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A PROJECT REPORT ON INDIAN BANKING SYSTEM

UNDER THE GUIDENCE OF: MRS. ELINA KANUNGO (COLLEGE FACULTY)

SUBMITTED TO:-

SUBMITTED BY:CHITRAREKHA KALIA

RAMADEVI WOMENS AUTONOMOUS COLLAGE(BHUBANESWAR)

ACKNOWLEDGEMENT
I would take this opportunity to thank Mrs. Elina kanungo, Faculty, R.D. Womens collage, Bhubaneswar for being cooperative and helpful guide. A note of thanks is due to all those, too many to single out by names, which have helped in no small measure by cooperating during by providing their valuable time, inputs and assistance. Their support, guidance and motivation were very valuable and encouraging.

Chitrarekha Kalia

PREFACE
The introduction and application of the concept of customer services entered in a welcoming way in India only after independence. The banking system in India has come a long way during the last two centuries. Its growth was faster and the coverage wider since 1969. In 1969a major position of banking sector was entrusted to the public sector. This process continued and embraced few private banks in 1980. The transfer of ownership of banks from the public to private was aimed at entrusting the banks with greater responsibilities for the economic development of India by taking banking services to the masses and taking special care of the weaker section of the society and the priority sector of the economy. Though the number of banks offices magnitude and the variety of their operations has grown considerably during the period of near about three decades, but it appears that the banking sector has entered into serious among customers. For overcoming this problem, banking industry should seek introspection and adopt refined management techniques. It has been endeavor of this study to analyze the present state of various banks keeping in view the primary data has been collected regarding the present state of loan schemes in various banks by using a questionnaire.

DECLARATION
I undersigned Chitrarekha Kalia The student of B-Com 3rd Sem. hereby declare that the project work in my own work and has been carried out under the guidance of Mrs. Elina Kanungo Faculty Member of R.D. Womens collage, Bhubaneswar. This Report has been submitted to R.D. Womens collage for evaluation .

Date: Place:

Chitrarekha Kalia

Table of contents
S. No. 1. 2.
EXECUTIVE SUMMERY INTRODUCTION: REVIEW OF LITERATURE OBJECTIVES OF THE STUDY SIGNIFICANCE OF THE STUDY CONCEPTULIZATION FOCUS OF THE PROBLEM LIMITATION OF THE STUDY

Particulars

Pages
07-08 09-16

3.

RESEARCH METHODOLOGY: RESEARCH DESIGN SAMPLING: DESIGN AND PROCEDURE

17-20

4.

VALUATION TOOLS: ICICI BANK HDFC BANK SBI BANK

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5. 6. 7.

MAJOR FINDING CONCLUSION BIBLIOGRAPHY

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CHAPTER-1

EXECUTIVE SUMMARY
The Indian Economy is driven by strong fundamentals with GDP growth at 9.1% for H1 FY07 strongest growth in any six months since H1 FY04 and uptrend in Industrial Cycle with Average Index of Industrial Production growth at 10.2% being the strongest run in the past 11 years. On political front, the Indian Government has signed nuclear deal with America indicating Indias importance in the global context opening up many opportunities. Along with this, Chinese President Hu is expected to visit India. This will improve trade and other ties between two of the fastest growing economies. In Capital Market, Strong foreign inflows with Portfolio flows of nearby USD 9.2bn took BSE Sensex to 14,000 + (50% higher) compared to FY 05-06. The Indian corporate raised USD 6bn by issuing Initial public offer in India and abroad. High Credit growth at 30%, it continued the trend of last 5 years where it has averaged around 25% and lastly M&A activity which was at its peak with sectors beyond IT and Pharma making global & domestic acquisitions. The high growth sectors are Power where power ministry and local private players announce 9 ultra mega projects (4,000 MW each) provides visibility on power & infra front. Retail - a Point of inflection with major Indian corporate announcing plans, entry of world majors like Wal-Mart & foreign investment allowed in single brand retail and Real Estate with major huge build-out plans and Special Economic Zone policy of government is major driver of growth. Banking in which Banks are allowed to raise hybrid capital which opens new avenues for funding credit growth.

As such, the report focus on change factors in Banking Industry as this industry is expected to have major impact on Indian Economy.

CHAPTER-2

INTRODUCTION
In India, given the relatively underdeveloped capital market and with little internal resources, firms and economic entities depend, largely, on financial intermediaries to meet their fund requirements. In terms of supply of credit, financial intermediaries can broadly be categorized as institutional and non-institutional. The major institutional suppliers of credit in India are banks and non-bank financial institutions (that is, development financial institutions or DFIs), other financial institutions (FIs), and non-banking finance companies (NBFCs). The non-institutional or unorganized sources of credit include indigenous bankers and money-lenders. Information about the unorganized sector is limited and not readily available.

An important feature of the credit market is its term structure: (a) Short-term credit (b) Medium-term credit (c) Long-term credit.

While banks and NBFCs predominantly cater for short-term needs, FIs provide mostly medium and long-term funds.

REVIEW OF LITERATURE
NEW JERSEY: Indus American Bank has tied up with State Bank of India to offer money transfer services to India for its clients. Under the new money transfer service, which will provide expanded services to Indus American Bank customers can expect service at over 14,000 branch locations of State Bank of India within India, and at over 14,000 additional RTGS participating banks. Funds remitted from Indus American Bank would reach recipients typically within 24 hours. As the largest bank in India, State Bank of India offers excellent exchange rates which are now available to Indus American Bank customers. India is one of the biggest destinations for foreign remittances.

ICICI Bank allots equity shares ICICI Bank allotted 17,800 equity shares of face value of Rs 10 each on Sep. 18, 2007 under the employees stock option sceme, 2000 (ESOS).ICICI Bank (ICICIBANK) was promoted in 1994 by ICICI, an Indian development financial institution. The two entities subsequently merged to become the largest commercial bank in the private sector. Shares of the company gained Rs 7.75, or 1.38%, to settle at Rs 569.9. The total volume of shares traded was 173,655 at the BSE.(Tuesday)

HDFC Asset Management to launch debt fund on Sept 27 MUMBAI (Reuters) - HDFC Asset Management Co Ltd said on Tuesday that it will launch a close-ended debt fund on Sept. 27. The fund, HDFC FMP 18M September 2007, will be open for subscription till Oct. 8. It will invest at least 60 percent of the assets in debt and money market instruments and the rest in government securities, the fund house said.

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HDFC to cut interest rates Economic Times, India - Sat Sep 22, 2007 12:14pm IST Mortgage lender Housing Development Finance Corp is likely to cut its interest rates next week, the Economic Times reported on Saturday. "The cost of wholesale funding has come down and we are taking a look at passing on the benefits to borrowers," HDFC Chairman Deepak Parekh was quoted as saying. The report also quoted HDFC Managing Director Keki Mistry as saying the company was looking at a half percentage point cut and that the new rates would be announced next week.

OBJECTIVES OF THE STUDY


Todays banking sector play a dominant role regarding investment decision. It basically tells about how these funds are effectively and efficiently utilized in order to maximize profits. To study the growth and performance of banking company. To find out what are the policies that we have to be adopted to increase the goodwill of the company. To provide suggestions for better functioning of business. To know about the various loan schemes of these two banking companies i.e. ICICI & SBI.

SIGNIFICANCE OF THE STUDY


To make a detailed study of various financial services provide by the different banks. To analyze customers view point regarding their banks.

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To study effective and most popular bank among the customers regarding its services. To find out the rate of interest of banks and reaction of customers on it. To make analysis on the economic benefits provided by various banks. Suggest the investors whether to invest in shares of Banking Companies.

CONCEPTUALIZATION
The last decade has seen many positive developments in the Indian banking sector. The policy makers, which comprise the Reserve Bank of India (RBI), Ministry of Finance and related government and financial sector regulatory entities, have made several notable efforts to improve regulation in the sector. The sector now compares favourably with banking sectors in the region on metrics like growth, profitability and non-performing assets (NPAs). A few banks have established an outstanding track record of innovation, growth and value creation. This is reflected in their market valuation. However, improved regulations, innovation, growth and value creation in the sector remain limited to a small part of it. The cost of banking intermediation in India is higher and bank penetration is far lower than in other markets. Indias banking industry must strengthen itself significantly if it has to support the modern and vibrant economy which India aspires to be. While the onus for this change lies mainly with bank managements, an enabling policy and regulatory framework will also be critical to their success. The failure to respond to changing market realities has stunted the development of the financial sector in many developing countries. A weak banking structure has been unable to fuel continued growth, which has harmed the long-term health of their economies. In this white paper, we emphasize the need to act both decisively and quickly to build an enabling, rather than a limiting, banking sector in India

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FOCUS OF THE PROBLEM


The research report concentrates on macro and micro factors affecting Banking Industry, Evolution of Banking Industry and its current status. Various regulatory and reform processes also affect banking industry. The report also throws a light on them. The report finally ends with valuation of major players in banking Industry and the major challenges faced by this industry.

1. Banking Challenges It is expected that the Indian banking and finance system will be globally competitive. For this the market players will have to be financially strong and operationally efficient. Capital would be a key factor in building a successful institution. The banking and finance system will improve competitiveness through a process of consolidation, either through mergers and acquisitions through strategic alliances. Technology would be the key to the competitiveness of banking and finance system. Indian players will keep pace with global leaders in the use of banking technology. In such a scenario, on-line accessibility will be available to the customers from any part of the globe; Anywhere and Anytime banking will be realized truly and fully. In this context, the research paper approached Indian Banking System as the shape of the banking sector will be the result of a strong interplay between the decisions taken by policy makers and actions of bank managements.

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2. Banking Evolution & Regulatory Framework Financial Sector Reforms set in motion in 1991 have greatly changed the face of Indian Banking. The banking industry has moved gradually from a regulated environment to a deregulated market economy. The market developments kindled by liberalization and globalization have resulted in changes in the intermediation role of banks. The pace of transformation has been more significant in recent times with technology acting as a catalyst. While the banking system has done fairly well in adjusting to the new market dynamics, greater challenges lie ahead. Financial sector would be opened up for greater international competition under WTO. Banks will have to gear up to meet stringent prudential capital adequacy norms under Basel II. In addition to WTO and Basel II, the Free Trade Agreements (FTAs) such as with Singapore, may have an impact on the shape of the banking industry. Banks will also have to cope with challenges posed by technological innovations in banking. Banks need to prepare for the changes. In this context the need for drawing up a Road Map to the future assumes relevance. The last decade has seen many positive developments in the Indian Banking Sector. The policy makers, which comprise the Reserve Bank of India (RBI), Ministry of Finance and related government and financial sector regulatory entities, have made several notable efforts to improve regulation in the sector. The sector now compares favorably with banking sectors in the region on metrics like growth, profitability and non-performing assets (NPAs). A few banks have established an outstanding track record of innovation, growth and value creation. This is reflected in their market valuation. However, improved regulations, innovation, growth and value creation in the sector remain limited to a small part of it. The cost of banking intermediation in India is higher and bank penetration is far lower than in other markets. Indias banking industry must strengthen itself significantly, if it has to support the modern and vibrant economy which India aspires to be, while the onus for this change lies mainly with bank managements, and enabling policy and regulatory framework will also be critical to their success.

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3. Internal Hindrances to Banking Industry The research focuses on emphasizing the need of decisively and quickly to build and enabling, rather than a limiting, banking sector in India. The major challenges ahead for bank management are as follows: First, cost management, a key to sustainability of bank profits as well as their long-term viability. Second, recovery management, which is a key to the stability of the banking sector. Third, technological intensity of banking, an area where India happens to be a world leader in information technology, but its usage by our banking system is somewhat muted. It is wise for Indian banks to exploit this globally state-of-art expertise, domestically available, to their fullest advantage. Fourth, risk management, Banks can, on their part, formulate early warning indicators suited to their own requirements, business profile and risk appetite in order to better monitor and manage risks. Fifth, governance because the quality of corporate governance in the banks becomes critical as competition intensifies, banks strive to retain their client base, and regulators move out of controls and micro-regulation.

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LIMITATION OF THE STUDY


The scope of the study will be restricted to selected Banks. Many of the respondents did not think hard enough while choosing the specific point. This could have led to a biased view and thus affected the analysis.

There may be other events during the Clean and Window Period which may distort the
results.

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CHAPTER-3

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RESEARCH METHODOLOGY
Problem Definition: To determine and analyze the hidden potential in Banking sector in India so as to suggest the investors whether to invest in shares of Banking Companies.

Objective: Discover insights into and develop an understanding of the various Macro and Micro Economic Factors that have bearing on the functioning of the Banking sector. Evaluate the performance of some of the banks based on the past data and forecast the future prospects.

Valuation: The project involves valuation of major Indian Banks including ICICI Bank, SBI and HDFC Bank. The methodology followed is Target Pricing, which includes estimating growth rate by regression on historical sales to forecast next year sales, earning and Profit and Loss account. Then EPS is calculated which is multiplied to Historical P/E to forecast intrinsic value of share.

Result: All shares are undervalued and expected to give positive risk adjusted returns to investors. Since the intrinsic value is more than current market price for all the companies, the share can be recommended to conservative investors.

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RESEARCH DESIGN
Exploratory Research Design because the problem required an in-depth study of all the related variables. Past information and forecasts: Collected the past information in the form of details of the various accounting statements (Income Statement, Balance Sheet etc.), including the sales for the past 10 years (1997-2006). Forecasts are done in relation to the future performance in terms of sales for HDFC Bank, ICICI Bank, and SBI. Other forecasts include the EPS calculation and comparison of forecasted Future Target Price with the Current Market Price. Once the information was collected, the next step was to search for resources and constraints with respect to the area of research.

Resources and Constraints: Resources: Various Publications like AT Kearney Report, 2005 FICCI Survey on status of Indian Banking Industry Progress and Agenda Ahead Indian Banks Association, Various Years, Performance Highlights of Banks (Mumbai). Reserve Bank of India, 2005, Annual Policy Statement for the year 2005-06 (Mumbai). Company Reports

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Constraints:

Lack of time availability with the people involved in any manner with the research especially when decisions were to be made quickly.

Difficulty in application of Statistical Tools.

Difficulty in making accurate forecasts because of presence of Economic impediments like inflation, RBI policies etc.

SAMPLING: DESIGN AND PROCEDURE:

Sampling Technique: Convenience Sampling as a part of Non-Probability sampling by taking the three banks as the major performers in the Indian Banking Sector and highlighters of sectors overall performance. Sample Size: Sample Size was restricted to 3, including ICICI Bank, HDFC Bank and State Bank of India. Executing the Sampling Process: Through making a comparison among the various key figures of sales, profits and accounting ratios deduced from accounting statements. Method of Data Collection:-Secondary Data is collected to carry out the study. To review the literature available regarding the subject; various journals, magazines, related research papers and Internet would be used

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CHAPTER-4

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VALUE CREATION TOOLS


ICICI Bank:
Business ICICI Bank was promoted in 1994 by ICICI Ltd., an Indian development financial institution. The two entities subsequently merged to become the largest commercial bank in the private sector. A new generation bank, ICICI Bank started with all the latest technologies to hit the Indian banking industry in the second half of the nineties. All its branches are fully computerized with the state-of-the-art technology and systems, networked through VSAT technology. The bank is connected to the SWIFT International network. In 2005, it expanded its network to 562 branches and 1,910 ATMs. It continued to expand its electronic channels, namely internet banking, mobile banking, call centers and ATMs, and migrate customer transaction volumes to these channels. Over 70% of customer induced transactions take place through these electronic channels. It has acquired a small Russian banking entity, Investitsionno-Kreditny Bank (IKB), which will help boost its corporate business and deposit franchise overseas. The bank has also built several strategic alliances with banks like Wells Fargo in USA, Lloyds TSB in UK and DBS in Singapore. ICICI has entered into strategic alliance with Prudential plc. of UK for its mutual find business. The duo has been fairly aggressive through their companies, Prudential ICICI Asset Management Company Limited and Prudential ICICI Trust Limited. The bank is also keen to offer its services to the Indian agricultural sector. Over 2,000 Internet kiosks and 70 agri-desks have been established in locations with large agricultural markets. Developments ICICI Bank launched `Mutual Fund Sweep Account` - an automatic sweeping facility which allows current account holders to park their short-term surpluses into liquid mutual funds and earn higher returns. Initially, ICICI Bank current account customers will have

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the facility to invest their account surpluses in the liquid fund schemes of Prudential ICICI Asset Management Company and GIC Mutual Fund. The bank is in the process of the reverse merger of ICICI with ICICI Bank. The merger of two wholly-owned subsidiaries of ICICI, ICICI Personal Financial Services

Limited and ICICI Capital Services Limited, with ICICI Bank is also underway. ICRA has assigned an A1+ rating, indicating highest safety in the short-term, to the Rs 500 crore certificates of deposit (CD) programme of ICICI Bank Ltd (IBL). The rating agency said in its report that the rating takes into consideration IBL`s strategic importance to its parent ICICI, IBL`s comfortable profitability and capital adequacy, good control on asset quality. ICICI Bank has tied up with MasterCard International to launch ICICI Bank MasterCard credit cards. At present ICICI Banks credit card base stands at around 5, 50,000, while for debit cards it is 4,50,000. ICICI Bank is the largest card issuer in the market. The bank is adding credit and debit cards at the rate of 1,00,000 per month. The bank had launched the credit card business 2 years back, while the debit card business is relatively new.

ICICI Bank is India's second-largest bank with total assets of Rs. 3,562.28 billion (US$ 77 billion) at December 31, 2009 and profit after tax Rs. 30.19 billion (US$ 648.8 million) for the nine months ended December 31, 2009. The Bank has a network of 1,646 branches and about 4,883 ATMs in India and presence in 18 countries. 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 and affiliates 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).

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HDFC Bank:
HDFC Bank Ltd was set up in 1994 by Indias leading housing finance company Housing Development Finance Corporation (HDFC). The bank offers a wide range of services which can be classified into three categories namely, treasury, wholesale banking and retail banking services. The bank has a distribution network of 535 (in 228 cities) and 1,323 ATMs and a customer base of 9.6 million as of March 2006. Under wholesale banking, it provides working capital finance, trade services, transactional services and cash management. Treasury function includes foreign exchange & derivatives, money market securities and equities. Retail loan products are auto loans, personal loans and loans for two-wheelers. It also provides depository participant services for retail customers. It was the first Indian bank which launched an international debit card. With products including the Kisan Gold Card, rural supply chain initiatives and commodity finance covering the entire agriculture financing cycle, the banks agriculture lending increased by over 60% during the year. The proportion of NPA`s to total advances increased to 0.4 per cent from 0.3 per cent last year. This marginal increase is because of the changing mix of loans as HDFC Bank has a high share of auto loans. The banks focus on semi-urban and under banked markets continued with more than half of its retail loans being given in non-metro markets. The banks total capital adequacy ratio (CAR) as on March 31, 2006 stood at 11.41% The authorized capital of HDFC Bank is Rs.450 crore (Rs.4.5 billion). The paid-up capital is Rs.311.9 crore (Rs.3.1 billion). The HDFC Group holds 22.1% of the bank's equity and about 19.4% of the equity is held by the ADS Depository (in respect of the bank's American Depository Shares (ADS) Issue). Roughly 31.3% of the equity is held by Foreign Institutional Investors (FIIs) and the bank has about 190,000 shareholders. The shares are listed on the Stock Exchange, Mumbai and the National Stock Exchange. The bank's American Depository Shares are listed on the New York Stock Exchange (NYSE) under the symbol "HDB".

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Technology:
HDFC Bank operates in a highly automated environment in terms of information technology and communication systems. All the bank's branches have online connectivity, which enables the bank to offer speedy funds transfer facilities to its customers. Multi-branch access is also provided to retail customers through the branch network and Automated Teller Machines (ATMs). The Bank has made substantial efforts and investments in acquiring the best technology available internationally, to build the infrastructure for a world class bank. The Bank's business is supported by scalable and robust systems which ensure that our clients always get the finest services we offer. The Bank has prioritised its engagement in technology and the internet as one of its key goals and has already made significant progress in web-enabling its core businesses. In each of its businesses, the Bank has succeeded in leveraging its market position, expertise and technology to create a competitive advantage and build market share.

Business:
HDFC Bank offers a wide range of commercial and transactional banking services and treasury products to wholesale and retail customers. The bank has three key business segments: Wholesale Banking Services: The Bank's target market ranges from large, blue-chip manufacturing companies in the Indian corporate to small & mid-sized corporates and agri-based businesses. For these customers, the Bank provides a wide range of commercial and transactional banking services, including working capital finance, trade services, transactional services, cash management, etc. The bank is also a leading provider of structured solutions, which combine cash management services with vendor and distributor finance for facilitating superior supply chain management for its corporate customers.

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Based on its superior product delivery / service levels and strong customer orientation, the Bank has made significant inroads into the banking consortia of a number of leading Indian corporates including multinationals, companies from the domestic business houses and prime public sector companies. It is recognised as a leading provider of cash management and transactional banking solutions to corporate customers, mutual funds, stock exchange members and banks. Retail Banking Services: The objective of the Retail Bank is to provide its target market customers a full range of financial products and banking services, giving the customer a one-stop window for all his/her banking requirements. The products are backed by world-class service and delivered to customers through the growing branch network, as well as through alternative delivery channels like ATMs, Phone Banking, NetBanking and Mobile Banking. The HDFC Bank Preferred program for high net worth individuals, the HDFC Bank Plus and the Investment Advisory Services programs have been designed keeping in mind needs of customers who seek distinct financial solutions, information and advice on various investment avenues. The Bank also has a wide array of retail loan products including Auto Loans, Loans against marketable securities, Personal Loans and Loans for Two-wheelers. It is also a leading provider of Depository Participant (DP) services for retail customers, providing customers the facility to hold their investments in electronic form. HDFC Bank was the first bank in India to launch an International Debit Card in association with VISA (VISA Electron) and issues the Mastercard Maestro debit card as well. The Bank launched its credit card business in late 2001. By March 2009, the bank had a total card base (debit and credit cards) of over 13 million. The Bank is also one of the leading players in the merchant acquiring business with over 70,000 Point-of-sale (POS) terminals for debit / credit cards acceptance at merchant establishments. The Bank is well positioned as a leader in various net based B2C opportunities including a wide range of internet banking services for Fixed Deposits, Loans, Bill Payments, etc.

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Treasury Within this business, the bank has three main product areas - Foreign Exchange and Derivatives, Local Currency Money Market & Debt Securities, and Equities. With the liberalisation of the financial markets in India, corporates need more sophisticated risk management information, advice and product structures. These and fine pricing on various treasury products are provided through the bank's Treasury team. To comply with statutory reserve requirements, the bank is required to hold 25% of its deposits in government securities. The Treasury business is responsible for managing the returns and market risk on this investment portfolio.

Management:
Mr. Jagdish Capoor took over as the bank's Chairman in July 2001. Prior to this, Mr. Capoor was a Deputy Governor of the Reserve Bank of India. The Managing Director, Mr. Aditya Puri, has been a professional banker for over 25 years, and before joining HDFC Bank in 1994 was heading Citibank's operations in Malaysia. The Bank's Board of Directors is composed of eminent individuals with a wealth of experience in public policy, administration, industry and commercial banking. Senior executives representing HDFC are also on the Board. Senior banking professionals with substantial experience in India and abroad head various businesses and functions and report to the Managing Director. Given the professional expertise of the management team and the overall focus on recruiting and retaining the best talent in the industry, the bank believes that its people are a significant competitive strength.

SBI :
State Bank of India (SBI) is the largest bank in India. It is also, measured by the number of branch offices and employees, the largest bank in the world. Established in 1806 as Bank of Bengal, it remains the oldest commercial bank in the Indian Subcontinent and also the most successful one providing various domestic, international and NRI products and services, through its vast network in India and overseas. With an asset base of $126 billion and its reach, it is a regional banking behemoth. The bank was nationalized in 1955 with the Reserve Bank of India

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having a 60% stake. It has laid emphasis on reducing the huge manpower through Golden handshake schemes and computerizing its operations. State Bank of India has often acted as guarantor to the Indian Government, most notably during Chandra Shekhar's tenure as Prime Minister of India. With more than 9400 branches and a further 4000+ associate bank branches, the SBI has extensive coverage. State Bank of India has electronically networked most of its metropolitan, urban and semi-urban branches under Core Banking System(CBS). The bank has the largest ATM network in the country having more than 5600 in number . The State Bank of India has had steady growth over its history, though it was marred by the Harshad Mehta scam in 1992.Following its arch-rival ICICI Bank, the bank has started Core banking process by which more than 4400+ branched have been completed so far. In recent years, the bank has sought to expand its overseas operations by buying foreign banks. It is the only Indian bank to feature in the top 100 world banks in the Fortune Global 500 rating and various other rankings. According to the Forbes 2000 listing it tops all Indian companies. Group companies SBI Capital Markets Ltd SBI Mutual Fund (A Trust) SBI Factors and Commercial Services Ltd SBI DFHI Ltd SBI Cards and Payment Services Pvt Ltd SBI Life Insurance Co. Ltd - Bancassurance (Life Insurance) SBI Funds Management Pvt Ltd

According to PM Network, State Bank of India launched a project in 2002 to network more than 14,000 domestic and 70 foreign offices and branches. The first and the second phases of the project have already been completed and the third phase is still in progress. As of December 2006, over 10,000 branches have been covered.The new infrastructure serves as the bank's backbone, carrying all applications, such as the IP telephone network, ATM network, Internet banking and internal e-mail. The new infrastructure has enabled the bank to further grow itsATM network with plans to add another 3,000 by the end of 2008 raising the total number to 8,600.

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CHAPTER-5

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MAJOR FINDINGS
Major Macro Economic Factors include Gross Domestic Product which has grown by over 8% in 2005-06, FDI Confidence Index where India stands II in the world, Inflation which has slow down due to falling crude prices, Gross Fiscal Deficit Interest Rate the UPA government is confident to achieve the budgeted targets, Rising Oil prices & Exchange Rate Indian government and oil companies are relax as oil prices have fallen beside Indian Rupee has strengthen against USD, EURO and Yen and Capital Market the year is booming for market with FII and mutual fund are pumping money increasing BSE Sensex returns over 50%. In June 2006, Indian Banking System is spread through 66000 branches with an asset base of about $270 billion. There are 87 Scheduled Commercial Banks operating in India including 8 Bank of SBI & Associates, 20 Nationalized Banks, 29 Private Banks and 30 Foreign Banks. In terms of asset size, public sector banks have highest base compared to private and foreign banks. SBI & Associated have asset base of Rs.691872 cr. Bank group-wise, new private sector banks grew at the highest rate during 2005-06 (43.2 per cent), followed by foreign banks (31.2 per cent), public sector banks (13.6 per cent) and old private sector banks (12.2 per cent). As a result, the relative significance of PSBs declined significantly with their share in total assets of SCBs declining to 72.3 per cent at end-March 2006 from 75.3 per cent at end-March 2005, while that of new private sector banks increasing to 15.1 per cent from 12.5 per cent. Credit to the priority sector increased by 33.7 per cent in 2005-06 as against 40.3 per cent in the previous year. The agriculture and housing sectors were the major beneficiaries, which together accounted for more than two-third of incremental priority sector lending in 2005-06. Credit to small scale industries also accelerated. Retail loans, which witnessed a growth of over 40.0 per cent in 2004-05 and again in 2005-06, have been the prime driver of the credit growth in recent years. Retail loans as a percentage of gross advances increased from 22.0 per cent in March 2004 to 25.5 per cent in March 2006.

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ICICI Bank is the leading market player with change in loans market share in FY02-06 of over 5% and change in deposits market share in FY 02-06 is nearby 2.5%. HDFC Bank and UTI Bank are also in high growth phase. The laggards are SBI Bank, Bank of Baroda Bank, Bank of India and Punjab National Bank.

Micro-Economic Factors affecting Banking Industry: Some of Micro-Economic factors identified in the report are: Loan Demand in which the Indian Banking Industry has seen sustained strength in credit growth (a 30% increase in Oct 2006, of which 58% growth has seen in service sector and 100% in real estate sector). Rising funding costs with soft lending rates Deposits has seen a growth of 22% of which household savings contribute to 43%, credit spread increase to 3.3% and Yield on government bonds reduced to 7.75% due to rising interest cost Non Performing Loans (NPLs) - The Total bank loans stood at Rs 15,231.7bn, of which housing loans are Rs. 1719.2bn. However, the Industrys share of total credit has dropped to 40% Technology - Indian banks still dont have the robust systems required for efficient functioning of online banking and Banks need to explore newer channels such as SMS, WAP and 3G mobile telephony applications to facilitate online access to customers.

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CHAPTER-6

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CONCLUSION
The project involves valuation of major Indian Banks including ICICI Bank, SBI and HDFC Bank. The methodology followed is Target Pricing, which including estimating growth rate by regression on historical sales to forecast next year sales, earning and Profit and Loss account. Then EPS is calculated which is multiplied to Historical P/E to forecast intrinsic value of share. All shares are undervalued and expected to give positive risk adjusted returns to investors. Since the intrinsic value is more than current market price for all the companies, the share can be recommended to conservative investors.

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BIBLIOGRAPHY
Company Reports Government of India, 1998, Report of the Committee on Banking Sector Reforms Government of India, 1991, Report of the Committee on the Financial System IMF Working Paper - Competition in Indian Banking by A. Prasad and Saibal Ghosh Indian Banks Association, Various Years, Performance Highlights of Banks (Mumbai). Indian Banking Association Ministry of commerce and Industry Reserve Bank of India, 2008, Annual Policy Statement for the year 2007-08 (Mumbai). Reserve Bank of India (a), Various Years, Report on Trend and Progress of Banking in India (Mumbai). Reserve Bank of India (b), Various Years, (Mumbai).

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