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Fundamental analysis of banking industry

Special reference to public sector Banks

Darun v
(With Special reference to Public Sector Banks)

Fundamental Analysis involves examining the economic, financial and other qualitative
and quantitative factor...
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Fundamental analysis of banking industry

  1. 1. FUNDAMENTAL ANALYSIS OF BANKING INDUSTRY Special reference to public sector Banks Darun v darunvd@gmail.com
  2. 2. FUNDAMENTAL ANALYSIS OF BANKING INDUSTRY (With Special reference to Public Sector Banks) A PROJECT REPORT SUBMITTED BY DARUN V Reg.No:12351034 Submitted to Pondicherry University in partial fulfillment of the requirements for the award of the Post Graduate degree in Master of Commerce (Business Finance) Under the guidance of Dr.D. LAZAR ASSOCIATE PROFESSOR DEPARTMENT OF COMMERCE SCHOOL OF MANAGEMENT PONDICHERRY UNIVERSITY NOVEMBER-2013 1
  3. 3. INTRODUCTION Fundamental Analysis involves examining the economic, financial and other qualitative and quantitative factors related to a security in order to determine its intrinsic value. If a company's stock is trading above the intrinsic value or fair value, then the stock is overvalued. If a company's stock is trading below the intrinsic value, then the stock is undervalued. It attempts to study everything that can affect the security's value, including macroeconomic factors (like the overall economy and industry conditions) and individually specific factors (like the financial condition and management of companies). Fundamental analysis, which is also known as quantitative analysis, involves delving into a company’s financial statements (such as profit and loss account and balance sheet) in order to study various financial indicators (such as revenues, earnings, liabilities, expenses and assets. STATEMENT OF THE PROBLEM The study of fundamental analysis of banking industry in India Infoline ltd is to assess the performance of banking industry and select the most performing banking companies through the analysis of macro and micro variables that affects the performance of particular company. OBJECTIVE OF THE STUDY     To analyze economy by using some economic indicators like GDP, and inflation rate etc to find out the best time for investment and selection of industry performing well in economy. To analyze industry for assessing the strength and find out best performing companies. To carry out analysis of companies to select particular company performing well for investment. To provide investment decisions SCOPE OF THE STUDY 1. The study gives overview of banking industry to investors while investing 2. This study consists of Economic, Industry and Company framework of analysis with the following aspects  Economic analysis consists of various variables such as GDP, BOP, Inflation, FII etc.  Industry analysis consists of Demand, potential market, growth and development etc.  Company analysis consists of financial statement analysis, Companies prospects, growth, and Management board of company. 2
  4. 4. PERIOD OF STUDY The period of the study is 5 years i.e. (2009-2013). Company 5 years data has been taken for the analysis RESEARCH METHODOLOGY Research methodology is a way to systematically solve the research problem. The research methodology using for find out the solution of the research problem is analytical research methodology and some extend descriptive research methodology DATA SOURCES Secondary data has been collected from various sources to analyze the fundamentals. Following are the Sources.  RBI  Annual reports  CMIE Data base  Bloomberg data base  NSE  World bank  Money control  Other websites TOOLS FOR ANALYSIS Unlike any other manufacturing or service company, a bank’s accounts are presented in a different manner (as per banking regulations). The analysis of a bank account differs significantly from any other company. The key operating and financial ratios, which one would normally evaluate before investing in company, may not hold true for a bank. The followings are the most popular tools for the fundamental analysis of Banks or to evaluate performance of Banks.  Net interest margin (NIM)  Credit to deposit  Operating profit margin  Non-performing asset ratio(NPA)  Cost to income ratio  Earnings per share(EPS)  Dividend per share (DPS)  Dividend payout ratio  Price earnings ratio 3
  5. 5. NET INTEREST MARGIN (NIM) For banks, interest expenses are their main costs (similar to manufacturing cost for companies) and interest income is their main revenue source. The difference between interest income and expense is known as net interest income. It is the income, which the bank earns from its core business of lending. Net interest margin is the net interest income earned by the bank on its average earning assets. These assets comprises of advances, investments, balance with the RBI and money at call. 𝑵𝑰𝑴 = 𝑵𝑻𝑬𝑹𝑬𝑺𝑻𝑰𝑵𝑪𝑶𝑴𝑬 − 𝑰𝑵𝑻𝑬𝑹𝑬𝑺𝑻𝑬𝑿𝑷𝑬𝑵𝑺𝑬 𝑬𝑨𝑹𝑵𝑰𝑵𝑮 𝑨𝑺𝑺𝑬𝑻𝑺 CREDIT TO DEPOSIT RATIO (CD RATIO) The ratio is indicative of the percentage of funds lent by the bank out of the total amount Raised through deposits. Higher ratio reflects ability of the bank to make optimal use of the available resources. The point to note here is that loans given by bank would also include its investments in debentures, bonds and commercial papers of the companies (these are generally included as a part of investments in the balance sheet). 𝑪𝑹𝑬𝑫𝑰𝑻 𝑻𝑶 𝑫𝑬𝑷𝑶𝑺𝑰𝑻 = 𝑪𝑹𝑬𝑫𝑰𝑻 𝑨𝑫𝑽𝑨𝑵𝑪𝑬𝑺 OPERATING PROFIT MARGINS (OPM) Banks operating profit is calculated after deducting administrative expenses, which mainly include salary cost and network expansion cost. Operating margins are profits earned by the bank on its total interest income. For some private sector banks the ratio is negative on account of their large IT and network expansion spending. 𝑶𝑷𝑴 = 𝑵𝑬𝑻 𝑰𝑵𝑻𝑬𝑹𝑬𝑺𝑻 𝑰𝑵𝑪𝑶𝑴𝑬 − 𝑶𝑷𝑬𝑹𝑨𝑻𝑰𝑵𝑮𝑬𝑿𝑷𝑬𝑵𝑺𝑬𝑺 ∗ 𝟏𝟎𝟎 𝑻𝑶𝑻𝑨𝑳 𝑰𝑵𝑻𝑬𝑹𝑬𝑺𝑻 𝑰𝑵𝑪𝑶𝑴𝑬 NPA RATIO The ‘net non-performing assets to loans (advances) ratio’ is used as a measure of the overall quality of the bank’s loan book. Net NPAs are calculated by reducing cumulative balance of provisions outstanding at a period end from gross NPAs. Higher ratio reflects rising bad quality of loans. 𝑵𝑷𝑨 𝑹𝑨𝑻𝑰𝑶 = 𝑵𝑬𝑻 𝑵𝑶𝑵 𝑷𝑬𝑹𝑭𝑶𝑹𝑴𝑰𝑵𝑮 𝑨𝑺𝑺𝑬𝑻𝑺 𝑳𝑶𝑨𝑵𝑺 𝑮𝑰𝑽𝑬𝑵 4
  6. 6. COST TO INCOME RATIO Controlling overheads are critical for enhancing the bank’s return on equity. Branch Rationalization and technology upgrade account for a major part of operating expenses for new generation banks. Even though, these expenses result in higher cost to income ratio, in long term they help the bank in improving its return on equity. The ratio is calculated as a proportion of operating profit including non-interest income (fee based income) 𝑪𝑶𝑺𝑻 𝑻𝑶 𝑰𝑵𝑪𝑶𝑴𝑬 𝑹𝑨𝑻𝑰𝑶 = 𝑶𝑷𝑬𝑹𝑨𝑻𝑰𝑵𝑮 𝑬𝑿𝑷𝑬𝑵𝑺𝑬 𝑵𝑬𝑻 𝑰𝑵𝑻𝑬𝑹𝑬𝑺𝑻 𝑰𝑵𝑪𝑶𝑴𝑬 + 𝑵𝑶𝑵 𝑰𝑵𝑻𝑬𝑹𝑬𝑺𝑻 𝑰𝑵𝑪𝑶𝑴𝑬 EARNING PER SHARE (EPS) The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability. 𝑬𝑷𝑺 = 𝑵𝑬𝑻 𝑰𝑵𝑪𝑶𝑴𝑬 − 𝑫𝑰𝑽𝑰𝑫𝑬𝑵𝑫 𝑶𝑵 𝑷𝑹𝑬𝑭𝑬𝑹𝑬𝑵𝑪𝑬𝑺𝑯𝑨𝑹𝑬𝑺 𝑵𝑼𝑴𝑩𝑬𝑹 𝑶𝑭 𝑺𝑯𝑨𝑹𝑬𝑺 DIVIDEND PER SHARE (DPS) The sum of declared dividends for every ordinary share issued. Dividend per share (DPS) is the total dividends paid out over an entire year (including interim dividends but not including special dividends) divided by the number of outstanding ordinary shares issued. 𝑫𝑷𝑺 = 𝑺𝑼𝑴 𝑶𝑭𝑫𝑰𝑽𝑰𝑫𝑬𝑵𝑫 𝑵𝑼𝑴𝑩𝑬𝑹𝑶𝑭 𝑺𝑯𝑨𝑹𝑬𝑺 Having a growing dividend per share can be a sign that the company's growth can be sustained. DIVIDEND PAY OUT RATIO The percentage of earnings paid to shareholders in dividends. 𝑫𝑰𝑽𝑰𝑫𝑬𝑵𝑫 𝑷𝑨𝒀 𝑶𝑼𝑻 𝑹𝑨𝑻𝑰𝑶 = 𝑫𝑷𝑺 𝑬𝑷𝑺 A reduction in dividends paid is looked poorly upon by investors, and the stock price usually depreciates as investors seek other dividend-paying stocks. A stable dividend payout ratio indicates a solid dividend policy by the company's board of directors. PRICE EARNING RATIO A valuation ratio of a company's current share price compared to its per-share earnings. A high P/E ratio suggests that investors are expecting higher earnings growth in the future compared to 5
  7. 7. companies with a lower P/E ratio. The P/E ratio is sometimes referred to as the "multiple", because it shows how much investors are willing to pay per units of earnings. 𝑷𝑹𝑰𝑪𝑬 𝑬𝑨𝑹𝑵𝑰𝑵𝑮 𝑹𝑨𝑻𝑰𝑶 = 𝑴𝑨𝑹𝑲𝑬𝑻 𝑽𝑨𝑳𝑼𝑬 𝑷𝑬𝑹 𝑺𝑯𝑨𝑹𝑬 𝑬𝑨𝑹𝑵𝑰𝑵𝑮 𝑷𝑬𝑹 𝑺𝑯𝑨𝑹𝑬 INTRINSIC VALUE By intrinsic value we mean value of share which is supported by asset quality, performance earning capacity, risk, future prospects, and happening in the economy. It is believed that in the long run a share is likely to command a market price around its intrinsic value. Therefore a knowledge about this can help in investment decision Steps for calculating intrinsic value 1. Estimation of expected EPS of the company 2. Estimation of price earning multiplier(P/E) P/E multiplier can be estimated by taking into consideration several factors like (a) past performance of the company, (b) expectation about future, (c) goodwill of company etc. Here in this analysis P/E multiplier is calculated on the basis of past performance of company, ie average of past five years P/E ratio. And estimated EPS also calculated on the basis of past five year EPS ie average of past five years EPS. Thus 𝑰𝑵𝑻𝑹𝑰𝑵𝑺𝑰𝑪 𝑽𝑨𝑳𝑼𝑬 = 𝑬𝑿𝑷𝑬𝑪𝑻𝑬𝑫 𝑬𝑷𝑺 ∗ 𝑷𝑹𝑰𝑪𝑬 𝑬𝑨𝑹𝑵𝑰𝑵𝑮 𝑴𝑼𝑳𝑻𝑰𝑷𝑳𝑰𝑬𝑹 Decision making with the help of intrinsic value  Buy – if intrinsic value is greater than current market price  Sell – if intrinsic value less than current market price TECHNIQUES The technique used in the analysis of the company is excel sheets, graphs and tables of Financial statement etc. 6
  8. 8. LIMITATIONS          For study only following limited variables has studied such as GDP, CAD, Foreign exchange reserve, foreign investment inflow, inflation, agricultural production, industrial production index, lending rate, employment, &sectorial contribution to GDP. Industrial analysis is limited to quantitative factors and excluded qualitative factors like political factors, product line, innovations etc. Fundamental analysis is a time consuming analysis, efficiency of the analysis is totally depends up on the availability of time. The analysis here conducted with limited period of time. Qualitative factors had limited priority in company analysis. Valuation techniques and tools for banks are different from other form of companies. So the suggested fundamental ratios to analyze companies should not be suitable for banks. Reliability of analysis is depends up on the reliability of the data sources Future changes are largely unpredictable, so the past record is a poor guide to future performance. The analysis is based on my own interpretation and up to my best of knowledge but every analyst have his or her own interpretation and suggestions Error due to misinterpretation 7
  10. 10. ANALYSIS The examination and evaluation of the relevant information to select the best course of action from among various alternatives. The methods used to analyze securities and make investment decisions fall into two very broad categories: fundamental analysis and technical analysis. Fundamental analysis involves analyzing the characteristics of a company in order to estimate its value. Technical analysis takes a completely different approach; it doesn't care one bit about the "value" of a company or a commodity. Technicians (sometimes called chartists) are only interested in the price movement in the market TECHNICAL ANALYSIS Technical analysis is a method of evaluating securities by analyzing the statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity. FUNDAMENTAL ANALYSIS Fundamental analysis is a stock valuation methodology that uses financial and economic analysis to envisage the movement of stock prices. The fundamental data that is analyzed could include a company’s financial reports and non-financial information such as estimates of its growth, demand for products sold by the company, industry comparisons, economy-wide changes, changes in government policies etc. The outcome of fundamental analysis is a value (or a range of values) of the stock of the Company called its ‘intrinsic value’ (often called ‘price target’ in fundamental analysts’ parlance).To a fundamental investor, the market price of a stock tends to revert towards its intrinsic value. If the intrinsic value of a stock is above the current market price, the investor would purchase the stock because he believes that the stock price would rise and move towards its intrinsic value. If the intrinsic value of a stock is below the market price, the investor would sell the stock because he believes that the stock price is going to fall and come closer to its intrinsic value. To find the intrinsic value of a company, the fundamental analyst initially takes a topdown view of the economic environment; the current and future overall health of the economy as a whole. After the analysis of the macro-economy, the next step is to analyze the industry environment which the firm is operating in. One should analyze all the factors that give the firm a competitive advantage in its sector, such as, management experience, history of performance, growth potential, low cost of production, brand name etc. In simple term fundamental analysis is the analysis of Economy, Industry and Company. 9
  11. 11. TWO APPROACHES OF FUNDAMENTAL ANALYSIS 1. Top-down approach 2. Bottom-up approach 1 .Top-down approach: In this approach, an analyst investigates both international and national economic indicators, such as GDP growth rates, energy prices, inflation and interest rates. The search for the best security then trickles down to the analysis of total sales, price levels and foreign competition in a sector in order to identify the best business in the sector. 2. Bottom-up approach: In this approach, an analyst starts the search with specific businesses, irrespective of their industry/region. HOW DOES FUNDAMENTAL ANALYSIS WORKS Fundamental analysis is carried out with the aim of predicting the future performance of a company. It is based on the theory that the market price of a security tends to move towards its 'real value' or 'intrinsic value.' Thus, the intrinsic value of a security being higher than the security’s market value represents a time to buy. If the value of the security is lower than its market price, investors should sell it. STEPS OF FUNDAMENTAL ANALYSIS 1. Macroeconomic analysis, which involves considering currencies, commodities and indices. 2. Industry sector analysis, which involves the analysis of companies that are a part of the sector. 3. Situational analysis of a company. 4. Financial analysis of the company. 5. Valuation The valuation of any security is done through the discounted cash flow (DCF) model, which takes into consideration: 1. Dividends received by investors 2. Earnings or cash flows of a company 3. Debt, which is calculated by using the debt to equity ratio and the current ratio (current assets/current liabilities) 10
  12. 12. WHY ONLY FUNDAMENTAL ANALYSIS  Long-term Trends Fundamental analysis is good for long-term investments based on long-term trends, very long-term. The ability to identify and predict long-term economic, demographic, technological or consumer trends can benefit patient investors who pick the right industry groups or companies.  Value Spotting Sound fundamental analysis will help identify companies that represent a good value. Some of the most legendary investors think long-term and value. Graham and Dodd, Warren Buffett and John Neff are seen as the champions of value investing. Fundamental analysis can help uncover companies with valuable assets, a strong balance sheet, stable earnings, and staying power  Business insights One of the most obvious, but less tangible, rewards of fundamental analysis is the development of a thorough understanding of the business. After such pains taking research and analysis, an investor will be familiar with the key revenue and profit drivers behind a company. Earnings and earnings expectations can be potent drivers of equity prices. Even some technicians will agree to that. A good understanding can help investors avoid companies that are prone to shortfalls and identify those that continue to deliver. In addition to understanding the business, fundamental analysis allows investors to develop an understanding of the key value drivers and companies within an industry. A stock's price is heavily influenced by its industry group. By studying these groups, investors can better position themselves to identify opportunities that are high-risk (tech), low-risk (utilities), growth oriented (computer), value driven (oil), non-cyclical (consumer staples), cyclical (transportation) or income-oriented (high yield).  Knowing Who's Who Stocks move as a group. By understanding a company's business, investors can better position themselves to categorize stocks within their relevant industry group. Business can change rapidly and with it the revenue mix of a company. This has happened with many of the pure internet retailers, which were not really internet companies, but plain retailers. Knowing a company's business and being able to place it in a group can make a huge difference in relative valuations. The charts of the technical analyst may give all kinds of profit alerts, signals and alarms, but there‟s little in the charts that tell us why a group of people make the choices that create the price patterns 11
  13. 13. USERS OF FUNDAMENTAL ANALYSIS     Investors Brokers Financial institutions Competitors COMPONENTS OF FUNDAMENTAL ANALYSIS A. ECONOMIC ANALYSIS B. INDUSTRY ANALYSIS C. COMPANY ANALYSIS A-ECONOMIC ANALYSIS The economic analysis aims at determining if the economic climate is conclusive and is capable of encouraging the growth of business sector, especially the capital market. When the economy expands, most industry groups and companies are expected to benefit and grow. When the economy declines, most sectors and companies usually face survival problems. Hence, to predict share prices, an investor has to spend time exploring the forces operating in overall economy. Exploring the global economy is essential in an international investment setting. The selection of country for investment has to focus itself to examination of a national economic scenario. It is important to predict the direction of the national economy because economic activity affects corporate profits, not necessarily through tax policies but also through foreign policies and administrative procedures. ECONOMIC ANALYSIS TOOLS The most used tools for performing economic analysis are: 1. Gross Domestic product GDP is one measure of economic activity. This is the total amount of goods and services produced in a country in a year. It is calculated by adding the market values of all the final goods and services produced in a year.  It is a gross measurement because it includes the total amount of goods and services produced, of which some merely replace goods that have depreciated or have worn out.  It is domestic production because it includes only goods and services produced within the country. 2. Inflation Inflation can be defined as a trend of rising prices caused by demand exceeding supply. Over time, even a small annual increase in prices of say 1 % will tend to influence the purchasing power of the nation. In others word, if prices rise steadily, after a number of years, consumers 12
  14. 14. will be able to buy only fewer goods and services assuming income level does not change with inflation. 3. Interest rate Interest rate is the price of credit. It is the percentage fee received or paid by individual or organization when they lend and borrow money. In general, increases in interest rate, whether caused by inflation, government policy, rising risk premium, or other factors, will lead to reduced borrowing and economic slowdown. 4. International influences Rapid growth in overseas market can create surges in demand for exports, leading to growth in export sensitive industries and overall GDP. In contrast, the erection of trade barriers, quotas, currency restrictions can hinder the free flow of currency, goods, and services, and harm the export sector of an economy. 5. Fiscal policy The fiscal policy of the government involves the collection and spending of revenue. In particular, fiscal policy refers to the efforts by the government to stimulate the economic directly, through spending. 6. Monsoon Agriculture forms a very important sector of the Indian economy. Rise in the agricultural income will cause increase in the demand for industrial products and services and the performance of agriculture is depends up on monsoon. So the progress and adequacy of monsoon becomes a matter of great concern for an investor in the Indian contest. 7. Political stability A stable political environment is necessary for steady and balanced growth. Stable long term political policies are good for the performance of economy 8. Exchange rates The performance and profitability of industries and companies that are major importers or exporters are considerably affected by the exchange rates of rupee against major currencies. A depreciation of rupee improve the competitive position of Indian products in the foreign market, thereby stimulating exports. But it would also make imports more expensive. A company depending heavily on imports may find devaluation of rupee affecting its profitability adversely. 13
  15. 15. 9. Monetary policy and Liquidity 10. International influences 11. Fiscal policy 12. Budget 13. Balance of payment 14. Domestic legislation 15. Unemployment 16. Infrastructural growth etc. CONCLUSION OF ECONOMIC ANALYSIS   An idea about appropriate time for investment Selection of industries which might perform better B-INDUSTRY ANALYSIS An industry analysis helps inform business managers about the viability of their current strategy and on where to focus a business among its competitors in an industry. The analysis examines factors such as competition and the external business environment, substitute products, management preferences, buyers and suppliers. Industry analysis involves reviewing the economic, political and market factors that influence the way the industry develops. Major factors can include the power wielded by suppliers and buyers, the condition of competitors. And the likelihood of new market entrants 1. INDUSTRY LIFE CYCLE The profitability of industry is depends up on the stage of lifecycle of industry. Each development stage is unique and exhibits different characteristics. Followings are the different stages of lifecycle of industry a. Pioneering stage It is the stage of startup of an industry. In this stage very few beginners set up the companies. The risk at this stage is very high due to gestation period effect. b. Rapid growth stage At this stage of industry lifecycle demand for the product in the industry increases at a fast pace and every day new participants enter in the industry c. Maturity and saturation At this stage demand almost stabilizes at a particular level. Product differentiation takes place and companies start competing on the product features. This phase is also of consolidation and companies consolidate their position by focusing on a particular segment. d. Decline/diversification At this stage poor performers start winding up their business and this phase witnesses the survival of only the fittest. Very strong companies survive during this stage. A few companies take up the path of diversification to overcome this phase. If company diversifies then they again enter into a new industry life cycle. 14
  16. 16. 2. INDUSTRY CHARACTERISTICS a) Demand supply gap Excess supply reduces the profitability of industry through a decline in unit price realization. On the contrary insufficient supply tends to improve the profitability through higher unit price realization. Therefore the gap between demand and supply in an industry is a fairly good indicator of its short term or medium term prospects. b) Competitive condition in the industry The level of competition among various companies in an industry is determined by certain competitive forces like barriers to entry, the threat of substitution, bargaining power of buyers, bargaining power of suppliers, and rivalry among competitors. c) Permanence In this age of rapid technological change, the degree of permanence of an industry is an important consideration in industry analysis .permanence is a phenomenon related to the product and technology used by the industry. if an analyst feels that the need for a particular industry will vanish in short period, or that rapid technological changes would render the products obsolete within a short time, it would be foolish to invest in such an industry. d) Labour conditions If labours in a particular industry is rebellious and is inclined to resort to strikes frequently, the prospects of that industry cannot become bright. e) Attitude of government Government may encourage the growth of certain industries and assist such industries through favorable legislation f) Supply of raw materials Availability of raw material is an important factor determining profitability of industry. some industries may not have problems to obtain row materials. g) Cost structure Cost structure is the proportion of fixed cost to variable cost. The higher the fixed cost component, higher is the sales volume necessary to achieve breakeven point. Conversely lower the fixed cost proportion to variable cost, lower would be the breakeven point. h) Etc. 15
  17. 17. CONCLUSION OF INDUSTRY ANALYSIS The main aim is to identify such industries in which    Chance of growth Chance of high profitability Low risk if investment is made C-COMPANY ANALYSIS Every industry has more than one company therefore this phase scans the companies of those industries which have been selected in the Industry analysis. The purpose of this phase is to identify the best company in the industry selected. This is done with the help of the following factors  Analysis of qualitative factors  Financial performance analysis 1) Competitive position The level of competition and companies positions are the important factors which determine the profitability of particular company. 2) Management quality Investors prefer to have highly skilled management in company 3. Technology Technological up gradation of companies directly influence profitability of companies and it will increase the market price of shares also. 3) 4) 5) 6) Brand image Raw materials Labour conition Capacity utilisation Ratio analysis A tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Ratio analysis is predominately used by proponents of fundamental analysis. There are many ratios that can be calculated 16
  18. 18. From the financial statements pertaining to a company's performance, activity, financing and liquidity. Some common ratios include the price-earnings ratio, debt-equity ratio, earnings per share, asset turnover and working capital. ROA Return on assets, which, offering a different take on management's effectiveness reveals how much profit a company earns for every dollar of its assets. Assets include things like cash in the bank, accounts receivable, property, equipment, inventory and furniture. ROA is calculated like this. 𝑹𝑶𝑨 = 𝑨𝑵𝑵𝑼𝑨𝑳 𝑵𝑬𝑻 𝑰𝑵𝑪𝑶𝑴𝑬 𝑻𝑶𝑻𝑨𝑳 𝑨𝑺𝑺𝑬𝑻 ROI Return on Investment is one of several commonly used approaches for evaluating the financial consequences of business investments, decisions, or actions. ROI analysis compares the magnitude and timing of investment gains directly with the magnitude and timing of investment costs. A high ROI means that investment gains compare favorably to investment costs. 𝑹𝑶𝑰 = 𝑮𝑨𝑵𝑰𝑵𝑺 − 𝑰𝑵𝑽𝑬𝑺𝑻𝑴𝑬𝑵𝑻𝑪𝑶𝑺𝑻 𝑰𝑵𝑽𝑬𝑺𝑻𝑴𝑬𝑵𝑻 𝑪𝑶𝑺𝑻 ROE Of all the fundamental ratios that investors look at, one of the most important is return on equity. It's a basic test of how effectively a company's management uses investors' money - ROE shows whether management is growing the company's value at an acceptable rate. ROE is calculated as 𝑹𝑶𝑬 = 𝑨𝑵𝑵𝑼𝑨𝑳 𝑵𝑬𝑻𝑰𝑵𝑪𝑶𝑴𝑬 𝑵𝑼𝑴𝑩𝑬𝑹 𝑶𝑭 𝑬𝑸𝑼𝑰𝑻𝒀 𝑺𝑯𝑨𝑹𝑬 𝑯𝑶𝑳𝑫𝑬𝑹𝑺 EPS The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability. 𝑬𝑷𝑺 = − 𝑵𝑬𝑻 𝑰𝑵𝑪𝑶𝑴𝑬 − 𝑫𝑰𝑽𝑰𝑫𝑬𝑵𝑫 𝑶𝑵 𝑷𝑹𝑬𝑭𝑬𝑹𝑬𝑵𝑪𝑬𝑺𝑯𝑨𝑹𝑬 𝑵𝑼𝑴𝑩𝑬𝑹 𝑶𝑭 𝑺𝑯𝑨𝑹𝑬 𝑯𝑶𝑳𝑫𝑬𝑹𝑺 DPS 17
  19. 19. The the sum of declared dividends for every ordinary share issued. Dividend per share (DPS) is the total dividends paid out over an entire year (including interim dividends but not including special dividends) divided by the number of outstanding ordinary shares issued. 𝑫𝑷𝑺 = 𝑻𝑶𝑻𝑨𝑳 𝑫𝑰𝑽𝑰𝑫𝑬𝑵𝑫 𝑵𝑼𝑴𝑩𝑬𝑹𝑶𝑭 𝑺𝑯𝑨𝑹𝑬𝑺 DIVIDEND YEILD Financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Dividend yield is calculated as follows: 𝑫𝑰𝑽𝑰𝑫𝑬𝑵𝑫 𝒀𝑰𝑬𝑳𝑫 = 𝑨𝑵𝑵𝑼𝑨𝑳 𝑫𝑰𝑽𝑰𝑫𝑬𝑵𝑫 𝑷𝑬𝑹𝑺𝑯𝑨𝑹𝑬 𝑷𝑹𝑰𝑪𝑬 𝑷𝑬𝑹 𝑺𝑯𝑨𝑹𝑬 CONCLUSION OF COMPANY ANALYSIS  Identification of companies in which investment can be made END RESULT OF FUNDAMENTAL ANALYSIS   At what time investment is to be made In which company investment is to be made 18
  20. 20. COMPANY PROFILE 19
  21. 21. IIFL (INDIA INFOLINE LTD) IIFL is a brokerage firm dealing in retail brokerage, institutional brokerage, consumer lending, institutional lending, realty and wealth management. Was founded in 1995 by Mr. Nirmal Jain (Chairman) as an independent business research and information provider. It gradually evolved into a financial services solution provider. IIFL has a network of 3000 business locations spread over more than 500 cities and towns across India. IIFL is listed on the Bombay Stock Exchange (BSE) and the National stock exchange of India (NSE) for securities trading; with MCX, NCDEX and DGCX for commodities trading; and with CDSL and NSDL as depository participants.[citation needed] IIFL is registered as a Category I merchant banker and is a SEBI registered portfolio manager. PRODUCTS AND SERVICES Equities India infoline provided the prospect of researched investing to its clients.reserch for retail invester did not exist prior to India infoline. India infoline liveraged technology to bring the convenience of trading to the investor’s location of preference through computerized access. IIFL made it possible for clients to view transaction cost and ledger updates in real time Commodities IIFL was among the first offer the facility of commodities trading in India’s young commodities market (MCX). Average monthly turnover on the commodity exchanges increased from Rs 0.34 bn to 20.02 bn. IIFL offers commodities trading to its customers vide its membership of the MCX and the NCDEX. Our domain knowledge and data based on in depth research of complex paradigms of commodity kinetics, offers our customers a unique insight into behavioral patterns of these markets. Our customers are ideally positioned to make informed investment decisions with a high probability of success. Insurance IIFL entered the insurance distribution business in 2000 as ICICI Prudential Life Insurance Co. Ltd’s corporate agent. Later, it became an Insurance broker in October 2008 in line with its strategy to have an ‘open architecture’ model. The Company now distributes products of major insurance companies through its subsidiary India Infoline Insurance Brokers Ltd. Customers can choose from a wide bouquet of products from several insurance companies including Max New York Life Insurance, MetLife, Reliance Life Insurance, Bajaj Allianz Life, Birla Sunlife, Life Insurance Corporation, Kotak Life Insurance and others. 20
  22. 22. Wealth Management Service IIFL offers private wealth advisory services to high-net-worth individuals (HNI) and corporate clients under the ‘IIFL Private Wealth’ brand. IIFL Private Wealth is managed by a qualified team of MBAs from IIMs and premier institutes with relevant industry experience. The team advises clients across asset classes like sovereign and quasi-sovereign debt, corporate and collateralised debt, direct equity, ETFs and mutual funds, third party PMS, derivative strategies, real estate and private equity. It has developed innovative products structured on the fixed income side. It also has tied up with Interactive Brokers LLC to strengthen its execution platform and provide investors with a global investment platform. Investment Banking IIFL’s investment banking division was launched in 2006. The business leverages upon its strength of research and placement capabilities of the institutional and retail sales teams. Our experienced investment banking team possesses the skill-set to manage all kinds of investment banking transactions. Our close interaction with investors as well as corporates helps us understand and offer tailor-made solutions to fulfill requirements. The Company possesses strong placement capabilities across institutional, HNI and retail investors. This makes it possible for the team to place large issues with marquee investors. Credit and finance IIFL offers a wide array of secured loan products. Currently, secured loans (mortgage loans, margin funding, loans against shares) comprise 94% of the loan book. The Company has discontinued its unsecured products. It has robust credit processes and collections mechanism resulting in overall NPAs of less than 1%. The Company has deployed proprietary loanprocessing software to enable stringent credit checks while ensuring fast application processing. Recently the company has also launched Loans against Gold. BRIEF HISTORY OF IIFL India Infoline Limited (IIL), incorporated in 18th October of the year 1995 as Probity Research & Services Private Limited at Mumbai. The India Infoline is a one-stop shop for information, advice as well as transaction execution of financial services. IIL along-with its subsidiaries caters to entire gamut of financial services including equities and commodities broking, portfolio management, distribution of mutual funds, life insurance products, home loans, personal loans, etc. Broking services are offered under the 5paisa brand (offers broking services in the Cash and Derivatives segments of the NSE as well as the Cash segment of the BSE). The company has proven research capabilities and was rated by the Forbes as the best of web' and must read for investors'. A network of 758 business locations spread over 346 cities across India, facilitates the smooth acquisition and servicing of a large customer base. India Infoline's research is available not just over the Internet but also on international wire services 21
  23. 23. like Bloomberg (Code: IILL), Thomson First Call and Internet Securities where it is amongst the most read Indian brokers. The Company identified the potential of the Internet to cater to a mass retail segment and transformed its business model from providing information services to institutional customers to retail customers. Hence IIL launched its Internet portal, www.indiainfoline.com in May of the year 1999 and started providing news and market information, independent research, interviews with business leaders and other specialized features. IIL was converted into a Public Limited Company in 28th April of the year 2000 and the name of the Company was changed to Probity Research & Services Limited. The name of the company was changed to India Infoline.com Limited in 23rd May of the year 2000. During 23rd March of the year 2001, again the name was changed as India Infoline Limited. IIL acquired 100% shares of Agri Marketing Services Limited during March of the year 2000. In the year 2000, IIL leveraged its position as a provider of financial information and analysis by diversifying into transactional services, primarily for online trading in shares and securities and online as well as offline distribution of personal financial products, like mutual funds and RBI Bonds. These activities are carried on through the wholly owned subsidiaries. The broking service was launched under the brand name of 5paisa through our subsidiary, India Infoline Securities Private Limited and www.5paisa.com, the e-broking portal, was launched for online trading in June of the year 2000. It combined competitive brokerage rates and research, supported by Internet technology. Besides investment advice from an experienced team of research analysts, also offer real time stock quotes, market news and price charts with multiple tools for technical analysis. In December of the year 2000, India Infoline Insurance Services Limited (subsidiary) became a corporate agent for ICICI Prudential Life Insurance Company Limited. In the year 2004, the company launched commodities broking through its subsidiary India Infoline Commodities Private Limited. Also received a license for Portfolio Management Services from SEBI for broking subsidiary. During the year 2006, the company received the requisite prior approval from The Securities and Exchange Board of India for its proposed merger of India Infoline Securities Private Limited (IISPL), a wholly owned subsidiary with itself. It had earlier received in-principle approval from National Stock Exchange and The Stock Exchange, Mumbai. In January of the year 2007, the company entered into an alliance with Bank of Baroda for providing Brokerage Platform, besides research and analysis services to the bank's customers. India Infoline awarded the Best Broker in India' by Finance Asia. This was a result of Finance Asia's annual look at the best financial services firms in each country around Asia for the period from June 2007 to May 2008. During March of the year 2008, India Infoline's institutional broking arm IIFL, partnered with Auerbach Grayson & Company, Inc., a New York-based brokerage firm to offer US investors premium access to investing in India's capital markets. Auerbach Grayson specializes in providing global trade execution and exclusive research to U.S. institutional investors. As of July 2008, the company received the in-principle approval for the insurance broking licence from IRDA 22
  24. 24. VISION To become the most respected company in the financial services space in india MISSION To become a full fledged financial services company known for its quality of advice,personalized services and cutting edge technology CSR(CORPORATE SOCIAL RESPONSIBILITY)  SCHOLARSHIPS H Nemkumar and Nirmal Jain Scholarship (May 2012) India has a large number of gifted and deserving students who are unable to avail of a high-quality learning experience from reputed institutions in India or abroad due to financial or other constraints. Young India Fellows reaches out to such students. The YIF scholarships have been made possible by generous donations by a stellar set of individuals including Mr. Nirmal Jain and Mr. H Nemkumar on behalf of IIFL Foundation.  FINANCIAL LITERACY FOR SUPPORTING UNDER PRIVILAGED IIFL has also tied up with KJ Somaiya Institute of Management Studies & Research (SIMSR) to impart basic financial knowledge to underprivileged sections and physically handicapped sections of the society. The programmes covers lessons on savings, budgeting, banking, credit management, microfinance and self-help groups (SHGs). The IIFL Foundation under the FLAME initiative has tied up with Somaiya Institute to impart financial literacy to National Society for Equal Opportunities for the Handicapped India  SPONSORING CAREER GUIDANCE IN JAWAHAR IIFL Foundation joined hands with a social development organization working across the Thane district of Maharashtra with tribal and rural communities. IIFL is actively helping in providing career guidance to the students of High School and Junior colleges in Walvanda, Jawahar. 23
  25. 25. KEY EXECUTIVES CORPORATE MANAGEMENT TEAM chairman and managing Director Mr Nirmal Jain Director Mr A K Purwar Executive Director Mr R Venkataraman Independent Director Mr Nilesh Vikamsey Non Executive Director Mr Sat Pal Khattar Institutional Equities H.Nemkumar Investment Banking Nipun Goel Consumer Finance Pratima Ram Wealth Management Karan Bhagat International Operations Bharat Parajia Offshore Asset Management Deepesh Pandey Insurance Distribution Mukesh Kumar Singh Corporate Communication Jamshed Kawasjee Vakeel Risk & Audit Upendra Kumar Jaiswal Corporate Operations Narendra Deshmal Jain Human Resources Pallab Mukherji Legal and Compliance Mohan Radhakrishnan Finance and Accounts Dhruv Jain Information Technology Sankarson Banerjee Realty Balaji Ragha 24
  26. 26. HISTORY & MILESTONES  1995-Commenced operations as an Equity Research firm  1997-Launched research products of leading Indian companies, key sectors and the economy Client included leading FIIs, banks and companies  1999-Launchedwww.indiainfoline.com  2000-Launched online trading through www.5paisa.com Started distribution of life insurance and mutual fund  2003-Launched proprietary trading platform Trader Terminal for retail customers  2004-Acquired commodities broking license Launched Portfolio Management Service  2005-Maiden IPO and listed on NSE, BSE  2006-Acquired membership of DGCX Commenced the lending business  2007-Commenced institutional equities business under IIFL Formed Singapore subsidiary, IIFL (Asia) Pten Ltd  2008-Launched IIFL Wealth Transitioned to insurance broking model  2009-Acquired registration for Housing Finance SEBI in-principle approval for Mutual Fund Obtained Venture Capital licence.  2010-Received in-principle approval for membership of the Singapore Stock Exchange Received membership of the Colombo Stock Exchange 25
  27. 27. CORPORATE STRUCTURE IIFL has a network of over 2,500 business locations spread over more than 500 cities and towns across India facilitates the smooth acquisition and servicing of a large customer base. All our offices are connected with the corporate office in Mumbai with cutting edge networking technology. The group caters to a customer base of about a million customers, over a variety of mediums viz. online, over the phone and at our branches India Infoline Ltd India Infoline Investme nt Services Ltd NBFC for financing IIFL Asia Pvt Ltd New company for internationa l operations India Infoline Media and Research Services Ltd India Infoline Commodities Ltd India Infoline Marketing Services ltd Commodities Broking Insurance Distribution Equity Research portal and online media 26
  29. 29. INDIAN BANKING SECTOR 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. credit. 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 dial a pizza. Money has become the order of the day. POST-INDEPENDENCE In 1948, the Reserve Bank of India, India's central banking authority, was nationalized, and it became an institution owned by the Government of India. In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India." The Banking Regulation Act also provided that no new bank or branch of an existing bank may be opened without a license from the RBI, and no two banks could have common directors. LIBERALIZATION The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of functioning. In the early 1990s the then Narsimha Rao government embarked on a policy of liberalization and gave licenses to a small number of private banks, which came to be known as New Generation tech savvy banks, which included banks such as Global Trust Bank (the first of such new generation banks to be set up) which later amalgamated with Oriental Bank of Commerce, UTI Bank (now re-named as Axis Bank), ICICI Bank and HDFC Bank. CURRENT SITUATION Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with the Government of India holding a stake), 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks. They have a combined network of over 67,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 78 percent of total 28
  30. 30. assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively. Over the last four years, India‟s economy has been on a high growth trajectory, creating unprecedented opportunities for its banking sector. Most banks have enjoyed high growth and their valuations have appreciated significantly during this period. Looking ahead, the mostpertinent issue is how well the banking sector is positioned to cater to continued growth. A holistic assessment of the banking sector is possible only by looking at the roles and actions of banks, their core capabilities and their ability to meet systemic objectives, which include increasing shareholder value, fostering financial inclusion, contributing to GDP growth, efficiently managing intermediation cost, and effectively allocating capital and maintaining system stability. BANKING STRUCTURE IN INDIA The banking institutions in the organized sector, commercial banks are the oldest institutions, some them having their genesis in the nineteenth century. Initially they were set up in large numbers, mostly as corporate bodies with shareholding with private individuals. Today 27 banks constitute a strong Public Sector in Indian Commercial Banking. Commercial Banks operating in India fall under different sub categories on the basis of their ownership and control over management; PUBLIC SECTOR BANKS Public Sector Banks emerged in India in three stages. First the conversion of the then existing Imperial Bank of India into State Bank of India in 1955, followed by the taking over of the seven associated banks as its subsidiary. Second the nationalization of 14 major commercial banks in 1969and last the nationalization of 6 more commercial Bank in 1980. Thus 27 banks constitute the Public Sector Banks. NEW PRIVATE SECTOR BANKS After the nationalization of the major banks in the private sector in 1969 and 1980, no new bank could be setup in India for about two decades, though there was no legal bar to that effect. The Narasimham Committee on financial sector reforms recommended the establishment of new banks of India. RBI thereafter issued guidelines for setting up of new private sector banks in India in January 1993. These guidelines aim at ensuring that new banks are financially viable and technologically up to date from the start. They have to work in a professional manner, so as to improve the image of commercial banking system and to win the confidence of the public. Eight private sector banks have been established including banks sector by financially institutions like IDBI, ICICI, and UTI etc. 29
  31. 31. LOCAL AREA BANKS Such Banks can be established as public limited companies in the private sector and can be promoted by individuals, companies, trusts and societies. The minimum paid up capital of such banks would be 5 crores with promoters contribution at least Rs. 2 crores. They are to be set up in district towns and the area of their operations would be limited to a maximum of 3 districts. At present, four local area banks are functional, one each in Punjab, Gujarat, Maharashtra and Andhra Pradesh. FOREIGN BANKS Foreign commercial banks are the branches in India of the joint stock banks incorporated abroad. There number was 38 as on 31.03.2009. SCHEDULED COMMERCIAL BANKS IN INDIA The commercial banking structure in India consists of:   Scheduled Commercial Banks in India Unscheduled Banks in India Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section42 (6) a) of the Act. "Scheduled banks in India" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but does not include a co-operative bank". "Nonscheduled bank in India" means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank". COOPERATIVE BANKS Besides the commercial banks, there exists in India another set of banking institutions called cooperative credit institutions. These have been made in existence in India since long. They undertake the business of banking both in urban and rural areas on the principle of cooperation. They have served a useful role in spreading the banking habit throughout the country. Yet, there financial position is not sound and a majority of cooperative banks has yet to 30
  32. 32. achieve financial viability on a sustainable basis. The cooperative banks have been set up under various Cooperative Societies Acts enacted by State Governments. Hence the State Governments regulate these banks. In 1966, need was felt to regulate their activities to ensure their soundness and to protect the interests of depositors According to the RBI in March 2009, number of all Scheduled Commercial Banks (SCBs) was 171 of which, 86 were Regional Rural Banks and the number of Non-Scheduled Commercial Banks including Local Area Banks stood at 5. Taking into account all banks in India, there are overall 56,640 branches or offices, 893,356 employees and 27,088 ATMs. Public sector banks made up a large chunk of the infrastructure, with 87.7 per cent of all offices, 82 per cent of staff and 60.3 per cent of all automated teller machines (ATMs) 31
  33. 33. ANALYSIS 32
  35. 35. The independence-era Indian economy (from 1947 to 1991) was based on a mixed economy combining features of capitalism and socialism, And failed to take advantage of the post-war expansion of trade. In 1991, India adopted liberal and free-market principles and liberalised its economy to international trade under the guidance of Former Finance minister Manmohan Singh under the Prime Ministry of P.V. Narasimha Rao, prime minister from 1991 to 1996, who had eliminated Licence Raj, a pre- and post-British era mechanism of strict government controls on setting up new industry. After more fundamental reforms since 1991 and their renewal in the 2000s, India has progressed towards a free market economy. The economy of India is the tenth-largest in the world by nominal GDPand the third-largest by purchasing power parity (PPP). The country is one of the G-20 major economies and a member of BRICS. On a per-capita-income basis, India ranked 141st by nominal GDP and 130th by GDP (PPP) in 2012. The economy slowed to around 5.0% for the 2012–13 fiscal year compared with 6.2% in the previous fiscal, On August 28, 2013 the Indian rupee hit an all time low of 68.80 against the US dollar. In order to control the fall in rupee, the government introduced capital controls on outward investment by both corporates and individuals. the growth rate has nearly halved in just three years. GDP growth rose marginally to 4.8% during the quarter through March 2013, from about 4.7% in the previous quarter. The government has forecast a growth rate of 6.1%-6.7% for the year 2013–14, India suffered a very high fiscal deficit of US$ 88 billion (4.8% of GDP) in the year 2012–13. The Indian Government aims to cut the fiscal deficit to US$ 70 billion or 3.7% of GDP by 2013–14. GROSS DOMESTIC PRODUCT (GDP) Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a given period of time. India is the tenth-largest in the world by nominal GDP. India's GDP grew by 9.3% in 2010–11; thus, the growth rate has nearly halved in just three years. GDP growth rose marginally to 4.8% during the quarter through March 2013, from about 4.7% in the previous quarter. The government has forecast a growth rate of 6.1%-6.7% for the year 2013–14, The GDP value of India represents 2.97 percent of the world economy, GDP in India is reported by the The World Bank Group. The gross domestic product (GDP) measures of national income and output for a given country's economy.GDP of india at Factor cost is Rs 55054.37 Billion in the year 2012-13 It indicate future growth of GDP,which is shown by the following Diagram. 34
  36. 36. GDP AT FACTOR COST(CONSTANT PRICE) (RUPEES IN BILLION) 60000 49370.06 50000 40000 30000 27778.13 29714.64 32530.73 35643.64 38966.36 41586.76 52435.82 55054.37 45160.71 20000 10000 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 SOURCE:RBI SECTOR WISE CONTRIBUTION TO GDP 2012-13 GDP of India increased at the rate of 4.99% from Rs 52435.82 Billion to Rs 55054.37 Billion.The chart above shows a possitive Trend of GDP in the near future. The most important and the fastest growing sector of Indian economy are services. Trade, hotels, transport and communication; financing, insurance, real estate and business services and community, social and personal services account for more than 60 percent of GDP. Agriculture, forestry and fishing constitute around 12 percent of the output, but employs more than 50 percent of the labor force. Manufacturing accounts for 15 percent of GDP, construction for another 8 percent and mining, quarrying, electricity, gas and water supply for the remaining 5 percent.By analysing the following chart it would be clear that Finance and trading sectors are the largest and growing contributors of Indian GDP. SECTOR WISE CONTRIBUTION AS A PERCENTAGE TO GDP 30 25 20 15 10 5 0 2003-04 2004-05 2005-06 FINANCE 2006-07 2007-08 AGRICULTURE 2008-09 2009-10 MANUFACTURING 2010-11 2011-12 2012-13 TRADING SOURCE:RBI 35
  37. 37. GDP RANKING India is the 10th largest Economy in the world on the basis of nominal GDP according to the record of World bank. And india represent 2.97 percentage of word economy GDP.US is the largest contributor of world Economy GDP Which amounts to 15,684,800 Million US Dollar and in case of India which is amounts to1, 841,717 Million US Dollar. Following Chart showing the ranking of countries according to GDP contribution on 2012. GROSS DOMESTIC PRODUCT-2012 (MILLIONS OF US DOLLAR) United States China Japan Germany France United Kingdom Brazil Russian Federation Italy India Canada Australia Spain Mexico Korea, Rep. 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 USA CHN JPN DEU FRA GBR BRA RUS ITA IND CAN AUS ESP MEX KOR SOURCE:WORLD BANK Acoording to the Ministry of Finance Economic reforms introduced two decades ago would make the country with the third largest GDP in the worldby 2025.India is now an attractive FDI destination welcoming both trade and technology flows. The Prime Minister's Economic Advisory Council (PMEAC) - the government's topmost thinktank - on Friday cut its growth forecast for India in 2013-14 to 5.3%, just above last year's decade-low 5% expansion.recent expansion of the automobile sector and pick-up in exports would have a positive impact on the manufacturing sector. "Taking these factors into account, the forecast growth rate appears reasonable.the farm sector would post a 4.9% growth, which would aid overall expansion. The Indian economy, Asia's third-largest, grew 4.4% in the June quarter. Monetary policy of Central Bank under the supervision of new Governer Raghuram Rajan And fiscal policies of Government gives hope to the indian economy to become worlds 3 rd largest economy. 36
  38. 38. TREND OF GDP GDP of India shows a possitive Trend. Following is the chart shows the Trend line of India’s GDP on the basis of past 25 years.. GDP(Constant price) GROWTH OVER 25 YEARS WITH TREND LINE 70000 60000 50000 40000 30000 y = 10524e0.0645x R² = 0.9919 20000 10000 0 SOURCE:RBI CURRENT ACCOUNT DEFICIT (CAD) The current account is one of the two primary components of the balance of payments, the other being capital account.is one of two major measures of the nature of a country's foreign trade.A current account surplus increases a country's net foreign assets by the corresponding amount, and a current account deficit does the reverse. India's growing oil import bill is seen as the main driver behind the large current account deficit.Oil imports account for 34 per cent of the total import bill.India, which imported crude oil worth USD 144.3 billion in 2012-13. After 2003-04 India’s CCurrent Account Deficit start to fall and In 2012-13 Current Account Deficit shows -88163 USD Million in the place of -78155 USD Million in 2011-12.Following is the chart showing india’s CAD over 10 years. 37
  39. 39. CURRENT ACCOUNT DEFICIT (US $ million) 20000 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 -20000 -40000 -60000 -80000 -100000 SOURCE:RBI BY analyzing the chart given above it is clear that the Current account deficit of india is falling over 10 years and it shows a falling trend. The policies and measures have been taken by the Government and Country’s Central bank only the hope for CAD in future. The upto date policies taken by RBI and Central Govt gives hopes to india’s BOP.Indiacurb oil importsto reduce the dollar demand and shore up the rupee on september 2013,And place restrictions on gold imports.RBI sells Dollar directly to state oil companies is another measure possitively influenced the Economy. In the recent publication of Ministry of Commerce & Industry states a rise in export to 11.2% and fall in import to 18.1% as gap shrinks to two-and-a-half-year low of $6.76 billion in September 2013. Lower import of Gold and Crude oil helped pare the deficit to well below August’s figure of $10.9 billion.gold imports have sharply compressed in the months of July, August and September,come down to about 65 or 70 tonnes. 38
  40. 40. FOREIGN EXCHANGE RESERVE Forex Reserves are Assets held by central banks and monetary authorities, usually in different reserve currencies, mostly the United States dollar, and to a lesser extent the euro.the term in popular usage commonly also adds gold reserves, special drawing rights (SDRs), and International Monetary Fund (IMF) reserve positions.Foreign Exchange reserves are called Reserve Assets in the Balance of Payments. The chart given bellow showing a possitive trend of India’s Forex reserve. During 201112 Forex reserve was 12832 USD Million and it fall to -3826 USD Million in 2012-13. The chart showing 10 years movement of india’s Forex reserve. Financial year 2007-08 shows lowest forex reserve for the 10 years and compared to that the reserve comes to possitive. India Foreign Exchange Reserves averaged 5008.66 INR Billion from 1990 until 2013, reaching an all time high of 16275.30 INR Billion in September of 2013 and a record low of 23.86 INR Billion in June of 1991.Foreign Exchange Reserves in India decreased to 15309.80 INR Billion in October of 2013 from 16275.30 INR Billion in September of 2013. The policies and measures of Central government and RBI grately influenced to the forex reserve. FOREIGN EXCHANGE RESSERVE (US $ million) 40000 20080 20000 12832 0 -20000 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 -3826 -13441 -13050 -15052 -40000 -31421 -26159 -36606 -60000 -80000 -100000 -92164 SOURCE:RBI 39
  41. 41. FOREIGNINVESTMENT INFLOW It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments.The chart shown bellow shows a possitive movement of Foreign investment inflow over 10 years. FOREIGN INVESTMENT INFLOW 60000 (US $ MILLION) 50000 40000 30000 FOREIGN INVESTMENT INFLOW 20000 10000 Linear (FOREIGN INVESTMENT INFLOW) 0 SOURCE:RBI INFLATION The inflation rate in India was recorded at 6.46 percent in September of 2013. Inflation Rate in India is reported by the Ministry of Commerce and Industry, India. India Inflation Rate averaged 7.72 Percent from 1969 until 2013, reaching an all time high of 34.68 Percent in September of 1974 and a record low of -11.31 Percent in May of 1976. In India, the wholesale price index (WPI) is the main measure of inflation. 40
  42. 42. AGRICULTURAL PRODUCTION India ranks second worldwide in farm output. Agriculture and allied sectors like forestry and fisheries accounted for 16.6 % of the GDP in 2009, about 50 % of the total workforce.Agriculture production in India plays a significant role in the overall socio-economic Development of the country.India receives an average annual rainfall of 1,208 millimetres (47.6 in) and a total annual precipitation of 4000 billion cubic metres, with the total utilisable water resources, including surface and groundwater, amounting to 1123 billion cubic metres.India is the largest producer in the world of milk, jute and pulses, and also has the world's second largest cattle population with 175 million animals in 2008.It is the second largest producer of rice, wheat, sugarcane, cotton and groundnuts, as well as the second largest fruit and vegetable producer, accounting for 10.9% and 8.6% of the world fruit and vegetable production respectively.India is also the second largest producer and the largest consumer of silk in the world, producing 77,000 million tons in 2005.Indian states Uttar Pradesh, Punjab, Haryana, Madhya Pradesh, Andhra Pradesh, Bihar, West Bengal, Gujarat and Maharashtra are key agricultural contributing states of India. Following is the chart showing total agricultural production of india over 10 years includes Foodgrains and Commercial Crops.Chart showing a possitive trend over total griculture production.Production increased to 1805.7 Million tonnes in the Financial year 2012-13 from 1792.19 Million tonnes Production in 2011-12. A country mostly depends up on Agricultural production like india has greatest influence in economic development of that particular country. TOTAL AGRICCULTURAL PRODUCCTION MILLION TONNES 2000 1792.19 1805.7 1800 1600 1400 1376.34 1393.89 1496.57 1604.58 1633.33 1553.26 1563 1630.53 1200 1000 800 600 400 200 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 SOURCE:RBI 41
  43. 43. INDUSTRIAL PRODUCTION Index of industrial production released by Central Statistical Organisation is the main source of industrial production statistics .Indian Index of Industrial production(IIP) focus on sectors like mining, electricity and manufacturing. India Industrial Production averaged 6.95 Percent from 1994 until 2013.Industrial Production in India increased 0.60 percent in August of 2013 over the same month in the previous year. Industrial Production in India is reported by the Ministry of Statistics and Programme Implementation. Following is the chart showing the Index of Industrial production over 5 years,upto 200910. It also showing a possitve growth of production. And it shows an average growth rate of 8.29% over the 5 years INDEX OF INDUSTRIAL PRODUCTION (WEIGHT1000) 320 304.1 300 275.4 280 268 260 247.1 240 221.5 220 200 2005-06 2006-07 2007-08 2008-09 2009-10 SOURCE:MINISTRY OF STASTICS AND PROGRAMMEIMPLEMENTATION LENDING RATE From 2000 until 2013, India Interest Rate averaged 6.6 Percent reaching an all time high of 14.5 Percent in August of 2000 and a record low of 4.3 Percent in April of 2009. In India, interest rate decisions are taken by the Reserve Bank of India's Central Board of Directors. Fall in lending rate possitively influence the economic activities of that particular country, because a fall in interest rate will cause decrease the cost of capital and increase the volume of investment in that country. 42
  44. 44. Following is the chart showing Average lending rate of Bnks over past 5 years.By analysing the graph it is clear that the interest rate is decreased to 9.975% in financial year 201213 from 10.375% in financial year 2011-12. AVG LENDING RATE 16 14.125 13.375 14 12 10.375 9.975 2011-12 2012-13 8.875 10 8 6 4 2 0 2008-09 2009-10 2010-11 SOURCE:RBI EMPLOYMENT India's labour regulations among the most restrictive and complex in the world have constrained the growth of the formal manufacturing sector where these laws have their widest application. Better designed labour regulations can attract more labour- intensive investment and create jobs for India's unemployed millions. Following chart showing total employment in public sector and private sector over 10 years.which showing an increasing trend. EMPLOYMENT IN MILLION 30 29 28 27.2 27 27 26.45 26.46 2003-04 2004-05 26.96 27.24 2005-06 2006-07 27.55 28.18 28.71 29 26 25 2001-02 2002-03 2007-08 2008-09 2009-10 2010-11 SOURCE:RBI SECTORAL CONTRIBUTION TO GDP Following table showing the sectorial Contribution to GDP of India Over past 10 years, the sectors include Finance, Trade, Agriculture, Manufacturing, and Construction etc. 43
  45. 45. Moving through the chart it is clear that Trading sector including Hotel, Transport and communications is the greatest contributor to GDP in India among the sectors selected. But the growth rate is not much high compared to the rate of growth of finance sector. Finance sector contributed only 10.6% in financial year 2003-04, but it is increased to 31.5% in financial year 2012-13. While trading sector contributed 32.1% in financial year 200304 and which is 35.2% in financial year 2012-13. SECTORAL CONTRIBUTION TO GDP (FACTOR COST) 40 35 30 25 20 15 10 5 0 -5 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Trade, Hotel, Transport and Communications Community, Social & Personal Services Agriculture Mining & Quarrying Manufacturing Electricity, Gas & Water Supply Construction 2012-13 Finance SOURCE:RBI Finance sector is best among the other sectors in Indian economy after trading sector even though there is a slight decrease in GDP contribution on the year 2011-12 and 2012-13. 44
  46. 46. 45
  48. 48. INDUSTRIAL DATA Following is the table showing banking industrial data for past 10 years from 2004 to 2013. Which shows total income, total assets,total liabilities and total expenses are increasing at an increasing rate.It indicate that banking industry in india is currently passing through the expansion stage. INDIAN BANKING INDUSTRY ASSETS,LIABILITIES,INCOME&EXPENSE Rs. Million (Ann) 120000000 100000000 80000000 Total income(Ann) Total expenses(Ann) 60000000 Total liabilities Total assets 40000000 20000000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 SOURCE:CMIE Total assets of banks increased to 96446190.6 in 2013 from 20693894.1 in 2012.total liabilities of industry increased to 96446190.6 in 2013 from 20693894.1 in 2004.total income increased to 8759813.95In 2013 from 1958576.34 in 2004.total expenses increased to 7845122.1 from 2013 to 1723968.1 in 2012.Highest of total income, total expense, total liability, and total assets showed in the year 2013. 47
  49. 49. BANK INDEX The CNX Bank Index is an index comprised of the most liquid and large capitalized Indian Banking stocks. Itcaptures the capital market performance of the Indian banks.The Index has 12 stocks from the banking sector, which trade on the National Stock Exchange. Following are given the performance of Bank Index for past 10 years. CNX BANK INDEX 2003-2013 14000 12000 10000 8000 6000 4000 2000 0 SOURCE:NSE Moving on the Chart given above it is clear that the Banking industry is growing for past 10 years. During the year 2008 to 2009 Index showed a sudden decline because of the financial crisis existed those period and later on showed positive movements. Then after the period 2011 to 2012 also showed a declining trend then after also showed positive upward movements. Graph above showed a V formation, i.e. the index will move upward in coming years according to the V formation principles. 48
  50. 50. NON PERFORMING ASSET(NPA) Non-Performing Assets are loans that are in jeopardy of default. Once the borrower has failed to make interest or principal payments for 90 days the loan is considered to be a nonperforming asset. Non-performing assets are problematic for financial institutions since they depend on interest payments for income. Following is the graph showing NPA of Indian banking sector for past 10 years. NPA (PERCENTAGE TO TOTAL ASSET) 3 2.5 2 1.5 1 0.5 0 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Sheduled commercial banks Public sector banks new private sector banks 2008-09 2009-10 2010-11 2011-12 Old private sector banks Foreign banks SOURCE:RBI NPA of banks decreasing over the years. Decreasing NPA shows performance efficiency of banking sector in India. Following is table showing NPA Ratio of banking industry. YEAR NPA RATIO 200203 200304 200405 200506 200607 200708 200809 200910 201011 201112 9.2 7.5 5.3 3.3 2.5 2.2 2.2 2.4 2.2 2.8 NPA Ratio of 2002-03 was 9.2% and which was decreased to 2.8% in financial year 2011-12. 49
  51. 51. INDUSTRY LIFE CYCLE Like human beings an Industry also has a life cycle. According to the industry life cycle theory the life of an industry classified to four stages namely pioneering stage, expansion stage, stagnation stage, and Decline stage. The profitability of an industry is mostly depends up on the stage of life cycle in which it stands. Here Deposits, Income earned, Number of offices and employees, Advances are taken as the variables to find the life cycle of banking industry. DEPOSITS Deposits are cheapest sources of loanable funds for banks. Banks business is directly related with the volume of deposits. Higher the deposit means banks can lend more to needy people and widen business and earnings. Following is the chart showing the volume of deposits of banking industry in India for past 8 years. By looking to the chart it will be clear that the deposits to banks are increasing at an increasing rate over the period of time. This is a positive signal to banking industry. Deposits of banking industry will increase in expansion stage of industry life cycle. DEPOSITS (Amount in Rs million ) 80000000 70000000 60000000 50000000 40000000 30000000 20000000 10000000 0 2005 2006 2007 2008 2009 2010 2011 2012 SOURCE:RBI 50
  52. 52. EARNINGS Following is the chart showing income of banking industry over past 8 years. Interest income and other incomes are shown separately. Both are showing increasing trend. During the stage of expansion the income of banks will increase at an increasing rate. So the following movements of income of banking industry indicate that industry currently going through expansion stage. INCOME OF BANKING INDUSTRY (Amount in Rs million ) 7000000 6000000 5000000 4000000 3000000 2000000 1000000 0 2004 2005 Interest income 2006 2007 2008 Other income 2009 2010 2011 Linear (Interest income) 2012 2013 2014 Linear (Other income) SOURCE:RBI NUMBER OF OFFICES AND EMPLOYEES Number of offices and employees are also increasing over the period of time. During the stage of expansion competitors will come to industry and existing companies tends to start new branches and expand business, this would increase recruitments and employment opportunities. Following chart indicate the industry is currently passing through expansion stage because both number of employees and number of offices are increased at an increasing rate over the period of time. 51
  53. 53. NO OFFICES AND EMPLOYEES (Amount in Rs million ) 1200000 1000000 800000 600000 400000 200000 0 2004 2005 No. of offices 2006 2007 2008 No. of employees 2009 2010 2011 Linear (No. of offices) 2012 2013 2014 Linear (No. of employees) SOURCE:RBI ADVANCES Making loans and advances are the main business and one of the important sources of income of banks. So the volume of advances is also influencing the performance of industry. During the stage of expansion of industry life cycle the business and income will increase, in the case banking industry advances will increase ADVANCES IN MILLION 60000000 50000000 40000000 30000000 20000000 10000000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 SOURCE:RBI By analyzing the above variables related to the banking industry it is clear about that banking industry is passing through Expansion stage. The above charts states the life cycle of banking industry during financial year 2004 to 2013. By analyzing above charts we can say that banks are now passing through Expansion stage. 52
  54. 54. Deposits, income, number of offices and employees and advances are increasing at an increasing rate. And NPA of banking industry showed a decreasing trend. This all proves banking industry is now in Expansion stage. RBI REGULATIONS Repo rate is the rate at which RBI lends to commercial banks, Reduction in Repo rate helps the commercial banks to get money at a cheaper rate. Reverse Repo rate is the rate at which RBI borrows money from the commercial banks, increase in Reverse repo rate will encourage banks to invest with RBI. Cash Reserve Ratio is a certain percentage of bank deposits which banks are required to keep with RBI in the form of reserves or balances .Higher the CRR with the RBI lower will be the liquidity in banks. Following is the chart showing Repo and reverse repo and cash reserve ratio for the past 19 months. Repo rate is decreased to 7.5% in 09/13 from 8% in 03/12. Reverse repo also decreased from 7.5% in 03/12 to 6.5% in 09/13.Cash reserve ratio decrease from 4.75% in 03/12 to 4% in 09/13. Decrease in repo and reverse repo and CRR will increase the liquidity and business of banks. MONETARY POLICY RATES 9 8.5 8.5 8 7.5 7.5 7 6.5 6 5.5 4.75 5 4.5 4 3.5 3 8 8 8 8 7 7 7 7 4.75 4.75 Repo 4.5 7.75 7.75 6.75 6.75 7.5 6.5 4.25 4.25 4 Reverse 7.25 7.25 6.25 6.25 4 4 7.5 6.5 Cash Reserve Ratio 4 4 SOURCE:RBI 53
  55. 55. EFFECT OF NATIONALISATION The nationalisation of banks in India took place in 1969 by Mrs. Indira Gandhi. Following is the chart showing the effect of nationalization of banks in india over the period of 1969 to 2012. EFFECT OF NATIONALISATION 120,000 101,261 100,000 74,563 80,000 64,000 60,570 60,000 40,000 20,000 14,000 15,000 8,262 13,000 0 1969 1991 No. of Bank Offices 2007 2012 Population per office SOURCE:RBI By analyzing the above table it would be clear that number of bank offices are increased over the period and population per office is decreased. Number of bank offices are increased from 8262 from 1969 to 101261 in 2012. And population per office is decreased from 64000 in 1969 to 13000 in 2012. 54
  56. 56. EFFECT OF FINANCIAL SECTOR REFORMS Following chart showing the effects of financial sector reforms in India over the period from 1990-91 to 2011-12. 120 103 100 82.9 83.21 80 70.2 60 50.6 47.4 36.8 30.8 40 22.9 1990-91 46.7 2007-08 38.1 35 2011-12 26 20.4 16 20 1.95 3 2.9 0 Gross Gross Domestic Domestic Saving Rate (% Investment of GDP) Rate (% of GDP) Bank Credit / Broad Money / Net Interest BSE Market GDP (%) GDP (%) Income to Capitalisation Total Assets (% of GDP) (%) SOURCE:RBI Gross domestic saving rate showed 22.9% in 1990-91 then increased to 36.8% in 2007-08 and then decreased to 30.8% in 2011-12. Highest recorded in 2007-08 at 36.8% Gross domestic investment increased to 38.1% in 2007-08 from 26% in 1990-91 and then decreased to 35% in 2011-12. Highest is in the year 2007-08 at 38.1%. Bank credit increased from 20.4% in 1990-91 to 47.4% in 2007-08, again increased to 50.6% in 2011-12. 50.6% in 2011-12 is the highest. Broad money also showed increasing trend, it increased from 46.7% in 1990-91 to 82.9% in 2007-08 then a slight change to 83.21% in 2011-12. Net interest income to total asset shows 3% in 2007-08, and decreased to 2.9% in 2007-08 BSE market capitalization highest in 2007-08 at 103% and decreased to 70.2% in 2011-12. 55
  57. 57. INDUSTRY RATIOS TREND YEAR 2005 2006 2007 2008 2009 2010 2011 2012 NIIOPERATIG EXPENSE 165885 190540.1 229361.6 231985.2 356769.6 430672.2 692756.1 874346.7 INTEREST INCOME 1558010 1856168 2316753 3084823 3884816 4151786 4913407 6550565 OPERATING PROFIT MARGIN(%) 10.65 10.27 9.9 7.52 9.18 10.37 14.1 13.35 OPERATING EXPENSES 501333.4 592640.1 663192.6 772826.5 895814.5 1000279 1231403 1371033 NII+OTHER 1011566 1137035 1322965 1608722 2004788 2223627 2722660 3102782 COST TO INCOME RATIO(%) 12.87 42.49 49.56 52.12 50.13 48.04 44.68 44.98 45.23 44.19 LOANS 11508363 15184587 19812363 24769360 29999239 34967200 42974875 50745793 DEPOSIT 18375594 21671165 26969365 33200616 40632011 47469196 56158743 64536642 LOAN TO DEPOSIT RATIO(%) NPA NET ADVANCES 80.64 62.62 70.06 73.46 74.60 73.83 73.66 76.52 78.63 1187.46 1021.94 1009.73 1126.17 1366.55 1693.96 1956 2844 22313.26 30336.23 39624.74 49538.73 59998.49 69941.46 85974.08 101491 1.65 NPA RATIO(%) 5.32 3.37 2.55 2.27 2.28 2.42 2.28 2.8 56
  58. 58. Operating profit margin of banking industry decreased from 2011 to 2012 from 14.1% to 13.35%. It was 10.65% in 2005, it is the highest among the period also.it showing a decreasing trend for 2013. Cost to income ratio increased from 2011 to 2012 from 45.23% to 44.19% and it was 49.56% in 2005, highest recorded 52.12% in 2006. it showing a decreasing trend for 2013. Loan to deposit ratio increased from 2011 to 2012 from 76.52% to 78.63%. It was 62.62% in 2005, and highest recorded 78.63% in 2012. It showing an increasing trend for 2013. NPA ratio increased from 2011 to 2012 from 2.28% to 2.8%, it was 5.32% in 2005 and highest recorded in the same year. It showing an decreasing trend for 2013. 57
  60. 60. STATE BANK OF INDIA (SBI) State Bank of India (SBI) is a Multinational Government owned (62.31%) financial and banking services company in India. with headquarters in Mumbai, Maharashtra, and Founded 1 July 1956. As of December 2012, it had assets of US$501 billion and 15,003 branches, including 157 foreign offices, making it the largest banking and financial services company in India by assets. SBI had 14,816 branches of which 9,851 (66%) were in Rural and Semi-urban areas its revenue was INR 200,560 Crores (US$ 36.9 billion), out of which domestic operations contributed to 95.35% of revenue in financial year 2012-13. SBI has five associate banks State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Partial, State Bank of Travancore. Apart from five associate banks it has seven Non-Banking Financial services. rom its five associate banks, SBI also has the following non-banking subsidiaries SBI Capital Markets Ltd, SBI Funds Management Pvt Ltd, SBI Factors & Commercial Services Pvt Ltd, SBI Cards & Payments Services Pvt. Ltd. (SBICPSL), SBI DFHI Ltd, SBI Life Insurance Company Limited, SBI General Insurance. COMPETITIVE POSITION SBI is India’s oldest and largest public sector Bank. With the market capitalization of Rs.106, 671.68Crore. Net interest income of Rs.cr 119,657.10 and net profit of Rs.cr 14,104.98. Some of the major competitors for SBI in the banking sector are ICICI Bank, HDFC Bank, Axis Bank, Bank of India, Punjab National Bank and Bank of Baroda Canara Bank. However in terms of average market share, SBI is by far the largest player in the market. BOARD OF DIRECTORS Chairman Managing Directors Mrs Arundhati Bhattacharya Shri Hemant G Shri Diwakar Gupta Shri A. Krishna Kumar Shri S. Vishvanathan PRODUCTS AND SERVICES Debit cards:Debit Card spends of State Bank Group crossed ` 15,000 crores for FY 2012-13 which constitutes over 20% of total Debit Card spends in the industry. Prepaid Cards:Bank’s range of products include popular Rupee Prepaid Cards like Gift Card, General Purpose Prepaid Card like eZ-Pay Card and Foreign Travel Card catering to various payment needs of the customers. Foreign Travel Card: Foreign travel card providing safety, security and convenience to overseas travelers.which is now available in eight major currencies US Dollar (USD), Great Britain Pound (GBP), Euro, Canadian Dollar(CAD), Australian Dollar (AUD), Japanese Yan (JPY),Saudi Riyal (SAR) and Singapore Dollar (SGD). 59
  61. 61. eZ-Pay Cards:eZ-Pay Cards are aligned with most of the social schemes of State and Central Governments Gift Cards:Gift Cards remain the preferred option to customers to gift the ‘freedom of choice’ to their loved ones Green Remit Card (GRC):A cardholder can swipe the card at Green Channel Counter or in Cash Deposit Machines and remit money to the beneficiary whose account number is mapped to the card. Once the transaction is complete, both the remitter and beneficiary get confirmation through SMS on their mobile phone. Mobile banking Internet banking MARKET CAPITALIZATION SBI is India’s Number one bank on the basis of market capitalization, Amounted to Rs.113,864.29 Crore in 2013. AREA COVERED SBI provides a range of banking products through its network of branches in India and overseas with headquarters in Mumbai, Maharashtra. It has 14 regional hubs and 57 Zonal Offices that are located at important cities throughout India. And had 14,816 branches in India of which 9,851 (66%) were in rural and Semi-urban areas In the financial year 2012-13. the bank had 180 overseas offices spread over 34 countries. LABOUR CONDITION SBI is one of the largest employers in the country having 228,296 employees as on 31st March 2013. Which shows there is no labour scarcity in SBI. LABOUR CONDITION Rs In Crore Total Income Number of Employees Earning per Employee 2009 76479.78 205896 0.371449 2010 85962.07 200299 0.429169 2011 96329.45 222933 0.4321 2012 120872.9 215481 0.560945 2013 135691.9 228296 0.594368 SOURCE:BLOOMBERG The table above stated shows the productive quality and availability of labours over past 5 years. It is clear about there is no scarcity of labour and the employed Labours are highly productive. The number of employees increased by 10.8% from 2009 to 2013, ie 22400 60
  62. 62. additional labours are recruited during the period of time. And Sales per employee increased from .37 crore in 2009 to .59 crore in 2013, ie an increase of .22 Crore over the period. RATIO ANALYSIS NET INTEREST MARGIN YEAR NET INTEREST EARNING ASSETS NIM(%) NET INTEREST MARGIN 2009 2010 2011 20873.14 23671.44 32526.40 922860.96 1013888.07 1175194.17 2.26 2.33 2.77 2012 43291.08 1276939.67 3.39 2013 44331.30 1511363.98 2.93 SOURCE:MONEY CONTROL It is the net interest income earned by the bank on its earning assets.if the non-performing assets are high, their NIM will go down. So higher the ratio indicate efficiency of firms investment decision.Here table above shows NIM of SBI is increasing. It rose from 2.26% in 2009 to 3.39%in 2012, and after declined to 2.93% in 2013. CREDIT TO DEPOSIT YEAR ADVANCES DEPOSITS CD RATIO 2009 542503.20 742073.13 73.11 CREDIT TO DEPOSIT 2010 2011 631914.15 756719.45 804116.23 933932.81 78.58 81.03 2012 867578.89 1043647.36 83.13 2013 1045616.55 1202739.57 86.94 SOURCE:MONEY CONTROL Higher ratio reflects ability of the bank to make optimal use of the available resources.By analyzing the above it is clear that Credit to deposit ratio is increasing over the years from 83.13% in 2012 to 86.94% in 2013, and it was 73.11% in 2009. OPERATING PROFIT MARGIN OPERATING PROFIT MARGIN 2009 2010 2011 YEAR NII-OPERATING EXPENSE 2749.48 TOTAL INTEREST 63788.43 OPERATING PROFIT MARGIN (%) 4.31 2012 2013 -1269.57 70993.92 1095.52 81394.36 5727.99 106521.45 15046.88 119657.10 -1.79 1.35 5.38 12.57 SOURCE:MONEY CONTROL 61
  63. 63. Higher the ratio indicate operating efficiency and profitability of banks. Above table showing a negative ratio of -1.79% in 2010 and afterwards an increasing trend. Ratio increased to 12.5% in 2013 from 5.38% in 2012. NON PERFORMING ASEET RATIO YEAR NPA NET LOANS NPA RATIO 2009 189167.00 NON PERFORMING ASEET RATIO 2010 2011 2012 249214.10 318241.00 496487.00 2013 639874.30 7446465.71 8525942.92 9822982.02 11461589.12 13587430.36 2.54 2.92 3.24 4.33 4.71 SOURCE:BLOOMBERG NPA Ratio is increasing over the past 5 years 2.54% in 2009 to 4.71% in 2013, and it was 4.33% in 2012. COST TO INCOME RATIO COST TO INCOME RATIO YEAR 2009 2010 2011 2012 2013 OPERATING EXPENSE 18123.66 24941.01 31430.88 37563.09 29284.42 TOTAL INCOME 33564.49 38639.59 47461.49 57642.53 60366.14 RATIO (%) 54.00 64.55 66.22 65.17 48.51 SOURCE:MONEY CONTROL cost to income ratio increased from 2009 to 2012 from 54% to 65.17% and then decreased to 48.51% in 2013. MARKET TEST RATIOS EARNING PER SHARE(EPS) EARNING PER SHARE (EPS) Year 2009 2010 2011 Profit available to Equity Share holders 9121.57 9166.39 7370.69 Number of Equity Shares 63.488 63.488 63.5 EPS 143.67 144.37 116.07 2012 2013 11713.34 14105.32 67.104 68.403 174.55 206.20 SOURCE:MONEY CONTROL EPS increased from 2012 to 2013 from 174.55 to 206.20.it was 143.67 in 2009,then decreased to 116.07 in 2011 and increased to 174.55 in 2012. 62
  64. 64. DIVIDEND PER SHARE (DPS) DIVIDEND PER SHARE(DPS) Year Equity Dividend Number of equity shares DPS 2009 1841.15 63.488 28.99 2010 1904.65 63.488 30.00 2011 1905 63.5 30 2012 2348.66 67.104 35.00 2013 2838.72 68.403 41.49 DPS showing an increasing trend, increased from 2012 to 2013 from 35 to 41.49. it was 28.99 in 2009. DPS 41.49 is the highest for the period. DIVIDEND PAY OUT RATIO YEAR DPS EPS DIVIDENT RATIO(%) EARNING RATIO(%) DIVIDENT PAY OUT RATIO 2009 2010 2011 29.00 30.00 30.00 143.67 144.38 116.07 PAY OUT 20.18 20.77 25.84 RETENTION 79.81 79.22 74.15 2012 35.00 174.55 2013 41.50 206.20 20.05 20.12 79.94 79.87 There is no high variations in Dividend payout ratio, bank maintains 20% over the past 5 years. 25.84% is the highest ratio showed in 2011 highest Dividend payout ratio will reduce Earning retention ratio it showed 74.15%, bank has almost same Earning retention ratio in 2012 and 2013 ie 79%. In 2013 the ratio is 20.12%. PRICE EARNING RATIO YEAR MARKET PRICE SHARE(AVG) EPS PRICE EARNING RATIO PRICE EARNING RATIO 2009 2010 2011 PER 1278.80 1954.42 2697.30 143.67 144.38 116.07 8.90 13.54 23.24 2012 2013 2118.58 174.56 12.14 2141.58 206.21 10.39 A high price earning ratio suggest investors expecting high earning growth in future and it shows how much investors are willing to pay for EPS.Price earning ratio decreased from 2012 to 2013 from 12.14 to 10.39 and it was 8.90 in 2009. 2011 shows high ratio of 23.24 and it is decreased to 12.14 in 2012. 63
  65. 65. INTRINSIC VALUE Market value of stock tends towards its intrinsic value. Here the Intrinsic value of security is higher than the current market price, it indicate that stock is undervalued. It is advisable to buy the security. INTRINSIC VALUE AVG PRICE EARNING RATIO EXPECTED EPS INTRINSIC VALUE CURRENT MARKET PRICE(31 OCT 13) BUY/SELL 13.63952 156.9784 2141.11 1796.75 BUY 64
  66. 66. BANK OF BARODA(BOB) BOD is a state owned and second largest Bank in india after state bank of india. Its total global business was INR 8,021 billion as of 31 March 2013. Its headquarters situated in Baroda, or Vadodara. Its business also spreads all over the world. COMPETITIVE POSITION Bank of Baroda is India’s second largest public sector bank operating worldwide. Its market capitalization is amounts to Rs19,881.69 crore. Its main competitors are SBI,ICICI Bank, HDFC Bank, Axis Bank, Bank of India, Punjab National Bank and Bank of Baroda Canara Bank etc. BOARD OF DIRECTORS Chairman and Managing Directo Shri S.S. Mundra Executive Directors Shri P. Srinivas Shri Ranjan Dhawan Shri Bhuwanchandra B. Joshi Directors Shri Alok Nigam Shri Sudarshan Sen Shri Vinil Kumar Saxena Shri V. B. Chavan Shri Maulin Vaishnav Shri Surendra Singh Bhandari Shri Rajib Sekhar Sahoo PRODUCTS AND SERVICES Credit cards, consumer banking, corporate banking, finance and insurance, investment banking, mortgage loans, private banking, private equity, wealth management MARKET CAPITALIZATION Bank of baroda is india’s second largest public sector Bank after SBI with market capitalization of Rs 19,881.69Crore in 2013. 65
  67. 67. AREA COVERED BOB provides a range of banking products and services through its network of branches in India and overseas. with headquarters inBaroda, or Vadodara.The Bank has 100 branches in 24 countries including 61 branches of the bank, 38 branches of its 8 subsidiaries and 2 representative offices in Thailand and Australia. Its total global business was INR 8,021 billion as of 31 March 2013.Bank of Baroda has received permission or in-principle approval from host country regulators to open new offices in Trinidad and Tobago and Ghana. LABOUR CONDITION Following is the table showing number of employees and earnings per employees over past 5 years. LABOUR CONDITION Rs In Crore YEAR Total Income Number of Employees Earning per employee 2009 17849.24 36838 0.484533 2010 19504.7 38960 0.500634 2011 24695.11 40046 0.616669 2012 33096.05 42175 0.784731 2013 38827.27 43108 0.900698 SOURCE:BLOOMBERG By analyzing the above table number of employees as well as earnings per employee is increasing over the period.the increased volume of earning per employees showing the productive capacity of employees. Number of employees are increased by 17%, ie 6270 additional labours are recruited during the period of 2009 to 2013.And productive capacity of employees also increased from.48 Crore in 2009 to .90 Crore in 2013, ie .42 crore increased during this period of time. RATIO ANALYSIS NET INTEREST MARGIN YEAR NET INTEREST EARNING ASSETS NIM(%) NET INTEREST MARGIN 2009 2010 2011 5123.41 5939.48 8802.26 220518.89 271684.73 349871.06 2.32 2.19 2.52 2012 10317.01 434755.23 2.37 2013 11315.26 534978.39 2.12 SOURCE:MONEY CONTROL Higher the ratio indicate efficiency of firms investment decision.Here table above shows NIM rose from 2.19% in 2010 to 2.52% in 2011, and after declined to 2.12% in 2013 from 2.37% in 2012. 66
  68. 68. CREDIT TO DEPOSIT YEAR ADVANCES DEPOSITS CD RATIO 2009 143985.9 192396.95 74.83 CREDIT TO DEPOSIT 2010 2011 175035.29 228676.36 241044.26 305439.48 72.61 74.86 2012 287377.29 384871.11 74.66 2013 328185.76 473883.34 69.25 SOURCE:MONEY CONTROL Higher ratio reflects ability of the bank to make optimal use of the available resources.By analyzing the above it is clear that Credit to deposit ratio is decreased from 74.66% in 2012 to 69.25% in 2013. OPERATING PROFIT MARGIN OPERATING PROFIT MARGIN 2009 2010 2011 YEAR NII-OPERATING EXPENSE 1278.75 1228.25 TOTAL INTEREST 15091.58 16698.34 OPERATING PROFIT MARGIN (%) 8.47 7.36 2012 2013 3132.38 21885.92 3589.42 29673.72 5368.52 35196.65 14.31 12.10 15.25 Higher the ratio indicate operating efficiency and profitability of banks. Above table showing ratio decreased in 2009 to 2010 from 8.47% to 7.36% and again decreased 2011 to 2012 from 14.31% to 12.10%. in 2013 it is increased to 15.25% from 12.10%. NON PERFORMING ASEET RATIO YEAR NPA NET LOANS NPA RATIO(%) NON PERFORMING ASSET RATIO 2009 2010 2011 2012 2013 14356.9 21603.7 27847.3 45513.7 64499.8 1372958 1582339 1923001 2203673 2597921 1.05 1.37 1.45 2.07 2.48 SOURCE:BLOOMBERG Non-performing asset ratio increasing over the years.it increased to 2.48% in 2013 from 2.07% in 2012 and it was 1.05% in 2009. 67
  69. 69. COST TO INCOME RATIO YEAR OPERATING EXPENSE TOTAL INCOME RATIO (%) COST TO INCOME RATIO 2009 2010 2011 3844.66 4711.23 5669.88 7881.07 8745.84 11611.45 48.78 53.87 48.83 2012 6727.59 13739.34 48.97 2013 5946.74 14945.88 39.79 Cost to income ratio showing a decreasing trend, it is decreased from 48.78% in 2009 to 39.79% in 2013. There was an increase in 2009 to 2010 from 48.78% to 53.87%. EARNING PER SHARE(EPS) EARNING PER SHARE (EPS) Year 2009 2010 2011 Profit available to Equity Share holders 2227.2 3058.33 4241.68 Number of Equity Shares 36.553 36.553 39.281 EPS 60.93 83.66 107.98 2012 2013 5006.96 41.238 121.41 4480.72 42.252 106.04 EPS decreased from 2012 to 2013 from 121.41 to 106.04, it was 60.93 in 2009. 2012 was the highest EPS. DIVIDEND PER SHARE (DPS) Year Equity Dividend Number of equity shares DPS DIVIDEND PER SHARE(DPS) 2009 2010 2011 383.56 548.29 648.13 36.55 36.55 39.28 10.49 15.00 16.50 2012 701.05 41.24 17.00 2013 908.46 42.25 21.50 DPS showing an increasing trend, it increased from 2012 to 2013 from 17 to 21.50. 2013 is the highest over the period and it was 10.49 in 2009. 68
  70. 70. DIVIDEND PAY OUT RATIO DIVIDENT PAY OUT RATIO YEAR 2009 2010 2011 DPS 10.49 15.00 16.50 EPS 60.93 83.67 107.98 DIVIDENT PAY OUT RATIO(%) 17.22 17.93 15.28 EARNING RETENTION RATIO(%) 82.78 82.07 84.72 2012 17.00 121.42 14.00 2013 21.50 106.05 20.27 86.00 79.73 Dividend payout ratio increased for the past 5 years except 2012. It increased from 2012 to 2013 from 14% to 20.27%. 20.27% in 2013 is the highest dividend payout ratio and Earning retention ratio decreased from 2012 to 2013 from 86% to 79.73%, it was 82.78% in 2009. PRICE EARNING RATIO YEAR MARKET PRICE SHARE(AVG) EPS PRICE EARNING RATIO PRICE EARNING RATIO 2009 2010 2011 PER 259.44 492.10 840.25 60.93 83.67 107.98 4.26 5.88 7.78 2012 2013 792.60 121.42 6.53 739.71 106.05 6.98 A high price earning ratio suggest investors expecting high earning growth in future and it shows how much investors are willing to pay for EPS.Price earning ratio increased from 2012 to 2013 from 6.53 to 6.98, it was 4.26 in 2009 and a high price earnig ratio recorded in 2011 to 7.78. INTRINSIC VALUE INTRINSIC VALUE AVG PRICE EARNING RATIO EXPECTED EPS INTRINSIC VALUE CURRENT MARKET PRICE(31 OCT 13) BUY/SELL 6.284827 96.00915 603.401 642.9 SELL Market value of stock tends towards its intrinsic value. Here the Intrinsic value of share is lower than current market price which indicate the stock is overvalued. Advisable to sell the security. 69
  71. 71. PANJAB NATIONAL BANK Panjab national bank (PNB) is the 3rdlargest public sector bank in india on the basis of market capitalization,founded in 1895. based in New Delhi, India. The bank has been ranked 248th biggest bank in the world by the Bankers' Almanac. COMPETITIVE POSITION Main competitors are SBI,ICICI Bank, HDFC Bank, Axis Bank, Bank of India, Bank of baroda etc. BOARD OF DIRECTORS Chairman & Managing Director Shri. K.R.Kamath Executive Director Smt. Usha Ananthasubramanian Shri Gauri Shankar Directors Shri. Anurag Jain Shri. B P Kanungo Shri. M A Antulay Shri. B B Chaudhry Shri. Devinder Kumar Singla Dr. Sunil Gupta Shri M. N. Gopinath Shri. Dilip Kumar Saha Shri. Tara Chand Jhalani PRODUCTS AND SERVICES The important products and services of PNB are Credit cards, consumer banking, corporate banking, finance and insurance, investment banking, mortgage loans, private banking, private equity, wealth management etc. 70