Axis Bank and Bank of Rajasthan Comparative Analysis of Financial Performance Group1 , Section 2

Macro Overview
Indian Economy Banking Industry

The Indian Growth Story
India, an emerging economy, has witnessed unprecedented levels of economic expansion, along with countries like China, Russia, Mexico and Brazil. India, being a cost effective and labor intensive economy, has benefited immensely from outsourcing of work from developed countries, and a strong manufacturing and export oriented industrial framework. With the economic pace picking up, global commodity prices have staged a comeback from their lows and global trade has also seen healthy growth over the last two years. The Indian economy registered a growth of 7.4 per cent in 2009-10, with 8.6 per cent year-on-year (y-o-y) growth in its fourth quarter. The growth is driven by robust performance of the manufacturing sector on the back of government and consumer spending. GDP growth rate of 7.4 per cent in 200910. The first quarter of FY2011 has also seen robust performance from India and the IMF has revised its growth estimate for India to 9.4% growth in GDP for FY2011.

India from a Banking Perspective
‡ A well developed market for financial products. ‡ Great Financial breadth and depth across financial products
Robust Financial Infrastructure

‡ NBFC·s, co-operative banks, primary agricultural societies etc., are spread across the country to meet local needs

Tremendous growth opportunities at the bottom of the pyramid

‡ A good mix of public and private sector banks provides stability and growth to the economy
A balanced mix of Public and Private Sector Banks

Indian Banking Framework

Large Talent pool working in the banking industry

‡ ‡

A robust regulatory framework primarily monitored by the Reserve Bank of India Sup Prime performance stood testament to the efficacy of the regulations

Well defined Regulatory framework


The Indian Banking Sector
Globalisation and liberalisation of the Indian economy, and the interest of foreign banks to expand their presence in India through the inorganic route, have fuelled the growth of the banking industry. India has a well-balanced mix of public and private sector banks. While public sector banks provide stability to the banking system in the country, private sector banks add the necessary dynamism to it. The banking system in India is dominated by Scheduled Commercial Banks (SCBs) with a pan-India presence. As of March 2009, SCBs controlled most of the assets, with the rest being controlled by a large number of small co-operative credit institutions with a very limited geographic reach. Within SCBs, public sector banks accounted for 71.9 per cent of the assets and the rest was held by foreign banks and private sector banks. With an increasingly global footprint, the Indian banking industry has adopted certain global best practices such as International Financial Reporting Standards (IFRS) and Basel II. As of March 31, 2009, all commercial banks in India, excluding RRBs and local area banks, have become Basel II compliant. India has now entered the era of online banking, e-commerce and m-commerce, which makes banking simple. Also, the use of ATMs and credit cards has increased tremendously in the last few years. There has been a major change in the products offered by banks, from a few standard credit and deposit products to a number of customised offerings to suit the requirements of various categories of customers. Also, with a network of around 70,000 branches, of which around 46,000 are in rural and semi-urban areas, microfinance has emerged as one of the most promising areas for commercial banks.

Structure of Indian Banking System

Reserve Bank of India


Non- Banking Financial Institutions

Scheduled Commercial banks

Co-operative Institutions

All India Financial Institutions

State Level Institutions

Other Institutions

Public Sector 27

Private Sector 22

Foreign Banks 31

Regional Rural banks 84

Urban Cooperative Banks 1,721

Rural Cooperative Credit Institutions 96,601

Banking Industry
‡ Total Business has been growing at a phenomenal rate of over 18 percent in the last 6 years. ‡ Non Performing Assets have been decreasing continuously over a period of time ‡ Public Sector Banks enjoy majority of the Market Share Chunk ‡ Private and Foreign Banks are steadily emerging ‡ Progressive steps to liberalize the sector being initiated by the Government would help Private and Foreign Banks

Source: ³Report on trend and progress of banking in India 2008±09´, RBI website,, accessed on January 12, 2010, NPA ²Non-performing assets, RoA ²Return on assets

Growth Drivers
Overall Banking Sector
‡Government focus on expanding the coverage of financial services ‡Favorable demographics

Retail Banking (penetration level stands at 59%)
‡Universal banking ‡Technology into banking ‡Broad portfolio of financial products

Corporate banking
‡ Rapid growth of SME sector ‡Rapid growth of M&A activity in the country ‡Extension of special services such as Merchant Banking and Demat services ‡Growth in NRI transfers

Regulatory Framework
‡Robust regulatory framework has augmented investor confidence leading to FDI and FII ‡Conducive banking environment with well-capitalised banks ‡All commercial banks in India, excluding RRBs and local area banks, have become Basel II compliant

Company Analysis

Axis Bank
Brief History

Global Presence
‡Axis Bank currently has global footprint in four countries i.e. Singapore, Hong Kong, Dubai and Shanghai. ‡ Seeking expansion in South Asia by opening a branch ‡A market leader in the foreign currency travel card segment and has generated a sales volume of USD 285.33 million in FY08 on such cards.

Axis Bank Ltd was incorporated in the year 1993 as µUTI Bank
Ltd¶ which provided corporate and retail banking products It was the first private banks to have begun operations in 1994, after the Government of India allowed new private banks to be established.

‡ At present the bank is the third largest private sector bank having a Pan India network comprising of 1021 branch offices and extension counters and 3174 ATMs across 433 centres servicing over 10 million customers. AXIS Bank Limited is an India-based bank. The Bank operates in four segments: 1. Treasury 2. retail banking 3. corporate/wholesale banking 4. other banking business.


Source: Annual report Axis bank 2010

Key Milestones achieved - Axis Bank
‡ The

3rd largest private sector bank with a Pan India network comprising of 713 branch offices and extension counters and 2904 ATMs across 433 centres servicing over 10 million customers.

‡ Aggressive branch and ATM expansion to 1021 branches and 3714 ATMs by FY10E in upcoming tier II and Tier III cities ‡ Expanding global reach by way of setting up 3 branch offices in Singapore, Dubai and Hong Kong and 2 representative offices in Shanghai and Dubai recently. ‡ One of India¶s fastest growing private commercial bank with its net income by 2514 cores

Source: 21-258414-280708.pdf & Axis Bank Website

Rajasthan Bank
Brief History
‡ ‡ ‡ ‡ ‡ ‡ ‡ It was set up at Udaipur in 1943 with an initial capital of Rs.10.00 lacs. An eminent Industrialist Late Seth Shri Govind Ram Seksaria was the founder Chairman. It was classified as the Scheduled Bank in 1948. The Bank also established a rural (Gramin) bank Mewar Anchlik Garmin Bank in Udaipur District in Rajasthan on. Presently the bank has 463 branches. The Bank operates in two segments: banking operations and treasury operations. The Bank is engaged in commercial banking, merchant banking, auxiliary services, consumer banking, international banking and priority sector banking. As of March 31, 2010, the Bank's network had 463 branches 28 (ATMs) and 99 onsite ATMs covering 22 states & 2 Union Territories

Global Presence
‡The Bank is handling Foreign Exchange business at its 22 branches. ‡The Bank has been continuously making arrangements with foreign banks for augmenting export /import business of its constituents. ‡As on 31st March 2010, there were 67 correspondent banking relationship in 70 countries. ‡Export credit outstanding was Rs. 145.53 crores as on 31st March 10,



Source: w/annual910.avsFiles/File/ann_rep.pdf

Key Milestones achieved± Bank Of Rajasthan
‡ The

Bank¶s advances to Priority Sector as on 31.03.2010 stood at Rs.2747.33 crores.

‡ The Bank has achieved an over all growth of 16.39% under the retail assets portfolio of Home Loan, Mortgage Loan, Vehicle Loan and Personal Loan products in the current FY as compared to 3.22% growth achieved in the last FY ‡The growth over the past 5 decades has been good in terms of advances, deposits, capital, and no of branches.


Bank of Rajasthan: The Proposed Merger
Running into trouble
‡ The bank came under the scanner of RBI for irregularities in transactions and misrepresentation of documents, norms pertaining to anti-money laundering, Know Your Customer and irregularities in the conduct of accounts of a corporate group. The Reserve Bank also appointed Deloitte Haskins and Sells to conduct a special audit of the bank, which recently submitted its interim report to the Reserve Bank. In March, SEBI banned 100 entities, including Tayal Group firms, from all stock market-related activities for fraudulently hiking the promoter holding in the bank, while conveying the impression that they were reducing their shareholding. The promoter group, Tayal family has about 55 per cent stake and it needs to bring it down to 10 per cent to meet RBI guidelines

‡ ‡



In order to take care of the irregularities in the equity holding pattern of the promoter group an amalgamation agreement was reached with ICICI bank on 19th May, 2010.


Quantitative Analysis

Quantitative Analysis
Performance of the two banks on the basis of:
Net Interest Income ‡The NII for Axis bank has shown a steady increase in the last 5 years whereas the same for BOR has decreased over the last fiscal. ‡The NII for the year 2009-10 was Rs 11638cr for axis bank while it was 1360 cr for BOR. Total Income ‡The total income has followed a similar rising trend in the case of Axis bank while it has decreased over the last year for BOR Net Profit ‡ Net Profit grew at an average rate of 50% in the case of Axis bank to reach 2514 cr in the 2009-10. Incase of BOR, the net profit stagnated for 3 years and then reported losses to the tune of 102 cr in 2009-10 Cash reserves ‡ The cash reserves have been steadily increasing in the case of axis bank to reach 15639 cr in the last fiscal year. Due to this, axis bank has enough cash reserves for many small ticket acquisitions. ‡ Since, Axis bank has transformed from growth stage to mature stage the excess retained earnings is being given out as dividends to the investors on a regular basis.

Source: (in cr)

Quantitative Analysis (contd)
‡As can be seen from the charts, dividend payments have increased at a rapid rate in the case of Axis bank while in the case of BOR, there is a dip in the dividends given out. ‡Because of the sustained growth in retained earnings, the book value also has increased considerably in the case of Axis bank. ‡Similarly, the EPS has shown a robust growth in the last years. In case of BOR, there was a net loss in the last fiscal.


Ratio Analysis
Liquidity Ratios ‡ Current ratio and quick ratio are the two important ratios used to measure the liquidity levels of the companies. ‡ Incase of banks the current ratio is generally low since, the amount of liabilities that a bank has in comparison to the assets are really high. Quick ratio measures the most liquid current assets of a firm. This is generally needed in worst-case scenario when inventory cannot be sold. It should be at least 1 and the higher the better CAR ± capital adequacy ratio: this gives the minimum amount of capital that a bank has to maintain in order to protect the depositors and promote the stability of the bank. Consists of Tier 1 and tier 2 capital to protect the depositors in case of losses. The debt service % gives us the percentage of income foregone for payment of interest on Debt.

Quick ratio Axis bank BOR






6.52 8.05

7.39 8.34

9.23 9.6

9.52 8.8

19.19 7.5


CAR(%) Axis bank BOR






11.08 10.6

11.57 11.32

13.73 11.87

13.69 11.5

15.8 7.52

‡ ‡

Debt Service(% ) Axis bank BOR

‡ ‡

50 57

55 52

51 66

53 68

43 71

Ratio Analysis
Debt Ratios ‡ This is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed.
Debt to equity(%) Axis bank BOR 2006 2007 2008 2009 2010

Cash Flow Indicator Ratios ‡ Dividend payout ratio indicates the amount of dividend that is paid from the amount earned per share.
Dividend payout(%) Axis bank BOR 2006 2007 2008 2009 2010

23.2 20.1

22.57 22.76

23.47 6.82

23.16 3.2

22.56 -

0.04 8.81

0.03 11.49

0.03 9.99

0.03 17.28

0.03 13.97

Operating performance ratios
‡ This ratio is a rough measure of the productivity of a company's fixed assets (property, plant and equipment or PP&E) with respect to generating sales.
Asset turnover ratio(%) Axis bank BOR 2006 2007 2008 2009 2010

Investment valuation ratios ‡ Net operating income per share gives the amount of operating income that the firm earns for every share.
Net operating income Axis bank BOR 2006 2007 2008 2009 2010

128.98 51.33

193.93 77.78

244.63 82.57

377.46 380.27 90.34 88.57

7.31 2.21

7.78 2.29

6.32 1.78

4.97 3.68

4.0 2.6

Ratio Analysis
Profitability ratios
‡ ROA, ROE and Net profit margins are the most used ratios to measure the profitability of a firm. ROA ratio illustrates how well management is employing the company's total assets to make a profit. ROE measures how much the shareholders earned for their investment in the company. Net margin analysis detects consistency or positive/negative trends in a company's earnings.
ROE(%) Axis bank BOR ROA(%) Axis bank BOR 2006 2007 2008 2009 2010

18.44 7.88

21.84 12.56

16.09 16.67



15.23 -18.86
2009 2010


1.18 1.18

1.10 1.10

1.24 1.24

1.44 0.74

1.67 0.58


NPM(%) Axis bank BOR


13.47 2.59

12.01 12.56

12.22 9.75

13.31 7.81

16.1 -6.85

Links Referred

Capital structure and payout policy
Capital structure: ‡ Axis bank is promoted by a consortium of UTI, LIC, GIC and 4 other public sector insurance companies. ‡ The share capital of the bank increased from 359cr in 2009 to 407cr in 2010. ‡ No further equity dilution is expected for the next 2-3 years. ‡ BOR had a issued share capital of 161.5cr in 2009 but in May 2009 its board of directors approved the Scheme of Amalgamation of The Bank of Rajasthan Limited with ICICI Bank Limited. The swap ratio was fixed at 1:4.72. Pay out policy: ‡ As shown in the earlier graphs, Axis bank has consistently increased the amount of dividend given per share owing to the its stupendous performance. ‡ On the other hand BOR ran into losses in the FY2010 and hence did not pay out any dividends though it had been paying regularly in the earlier years.

Source: Annual reports of axis bank and bank of rajasthan for FY 2010 and 2009 respectively

Thank You!
Abhimanyu - FT11203, Nitin Pahuja - FT11242, Akshay Srikanth ± FT11205, Rakesh Mamdapur ± FT11253 and Shwetha Panyam - FT11279

Appendix 1
Public sector banks Allahabad Bank Andhra Bank Bank of Baroda Bank of India Private banks Axis Bank Bank of Rajasthan Catholic Syrian Bank City Union Bank Development Credit Bank of Maharashtra Bank Canara Bank Dhanalakshmi Bank Central Bank of India Federal Bank Corporation Bank HDFC Bank Dena Bank ICICI Bank IDBI Bank Ltd IndusInd Bank Indian Bank ING Vysya Bank Jammu & Kashmir Indian Overseas bank Bank Punjab & Sindh Bank Karur Vysya Bank Punjab National Bank Kotak Mahindra Bank State Bank of India Lakshmi Vilas Bank State Bank of Bikaner & Jaipur Nainital Bank State Bank of Hyderabad Ratnakar Bank State Bank of Indore SBI Comm& Intl Bank State Bank of Mysore South Indian Bank Foreign banks The Royal Bank of Scotland Abu Dhabi Commercial Bank American Express Banking Corporation Antwerp Diamond Bank AB Bank Bank International Indonesia Bank of America Bank of Bahrain & Kuwait Bank of Ceylon Bank of Nova Scotia Bank of Tokyo Mitsubishi UFJ Barclays Bank Calyon Bank Chinatrust Commercial Bank Citibank DBS Bank Deutsche Bank Hongkong & Shanghai Banking Corpn JP Morgan Chase Bank


Appendix 1 Contd

Public sector banks Private banks State Bank of Patiala State Bank of Travancore Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank

Foreign banks

Tamil Nadu Mercantile Bank JSC VTB Bank Yes Bank Krung Thai Bank Mashreq Bank Mizuho Corporate Bank Oman International Bank Shinhan Bank Societe Generale Sonali Bank Standard Chartered Bank State Bank of Mauritius UBS AG


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