concern was expressed. Repeated
correctional efforts were executed, but positive results were evading. The problem was
defying a solution.

The threat of NPA was being surveyed and summarized by RBI and Government
of India from a remote perception looking at a bird's-eye-view on the banking industry as
a whole delinked from the rest of the economy. RBI looks at the banking industry's
average on a macro basis, consolidating and tabulating the data submitted by different
institutions. It has collected extensive statistics about NPA in different financial sectors
like commercial banks, financial institutions, urban cooperatives, NBFC etc. But still it is
a distant view of one outside the system and not the felt view of a suffering participant.
Individual banks inherit different cultures and they finance diverse sectors of the
economy that do not possess identical attributes. There are distinct diversities as among
the 29 public sector banks themselves, between different geographical regions and
between different types of customers using bank credit. There are three weak nationalized
banks that have been identified. But there are also correspondingly two better performing
banks like Corporation and OBC. There are also banks that have successfully contained
NPA and brought it to single digit like ICICI (Gross NPA 7.87%) and Andhra (Gross
NPA 6.13%). The scenario is not so simple to be generalized for the industry as a whole
to prescribe a readymade package of a common solution for all banks and for all times.

Similarly NPA concerns of individual Banks summarized as a whole and

expressed as an average for the entire bank cannot convey a dependable picture. It is
being statistically stated that bank X or Y has 12% gross NPA. But if we look down
further within that Bank there are a few pockets possessing bulk segments of NPA
ranging 50% to 70% gross , which should consequently convey that there should also be
several other segments with 3 to 5% or even NIL % NPA, averaging the bank's whole
performance to 12%. Much criticism is made about the obligation of Nationalized Banks

31
to extend priority sector advances. But banks have neither fared better in non-priority
sector. The comparative performance under priority and non-priority is only a difference
of degree and not that of kind.

The assessment of the mix-of contributing factors includes:

1. human factors (those pertaining to the bankers and the credit customers),
2. environmental imbalances in the economy on account of wholesale changes and
also
3. Inherited problems of Indian banking and industry.

Variable skill, efficiency and level integrity prevailing in different branches and in
different banks accounts for the sweeping disparities between inter-bank and intra-bank
performance. We may add that while the core or base-level NPA in the industry is due to
common contributory causes, the inter-se variations are on account of the structural and
operational disparities. The heavy concentrated prevalence of NPA is definitely due to
human factors contributing to the same.

No bank appears to have conducted studies involving a cross-section of its operating

field staff, including the audit and inspection functionaries for a candid and
comprehensive introspection based on a survey of the variables of NPA burden under
different categories of sectoral credit, different regions and in individual Branches
categorized as with high, medium and low incidence of NPA. We do not hear the voice of
the operating personnel in these banks candidly expressed and explaining their failures.
Ex-bankers, i.e. the professional bankers who have retired from service, but possess a
depth of inside knowledge do not out-pour candidly their views. After three decades of
nationalized banking, we must have some hundreds of retired Bank executives in the
country, who can boldly and independently, but objectively voice their views. Everyone
is satisfied in blaming the others. Bank executives hold 'willful defaulters' responsible for
all the plague. Industry and business blames the government policies.

Important fact-revealing information for each NPA account is the gap period
between the date, when the advance was originally made and the date of its becoming
NPA. If the gap is long, it is the case of a sunset industry. Things were all right earlier,
but economic variance in trade cycles or market sentiments have created the NPA. Credit

32
customers who are in NPA today, but for years were earlier rated as good performers and
creditworthy clients ranging within the top 50 or 100. Significant part of the NPA is on
account of clout banking or willfully given bad loans. Infant mortality in credit is solely
on account of human factors and absence of human integrity.

Credit to different sectors given by the PSB’s in fact represents different products.
Advance to weaker sections below Rs.25000/- represents the actual social banking. NPA
in this sector forms 8 TO 10% of the gross amount. Advance to agriculture, SSI and big
industries each calls for different strategies in terms of credit assessment, credit delivery,
project implementation, and post advance supervision. NPA in different sector is not
caused by the same resultant factors. Containing quantum of NPA is therefore to be
programmed by a sector-wise strategy involving a role of the actively engaged
participants who can tell where the boot pinches in each case. Business and industry has
equal responsibility to accept accountability for containment of NPA. Many of the present
defaulters were once trusted and valued customers of the banks. Why have they become
unreliable now, or have they?

The credit portfolio of a nationalized bank also includes a number of low-risk and
risk-free segments, which cannot create NPA. Small personal loans against banks' own
deposits and other tangible and easily marketable securities pledged to the bank and held
in its custody are of this category. Such small loans are universally given in almost all the
branches and hence the aggregate constitutes a significant figure. Then there is food credit
given to FCI for food procurement and similar credits given to major public Utilities and
Public Sector Undertakings of the Central Government. It is only the residual fragments
of Bank credit that are exposed to credit failures and reasons for NPA can be ascertained
by scrutinizing this segment.

Secondly NPA is not a dilemma facing exclusively the Bankers. It is in fact an all
pervasive national scourge swaying the entire Indian economy. NPA is a sore throat of
the Indian economy as a whole. The banks are only the ultimate victims, where life cycle
of the virus is terminated.

Now, how does the Government suffer? What about the recurring loss of revenue
by way of taxes, excise to the government on account of closure of several lakhs of
erstwhile vibrant industrial units and inefficient usage of costly industrial infrastructure

33
erected with considerable investment by the nation? As per statistics collected three years
back there are over two and half million small industrial units representing over 90
percent of the total number of industrial units. A majority of the industrial work force
finds employment here and the sector's contribution to industrial output is substantial and
is estimated at over 35 percent while its share of exports is also valued to be around 40
percent. Out of the 2.5 million, about 10% of the small industries are reported to be sick
involving a bank credit outstanding around Rs.5000 to 6000 Crores, at that period. It may
be even more now. These closed units represent some thousands of displaced workers
Previously enjoying gainful employment. Each closed unit whether large, medium or
small occupies costly developed industrial land. Several items of machinery form security
for the NPA accounts should either be lying idle or junking out. In other words, large
value of land, machinery and money are locked up in industrial sickness. These are the
assets created that have turned unproductive and these represent the real physical NPA,
which indirectly are reflected in the financial statements of nationalized banks, as the
ultimate financiers of these assets. In the final analysis it represents instability in industry.
NPA represents the owes of the credit recipients, in turn transferred and parked with the
banks.

Recognizing NPA as a sore throat of the Indian economy, the field level
participants should first address themselves to find the solution. Why not representatives
of industries and commerce and that of the Indian Banks' Association come together and
candidly analyze and find an everlasting solution heralding the real spirit of deregulation
and decentralization of management in banking sector, and accepting self-discipline and
self-reliance? What are the deficiencies in credit delivery that leads to its misuse, abuse or
loss? How to check misuse and abuse at source? How to deal with erring Corporate? In
short, the functional staff of the Bank along with the representatives of business and
industry has to accept a candid introspection and arrive at a code of discipline in any final
solution. And preventive action to be successful should start from the credit-recipient
level and then extend to the bankers. RBI and Government of India can positively
facilitate the process by providing enabling measures. Do not try to set right industry and
banks, but help industry and banks to set right themselves. The new tool of deregulated
approach has to be accepted in solving NPA.

34
REASONS FOR THE EXISTENCE OF HUGE LEVEL OF NPA’S IN THE
INDIAN BANKING SYSTEM (IBS):

The origin of the problem of burgeoning NPA’s lies in the quality of managing
credit risk by the banks concerned. What is needed is having adequate preventive
measures in place namely, fixing pre-sanctioning appraisal responsibility and having an
effective post-disbursement supervision. Banks concerned should continuously monitor
loans to identify accounts that have potential to become non-performing.

To start with, performance in terms of profitability is a benchmark for any

business enterprise including the banking industry. However, increasing NPA’s have a
direct impact on banks profitability as legally banks are not allowed to book income on
such accounts and at the same time banks are forced to make provision on such assets as
per the Reserve Bank of India (RBI) guidelines.

35
 CHAPTER – 4
INDUSTRY & COMPANY
PROFILE

36
 INDUSTRY PROFILE
BANKING IN INDIA originated in the last decades of the 18th century. The oldest bank
in existence in India is the State Bank of India, a government-owned bank that traces its
origins back to June 1806 and that is the largest commercial bank in the country. Central
banking is the responsibility of the Reserve Bank of India, which in 1935 formally took
over these responsibilities from the then Imperial Bank of India, relegating it to
commercial banking functions. After India's independence in 1947, the Reserve Bank was
nationalized and given broader powers. In 1969 the government nationalized the 14
largest commercial banks; the government nationalized the six next largest in 1980.

Currently, India has 96 scheduled commercial banks (SCBs) - 27 public sector banks (that
is with the Government of India holding a stake), 31 private banks (these do not have
government stake; they may be publicly listed and traded on stock exchanges) and 38
foreign banks. They have a combined network of over 53,000 branches and 17,000
ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks
hold over 75 percent of total assets of the banking industry, with the private and foreign
banks holding 18.2% and 6.5% respectively

The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in
1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established
in Lahore in 1895, which has survived to the present and is now one of the largest banks
in India.

Around the turn of the 20th Century, the Indian economy was passing through a relative
period of stability. Around five decades had elapsed since the Indian Mutiny, and the
social, industrial and other infrastructure had improved. Indians had established small
banks, most of which served particular ethnic and religious communities.

The presidency banks dominated banking in India but there were also some exchange
banks and a number of Indian joint stock banks. All these banks operated in different
segments of the economy. The exchange banks, mostly owned by Europeans,
concentrated on financing foreign trade. Indian joint stock banks were generally

37
undercapitalized and lacked the experience and maturity to compete with the presidency
and exchange banks.

The period between 1906 and 1911, saw the establishment of banks inspired by the
Swadeshi movement. The Swadeshi movement inspired local businessmen and political
figures to found banks of and for the Indian community. A number of banks established
then have survived to the present such as Bank of India, Corporation Bank, Indian Bank,
Bank of Baroda, Canara Bank and Central Bank of India.

Evolution

Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200
years ago. The earliest records of security dealings in India are meager and obscure. The
East India Company was the dominant institution in those days and business in its loan
securities used to be transacted towards the close of the eighteenth century.

By 1830's business on corporate stocks and shares in Bank and Cotton presses took place
in Bombay. Though the trading list was broader in 1839, there were only half a dozen
brokers recognized by banks and merchants during 1840 and 1850.

The 1850's witnessed a rapid development of commercial enterprise and brokerage

business attracted many men into the field and by 1860 the number of brokers increased
into 60.

In 1860-61 the American Civil War broke out and cotton supply from United States of
Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers
increased to about 200 to 250. However, at the end of the American Civil War, in 1865, a
disastrous slump began (for example, Bank of Bombay Share which had touched Rs 2850
could only be sold at Rs. 87).

At the end of the American Civil War, the brokers who thrived out of Civil War in 1874,
found a place in a street (now appropriately called as Dalal Street) where they would
conveniently assemble and transact business. In 1887, they formally established in
Bombay, the "Native Share and Stock Brokers' Association" (which is alternatively

38
known as " The Stock Exchange "). In 1895, the Stock Exchange acquired a premise in
the same street and it was inaugurated in 1899. Thus, the Stock Exchange at Bombay was
consolidated.

Other leading cities in stock market operations

Ahmadabad gained importance next to Bombay with respect to cotton textile industry.
After 1880, many mills originated from Ahmadabad and rapidly forged ahead. As new
mills were floated, the need for a Stock Exchange at Ahmadabad was realized and in
1894 the brokers formed "The Ahmadabad Share and Stock Brokers' Association".

What the cotton textile industry was to Bombay and Ahmadabad, the jute industry was to
Calcutta. Also tea and coal industries were the other major industrial groups in Calcutta.
After the Share Mania in 1861-65, in the 1870's there was a sharp boom in jute shares,
which was followed by a boom in tea shares in the 1880's and 1890's; and a coal boom
between 1904 and 1908. On June 1908, some leading brokers formed "The Calcutta Stock
Exchange Association".

In the beginning of the twentieth century, the industrial revolution was on the way in
India with the Swadeshi Movement; and with the inauguration of the Tata Iron and Steel
Company Limited in 1907, an important stage in industrial advancement under Indian
enterprise was reached.

Indian cotton and jute textiles, steel, sugar, paper and flour mills and all companies
generally enjoyed phenomenal prosperity, due to the First World War.

In 1920, the then demure city of Madras had the maiden thrill of a stock exchange
functioning in its midst, under the name and style of "The Madras Stock Exchange" with
100 members. However, when boom faded, the number of members stood reduced from
100 to 3, by 1923, and so it went out of existence.

In 1935, the stock market activity improved, especially in South India where there was a
rapid increase in the number of textile mills and many plantation companies were floated.
In 1937, a stock exchange was once again organized in Madras - Madras Stock Exchange
Association (Pvt) Limited. (In 1957 the name was changed to Madras Stock Exchange
Limited).

39
Lahore Stock Exchange was formed in 1934 and it had a brief life. It was merged with the
Punjab Stock Exchange Limited, which was incorporated in 1936.

Indian Stock Exchanges - An Umbrella Growth

The Second World War broke out in 1939. It gave a sharp boom which was followed by a
slump. But, in 1943, the situation changed radically, when India was fully mobilized as a
supply base.

On account of the restrictive controls on cotton, bullion, seeds and other commodities,
those dealing in them found in the stock market as the only outlet for their activities. They
were anxious to join the trade and their number was swelled by numerous others. Many
new associations were constituted for the purpose and Stock Exchanges in all parts of the
country were floated.

The Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange Limited
(1940) and Hyderabad Stock Exchange Limited (1944) were incorporated.

In Delhi two stock exchanges - Delhi Stock and Share Brokers' Association Limited and
the Delhi Stocks and Shares Exchange Limited - were floated and later in June 1947,
amalgamated into the Delhi Stock Exchnage Association Limited.

Post-independence Scenario

Most of the exchanges suffered almost a total eclipse during depression. Lahore
Exchange was closed during partition of the country and later migrated to Delhi and
merged with Delhi Stock Exchange.

Bangalore Stock Exchange Limited was registered in 1957 and recognized in 1963.

Most of the other exchanges languished till 1957 when they applied to the Central
Government for recognition under the Securities Contracts (Regulation) Act, 1956. Only
Bombay, Calcutta, Madras, Ahmadabad, Delhi, Hyderabad and Indore, the well
established exchanges, were recognized under the Act. Some of the members of the other
Associations were required to be admitted by the recognized stock exchanges on a
concessional basis, but acting on the principle of unitary control, all these pseudo stock

40
exchanges were refused recognition by the Government of India and they thereupon
ceased to function.

Thus, during early sixties there were eight recognized stock exchanges in India
(mentioned above). The number virtually remained unchanged, for nearly two decades.
During eighties, however, many stock exchanges were established: Cochin Stock
Exchange (1980), Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982),
and Pune Stock Exchange Limited (1982), Ludhiana Stock Exchange Association
Limited (1983), Gauhati Stock Exchange Limited (1984), Kanara Stock Exchange
Limited (at Mangalore, 1985), Magadh Stock Exchange Association (at Patna, 1986),
Jaipur Stock Exchange Limited (1989), Bhubaneswar Stock Exchange Association
Limited (1989), Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989), Vadodara
Stock Exchange Limited (at Baroda, 1990) and recently established exchanges -
Coimbatore and Meerut. Thus, at present, there are totally twenty one recognized stock
exchanges in India excluding the Over The Counter Exchange of India Limited (OTCEI)
and the National Stock Exchange of India Limited (NSEIL).

The Table given below portrays the overall growth pattern of Indian stock markets since
independence. It is quite evident from the Table that Indian stock markets have not only
grown just in number of exchanges, but also in number of listed companies and in capital
of listed companies. The remarkable growth after 1985 can be clearly seen from the
Table, and this was due to the favouring government policies towards security market
industry.

Trading Pattern of the Indian Stock Market

Trading in Indian stock exchanges are limited to listed securities of public limited
companies. They are broadly divided into two categories, namely, specified securities
(forward list) and non-specified securities (cash list). Equity shares of dividend paying,
growth-oriented companies with a paid-up capital of atleast Rs.50 million and a market
capitalization of atleast Rs.100 million and having more than 20,000 shareholders are,
normally, put in the specified group and the balance in non-specified group.

41
Two types of transactions can be carried out on the Indian stock exchanges: (a) spot
delivery transactions "for delivery and payment within the time or on the date stipulated
when entering into the contract which shall not be more than 14 days following the date
of the contract" : and (b) forward transactions "delivery and payment can be extended by
further period of 14 days each so that the overall period does not exceed 90 days from the
date of the contract". The latter is permitted only in the case of specified shares. The
brokers who carry over the outstandings pay carry over charges (cantango or
backwardation) which are usually determined by the rates of interest prevailing.

A member broker in an Indian stock exchange can act as an agent, buy and sell securities
for his clients on a commission basis and also can act as a trader or dealer as a principal,
buy and sell securities on his own account and risk, in contrast with the practice
prevailing on New York and London Stock Exchanges, where a member can act as a
jobber or a broker only.

The nature of trading on Indian Stock Exchanges are that of age old conventional style of
face-to-face trading with bids and offers being made by open outcry. However, there is a
great amount of effort to modernize the Indian stock exchanges in the very recent times.

Over The Counter Exchange of India (OTCEI)

The traditional trading mechanism prevailed in the Indian stock markets gave way to
many functional inefficiencies, such as, absence of liquidity, lack of transparency, unduly
long settlement periods and benami transactions, which affected the small investors to a
great extent. To provide improved services to investors, the country's first ringless,
scripless, electronic stock exchange - OTCEI - was created in 1992 by country's premier
financial institutions - Unit Trust of India, Industrial Credit and Investment Corporation
of India, Industrial Development Bank of India, SBI Capital Markets, Industrial Finance
Corporation of India, General Insurance Corporation and its subsidiaries and CanBank
Financial Services.

Trading at OTCEI is done over the centres spread across the country. Securities traded on
the OTCEI are classified into:

42
  Listed Securities - The shares and debentures of the companies listed on the OTC
can be bought or sold at any OTC counter all over the country and they should not
be listed anywhere else

 Permitted Securities - Certain shares and debentures listed on other exchanges and
units of mutual funds are allowed to be traded

 Initiated debentures - Any equity holding atleast one lakh debentures of a

particular scrip can offer them for trading on the OTC.

OTC has a unique feature of trading compared to other traditional exchanges. That is,
certificates of listed securities and initiated debentures are not traded at OTC. The original
certificate will be safely with the custodian. But, a counter receipt is generated out at the
counter which substitutes the share certificate and is used for all transactions.

In the case of permitted securities, the system is similar to a traditional stock exchange.
The difference is that the delivery and payment procedure will be completed within 14
days.

Compared to the traditional Exchanges, OTC Exchange network has the following
advantages:

 OTCEI has widely dispersed trading mechanism across the country which
provides greater liquidity and lesser risk of intermediary charges.

 Greater transparency and accuracy of prices is obtained due to the screen-based

scripless trading.

 Since the exact price of the transaction is shown on the computer screen, the
investor gets to know the exact price at which s/he is trading.

 Faster settlement and transfer process compared to other exchanges.

 In the case of an OTC issue (new issue), the allotment procedure is completed in a
month and trading commences after a month of the issue closure, whereas it takes
a longer period for the same with respect to other exchanges.

43
Thus, with the superior trading mechanism coupled with information transparency
investors are gradually becoming aware of the manifold advantages of the OTCEI.

National Stock Exchange (NSE)

With the liberalization of the Indian economy, it was found inevitable to lift the Indian
stock market trading system on par with the international standards. On the basis of the
recommendations of high powered Pherwani Committee, the National Stock Exchange
was incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and
Investment Corporation of India, Industrial Finance Corporation of India, all Insurance
Corporations, selected commercial banks and others.

Trading at NSE can be classified under two broad categories:

(a) Wholesale debt market and

(b) Capital market.

Wholesale debt market operations are similar to money market operations - institutions
and corporate bodies enter into high value transactions in financial instruments such as
government securities, treasury bills, public sector unit bonds, commercial paper,
certificate of deposit, etc.

There are two kinds of players in NSE:

(a) trading members and

(b) participants.

Recognized members of NSE are called trading members who trade on behalf of
themselves and their clients. Participants include trading members and large players like
banks who take direct settlement responsibility.

Trading at NSE takes place through a fully automated screen-based trading mechanism
which adopts the principle of an order-driven market. Trading members can stay at their
offices and execute the trading, since they are linked through a communication network.
The prices at which the buyer and seller are willing to transact will appear on the screen.

44
When the prices match the transaction will be completed and a confirmation slip will be
printed at the office of the trading member.

NSE has several advantages over the traditional trading exchanges. They are as follows:

 NSE brings an integrated stock market trading network across the nation.

 Investors can trade at the same price from anywhere in the country since inter-
market operations are streamlined coupled with the countrywide access to the
securities.

 Delays in communication, late payments and the malpractice’s prevailing in the

traditional trading mechanism can be done away with greater operational
efficiency and informational transparency in the stock market operations, with the
support of total computerized network.

Unless stock markets provide professionalized service, small investors and foreign
investors will not be interested in capital market operations. And capital market being one
of the major source of long-term finance for industrial projects, India cannot afford to
damage the capital market path. In this regard NSE gains vital importance in the Indian
capital market system.

Planning History of India

The development of planning in India began prior to the first Five Year Plan of
independent India, long before independence even. The idea of central directions of
resources to overcome persistent poverty gradually, because one of the main policies
advocated by nationalists early in the century. The Congress Party worked out a program
for economic advancement during the 1920’s, and 1930’s and by the 1938 they formed a
National Planning Committee under the chairmanship of future Prime Minister Nehru.
The Committee had little time to do anything but prepare programs and reports before the
Second World War which put an end to it. But it was already more than an academic
exercise remote from administration. Provisional government had been elected in 1938,
and the Congress Party leaders held positions of responsibility. After the war, the Interim
government of the pre-independence years appointed an Advisory Planning Board. The

45
Board produced a number of somewhat disconnected Plans itself. But, more important in
the long run, it recommended the appointment of a Planning Commission.

The Planning Commission did not start work properly until 1950. During the first three
years of independent India, the state and economy scarcely had a stable structure at all,
while millions of refugees crossed the newly established borders of India and Pakistan,
and while ex-princely states (over 500 of them) were being merged into India or Pakistan.
The Planning Commission as it now exists, was not set up until the new India had
adopted its Constitution in January 1950.

46
 COMPANY PROFILE

ICICI Bank is India's largest private sector bank with total consolidated assets of Rs.
9,860.43 billion (US$ 152.0 billion) at March 31, 2019 and profit after tax of Rs. 98.01
billion (US$ 1.5 billion) for the year ended March 31, 2019. ICICI Bank currently has a
network of 4,850 Branches and 14,164 ATM's across India.
 
History
ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial
institution, and was its wholly-owned subsidiary.
ICICI Group Companies
ICICI Bank offers a wide range of banking products and financial services to corporate
and retail customers through a variety of delivery channels and through its group
companies.
Board of Directors
ICICI Bank's Board members include eminent individuals with a wealth of experience in
international business, management consulting, banking and financial services.
Investor Relations
All the latest, in-depth information about ICICI Bank's financial performance and
business initiatives.
Career Opportunities
Explore diverse openings with India's second-largest bank.
Awards
Time and again our innovative banking services has been recognized and rewarded world
over.
News Room
Catch up with ICICI Bank's latest business and social initiatives, as well as innovative
product launches.
 
Corporate Social Responsibility
ICICI Bank is deeply engaged in human and economic development at the national level.
The Bank works closely with ICICI Foundation across diverse sectors and programs.
 
ICICI Bank’s CSR Policy

47
 
ICICI Foundation for Inclusive Growth
Notice Board
Catch up with ICICI Bank's latest communication related to Acknowledgements,
information on regulatory notices, banking ombudsman schemes and others.
ICICI Bank is India's second-largest bank with total assets of Rs. 4,736.47 billion (US$
93 billion) at March 31, 2017 and profit after tax Rs. 64.65 billion (US$ 1,271 million)
for the year ended March 31, 2017. The Bank has a network of 2,897 branches and
10,021 ATMs in India, and has a presence in 19 countries, including India.

ICICI Bank offers a wide range of banking products and financial services to corporate
and retail customers through a variety of delivery channels and through its specialised
subsidiaries in the areas of investment banking, life and non-life insurance, venture
capital and asset management.

The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches
in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai
International Finance Centre and representative offices in United Arab Emirates, China,
South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has
established branches in Belgium and Germany.

ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the
National Stock Exchange of India Limited and its American Depositary Receipts (ADRs)
are listed on the New York Stock Exchange (NYSE).

Corporate Profile
ICICI Bank is India's second-largest bank with total assets of Rs. 3,562.28 billion (US$
77 billion) as on December 31, 2009.

Awards:

 For the second consecutive year, ICICI Bank won the NPCI's NFS Operational
Excellence Awards in the MNC and Private Sector Banks Category for its ATM
48
 network.
 Mr.K.V.Kamath was awarded the "Hall Of Fame" by Outlook Money for his long
standing contribution in the financial services sector.
 ICICI Bank won the Best Bank - India Award by The Banker.
 Ms. Chanda Kochhar ranked 18th in the Fortune's list of '2017 Businesspersons
of the Year'. The 50 global leaders is Fortune's annual ranking of leaders who are
"the best in business".
 Ms. Chanda Kochhar tops the list of "50 Most Powerful Women in Business" by
Fortune India.
 ICICI Bank tops the list of "Private sector and Foreign Banks" by Brand Equity,
Most Trusted Brands 2017. It ranks 15th in the "Top Service 50 Brands".
 For the third consecutive year, ICICI Bank ranked second in "India's 50 Biggest
Financial Companies" in The BW Real 500 by Businessworld.
 For the second year in a row, Ms. Chanda Kochhar, Managing Director & CEO
was ranked 5th in the International list of 50 Most Powerful Women In Business
by Fortune.
 Ms. Chanda Kochhar, Managing Director & CEO was awarded the "CNBC Asia
India Business Leader Of The Year Award". She also received the "CNBC Asia's
CSR Award 2011"
 For the third year in a row ICICI Bank has won The Asset Triple A Country
Awards for Best Domestic Bank in India
 ICICI Bank won the Most Admired Knowledge Enterprises (MAKE) India 2009
Award. ICICI Bank won the first place in "Maximizing Enterprise Intellectual
Capital" category, October 28, 2009
 Ms Chanda Kochhar, MD and CEO was awarded with the Indian Business
Women Leadership Award at NDTV Profit Business Leadership Awards ,
October 26, 2009.
 ICICI Bank received two awards in CNBC Awaaz Consumer Awards; one for the
most preferred auto loan and the other for most preferred credit Card, on
September 30, 2009
 Ms. Chanda Kochhar, Managing Director & CEO ranked in the top 20 of the
World's 100 Most Powerful Women list compiled by Forbes, August 2009
 Financial Express at its FE India's Best Banks Awards, honoured Mr. K.V.
Kamath, Chairman with the Lifetime Achievement Award , July 25, 2009
49
 ICICI Bank won Asset Triple A Investment Awards for the Best Derivative
House, India. In addition ICICI Bank were Highly commended , Local Currency
Structured product, India for 1.5 year ADR GDR linked Range Accrual Note.,
July 2009
 ICICI bank won in three categories at World finance Banking awards on June 16,
2009
o Best NRI Services bank
o Excellence in Private Banking, APAC Region
o Excellence in Remittance Business, APAC Region
 ICICI Bank Mobile Banking was adjudged "Best Bank Award for Initiatives in
Mobile Payments and Banking" by IDRBT, on May 18, 2009 in Hyderabad.
 ICICI Bank's b2 branchfree banking was adjudged "Best E-Banking Project
Implementation Award 2008" by The Asian Banker, on May 11, 2009 at the
China World Hotel in Beijing.
 ICICI Bank bags the "Best bank in SME financing (Private Sector)" at the Dun &
Bradstreet Banking awards 2009.
 ICICI Bank NRI services wins the "Excellence in Business Model Innovation
Award" in the eighth Asian Banker Excellence in Retail Financial Services
Awards Programme.
 ICICI Bank's Rural Micro Banking and Agri-Business Group wins WOW Event
& Experiential Marketing Award in two categories - "Rural Marketing
programme of the year" and "Small Budget On Ground Promotion of the Year".
These awards were given for Cattle Loan 'Kamdhenu Campaign' and "Talkies on
the move campaign' respectively.
 ICICI Bank's Germany Branch has been certified by "Stiftung Warrentest". ICICI
Bank is ranked 2nd amongst 57 savings products across 19 banks
 ICICI Bank Germany won the yearly banking test of the investor magazine €uro
in the "call money"category.
 The ICICI Bank was awarded the runner's up position in Gartner Business
Intelligence and Excellence Award for Asia Pacific for its Business Intelligence
functions.
 ICICI Bank's Organisational Excellence Group was recently awarded ISO
9001:2008 certification by TUV Nord. The scope of certification comprised

50
 processes around consulting and capability building on methods of quality &
improvements.
 ICICI Bank has been awarded the following titles under The Asset Triple A
Country Awards for 2009:
o Best Transaction Bank in India
o Best Trade Finance Bank in India
o Best Cash Management Bank in India
o Best Domestic Custodian in India

ICICI Bank has bagged the Best Cash Management Bank in India award for the
second year in a row. The other awards have been bagged for the third year in a
row.

 ICICI Bank Canada received the prestigious Canadian Helen Keller Award at the
Canadian Helen Keller Centre's Fifth Annual Luncheon in Toronto. The award
was given to ICICI Bank its long-standing support to this unique training centre
for people who are deaf-blind.

ICICI Foundation for Inclusive Growth (ICICI Foundation) was founded by the ICICI
Group in early 2008 to give focus to its efforts to promote inclusive growth amongst low-
income Indian households.

We believe our fundamental challenge is to create a “just” society – one where everyone
has equal opportunity to develop and grow. Towards this end, ICICI Foundation is
committed to making India’s economic growth more inclusive, allowing every individual
to participate in and benefit from the growth process.

We hold a set of core beliefs and values that defines our pathway towards inclusive
growth and guides our five strategic partnerships.

Vision

Our vision is a world free of poverty in which every individual has the freedom and
power to create and sustain a just society in which to live.

51
Mission
Our mission is to create and support strong independent organisations which work
towards empowering the poor to participate in and benefit from the Indian growth
process.
As a key partner in India's economic growth for more than five decades, the ICICI Group
endeavours to promote growth in all sectors of the nation ’s economy. To give focus to its
efforts to promote inclusive growth amongst low-income Indian households, the ICICI
Group founded ICICI Foundation for Inclusive Growth in January 2010.

The foundations of ICICI Group’s approach towards human and social development were
established with the Social Initiatives Group (SIG), a non-profit resource group within
ICICI Bank, in 2000.
ICICI Foundation for Inclusive Growth (ICICI Foundation) has been set up as a public
charitable trust registered at Chennai vide registration of the Trust Deed with the Sub-
Registrar’s Office at Chennai on January 04, 2010.

Funds Flow 2010-2011

ICICI Foundation received Rs.617.80 million from the following sources as grants:
(January 4, 2008 to March 31, 2011) (spanning two financial years)

Source (January 4, 2008 – March 31, 2011) Amount (Rs. million)

ICICI Bank 500.00

ICICI Prudential Life Insurance 67.72

ICICI Lombard General Insurance 17.12

ICICI Securities 14.98

ICICI Securities PD 6.99

ICICI Home Finance 1.99

ICICI Venture 9.00

52
Total 617.80

ICICI Foundation also incurred total expenses of Rs.1.25 million during this period and
had a fund balance of Rs.61.55 million as on March 31, 2011.

Disbursements (January 4, 2008 to March 31, 2011)

Grant Beneficiaries (January 4, 2010 – March 31, 2011) Amount (Rs. million)

ICICI Foundation Programmes  

ICICI Centre for Child Health and Nutrition 150.00

IFMR Finance Foundation 200.00

Environmentally Sustainable Finance 20.00

CSO Partners 50.00

CARE (Policy Unit) 5.00

Strategy and Advisory Group 20.00

ICICI Group Corporate Social Responsibility Programmes  

Read to Lead 25.00

MITRA (ICICI Fellows Programme) 55.00

CARE (Disaster Management Unit) 5.00

Rang De 25.00

Total 555.00

Grant Beneficiaries for 2010-2011

ICICI Foundation Programmers

ICICI Centre for Child Health and Nutrition (ICCHN)

The grant of Rs.150.00 million was provided to ICCHN by way of corpus support and for
pursuing various projects consistent with its mission.

IFMR Finance Foundation (IFF)

53
The grant of Rs.200.00 million was provided to IFMR Finance Foundation by way of
corpus support and for pursuing various projects consistent with its mission.
Environmentally Sustainable Finance (ESF)

The grant of Rs.20.00 million was provided to ESF for their collaboration work with
Rural Energy Network Enterprise (RENE) on sustainable energy and environment
projects benefiting remote rural end users. The proposed projects will promote developing
tools and driving innovation to scale rural energy access for remote rural users.

CSO Partners
The grant of Rs.50.00 million was provided to CSO Partners by way of corpus support
and for pursuing various projects consistent with its mission.

CARE (Policy Unit)

A grant of Rs.5.00 million was provided to CARE, an Indian NGO that is closely
affiliated with CARE (USA), to create a policy unit in Delhi. Learning from CARE’s
work in India and world-wide as well as from the work of ICICI Foundation and its
partners, the unit will serve as a platform to engage the government and policymakers in
an effort to bring about required policy changes in areas such as maternal and child
health.
Strategy and Advisory Group (SAG)
Charitable foundations in India and world-wide struggle to fully develop the strategy
formulation, knowledge management and impact assessment dimensions of their work. A
grant of Rs.20.00 million was provided to Strategy and Advisory Group (SAG), a team at
Centre for Development Finance that provides strategic advisory services to clients in the
development sector, to develop these functions and to offer their expertise to foundations
in general, including ICICI Foundation.

54
ICICI Group Corporate Social Responsibility Programmers

Read to Lead
Read to Lead is an initiative of ICICI Bank to facilitate elementary education for
disadvantaged children in the age group of 6-13 years. An amount of Rs.25.00 million has
thus far been disbursed to 100,000 children through 30 NGOs. The balance amount of
Rs.75.00 million is planned to be disbursed during the period 2009-2010.

MITRA (ICICI Fellows Programme)

MITRA is an affiliate of CSO Partners that is focused on addressing the challenge of
human resources for civil society organisations (CSOs). In partnership with CSO Partners
and MITRA, ICICI Foundation proposes to launch an ICICI Fellows Programme. An
amount of Rs.55.00 million has been disbursed to MITRA for developing and launching
the programme over the period 2009-2010.

CARE (Disaster Management Unit)

A grant of Rs.5.00 million has been given to CARE in India to enable it to prepare for any
future disasters that may strike and respond immediately with the required relief efforts.

Rang De (Micro Enterprise Development)

Rang De, an affiliate of CSO Partners, has partnered with ICICI Venture to roll out funds
for micro enterprise development in rural and semi-urban locations. The amount of
Rs.25.00 million that has been disbursed to them will support micro enterprises to the
extent of Rs.15.00 million and the balance amount of Rs.10.00 million will go towards
meeting their expenses to build the platform.

55
 CHAPTER – 5
DATA ANALYSIS &
INTERPRETATION

56
Gap Analysis,

Gap Analysis and Gap Ratio of ICICI Bank

Foreign
Liabilities (in millions) Assets (in millions) GAP
banks

ratio
Foreig of
n Loans Foreign inter
Depos Borrowi Curren and Investme Curren (Assets- GAP est
Year
its ngs cy Advance nts cy liabilities RAT inco
Liabilit s Assets me
IO
ies to
total
asset
s
86366
2017 308156 304561 758772 426728 213987 -76890 0.948 6.33
0
11357
2018 389214 396381 978634 526820 342977 -72888 0.962 6.96
25
15062
2019 510930 816019 1266336 730299 696477 -140096 0.951 7.57
59
19109
2020 582739 715375 1611474 990656 602139 -4787 0.999 7.62
42
21400 112749
2021 772859 1653847 1306835 1048891 -30841 0.992 7.48
65 0
23206 151533
2022 682473 1632644 1596313 789327 -500202 0.889 5.99
80 2
CORRELATION (GAP AND INTEREST INCOME) 0.833

57
 Table 2: Gap Analysis and Gap Ratio of Public Banks
Public Liabilities (in millions) Assets (in millions) GAP
bank
Foreig Loans Investm Foreign
Year Deposits Borrow n and ents (at Curren (Assets- GAP ratio
ings Curren Advance book cy liabilities RATI of
cy s value) Assets O inter
Liabilit est
ies inco
me
to
total
asset
s

2017 14151958 696032 1012726 8229963 6810447 1108418 288111 1.018 7.43
5
2018 16079847 1103475 1563507 10936707
6354918 1571440 116237 1.006 7.28
2019 19886945 1176788 1859044 14317420
6666533 1898699 -40125 0.998 7.37
2020 24489531 1460929 1967330 17891174
7986482 1991950 -48185 0.998 7.8
2021 31109939 1998240 2539615 22183659
1055027 2808279 -105586 0.997 8.5
0
2022 36893729 2953744 3135447 27000317 1216069 3351905 -469999 0.989 7.46
9
CORRELATION (GAP AND INTEREST INCOME) -0.2754

Table 3: Gap Analysis and Gap Ratio of Private Banks

Private Liabilities (in Assets (in millions)

bank millions) GAP

GAP rati
Forei RATI o of
gn Loan Invest Foreign O inte
Depo Borro Curr s and ments Curren (Assets- rest
sits wings ency Adva (at cy liabilitie inco
Liabi nces book Assets s) me
lities value) to
total
Year asse
ts

2017 3056 303584 30995 20461 138767 278871 43012 1.012 6.61
115 6 21 4
2018 4278 496010 45932 31270 181982 404482 117174 1.022 7.05
853 3 58 0
2019 5512 705795 76101 41467 214687 669348 -16524 0.998 7.53
630 8 00 1
2020 6749 886550 98565 51849 278230 899403 244906 1.028 8.42
542 1 38 9
2021 7362 137862 11113 57539 306490 1143598 110242 1.011 8.65
275 5 10 52 1

58
 2022 8226 149148 10421 63252 354180 1053048 1.015 7.6
731 0 65 07 7 159685
CORRELATION (GAP AND INTEREST INCOME) 0.172772
From the tables above it can be observed that public sector banks have
negative GAP throughout from 2005 to 2010except for the years 2005 and
2006 where they have a positive gap. The reason for positive gap seems to be
higher amount of loans and advances disbursed or lower quantum of
borrowings in these years. On analysing the gap for private banks it is
observed that these banks have been able to maintain satisfactory position as
they have positive gap from 2005 to 2010 except for 2007 where they have
negative gap because of increased level of deposits and borrowings. The gap
figures for
foreign banks also show a negative trend in all the years. It can be said that
among these three bank groups private banks have been doing well as they
have been able to maintain a positive gap for most of the time. The public
banks are trailing behind with a negative gap for most of the years. So it can
be said that private banks are managing their assets and liabilities very well.

The assets liability gap affects the profitability of the bank, more
specifically the interest income of the bank. So a comparison is made between
the assets liability gaps of various banks groups and their interest income ratio.
The interest income ratio is also shown in the tables above. It can be seen from
the data that private banks have been generating better interest income as
compared to public and foreign banks. Tough initially the public banks were
having highest interest income but as the private banks maintain positive gap
from 2008 onwards, their interest income also improved and was highest
among the three bank groups. Further on comparison of gap ratio to interest
income ratio, it can be concluded that private banks are having highest interest
income ratio as well as a positive gap. Though the foreign banks have negative
gap still they have managed a reasonable interest income ratio. But the public
banks have not been able to present a healthy picture as they not only having a
negative gap but their interest income ratio is also low.

59
 TABLE :1 SHOWING CAPITAL TURNOVER RATIO

(Rs in 000)

Capital Employed Turnover

Years Revenue Capital Employed Ratio
2017-18 310,925,484 117,206,7076 0.27
2018-19 257,069,331 145,881,9345 0.18
2019-20 259,740,528 164,644,9215 0.16
2020-21 335,426,522 200,567,7641 0.17
2021-22 400,755,969 212,042,9698 0.19

(Source: Annual Reports of ICICI Bank ltd)

2,500,000,000

2,000,000,000

1,500,000,000
Revenue
Capital Employed
Capital Employed Turnover
1,000,000,000 Ratio

500,000,000

0
2017-18 2018-19 2019-20 2020-21 2021-22

INTERPRETATION:

Table 1 shows the capital turnover ratio for the study period. It showedan increasing
trend from the year 2019-20 to 2021-22. It represented that, there was an improvement in
the capital employed.

60
 TABLE: 2 SHOWING FIXED ASSET TURNOVER RATIO

(Rs in 000)

Years Revenue Fixed Asset Fixed Asset Turnover Ratio

2017-18 310,925,484 38016209 8.18
2018-19 257,069,331 32126899 8.00
2019-20 259,740,528 47442551 5.47
2020-21 335,426,522 46146870 7.27
2021-22 400,755,969 46470587 8.62
(Source: Annual Reports of ICICI Bank ltd)
450,000,000

400,000,000

350,000,000

300,000,000

250,000,000
Revenue
Fixed Assets
200,000,000
Fixxed Asset Turnover Ration
150,000,000

100,000,000

50,000,000

0
2017-18 2018-19 2019-20 2020-21 2021-22

INTERPRETATION:
A higher ratio is the indicator off over trading of fixed assets, while a low reveals ideal
capacity in ICICI. From the table 2 is seen that, the fixed asset turnover ratio is volatile
during study period. In the year 2019-20 was showed there was no optimal utilization of
fixed assets since the ratio is lowest compared to other years. The highest ratio in the year
2021-22 is 8.62 times.

61
 TABLE: 3 SHOWING TOTAL ASSET TURNOVER RATIO

(Rs in 000)

Years Revenue Total Asset Total Asset Turnover Ratio

2017-18 310,925,484 3793009623 0.08
2018-19 257,069,331 3633997151 0.07
2019-20 259,740,528 4062336688 0.06
2020-21 335,426,522 4736470902 0.07
2021-22 400,755,969 5367946811 0.07

(Source: Annual Reports of ICICI Bank ltd)

6,000,000,000

5,000,000,000

4,000,000,000

Revenue
3,000,000,000
Total Assets
Total Asset Turnover Ration
2,000,000,000

1,000,000,000

0
2017-18 2018-19 2019-20 2020-21 2021-22

INTERPRETATION:
Lower the Total assets turnover ratio, the performance is less advice versa table 3 showed
the decreasing trend of total assets turnover ratioduring the study period with small
fluctuations. The total assets turnover is less than 1 during the study period showed that
the company is not utilized total assets.

62
 TABLE:4 SHOWING CURRENT ASSET TURNOVER RATIO
(Rs in 000)

Years Net Revenue Current Asset Current Asset Turnover Ratio

2017-18 386,962,755 2,724,410,334 0.14
2018-19 331,845,831 2,392,942,247 0.14
2019-20 326,219,453 2,668,034,507 0.12
2020-21 410,454,120 3,094,723,602 0.13
2021-22 484,212,981 3,607,540,231 0.13

(Source: Annual Reports of ICICI Bank ltd)

4,000,000,000

3,500,000,000

3,000,000,000

2,500,000,000

Net Revenue
2,000,000,000
Current Assets
Current Asset Turnover Ration
1,500,000,000

1,000,000,000

500,000,000

0
2017-18 2018-19 2019-20 2020-21 2021-22

INTERPRETATION:
The ratio should be high as for as possible is indication of favorable trend in the form of
increase in sales with lesser current assets. It is inferred from the above table 4 that
current assets turnover ratio for the years 2017-18 to 2021-22 are 0.14, 0.14, 0.12, 0.13
and 0.13 respectively. In the years 2017-18 it is recorded the highest point i.e., 0.14 times
when compared to previous years. It reveals that the company performed well in the year
2019-20 and the firm is maintaining same trend in current asset turnover during the study
period.

63
 TABLE:5 SHOWING CASH TURNOVER RATIO

(Rs in 000)

Years Net Revenue Cash Cash Turnover Ratio

2017-18 386,962,755 175,363,342 2.21
2018-19 331,845,831 275,142,920 1.21
2019-20 326,219,453 209,069,703 1.56
2020-21 410,454,120 204,612,935 2.01
2021-22 484,212,981 190,527,309 2.54

(Source: Annual Reports of ICICI Bank ltd)

600,000,000

500,000,000

400,000,000

Net Revenue
300,000,000
Cash
Cash Turnover Ratio
200,000,000

100,000,000

0
2017-18 2018-19 2019-20 2020-21 2021-22

INTERPRETATION:
The standard or ideal cash turnover ratio is 10:1. It indicates the effective utilization of
cash resources of the company form the above table5 found that, the company had not
satisfied cash turnover ratio during study period. From the year 2018-19 to 2021-22 cash
turnover ratio has been increasing gradually from 1.21 to 2.54 and which was less than
the standard ratio. It is inferred that the company had to maintain more cash balance
during the study period.

TABLE: 6 SHOWING CURRENT RATIO

64
 (Rs in 000)

Current
Years Current Assets Liabilities Current Ratio
2017-18 2,724,410,334 437,464,298 6.23
2018-19 2,392,942,247 155,011,834 15.44
2019-20 2,668,034,507 159,863,467 16.69
2020-21 3,094,723,602 175,769,846 17.61
2021-22 3,607,540,231 321,336,021 11.23

(Source: Annual Reports of ICICI Bank ltd)

4,000,000,000

3,500,000,000

3,000,000,000

2,500,000,000

Current Assets
2,000,000,000
Current Liabilities
Current Ratio
1,500,000,000

1,000,000,000

500,000,000

0
2017-18 2018-19 2019-20 2020-21 2021-22

INTERPRETATION:
Table 6 shows the current ratio for the study period. The company had recorded the
increasing trend in current ratio during study period. But the first years 2017-18 was
having low current ratio and from 2018-19 to 2019-20 the company had satisfactory ratio,
during the study period and maintained sufficient current assets to meet the current assets
up to standards. The company had maintained the good condition in the last year during
the study period.
TABLE:7 SHOWING NET PROFIT RATIO

65
 (Rs in 000)

Years Net Profit Net Revenue Net Profit Ratio

2017-18 61,944,491 386,962,755 16.01
2018-19 68,346,339 331,845,831 20.60
2019-20 86,157,569 326,219,453 26.41
2020-21 114,834,409 410,454,120 27.98
2021-22 153,797,050 484,212,981 31.76

(Source: Annual Reports of ICICI Bank ltd)

600,000,000

500,000,000

400,000,000

Net Profit
300,000,000
Net Revenue
Net Profit Ratio
200,000,000

100,000,000

0
2017-18 2018-19 2019-20 2020-21 2021-22

INTERPRETATION:
From the table 7 it is identified that there was an consistent increase in the net profit from
the year 2017-18 to 2021-22. The Net profit ratio was high in the year 2019-20, which
indicates that the company has performed well compared previous years. The profit
showing 31.76 which shows the company has set up good position during the study
period.

TABLE:8 SHOWING CURRENT ASSET TO FIXED ASSET RATIO

(Rs in 000)

66
 Years Current Asset Fixed AssetCurrent Asset to Fixed Asset Ratio
2017-18 2,724,410,334 38,016,209 71.66
2018-19 2,392,942,247 32,126,899 74.48
2019-20 2,668,034,507 47,442,551 56.24
2020-21 3,094,723,602 46,146,870 67.06
2021-22 3,607,540,231 46,470,587 77.63

(Source: Annual Reports of ICICI Bank ltd)

4,000,000,000

3,500,000,000

3,000,000,000

2,500,000,000

Current Asset
2,000,000,000
Fixed Asset
Current Asset to Fixed Asset
1,500,000,000

1,000,000,000

500,000,000

0
2017-18 2018-19 2019-20 2020-21 2021-22

INTERPRETATION:
Table 8 showed the Current assets to Fixed assets turnover for the study period from
2017-18 to 2021-22 is 71.66, 74.48, 56.24, 67.06 and 77.63 respectively. It was having
8sufficient current assets to run the banking business.

67
 CHAPTER – 6
FINDINGS, SUGGESTIONS &
CONCLUSION

68
 FINDINGS
 Capital turnover ratio of the company was satisfactory.

 The fixed asset turnover ratio tends it increase every year. From 2017-18 to 2018-
19 this shows there is optimal utilization of fixed assets. The highest ratio in the
year 2021-22 is 8.62 times.

 The current asset ratio has been in the increasing trend from the year 2018-19 to
2021-22 which shows the company has satisfactory level in managing current
asset.

 The cash ratio has not been maintained according to the standard, the cash has
been maintained less than the standard which indicates that company should
maintain more cash balance.

 The current was maintained less in the year 2017-18 and later the company has
been increased during the year 2017-18 – 2021-22 which shows that the company
has maintained current asset more than the standard by this company maintained
good position of current ratio.

 The net profit has been maintained in the increasing rate which shows that the
company has performing well during the study period.

 The current asset to fixed assets has been maintained in satisfactory position
which indicates that company has been maintained the standard to run the banking
business.

 The fixed assets during the year 2017-18 was Rs 1,068,599,289 thousands it had
been increased to Rs 1,760,406,580 thousands which indicate the investment had
been made in the land, buildings and other assets, the investment has also made in
opening new branches.

 The reserve and surplus during the year 2017-18 was Rs 484,197,292 thousands it
has been raised to Rs 655,523,227 thousands which indicates the increased in the
funds of the company.

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 SUGGESTIONS

 It can be noticed that there is considerable increase in the growth of urban

banking, hence it is suggested to expand over the rural banking which increases
the company income and also expands the operating network.
 There should be increase in the amount of contribution to the reserve and surplus
in order to maintain sound financial position of the company.
 There should be taken better management towards current assets and current
liabilities which indicating week positive correlation.
 The cash has not been maintained according to standard ratio hence it is suggested
that cash should be maintained as per the standard ratio.
 The net profit shows the increasing rate from all the year, which can be used for
further development and expansion in rural banking.

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 CONCLUSION:

From the study it is clear that ICICI looks forward to generate a more favorable service in
the near future. The balance sheet of the company has been consistent and gives a hint of
growth and expansion. The company is expected to increase its profitability by a higher
margin through various ways to contribute to the development of the industry and
economy. The initiative taken by the bank to serve the various segments of the society is
very helpful in developing a better environment for the business.

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BIBILIOGRAPHY

72
 BIBILIOGRAPHY

Title of the Books Author

1. Risk management Gustavson hoyt

2. Management Research magazine P.M.Dileep Kumar

3. India financial system M.Y. Khan

4. Risk management Gustavson, Hoyt

5. Management Research magazine. P.M. Dileep Kumar

6. Indian financial system. M.Y. Khan, (1980)

WEBSITES:

 www.icicibank.sap.in

 www.rbi.org

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