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Project On Indian Banking System
Project On Indian Banking System
0
A
PROJECT REPORT
ON
COMPREHENSIVE STUDY
OF
INDIAN BANKING SYSTEM
SUBMITTED TO:
SUBMITTED BY:
THE CANTROLLER OF EXAM
KAUSHIK
BAJRANG
M.D.U., ROHTAK
(FINAL)
MBA
ACKNOWLEDGEMENT
I would take this opportunity to thank Mrs. Bhawana Sharma, Faculty, D.A.V. Institute of
Management, Faridabad 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.
Bajrang Kaushik
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 Bajrang Kaushik The student of MBA 3rd Sem. hereby declare that the
project work in my own work and has been carried out under the guidance of Mrs. Bhawana
Sharma Faculty Member of DAV Institute of
(Haryana). This Report has been submitted to M.D. University for Evaluation.
Date:
Place:
Bajrang Kaushik
Table of contents
Indian
Particulars
S. No.
1.
EXECUTIVE SUMMERY
2.
INTRODUCTION:
Banking SystemPages
201
0
07-08
09-19
REVIEW OF LITERATURE
OBJECTIVES OF THE STUDY
SIGNIFICANCE OF THE STUDY
CONCEPTULIZATION
FOCUS OF THE PROBLEM
3.
RESEARCH METHODOLOGY:
20-24
RESEARCH DESIGN
SAMPLING: DESIGN AND PROCEDURE
4.
INDIAN ECONOMY:
25-31
SECTOR
5.
32-37
6.
38-41
CREDIT GROWTH
7.
42-48
LOAN DEMAND
RISING FUNDING
NON-PERFORMING LOANS
TECHNOLOGY
8.
VALUATION TOOLS:
49-57
EXECUTIVE
SUMMARY
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
INTRODUCTI
ON
10
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.
11
REVIEW OF LITERATURE
http://indiapost.com/article/techbiz/1038/
IA Bank ties up with SBI for money transfers
Sunday, 09.23.2007, 11:59pm (GMT-7)
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.
http://www.myiris.com/newsCentre/newsPopup.php?
fileR=20070925165003043&dir=2007/09/25&secID=livenews
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13
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.
14
15
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
16
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.
17
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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20
21
RESEARCH
METHODOLO
GY
RESEARCH METHODOLOGY
Problem Definition:
22
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.
RESEARCH DESIGN
23
Reserve Bank of India, 2005, Annual Policy Statement for the year 2005-06 (Mumbai).
Company Reports
24
Lack of time availability with the people involved in any manner with the research
especially when decisions were to be made quickly.
25
26
INDIAN
ECONOMY
27
of the manufacturing sector, which forms 80% of the IIP index lead to a blip in its robust
growth trend for the past 9 months. Both mining and electricity grew faster than last year
at 4% and 9.7% Vs 0.1% and 7.7% respectively
WPI (Wholesale Price Index) rose to 5.43% for the week ending December 16; higher
inflation in primary commodities remains. The inflation in the coming weeks may remain
high due to lower base effect.
CRR (Cash Reserve Ratio) hike of 50 bps to absorb Rs.135bn from the system. The CRR
rate hike of 50bps came as a surprise but it reflects that RBIs intention of controlling
credit off-take and liquidity management by raising repo and reverse repo rate could not
achieve the desired results due to which RBI used CRR rate hike a new instrument to
control liquidity
Exports growth back on track in November 2006. On the basis of the BoP, in H1FY06
exports grew at 23%, imports at 25.3% resulting in the trade balance of US$35bn. Net
invisibles grew by 17.6% to US$23.5bn and capital inflows (in the form of FDI, NRI
deposits and ECB) at US$20.3bn (a yoy growth of 49%) brought the balance of payment
to US$8.6bn, (a yoy growth of 33%).
Rupee appreciates further against dollar and yen but continues to depreciate against Euro
and pound on an YTD basis as on December 2006. In real terms, from April 2006 to
October 2006, the rupee appreciated by 1.8% vis--vis a basket of six currencies.
28
Source: www.rbi.org.in
In FY 06-07, services sector account for major 55% of India GDP followed by 25% in Industrial
sector and 20% in agriculture sector.
FY07 Vs Q2FY06, the growth rate in GDP components are as follows:
29
3. Inflation:
Inflation remained largely benevolent due to investment driven nature of growth and
subsidized nature of oil prices as pass-on of international crude price rise remained
incomplete in India. WPI Inflation has risen to 5.45% for the week ended November 18,
2006 after remaining in the range of 4.0-5.0% earlier. RBI has repeatedly cautioned that
maintaining inflation in the target range may call for substantial monetary tightening should
crude prices persist at high level. The money supply has grown by 18.7% yoy till November
30
The gross fiscal deficit (GFD) to GDP ratio for 2005-06 was at 4.1 per cent as against the
budget estimate of 4.3 per cent. Fiscal and revenue deficit for April-November 2006 widened
to 72.8% of BE and 99.7% of BE Vs 74.7% of BE and 91.5% of BE respectively in AprilNovember 2005. The current levels are much higher than the last months fiscal deficit of
58.6% of BE and revenue deficit of79.4% of BE. The improvement in the GFD was
facilitated by a decline in capital outlay and the availability of disinvestment proceeds. The
revenue deficit, though lower in absolute terms, remained at budgeted level of 2.7 per cent of
GDP in 2005-06.
31
5. Interest Rate:
The yield on dated government securities (G-Sec) has been moving up since the
beginning of FY05. The yield on 10 year paper began during Q1 to close the quarter at
8.12%. During July 06, it continue to move up to 8.42% but reacted sharply thereafter to
once again come down to 7.4% at present as the market participants believed that US Fed
and other central banks worldwide would not only pause rate hikes but soon get into rate the
current fiscal at 7.50% but
Source: RBI
Real interest rate indicated by spread between inflation and 10 year benchmark yield has trended
in the range of 2-4%. The real interest rate in developed economies is normally in the range of 232
World over, the central bankers led by US Federal Reserves embarked on withdrawal of
monetary accommodation through a series of rate hikes as the rising oil and asset prices
threatened the global economies with inflationary pressures. The US Fed, which embarked
on an aggressive rate hike campaign through 17 consecutive rate hikes of the magnitude of
25 bps, several economies including Euro-zone and Japan hiked their key policy rates. In
response to the same, RBI has hiked the key policy Repo and Reverse Repo rates five times
over the past two years. This has led to a significant hardening of interest rates over the past
4-5 quarters, which has adversely impacted the cost of funds for banks.
7. Capital Market:
Financial markets in India and globally have seen little volatility over the last few Years.
There have been only two spikes in India in April 2004 when the UPA government came to
power and in May 2006. In India, stock markets will be the most impacted by negative news
flows as other areas where shocks can be absorbed such as the currency, interest rate and
corporate bond markets are not free or well developed. The Capital Market has seen balance
sheet value being unlocked through monetization of embedded assets, demergers, IPOs, etc.
Indian companies continue to build value in the balance sheet as newer opportunities emerge
through smart capex, inorganic growth and extracting value thru the revenue statement.
33
INDIAN
BANKING
INDUSTRY
34
Role of Bank
35
Channel
household savings
Risk
Transformation
Service
Provider
The nationalization of banks was the culmination of pressures to use the banks as public
instruments of development. The GoI imposed `social control on banks. However, by the 1980s,
it was generally perceived that the operational efficiency of banks was declining. Banks were
characterized by low profitability, high and growing non-performing assets (NPAs), and low
capital base. Average returns on assets were only around 0.15% in the second half of the 1980s,
and capital aggregated an estimated 1.5% of assets. Poor internal controls and the lack of proper
disclosure norms led to many problems being kept under cover. The quality of customer service
did not keep pace with the increasing expectations. In 1991, a fresh era in Indian banking began,
with the introduction of banking sector reforms as part of the overall economic liberalization in
India.
37
Weaknesses:
Continued crowding out effect from govt budget deficit, combined with accelerating
private sector credit demands
Ownership restrictions
Constraints on state-owned banks' micro reforms, including HR, staff cut, branch cut
constraints
38
Threats:
"Running on empty" in terms of liquidity
Tightening in global liquidity may trickle down to India
Potentially hawkish RBI stance on inflation/monetary policy
Potential rise in long bond \ yields, MTM risk for banks
Potential for valuation pullback, should earnings delivery disappoint expectations
39
STRUCTURE
Of
40
banking
STRUCTURE OF THE BANKING SECTOR
The banking sector in India functions under the umbrella of the RBIthe regulatory, central
bank. The Reserve Bank of India Act was passed in 1934 and the RBI was constituted in 1935 as
the apex bank. The Banking Regulations Act was passed in 1949. This Act brought the RBI
under government control. Under the Act, the RBI received wide-ranging powers in regards to
establishment of new banks, mergers and amalgamations of banks, opening and closing of
branches of banks, maintaining certain standards of banking business, inspection of banks, etc.
The Act also vested licensing powers and the authority to conduct inspections with the RBI.
Banks in India can broadly be classified as regional rural banks or RRBs, scheduled commercial
banks or SCBs, and co-operative banks. The scope of the report includes the SCBs only3.
The SCBs for the purpose of this comment can be classified into the following three categories:
Public sector banks or PSBs (SBI & its associates, and nationalized banks);
Private sector banks (old and new); and
Foreign banks
41
29
20
Priva te Ba nks
Foreign Ba nks
Category of Banks
Source: IBA
565
201
198
Priva te Ba nks
Foreign Banks
Category of Banks
Source : IBA
In terms of asset size, among Foreign banks Citibank, HSBC and Standard Chartered bank are
leaders with asset base of Rs.45437 cr, Rs.37473 cr and Rs.48412 cr. Resp. in FY 05-06. Among
private sector banks, ICICI Bank is the leader with asset base of Rs.251389 cr followed by
HDFC Bank of size Rs.73506 cr and UTI Bank of size Rs.49731 cr. In terms of asset size,
public sector banks have highest base compared to private and foreign banks. SBI & Associated
42
Credit Growth
The bank lending has expanded in a number of emerging market economies, especially in Asia
and Latin America, in recent years. Bank credit to the private sector, in real terms, was rising at a
rate between 10 and 40 per cent in a number of countries by 2005 (BIS, 2006). Several factors
have contributed to the significant rise in bank lending in emerging economies such as strong
growth, excess liquidity in banking systems reflecting easier global and domestic monetary
conditions, and substantial bank restructuring.
The recent surge in bank lending has been associated with important changes on the asset side of
banks balance sheet. First, credit to the business sector - historically the most important
component of banks assets has been weak, while the share of the household sector has
increased sharply in several countries. Second, banks investments in Government securities
increased sharply until 2004-05. As a result, commercial banks continue to hold a very large part
of their domestic assets in the form of Government securities - a process that seems to have
begun in the mid-1990s
43
44
MICRO
FACTORS
45
Source: RBI
The slowdown of the mid-1990s hit the banks very hard because corporate, which accounted for
a lions share of bank credit, went into a less profitable and hence a financial restructuring mode.
There was no retail credit then, banks did not focus on Small and Medium Enterprises and farm
lending was done grudgingly, under compulsion. Along with the diversification of the pie that
46
Loan growth-NPL
48
49
Technology:
50
51
VALUATION
TOOLS
ICICI Bank:
52
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
the facility to invest their account surpluses in the liquid fund schemes of Prudential
ICICI Asset Management Company and GIC Mutual Fund.
53
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).
54
55
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.
56
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
57
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.
58
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
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 [1]. 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)
59
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 its
ATM network with plans to add another 3,000 by the end of 2008 raising the total number to
8,600.
60
MAJOR
FINDINGS
61
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
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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.
conclusion
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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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BIBLIOGRAPH
Y
66
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).
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