Indian Banking

1.0 Introduction and Literature Review

1.1 Introduction to Banking

Banking Regulation Act, 1949 defines banking as “accepting, for the purpose of

lending or investing of deposits of money from the public, repayable on demand

or otherwise and withdrawal by cheques, draft and order or otherwise.”

A well-organized and efficient banking system is a pre-requisite for economic

growth. Banks play an important role in the functioning of organized money

markets. They act as a conduit for mobilizing funds and channelizing them for

productive purposes. The Indian banking system like the banking system in other

countries has played a significant role in the economic growth of the country. In

order to meet the banking needs of various sections of the society, a large network

of the bank branches had been established.

1.1.1 The Structure of Indian Banking

The Indian Banking has Reserve Bank of India (RBI) as its Regulatory Authority.

This is a combination of the Public Sector, Private Sector, Co-operative Banks

and Foreign Banks. The Private Sector Banks are again split into old banks and

the new banks.

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RESERVE BANK OF INDIA

SCHEDULED BANKS

SCHEDULED SCHEDULED CO-

COMMERCIAL BANKS OPERATIVE BANKS

PUBLIC SECTORPRIVATE SECTOR

FOREIGN BANKS REGIONAL

NATIONALIZED SBI & ITS SCHEDULEDBANKS ASSOSCIATES URBAN CO-

OPERATIVE BANKS

OLD PRIVATE NEW PRIVATESCHEDULED

STATESECTOR BANKS SECTOR BANKS CO-OPERATIVE

BANKS

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1.1.2 Commercial Banks

Commercial banks are by far most wide spread banking institutions in India.

The products and services/ functions of the commercial banks divided into two

categories:

1. Primary Services/ Functions, and

2. Secondary Services/ Functions including agency functions.

Primary Functions:

The primary functions of commercial banks include:

1. Accepting Deposits, and

2. Granting loans and advances.

Secondary Functions:

They are essentially non-banking in nature and broadly fall under two categories

1. Agency Services, and

2. General utility services

Agency Services:

Agency services are those services which are rendered by commercial banks as

agents of their customers. They include:

1. Collection and payment of cheques and bills on behalf of the customer;

2. Collection of dividends, interest and rent, etc, on behalf of customers, if so

instructed by them;

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3. Purchase and sale of shares and securities on behalf of customers;

4. Payment of rent, interest, insurance premium, subscriptions etc. on behalf

of customers, if so instructed;

5. Acting as a trustee or executor;

6. Acting as agents or correspondents on behalf of customers for other banks

and financial institutions at home and abroad.

General Utility services:

General utility services are those services which are rendered by commercial

banks not only to the customers but also to the general public. These are available

to the public on payment of a fee or charge.

They include:

1) Issuing letters of credit and travelers cheque;

2) Underwriting of shares and debentures, etc.;

3) Safe keeping of valuables in safe deposits, lockers;

4) Underwriting loans floated by government and public bodies;

5) Acting as a referee regarding the financial status of customers;

6) Undertaking foreign exchange business;

7) Supplying trade information and statistical data useful to customers.

Commercial Banks operating in India can be divided into two categories based on

their ownership.

1. Public Sector Banks and

2. Private Sector Banks.

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However, irrespective of the ownership all commercial banks in India function

under the overall super vision and control of the Reserve Bank of India (RBI)

which is an Apex Central bank in India.

1.1.3 Public Sector Banks:

Public sector banks also known as nationalized banks. The ownership of these

banks is in the hands of Government of India and the majority of the shares are

held by the Government of India. Some of the Public Sector banks are mentioned

below. At present the share holding pattern in these banks is 51% Government and

49% public holdings.

1 The State Bank of India and its Associates

2 The Oriental Bank of Commerce

3 Central Bank of India

4 Indian Overseas Bank

5 Punjab National Bank

6 Union Bank of India

7 Corporation Bank

8 Allahabad Bank

9 Bank of Baroda

10 Syndicate Bank

11 Bank of India

12 Andhra Bank

13 Vijaya Bank

14 Indian Bank

15 Axis Bank

16 Dena Bank

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1 UCO Bank

1.1.4 Private Sector Banks:

The ownership of private sector banks is in the hand of private individuals or

organizations. Private sector Banks are of three types:

1. Scheduled Commercial Banks other than Public Sector Banks.

2. Non-Scheduled Banks and

3. Foreign Banks-Indian branches of banks incorporated outside India.

Some of the private sector banks are mentioned below:

1 Industrial Credit and Investment Corporation of India (ICICI)Bank

2 Housing development Finance Corporation (HDFC) Bank

3 Hongkong and Shangai Banking Corporation (HSBC)

4 Bank of Rajasthan Limited

5 Karnataka Bank Limited

6 Standard Chartered Bank

7 DhanaLaxmi Bank

8 ABN Amro Bank

9 ING Vysya Bank

10 Indus Ind Bank

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1.1.5 Banking in India

Banks in India have traditionally offered mass banking products. Most common

deposit products are Savings Bank, Current Account, and Term deposit Account.

Lending products are Cash Credit and Term Loans.

Due to Reserve Bank of India (RBI) guidelines, Banks have had little to do

besides accepting deposits at rates fixed by Reserve Bank of India and lend

amount arrived by the formula stipulated by RBI at rates prescribed by the latter.

Prime Lending Rate (PLR) was the benchmark for interest on the lending

products. But PLR itself was, more often than not, dictated by RBI. Further,

remittance products were limited to issuance of Drafts (DD’s), Telegraphic

Transfers (TT’s), Banker’s Cheques (BC’s) and Internal Transfer of Funds.

In view of several developments in the 1990s, the entire banking products

structure has undergone a major change. As part of the economic reforms,

banking industry has been deregulated and made competitive. New players have

added to the competition. It revolution has made it possible to provide ease and

flexibility in operations to customers. Rapid progress in information technology

has, in fact, redefined the role and structure of banking in India. Further, due to

global trends after Information explosion led by Internet, customers- both

Individuals and Corporate are now demanding better services with more products

from their banks.

Financial market has turned into a buyer’s market. Banks are also changing with

time and are trying to become one-stop financial super markets. Market focus is

shifting from mass banking products to class banking with introduction of value

added and customized products.

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A few foreign and private sector banks have already introduced customized

banking products like Investment Advisory Services, SGL II accounts, Photo-

credit cards, Cash Management services, Investment products and Tax Advisory

services. A few banks have gone into market mutual fund schemes. Eventually,

the Banks plan to market bonds and debentures, when allowed. Insurance

peddling by banks also started recently.

The Bank of the future had to be essentially a marketing organization that also

sells banking products. New distribution channels are being used; more and more

banks are outsourcing services like disbursement and servicing of consumer

loans, Credit Card business. Direct Selling Agents of various banks go out to sell

their products. They make house calls to get the application form filled in

properly and also take their passport-sized photo. Home banking has already

become common, where you can order a draft or cash over phone/internet and

have it delivered home. ICICI bank was the first among the new private banks to

launch its net banking service, called ‘Infinity’. It allows the user to access

account information over a secure line, request cheque books and stop payment

and even transfer funds between ICICI bank accounts. Citibank has been offering

net banking called ‘Suvidha program’ to its customers. Products like debit cards,

flexi deposits, ATM cards, personal loans including consumer loans, housing

loans and vehicle loans have been introduced by a number of banks.

Corporates are also deriving benefit from the increased variety of products and

competition among the banks. Certificates of deposit, Commercial papers, Non-

convertible Debentures (NCD’s) that can be traded in the secondary market are

gaining popularity. Recently, market has also seen major developments in treasury

advisory services. With the introduction of Rupee floating rates for deposits as

well as advances, products like interest rate swaps and forward rate agreements

for foreign exchange, risk management products like forward

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contract, option contract and currency swap are offered by almost every

authorized dealer bank in the market.

Capital:

The difference between the value of a bank's assets and its liabilities. The bank

capital represents the net worth of the bank or its value to investors. The asset

portion of a bank’s capital includes cash, government securities and interest-

earning loans like mortgages, letters of credit and inter-bank loans. The liabilities

section of a bank's capital includes loan-loss reserves and any debt it owes.

Deposits and Advances:

Money placed into a banking institution for safekeeping. Bank deposits are made

to deposit accounts at a banking institution, such as savings accounts, checking

accounts and money market accounts. The account holder has the right to

withdraw any deposited funds, as set forth in the terms and conditions of the

account. The "deposit" itself is a liability owed by the bank to the depositor (the

person or entity that made the deposit), and refers to this liability rather than to the

actual funds that are deposited.

The number of stocks that closed at a higher price than the previous day's close,

and the number of stocks that closed at a lower price than the previous day's

close. Technical analysts look at advance to analyze the overall behavior of the

stock market, in order to discern volatility and to predict whether a price trend is

likely to continue or reverse. Typically, a market will be more bullish if more

stocks advance than decline.

Interest/ Non Interest Income:

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The difference between the revenue that is generated from a bank's assets and the

expenses associated with paying out its liabilities. A typical bank's assets consist

of all forms of personal and commercial loans, mortgages and securities. The

liabilities are, of course, the customer deposits. The excess revenue that is

generated from the spread between interest paid out on deposits and interest

earned on assets is the net interest income.

Bank and creditor income derived primarily from fees. Examples of non-interest

income include deposit and transaction fees, insufficient funds (NSF) fees, annual

fees, monthly account service charges; inactivity fees, check and deposit slip fees,

etc. Institutions charge fees that provide non-interest income as a way of

generating revenue and ensuring liquidity in the event of increased default rates.

Net Profit:

Net profit represents the amount remaining after all operating expenses, interest

taxes and preferred stock dividends (but not common stock dividends) have been

deducted from a company's total revenue.

Difference between receipts from business transactions and deductible business

expenses, subject to any adjustments for tax purposes.

Reserves and Surplus:

Amount appropriated out of earned surplus (retained earnings) for future planned

or unforeseen expenditure.

At the end of an accounting period the company may decide to transfer part of the

profits to a reserve and retain the balance in the profit and loss account. The

reserve created out of profits transferred from profit and loss account is called

general reserve. The balance in the profit and loss account is called a surplus and

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will be shown under this head in the balance sheet.

The company can use the general reserve for various purposes including issue of

bonus shares to shareholders and payment of dividend when profits are

insufficient. The premium received when shares are issued at a premium to the

face value is shown under the head reserves and surplus.

Non-Performing Assets:

A classification used by financial institutions that refer to 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 non-performing asset.

NPA’s are classified as: Substandard Assets, Doubtful Assets, Loss Assets.

1.1.6 Theoretical Background

An organization, usually a corporation, which does most or all of the following:

receives demand deposits and time deposits, honors instruments drawn on them,

and pays interest on them; discounts notes, makes loans, and invests in securities;

collects checks, drafts, and notes; certifies depositor’s checks and issues drafts

and cashier’s checks. Thus in general terms, banking means the business activity

of accepting and safeguarding money owned by other individuals and entities, and

then lending out this money in order to earn a profit. But banks also perform

certain activities which are ancillary to this business of accepting deposits and

lending. These services are known as supplementary functions or secondary

services.

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Banks provide almost all payment services by conducting, checking, and current

accounts for customers, paying cheques drawn by customers on the bank and

collecting cheques deposited to customer’s accounts. Banks also enable customer

payments via other modes of payments such as telegraphic transfer. Banks have

added new payment channels like Internet Banking, Mobile banking, ATM’s etc.

Banks activities can be divided into retail banking, dealing with individuals;

business banking, providing services to mid-size business; corporate banking,

dealing with large business entities; private banking, providing wealth

management services to High Net worth Individuals; and investment banking,

relates to helping customers raise funds in the Capital Markets and advising on

Mergers and Acquisitions. Banks are now moving towards Universal Banking,

which is a combination of commercial banking, investment banking and various

other activities including insurance. Thus the importance of secondary services

increased manifold.

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1.2 Review of Literature

Petya Koeva (July 2003), in his study on “The performance of Indian Banks

during financial Liberalization” stated that new empirical evidence on the impact

of financial liberalization on the performance of the Indian commercial banks.

The analysis focuses on examining the behavior and determinants of bank

intermediation costs and profitability during the liberalization period. The

empirical results suggest that ownership type has a significant effect on some

performance indicators and that the observed increase in competition during

financial liberalization has been associated with lower intermediation costs and

profitability of the Indian banks.

Mauluri and Nagarjuna (2009), In their study on “Measurement Of Efficiency

Of Banks In India” concluded that in modern world performance of banking is

more important to stable the economy in order to see the efficiency of Indian

banks we have to see the force indicators i.e. profitability, productivity, assets,

quality and financial management for all banks including public sector and private

sector banks in India for the period 1999-2000 to 2002-2003. For measuring

efficiency of banks we have adopted development envelopment analysis and

found that public sector banks are more efficient than other banks in India.

Bala Subramanian and Satish Kumar (2011), in his article on “Evaluation of

the Financial Performance of Indian Private Sector Banks” wrote Private sector

banks play an important role in development of Indian economy. After

liberalization the banking industry underwent major changes. The economic

Reforms totally have changed the banking sector. RBI permitted new banks to be

started in the private sector as per the recommendation of Narshiman Committee.

The Indian banking industry was dominated by public sector banks. But now the

situations have changed new generation banks with use of technology and

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professional management has gained a reasonable position in the banking

industry.

Kajal and Monika (2011), in their research “Performance of Indian Private

sector banks and Public sector banks” said that the economic reforms in India

started in early nineties, but their outcome is visible now. Major changes took

place in the functioning of Banks in India only after liberalization, globalization

and privatization. It has become very mandatory to study and to make a

comparative analysis of services of Public sector Banks and Private Sector banks.

Increased competition, new information technologies and thereby declining

processing costs, the erosion of product and geographic boundaries, and less

restrictive governmental regulations have all played a major role for Public Sector

Banks in India to forcefully compete with Private and Foreign Banks, this paper

an attempt to analyze how efficiently Public and Private sector banks have been

managing NPA. We have used statistical tools for projection of trend.

Pacha Malyadri, S.Sirisha, (2011) titled “A Comparative Study of Non

Performing Assets in Indian Banking Industry” The Indian banking system has

undergone significant transformation following financial sector reforms. It is

adopting international best practices with a vision to strengthen the banking

sector. Several prudential and provisioning norms have been introduced, and these

are pressurizing banks to improve efficiency and trim down NPAs to improve the

financial health in the banking system. In the background of these developments,

this study strives to examine the state of affair of the Non performing Assets

(NPAs) of the public sector banks and private sector banks in India with special

reference to weaker sections. The study is based on the secondary data retrieved

from Report on Trend and Progress of Banking in India. The scope of the study is

limited to the analysis of NPAs of the public sector banks and private sector banks

NPA’s pertaining to only weaker sections for the period seven (7) years i.e. from

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2004-2013. It examines trend of NPAs in weaker sections in both public sector

and private sector banks. The study observed that the public sector banks have

achieved a greater penetration compared to the private sector banks vis-à-vis the

weaker sections.

Mayur Shetty ,(2013), titled “Public sector banks act as catalyst in Insurance

Sector “stated that allowing banks to become brokers will increase the increase

the insurance penetration, and according to the ministry this would also minimize

the curb of mis-selling of the insurance policies. The insurance industry was split

over the issue of banks distributing products of multiple companies. The bank-

promoted companies favored banks being tied to one company, while the non-

bank promoted insurers wanted an open architecture. One of the gainers of this

would be the Life Insurance Corporation since it has the highest brand recall and

most banks are likely to include LIC policies in their suit of insurance plans.

Although banks offer customers a choice of multiple mutual funds, they could

until recently sell insurance policies of only one company. This was because the

Insurance Regulatory and Development Authority used to license firms as

brokerages and banks were eligible only to take up a corporate agency on behalf

of one each of life, non-life and health insurance companies.

Atmadip Ray and Govardhana Rangan, (2013), in their study on “Private

sector bank eye rural market on pocket to wealth” The great Indian rural story for

long has been told by shampoo and motor cycle manufacturers, but bankers,

especially the private ones, who always look for the big fish, have been lagging

behind. Not anymore. It is not that the financial inclusion slogan of the regulator

and the government that is leading lenders such as HDFC Bank and Kotak

Mahindra into the Indian hinterland, but the sheer opportunity to make money.

HDFC Bank, which started moving into rural market as late as 2009, now has 53

per cent of its 3,336 branches in rural and semi-urban areas. Last year, it opened

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88 per cent of the 518 new branches in rural and semi-urban pockets. Although

RBI mandates banks to open a quarter of their branches in villages with less than

10,000 population, Kotak Mahindra Bank plans to do more as the cost of setting

them is just a fraction of what it takes in a city. Currently, it has 532. The bank

hopes to improve its current and savings account (CASA) ratio from the present

level of 29 per cent with this rural penetration plan. Rural branches are not

necessarily loss making and unviable. Keeping them slim and efficient use of

manpower means that they begin to make profits quite early.

Anil K Sharma, (2012), titled “Efficiency and Productivity of Indian Banks”

stated that Inflation inching towards the 8% mark and the 10-year benchmark G-

sec yield at 6.5% is not only worrying the debt markets in India. There are a lot of

other sectors that are taking a hit because of this, and, with the transporters' strike

on, there is little respite. One sector that is directly feeling the heat of rising yields

is the Indian banking sector. Till recently banks had made merry as interest rates

in the economy were falling leading to windfall treasury gains. The fact that most

state government banks had more than 40% of their portfolios invested in

government securities also helped the cause. But now, with yields rising

continuously over the past four months, the bond portfolio of banks is under

pressure and markets fear the worst. It is for this reason that banking stocks have

taken a beating in an already dull equity market. So, what is the future of banking

stocks? As always, there are two views. While some analysts believe that the

earning pressures will weigh heavily on the stocks, there are others who are

equally convinced that these worries have already been factored in into current

valuations and this is an opportunity to buy into these stocks. We analyze the

merits of both these arguments.

Mishita Mehra ,(2011), study on “comparison on banking sectors in India and

China” stated that SBI got a downgrade on its credit rating by Moody’s where as

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China’s banking sector is not great either. It's the same story in asset size. At least

11 Chinese banks are perched in the top 100 category based in terms of market

size while only three Indian banks make the cut here. To get an idea of the scale

difference, consider this: Industrial and Bank of China, the largest Chinese bank,

boasts of a market size of $201 billion while its Indian counterpart SBI's market

size is only a fifth at $40 billion. Banks from both sides have recorded high

revenue growth, unlike counterparts of developed countries. For instance,

McKinsey data show revenues of Indian and Chinese banks grew 19.8% and

13.7% in 2007-10, respectively. The non-performing asset ratio of the countries'

banks too is comparable. NPAs of Indian banks stood at 2.5% in 2010 while those

of the Chinese were 1.7%.

Likewise, the cost to income ratio, another measure of banking efficiency, is only

a tad different. Indian banks: 42% and Chinese banks: 39%.

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1.4 Company Profile

1.4.1 Private Banks

HDFC Bank

The Housing Development Finance Corporation Limited (HDFC) was amongst

the first to receive an 'in principle' approval from the Reserve Bank of India (RBI)

to set up a bank in the private sector, as part of the RBI's liberalization of the

Indian Banking Industry in 1994. The bank was incorporated in August 1994 in

the name of 'HDFC Bank Limited', with its registered office in Mumbai, India.

HDFC Bank commenced operations as a Scheduled Commercial Bank in January

1995 under the RBI’s liberalization policies.

HDFC is India’s premier housing company and enjoys an impeccable track record

in India as well as in international markets. Since its inception in 1977, the

Corporation has maintained a consistent and healthy growth in its operations to

remain the market leader in mortgages. Its outstanding loan portfolio covers over

a million dwelling units. HDFC had developed significant expertise in retail

mortgage loans to different market segments and also had a larger corporate client

base for its housing related credit facilities. With its experience in the financial

markets, a strong market reputation, large shareholder base and unique consumer

franchise, HDFC was ideally positioned to promote a bank in the Indian

environment.

Times Bank Limited (owned by Bennett, Coleman & Co. / Times Group) was

merged with HDFC Bank Ltd., in 2000. This was the first merger of two private

banks in India. Shareholders of Times Bank received 1 share of HDFC Bank for

every 5.75 shares of Times Bank. In 2011 HDFC Bank acquired Centurion Bank

of Punjab.

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HDFC Bank is headquartered in Mumbai and as of March 31, 2012, the Bank’s

distribution network was at 2,544 branches and 8,913 ATMs in 1,399 cities as

against 1,986 branches and 5,471 ATMs in 996 cities as of March 31,2011

Business focus

HDFC Bank deals with three key business segments. - Wholesale Banking

Services, Retail Banking Services, Treasury.

Wholesale banking services

Blue-chip manufacturing companies in the Indian corp to small & mid-sized

corporates and agri-based businesses. For these customers, the Bank provides a

wide range of commercial and transactional banking services, including working

capital finance, trade services, transactional services, cash management, etc. The

bank is also a leading provider of the above services to its corporate customers,

mutual funds, stock exchange members and banks.

Retail banking services

HDFC Bank was the first bank in India to launch an International Debit Card in

association with VISA (Visa Electron) and issues the MasterCard Maestro debit

card as well. The Bank launched its credit card business in late 2001.The Bank is

also one of the leading players in the “merchant acquiring” business. HDFC

BANK's retail services have become by and large the best in India and since the

contribution to CASA i.e total number of current and savings account of more

than 50%, HDFC BANK has full potential to become India’s No.1 Private Sector

Bank.

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Treasury

Within this business, the bank has three main product areas - Foreign Exchange

and Derivatives, Local Currency Money Market & Debt Securities, and Equities.

These services are provided through the bank's Treasury team. With the

liberalization of the financial markets in India, corporate need more sophisticated

risk management information, advice and product structures. To comply with

statutory reserve requirements, the bank is required to hold 25% of its deposits in

government securities. The Treasury business is responsible for managing the

returns and market risk on this investment portfolio.

3.1.2 ICICI Bank

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian

financial institution, and was its wholly-owned subsidiary. ICICI's shareholding in

ICICI Bank was reduced to 46% through a public offering of shares in India in

fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal

2000, ICICI Bank's acquisition of Bank of Madura Limited in an all-stock

amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional

investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative

of the World Bank, the Government of India and representatives of Indian

industry. The principal objective was to create a development financial institution

for providing medium-term and long-term project financing to Indian businesses.

In the 1990s, ICICI transformed its business from a development financial

institution offering only project finance to a diversified financial services group

offering a wide variety of products and services, both directly and through a

number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the

first Indian company and the first bank or financial institution from non-Japan

Asia to be listed on the NYSE.

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After consideration of various corporate structuring alternatives in the context of

the emerging competitive scenario in the Indian banking industry, and the move

towards universal banking, the managements of ICICI and ICICI Bank formed the

view that the merger of ICICI with ICICI Bank would be the optimal strategic

alternative for both entities, and would create the optimal legal structure for the

ICICI group's universal banking strategy. The merger would enhance value for

ICICI shareholders through the merged entity's access to low-cost deposits,

greater opportunities for earning fee-based income and the ability to participate in

the payments system and provide transaction-banking services. The merger would

enhance value for ICICI Bank shareholders through a large capital base and scale

of operations, seamless access to ICICI's strong corporate relationships built up

over five decades, entry into new business segments, higher market share in

various business segments, particularly fee-based services, and access to the vast

talent pool of ICICI and its subsidiaries.

In 2000, ICICI Bank became the first Indian bank to list on the New York Stock

Exchange with its five million American depository shares issue generating a

demand book 13 times the offer size.

In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the

merger of ICICI and two of its wholly-owned retail finance subsidiaries, ICICI

Personal Financial Services Limited and ICICI Capital Services Limited, with

ICICI Bank. The merger was approved by shareholders of ICICI and ICICI Bank

in January 2002, by the High Court of Gujarat at Ahmedabad in March 2002, and

by the High Court of Judicature at Mumbai and the Reserve Bank of India in

April 2002. Consequent to the merger, the ICICI group's financing and banking

operations, both wholesale and retail, have been integrated in a single

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entity. ICICI Bank has formulated a Code of Business Conduct and Ethics for its

directors and employees.

ICICI Bank is India’s second largest bank with total assets of Rs 3, 446.58 billion

(US$ 79 billion) at March 31st, 2010 and profit after tax of Rs 31.10 billion for

fiscal 2010. ICICI Bank is the most valuable bank in India in terms of market

capitalization and is ranked third amongst all the companies listed on the Indian

Stock exchanges in term of free float market capitalization. The Bank has a

network of about 950 Branches and 3,300 ATMs in India and presence in 17

countries. ICICI Bank offers a wide range of banking products and financial

services to corporate and retail customers through a variety of delivery channels

and through its specialized subsidiaries and affiliates in the areas of investment

banking, life and non-life insurance, venture capital and asset management.

In 2011, following the 2011 financial crisis, customers rushed to ATM's and

branches in some locations due to rumors of adverse financial position of ICICI

Bank. The Reserve Bank of India issued a clarification on the financial strength of

ICICI Bank to dispel the rumors.

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Public Sector Banks

3.2.1 State Bank of India

State Bank of India (SBI) is India’s largest commercial bank. SBI has a vast

domestic network of over 9000 branches and commands one-fifth of deposits and

loans of all scheduled commercial banks in India. State Bank of India itself is

known as a synonym for ‘Bank’ in India. It is 29th most reputable company

organization in the world according to Forbes.

The origins of State Bank of India date back to 1806 when the Bank of Calcutta

(Later call the Bank of Bengal) was established. In 1921, the Bank of Bengal and

two other Presidency banks (Bank of Madras and Bank of Bombay) were

amalgamated to form the Imperial Bank of India. In1955, the controlling interest

in the Imperial Bank of India was acquired by the Reserve Bank of India and the

State Bank of India (SBI) came into existence by an act of parliament as successor

to the Imperial Bank of India.

The State Bank Group includes a network of eight banking subsidiaries and

several non-banking subsidiaries offering merchant banking services, fund

management, factoring services, primary dealership in government securities,

credit cards and insurance.

The eight banking subsidiaries are State Bank of Bikaner and Jaipur(SBBJ), State

Bank of Hyderabad(SBH), State Bank of India(SBI), State Bank of Indore(SBIR),

State Bank of Mysore(SBM), State Bank of Patiala(SBP), State Bank of

Saurashtra (SBS), and State Bank of Travancore(SBT).

The Reserve Bank of India is the single largest shareholder of the Bank (with

59.73% stockholding followed by 14.1% NRI/FIIs, 11.8% financial institutions,

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11.1% individuals and remaining with mutual funds and corporates). SBI’s shares

and bonds are listed for trading on all the major Indian stock exchanges. Its GDR

is listed on the Luxembourg Stock Exchange. In 2011, the Government took over

the stake held by the Reserve Bank of India.

SBI provides a range of banking products through its vast network in India and

overseas, including products aimed at Non Resident Indians. The State Bank

Group, with over 17,000 braches, has the largest branch network in India. With an

asset base of $250 billion and $195 billion in deposits, it is a regional banking

behemoth. State Bank of India is the largest bank in India in terms of profits,

assets, deposits, branches and employees. With a network of about 10,000

branches in India and 51 foreign offices in 32 countries, the Bank commands

about one-fifth of the total deposits and loans in all scheduled commercial banks

in the country.

With a view to including transparency in banking transactions and for providing

information to customers, the Banks launched a Citizen’s Charter in the form of

the Code of Fair Banking Practices together with the General Terms and

Conditions of Service. Appropriately named, ‘Towards Excellence’ Code reflects

the Bank’s commitment to provide services of the highest order and serves as a

document of self-discipline.

The State Bank of India is the largest of the Big Four banks of India, along with

ICICI Bank, Punjab National Bank and HDFC Bank—its main competitors.

Originally bank has a definition of accepting deposits and lending loans. But State

Bank of India has changed the definition by way of providing various kinds of

services which were not imagined at the inception. Though accepting loans and

lending funds still the primary objective of the bank, but in the present scenario

SBI is also more focusing into providing various kinds of secondary service.

24

http://en.wikipedia.org/wiki/HDFC_Bank

http://en.wikipedia.org/wiki/Punjab_National_Bank

http://en.wikipedia.org/wiki/ICICI_Bank

http://en.wikipedia.org/wiki/ICICI_Bank

http://en.wikipedia.org/wiki/Big_Four_(banks)#India

The bank is entering into many new businesses with strategic tie ups- Pension

Funds, General Insurance, Custodial Services, Private Equity, Mobile Banking,

Point of Sale Merchant Acquisition, Advisory Services, structured products etc-

each one of these initiatives having a huge potential for growth.

3.2.2 Canara Bank

Widely known for customer centricity, Canara Bank was founded by Shri

Ammembal SubbaRao Pai, a great visionary and philanthropist, in July 1906, at

Mangalore, then a small port town in Karnataka. The Bank has gone through the

various phases of its growth trajectory over hundred years of its existence.

In 1958, the Reserve Bank of India ordered Canara Bank to acquire G.

Raghumathmul Bank, in Hyderabad. This bank had been established in 1870, and

had converted to a limited company in 1925. At the time of the acquisition G.

Raghumathmul Bank had five branches. The Government of India nationalized

Canara Bank, along with 13 other major commercial banks of India, on 19 July

1969. In 1976, Canara Bank inaugurated its 1000th branch. In 1985, Canara Bank

acquired Lakshmi Commercial Bank in a rescue.

Growth of Canara Bank was phenomenal, especially after nationalization in the

year 1969, attaining the status of a national level player in terms of geographical

reach and clientele segments. Eighties was characterized by business

diversification for the Bank. In June 2009, the Bank completed a century of

operation in the Indian banking industry. The eventful journey of the Bank has

been characterized by several memorable milestones. Today, Canara Bank

occupies a premier position in the comity of Indian banks. With an unbroken

record of profits since its inception, Canara Bank has several firsts to its credit.

These include:

1 Launching of Inter-City ATM Network

25

http://en.wikipedia.org/wiki/Government_of_India

http://en.wikipedia.org/wiki/Hyderabad,_Andhra_Pradesh

http://en.wikipedia.org/wiki/Reserve_Bank_of_India

1 Obtaining ISO Certification for a Branch

2 Articulation of ‘Good Banking’ – Bank’s Citizen Charter

3 Commissioning of Exclusive Mahila Banking Branch

4 Launching of Exclusive Subsidiary for IT Consultancy

5 Issuing credit card for farmers

6 Providing Agricultural Consultancy Services

Over the years, the Bank has been scaling up its market position to emerge as a

major 'Financial Conglomerate' with as many as nine subsidiaries/sponsored

institutions/joint ventures in India and abroad. As at March 2012, the Bank has

further expanded its domestic presence, with 3595 branches spread across all

geographical segments. Keeping customer convenience at the forefront, the Bank

provides a wide array of alternative delivery channels that include 2858 ATMs,

covering 1139 centres. Several IT initiatives have been undertaken during the

year, which include Funds Transfer through Interbank Mobile Payment Services

(IMPS) in ATMs, ASBA facility to net banking users, E-filing of tax returns and

facility for viewing details of tax deducted at source, Terminal at 223 branches for

customers to use net banking, SMS/e-mail alerts for all transactions done through

ATM, net banking, POS, mobile banking, online payments irrespective of

amounts, online loan applications and tracking facility, generation of automatic

pass sheets through e-mail and automatic renewal of term deposits. Under

Government business, the Bank has implemented internet based application for

UGC Maulana Azad National Fellowship Scheme, Web portal for National

Scheme for Girl Child Secondary Education, Electronic Accounting Systems of e-

Receipts-Customs (EASeR-C) for collection of customs duty and e-payment of

commercial taxes module for UP, Karnataka, Delhi and Tamil Nadu.

26

Not just in commercial banking, the Bank has also carved a distinctive mark, in

various corporate social responsibilities, namely, serving national priorities,

promoting rural development, enhancing rural self-employment through several

training institutes and spearheading financial inclusion objective. Promoting an

inclusive growth strategy, which has been formed as the basic plank of national

policy agenda today, is in fact deeply rooted in the Bank's founding principles. "A

good bank is not only the financial heart of the community, but also one with an

obligation of helping in every possible manner to improve the economic

conditions of the common people". These insightful words of our founder

continue to resonate even today in serving the society with a purpose. The growth

story of Canara Bank in its first century was due, among others, to the continued

patronage of its valued customers, stakeholders, committed staff and uncanny

leadership ability demonstrated by its leaders at the helm of affairs. We strongly

believe that the next century is going to be equally rewarding and eventful not

only in service of the nation but also in helping the Bank emerge as a "Global

Bank with Best Practices". This justifiable belief is founded on strong

fundamentals, customer centricity, enlightened leadership and a family like work

culture.

27

2.1 Title of the Project

A Study on the Comparative Analysis of Selected Public and Private Sector

Banks.

2.2 Statement of the Problem

Since the era of economic reforms, banking sector has been witnessing numerous

changes. Various factors have affected the performance of both the public sector

banks and private sector banks. A large no of studies have already been conducted

in banking sector. So the present project is an attempt to analyze and compare the

growth and performance of 2 Banks from Public and Private sector.

2.3 Objectives

1. To analyze the growth patterns of 2 Nationalized and Private Banks.

2. To study the banks with respect to their Capital, Deposits and

Advances.

3. To study their Interest/Non Interest Income and Interest Expended.

4. To study their Net Profit, Reserves and Surplus, Gross and Net NPA

Ratios.

5. To study their key ratios like Return on Capital Employed, Dividend

Yield, Earnings per Share (EPS) and Dividend per Share (DPS)

2.4 Scope of the Study

Due to growing demand of banking services, both private and public sector banks

need to enhance their ability in providing a better service to the customers. This

created a competitive atmosphere in public and private banking sectors.Thus the

significance of the project is to understand which bank has been performing better

under different parameters that are considered and the reasons for such an effect.

28

1. The time period under study is 2009-2013.

2. This project is limited only to two banks each from the Public and the

Private sector.

3. The project involves parameters for comparison

1. Capital,

2. Reserves and Surplus,

3. Net Profit,

4. Deposits and Advances,

5. Non-Performing Assets,

6. Interest/Non Interest Income,

7. Interest Income Expended.

2.5 Hypothesis

H0- There is no significant difference in the performance of public and private

sector banks

H1-There is a significant difference in the performance of public and private

sector banks

2.6 Sampling Details

From the analysis I have considered 5 sample sizes from each bank for the

calculation of mean, so the total sample size for the calculation of ANOVA would

be 80.

2.7 Data Collection

In view of the objectives of the project which are listed above, an analytical study

has been done to study the various parameters; with the help of these parameters a

29

conclusion as to which bank is better as compared to its competition has been

drawn. Secondary data has been collected and used in this regard.

Secondary Data:

The project is based on Secondary Data gathered from the following sources:

1- RBI Reserve Bank of India Data Warehouse

2- Official Websites of ICICI Bank, HDFC Bank, SBI Bank,Canara Bank

The above mentioned sources are the most reliable source of secondary

data.

2.8 Statistical tools for Analysis

The raw data encompasses yearly results and balance sheet of the banks under

study. After calculation of ratios, analysis of individual ratio is being done. The

statistical tool used for analysis is Mean, Standard Deviation and ANOVA.

Analysis is performed by using MS-Excel. The tabulated data is used to analyze

the performance of the banks under study.

2.9 Limitation of the Study

In India, while the presence of newer private sector banks has indeed made a

difference, it has not seriously challenged the primacy of the public sector banks

in aggregate. However, while the reality of public sector ownership may not ipso

facto be a problem, the current policy framework, including the recent decision to

infuse additional capital, completely overlooks the fact that these banks are owned

by the government. The entire Basle framework was designed

30

for banks that are privately-owned and widely held and the requirement of

additional capital that is currently embedded within that framework is designed to

be effective for those banks.

31

3.0 Analysis and Interpretation

3.1 Private Banks

3.1.1 Capital

Table 3.1.1: Capital

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

ICICI 1,239,83 1,249,34 1,462,68 1,113,29 1,114,89

BANK (in lacs) (in lacs) (in lacs) (in lacs) (in lacs)

% Change 0.76 17.07 -23.88 0.14

Year on

year

HDFC 313,14 319,39 354,43 425,38 457,74


% Change 1.9 10.97 20.01 7.60

Year on

year

*Source- Official Website of ICICI Bank and HDFC Bank

160000

140000

120000

100000

Icici Bank80000

60000 Hdfc Bank

40000

200000

2009 2010 2011 2012 2013

Graph 3.1.1: Capital

32

Interpretation:

The above table (3.1.1) shows the capital of ICICI and HDFC bank over 5 years.

The percentage change has been calculated for the corresponding years. Capital

indicates worth of the bank. Higher the capital, higher is the strength of the bank.

The graph (3.1.1) gives a graphical representation of the above tabulated data for

a better understanding.

From the above data it is observed that ICICI bank showed a great increase during

2011, which was due to the merger with Single Bank Ltd. It then showed a

downward fall in 2012, 2013 because paid-up preference shares were grouped

under ‘Borrowings’.

HDFC Bank has been showing a consistent growth from 2009 to 2013. During

2010-2011 and 2011-2012 there has been an abnormal increase because of capital

infusion which included preferential allotment of equity shares and Public

offering of American Depository Shares (ADS).

Hence from the above data it can be concluded that HDFC has been performing

well (consistently) over 5 years. Consistency of capital is welcomed by different

stake holders like shareholders, depositors, foreign investors etc. It also helps in

maintaining a consistent Capital Adequacy Ratio (CAR) which is a regulatory

requirement. But only capital base gives us very little indication hence it has to be

considered with other parameters which will be done in this study.

33

3.1.2 Deposits

Table 3.1.2: Deposits

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

ICICI 165,083,1 230,510,1 244,431,0 218,347,8 202,016,6

BANK 7 9 5 3 0

(in lacs) (in lacs) (in lacs) (in lacs) (in lacs)

% Change 39.63 6.03 -10.67 -7.47

Year on

year

HDFC 55,796,82 68,297,94 100,768,5 142,811,5 167,404,4

BANK (in lacs) (in lacs) 9 8 4

(in lacs) (in lacs) (in lacs)

% Change 22.4 47.54 41.72 17.22

Year on

year


30000000

25000000

20000000 Icici Bank15000000

10000000Hdfc Bank

50000000

2009 2010 2011 2012 2013

Graph 3.1.2: Deposits

34

Interpretation:

The above table (3.1.2) shows the Deposits of ICICI and HDFC bank over 5

years. The percentage change has been calculated for the corresponding years.

Deposits are the major source of funds for bank. Banks are in business of

collecting deposits and lending a part of these as loans and earning interest

income. Higher deposit base implies that bank has more money to be deployed

and hence can get a better income. Higher deposit base also implies the strength

of bank among general public. The graph (3.1.2) gives a graphical representation

of the above tabulated data for a better understanding.

ICICI Bank’s deposits have decreased in the year 2011-2012 and further

decreased in 2012-2013 the reason being for such a change is the bank’s

wholesale deposit rates have decreased from 12% to 7%, which was due to the

‘Sub Prime Mortgages’. During this time the US economy was effected, it had a

great impact on ICICI bank and HDFC Bank was unaffected by this because

HDFC bank isn’t so vastly spread in the international market. This effect created a

worry, and hence ICICI Bank has taken a decision to decrease its deposits. The

deposits for HDFC Bank have increased when ICICI was losing on its deposit

base.

It can be concluded that HDFC Bank has been very consistent in Deposit

management and has not seen fluctuations which is seen in deposit base of ICICI

Bank. ICICI Bank needs to improve in its Deposit management and inculcate

consistency in it.

35

3.1.3 Advances

Table 3.1.3: Advances

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

ICICI 146,163,11 195,865,60 225,616,08 218,310,85 181,205,60


% Change 34.00 15.18 -3.23 -16.99

Year on

year

HDFC 35,061,26 46,944,78 63,426,89 98,883,05 125,830,59


% Change 33.89 35.10 55.90 27.25

Year on

year


25000000

20000000

15000000 Icici Bank

10000000Hdfc Bank

5000000

02009 2010 2011 2012 2013

Graph 4.1.3: Advances

36

Interpretation:

The above table (4.1.3) shows the Advances of ICICI and HDFC bank over 5

years. Advances of ICICI have dropped in last two years but HDFC has shown

increase in advances. Advances are source of income generation for bank.

Advances generate interest income which is the main source of income for banks.

Higher advances lead to higher income for bank which in turn has a positive

impact on the performance of bank. The graph (4.1.3) gives a graphical

representation of the above tabulated data for a better understanding.

From the above data it can be observed that in the years 2011-2012 and 2012-

2013 ICICI Bank’s advances has decreased considerably. The reason being that

due to subprime crisis the deposits of the bank during these years were effected

which in turn affected the lending capacity of the bank. While, the advances of

HDFC Bank increased over the years since its deposit base hasn’t affected when

compared to that of ICICI. During the period 2011-2012 the lending rates have

decreased by the banks to overcome the recession effect, this made people borrow

more amounts from the banks which increased their advances.

Hence it can be concluded that HDFC Bank has been performing well over the

years and its advances have increased considerably which made it a stronger

bank, when compared to ICICI Bank. Again ICICI loses out on consistency.

37

3.1.4 Interest Income

Table 3.1.4: Interest Income

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

ICICI 13,784,50 21,995,59 30,788,34 31,092,55 25,706,93


% Change 59.56 39.97 0.98 -17.32

Year on

year

HDFC 4,475,34 6,889,02 10,115,01 16,332,26 16,172,90


% Change 53.93 46.82 61.46 -0.97

Year on

year

*Source- Official Website of Banks

3500000

3000000

2500000

2000000 Icici Bank

1500000 Hdfc Bank

1000000

500000

0

2009 2010 2011 2012 2013

Graph 3.1.4: Interest Income

38

Interpretation:

The above table (3.1.4) shows the Interest Income of ICICI and HDFC bank over

5 years. The percentage change has been calculated for the corresponding years. It

is understood that higher the interest income, higher is the contribution towards

the top line. Apart from Interest income, bank should also have a better margin to

convert the revenue into profit. The graph (3.1.4) gives a graphical representation

of the above tabulated data for a better understanding.

For the above figures it can be observed that there has been a consistent growth in

the interest income in the case of both the bank, but ICICI bank had shown a great

decrease during 2012-2013, the reason being the advances given out during that

year were less which was due to the deposits in the bank as a reason of the

subprime crisis which affected its performance. The reason for an increase in the

interest income in the year 2011-2012 was because higher advances were given

out, which yield more interest income. During 2012-2013 the interest rates have

decreased this wasn’t in favor of the share holders and the management this was

mainly due to decrease in Interest/ discount on advances/ bill, income from

investments, Interest on balance with RBI and other inter-bank funds. From the

balance sheets it’s evident that the investments have gone down during the period,

which leads to this decrease in interest income.

Hence it can be concluded except during year 2012, both banks have shown

positive increase in Interest income. In 2012, ICICI has shown higher decline in

interest income compared to HDFC Bank.

39

3.1.5 Interest Expended

Table 3.1.5: Interest Expended

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

ICICI 9,597,45 16,358,50 23,484,24 22,725,93 17,592,57


% Change 70.44 43.55 -3.22 -22.58

Year on

year

HDFC 1,929,50 3,179,45 4,887,12 8,911,10 7,786,30


% Change 64.78 53.70 82.33 -12.62

Year on

year

*Source- Official Website

2500000

2000000

1500000 Icici

Bank

1000000Hdfc Bank

500000

02009 2010 2011 2012 2013

Graph 3.1.5: Interest Expende

40

Interpretation:

The above table (3.1.5) shows the Interest Expended of ICICI and HDFC bank

over 5 years. The percentage change has been calculated for the corresponding

years. If the interest expended is higher, then the net profit of the bank would be

effected (decreased). Hence lower the interest expended better is the bank. The

graph (3.1.5) gives a graphical representation of the above tabulated data for a

better understanding.

From the above figures, we can observe that for ICICI bank interest expended has

increased till 2011 and after that it has decreased significantly by 2013, which was

the result of low interest income which was affected by the low advances which

were lent out due to low deposits during that period. This shows that the net profit

is higher during the year. Similarly HDFC bank has been showing an increasing

trend till 2012 and decreased slightly during the year 2013. This decrease was due

to reduction in interest on deposits and interest in RBI/ Inter-Bank borrowings.

Hence we can say that the Interest Expended in the case of ICICI bank is lesser

when compared to HDFC and hence the profits for ICICI bank are higher. This

makes it a better bank.

41

3.1.6 Non Interest Income

Table 3.1.6: Non Interest Income

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

ICICI 4,983,14 6,927,87 8,810,76 7,603,73 7,477,65


% Change 39.02 27.17 -13.69 -1.65

Year on

year

HDFC 1,123,98 1,516,23 2,283,14 3,290,60 3,807,61


% Change 34.89 50.58 44.12 15.71

Year on

year


1000000

900000

800000

700000

600000

Icici bank500000

400000 Hdfc bank

300000

200000

1000000

2009 2010 2011 2012201

3

Graph 3.1.6: Non Interest Income

42

Interpretation:

The above table (3.1.6) shows the Non Interest Income of ICICI and HDFC bank


years. Noninterest income is an indirect source of income to banks. Noninterest

incomes are generally considered as transaction charges, commissions,

Debit/Credit card charges, LC and BG commissions, etc. Higher the non interest

income better is the bank since it helps in increasing the profit margin. The graph

(3.1.6) gives a graphical representation of the above tabulated data for a better

understanding.

From the above figures it can be observed that the noninterest income has been

increasing from 2009 to 2011 and that a great increase took place during 2011

since the merger with Sangli bank has created many transactions to take place,

which generated noninterest income to the bank during that year. But, it saw a

downward movement during 2012 and 2013 which was because of there were less

deposits and advances given by the bank during that period. Hence the non

interest income decreased. Whereas HDFC has been performing consistently and

the noninterest income has increased over the years.

Hence we can conclude by saying that HDFC bank’s performance was

consistently growing and it collected more and more noninterest income.

43

3.1.7 Net Profit

Table 3.1.7: Net Profit

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

ICICI 2,540,07 3,110,22 4,157,73 3,758,13 4,024,98


% Change 22.44 33.67 -9.61 7.10

Year on

year

HDFC 870,78 1,141,45 1,590,19 2,244,94 2,948,70


% Change 83.74 39.31 41.17 31.34

of YEAR


450000

400000

350000

300000

250000

201510

I

50000

02009 2010 2011 2012

Graph 3.1.7:

44

Interpretation:

The above table (4.1.7) shows the Net Profit of ICICI and HDFC bank over 5

years. The percentage change has been calculated for the corresponding years. It

is understood that profitability determines which bank is better. Higher the

profitability better is the performance of the bank.The graph (4.1.7) gives a

graphical representation of the above tabulated data for a better understanding.

From the above data ICICI bank’s net profit was higher in 2011 but decreased

slightly during 2012, the reason for increase being the merger with Sangli Bank,

which effected the profits of the bank during the year. The decrease was due to the

subprime crisis which considerably affected the performance of ICICI bank

during the period, this decreased the deposits, advances, interest and non interest

income and the interest expended which finally affected the net profit of the bank.

The slight increase in the capital base during 2012-2013 might have been a reason

for increase in the net profit even though deposits, advances, etc have decreased.

HDFC bank has showed a consistent increase over the years. The net profit during

2013 has increased by 31.34% compared to a rise of 41.17% over the previous

period, the decrease in the interest income could have contributed to the decline in

the rate.

It can be concluded HDFC Bank has shown over 30% growth in all the years and

hence adored in market as “30% bank”. ICICI has been quiet inconsistent in its

Net profit where profits have shown a lot of fluctuations. These fluctuations have

made its investors wary.

45

3.1.8 Reserves and Surplus

Table 3.1.8: Reserves and Surplus

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

ICICI 21,316,16 23,413,92 45,357,53 48,419,73 50,503,48


% Change 9.84 93.72 6.75 4.3

Year on

year

HDFC 4,986,39 6,113,76 11,142,81 14,220,95 21,061,84


% Change 22.60 82.25 27.62 48.10

Year on

year


6000000

5000000

4000000

Icici Bank3000000

2000000Hdfc Bank

1000000

0

2009 2010 2011 2012 2013

Graph 3.1.8: Reserves and Surplus

46

Interpretation:

The above table (3.1.8) shows the Reserves and Surplus of ICICI and HDFC bank


years. Reserves and surplus give are like shield which protect the bank during

hard times. Bank with higher reserves and surplus is in a better position to bear

losses or adverse condition. Reserve and surplus is an accumulation of past

profits. The graph (3.1.8) gives a graphical representation of the above tabulated

data for a better understanding.

From the above data it is observed that both ICICI and HDFC banks have shown

a positive growth trend over 5 years. Both the banks have shown an abnormal

growth in the year 2010-2011. The merger with Sangli Bank has been the reason

for ICICI Banks performance. HDFC bank has made an appropriation of

Rs.159,02lacs out of profits to general reserve pursuant to Companies Rule, 1975.

During the same year the bank has transferred Rs.3850 lakhs from Profit and Loss

Account to Investment Reserve Account pursuant to the Reserve Bank of India

guidelines.

It can be concluded that although the figures in absolute terms of ICICI Bank’s

reserves are higher than HDFC bank’s, the latter has been showing consistent

growth in its Reserves compared to ICICI Bank.

47

3.1.9 Non Performing Assets (Gross NPA Ratio)

Table 3.1.9: Gross NPA Ratio

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

ICICI BANK 2.01% 2.08% 3.30% 4.32% 5.06%

Gross NPA

Ratio

HDFC BANK 1.32% 1.32% 1.34% 1.98% 1.43%

Gross NPA

Ratio


6

5

4

3Icici Bank

Hdfc Bank2

1

02009 2010 2011 2012 2013

Graph 3.1.9: Gross NPA Ratio

48

Interpretation:

The above table (3.1.9) shows the Gross Non Performing Assets Ratio of ICICI

and HDFC bank over 5 years. The gross NPA ratios over the 5years have been

considered. It is understood that lower the ratio better is the performance of the

bank i.e., the assets (Doubtful Assets, Lost Assets) are considered to be less. This

indicates that the bank is able to reduce its losses with respect to bad assets. The



Over the years the ratio of Gross NPA has increased considerably which indicates

that ICICI bank is not able to recover all the money and hence its Non Performing

Assets are increasing. Even though the advances given out during the years 2012

and 2013 are low the Gross NPA ratio has increased, which implies that ICICI

Bank wasn’t able to collect even those advances, and a major part of them became

nonperforming in nature.

HDFC Bank had its Gross NPA ratio unchanged from 2008-2009 to 2009-2010,

showed an increase till 2012 and decreased in 2013. This shows that the bank had

made an effort to decrease the level of its nonperforming assets. The gross NPA’s as

of 31st March 2013 exclude interest held in respect of NPA accounts which was in

accordance with RBI guidelines. Previous year’s figures were not recomputed. This

increases the profitability of HDFC bank as its NPA’s have decreased.

Since Gross NPA ratio is lower in the case of HDFC Bank, the performance and

the profitability of the bank increased. In comparison to ICICI Bank, HDFC Bank

has been able to collect the amounts on time, implies HDFC Bank is more

effective in its collections

49

3.1.10 Non Performing Assets (Net NPA Ratio)

Table 3.1.10: Net NPA Ratio

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

ICICI BANK 0.72% 1.02% 1.55% 2.09% 2.12%

Net NPA

Ratio

HDFC 0.44% 0.43% 0.47% 0.63% 0.31%

BANK

Net NPA

Ratio


2.50%

2.00%

1.50% ICICI BANK

1.00%HDFC BANK

0.50%

0.00%2009 2010 2011 2012 2013

Graph 3.1.10: Net NPA Ratio

50

Interpretation:

The above table (3.1.10) shows the Net Non Performing Assets Ratio of ICICI

and HDFC bank over 5 years. The net NPA ratios over the 5years have been



indicates that the bank is able to get back all its Non Performing Assets. The



From the above data it can be observed that the Net NPA ratio of ICICI bank has

been increasing over the years. Which indicates that most of the part of the bank’s

Advances are not been repaid on time and hence becoming nonperforming in

nature. This in turn affects the profitability of the bank. Over the years the ratios

have increased implying that ICICI bank isn’t able to recover its amounts back.

The ratio’s of HDFC bank have showed a slight increase till 2012 and then has

decreased considerably by 2013. This probably might indicate that HDFC bank

had made efforts to decrease the amount of nonperforming assets by adopting new

techniques and ways of collections from its customers.

Since the Net NPA ratios are lower for HDFC bank which makes it a better one.

By having a lesser ratio the performance of the bank is better as it is able to

collect all its interest and over dues on time. By this the profitability of the bank

increases as the number of nonperforming assets has decreased. This denotes that

loan portfolio of HDFC bank is performing better than ICICI.

51

3.2 Nationalized Banks

3.2.1 Capital

Table 3.2.1: Capital

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

SBI BANK 526,00 526,00 631,00 635,00 635,00


% Change 0 19.96 0.63 0

Year on

year

CANARA 410,00 410,00 410,00 410,00 410,00


% Change 0 0 0 0

Year on

year


70000

60000

50000

40000

302010

S

02009 2010 2011 2012

2013

Graph 3.2.1:

52

Interpretation:

The above table (4.2.1) shows the capital of SBI and CANARA BANK over 5

years. The percentage change has been calculated for the corresponding years.

Capital indicates worth of the bank. Higher the capital, higher is the strength of

the bank. The graph (4.2.1) gives a graphical representation of the above tabulated


From the above data it is observed that SBI‘s capital did not change from 2009 to

2010, whereas during 2011, 2012 it showed an increase in its capital and remained

unchanged for 2013, the reason for a sudden increase during 2010-2011 is that

during this year RBI had transferred share holding to the Government of India.

The capital of Canara Bank remained unchanged over the 5 years.

3.2.2 Deposits

Table 3.2.2: Deposits

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

SBI BANK 380,046,00 435,521,00 537,404,00 742,073,00 804,116,00


% Change 14.59 23.39 38.08 8.36

Year on

year

CANARA 116,803,23 142,381,45 154,072,42 186,892,51 234,651,44


% Change 21.89 8.21 21.30 25.55

Year


53

90000000

80000000

70000000

60000000

50000000

40000000

30000000

20000000

10000000

SBI Bank

Canara Bank

0

20092010201120122013

Graph 3.2.2: Deposits

I

T

for Canara Bank the percentage change was found to be lower during 2010-2011,

during this period the RBI had been increasing the Cash Reserve Ratio (CRR),

repo rate (the rate at which banks borrow rupees from RBI) and the reverse repo

rate (the rate at which Reserve Bank of India (RBI) borrows money from banks).

With the global economy slowing in the second half, the RBI started cutting

interest rates to boost the economy. In the year 2012Canara bank had an increase

of 21.30% compared to the previous year the reason being Canara bank has

focused on its productive sector like agriculture credit and Micro, Small and

Medium Enterprises lending, which helped its business to grow over by 21.30%.

Hence it can be concluded that according to the year on year percentage change

Canara Bank had been showing a better performance.

3.2.3 Advances

Table 3.2.3: Advances

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

SBI BANK 261,810,00 337,336,00 416,768,00 542,503,00 631,914,00


% Change 28.84 23.54 30.16 16.48

Year on

year

CANARA 79,425,70 98,505,69 107,238,04 138,219,40 169,334,63


% Change 24.02 8.86 28.89 22.51

Year on

year


55

70000000

60000000

50000000

40000000SBI Bank

30000000 Canara Bank

20000000

10000000

0

2009 2010 2011 2012 2013

Graph 3.2.3: Advances

Interpretation:

The above table (3.2.3) shows the Advances of SBI and CANARA BANK over 5

years. Advances are source of income generation for bank. Advances generate

interest income which is the main source of income for banks. Higher advances

lead to higher income for bank which in turn has positive impact on the

performance of bank. The graph (3.2.3) gives a graphical representation of the

above tabulated data for a better understanding.

Advances, of both the banks have increased over the years. The percentage

change has showed a slight variations i.e., the percentage change has decreased in

2010-2011 and increased in 2011-2012 and once again decreased during 2012-

2013 for SBI Bank, the reason being that the percentage change year on year for

deposits has decrease which has affected the Advances as well. Since the

Advances depend upon the Deposits a bank gets during the year. A similar kind of

56

variation has been observed for Canara bank as well. In the year 2010-2011 the

percentage change is less which was a result of the change in CRR, repo rates, etc

by the RBI which affected the Deposits and which in turn affected its advances.

The advances during the year 2011-2012have increased which implies during the

recession period the bank had lent out great amounts to the public.

Hence, it can be concluded that the percentage change is higher in the case of

Canara bank and this makes it a better bank.

3.2.4 Interest Income

Table 3.2.4: Interest Income

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

SBI BANK 35,980,00 39,491,00 48,950,00 63,788,00 70,994,00


% Change 9.75 23.95 30.31 11.29

Year on

year

CANARA 8,711,51 11,364,56 14,200,74 17,119,05 18,751,96


% Change 30.45 24.95 20.55 9.53

Year on

year


57

8000000

7000000

6000000

5000000

SBI Bank4000000

3000000

Canara Bank

2000000

1000000

0

2009 2010 2011 2012 2013

Graph 3.2.4: Interest Income

Interpretation:

The above table (3.2.4) shows the Interest Income of SBI and CANARA BANK


years. It is understood that higher the interest income, higher is the contribution

towards the top line. Apart from Interest income, bank should also have a better

margin to convert the revenue into profit. The graph (4.2.4) gives a graphical


For the above figures it can be observed that the Interest income of both the banks

increased over the year. The percentage change has also increased in the case of

SBI and showed a downward movement for Canara bank. This implies that the

change in Interest income decreased over the years. This might probably be

because of the change in the interest rates by the RBI. In the case of SBI Bank the

percentage change for deposits in the year 2013 is less which directly affected the

percentage change for the advances. The reasons for the downward movement of

58

Interest Income for Canara Bank is that Interest rates have been volatile for the

past years, to control the runaway inflation which India was experiencing RBI has

been increasing the CRR, repo rates, etc and when the global economy was

slowing down RBI started to cut the interest rates to boost the economy. This

resulted in less Interest Income. With a steep fall in Interest rates, the net interest

margin of the Indian banks have been impacted adversely due to the conscious

approach in lending coupled with the falling interest rate on floating rate loans.

Hence it can be concluded that SBI has been showing a consistently increasing

growth in terms of Interest Income as compared to Canara bank.

3.2.5 Interest Expended

Table 3.2.5: Interest Expended

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

SBI BANK 20,390,00 23,437,00 31,929,00 42,915,00 47,322,00


% Change 14.94 36.23 34.40 10.26

Year on

year

CANARA 5,130,01 7,337,73 10,662,94 12,401,25 13,071,43


% Change 43.03 45.31 16.30 5.40

Year on

year

*Source- Official Website of SBI Bank and Canara Bank

59

5000000

4500000

4000000

3500000

3000000SBI Bank

2500000Canara Bank2000000

1500000

1000000

5000000

2009 2010 2011 2012 2013

Graph 3.2.5: Interest Expended

Interpretation:

The above table (3.2.5) shows the Interest Expended of SBI and CANARA

BANK over 5 years. The percentage change has been calculated for the

corresponding years. If the interest expended is higher, then the net profit of the

bank would be effected (decreased). Hence lower the interest expended better is

the bank. The graph (4.2.5) gives a graphical representation of the above tabulated


From the above figures Interest Expended has increased over the years for both

the banks. But the percentage change indicates that incase of SBI the value first

increased in 2011 and then decreased for 2012 and 2013. Since the percentage

change in the deposits for 2013 is less it implies that the interest expended during

the year would be less. This indicates that comparatively the interest expended

over the years decreased. The reason for the interest expended similar conclusion

can be drawn for Canara Bank as well. But in case of Canara bank the deposits

and interest income have influenced the interest expended, the income from

60

interest sources was used to pay the depositors and interest expended. Hence the

percentage change in the interest income is low in the year 2013 which implies

that the interest expended during the year will be less.

Hence the interest expended is less in case of Canara bank when compared to SBI

which makes it a better bank by increasing its profits.

3.2.6 Non Interest Income

Table 3.2.6: Non Interest Income

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

SBI BANK 7,435,00 5,769,00 8,695,00 12,691,00 14,968,00


% Change -22.40 50.71 45.95 17.94

Year on

year

CANARA 1,377,51 1,511,80 2,308,31 2,427,10 3,000,82


% Change 9.74 52.68 5.14 23.63

Year on

year

*Source- Official Website of SBI Bank and Canara Bank

61

1600000

1400000

1200000

1000000

SBI Bank800000

600000

Canara Bank

400000

200000

0

2009 2010 2011 2012 2013

Graph 3.2.6: Non Interest Income

Interpretation:

The above table (3.2.6) shows the Non Interest Income of SBI and CANARA


corresponding years. Noninterest income is an indirect source of income to banks.

Noninterest incomes are generally considered as transaction charges,

commissions, Debit/Credit card charges, LC and BG commissions, etc. Higher the

non interest income better is the bank since it helps in increasing the profit

margin. The graph (3.2.6) gives a graphical representation of the above tabulated


SBI bank has experienced a decrease in its Non Interest Income in the year 2010;

this might probably be because of low income from commissions, transaction

charges, Debit/Credit card Charges, LC, BG commission etc. Later it showed a

consistent growth in its income. The reason being SBI has got 11,111 branches

and still counting, the low cost deposits are directly tied-up to the branch network,

this gave a robust increase in the interest income and a modest rise in the non

62

interest income. Canara bank has been showing a consistent growth pattern over

the years. By this it may be concluded that the non interest income was a good

source of income and it had been earning noninterest income over the years. The

percentage change is higher in the case of Canara bank.

Hence we can conclude that Canara Bank has been getting higher noninterest

income when compared to SBI. This ensures that Canara bank has a good parallel

income stream apart from just having interest income.

3.2.7 Net Profit

Table 3.2.7: Net Profit

2008-2009 2009-2010 2010-2011 2011-2012 2012-

2013

SBI BANK 4,407,00 4,541,00 6,729,00 9,121,00 9,166,00


% Change 3.04 48.18 35.54 0.49

Year on

year

CANARA 1,343,22 1,420,81 1,565,01 2,072,42 3,021,43


% Change 5.77 10.14 32.42 45.79

Year on

year

*Source- Official Website of SBI and Canara Bank

63

1000000

900000

800000

700000

600000

SBI Bank500000

400000Canara Bank

300000

200000

100000

0

2009 2010 2011 2012 2013

Graph 4.2.7: Net Profit

Interpretation:

The above table (3.2.7) shows the Net Profit of SBI and CANARA BANK over 5

years. The percentage change has been calculated for the corresponding years. It

is understood that profitability determines which bank is better. Higher the

profitability better is the performance of the bank. The graph (3.2.7) gives a


From the above data both the banks have experienced a growth in their net profit

over the years. SBI has shown a sudden increase in the year 2010-2011, the main

reason behind this is that interest income and noninterest income both were very

high during this period, which helped the bank to gain more profits. In the year

2012 and 2013, the growth rate has slow down, which could be the result of

recession, where the performance and profitability of the bank was altered.

Though both the banks have shown increase in their net profit over the years but

the percentage increase in the net profit is higher for Canara bank. Where as for

64

Canara bank during the recession period it has been observed that the

performance has increased which is a result of the change in interest rates by RBI.

Hence it can be concluded that Canara Bank has been showing a good amount of

increase in its net profits.

3.2.8 Reserves and Surplus

Table 3.2.8: Reserves and Surplus

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

SBI BANK 27,118,00 30,772,00 48,401,00 57,313,00 65,314,00


% Change 13.47 57.28 18.41 13.96

Year on

year

CANARA 6,722,24 9,943,99 10,090,49 11,797,76 14,261,78


% Change 47.92 1.47 16.91 20.88

Year on

year


65

7000000

6000000

5000000

4000000SBI Bank

3000000 Canara Bank

2000000

1000000

0

2009 2010 2011 2012 2013

Graph 3.2.8: Reserves and Surplus

Interpretation:

The above table (3.2.8) shows the Reserves and Surplus of SBI and CANARA


corresponding years. Reserves & surplus give are like shield which protects the

bank during hard times. Bank with higher reserves and surplus is in a better

position to bear losses or adverse condition. Reserves & surplus is an

accumulation of past profits. The graph (3.2.8) gives a graphical representation of

the above tabulated data for a better understanding.

From the above data it can be observed that the Reserves and Surplus of both the

banks has been showing a growth over 5 years. But the percentage growth is

slightly lower in SBI when compared to Canara Bank. The reason for a sudden

increase in SBI’s reserves and surplus during the year 2010-2011 is due to a

sudden increase in its net profit. This indicates the bank wanted to increase its

reserves and surplus through the excess amount through profits. In the case of

Canara Bank the percentage change for Reserves and Surplus in the year 2010-

66

2011 is very low i.e 1.47% which was due to the transitional liability of the bank

towards the employee benefit plans.

Both these banks have a very good Reserves and surplus and hence would be able

to meet any eventuality without liquidity problem. The percentage change is

higher in case of Canara Bank; hence it stands in a better position.

3.2.9 Non Performing Assets (Gross NPA Ratio)

Table 3.2.9: Gross NPA Ratio

2008- 2009- 2010- 2011- 2012-

2009 2010 2011 2012 2013

SBI BANK 3.61% 2.92% 3.04% 2.86% 3.05%

Gross NPA Ratio

CANARA BANK 2.25% 1.51% 1.18% 1.56% 1.52%Gross NPA Ratio


4

3.5

3

2.5

SBI Bank2

1.5Canara Bank

1

0.5

0

2009 2010 2011 2012 2013

Graph 3.2.9: Gross NPA Ratio

67

Interpretation:

The above table (3.2.9) shows the Gross Non Performing Assets Ratio of SBI and

CANARA bank over 5 years. The gross NPA ratios over the 5 years have been



indicates that bank is able to reduce its losses with respect to bad assets.The graph

(3.2.9) gives a graphical representation of the above tabulated data for a better

understanding.

From the above data it can be observed that the Gross NPA ratio of SBI bank has

been showing fluctuations i.e. it decreased from 2009 to 2010 and again increased

during 2011. Decreased during 2012 and increased again during 3.05. This clearly

indicates that there has been no consistent performance of SBI in terms of NPA

management. It hasn’t been able to collect the dues from its customers on time. A

similar kind of trend has been observed with Canara Bank, but it has shown a

slight decrease in its ratio during 2013. Over the 5 years under consideration

Canara Bank was able to reduce its NPA value either by adopting new techniques

of collection or laying down strict rule for the payments of the dues. The increase

in the Gross NPA ratio during 2012 and 2013 was due to restructuring of the

portfolio which had a great impact on the assets, which increased the NPA’s

further.

Hence it can be concluded that Canara Bank has been performing better in terms

of as its Gross NPA ratios are low, which clearly indicates that the bank has less

number of lost and doubtful assets.

68

3.2.10 Non Performing Assets (Net NPA Ratio)

Table 3.2.10: Net NPA Ratio

2008-2009 2009-2010 2010-2011 2011-2012 2012-2013

SBI BANK 1.88% 1.56% 1.78% 1.79% 1.72%

Net NPA Ratio

CANARA 1.12% 0.94% 0.84% 1.09% 1.06%

BANK

Net NPA Ratio


2

1.8

1.6

1.4

1.2SBI Bank1

0.8Canara Bank

0.6

0.4

0.20

2009 2010 2011 2012 2013

Graph 3.2.10: Net NPA Ratio

69

Interpretation:

The above table (3.2.10) shows the Net Non Performing Assets Ratio of SBI and

CANARA bank over 5 years. The net NPA ratios over the 5years have been

considered.Net NPA Ratio is calculated against net advances. Lower the Net NPA

ratio better is the performance of the bank. The graph (3.2.10) gives a graphical


From the above tabulated data it can be observed that the Net NPA ratio’s of SBI

did not show a consistent increase or decrease. From the year 2009 the ratio

decreased to 1.56% in the year 2010, while it should and increasing trend till 2012

and decreased slightly by 2013. Whereas for Canara Bank the ratio decreased

from 2009 to 2011, increased in 2012 and decreased slightly by 2013. This clearly

shows that there has been an increase and decrease in the Net NPA ratio’s trend.

The reason for this might probably be that the loan portfolio SBI had increased

i.e. more no of advances, out of which the NPA’s have been increasing. Canara

bank in this regard had tried to reduce its number of NPA’s but from 2012 it

showed a slight increase in it NPA’s. This entire increase was due restructuring of

its portfolio which means there is pressure on its asset quality and the NPA’s are

expected to rise further.

Hence it can be concluded that the ratios of Canara bank are lower which says

that the performance of the bank has been better. It indicates that Canara Bank has

been able to make its collections properly and on time, when compared to SBI.

This shows that the conversion into NPA is less in case of Canara Bank. It also

denotes that loan portfolio of Canara bank is performing better that SBI.

70

3.3 Comparison

Comparing Private and Public Sector Banks according to

1 Return on Capital Employed

2 Price Equity Ratio

3 Dividend Yield

4 Earnings Per Share

5 Dividend Per Share

6 3.3.1 Return On Capital Employed:

Return on Capital Employed (ROCE) is used in finance as a measure of the

returns that a bank is realizing from its capital employed. It is commonly used as a

measure for comparing the performance between businesses and for assessing

whether a business generates enough returns to pay for its cost of capital.

Return on Capital Employed = [(Profit before interest, tax &

dividend/Capital employed)*100]

Table 4.3.1: Return on Capital Employed

2008- 2009- 2010- 2011- 2012- MEAN S.D

2009 2010 2011 2012 2013

ICICI 4.17 3.79 3.62 2.48 2.66 3.34 0.73

Bank

HDFC 11.5 11.27 10.58 10.77 10.48 10.92 0.44

Bank

SBI 7.98 6.42 6.71 7.1 6.07 6.86 0.74

Bank

Canara 13.08 10.73 9.52 10.1 13.41 11.37 1.77


71

16

14

12

10 ICICI Bank

8HDFC Bank

6 SBI Bank

Canara4

2

0

2009 2010 2011 2012 2013

Graph 3.3.1: Return on Capital Employed

Interpretation:

The above table (3.3.1) shows the Return on Capital employed for ICICI, HDFC,

SBI and CANARA Banks over a period of 5 years. The graph (3.3.1) gives a


Return on Capital Employed of SBI is showing decreasing trend of return on

capital employed from 2009-2011 and after that it increases. HDFC is steady.

ICICI is showing increasing trend from 2009-2011 and then showing decline

period. Canara Bank has the highest return on capital employed (mean) which

indicates that Canara bank is realizing highest returns from its capital employed in

comparison to other banks taken under study this may be due to that the bank is

gaining more from its assets than losing from its liabilities. ROCE should always

be higher than the rate at which the company borrows; otherwise any increase in

borrowing will reduce share holder’s earnings. In the case of ICICI bank it may

72

be that the realization from its assets is less and hence has a lower ratio. HDFC

and SBI banks have a moderate performance. Variations in Mean and S.D are

highest for Canara Bank and Lowest for ICICI Bank.

3.3.2 Dividend Yield:

This ratio is closely related to Dividend per share .While the DPS is calculated on

basis of the book value of shares, this ratio is calculated on the basis of market

value of shares.

Dividend Yield = [(Dividend per share /Market value per share)*100]

Table 4.3.2: Dividend Yield

2008- 2009- 2010- 2011- 2012- MEAN S.D

2009 2010 2011 2012 2013

ICICI 0.95 0.81 2.45 1.26 1.05 1.30 0.66

Bank

HDFC 0.51 0.41 0.85 0.59 0.51 0.57 0.17

Bank

SBI Bank 1.12 0.59 1.67 1.28 1.07 1.15 0.39

Canara 2.39 2.11 4.26 2.05 1.51 2.46 1.05

Bank


73

4.5

4

3.5

3ICICI Bank

2.5 HDFC Bank2

SBI Bank

1.5Canara Bank

1

0.5

0

2009 2010 2011 2012 2013

Graph 3.3.2: Dividend Yield

Interpretation:

The above table (3.3.2) shows the Dividend Yield for ICICI, HDFC, SBI and

CANARA Banks over a period of 5 years. The graph (4.3.2) gives a graphical


Dividend yield of HDFC is showing a increase from 2009-2010 after that it is

fluctuating till 2013. Canara bank is showing decreasing trend up to 2010 but after

2010 it is showing recovery. ICICI Bank is showing decreasing trend. SBI is

showing decreasing trend but a huge hike in year 2011. Canara Bank has the

highest Dividend Yield (mean) which is a sign that Canara Bank has given higher

dividend to investor who buys its shares from open market at market value per

share. And it is also show that current level of income from a share of Canara

Bank is higher in comparison to other banks. This implies that the investors who

would want a minimum stream of cash flow from their investment portfolio

74

would invest in Canara bank, because its stocks are paying relatively high. For

HDFC Bank the income from investment is less and hence has the least ratio.

Mean and S.D are highest for Canara Bank and lowest for HDFC bank.

3.3.3 Earnings per Share (EPS):

This ratio measures the profit available to the equity shareholders on a per share

basis. All profits left after payment of the tax and preference dividend are

available to equity shareholders.

EARNING PER SHARE (EPS) = [(Net profit after tax – Preference

Dividend) / No. Of Equity Share (common share)]

Table 3.3.3: Earnings per Share (EPS)

2008- 2009- 2010- 2011- 2012- MEAN S.D

2009 2010 2011 2012 2013

ICICI 31.38 34.45 37.41 33.78 40.86 35.58 3.65

Bank

HDFC 31.41 41.31 49.05 60.25 78.57 52.12 18.17

Bank

SBI Bank 75.08 120.45 130.14 158.17 145.91 125.95 31.91

Canara 33.23 39.17 44.33 78.96 88.54 56.85 25.10

Bank


75

180

160

140

120ICICI Bank

100 HDFC Bank80

SBI Bank

60Canara Bank

40

20

0

2009 2010 2011 2012 2013

Graph 3.3.3: Earnings per Share (EPS)

Interpretation:

The above table (3.3.3) shows the Earnings per Share for ICICI, HDFC, SBI and



Earnings per share of SBI are showing increasing trend from 2008-09 but

suddenly decrease in 2013. HDFC Bank has shown increasing trend. Canara Bank

has shown an increasing trend of Earnings per share in all the 5 years. ICICI is

showing increasing trend of Earning per share however it fluctuates in the

year2012-10. SBI has the highest Earning per share (mean) which means that SBI

has the highest EPS which means that it has highest profits available to equity

shareholders on per share basis in comparison to other banks. This may be due to

that a great portion of SBI’s profit is allocated to each outstanding share of

76

common stock. In the case of ICICI Bank it might be that not much of its profits

have been allocated to the outstanding common stock. Mean and S.D are highest

for SBI Bank and least for ICICI Bank.

3.3.5 Dividend per Share (DPS):

Out of all profits left after payment of the tax and preference dividend, a portion

of this profit is retained in business and remaining is distributed among equity

shareholders as dividend.

Dividend per Share = (Dividend paid to equity shareholders/No. Of equity

shares)

Table 3.3.4: Dividend per Share (DPS)

Company 2008- 2009- 2010- 2011- 2012- MEAN S.D

Name/ 2009 2010 2011 2012 2013

Year

ICICI 8.53 10.02 11.04 11.01 12 10.52 1.31

Bank

HDFC 5.5 7.01 8.5 10.01 12.02 8.61 2.54

Bank

SBI Bank 14 14 21.5 29 30 21.7 7.76

Canara 6.6 7 8 8 10 7.92 1.32


77

35

30

25 ICICI Bank

20 HDFC Bank

15 SBI Bank

10Canara

5

0

2009 2010 2011 2012 2013

Graph 4.3.4: Dividend per Share (DPS)

Interpretation:

The above table (3.3.4) shows the Dividend per Share for ICICI, HDFC, SBI and


representation of the above tabulated data for a better understanding. Dividend per

share of SBI and HBFC are showing increasing trend from 2009-2013. ICICI

Bank is showing fluctuating trend. Dividend Per Share of Canara Bank is showing

increasing trend and remains constant from 2011-09. SBI has the highest

Dividend per Share (mean) which means that it has highest dividend available to

equity shareholders on per share basis in comparison to other banks. This is

because that the more amount of profits generated have been given out as

dividends to its shareholders. Mean and S.D are highest for SBI and least for

Canara Bank.

78

3.4 ANOVA:

Analysis of variance (ANOVA) is a collection of statistical models used to

analyze the differences between group means and their associated procedures. In

ANOVA setting, the observed variance in a particular variable is partitioned into

components attributable to different sources of variation. In its simplest form,

ANOVA provides a statistical test of whether or not the means of several groups

are equal, and therefore generalizes the t-test to more than two groups

Table: 3.4.1

SUMMARY

Groups Count Sum Average VarianceICICI Bank 4 50.74 12.685 248.6052HDFC Bank 4 72.22 18.055 535.4219SBI Bank 4 155.66 38.915 3441.722Canara Bank 4 78.6 19.65 628.4958

Table. 3.4.2

ANOVASource of Variation SS Df MS F P-value F criticalBetween Groups 1574.185 3 524.7283 0.432387 0.733673 3.490295Within Groups 14562.73 12 1213.561

Total 16136.92 15

79

Interpretation:

We can see that the mean level of public sector banks are higher then that of theprivate sector banks. According to the test result F=0.4323 with critical value of0.05 F critical =3.490. Since the F statistics value is lesser then that of F criticalvalue we accept the null hypothesis and reject the alternate hypothesis and thusconclude that there is no significance difference between the performance ofpublic and private sector banks.

80

4.0 Summary of the Findings

Summarizing the project on a broad perspective, the two banks from each sector

(public and private) have been compared on basis of the parameters selected and

an apt conclusion has been drawn as below which one betters the other. The

following inferences have been drawn.

1 With respect to Capital in the private sector HDFC Bank has

infused more capital into the system as compared to ICICI Bank. There

has been no significant change in public sector banks.

2 With respect to Deposits in the private sector, HDFC Bank has

been performing better than ICICI bank which lowered its bank interest

rates on deposits. In the public sector Canara Bank has been performing

better when compared to SBI.

3 With respect to Advances in the private sector HDFC Bank has

been performing well over the years and emerged as a stronger bank when

compared to ICICI Bank, this was due to high deposit base of HDFC

which influenced its Advances and in the public sector Canara Bank has

been performing well over the years when compared to SBI Bank. For SBI

Bank the percentage change for deposits has decrease which has affected

its Advances. For Canara Bank the advances during the year 2011-2012

have increased which implies during the recession period the bank had

lent out great amounts to the public.

4 With respect to Interest Income in the private sector both the

banks have shown an increasing trend while in the year 2012-2013 there

has been a decline; ICICI Bank shows a greater decrease compared to

HDFC Bank, since the advances given out by ICICI were less and that of

HDFC were

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high. This influenced its Interest Income. In the public sector the growth

of Interest income for Canara bank has been greater than SBI.

1 In case of private sector the interest expended is less for ICICI bank

when compared to HDFC bank. In the public sector it’s less for Canara

Bank when compared to SBI bank.

2 With respect to Non Interest Income HDFC Bank has been

performing better and collected more noninterest income through various

charges, when compared to ICICI Bank and in the public sector Canara

Bank has been able to collect more money through noninterest income

when compared to SBI Bank. Canara bank has been showing a consistent

growth pattern over the years.

3 With respect to Net Profit in the private sector HDFC Bank has been

showing a growth over the years where as ICICI Bank has been quiet

inconsistent, ICICI Bank’s net profit was high during 2011 which was due

to the merger with Sangli bank and in the public sector Canara Bank has

been showing greater increase in its net profits when compared to SBI

Bank. In the year 2012 and 2013, the growth rate of SBI Bank slowed

down, which could be the result of recession, where the performance and

profitability of the bank was altered.

4 With respect to Reserves and Surplus in the private sector HDFC

Bank has been showing a consistent growth when compared to ICICI

Bank, due to HDFC bank has transferred Rs 3850 lakhs from Profit and

Loss Account to Investment Reserve Account pursuant to the Reserve

Bank of India guidelines. In the public sector Canara Bank stands at a

better position when compared to SBI Bank. The reason for a sudden

increase in

SBI’s reserves and surplus during the year 2010-2011 is due to a sudden

increase in its net profit. This indicates the bank wanted to increase its

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reserves and surplus through the excess amount through profits. In the

case of Canara Bank the percentage change for Reserves and Surplus in

the year 2010-2011 is very low i.e.; 1.47% which was due to the

transitional liability of the bank towards the employee benefit plans.

1 With respect to Gross NPA Ratio in the private sector the ratio is

lower in the case of HDFC Bank, which was one of the reasons for

increase in its performance and profitability, when compared with ICICI

Bank. It was able to collect its amounts on time. In the public sector

Canara Bank has been performing better when compared to SBI Bank.

2 With respect to Net NPA Ratio in the private sector the ratio is lower

in the case of HDFC Bank, which indicates that it has been performing

well by collecting its amounts on time, when compared to ICICI Bank and

in the public sector Canara Bank has been showing a better performance

when compared to SBI Bank.

3 Canara bank has the highest return on Capital Employed (mean)

which indicates that Canara Bank is realizing highest returns from its

capital employed in comparison to other banks taken under study. In the

case of ICICI bank it may be that the realization from its assets is less and

hence has a lower ratio.

4 Canara Bank has the highest Dividend Yield (mean) which is a sign

that Canara Bank has given higher dividend to investor who buys its

shares from open market at market value per share, and it also shows that

the level of income from a share of Canara Bank is higher in comparison

to the other banks.

5 SBI has the highest Earning per Share (mean) which means that SBI

has the highest EPS which means that it has highest profits available to

equity shareholders on per share basis in comparison to the other banks.

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1 SBI has the highest Dividend per Share (mean) which means that it

has highest dividend available to equity shareholders on per share basis in

comparison to other banks under study.

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5.0 Recommendations and Conclusions

5.1 Recommendations

1 ICICI has lowest return on capital employed, so ICICI needs to

improve these ratios by proper utilization of available funds.

2 ICICI Bank has least Earnings per Share and Canara Bank has

least Dividend per Share, so banks have to improve their profits which

will increase their DPS and EPS.

3 HDFC has to be increased its Dividend Yield by increasing its

current level of income according to market value per share.

5.2 Conclusions

To conclude, the objectives laid down at the start of the project have been

weighed with respect to the data collated for the 4 banks and a subsequent

comparison has been done to understand the better bank in the respective sector

and the reason why they are better than the competitor bank has been analyzed

through this project. Public sector banks are facing competition from their private

sector counterparts and foreign banks entering India in all realms of financial

services. While public sector banks enjoy a pre-eminent position in terms of low-

cost deposit base (also called CASA deposits in India – stands for Current

Accounts and Savings Account), private-sector banks have been increasing their

CASA base steadily over the years. ICICI Bank, the largest private bank in India,

has expanded its CASA market share by 218% over the period of 2009-2013.

Private sector banks, armed with usually more efficient management and

employees, are employing all tricks - branch expansion, mergers and acquisitions,

and international operations - to compete with public sector banks.

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Indian Banking

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