Specialization Project on

“EIC FRAMEWORK”

Submitted in Partial fulfilment for the award of the degree of Master of

Management Studies (MMS)
(Under University of Mumbai)

Submitted By
Alpa Kumar Raut
(Roll No. MMS 18-19/IV/F438)

Under the Guidance of

Mr. Sunil Parkar

(2017-19)

Parle Tilak Vidyalaya Association Institute of Management

Company Certificate
 CERTIFICATE

This is to certify the project titled “EIC Framework” is successfully completed by

Ms. Alpa Raut during the IV semester, in partial fulfilment of the Master’s Degree
in Management Studies recognised by the University of Mumbai for the academic
year 2018-19 through Parla Tilak Vidyalaya Association Institute of Management
This project work is original and not submitted earlier for the award of any degree/
diploma or associate ship of any University/Institution.

Name-
Date- (Signature of Guide)
 DECLARATION

I hereby declare that this project report submitted by me to the University of

Mumbai is a bonafide work undertaken by me and it is not submitted to any other
university or institution for the award of any degree diploma/certificate or published
any time before.

Name: Alpa Kumar Raut

Roll No: MMS/17-19/IV/F438 (Signature of Student)
 AKNOWLEDGEMENTS

I would like to express my gratitude to all those who made it possible for me to
complete this project. I want to express my sincere gratitude to my guide Mr. Sunil
Parkar for guiding me through the project.
 Table of Content

Sr. No. Title Page No.

1. Introduction 1

2. Executive Summary 4

3. Industry Analysis 7

4. Company Analysis 14

5. Literature Review 22

6. Objectives 23

7. Research Methodology 23

8. Analysis of Data 24

9. Limitation 29

10. Future Scope & Conclusion 29

11. References 30
 LIST OF TABLES

TABLES

Page
Table Number Particular
Number
Table No. 1 Credit Deposit Ratio 24
Table No. 2 Interest expense to total expense 25
Table No. 3 Interest income to total income 26
Table No.4 Other income to total income 27
Table No.5 Net profit margin 28
 INTRODUCTION
Equity Research primarily means analysing company’s financials, perform ratio analysis, forecast
the financials and explore scenarios with an objective of making BUY/SELL stock investment
recommendation.
Equity Research plays a very critical role that fills the information gap between the buyers and
sellers of shares. Reason is that at all levels (individual or institutional) may not have the resources
or the capabilities to analyse every stock. Additionally, full information is not provided by the
management due to which further in-efficiencies are created and stocks trade below or above the
fair value. Equity Research analysts spend lot of time, energy and expertise to analyse stocks,
follow news, talking to the management and provide an estimate of stock valuations. Also, equity
research tries to identify the value of stocks out of the massive ocean of stocks and help the buyers
to generate profits.

Fundamental Analysis

Fundamental analysis is the study of the various factors that affect a company's earnings and
dividends. Fundamental analysis studies the relationship between a company's share price and the
various elements of its financial position and performance.

Fundamental analysis also involves a detailed examination of the company's competitors, the
industry or sector it is a member of and the broader economy. Fundamental analysis is forward
looking even though the data used is by and large historical.

The objective of fundamental analysis is to determine a company’s growth prospects. This intrinsic
value can be compared to the current value of the company as measured by the share price. If the
shares are trading at less than the intrinsic value then the shares may be seen as good value. Many
people use fundamental analysis to select a company to invest in, and technical analysis to help
make their buy and sell decisions.

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There are some basic questions that are worth considering as a starting point:

Where is the growth in the company coming from?

Is turnover keeping pace with the sector and with competitors?
What about the profit margin - is it growing
Will profits be sustainable over the long term?

Fundamental Analysis is based on the premise that, “in the long run true or fair value of an equity
share is equal to its intrinsic value”. The intrinsic value of a share is the present value of all
expected future earnings from that asset. Shares have indefinite life and the earnings are measured
in the form dividend, capital gain etc.

Fundamental Analysis involves in-depth analysis of all the factors which have an impact on the
earning and profitability of the company, which further impacts the fair price of the share. It
involves detailed study of economy wide, industry wide and company specific factors.

This gives rise to the E-I-C framework where E stands for Economy, I stands for Industry and C
stands for Company. This approach is also known as top down approach, wherein, a financial
analyst is first involved in making forecast for the economy. The industry forecasts are based on
the forecasts of the economy. Further a company’s forecast is based on both economy and industry
forecasts. In practice, Top down approach is widely used to perform Fundamental analysis.

Bottom up approach is the opposite of top down approach. In this method, a fundamental analyst
first studies and forecasts the prospects of the companies, then for the industries and in the last
forecast for the economy. The biggest drawback of this approach is involvement of inconsistent
assumptions. For example, forecast of economy is of no use if it is done after company forecasts
because ultimately it is expected cash inflows from the company’s share that will be used in finding
out the intrinsic value of a share.

Fundamental analysis considers both qualitative and quantitative dimensions of a business. While
financials will reveal history of the business and the financial readiness to grow in the future,
evaluating factors such as the economic conditions favorable to the business, the ability of the
management to identify and exploit opportunities, the operating efficiencies that the business

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possesses and the risks that may affect the plans and its ability to meet these contingencies, will
define the attractiveness of the business as an investment proposition. Accordingly, fundamental
analysis includes following:
Economic analysis
Industry analysis
Company analysis

SCOPE OF THE STUDY

The study is based on banking sector in India.

The study aims at having a brief understanding about the sector studied.

To study the financial performance of ICICI Bank and HDFC Bank.

To compare the financial performance of ICICI Bank and HDFC Bank.

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 EXECUTIVE SUMMARY
Fundamental analysis is the study of the various factors that affect a company's earnings and
dividends, the particular project deals with the fundamental analysis of banking sector. The project
is done based on the economy, industry and company framework known as EIC framework the
Indian economy has been analysed.
Industry overview of the banking sectors has been done based on the qualitative and quantitative
factors; qualitative includes company profile, SWOT analysis provided to understand the Indian
scenario of the particular sectors.
Company analysis of ICICI and HDFC Banks has been done on the basis of quantitative data
which includes various ratios. On the basis of the analysis, the stock which performs better in
banking sector will be concluded.

ECONOMIC ANALYSIS

India has emerged as the fastest growing major economy in the world as per the Central Statistics
Organization (CSO) and International Monetary Fund (IMF).
The improvement in India’s economic fundamentals has accelerated in the year 2015 with the
combined impact of strong government reforms, Reserve Bank of India's (RBI) inflation focus
supported by benign global commodity prices. India's consumer confidence index stood at 136 in
the fourth quarter of 2016, topping the global list of countries on the same parameter, as a result
of strong consumer sentiment, according to market research agency, Nielsen.
India has retained its position as the third largest startup base in the world with over 4,750
technology startups, with about 1,400 new start-ups, according to a report by NASSCOM.

India's labour force is expected to touch 160-170 million by 2020, based on rate of population
growth, increased labour force participation, and higher education enrolment, among other factors,
according to a study by ASSOCHAM and Thought Arbitrage Research Institute.
According to The World Bank, the Indian economy will likely grow at 7 per cent in 2016-17,
followed by further acceleration to 7.6 per cent in 2017-18 and 7.8 per cent in 2018-19.
Demonetization is expected to have a positive impact on the Indian economy, which will help
foster a clean and digitized economy in the long run, according to Ms. Kristalina Georgieva, Chief
Executive Officer, and The World Bank.

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India is expected to be the third largest consumer economy as its consumption may triple to US$
4 trillion by 2025, owing to shift in consumer behavior and expenditure pattern, according to a
Boston Consulting Group (BCG) report; and is estimated to surpass USA to become the second
largest economy in terms of purchasing power parity (PPP) by the year 2040, according to a report
by PricewaterhouseCoopers. Also, the Prime Minister, Mr. Narendra Modi has stated that India
has become the world's fastest growing large economy, and is expected to grow five-fold by 2040,
owing to a series of policy measures.
Economic analysis is the study of various economy wide factors influencing stock market, i.e.,
Gross Domestic Product (GDP), growth rate, inflation rate, interest rate, exchange rate, balance of
payment, fiscal deficit and budgetary provisions, infrastructure etc.

It is a useful tool to understand general direction of economy and deciding about the right time to
invest. Nowadays, even political stability is considered as an important ingredient for stable and
growing financial market. Similarly, issues such as corruption, law and order and economic
policies are of equal importance.

The Economic variables are:

Growth in GDP:

It is an important indicator of the health of the economy. Fundamental Analyst carefully studies
this variable to ascertain countries where investment can be made. Focus is on understanding the
trends of boom and recession in the economy as it has a huge impact on the stock markets.

Inflation:

The impact of inflation on our purchasing power. The real return from an asset drops and this
mounts a huge pressure on the investment in an economy. Investors tend to avoid that particular
country due to low product demand and lower corporate profitability to name a few.

Interest Rates:

Interest rate which symbolize the monetary policy of the Govt., are inversely related to stock
performance in an economy. This is so because; term structure of interest rate affects capital

5
investment and subsequently income level. If any economy follows the norm of tight monetary
policy, i.e., increases interest rate then it leads to higher cost of borrowing. This further lowers
investment and business expansion.

Foreign Trade:

The condition of foreign trade is reflected in the BOP (Balance of Payment) statement. It also
reflects the reserves of foreign exchange in the country which has a huge impact on the exchange
rate. For instance, current account deficit mounts pressure on exchange rate resulting in
deterioration of economy.

Employment rate:

Economists study employment rate to ascertain whether economy is operating at its full capacity.
In developed and developing countries, unemployment rate is measured as economic indicator
because high unemployment rate signals contraction in economy which adversely affects stock
performance.

Government Policies:

The monetary and fiscal policy of the government has a major bearing on the stock market
performance. Components such as foreign trade policy and tax structure directly impacts the
bottom line of the company’s balance sheet which is not good news for the equity shareholders in
particular. Tax policy also impacts the personal disposable income of an individual leaving very
less to invest. It has been seen time and again that industry conducive budget is always welcomed
by the stock markets in India.

Composition of GDP:

A fundamental analyst also studies the contribution of different sectors to GDP as it impacts the
performance of the economy. For instance, despite India being an agrarian economy, earns 50-
60% of its total GDP from service sector.

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 INDUSTRY ANALYSIS
Industry analysis is a type of investment research that begins by focusing on the status of an
industry or an industrial sector. A form of fundamental analysis involving the process of making
investment decisions based on the different stages an industry is at during a given point of time.
The type of position taken will depend on firm specific characteristics, as well as where the
industry is at in its life cycle.
The first major question concerning Industry Analysis is how to exactly define an industry,
although we already know what an industry stands for but defining a thick line between one
industry and the other is the most important requirement. Important factors are:

Nature and Type of Industry:

There are some important factors which determine the sensitivity of a firm's earnings to business
cycle changes. First off, we have sales or revenue. A firm selling necessity goods will not suffer
much loss in revenue in case of a downturn in the economy. For example, food industry,
pharmaceutical industry, etc. Similar is the case for an industry selling all those goods, the demand
for which is inelastic or relatively less elastic. For example, tobacco, alcohol industry (addiction,
habitual goods) or matchbox (low proportion of income spent).

Industry Life Cycles:

The Industry Life Cycle is similar to the concept of Product Life Cycle (PLC) given by Raymond
Vernon. This analysis suggests that a typical industry life cycle goes through four different stages:
a start-up stage (introduction), a consolidation stage (growth), a maturity stage (maturity), a
relative decline stage (decline). These stages are explained as follows:
The Start-up stage: It is the first stage, where the product or technology or the offering is
first introduced in the market. It is difficult to predict the movement of revenue at this
juncture, many firms turn out to be wildly successful, and others lack the drive and
ultimately sink. There is huge risk involved but what's absolutely plausible and sure to
happen is the rapid increase in profits or earnings of the firm since the demand for its
product (or offering) hasn't saturated yet.

Growth Stage: This is the stage where leaders begin to emerge. It becomes easier to predict
the market share since those who survived the first stage get settled down. The performance

7
 of the industry moves in tandem with the performance of the surviving candidates. The
industry still grows as the product penetrates the market.

Maturity Stage: The offering reaches its full potential in this stage as the product becomes
more standardized, and competition intensifies. This leads to narrower profit margins, and
further pressure on profits.

Decline Stage: The industry grows at a slower pace than the rest of the economy. There are
chances that the economy might even shrink. This shrinkage could be the result of
obsolescence, high competition from new products or low cost suppliers of existing
products.

INDUSTRY ANALYSIS OF BANKING SECTOR

Introduction:
As per the Reserve Bank of India (RBI), India’s banking sector is sufficiently capitalized and well-
regulated. The financial and economic conditions in the country are far superior to any other
country in the world. Credit, market and liquidity risk studies suggest that Indian banks are
generally resilient and have withstood the global downturn well.
Indian banking industry has recently witnessed the roll out of innovative banking models like
payments and small finance banks. RBI’s new measures may go a long way in helping the
restructuring of the domestic banking industry.
The digital payments system in India has evolved the most among 25 countries with India’s
Immediate Payment Service (IMPS) being the only system at level 5 in the Faster Payments
Innovation Index (FPII).
In August 2017, Global rating agency Moody's announced that its outlook for the Indian banking
system was stable. In November 2017, Global rating agency Moody's upgraded four Indian banks
from Baa3 to Baa2.
The banking sector as service sector, and as one of the components of financial system, plays an
important role in the performance of any economy. Banking institutions in our country have been

8
assigned a significant role in financing the process of planned economic growth. The efficiency
and competitiveness of banking system defines the strength of any economy. Indian economy is
not an exception to this and banking system in India also plays a vital role in the process of
economic growth and development.
The banking sector is the lifeline of any modern economy. It is one of the important financial
pillars of the financial system which plays a vital role in the success / fail of an economy. 'The
banking system is fuel injection system which spurs economic growth by mobilizing savings and
allocating them to high return investment. Research confirms that countries with a well-developed
banking system grow faster than those with a weaker one. The banking system reflects the
economic health of the country. The strength of the economy of any country basically hinges on
the strength and efficiency of the financial system, which, in turn, depends on a sound and solvent
banking system. A sound banking system efficiently deploys mobilized savings in productive
section and a solvent banking system ensures that the bank is capable of meeting its obligation to
the depositors. The banking sector is dominant in India as it accounts for more than half the assets
of the financial sector.
Market Size:
The Indian banking system consists of 27 public sector banks, 26 private sector banks, 46
foreign banks, 56 regional rural banks, 1,574 urban cooperative banks and 93,913 rural
cooperative banks, in addition to cooperative credit institutions. Public-sector banks control
more than 70 per cent of the banking system assets, thereby leaving a comparatively smaller
share for its private peers. Banks are also encouraging their customers to manage their finances
using mobile phones.
As the Reserve Bank of India (RBI) allows more features such as unlimited fund transfers
between wallets and bank accounts, mobile wallets are expected to become strong players in
the financial ecosystem.
The unorganized retail sector in India has huge untapped potential for adopting digital mode
of payments, as 63 per cent of the retailers are interested in using digital payments like mobile
and card payments, as per a report by Centre for Digital Financial Inclusion (CDFI).ICRA
estimates that credit growth in India’s banking sector would be at 7-8 per cent in FY 2017-18.

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Investments/developments:
Key investments and developments in India’s banking industry include:
The bank recapitalization plan by Government of India is expected to push credit growth in
the country to 15 per cent and as a result help the GDP grow by 7 per cent in FY19. ^
Public sector banks are lining up to raise funds via qualified institutional placements (QIP),
backed by better investor sentiment after the Government of India's bank recapitalization plan
and an upgrade in India's sovereign rating by Moody's Investor Service.
The RBI amends statutes thereby allowing lenders to invest in real estate investment trusts
(REITs) and infrastructure investment trusts (InvITs) not exceeding 10 per cent of the unit
capital of such instruments.

Government Initiatives:

A new portal named 'UdyamiMitra' has been launched by the Small Industries Development
Bank of India (SIDBI) with the aim of improving credit availability to Micro, Small and
Medium Enterprises' (MSMEs) in the country.
Mr Arun Jaitley, Minister of Finance, Government of India, introduced 'The Banking
Regulation (Amendment) Bill,2017', which will replace the Banking Regulation (Amendment)
Ordinance, 2017, to allow the Reserve Bank of India (RBI) to guide banks for resolving the
problems of stressed assets.
Under the Union Budget 2018-19, the government has allocated Rs 3 trillion (US$ 46.34
billion) towards the Mudra Scheme and Rs3,794crore (US$ 586.04 million) towards credit
support, capital and interest subsidy to MSMEs.

The government and the regulator have undertaken several measures to strengthen the Indian
banking sector.
A two-year plan to strengthen the public sector banks through reforms and capital infusion of
Rs2.11 lakh crore (US$ 32.5 billion), has been unveiled by the Government of India that will
enable these banks to play a much larger role in the financial system and give a boost to the
MSME sector. In this regard, the LokSabha has approved recapitalization bonds worth Rs

10
 80,000 crore (US$ 12.62 billion) for public sector banks, which will be accompanied by a
series of reforms, according to Mr Arun Jaitley, Minister of Finance, Government of India.
The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 Bill has been passed by
Rajya Sabha and is expected to strengthen the banking sector.

Road Ahead:
Enhanced spending on infrastructure, speedy implementation of projects and continuation of
reforms are expected to provide further impetus to growth. All these factors suggest that India’s
banking sector is also poised for robust growth as the rapidly growing business would turn to banks
for their credit needs.
Also, the advancements in technology have brought the mobile and internet banking services to
the fore. The banking sector is laying greater emphasis on providing improved services to their
clients and also upgrading their technology infrastructure, in order to enhance the customer’s
overall experience as well as give banks a competitive edge.
Many banks, including HDFC, ICICI and AXIS are exploring the option to launch contact-less
credit and debit cards in the market shortly. The cards, which use near field communication (NFC)
mechanism, will allow customers to transact without having to insert or swipe.

SWOT analysis of banking sector:

1. Strengths

Banking is as old as Human race: Banking industry is the driving force to any nation. It helps in
shaping the life of human race may be some time merely by Exchange (which was called barter
system), or by transaction or by facilitating advances.

Source of employment & GDP growth: There is a consensus among economists that development
of the financial system contributes to economic growth. Financial development creates enabling
conditions for growth through either a supply-leading (financial development spurs growth) or a
demand-following. It is this industry which continuously works to secure financial stability,
facilitate international trade, promote employment, & reduce poverty around the world.

11
Hedge from risk: Whether it is natural calamity or man-made calamity banks mitigate the after
effect of the destruction by providing financial support to the victims to stand –up & lead a peaceful
life again.

Diversified services: Banking industry offer services from CASA to insurance, to loan, to
investment.

Connecting People: With the advent of new age technological advancement Banks have made the
life of the common man easier. People can transact on real time basis in many places.

Changing from mere savings & loan facilitator role: Top priorities of banks now days include
regulatory compliance, improving asset quality, enhancing customer centricity, focusing on digital
convergence, and tackling competition from non-banks. Banks are therefore making business and
technology investments to change their business models.

2. Weaknesses

Lack Of coordination: The global banking industry faces short-term uncertainty due to the debt
crises that challenge several major economies. Industry assets stand at $143 trillion (2013) & the
EU is the largest regional market, with over 57% of the global market. Volatility in different
market/Currencies has created problems for the banks in order to work properly across the borders.

Vulnerable to risk: Since this sector deals with finances, it is the most risky sector which can
change the fate of any business/Industry.

High NPA’s: Rise in Retail & corporate NPA’s (Non-performing assets) is the single major issue
this sector is going through worldwide.

Can’t reach to Under-penetrated market: Due to several conflicting objectives of government &
banks which goes hand in hand, rural areas of developing nations are still not in the shadow of
banks. Although PMJDY (Pradhan Mantri Jan DhanYojna) implemented by the Indian banks got
acknowledged by World Bank for financial inclusion but the Idea is not fully capitalized even in
the home country.

12
Structural weaknesses: such as a fragmented industry structure, restrictions on capital availability
and deployment, lack of institutional support infrastructure, restrictive labor laws, weak corporate
governance, Political pressure and ineffective regulations.

3. Opportunities:

Expansion: Penetrating to the rural markets& bringing the rural masses under the purview of
organized banking will be the objective of the Banks in decades to come.

Changing Socio-cultural &demographic factors: Given the demographic shifts resulting from
changes in age profile and household income, consumers will increasingly demand enhanced
institutional capabilities and service levels from banks.

Rise in private sector banking: Banking Industry across the world is highly regulated &lead by
PSU’s with their respective central banks. With the advent of private sector banks this sector is
going through structural & functional changes mainly due to the adaptation of the advanced
technologies & increased competition thereby benefiting to the end customers.

4. Threats:

Recession: It is one of the major threats to the financial system of the nation. Traumatic shock of
Economic crises & collapse of the several businesses can affect the banks and vice-versa.

Stability of the system: Failure of some weak banks has often threatened the stability of the system.

Competition: Competition from NBFC’s (Non-banking financial companies) like insurance

companies & mutual fund companies can affect the business of Banks.

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 COMPANY ANALYSIS
Company analysis is the method of analyzing a company based on factors that affect their intrinsic
value. There are two sides to this method the quantitative and the qualitative. The quantitative side
involves looking at factors that can be measured numerically, such as the company’s assets,
liabilities, cash flow, revenue and price to- earnings ratio. The limitation of quantitative analysis,
however, is that it does not capture the company’s aspects or risks immeasurable by number things
like the value of an executive or the risks a company faces with legal issues. The analysis of these
things is the other side of fundamental analysis: the qualitative side or non-number side. Although
relatively more difficult to analyze, the qualitative factors are an important part of a company.
Since they are not measured by a number, they more represent an either negative or positive force
affecting the company.

Another business consideration for investors is competitive advantage. A company's long-term

success is driven largely by its ability to maintain a competitive advantage - and keep it. Powerful
competitive advantages, such as Coca Cola's brand name and Microsoft's domination of the
personal computer operating system, create a moat around a business allowing it to keep
competitors at bay and enjoy growth and profits. When a company can achieve competitive
advantage, its shareholders can be well rewarded for decades.

The market share of the company helps to determine a company’s relative position within the
industry. If the market share is high, the company would be able to meet the competition
successfully. The size of the company should also be considered while analyzing the market share,
because the smaller companies may find it difficult to survive in the future.

Investor generally prefers to study the growth in sales because the larger size companies may be
able to withstand the business cycle rather than the company of smaller size. The rapid growth
keeps the investor in better position as growth in sales is followed by growth in profit. The growth
in sales of the company is analyzed both in rupee terms and in physical terms.

14
If a firm has stable sales revenue, other things being remaining constant, will have more stable
earnings. Wide variation in sales leads to variation in capacity utilization, financial planning and
dividends. This affects the Company’s position and investor’s decision to invest.

The earning of the company should also be analyzed along with the sales level. The income of the
company is generated through the operating (in service industry like banks- interest on loans and
investment) and non-operating income (ant company, rentals from lease, dividends from
securities).

The investor should analyze the sources of income properly. The investor should be well aware
with the fact that the earnings of the company may vary due to following reasons: Change in sales.
Change in costs. Depreciation method adopted. Inventory accounting method.Wages, salaries and
fringe benefits.Income tax and other taxes.

Capital structure

It is combination of owned capital and debt capital which enables to maximize the value of the
firm. Under this, we determine the proportion in which the capital should be raised from the
different securities. The capital structure decisions are related with the mutual proportion of the
long term sources of capital. The owned capital includes share capital Preference shares are those
shares which have preferential rights regarding the payment of dividend and repayment of capital
over the equity shareholders. At present many companies resort preference shares.

Debt

It is an important source of finance as it has the specific benefit of low cost of capital because
interest is tax deductible. The leverage effect of debt is highly advantageous to the equity
shareholders. The limits of debt depend upon the firm’s earning capacity and its fixed assets.

A company relies upon management to steer it towards financial success. Some believe that
management is the most important aspect for investing in a company. It makes sense - even the
best business model is doomed if the leaders of the company fail to properly execute the plan.

15
Management Discussion and Analysis (MD&A)

The management discussion and analysis is found at the beginning of the annual report. In theory,
the MD&A is supposed to be frank commentary on the management's outlook. Sometimes the
content is worthwhile, other times its boilerplate. One tip is to compare what management said in
past years with what they are saying now. Is it the same material rehashed? Have strategies actually
been implemented? If possible, sit down and read the last five years of MD&A it can be
illuminating.

Ownership and Insider Sales

Large company will compensate executives with a combination of cash, restricted stock and
options. While there are problems with stock options, it is a positive sign that members of
management are also shareholders. The ideal situation is when the founder of the company is still
in charge.

Past Performance

Management capability is used to check and see how executives have done at other companies in
the past. You can normally find biographies of top executives on company web sites. Identify the
companies they worked at in the past and do a search on those companies and their performance.
Operating Efficiency

Corporate governance describes the policies in place within an organization denoting the
relationships and responsibilities between management, directors and stakeholders. These policies
are defined and determined in the company charter and its bylaws, along with corporate laws and
regulations. The purpose of corporate governance policies is to ensure that proper checks and
balances are in place, making it more difficult for anyone to conduct unethical and illegal activities.

Good corporate governance is a situation in which a company complies with all of its governance
policies and applicable government regulations in order to look out for the interests of the
company's investors and other stakeholders.

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Financial and Information Transparency

This aspect of governance relates to the quality and timeliness of a company's financial disclosures
and operational happenings. Sufficient transparency implies that a company's financial releases
are written in a manner that stakeholders can follow what management is doing and therefore have
a clear understanding of the company's current financial situation.

Stakeholder Rights

This aspect of corporate governance examines the extent that a company's policies are benefiting
stakeholder interests, notably shareholder interests. Ultimately, as owners of the company,
shareholders should have some access to the board of directors if they have concerns or want
something addressed. Therefore companies with good governance give shareholders a certain
amount of ownership voting rights to call meetings to discuss pressing issues with the board.

Structure of the Board of Directors

The board of directors is composed of representatives from the company and representatives from
outside of the company. The combination of inside and outside directors attempts to provide an
independent assessment of management's performance, making sure that the interests of
shareholders are represented.

The key word when looking at the board of directors is independence. The board of directors is
responsible for protecting shareholder interests and ensuring that the upper management of the
company is doing the same. The board possesses the right to hire and fire members of the board
on behalf of the shareholders. A board filled with insiders will often not serve as objective critics
of management and will defend their actions as good and beneficial, regardless of the
circumstances. These are all important factors to consider when analyzing any company’s
qualitative factors in the environment in which the company operates.

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Financial Performance

Balance Sheet: The level, trends, and stability of earnings are powerful forces in the determination
of security prices. Balance sheet shows the assets, liabilities and owner’s equity in a company. It
is the analyst’s primary source of information on the financial strength of a company. Accounting
principles dictate the basis for assigning values to assets. Liability values are set by contracts.
When assets are reduced by liabilities, the book value of shareholder’s equity can be ascertained.
The book value differs from current value in the market place, since market value is dependent
upon the earnings power of assets and not their cost of values in the accounts

Profit and Loss account: It is also called as income statement. It expresses the results of financial
operations during an accounting year i.e. with the help of this statement we can find out how much
profit or loss has taken place from the operation of the business during a period of time. It also
helps to ascertain how the changes in the owner’s interest in a given period have taken place due
to business operations. Last of all, for analyzing the financial position of any company following
factors need to be considered for evaluating present situation and prospects of company.

The massive amount of numbers in a company's financial statements can be bewildering and
intimidating to many investors. On the other hand, if you know how to analyze them, the financial
statements are a gold mine of information.
Financial statements are the medium by which a company discloses information concerning its
financial performance.
Followers of fundamental analysis use the quantitative information gleaned from financial
statements to make investment decisions

The main techniques of financial analysis are:

Comparative Financial Statements
Trend Analysis
Common Size Statement
Fund Flow Statement
Cash Flow Statement
Ratio Analysis
Comparative Financial Statements: Financial statements of two or more firms may be
compared for drawing inferences.

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COMPANY ANALYSIS OF ICICI BANK & HDFC BANK

PROFILE OF ICICI BANK

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and
was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46% through
a public offering of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on
the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an all-stock
amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional investors in
fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the World Bank, the
government of India and representatives of Indian industry. The principal objective was to create
a development financial institution for providing medium-term and long-term project financing to
Indian businesses.

In the 1990s, ICICI transformed its business from a development financial institution offering only
project finance to a diversified financial services group offering a wide variety of products and
services, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In
1999, ICICI become the first Indian company and the first bank or financial institution from non-
Japan Asia to be listed on the NYSE.

After consideration of various corporate structuring alternatives in the context of the emerging
competitive scenario in the Indian banking industry, and the move towards universal banking, the
managements of ICICI and ICICI Bank formed the view that the merger of ICICI with ICICI Bank
would be the optimal strategic alternative for both entities, and would create the optimal legal
structure for the ICICI group's universal banking strategy. The merger would enhance value for
ICICI shareholders through the merged entity's access to low-cost deposits, greater opportunities
for earning fee-based income and the ability to participate in the payments system and provide
transaction-banking services. The merger would enhance value for ICICI Bank shareholders
through a large capital base and scale of operations, seamless access to ICICI's strong corporate
relationships built up over five decades, entry into new business segments, higher market share in
various business segments, particularly fee-based services, and access to the vast talent pool of
ICICI and its subsidiaries.

19
In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI
and two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial Services Limited
and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by shareholders
of ICICI and ICICI Bank in January 2002, by the High Court of Gujarat at Ahmedabad in March
2002, and by the High Court of Judicature at Mumbai and the Reserve Bank of India in April 2002.
Consequent to the merger, the ICICI group's financing and banking operations, both wholesale and
retail, have been integrated in a single entity.

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, 2017 and profit after tax of Rs. 98.01 billion (US$ 1.5
billion) for the year ended March 31, 2017. ICICI Bank currently has a network of 4,850 Branches
and 13,882 ATM's across India.

20
PROFILE OF HDFC BANK

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive
an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private
sector, as part of RBI's liberalization of the Indian Banking Industry in 1994. The bank was
incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in
Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January
1995.

HDFC is India’s premier housing finance company and enjoys an impeccable track record in India
as well as in international markets. Since its inception in 1977, the Corporation has maintained a
consistent and healthy growth in its operations to remain the market leader in mortgages. Its
outstanding loan portfolio covers well over a million dwelling units. HDFC has developed
significant expertise in retail mortgage loans to different market segments and also has a large
corporate client base for its housing related credit facilities. With its experience in the financial
markets, strong market reputation, large shareholder base and unique consumer franchise, HDFC
was ideally positioned to promote a bank in the Indian environment.
HDFC Bank is headquartered in Mumbai. As of March 31, 2018, the Bank’s distribution network
was at 4,014 branches in 2,464 cities.All branches are linked on an online real-time basis.
Customers across India are also serviced through multiple delivery channels such as Phone
Banking, Net Banking, Mobile Banking and SMS based banking. The Bank’s expansion plans take
into account the need to have a presence in all major industrial and commercial centres, where its
corporate customers are located, as well as the need to build a strong retail customer base for both
deposits and loan products. Being a clearing / settlement bank to various leading stock exchanges,
the Bank has branches in centres where the NSE / BSE have a strong and active member base.

The Bank also has a network of 11,766 ATMs across India. HDFC Bank’s ATM network can be
accessed by all domestic and international Visa / MasterCard, Visa Electron / Maestro, Plus /
Cirrus and American Express Credit / Charge cardholders.

21
 LITERATURE REVIEW
John H.Boyd & Bruce Champ(2006)conducted a research on Inflation,Banking & Economic
growth. Inflation is a phase that harms country’s economic situation over several years. Central
bank of the country has successfully tried to lower the inflation rates. No doubt that under
certain situation, inflation could be good thing. There is a inverse relation between inflation &
economic growth. Inflation can effect economic growth through banking sector when credit
availability is reduced to the business. Higher inflation reduces the return on assets and that
leads to increase in borrowings. In such situation the borrower can be default on their loans. At
such time it is difficult to find out good & bad borrowers & bank may refuse to give loans or
may restrict the quantity of loans made & this may result in lower investment. Due to this
productivity suffers. Inflation impacts on banking sector a lot.Several economist have found
that countries suffering high inflation rates have small banking sectors & equity markets.There
is a inverse relationship between inflation & banking sector. At the median inflation rate, one
percentage point imcrease in inflation is associated with a one percentage point decline in the
ratio of bank leading to GDP.The impact of inflation on asset return & bank profitability can
be said that high inflation lowers the return on assets. Inflation is inversely related with real
money market rates, real treasury bill rates and real time deposit rates. Bank could adjust their
nominal interest rates for inflation. There is no significant relation between bank interest rate
& inflation. Inflation negatively affect the bank profitability measures. Various measures of
bank profitability are net interest margines, net profits, rate of return on equity and value added
by banking sector.Where inflation rises all this fall down. The rate of inflation has drastically
reduce bur if all such theories are correct & the effect of inflation is negatively impacts the
credit markets it’s not a good sign. This can result that inflation above certain level can harm
banking sector & that will badly affect on economic sector or economic growth. As per
economist study, if inflation grows, it will be difficult for the firms to get funds. It also states
that change in return on assets also affect inflation.This effect can be vice a versa.All this
theories also suggest that at low rate, inflation can be beneficial & can be helpful for economic
growth.

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 OBJECTIVE & NEED FOR THE STUDY

To give a brief overview about economy using economic indicators namely, GDP,
Inflation rate.

To learn about sectorial analysis taking into consideration of banking sector.

To learn about analyzing the company performance with EIC framework.

RESEARCH METHODOLOGY
Data collection method:-
The methods of collecting data were being used in project are primary and secondary sources.
1) Primary sources: Quantitative and observation
2) Secondary sources: Internet

Data:
Company details
Ratios – money control
Annual report ICICI Bank 2012-13
Annual report ICICI Bank 2013-14
Annual report ICICI Bank 2014-15
Annual report ICICI Bank 2015-16
Annual report ICICI Bank 2016-17
Annual report HDFC Bank 2012-13
Annual report HDFC Bank 2013-14
Annual report HDFC Bank 2014-15
Annual report HDFC Bank 2015-16
Annual report HDFC Bank 2016-17

Sources:
Company websites
Ibef.org
Money control

23
 DATA ANALYSIS AND INTERPRETATION

(1) Credit Deposit Ratio

Credit-Deposit Ratio is the proportion of loan-assets created by a bank from the deposits
received. Credits are the loans and advances granted by the bank. In other words, it is the
amount lent by the bank to a person or an organization which is recovered later on. Interest is
charged from the borrower. Deposit is the amount accepted by bank from the savers and interest
is paid to them.

Table No.1: Credit Deposit Ratio (in %)

Year ICICI ICICI ICICI Bank HDFC Bank HDFC Bank HDFC Bank
Bank Credit Bank Credit Deposit
(in Crores) Deposit (in Crores) (in Crores)
(in Crores)
2012-13 2,90,249.44 2,92,613.63 99.19 1,95,420.03 2,46,706.45 79.21
2013-14 3,38,702.65 3,31,913.66 102.05 2,39,720.64 2,96,246.98 80.92
2014-15 3,87,522.07 3,61,562.73 107.18 3,03,000.27 3,67,337.48 82.49
2015-16 4,35,263.94 4,21,425.71 103.28 3,65,495.03 4,50,795.64 81.08
2016-17 4,64,232.08 4,90,039.06 94.73 4,64,593.96 5,46,424.19 85.02

Table 1 shows that over the course of five financial years of study the Credit Deposit Ratio in
ICICI Bank was higher than in HDFC Bank. In case of ICICI Bank, the credit deposit ratio was
highest in 2014-15 (107.18%) and lowest in 2016-17 (94.73%). But in case of HDFC Bank,
the credit deposit ratio was highest in 2016-17 (85.02%) and lowest in 2012-13 (79.21). This
shows that ICICI Bank has created more loan assets from its deposits as compared to HDFC
Bank.

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(2) Interest Expenses to Total Expenses
Interest Expenses to Total Expenses reveals the expenses incurred on interest in proportion to
total expenses. Banks accepts deposits from savers and pay interest on these accounts. This
payment of interest is known as interest expenses. Total expenses include the amount spent in
the form of staff expenses, interest expenses, overhead expenses and other operating expenses
etc.

Table No.2: Interest Expenses to Total Expenses (in %)

Table ICICI ICICI ICICI HDFC HDFC HDFC

No.2: Bank Bank Total Bank Interest Total Bank
Interest Interest Expenses Expenses Expenses
Expenses Expenses (in Crores) (in Crores) (in Crores)
to Total (in Crores)
Expenses
(in %)
Year
2012-13 26,209.18 40,095.83 65.37 14,989.58 27,362.96 54.78
2013-14 27,702.59 44,795.55 61.84 19,253.75 35,191.21 54.71
2014-15 30,051.53 50,091.92 59.99 22,652.90 40,576.80 55.83
2015-16 31,515.39 58,336.20 54.02 26,074.24 47,250.34 55.18
2016-17 32,418.96 63,859.67 50.77 32,629.93 58,676.96 55.61

The table 2 shows that the ratio of interest expenses to total expenses in ICICI Bank was highly
volatile it decreased from 59.99% to 54.02% during the period 2014-15 to 2015-16. It has been
found that the ratio of interest expenses to total expenses of ICICI Bank had been decreasing
in each year from 2012-13 to 2016-17. The ratio of interest expenses to total expenses in HDFC
Bank was also increased from 54.71% to 55.83% during the period 2013-14 to 2014-15,
afterward it was decreased from 55.83% to 55.18% during the period 2014-15 to 2015-16 but
further it was increased to 55.61% in 2016-17. It has been found that the share of interest
expenses in total expenses was higher in case of ICICI Bank as compared to HDFC Bank.

25
(3) Interest Income to Total Income
Interest Income to Total Income shows the proportionate contribution of interest income in
total income. Banks lend money in the form of loans and advances to the borrowers and receive
interest on it. This receipt of interest is called interest income. Total income includes interest
income, non-interest income and operating income.

Table No.3: Interest Income to Total Income in ICICI Bank and HDFC Bank (in %)

HDFC
Year ICICI Bank ICICI Bank ICICI Bank HDFC Total HDFC Bank
Interest Total Interest Income
Income Income Income (in Crores)
(in Crores) (in Crores) (in Crores)
2012-13 40,075.60 48,421.30 82.76 27,286.35 32,530.05 83.88
2013-14 44,178.15 54,606.02 80.90 35,064.87 41,917.50 83.65
2014-15 49,091.14 61,267.27 80.13 41,135.53 49,055.18 83.86
2015-16 52,739.43 68,062.49 77.49 48,469.90 57,466.26 84.34
2016-17 54,156.28 73,660.76 73.52 60,221.45 70,973.17 84.85

The table 3 represents that the ratio of interest income to total income in ICICI Bank is quite
instable over the years. But the ratio of interest income to total income in HDFC Bank is
increased from 83.65% to 84.85% during the year 2013-14 to 2016-17. The growth rate of
ICICI Bank is -2.92% while that of HDFC Bank is 0.29%. Thus, the proportion of interest
income to total income in ICICI Bank was lower than that of HDFC Bank.

26
(4) Other Income to Total Income
Other income to total income reveals the proportionate share of other income in total income.
Other income includes non-interest income and operating income. Total income includes
interest income, non-interest income and operating income.

Table No.4: Other Income to Total Income in ICICI Bank and HDFC Bank (in %)

Year ICICI ICICI ICICI HDFC HDFC HDFC

Bank Bank Total Bank Other Total Bank
Other Income Income Income
Income (in Crores) (in Crores) (in Crores)
(in Crores)
2012-13 8,345.70 48,421.30 17.24 5,243.69 32,530.05 16.12
2013-14 10,427.87 54,606.02 19.10 6,852.62 41,917.50 16.35
2014-15 12,176.13 61,267.27 19.87 7,919.64 49,055.18 16.14
2015-16 15,323.05 68,062.49 22.51 8,996.35 57,466.26 15.66
2016-17 19,504.48 73,660.76 26.48 10,751.72 70,973.17 15.15

The table 4 shows that the ratio of other income to total income was increased from 17.24% in
2012-13 to 26.48% in 2016-17 in case of ICICI Bank. However, the share of other income in
total income of HDFC Bank was also increased from 16.12% in 2012-13 to 16.35% in 2013-
14. Afterward the share of other income in total income of HDFC Bank was decreased from
16.35% to 15.15% during 2013-14 to 2016-17. The table shows that the ratio of other income
to total income was relatively higher in ICICI Bank as compared to HDFC Bank.

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(5) Net Profit Margin
Net Profit Margin reveals the financial results of the business activity and efficiency of
management in operations. The table 5 shows the net profit margin in ICICI Bank and HDFC
Bank during the period 2010-11 to 2014-15.

Table No.5: Net Profit Margin in ICICI Bank and HDFC Bank (in %)

Year ICICI ICICI ICICI HDFC Net HDFC HDFC

Bank Net Bank Total Bank Profit Total Bank
Profit Income (in Crores) Income
(in Crores) (in Crores) (in Crores)
2012-13 8,325.47 48,421.30 17.19 5,167.09 32,530.05 15.88
2013-14 9,810.48 54,606.02 17.97 6,726.28 41,917.50 16.05
2014-15 11,175.35 61,267.27 18.24 8,478.38 49,055.18 17.28
2015-16 9,726.29 68,062.49 14.29 10,215.92 57,466.26 17.78
2016-17 9,801.09 73,660.76 13.31 12,296.21 70,973.17 17.33

The table 5 shows that the ratio of net profits to total income of HDFC Bank was increased
from 15.88% to 17.78 during the period of 2012-13 to 2015-16, and decreased from 17.78% to
17.33% during the period of 2015-16 to 2016-17, whereas in case of ICICI Bank it is not stable
because the ratio of net profits to total income of ICICI Bank was decreased to 17.19% from
13.31% during the period of 2012-13 to 2016-17. However, the net profit margin was higher
in HDFC Banks compared to ICICI Bank. But it was continuously decreased from 2012-13 to
2016-17 in ICICI Bank. Thus, the ICICI Bank has shown comparatively lower operational
efficiency than HDFC Bank.

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 LIMITATIONS
• The scope of study was limited due to some constraints given below:-
• This study has been conducted purely to understand sectorial analysis of a banking
sector.
• Analysis is only a means not an end. . This study is based on Technical & Fundamental
Analysis.
• The study is limited to the companies such as ICICI bank & HDFC bank.
• The analysis involves limited technical tools out of various tools.
• Scope of the study is limited to 5 ratios mentioned above.

FINDING & CONCLUSION

I would like to conclude that the following study gave me an insight to the sector
banking Sector.
I tried to analyze the companies in baking sectors and on the basis of the financial
analysis of the past performance of the companies.
The current study and discussions thereon, certainly reveals that financial performance
of ICICI Bank and HDFC Bank. Based on the study ICICI Bank financial performance
is better than HDFC Bank. But the financial performance of HDFC Bank was better
than ICICI Bank in terms of net profit margins.
The change in any economic factor has an impact on the sector and industry and
therefore having knowledge about the economic conditions is an important part while
investing and the effect of the changes should be analyzed on the sectors which would
be considered while investing.

29
 REFERENCES

Indian Economy News. (n.d.). Retrieved from Indian Brand Equity Foundation:
https://www.ibef.org/indian-economy-news.aspx

Indian Gdp Growth. (n.d.). Retrieved from Trading Economies:

https://tradingeconomics.com/india/gdp-growth

Indian Gdp Inflation. (n.d.). Retrieved from Trading Economies:

https://tradingeconomics.com/india/inflation-cpi

Banking India. (n.d.). Retrieved from Indian Brand Equity Foundation:

https://www.ibef.org/industry/banking-india.aspx

(n.d.). Retrieved from Money Control: www.moneycontrol.com

(n.d.). Retrieved from HDFC Bank: https://www.hdfcbank.com/

(n.d.). Retrieved from ICICI Bank: https://www.icicibank.com/aboutus/about-us.page?

Boyd, J. H., & Champ, B. (2006). Inflation, banking, and economic growth. Federal Reserve
Bank of Cleveland.Economic Commentary, , 1-4. Retrieved from
https://search.proquest.com/docview/233620237?accountid=178351

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