TIME VALUE OF MONEY

HISTORY OF BANKING IN INDIA

Without a sound and effective banking system in India, it cannot have a healthy
economy. The banking system of India should not only be hassle free but it should be
able to meet new challenges posed by the technology and any other external and internal
factors.

For the past three decades, India's banking system has several outstanding achievements
to its credit. The most striking is its extensive reach. It is no longer confined to only
metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even
to the remote corners of the country. This is one of the main reasons of India's growth
process.

The government's regular policy for Indian bank since 1969 has paid rich dividends with
the nationalization of 14 major private banks of India.

Not long ago, an account holder had to wait for hours at the bank counters for getting a
draft or for withdrawing his own money. Today, he has a choice. Gone are days when the
most efficient bank transferred money from one branch to other in two days. Now it is
simple as instant messaging or dials a pizza. Money has become the order of the day.

The first bank in India, though conservative, was established in 1786. From 1786 until
today, the journey of Indian Banking System can be segregated into three distinct phases.
They are as mentioned below

• Early phase from 1786 to 1969 of Indian Banks

• Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms.
• New phase of Indian Banking System with the advent of Indian Financial & Banking
Sector Reforms after 1991.
To make this write-up more explanatory, I prefix the scenario as
Phase I,

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Phase II and
Phase III.

Phase I

The General Bank of India was set up in the year 1786. Next came Bank of Hindustan
and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of
Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency
Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was
established which started as private shareholders banks, mostly Europeans shareholders.

In 1865, Allahabad Bank was established and first time exclusively by Indians, Punjab
National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and
1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank,
and Bank of My sore were set up. Reserve Bank of India came in 1935.

During the first phase, the growth was very slow and banks experienced periodic failures
between 1913 and 1948. There were approximately 1100 banks, mostly small. To
streamline the functioning and activities of commercial banks, the Government of India
came up with The Banking Companies Act, 1949 which was later changed to Banking
Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of
India was vested with extensive powers for the supervision of banking in India as the
central banking authority.

During those, day’s public has lesser confidence in the banks. As an aftermath, deposit
mobilization was slow. Abreast of it the savings bank facility provided by the Postal
department was comparatively safer. Moreover, funds were largely given to traders.

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Phase II
Government took major steps in this Indian Banking Sector Reform after independence.
In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a
large scale especially in rural and semi-urban areas. It formed State Bank of India to act
as the principal agent of RBI and to handle banking transactions of the Union and State
Governments all over the country.

Seven banks forming subsidiary of State Bank of India was nationalized in 1960 on 19
July 1969, major process of nationalization was carried out. It was the effort of the then
Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country
were nationalized.

Second phase of nationalization Indian Banking Sector Reform was carried out in 1980
with seven more banks. This step brought 80% of the banking segment in India under
Government ownership.

The following are the steps taken by the Government of India to Regulate Banking
Institutions in the Country:

• 1949: Enactment of Banking Regulation Act.

• 1955: Nationalization of State Bank of India.
• 1959: Nationalization of SBI subsidiaries.
• 1961: Insurance cover extended to deposits.
• 1969: Nationalization of 14 major banks.
• 1971: Creation of credit guarantee corporation.
• 1975: Creation of regional rural banks.
• 1980: Nationalization of seven banks with deposits over 200 crore.
After the nationalization of banks, the branches of the public sector bank India rose to
approximately 800% in deposits and advances took a huge jump by 11,000%.

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Banking in the sunshine of Government ownership gave the public implicit faith and
immense confidence about the sustainability of these institutions.

Phase III

This phase has introduced many more products and facilities in the banking sector in its
reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was
set up by his name, which worked for the liberalization of banking practices.
The country is flooded with foreign banks and their ATM stations. Efforts are being put
to give a satisfactory service to customers. Phone banking and net banking is introduced.
The entire system became more convenient and swift. Time is given more importance
than money.

The financial system of India has shown a great deal of resilience. It is sheltered from any
crisis triggered by any external macroeconomics shock as other East Asian Countries
suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high,
the capital account is not yet convertible, and banks and their customers have limited
foreign exchange exposure.

Nationalization Of Banks In India

The nationalization of banks in India took place in 1969 by Mrs. Indira Gandhi the then
prime minister. It nationalized 14 banks then. These banks were mostly owned by
businessmen and even managed by them.
• Central Bank of India
• Bank of Maharashtra
• Dena Bank
• Punjab National Bank
• Syndicate Bank
• Canara Bank
• Indian Bank

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• Indian Overseas Bank

• Bank of Baroda
• Union Bank
• Allahabad Bank
• United Bank of India
• UCO Bank
• Bank of India

Before the steps of nationalization of Indian banks, only State Bank of India (SBI) was
nationalized. It took place in July 1955 under the SBI Act of 1955. Nationalization of
Seven State Banks of India (formed subsidiary) took place on 19 July 1960.

The State Bank of India is India's largest commercial bank and is ranked one of the top
five banks worldwide. It serves 90 million customers through a network of 9,000
branches and it offers -- either directly or through subsidiaries -- a wide range of banking
services.

The second phase of nationalization of Indian banks took place in the year 1980. Seven
more banks were nationalized with deposits over 200 crores. Until this year,
approximately 80% of the banking segments in India were under Government ownership.

After the nationalization of banks in India, the branches of the public sector banks rose to
approximately 800% in deposits and advances took a huge jump by 11,000%.

• 1955: Nationalization of State Bank of India.

• 1959: Nationalization of SBI subsidiaries.
• 1969: Nationalization of 14 major banks.
• 1980: Nationalization of seven banks with deposits over 200 crores.

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ICICI BANK LTD.: HISTORY

ICICI originally called the Industrial Credit and Investment Corporation of India,
(ICIJF/Bombay, and IBN/NYSE) is the second largest bank in India, and the largest in
the private sector, with total assets values at approximately Rs. 1 trillion. The bank was
initially set up to fund industrial development in India and has evolved into a major
player in the Indian financial services community, serving both consumer and corporate
clients. ICICI took advantage of the decision in April 2000 of the central bank of India,
the Reserve Bank of India (RBI), to allow development financial institutions (DFIs) to
become commercial banks. ICICI was one of four DFIs (the others are the Industrial
Development Bank of India (IDBI), the Industrial Finance Corporation of India (IFCI)
and the Housing and Development Finance Company (HDFC)) and this move by the RBI
allowed it to transform itself into a diversified financial institution.

In May 2002, the merger of ICICI, ICICI PFS and ICICI Capital with ICICI Bank was
realized, creating what is now referred to simply as ICICI. According to the ICICI? s
2001-2002 Annual Report, the merger of ICICI and its subsidiaries with ICICI Bank
created a combined entity ?with complementary strengths and products and similar
processes and operating architecture. The merger has combined the large capital base of
ICICI with the strong deposit raising capability of ICICI Bank, giving ICICI Bank
improved ability to increase its market share in banking fees and commissions, while
lowering the overall cost of funding through access to lower-cost retail deposits. ICICI
Bank would now be able to fully leverage the strong corporate relationships that ICICI
has built, seamlessly providing the whole range of financial products and services to
corporate clients. The merger has also resulted in the integration of the retail finance
operations of ICICI, and its two merging subsidiaries, and ICICI Bank into one entity,
creating an optimal structure for the retail business and allowing the full range of asset
and liability products to be offered to all retail customers?. The merger joined India’s
largest financial institution with the country’s largest private-sector bank. The new entity

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has been structured to be responsive to the needs of the new combined firm, to be able to
support the needs of a company of significant size while remaining nimble enough to
respond quickly to market demands. ICICI states in its 2001-2002 Annual Report that.
Our organizational structure is designed to support our business goals, and is flexible
while at the same time ensuring effective control, supervision, and consistency in
standards across business groups? The organization structure of ICICI is divided into five
principal groups. Retail Banking, Wholesale Banking, Project Finance & Special Assets
Management, International Business and Corporate Centre.

Today, the bank has approximately 540 branches and over 1000 ATM machines. ICICI
offers diversified financial services at both the corporate and retail level. In addition, it
has specialized subsidiaries that offer non-life insurance, venture capital, asset
management, investment and information technology services. Since the mid-1990s,
ICICI has been developing the necessary subsidiaries and growing the services that will
allow it to be a universal bank, capitalizing on economies of scale and synergies to
strengthen its competitive advantage. ICICI uses its diversification to serve its clients,
attracting customers through its diversification and its ability to offer advantages to
clients who take advantage of multiple services, e.g., ICICI could offer preferential
lending terms to a company that also uses its asset management services or offers its
employees ICICI insurance. ICICI has also moved away from the long-term lending
associated with the DFIs, offering more short-term products and creating a selection of
debt products for its clients. ICICI has recognized the needs of the market, which is
demanding more financing options. In 1999-2000, corporate finance rose to 47% of
ICICI's total lending portfolio from 36% in 1998-99. Furthermore, lending to
manufacturing industries (not including infrastructure, oil and gas, and petrochemicals)
accounted for only 14% of the portfolio in that same year, down from 25% a year
previously.

ICICI has experienced its recent success within the framework of a troubled economy.
India’s economy, like those of other emerging markets, has been affected by the
economic downturn of the past three years. India has witnessed a decrease in the inflow

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in foreign capital and has seen its access to international capital restricted as capital
markets contracted. India’s economy has not been as adversely affected as that of other
emerging countries and saw growth in its GDP as well as fiscal growth in 2001. India’s
recent growth has been partly a result of the success of the services industries, of which
financial services (consumer) and information technology, both areas in which ICICI is
involved, played a significant role. Although there have been contractions in corporate
financial services, consumer financial services remained relatively strong.

India’s Banking Industry

In the past three or four years, the Indian banking sector has seen consolidation as both
local banks and international banks doing business in India have undergone mergers and
acquisitions. The RBI has encouraged consolidation in the hope that it will create a more
robust banking sector. ICICI has been active in this trend, acquiring the Bank of Madura
on February 1, 2001, through a share swap (2:1, ICICI: Madura). This move allowed
ICICI to obtain an immediate presence in South India (increasing its customer base by
1.2m and adding 263 branches) and to expand its base in order to offer the diversified
basket of financial services on which it is building its business. It has also allowed ICICI
to increase its non-interest income. This merger was a major step in ICICI?s attack on the
market share of the large nationalized banks, which have been facing a serious challenge
from the private sector financial services firms since the mid-1990s. ICICI, like other
private sector banks in India, is offering customers a more efficient, nimble and
technologically advanced banking option while also increasing value for its shareholders.

Retail Banking

Retail banking is at the heart of ICICI’s growth strategy and one of the main reasons
behind the firm’s impressive results. ICICI sells itself as a firm that is highly focused on
the customer, defying the traditional behavior patterns associated with banking in India.
The demographic changes in India are at the core of ICICI’s decision to focus on offering
strong retail banking. As more Indians enter the higher income brackets there is an

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increased need for financial services, and a demand for high-level service and
attentiveness to customer needs. ICICI is positioning itself to capitalize on the needs of
this upwardly mobile group and is seeking to establish a strong competitive advantage
through its innovative products, wide distribution, strong credit controls, customer
service standards. ICICI is investing in all of its retail areas to achieve economies of scale
and further increase its advantage. According to its 2001-2002 Annual Report, ICICI
Bank’s retail portfolio (including the portfolio of ICICI Home Finance Company
Limited, its wholly-owned subsidiary) at March 31, 2002 was over Rs. 76.00b, as
compared to the combined retail portfolio of ICICI and ICICI Bank of about Rs. 29.00b
at March 31, 2001. The firm’s retail asset products include mortgages, automobile and
two-wheeler loans, commercial vehicles and construction equipment financing, consumer
durable loans, personal loans and credit cards.

ICICI offers is retail customers a diverse selection of products and the firm has focused
on expanding its retail services and on accessing the huge potential of small retail loans,
which has accounted for its impressive growth in net income, which has increased 2.5-
times since March 2002. Retail loans account fro 25% of total customer assets and 15%
of the bank’s total assets. The main driver behind these loans is mortgages, which are
48% of retail loans. ICICI reported the highest mortgage disbursements is the Indian
retail bank sector (Rs. 22.7b in 2003).

ICICI’s Future

ICICI has been very successful in transforming itself into a truly universal financial
services firm but the question must be asked as to whether the company will be able to
weather the current recession and continue with the growth that it witnessed since its
reinvention. A look at the firm’s financials illustrates the success that ICICI has
experienced. Between FY1996 and FY2000, total income rose 291% to Rs. 84.6b profit
after tax rose 276% to Rs. 12.06b and total assets climbed 280% to Rs. 653.9b. During
the same period, disbursements grew 363% to Rs. 258.36b.

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ICICI Bank’s total assets increased to Rs. 1,041.10b at March 31, 2002 compared to Rs.
197.37b at March 31, 2001 (this was due primarily to the merger with the Bank of
Madura; furthermore, the increase in investments and cash and balances with RBI was
due to compliance with SLR and Cash Reserve Ratio (CRR) requirements on ICICI?s
liabilities. Total deposits increased 95.9% to Rs. 320.85b at March 31, 2002 from Rs.
163.78b at March 31, 2001. According to the company’s Annual Report, ?this increase
was achieved through a strong focus on deposit mobilization and fully leveraging the
branch network acquired in the amalgamation of Bank of Madura, supported by
migration of customer transaction volumes to non-branch channels?. In addition, savings
account deposits increased 32.7% to Rs. 24.97b in fiscal 2002 from Rs. 18.81b in fiscal
2001. Time deposits also increased 126.1% in fiscal 2002.

During the year that ended March 31 2000, there was a 28% rise in profit before tax and
provisions, a 21 % rise in profits after tax, and a 26% increase in net income. Notably,
these figures are better than those of two other former DFIs, IDBI and IFCI. ICICI bank’s
operating profit increased 87.9% to Rs. 5.45b in fiscal 2002 as compared to Rs. 2.90b in
fiscal 2001. ICICI Bank’s profit after tax increased 60.3% to Rs. 2.58b in fiscal 2002
from Rs. 1.61b in fiscal 2001. The profit after tax for fiscal 2002 includes about Rs. 0.08b
attributable to ICICI, ICICI PFS and ICICI Capital for March 30 and 31, 2002.

ICICI went through significant restructuring at the beginning of the 2003 fiscal year,
which was intended to help the firm better deal with the challenges of a growing
universal financial services company deal. One of the issues facing India’s banks is the
amount of bad loans, which are estimated at 11.4% of total loans, and potentially as high
as 18%. The legal procedures available to the creditors are cumbersome and problematic,
although the government is taking steps to ease the problem, including the establishment
of an asset-restructuring company. ICICI has had to deal with the negative impact of non-
performing assets and any move by the Indian government to assist creditors should be
reflected in the share price. Furthermore, giving creditors a quicker and more efficient
means by which to deal with clients that have defaulted will help to attract more foreign
investors. In addition, their much needed capital. To India. Although India has

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experienced volatile equity capital markets in FY2002, and of particular significance was
the downward trend of trend of technology stocks, overall there has been an increase in
foreign investment in the country. It is against this backdrop that ICICI reported
relatively attractive multiples, with overall improvements over FY2001.

The expectation for the Indian Financial Services Industry is for rapid growth in the
consumer markets, with a general improvement in the quality of assets. ICICI has
positioned itself to take advantage of this growth and, assuming that it continues to be
aggressive in building client bases both at home and abroad, it should be able to continue
to post solid returns and to obtain consistent growth. Furthermore, should ICICI’s move
to establish a presence abroad is successful, there is huge potential for the firm as foreign
investment in India continues to increase. If ICICI can establish a leadership position as
the bank with which Indian nationals living abroad conduct business, it can tap into a
very lucrative market. Although this is a small part of ICICI’s business as compared to its
domestic market, combined success in both domains can help ICICI?s continued growth.
ICICI has adopted an aggressive and focused approach to obtaining its goal, i.e., to be the
premier universal financial services firm in India, offering both cutting-edge products
services and the highest level of customer service.

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CONCEPT OF TIME VALUE OF MONEY

If you were like most people, you would choose to receive the $10,000 now. After all,
three years is a long time to wait. Why would any rational person defer payment into the
future when he or she could have the same amount of money now? For most of us, taking
the money in the present is just plain instinctive. So at the most basic level, the time value
of money demonstrates that, all things being equal, it is better to have money now rather
than later.

However, why is this? A $100 bill has the same value, as a $100 bill one year from now,
does not it. Actually, although the bill is the same, you can do much more with the money
if you have it now: over time, you can earn more interest on your money.

Back to our example: by receiving $10,000 today, you are poised to increase the future
value of your money by investing and gaining interest over a period. For option B, you do
not have time on your side, and the payment received in three years would be your future
value. To illustrate, we have provided a timeline:

If you are choosing option A, your future value will be $10,000 plus any interest acquired
over the three years. The future value for option B, on the other hand, would only be
$10,000. However, stay tuned to find out how to calculate exactly how much more option
A is worth, compared to option B.

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Future Value Basics

If you choose option A and invest the total amount at a simple annual rate of 4.5%, the
future value of your investment at the end of the first year is $10,450, which of course is
calculated by multiplying the principal amount of $10,000 by the interest rate of 4.5%
and then adding the interest gained to the principal amount:

Future value of investment at end of first year:

= ($10,000 x 0.045) + $10,000
= $10,450

You can also calculate the total amount of a one-year investment with a simple
manipulation of the above equation:

 Original equation: ($10,000 x 0.045) + $10,000 = $10,450

 Manipulation: $10,000 x [(1 x 0.045) + 1] = $10,450
 Final equation: $10,000 x (0.045 + 1) = $10,450

The manipulated equation above is simply a removal of the like-variable $10,000

(the principal amount) by dividing the entire original equation by $10,000.

If the $10,450 left in your investment account at the end of the first year is left
untouched and you invested it at 4.5% for another year, how much would you have? To
calculate this, you would take the $10,450 and multiply it again by 1.045 (0.045 +1). At
the end of two years, you would have $10,920:

Future value of investment at end of second year:

= $10,450 x (1+0.045)
= $10,920.25

The above calculation, then, is equivalent to the following equation:

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Future Value = $10,000 x (1+0.045) x (1+0.045)

Think back to math class in junior high, where you learned the rule of exponents, which
says that the multiplication of like terms is equivalent to adding their exponents. In the
above equation, the two like terms are (1+0.045), and the exponent on each is equal to
one. Therefore, the equation can be represented as the following:

We can see that the exponent is equal to the number of years for which the money is
earning interest in an investment. Therefore, the equation for calculating the three-year
future value of the investment would look like this:

This calculation shows us that we do not need to calculate the future value after the first
year, then the second year, then the third year, and so on. If you know how many years,
you would like to hold a present amount of money in an investment, the future value of
that amount is calculated by the following equation:

Present Value Basics

If you received $10,000 today, the present value would of course be $10,000 because
present value is what your investment gives you now if you were to spend it today. If

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$10,000 were to be received in a year, the present value of the amount would not be
$10,000 because you do not have it in your hand now, in the present. To find the present
value of the $10,000 you will receive in the future, you need to pretend that the $10,000
is the total future value of an amount that you invested today. In other words, to find the
present value of the future $10,000, we need to find out how much we would have to
invest today in order to receive that $10,000 in the future.

To calculate present value, or the amount that we would have to invest today, you must
subtract the (hypothetical) accumulated interest from the $10,000. To achieve this, we
can discount the future payment amount ($10,000) by the interest rate for the period. In
essence, all you are doing is rearranging the future value equation above so that you may
solve for P. The above future value, equation can be rewritten by replacing the P variable
with present value (PV) and manipulated as follows:

Let us walk backwards from the $10,000 offered in option B. Remember, the $10,000 to
be received in three years is really the same as the future value of an investment. If today
we were at the two-year mark, we would discount the payment back one year. At the two-
year mark, the present value of the $10,000 to be received in one year is represented as
the following:

Present value of future payment of $10,000 at end of year two:

Note that if today we were at the one-year mark, the above $9,569.38 would be
considered the future value of our investment one year from now.

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Continuing on, at the end of the first year we would be expecting to receive the payment
of $10,000 in two years. At an interest rate of 4.5%, the calculation for the present value
of a $10,000 payment expected in two years would be the following:

Present value of $10,000 in one year:

Of course, because of the rule of exponents, we do not have to calculate the future value
of the investment every year counting back from the $10,000 investment at the third year.
We could put the equation more concisely and use the $10,000 as FV. So, here is how
you can calculate today's present value of the $10,000 expected from a three-year
investment earning 4.5%:

Therefore, the present value of a future payment of $10,000 is worth $8,762.97 today if
interest rates are 4.5% per year. In other words, choosing option B is like taking
$8,762.97 now and then investing it for three years. The equations above illustrate that
option A is better not only because it offers you money right now but because it offers
you $1,237.03 ($10,000 - $8,762.97) more in cash! Furthermore, if you invest the
$10,000 that you receive from option A, your choice gives you a future value that is
$1,411.66 ($11,411.66 - $10,000) greater than the future value of option B.

Present Value of a Future Payment

Let us add a little spice to our investment knowledge. What if the payment in three years
is more than the amount you would receive today? Say you could receive either $15,000
today or $18,000 in four years. Which would you choose? The decision is now more
difficult. If you choose to receive $15,000 today and invest the entire amount, you may
actually end up with an amount of cash in four years that is less than $18,000. You could

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find the future value of $15,000, but since we are always living in the present, let's find
the present value of $18,000 if interest rates are currently 4%. Remember that the
equation for present value is the following:

In the equation above, all we are doing is discounting the future value of an investment.
Using the numbers above, the present value of an $18,000 payment in four years would
be calculated as the following:

Present Value

From the above calculation, we now know our choice is between receiving $15,000 or
$15,386.48 today. Of course, we should choose to postpone payment for four years!

Future Value of an Annuity

An annuity is a stream of constant cash flow (payment or receipt) occurring at regular
intervals of time. The premium payments of a life insurance policy, for example, are an
annuity. When the cash flows occur at the end of each period, the annuity is called an
ordinary annuity or a deferred annuity. When the cash flows occur at the beginning of
each period, the annuity is called an annuity due.

Suppose you deposit Rs 1,000 annually in a bank for 5 years and your deposits earn
a compound interest rate of 10 percent. What will be the value of this series of deposits
(an annuity0 at the end of 5 years? Assuming that each deposit occurs at the end of the
year, the future value of this annuity will be:

= Rs 1,000(1.10)4 + Rs 1,000(1.10)3 + Rs 1,000(1.10)2 + Rs 1,000(1.10) + Rs

1,000

= Rs 1,000(1.464) + Rs 1,000(1.331)+ Rs 1,000(1.21)+ Rs 1,000(1.10)+ Rs 1,000

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= Rs 6,105

Formula

The future value of an annuity:

FVAn = A (1+ r) n-1 + A (1+r) n-2 + …+ A

= A [(1+r) n – 1] / r

The term [(1+r) n -1] / r is referred to as the future value interest factor for an annuity
(FVIFAr, n).

Present Value Of An Annuity

Suppose you expect to receive Rs 1,000 annually for 3 years, each receipt occurring at
the end of the year. What is the present value of this stream of benefits if the discount rate
is 10 percent? The present value of this annuity is simply the sum of the present values of
all the inflows of this annuity:

Rs 1,000(1/1.10) + Rs 1,000(1/1.10)2 + Rs 1,000(1/1.10) 3

= Rs 1,000 *0.9091 + Rs 1,000 *0.8264 + Rs 1,000 *0.7513

= Rs 2,478.8

Formula

The present value of an annuity may be expressed as follows:

PVAn = A / (1+r) + A / (1+r) 2 +…+ A / (1+r) n-1 + A / (1+r) n

=A [{1-(1/1+r) n} /r]

The [{1-(1/1+r) n} /r] is referred to as the present value interest factor for an annuity
(PVIFAr, n).

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FIXED DEPOSIT

A deposit of money, generally with a bank, finance company or large corporation,

repayable on a certain date. Interest may be payable at regular intervals during the term of
the deposit or on withdrawal.

Fixed Deposit
 Wide range of tenures
 Choice of investment plans
 Partial withdrawal permitted
 Safe custody of fixed deposit receipts
 Auto renewal possible
 Loan facility available

Features

you can deposit any amount of money in our Fixed Deposit for as long as you wish
between 15 days to 10 years.

All fixed deposits come with a set choice of investment plans. Fixed Rate Deposit
accounts also provide Fixed Loans. Re-investment Fixed Deposit rates do not change
but work like a Recurring Debit Account transaction. In other words, Re-investment
Plans are compounded over traditional deposits and hence are more lucrative over
different periods.

Benefits

Fixed Deposit at ICICI Bank comes with nomination facility. We also offer online access
to your Fixed Deposit through our Internet Banking channel. Internet Banking at ICICI
Bank allows you to connect your Credit Card, Loan and your Fixed Deposit with your

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savings account.
In re-investment deposits, the interest is compounded quarterly and reinvested with the
principal.

Traditional term deposits provide tax shelter and shield you from factors affecting fixed
deposits in India over longer periods of fixed time.

. INTEREST RATE FOR ICICI Bank Tax-Saver Fixed Deposit (Tenure – 5 Years)

 Applicable Rate of Interest on ICICI Bank Tax-Saver Fixed Deposit is 8.50% p.a.
for General Category for Single Deposits of value up to Rs. 1 Lac.
 Applicable Rate of Interest on ICICI Bank Tax-Saver Fixed Deposit is 8.50% p.a.
for Senior Citizens Category for Single Deposits of value up to Rs. 1 Lac.

NRI deposit terms

Maturity Period
*Subject to revision without further
notice. Interest rates (percent per Less than INR 1.5 million INR 1.5 million & above

annum) w.e.f. November 12, 2007

Single Deposit of
7 days to 14 days N.A As advised by
15 days to 29 days 3.75% ICICI Bank
30 days to 45 days 4.00%
from time to time.
46 days to 60 days 4.00%
61 days to 90 days 4.00%
91 days to 180 days 6.25%
181 days to 269 days 6.25%
270 days to less than 1 year 6.25%
1 year to 389 days 8.00%
390 days 8.50%
391 days to 589 days 8.00%
590 Days 8.75%

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 TIME VALUE OF MONEY

591 days & above up to 2 years 8.00%

More than 2 years up to 3 years 8.00%
More than 3 years up to 4 years 8.00%
More than 4 years up to 5 years 8.50%
More than 5 years up to 10 years 8.50%  
Note:
1. Rates for Deposits for INR 1.5 million and above will be advised by ICICI Bank from time to
time.
2. Recurring Deposits will not be available for tenures of 390 days, 590 days and 890 days.
3. NRO Quantum Optima facility not available for day tenures (e.g. 390 days, 590 days etc.)
4. Additional 0.5% rate of interest payable on Fixed Deposits from resident senior citizens shall
not apply to NRE and NRO Fixed Deposits from NRI senior citizens.

Penalty for pre-mature withdrawal (all categories):

Penal rates
Original Tenure of Deposit
Less than INR 50 million INR 50 million & above
Less than 1 year 0.50% 0.50%
1 year & above but less than 5 1.00% 1.00%
years
5 years 1.00% 1.50%
More than 5 years up to 10 years 1.00% 1.50%

What are the features of an ICICI Bank Fixed Deposit?

Wouldn't you like a Fixed Deposit that allows you to deposit your money for just as long
as you wish? Our Fixed Deposit allows you just that - deposits can be opened for periods
ranging from 15 days to 10 years
other features include:
Choice of two investment plans:

Traditional

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 TIME VALUE OF MONEY

 Interest payable monthly or quarterly as per your convenience

 Maturity period ranges from 15 days to 10 years.

Reinvestment

 Interest is compounded quarterly and reinvested with principal amount

 Maturity period ranges from 6 months to 10 years


Minimum Balance
 You can avail of ICICI Bank Fixed Deposits for a minimum deposit of Rs 10,000.

Nomination

 Nomination facility is available for relationships in the names of individuals.

Unless otherwise specifically, given in writing by depositors, nomination in
deposit accounts will be at Customer ID level.
 Depositor(s) however has/have the right to specify different nominations at
account level by completing appropriate forms.
 Further, the applicant(s) is/are at liberty to change the nominee, through
declaration in the appropriate form to revise the nomination during the currency
of the relationship accounts with the Bank.

What are the benefits of an ICICI Bank Fixed Deposit?

Benefits
 A wide range of tenures, ranging from 15 days to 10 years, to suit your
investment plan.
 Partial withdrawal is permitted in units of Rs 1,000. The balance amount earns the
original rate of interest.
 Safe custody of your FIXED DEPOSIT receipts.
 Auto renewal is provided.
 Loan facility is available up to 90% of principal and accrued interest.

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 TIME VALUE OF MONEY

 Choice of two investment plans: Traditional or Reinvestment.

Traditional Reinvestment
Interest payable monthly and quarterly Interest is compounded quarterly
as per your convenience. and reinvested with principal
amount.
Maturity period ranges from 6
Maturity period ranges from 15 days to
months to 10 years.
10 years.

PRIVATE SECTOR BANKS

FIXED DEPOSIT RATES IN PRIVATE SECTOR BANKS

91- 120- 180- 271- Up to
Name of the 15-29 30-45 46-60 61-90 1 -2 2-3 3-5
120 179 270 364 5 With effective from
Bank days Days Days Days Years Years Years
Days Days Days Days Years
Bank of
5.50 6.50 6.50 7.50 8.50 8.50 9.50 9.50 10.00 10.50 11.00 11.00 16-8-99
Madura
Centurion
6.50 8.00 8.25 8.50 9.25 9.25 10.25 10.25 10.50 11.25 11.25 11.25 24-6-99
Bank
City Union
5.00 6.00 7.00 8.00 9.00 9.00 10.00 10.00 10.50 10.50 10.00 10.00 1-6-99
Bank
Global Trust
6.50 8.00 8.00 8.00 9.25 9.25 10.00 10.00 - - 11.25 11.50 18-8-99
India
H.D.F.C
5.00 8.00 8.00 8.00 9.00 9.00 10.00 10.00 10.00 10.00 10.00 - 10-4-99
Bank
I.C.I.C.I
5.00 6.00 7.00 7.00 8.00 8.00 10.00 10.00 10.50 10.50 10.50 10.50 1-8-99
Bank
I.D.B.I.  5.00 8.00 8.00 8.00 9.00 9.00 9.50 9.50 - - 10.50 - 21-8-99
IndusInd
5.50 8.00 8.00 8.00 9.00 9.00 10.00 10.00 - 11.25 11.25 11.25 2-8-99
Bank
Lord
Krishna 5.50 5.50 8.00 8.00 8.00 8.00 9.50 9.50 11.25 11.25 11.25 11.25 1-5-99
Bank
Tamilnadu
Mercantile 6.00 6.00 7.50 7.50 9.50 9.50 10.50 10.50 11.00 11.00 11.50 11.50 7-5-99
Bank
Catholic
6.00 6.00 8.00 8.00 8.50 8.50 9.00 9.00 10.00 10.50 11.00 11.00 19-4-99
Syrian Bank
Dhana
lakshmi 7.00 7.00 8.00 8.00 9.00 9.00 9.50 9.50 10.50 11.00 11.50 11.50 1-9-99
Bank

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 TIME VALUE OF MONEY

Federal
5.00 5.00 7.00 7.00 7.50 7.50 8.00 8.00 9.50 10.00 10.75 10.75 1-9-99
Bank

J.& K. Bank 5.50 5.50 7.00 7.00 9.25 9.25 10.00 10.00 10.25 10.50 11.00 11.00 15-12-99

South Indian
5.00 5.00 7.00 7.00 7.50 7.50 8.50 8.50 9.50 10.25 10.75 10.75 15-9-99
Bank
Nedungadi
6.00 6.00 8.00 8.00 9.00 9.00 10.00 10.00 10.50 11.50 11.50 11.50 1-4-99
Bank
Vysya Bank 5.75 5.75 7.25 7.25 8.25 8.50 9.00 9.00 10.50 10.75 11.00 11.00 2-8-99
Times Bank 6.00 8.00 8.00 8.00 9.00 9.00 10.00 10.00 10.5 10.5 10.5 - 16-8-99
U.T.I. Bank 5.50 8.00 8.00 8.00 9.00 9.00 - - - - 11.5 11.5 1-5-99

Savings Bank Account Rate: 3.50%

ANALYSIS

1. If we deposit Rs. 15,000, then what will our future value after 10 years? Interest rate
is 10.50%.

FVn = PV (1+r) ^n

= 15000 (1+ 0.1050) ^10

= 15000 (1.105) ^10

= 15000 (2.71)

= Rs. 40,650

2. We want Rs. 15, 00,000 after 10 years and interest rate is 10.50%. What will be our
present value?

PV = FVn [1/ (1+r) ^n]

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 TIME VALUE OF MONEY

= 15, 00,000 [1/ 2.71]

= Rs. 5, 53,505

3. You want to buy a house after 5 years when it is expected to cost Rs. 2 million. How
much should you save annually if your savings earn a compound return of 3.5%?

FVAn = [(1+r) ^n-1/r]

= [(1+0.035)^5-1/0.035]

= 1.1475/0.035

= 32.78

The annual savings should be:

= 20, 000, 00/ 32.78

= Rs. 61,012.81

4. Rohit’s father deposited Rs. 3, 00,000 on retirement in a bank, which pays 3.5%
interest. How much can he be withdrawn annually for a period of 10 years?

PVIFAr, n = A* {1-[1/ (1+r) ^n]/r}

= 3, 00,000* {1-[1/ (1+0.035) ^10]/0.035}

= 3, 00,000* 8.308

= Rs. 24, 92,571

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 TIME VALUE OF MONEY

CONCLUSION

These calculations demonstrate that time literally is money - the value of the money you
have now is not the same as it will be in the future and vice versa. Therefore, it is
important to know how to calculate the time value of money so that you can distinguish
between the worth of investments that offer you returns at different times.

The ICICI bank may also raise funds by issuing equity shares. It can help the bank to
maximize the cash flows. The time value of money and risk also helps the bank to make
financial decisions.

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 TIME VALUE OF MONEY

BIBLIOGRAPHY

Websites:
□ http://en.wikipedia.org/wiki/Investor
□ http://www.icicibank.com/pfsuser/icicibank/depositproducts/fixeddeposits/fd

Reference Books:
□ “Financial Management” by Prasanna Chandra, 7th Edition,
Chapter 6, page no. 133.
□ “Financial Management” by I.M.Panday, 9th edition,
Chapter 2, Page no.23

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