Project Report, AKANKSHA, 05817003909

Chapter-1

INTRODUCTION

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1.1 STATE BANK OF INDIA

Type Public

NSE: SBIN

BSE: 500112

LSE: SBID

Industry Banking

Financial services

Founded 1 July 1955

Headquarters Mumbai, Maharashtra, India

Products Investment Banking

Consumer Banking

Commercial Banking

Retail Banking

Private Banking

Asset Management

Pensions

Mortgages

Credit Cards

Revenue   133,851 crore  (2010) 

Profit   11,733 crore (2010) 

Total assets  US$ 323.0 billion (2010)

Employees 200,229 (2010)

Website Statebankofindia.com

1.1.1 SBI PROFILE

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The origin of the State Bank of India goes back to the first decade of the nineteenth century

with the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three years later

the bank received its charter and was re-designed as the Bank of Bengal (2 January 1809). A

unique institution, it was the first joint-stock bank of British India sponsored by the

Government of Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July

1843) followed the Bank of Bengal. These three banks remained at the apex of modern

banking in India till their amalgamation as the Imperial Bank of India on 27 January 1921.

Primarily Anglo-Indian creations, the three presidency banks came into existence either as a

result of the compulsions of imperial finance or by the felt needs of local European commerce

and were not imposed from outside in an arbitrary manner to modernize India's economy.

Their evolution was, however, shaped by ideas culled from similar developments in Europe

and England, and was influenced by changes occurring in the structure of both the local

trading environment and those in the relations of the Indian economy to the economy of

Europe and the global economic framework.

The establishment of the Reserve Bank of India as the central bank of the country in 1935

ended the quasi-central banking role of the Imperial Bank. The latter ceased to be bankers to

the Government of India and instead became agent of the Reserve Bank for the transaction of

government business at centers at which the central bank was not established. But it continued

to maintain currency chests and small coin depots and operate the remittance facilities scheme

for other banks and the public on terms stipulated by the Reserve Bank. It also acted as a

bankers' bank by holding their surplus cash and granting them advances against authorized

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securities. The management of the bank clearing houses also continued with it at many places

where the Reserve Bank did not have offices. The bank was also the biggest tendered at the

Treasury bill auctions conducted by the Reserve Bank on behalf of the Government.

The establishment of the Reserve Bank simultaneously saw important amendments being

made to the constitution of the Imperial Bank converting it into a purely commercial bank. The

earlier restrictions on its business were removed and the bank was permitted to undertake

foreign exchange business and executor and trustee business for the first time.

In 1951, when the First Five Year Plan was launched, the development of rural India was

given the highest priority. The commercial banks of the country including the Imperial Bank

of India had till then confined their operations to the urban sector and were not equipped to

respond to the emergent needs of economic regeneration of the rural areas. In order, therefore,

to serve the economy in general and the rural sector in particular, the All India Rural Credit

Survey Committee recommended the creation of a state-partnered and state-sponsored bank by

taking over the Imperial Bank of India, and integrating with it, the former state-owned or state-

associate banks. An act was accordingly passed in Parliament in May 1955 and the State Bank

of India was constituted on 1 July 1955. More than a quarter of the resources of the Indian

banking system thus passed under the direct control of the State. Later, the State Bank of India

(Subsidiary Banks) Act was passed in 1959, enabling the State Bank of India to take over eight

former State-associated banks as its subsidiaries (later named Associates).

The State Bank of India was thus born with a new sense of social purpose aided by the 480

offices comprising branches, sub offices and three Local Head Offices inherited from the

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Imperial Bank. The concept of banking as mere repositories of the community's savings and

lenders to creditworthy parties was soon to give way to the concept of purposeful banking sub

serving the growing and diversified financial needs of planned economic development. The

State Bank of India was destined to act as the pacesetter in this respect and lead the Indian

banking system into the exciting field of national development.

The State Bank of India, the country’s oldest Bank and a premier in terms of balance sheet

size, number of branches, market capitalization and profits is today going through a

momentous phase of Change and Transformation – the two hundred year old Public sector

behemoth is today stirring out of its Public Sector legacy and moving with an ability to give

the Private and Foreign Banks a run for their money.

  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.

 The Bank is forging ahead with cutting edge technology and innovative new banking models,

to expand its Rural Banking base, looking at the vast untapped potential in the hinterland and

proposes to cover 100,000 villages in the next two years.

 It is also focusing at the top end of the market, on whole sale banking capabilities to

provide India’s growing mid / large Corporate with a complete array of products and services.

It is consolidating its global treasury operations and entering into structured products and

derivative instruments. Today, the Bank is the largest provider of infrastructure debt and the

largest arranger of external commercial borrowings in the country. It is the only Indian bank to

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feature in the Fortune 500 list.

The Bank is changing outdated front and back end processes to modern customer friendly

processes to help improve the total customer experience. With about 8500 of its own 10000

branches and another 5100 branches of its Associate Banks already networked, today it offers

the largest banking network to the Indian customer. The Bank is also in the process of

providing complete payment solution to its clientele with its over 21000 ATMs, and other

electronic channels such as Internet banking, debit cards, mobile banking, etc.

 With four national level Apex Training Colleges and 54 learning Centers spread all over the

country the Bank is continuously engaged in skill enhancement of its employees. Some of the

training programs are attended by bankers from banks in other countries.

 The bank is also looking at opportunities to grow in size in India as well as Internationally. It

presently has 82 foreign offices in 32 countries across the globe. It has also 7 Subsidiaries

in India – SBI Capital Markets, SBICAP Securities, SBI DFHI, SBI Factors, SBI Life and SBI

Cards - forming a formidable group in the Indian Banking scenario. It is in the process of

raising capital for its growth and also consolidating its various holdings.

 Throughout all this change, the Bank is also attempting to change old mindsets, attitudes and

take all employees together on this exciting road to Transformation. In a recently concluded

mass internal communication programmed termed ‘Parivartan’ the Bank rolled out over 3300

two day workshops across the country and covered over 130,000 employees in a period of 100

days using about 400 Trainers, to drive home the message of Change and inclusiveness.

1.1.2 BOARD OF DIRECTORS

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Shri O. P. Bhatt(CHAIRMAN)

Shri R. Sridharan(MANAGING DIRECTOR)

Dr. Ashok Jhunjhunwala

Shri Dileep C. Choksi

Shri S. Venkatachalam

Shri D. Sundaram

Shri. G. D. Nadaf

Dr. (Mrs.) Vasantha Bharucha

Dr. Rajiv Kumar

Shri Ashok Chawla

Smt. Shyamala Gopinath

 1.1.3 BANKING SUBSIDIARIES

State Bank of India has the following five Associate Banks (ABs) with controlling interest

ranging from 75% to 100%.

State Bank of Bikaner and Jaipur (SBBJ)

State Bank of Hyderabad (SBH)

State Bank of Mysore (SBM)

State Bank of Patiala (SBP)

State Bank of Travancore (SBT)

As on September 30, 2010, the five ABs have a combined network of 4497 branches in India

which are on core banking and 4302 ATMs networked with SBI ATMs, providing value added

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services to clientele.

The combined net profit of these banks increased by 17.74% over the previous year to reach

Rs.3266.57 crores as on 31stMarch 2010. Deposits and advances grew by 14.37% and 15.12%,

respectively, during the year. The combined Net NPA ratio of all ABs was at 0.87% as on 31st

March 2010.

1.1.4 NON BANKING SUBSIDIARIES

The Bank has the following Non-Banking Subsidiaries in India:

1.SBI Capital Markets Ltd

2.SBI Funds Management Pvt Ltd

3.SBI Factors & Commercial Services Pvt Ltd

4.SBI Cards & Payments Services Pvt. Ltd. (SBICPSL)

5.SBI DFHI Ltd

6.SBI General Insurance Company Limited

State Bank of India has an extensive administrative structure to oversee the large network of

branches in India and abroad. The Corporate Centre is in Mumbai and 14 Local Head Offices

and 57 Zonal Offices are located at important cities spread throughout the country. The

Corporate Centre has several other establishments in and outside Mumbai, designated to cater

to various functions. 

The Corporate Accounts Group is a Strategic Business Unit of the Bank set up exclusively to

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fulfill the specialized banking needs of top corporate in the country. State Bank

of India has 131 foreign offices in 32 countries across the globe.

1.1. 5 RECENT AWARDS

Adjudged, Bank of The Year 2009, India by The Banker Magazine for the second year

in succession

Awarded “Best Bank - Large”, and “Most Socially Responsible Bank” from Business

World Best Bank Awards 2009

The Bank bagged the BEST BANK 2009 Award by Business India

Adjudged the Most Trusted Brand 2009 - Economic Times, Brand Equity (17th June

2009)

Bagged the awards for “Most Preferred Bank”, “Most Preferred Credit Card’ and

“Most Preferred Home Loan Brand” from CNBC AWAAZ Consumer Awards, Sept

’09

Awarded Visionaries of Financial Inclusion – Year 2009 by Financial Information

Network & Operations Ltd. (FINO)

Awarded Technology Bank of the Year in recognition of outstanding achievements in

banking technology – IBA Banking Technology Awards 2009

Selected as the winner of Golden Peacock National Training Award for the year 2009

by the Golden Peacock Awards Jury

Awarded the Strongest Banks in Asia Award 2010 for the Asia- Pacific region under

The Asian Banker Excellence in Retail Financial Services Awards 2010

Awarded the Best Microfinance Award for 2009 under The Asian Banker Excellence

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in Retail Financial Services Awards 2010

Ranked 64th in the Top 1000 banks in the world by The Banker

SBI’s ranking has improved to 36 in 2010 from 70 in 2009 in the Brand Finance

Global Banking 500 by Brand Finance Plc. SBI is the first Indian bank to break into the

world’s top 50 list.

Only Indian bank to find a place in the Fortune Global 500 list –Up from 380 last year

to 363 this year.

Moved up in rankings from 219th spot last year to 150th spot this year in the Forbes

2000 list of largest companies in the world

Ranks no. 6 (from no. 7 in 2008) in India’s Biggest Companies ranking – ET 500 - The

Economic Times. (dated 24th November 2009)

Ranked # 1 in Survey of top 5 companies in India in terms of financial reputation by

Wall Street Journal Asia.

“Best Banker of the Year Award 2009” – Business-World Best

The JRD Tata Corporate Leadership Award for 2009.

Rank 32 in The Indian Express List of The Most Powerful Indians in 2010

Exemplary Leader Award at The Global HR Excellence Awards 2010 by World HRD

Congress.

Entrepreneur of the Year – Manager Award 2009 by Ernst & Young

The QFC – Asian Banker Leadership Achievement Award for the Asia-Pacific region

for 2010 under The Asian Banker Excellence in Retail Financial Services Awards 2010

1.1.6 SHAREHOLDING PATTERN(31-12-2010)

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CATEGORY NUMBER OF SHARE HOLDING

PERCENTAGE

INDIAN PROMOTERS 377207200 59.40%

MUTUAL FUNDS AND UTI 26121360 4.11%

BANKS, FINANCIAL

INSTITUTION AND

INSURANCE

72730208 11.45%

FIIS 84862200 13.36%

PRIVATE CORPORATE

BODIES

17900700 2.82%

NRIS/OCBS/ FOREIGN OTHERS 912139 0.14%

GDR/ADR 18210188 2.87%

GOVERNMENT 127193 0.02%

OTHER 1406267 0.22%

GENERAL PUBLIC 35520700 5.59%

TOTAL 634998115 100%

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59.40%

4.11%

11.45%

13.36%

2.82%

0.14%

2.87% 0.02% 0.22%

5.59%INDIAN PROMOTERS

mutual funds and uti

banks, financial institution and in-surance

FIIs

private corporate bodies

NRIs/OCBs/ Foreign others

GDR/ADR

GOVERNMENT

OTHER

GENERAL PUBLIC

FIGURE 1: SHAREHOLDING PATTERN OF SBI

1.2 ICICI BANK

Type Private (NSE: ICICIBANK,BSE: 532174, NYSE: IBN)

Industry Banking

Financial services

Founded 1955

Headquarters Mumbai, Maharashtra, India

Products Retail Banking

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Commercial Banking

Mortgages

Credit Cards

Private Banking

Asset Management

Investment Banking

Revenue   59,599.77 crore (2009)

Operating income   6,578.64 crore (2010)

Profit   4,843.41 crore (2010)

Total assets US$ 108.7 billion (2010)

Employees 74,056 (2010)

Website ICICIBank.com

1.2.1 PROFILE

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

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initiative of the World Bank, the Government of India and representatives of Indian industry.

The principal objective was to create a development financial institution for providing

medium-term and long-term project financing to Indian businesses. In the 1990s, ICICI

transformed its business from a development financial institution offering only project finance

to a diversified financial services group offering a wide variety of products and services, both

directly and through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI

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

Asia to be listed on the NYSE.

After consideration of various corporate structuring alternatives in the context of the emerging

competitive scenario in the Indian banking industry, and the move towards universal banking,

the managements of ICICI and ICICI Bank formed the view that the merger of ICICI with

ICICI Bank would be the optimal strategic alternative for both entities, and would create the

optimal legal structure for the ICICI group's universal banking strategy. The merger would

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

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

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

for ICICI Bank shareholders through a large capital base and scale of operations, seamless

access to ICICI's strong corporate relationships built up over five decades, entry into new

business segments, higher market share in various business segments, particularly fee-based

services, and access to the vast talent pool of ICICI and its subsidiaries. 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

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ICICI and ICICI Bank in January 2002, by the High Cist of Gujarat at Ahmedabad in March

2002, and by the High Cost of Judicature at Mumbai and the Reserve Bank of India in April

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

wholesale and retail, have been integrated in a single entity. ICICI Bank 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. 3,634.00 billion (US$ 81

billion) at March 31, 2010 and profit after tax Rs. 40.25 billion (US$ 896 million) for the year

ended March 31, 2010. The Bank has a network of 2,528 branches and about 6,000 ATMs in

India, and has a presence in 19 countries, including India. 

ICICI Bank offers a wide range of banking products and financial services to corporate and

retail customers through a variety of delivery channels and through its specialised subsidiaries

in the areas of investment banking, life and non-life insurance, venture capital and asset

management. 

The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in

United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International

Finance Centre and representative offices in United Arab Emirates, China, South Africa,

Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in

Belgium and Germany. 

ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National

Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on

the New York Stock Exchange (NYSE).

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1.2.2 BOARD OF DIRECTORS

Mr. K. V. Klamath(Chairman)

Mr. Sridar Iyengar

Mr. Homi R. Khusrokhan

Dr. Anup K. Pujari

Mr. M.S. Ramachandran

Dr. Tushaar Sha

Mr. V. Prem Watsa

Ms. Chanda D. Kochhar(Managing Director & CEO)

Mr. N. S. Kannan(Executive Director & CFO)

Mr. K. Ramkumar(Executive Director)

Mr. Rajiv Sabharwal(Executive Director)

1.2.3 GROUP COMPANIES

ICICI Prudential Life Insurance Company

ICICI Securities Limited

ICICI Security Primary Dealership Limited

ICICI Lombard General Insurance Company

ICICI Prudential Asset Management Company

ICICI Venture

ICICI Direct

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ICICI Foundation

1.2.4 RECENT AWARDS

The Bank was ranked 45th in the 2010 BrandZ Top 100 Most Valuable Global Brands

report, becoming the first and only Indian company to feature in this list

The Bank was ranked first in the Asia Pacific region and fifth globally in the “Top

Companies for Leaders” survey conducted by Hewitt Associates, the RBL Group and

Fortune Magazine

“Most Admired Knowledge Enterprises (MAKE) India Award” by Teleos in

association with the Know Network

“Excellence in Learning” by Brandon Hall

“Best Trade Finance Bank” (India) and “Best Foreign Exchange Bank” (India) by

Finance Asia

“House of the Year“ by Asia Risk magazine

“Best Domestic Bank” (India) and “Best Derivative House” (India) by Asset Triple A

“Best Super-Affluent Bank” (India), “Best Fixed Income Portfolio Management“,

“Best Lending/Financing Solutions, “Best Precious Metals Investment”, “Best Private

Equity Investment”, ”Best Specialised Services–Entrepreneurs“, “Best FX/Rates

Derivatives Supplier“ by Euromoney

“Best NRI Services Bank”, “Excellence in Private Banking” (APAC) and “Excellence

in Remittance Business” by World Finance

“Excellence in SME Banking“ and “Best E-Banking Project Implementation” by the

Asian Banker

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“Best Initiatives in Mobile Payments and Banking” by IDRBT

“Excellence in Six Sigma“, second prize by the Indian Statistical Institute

“Most preferred auto loan” and “Most preferred credit card” by CNBC Awaaz

1.2.5 SHARE HOLDING PATTERN(31-12-2010)

CATEGORY NUMBER OF

SHARES

HOLDING

PERCENTAGE

MUTUAL FUNDS AND UTI 78450624 6.81

BANKS, FINANCIAL

INSTITUTION AND

INSURANCE

190110640 16.51

FIIS 452938000 39.34

PRIVATE CORPORATE

BODIES

43784400 3.80

NRIS/OCBS/ FOREIGN

OTHERS

9169823 0.79

GDR/ADR 313480768 27.22

DIRECTORS/ EMPLOYEES 882928 0.076

GOVERNMENT 12603 0.001

OTHER 2454460 0.21

GENERAL PUBLIC 60137500 5.22

TOTAL 1151422189 100%

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6.81%

16.51%

39.34%3.80%

0.80%

27.23%

0.08% 0.00% 0.21%5.22% mutual funds and uti

banks, financial institution and insurance

FIIs

private corporate bodies

NRIs/OCBs/ Foreign others

GDR/ADR

DIRECTORS/ EMPLOYEES

GOVERNMENT

OTHER

GENERAL PUBLIC

FIGURE 2: SHAREHOLDING PATTERN OF ICICI BANK

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Chapter-2

COCEPTUAL FRAMEWORK

AND

RESEARCH METHODOLOGY

2.1 LITERATURE REVIEW

Economic crises in the past in a diverse set of countries have shown that problems in banking

sector can spread to the overall economy and lead to big-scale crises. It is for sure that as share

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of banking sector in financial system increases, the role of the sector in macroeconomic

stability and economic growth also becomes more prominent. The US Subprime crisis, now

considered as the worst crisis since the Great Depression has underscored the fact that a sound

and profitable banking sector is prerequisite for financial stability under a bank-based financial

system. In that respect, this paper analyses determinants of profitability for the Indian banking

system using bank-specific, industry-specific and macroeconomic factors. Results show that

while credit risk triggers a negative impact on profitability, capital tends to consolidate profits.

In general, results suggest that Indian banking system is well-diversified.

The focus on the determinants of profitability for the banking sector of a specific country is

underscored by virtue of the fact that most countries have a bank-based financial system. The

empirical literature on determinants of bank profitability is extensive. The US credit crunch

has rekindled the analysis on determinants of banks’ profitability on the grounds that a sound

and lucrative banking system is best able to bear any negative shocks to thereby ensure the

financial stability.

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FIGURE 3: FACTORS AFFECTING BANK PERFORMANCE

As far as the internal determinants are considered, size, capital, efficiency and credit risk have

been considered. Demirguc-Kunt and Maksimovic (1998) and Akhavein et al. (1997 have all

identified a positive relationship between size and profitability. In case of capital, higher the

capital level implies that banks are easily able to meet their regulatory capitals so that they can

have additional funds for lending and thereby increase their profits level. Havrylchyk et al.

(2006) finds a positive relationship between capital and profits of banks. Technically speaking,

a more efficient bank should have higher profits since it is able to maximize on its net interest

income. Molyneux and Thornton (1992) end up with a positive relationship between efficiency

and profitability. Finally, as far as credit risk is concerned, Miller and Noulas (1997) state a

negative relationship between credit risk and profitability. Such a negative relationship

signifies that higher risk associated to loans, higher the level of loan loss provisions which

thereby gnaw at the profit-maximizing force of a bank.

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FACTORS AFFECTING BANK PROFITABILITY

EXTERNAL

MACRO-ECONOMIC FACTOR

INDUSTRY-SPECIFIC

INTERNAL

FIRM-SPECIFIC

In case of the external factors, they are split into macroeconomic determinants and industry

specific determinants. In case of macroeconomic factors, interest rate, cyclical output, the level

of economic development and stock market capitalization are considered. Cyclical output and

the level of economic development are usually used to represent the business cycles since

banks’ profits are expected to be correlated with the business cycles, being higher in case of

upswings and lower in case of downswings (Demirguc-Kunt and Huizinga (2001) and Bikker

and Hu (2002)). Under stock market capitalization, Havrylchyk et al. (2006) finds a negative

relationship between stock market capitalization and banks’ profitability meaning that equity

and bank financing acts as substitutes rather than complements.

In case of the industry-specific factors, the Structure-Conduct-Performance hypothesis point

out that rising market power enhances the profitability of banks. As a matter of fact, Molyneux

and Thornton (1992) state that monopolistic profits follow out of major deviations from

competitive market structures.

Bank-Specific factors

Size

Size is used to capture the fact that larger banks are better placed than smaller banks in

harnessing

economies of scale in transactions to the plain effect that they will tend to enjoy a higher level

of profits. Consequently, a positive relationship is expected between size and profits.

Molyneux and Thornton (1992), Bikker and Hu (2002) and Goddard et al. (2004), Akhavein et

al. (1997),all find size to be positively related to profitability.

Capital

It’s interesting to note that higher the capital level breeds higher profitability level since by

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having

more capital, a bank can easily adhere to regulatory capital standards so that excess capital can

be provided as loans. Berger (1995) provides empirical evidence that for U.S. banks there is a

positive relationship between bank profitability and capital.

Credit risk

Miller and Noulas (1997) point out that credit risk should unleash a negative impact on

profitability since the higher the level of high-risk loans, the higher the level of unpaid loans.

Poor asset quality and low levels of liquidity constitute the two main causes of bank failure.

The allowance for doubtful debts constitutes a direct measure of difference in credit quality.

Efficiency

Higher the efficiency level of a bank, higher its profits level. Hence a positive relationship is

posited between efficiency and profitability of banks.

Industry-specific factors

According to industry-specific factors, banks’ profitability will be a function of the market in

which they are operating. Basically, a concentrated market will confer higher profits for banks

as they are able to tap a higher market share relative to banks capturing only a small portion of

the market. On the other hand, in case of a well-diversified market structure, banks are

expected to enjoy low profits level on the back of a highly competitive market structure.

According to Berger (1995), under Relative Market Power hypothesis, only firms with large

market shares and well-differentiated products are able to exercise market power and earn non-

competitive profits. Herschman Herfindahl Index (HHI), defined as the sum of the squared

market shares of each bank’s assets for a given year, is slightly greater than 0 for a perfectly

competitive market and equals 1 in the case of a monopoly. HHI for credit, deposits and assets

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are employed to gauge on their respective impacts on profitability.

Macroeconomic

Stock Market Capitalisation

Miller-Modigliani (1958) points out that under perfect market conditions, debt and equity

financing acts as perfect subsituttes. In that respect, in case firms resort more towards equity

financing, this will trigger a negative effect on banks’ profits. However, in case of developed

capital markets, banks derive more information about customers so that information

asymmetry problem is curtailed to thereby enhances banks’ profits. Hence, whether the

substitution effect or the complementary effect predominates hinges on the sign of the effect.

Empirical evidence from Demirgüç-Kunt and Huizinga (1999), Bashir (2000), Demirgüç-Kunt

and Huizinga (2001), and Naceur (2003) show that banks have greater profit opportunities in

countries having well-developed stock markets, providing endorsement for the complementary

effects.

GDP

Demirguc-Kunt and Huizinga (1999) show that rapid economic growth increase profitability

for a large number of countries. Technically speaking, GDP captures upswings and

downswings manifesting in the business cycles. Consequently, movements in general activity

level are expected to generate direct impacts on profitability of banks. the empirical literature

usually resorts towards two versions of GDP. First, there is cyclical output which basically

reflects the deviation of GDP from an HP-Filtered GDP. Second, there is the use of GDP per

capita to cater for the level of economic development.

Interest rate

The impact of interest rate on bank’s profits operates via two main channels of the revenues

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side. First, a rise in interest rate scales up the amount of income a bank earns on new assets it

acquires. But, the speed of revenue adjustment will be a function of speed of interest rate

adjustment. Second, the effect hinges on the amount of loans and securities held. Indeed, in

case of rising interest rates, rates on loans are higher than marketable securities so that strong

incentives prevail for banks to have more loans rather than buying securities. While Molyneux

and Thornton (1992) and Demirgüç-Kunt and Huizinga (1999) indicate a positive relationship

between interest rate and bank profitability, Naceur (2003) identifies a negative relationship.

Berger (1995) found that capital adequacy ratio affected ROE of USA banks positively in

1983-1989 and negatively in 1989-1992. Based on these results, Berger argued that the

relationship between capital adequacy ratio and profitability depended on the specific

circumstances of the time periods observed. According to the results of the study, a high

capital adequacy ratio positively affects profitability when financial situation of banks is

perceived as risky and it negatively affects profitability in normal situations due to alternative

cost of capital. The main problem in benefiting from this result is the difficulty of determining

an optimal level for the capital adequacy ratio.

Kunt and Huizinga (1998), determined that GDP per capita, inflation rate, real interest rate,

capital adequacy and foreign ownership affected ROA positively while ratio of non-interest

26

earning assets to total assets and ratio of deposits to total liabilities affected ROA negatively in

their study including data from 80 countries in the 1988-1995 period.

Kaya (2002), states that ratio of equity to assets affected ROA positively while affecting ROE

negatively and that real interest rate, ratio of securities to total assets, share of the bank in total

assets of the sector and open foreign currency position affected ROE positively while budget

deficit of the public sector and ratios of credits and liquid assets to total assets affected both

ROA and ROE positively. On the other hand, net non-performing loans affected ROA

negatively while ratios of staff expenditures and deposits to total assets affected both ROA and

ROE negatively.

Abreu and Mendes (2002), studied data from Portugal, Germany, Spain and France for the

1986-1999 period and concluded that ratios of credits and equity to assets affect ROA

positively and market share of a bank and ratio of equity to total assets affect ROE positively.

Moreover, inflation and unemployment rates affect both profitability ratios negatively.

Chirwa (2003), used data from Malawi banking sector for the 1970-1994 period and found

that; ratios of credits to total assets and ratio of sight deposits to total deposits affect both ROA

and ROE positively.

Jiang, Law and Sze (2003), concluded in their study that real GDP growth rate, inflation rate,

real interest rate, ratio of non-interest income to total assets and ratio of taxes to profit before

taxes affected ROA positively while ratio of non-interest expenditures to total assets affected

ROA negatively in the Hong Kong banking sector during 1992-2002.

Wilson, Molyneux and Goddard (2004), found that capital adequacy ratio affected ROE

positively in the period of 1992-1998 using data from banking sectors of France, Germany,

Spain,Denmark, Italy and England.

27

Albertazzi and Gambacorta (2006) stated that ROE was affected positively by the ratio of

stock market capitalization to GDP and negatively by stock market volatility, depending on

their study covering data from ten developed countries for the period of 1981-2003.

The banking sector is considered to be an important source of financing for most businesses.

The

common assumption, which underpins much of the financial performance research and

discussion, is that increasing financial performance will lead to improved functions and

activities of the organizations. The subject of financial performance and research into its

measurement is well advanced within finance and management fields. It can be argued that

there are three principal factors to improve financial performance for financial institutions; the

institution size, its asset management, and the operational efficiency.

2.1.1 ARTICLES ON SBI VS ICICI

WWW.EQUITYMASTER.COM

Comparison of behemoths in any sector brings with it the risk of overlooking some

competitive advantages. For instance, take a look at the biggest banking entities in

India. Comparing SBI with ICICI Bank could be at the risk of ignoring their inherent traits.

SBI being the government's de-facto banker has the upper hand in collecting taxes or public

investments (PPF). ICICI Bank on the other hand makes the best use of its private (largely

foreign) ownership and international presence. But having said that, each of the entities have

28

been the biggest beneficiaries of India's economic evolution. Nevertheless, they chose separate

ways to cash in on the same. 

The fight for market share 

SBI has had more than a century's presence in India's banking space. This can be one an

important reason for the lion's share that SBI has in the sector. But given the scale of

fragmentation in Indian banking, credit must be

given to SBI's ability to retain the share. Broadly,

over the last decade, SBI has commanded double

the share of the second largest player in the

sector. ICICI Bank on the other hand, has been

the pioneer of retail banking in India. Building on

its rapid growth in the space, the private sector behemoth acquired the highest share of retail

assets by FY07. But the economic crisis that unfolded thereafter forced it to sacrifice market

share for quality of assets. 

Margins: Then and now 

The difference in the business models of SBI and

ICICI Bank is evident from the pattern of their

respective net interest margins (NIMs). SBI has

maintained NIMs in excess of 2.6% over the past

decade. On the contrary, that of ICICI has

29

Source:Equitymaster

Source:Equitymaster

crossed 2.5% just once in the past 8 years. What this means is that the former has concentrated

on high margin business. Or rather on sustained margins despite larger volume of lending.

ICICI on the other hand resorted to low margin lending to grow balance sheet size. As also

failed to accumulate a large low cost deposit base like SBI. Nevertheless, the gap in margins

has narrowed in FY10. This was equally due to the fallout of SBI's affinity to teaser loans. As

also ICICI Bank's focus on low cost deposits (CASA). Ability to re-price loans has also had an

impact on the margins. 

Recognition of quality 

Neither SBI nor ICICI has a stellar record when it comes to asset quality. Their smaller PSU

and private sector peers have beaten them hands

down in retention of asset quality. Nevertheless

between the two, SBI has been more cautions in

terms of quality of lending. Most of SBI's asset

slippages have been due to government induced

lending to priority sectors. Or they have borne the

brunt of restructured assets. ICICI's on the other hand has been bad primarily due to its

voluntary effort to lend for poor quality of assets.

Having said that, over the past two years, ICICI

has stepped up both its focus on quality as well as

its provisioning efforts.

 Returns to shareholders 

30

SBI wins hands down when it comes to the

returns that the banks have generated for

shareholders. Both higher market share and better

margins have played a role in this. But more

importantly, SBI has never resorted

to investments in high risk speculative

instruments. And instead focused on its strengths

of large franchise and low cost deposit base. ICICI Bank's frequent equity dilution has also

impacted its return on equity. 

Which is the better bank? 

As we said earlier, SBI's government backing makes it the more 'safer' entity. ICICI by itself

does not have the reputation of good quality assets. But it is certainly striving to achieve the

same. Both in terms of margins and returns, SBI has had an edge and will continue to have it

in the medium term. Having said that investors must carefully weigh the future prospects of

both the entities vis-a-vis their respective valuations before taking their pick.

Sbi Vs Icici Bank

BUSINESS STANDARD August , 06 2002

ICICI Bank’s bloated equity is not a help, with equity capital, at Rs 6130.3 crore, being larger than

31

Source:Equitymaster

32

33

34

35

36

37

The ANOVA tests the null hypothesis that samples in two or more groups are drawn from the

same population. To do this, two estimates are made of the population variance. These

estimates rely on various assumptions (see below). The ANOVA produces an F statistic, the

ratio of the variance calculated among the means to the variance within the samples. If the

group means are drawn from the same population, the variance between the group means

should be lower than the variance of the samples, following central limit theorem. A higher

ratio therefore implies that the samples were drawn from different populations.

The degrees of freedom for the numerator is I-1, where I is the number of groups (means). The

degrees of freedom for the denominator is N - I, where N is the total of all the sample sizes.

Typically, however, the one-way ANOVA is used to test for differences among at least two

groups, since the two-group case can also be covered by a t-test (Gosset, 1908). When there

are only two means to compare, the t-test and the F-test are equivalent; the relation between

ANOVA and t is given by F = t2.

38

Chapter-3

DATA REDUCTION

AND

PRESENTATION

3.1 ECONOMIC ANALYSIS

39

The level of economy has an impact on investment in many ways. If the economic growth

rapidly, the industry can also be expected to show rapid growth and vice versa. When the

economic activity is low, stock price are low, and when the level of economic activity is high,

the stock price are high reflecting the prosperous outlook for sales and profit of the firms.

Vigorous growth with strong macroeconomic fundamentals has characterized developments in

the Indian economy in 2009-10 so far. However, there are some genuine concerns on the

inflation front. In 2009-10, while advanced economies were focused on stabilizing their

economies in the aftermath of the global financial turmoil, emerging market economies

(EMEs) including India, were engaged in mitigating the adverse impact of the global financial

crisis on their economies .In India, with the economy firmly on the recovery path towards the

second half of the year, the policy emphasis shifted from managing the crisis to managing the

recovery.

During 2010-11, the efforts in advanced economies will be to further improve the financial

conditions and strengthen the growth impulses, while the Endeavour in EMEs including India

will be to strengthen the recovery process without compromising on price stability.

GDP

The Indian economy is back on track and poised to grow by 7.2% in 2009-10, higher than

6.7% in the previous year. The strong industrial recovery and continuing momentum in

services sector is the key underlying strength behind the higher growth. On the agriculture

front, decline in farm output is expected to be contained at around -0.2%, against growth of

1.6% in 2008-09, due to good rabi harvest, partially offsetting the kharif losses suffered

40

because of the worst South-West Monsoon since 1972. The Indian Economy has emerged with

remarkable rapidity from the slowdown caused by the financial crisis 2007-09. With growth in

2009-10, again the estimate of the growth is higher than the previous growth. All the estimates

by various organizations are more than 8%. The robust GDP growth in the first half of 2010-

11 suggests that the economy has returned to its earlier high growth path. Satisfactory kharif

production and higher rabi sowing point to stronger contribution of the agriculture sector to

overall GDP growth in 2010-11. Industrial production has exhibited near double digit growth

but the significant volatility adds uncertainty to the outlook. Lead indicators of the services

sector show sustained buoyancy. In certain sectors, particularly non-cereal food items,

however, the supply response to market signals in the form of higher prices has been weak.

With 8.9 per cent growth in the first half of 2010-11, India continues to be one of the fastest

growing economies in the world. The uncertainty about the durability of the robust growth

seen in Q1 of 2010-11 waned significantly with the momentum continuing in Q2.

Notwithstanding the impact of a lower base, the first half GDP growth suggests return to the

high growth path. The robust growth momentum in Q2 reflected the continued buoyancy of

services sector and further pickup in agricultural performance due to a normal South-West

monsoon. Industrial growth, though moderated on account of the base effect, remained on the

higher side, but volatile.

YEAR 2009 2010 2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

GDPfc 6.7

%

7.2% 6.3% 8.7% 6.5% 8.6% 8.9% 8.9%

TABLE1: GDP

41

Source: Central statistical organization

Agriculture17%

Service57%

Industry26%

Sector wise GDP

FIGURE4: SECTOR WISE CONTRIBUTION IN GDP

SAVING AND INVESTMENT

The CSOs quick estimate placed the saving rate in 2009-10 at 33.7% of GDP at current market

price. The saving rate of private sector is less static which was around 31.6% and the saving of

public sector was estimated at 2.1%. Gross capital formation was placed at 30.9% in 2009-10.

The financial crisis had great impact on the investment habit of people and increased the gap

between saving and investment.

INDUSTRY

Industry showed a marked improvement and is expected to grow by 8.8% in 2009-10 against

3.1% in 2008-09. The higher growth of 8.9% in 2009-10 in manufacturing, against 3.2% in the

previous year, was propelled by robust performance of capital goods, consumer durables and

42

intermediate goods. Apart from manufacturing, mining and electricity also contributed to

higher industrial growth. Mining is projected to grow by 8.7% in 2009-10 against 1.6% in the

previous year while electricity is likely to grow by 8.2% against 3.9% in the previous year.

Services sector accounting for about two-third of GDP, is expected to grow by 8.5% in 2009-

10, against 9.3% in 2008-09. The moderation in services sector growth was largely on account

of community, social and personal services, which grew by 8.2% in 2009-10 against 13.9% in

2008-09. Following signs of economic revival in developed countries, merchandise exports

moved into positive territory in November 2009 after declining continuously for thirteen

months. However, cumulative exports during 2009-10 remained negative and declined by

4.7%, while imports declined by 8.2%. The industrial sector recorded a growth of 9.5 per cent

during April-November 2010, mainly driven by the performance of the manufacturing and

mining sectors.

The growth pattern has, however, been volatile through the months of the current year. Growth

in electricity generation remained modest. Acceleration in manufacturing sector growth was

driven by the production of capital goods and consumer durables. Consumer nondurables

continued to remain subdued, primarily on account of deceleration in growth

of industries such as wheat flour/maida, rice bran oil, coffee, hair oil, hsl lamps, fluorescent

tubes and rubber foot wear. Led by “trade, hotel, restaurant, transport, storage and

communication” and “financing, insurance, real estate and business services”, service sector

growth during Q2 of 2010-11 showed gradual acceleration over the previous three quarters.

The strong growth of various lead indicators, including commercial vehicles production, cell

phone connections, air cargo and passengers handled at domestic and international terminals

during the year so far, suggest continuation of the recent growth pattern.

43

FIIS AND CAPITAL FLOWS

Revival in the domestic and global economy was reflected in net capital inflows. In particular,

net FII inflows were a robust US $29 bn in 2009-10 as against net outflow of US $15 bn in

2008-09. In November 2009, RBI purchased 200 metric tons of gold from the IMF as a part of

its foreign exchange reserves management operations but the forex reserves of the country

remained unchanged since the gold purchase was only a substitution of foreign currency

assets. Due to strong capital inflows, forex reserves of the country (including gold and SDRs)

increased by US $27.1 billion to US $279.1 billion and the Rupee appreciated against the US

dollar from Rs.50.95 per dollar at end- March 2009 to Rs.45.14 per dollar at end-March 2010.

INFLATION

After remaining benign in the first two quarters, inflation emerged as a major concern during

the third and fourth quarters of 2009-10. Increase in WPI inflation to 9.9% YoY in March

2010 from 1.2% YoY in March 2009 was largely driven by supply side factors particularly in

the case of food items. In the same period, food prices increased sharply by 17.70% compared

to the rise of 6.97% a year ago.

LIQUIDITY

The liquidity constraint that emerged following the global financial crisis led RBI to follow an

accommodative monetary policy stance which was continued during the major part of 2009-

10. As the global financial and economic conditions deteriorated, a series of measures were

taken after September 2008 to enhance liquidity in the system and support growth in the

economy. There was

44

further easing of policy rates in 2009-10 as the Reverse Repo rate and Repo rate were slashed

by 25 bps each to 3.25% and 4.75% respectively in April 2009. Keeping in view the

comfortable liquidity position, the SLR was restored to its earlier level of 25% of NDTL from

November 2009. Due to the accommodative policy followed by RBI during major part of

2009-10, interest rates on both deposits and credit softened. While PLR of major banks fell by

50 bps from 11.50-12.50% at end-March 2009 to 11.0-12.0% at end- March 2010, deposits

rates declined from 7.75-8.75% to 6.0-7.50% in the same period. Even as there were signs of a

recovery in January 2010, amidst concerns about rising inflation, RBI announced a hike in

CRR by 75 bps to 5.75% in two tranches to keep a check on liquidity and control inflation. On

19 March 2010, to curb inflationary expectations, RBI hiked Repo and Reverse Repo rates by

25 bps each to 5% and 3.50% respectively.

BUDGET 2011-12

OVERVIEW OF THE ECONOMY

Gross Domestic Product (GDP) estimated to have grown at 8.6 per cent in 2010-11 in

real terms. Economy has shown remarkable resilience.

Continued high food prices have been principal concern this year.

Consumers denied the benefit of seasonal fall in prices despite improved availability of

food items, revealing shortcomings in distribution and marketing systems.

Monetary policy measures taken expected to further moderate inflation in coming

months.

Exports have grown by 29.4 per cent, while imports have recorded a growth of 17.6 per

45

cent during April to January 2010-11 over the corresponding period last year.

Indian economy expected to grow at 9 per cent with an outside band of +/- 0.25 per

cent in 2011-12.

Average inflation expected lower next year and current account deficit smaller.

INVESTMENT ENVIRONMENT

Foreign Direct Investment

Discussions underway to further liberalise the FDI policy.

Foreign Institutional Investors

SEBI registered mutual funds permitted to accept subscription from foreign investors

who meet KYC requirements for equity schemes.

To enhance flow of funds to infrastructure sector, the FII limit for investment in

corporate bonds issued in infrastructure sector being raised.

Financial Sector Legislative Initiatives

To take the process of financial sector reforms further, various legislations proposed in

2011-12.

Amendments proposed to the Banking Regulation Act in the context of additional

banking licences to private sector players.

Public Sector Bank Capitalisation

6,000 crore to be provided during 2011-12 to enable public sector banks to maintain a

46

minimum of Tier I CRAR of 8 per cent.

Recapitalisation of Regional Rural Banks

500 crore to be provided to enable Regional Rural Banks to maintain a CRAR of at

least 9 per cent as on March 31, 2012.

3.2 INDIAN BANKING INDUSTRY

The growth in the Indian Banking Industry has been more qualitative than quantitative and it is

expected to remain the same in the coming years. Based on the projections made in the "India

Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the report

forecasts that the pace of expansion in the balance-sheets of banks is likely to decelerate. The

total assets of all scheduled commercial banks by end-March 2010 is estimated at Rs

40,90,000 crores. That will comprise about 65 per cent of GDP at current market prices as

compared to 67 per cent in 2002-03. Bank assets are expected to grow at an annual composite

rate of 13.4 per cent during the rest of the decade as against the growth rate of 16.7 per cent

that existed between 1994-95 and 2002-03. It is expected that there will be large additions to

the capital base and reserves on the liability side. 

The Indian Banking Industry can be categorized into non-scheduled banks and scheduled

banks. Scheduled banks constitute of commercial banks and co-operative banks. There are

about 67,000 branches of Scheduled banks spread across India. As far as the present scenario

is concerned the Banking Industry in India is going through a transitional phase. 

47

The Public Sector Banks(PSBs), which are the base of the Banking sector in India account for

more than 78 per cent of the total banking industry assets. Unfortunately they are burdened

with excessive Non Performing assets (NPAs), massive manpower and lack of modern

technology. On the other hand the Private Sector Banks are making tremendous progress. They

are leaders in Internet banking, mobile banking, phone banking, ATMs. As far as foreign

banks are concerned they are likely to succeed in the Indian Banking Industry. 

The concept of Banking in India dates back to the first half of 18th century. The first bank that

was established in the country was The General Bank of India founded in 1786. After that

came the State Bank of India in Kolkata in 1806 which was then known as The Bank of

Bengal.

The operations of all the banks in India are controlled by the Reserve Bank of India. All the

Indian banks are governed by the RBI or Reserve Bank of India. This governing body took

over the reasonability of formally regulating the Indian banks in 1935. The Reserve Bank of

India was announced as the official Central Banking Authority for the smooth supervision of

the banking industry in India. Banks in India are classified into 2 broad categories namely,

Public sector banks and Private sector banks.

The banking scenario in India has already gained momentum, with the domestic and

international banks gathering pace. All the banks in India are following the 'cost', determined

by revenue minus profit model.

This means that all the resources should be used efficiently to improve the productivity and

ensure a win-win situation. To survive in the long run, it is essential to focus on cost saving.

Previously, banks focused on the 'revenue' model which is equal to cost plus profit. Post the

48

banking reforms, banks shifted their approach to the 'profit' model, which meant that banks

aimed at higher profit maximization.

3.2.1 SWOT ANALYSIS OF BANKING SECTOR

STRENGTH

High asset quality, growth and profitability

Strong growth rate of banking index i.e 51%

High Geographical reach and market penetration

Growing Customer base

High capital inflows

Comfortable Liquidity position

Liberalise Policy Of RBI

WEAKNESS

Limited market penetration in few geographies

Less household savings

Lack of skills of sales and marketing, service operations, risk management-public

players

Weak structure

According to a mckinsey report, even though Indian households save 28% of their

disposable income, they invest only half their savings in financial assets. The rest goes

towards buying gold, housing, and buying/maintenance of equipment for the various

small Indian enterprises.

49

OPPORTUNITIES

Untapped rural market

Large number of market player

Demand for new type of products like credit cards

New license to NBFC

Hybrid Capital

THREAT

Intense competition

Other better Savings, investment option available.

Failure of some weak banks has often threatened the stability of the system

RBI Policies

Rise in Inflation

3.2.2 PHASE OF INDIAN BANKING INDUSTRY

Indian banking industry is currently in evolutionary phase with growing liberalization, entry of

new foreign players, rising technology etc.

Phase1: Indegeneous Banks

Phase 2: State direct intervention

Phase 3: Liberalization

Phase 4: Transition

50

Phase 5: Entry of foreign players

FIGURE 5: PHASE OF BANKING INDUSTRY

3.2.3 BCG MATRIX FOR BANKING INDUSTRY

FIGURE 6: BCG MATRIX FOR BANKING INDUSTRY

51

BANKING

Banking sector is worth to invest in India because of key trends in banking sector:

Improved risk management practices

More emphasis on fee-base services

Development of new mode of banking

Product innovation

Improved performance of PSUs

Improve technology and information system

3.2.4 FIVE FORCES MODEL FOR BANKING INDUSTRY

1. Threat of New Entrants. The average person can't come along and start up a bank, but

there are services, such as internet bill payment, on which entrepreneurs can capitalize.

Banks are fearful of being squeezed out of the payments business, because it is a good

source of fee-based revenue. Another trend that poses a threat is companies offering

other financial services. What would it take for an insurance company to start offering

mortgage and loan services? Not much. Also, when analyzing a regional bank,

remember that the possibility of a mega bank entering into the market poses a real

threat. In Indian banking industry, the main threats are foreign players and Non

Banking Finance Companies.

2. Power of Suppliers.  The suppliers of capital might not pose a big threat, but the threat

52

of suppliers luring away human capital does. In Indian Banking industry, RBI acts as a

regulator which pose a big threat for banks as a supplier of money.

3. Power of Buyers. The individual doesn't pose much of a threat to the banking industry,

but one major factor affecting the power of buyers is relatively high switching costs. If

a person has a  mortgage, car loan, credit card, checking account and mutual funds with

one particular bank, it can be extremely tough for that person to switch to another bank.

In an attempt to lure in customers, banks try to lower the price of switching, but many

people would still rather stick with their current bank. On the other hand, large

corporate clients have banks wrapped around their little fingers. Financial institutions -

by offering better exchange rates, more services, and exposure to foreign capital

markets - work extremely hard to get high-margin corporate clients.

4. Availability of Substitutes.  As you can probably imagine, there are plenty of

substitutes in the banking industry. Banks offer a suite of services over and above

taking deposits and lending money, but whether it is insurance, mutual funds or fixed

income securities, chances are there is a non-banking financial services company that

can offer similar services. On the lending side of the business, banks are seeing

competition rise from unconventional companies. All offer preferred financing to

customers who buy big ticket items. If car companies are offering 0% financing, why

would anyone want to get a car loan from the bank and pay 5-10% interest? 

5. Competitive Rivalry.  The banking industry is highly competitive. The financial

53

services industry has been around for hundreds of years, and just about everyone who

needs banking services already has them. Because of this, banks must attempt to lure

clients away from competitor banks. They do this by offering lower financing,

preferred rates and investment services. The banking sector is in a race to see who can

offer both the best and fastest services, but this also causes banks to experience a lower

ROA. They then have an incentive to take on high-risk projects. In the long run, we're

likely to see more consolidation in the banking industry. Larger banks would prefer to

take over or merge with another bank rather than spend the money to market and

advertise to people.

3.3 DATA

STATE BANK OF INDIA

BALANCE SHEET

(Rs. “000”)PARTICULARS 2007 2008 2009 2010CAPITAL AND LIABILITIES

Capital 5,262,989 6,314,704 6,348,802 6,348,826Reserves and surplus 307,722,575 484,011,911 573,128,162 653,143,160

Deposits 4,355,210,894 5,374,039,409 7,420,731,280 8,041,162,268Borrowings 397,033,352 517,274,113 840,579,290 1,030,116,011

Other liabilities and provisions

600,422,578 833,622,984 803,533,273 803,367,040

TOTAL CAPITAL AND

LIABILITIES

5,665,652,388 7,215,263,121 9,644,320,807 10,534,137,305

ASSETSCash and balances 290,764,250 515,346,158 555,461,727 612,908,652

54

with Reserve Bank of India

Balances with banks and money at call and short notice

228,922,650 159,317,192 488,576,259 348,929,764

Investments 1,491,488,825 1,895,012,709 2,759,539,569 2,857,900,706Advances 3,373,364,935 4,167,681,962 5,425,032,042 6,319,141,520

Fixed assets 28,188,667 33,734,809 38,378,472 44,129,067Other assets 252,923,061 444,170,291 377,332,738 351,127,596

TOTAL ASSETS 5,665,652,388 7,215,263,121 9,644,320,807 10,534,137,305TABLE 2: BALANCE-SHEET OF SBI

SOURCE: ANNUAL REPORT OF SBI

ICICI BANK

BALANCE SHEET

(Rs. “000”)

PARTICULARS 2007 2008 2009 2010

CAPITAL AND LIABILITIES

Capital 12,493,437 14,626,786 14,632,898 11,148,892

Reserves and surplus 234,139,207 453,575,309 484,197,292 505,034,767

Deposits 2,305,101,863 2,444,310,502 2,183,478,249 2,020,165,972

Borrowings 512,560,263 656,484,338 673,236,886 942,635,686

Other liabilities and

provisions

382,286,356 428,953,827 437,464,298 155,011,834

TOTAL CAPITAL

AND LIABILITIES

3,446,581,126 3,997,950,762 3,793,009,623 3,633,997,151

ASSETS

Cash and balances

with Reserve Bank of

India

187,068,794 293,775,337 175,363,342 275,142,920

Balances with banks

and money at call and

short notice

184,144,452 86,635,952 124,302,296 113,594,020

Investments 912,578,418 1,114,543,415 1,030,583,080 1,208,928,005

Advances 1,958,655,996 2,256,160,827 2,183,108,492 1,812,055,971

Fixed assets 39,234,232 41,088,975 38,016,209 32,126,899

Other assets 164,899,234 205,746,256 241,636,204 192,149,336

TOTAL ASSETS 3,446,581,126 3,997,950,762 3,793,009,623 3,633,997,151

TABLE 3: BALANCE-SHEET OF ICICI

SOURCE: ANNUAL REPORT OF ICICI

SBI

INCOME STATEMENT

(Rs. “000)

55

PARTICULARS 2007 2008 2009 2010INCOMEInterest earned 372,423,260 489,503,071 637,884,338 709,939,175

Other income 67,652,618 86,949,284 126,907,890 149,681,527

TOTAL INCOME 440,075,878 576,452,355 764,792,228 859,620,702 EXPENDITUREInterest expended 221,841,348 319,290,769 429,152,937 473,224,780 Operating expenses 118,235,166 126,086,060 156,487,044 203,186,800 Provisions and contingencies

54,586,291

63,784,279

87,939,982

91,548,592

TOTAL EXPENDITURE 394,662,805 509,161,108 673,579,963 767,960,172 PROFIT / LOSSNet profit for the year 45,413,073 67,291,247 91,212,265 91,660,530 Profit brought forward 3,393 3,393 3,393 3,393 Transfer from General Reserve

28,857

937

TOTAL PROFIT / (LOSS)

45,445,323

67,295,577

91,215,658

91,663,923

APPROPRIATIONS / TRANSFERSTransfer to Statutory Reserve

33,581,132

48,390,723

52,917,928

63,810,885

Transfer to Capital Reserve 391 44,398 8,265,532 1,140,547 Transfer to Investment Reserve Account 621,787 Transfer to Revenue Reserve and other

3,240,000

3,000,000

3,068,930

5,295,065

Interim Dividend 6,348,802 Final Proposed Dividend 7,368,184 13,576,613 18,411,526 12,697,677 Corporate dividend tax 1,252,223 1,658,663 2,480,347 2,367,554 Loss from State Bank Of Saurashtra 6,068,002 Balance carried over to balance sheet

3,393 3,393 3,393 3,393

TOTAL 45,445,323 67,295,577 91,215,658 91,663,923 TABLE 4: INCOME STATEMENT OF SBI

SOUREC: ANNUAL REPORT OF SBI

ICICI BANK

INCOME STATEMENT

(Rs. “000”)

56

PARTICULARS 2007 2008 2009 2010INCOMEInterest earned 219,955,876 307,883,429 310,925,484 257,069,331Other income 69,278,726 88,107,628 76,037,271 74,776,500TOTAL INCOME 289,234,602 395,991,057 386,962,755 331,845,831EXPENDITUREInterest expended 163,584,984 234,842,423 227,259,343 175,925,704Operating expenses 66,905,564 81,541,819 70,451,137 58,598,327Provisions and contingencies 27,641,854 38,029,536 51,670,943 57,071,971TOTAL EXPENDITURE 258,132,402 354,413,778 349,381,423 291,596,002PROFIT / LOSSNet profit for the year 31,102,200 41,577,279 37,581,332 40,249,829Profit brought forward 2,934,416 9,982,741 24,363,159 28,096,510TOTAL PROFIT / (LOSS) 34,036,616 51,560,020 61,944,491 68,346,339

APPROPRIATIONS / TRANSFERSTransfer to Statutory Reserve 7,800,000 10,400,000 9,400,000 10,070,000Transfer to Reserve Fund 1,168 3,138 4,221 2,170Transfer to Capital Reserve 1,210,000 1,270,000 8,180,000 4,440,000Transfer to Investment Reserve Account 0 1,160,000Transfer to General Reserve 0 10,369Transfer to Special Reserve 4,500,000 1,750,000 2,500,000 3,000,000Proposed equity share dividend

9,011,694 12,277,018 12,251,582 13,379,533

Proposed preference share dividend

35 35 35 35

Corporate dividend tax 1,530,978 1,496,670 1,512,143 1,640,425Balance carried over to balance sheet

9,982,741 24,363,159 28,096,510 34,643,807

TOTAL 34,036,616 51,560,020 61,944,491 68,346,339TABLE 5: INCOME STATEMENT OF ICICI

SOUREC: ANNUAL REPORT OF ICICI

DEPOSIT

YEAR ICICI SBI

2006 1,650.8 3670.4

57

3 8

2007 2,305.1

0

4355.2

1

2008 2,444.3

1

5374.0

5

2009 2,183.4

8

7420.7

3

2010 2,020.1

7

8041.1

6

TABLE 6: COMPARION OF DEPOSITS OF SBI AND ICICI

2006 2007 2008 2009 20100.00

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

8,000.00

9,000.00

DEPOSITS

ICICI SBI

FIGURE7: COMPARION OF DEPOSITS OF SBI AND ICICI

Deposits of SBI is increasing at higher rate as compared to ICICI bank

58

ADVANCES

YEAR ICICI SBI

2006 1,461.6

3

2618.0

1

2007 1,958.6

6

3373.3

6

2008 2,256.1

6

4168.9

5

2009 2,183.1

1

5425.0

3

2010 1,812.0

6

6319.1

4

TABLE 7: COMPARION OF ADVANCES OF SBI AND ICICI

59

20062007

20082009

2010

0.00

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

ADVANCES

ICICI SBI

FIGURE 8: COMPARION OF ADVANCES OF SBI AND ICICI

Advances of SBI is increasing at higher rate as compared to ICICI Bank.

TOTAL ASSETS

YEAR ICICI SBI2006 2,513.8

9

4940.29

2007 3,446.5

8

5665.65

2008 3,997.9

5

7215.26

2009 3,793.0

1

9644.32

2010 3,634.0 10534.1

60

0 3

TABLE 8: COMPARION OF ASSETS OF SBI AND ICICI

2006 2007 2008 2009 20100.00

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

TOTAL ASSETS

ICICI SBI

FIGURE 9: COMPARION OF ASSETD OF SBI AND ICICI

Total assets of SBI is increasing whereas total assets of ICICI is decreasing.

NET PROFIT

YEAR ICICI SBI

2006 25.4 44.07

2007 31.1 45.41

2008 41.58 67.29

2009 37.58 91.21

61

2010 40.25 91.66

TABLE 9: COMPARION OF NET PROFIT OF SBI AND ICICI

20062007

20082009

2010

0

10

20

30

40

50

60

70

80

90

100

NET PROFIT

ICICI SBI

FIGURE 10: COMPARION OF NET PROFIT OF SBI AND ICICI

Net profit of ICICI is increasing at higher rate as compared to SBI.

Earning per share

YEAR ICIC

I

SBI

2005-06 32.4

9

83.73

2006-07 34.8

4

86.29

2007-08 39.3 126.62

62

9

2008-09 33.7

6

143.77

2009-10 36.1

4

144.37

TABLE 10: COMPARION OF EARNING PER SHARE OF SBI AND ICICI

2005-06 2006-07 2007-08 2008-09 2009-100

20

40

60

80

100

120

140

160

Earning per Share

ICICISBI

FIGURE11: COMPARION OF EARNING PER SHARE OF SBI AND ICICI

Earning per share is increasing of ICICI at higher rate.

PAY-OUT RATIO

YEAR ICICI SBI

63

2005-06 26.16 16.72

2006-07 28.91 16.22

2007-08 29.44 20.18

2008-09 32.58 20.19

2009-10 33.24 20.78

TABLE11: COMPARION OF PAY-OUT RATIO OF SBI AND ICICI

2005-06 2006-07 2007-08 2008-09 2009-100.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

ICICISBI

FIGURE12: COMPARION OF PAY-OUT RATIO OF SBI AND ICICI

Divivdend pay-out ratio of ICICI is higher as compared to ICICI.

PRICE EARNING RATIO

YEAR ICIC SBI

64

I

2005-06 13.07 10.4

2006-07 24.67 11.51

2007-08 20.61 12.63

2008-09 9.85 7.42

2009-10 26.39 14.4

TABLE12: COMPARION OF PRICE-EARNING RATIO OF SBI AND ICICI

2005-06 2006-07 2007-08 2008-09 2009-100

5

10

15

20

25

30

ICICISBI

FIGURE 13: COMPARION OF PRICE-EARNING RATIO OF SBI AND ICICI

Price earning ratio of ICICI is more as compared to SBI BECAUSE SBI has large

number of shares.

65

Chapter-4

DATA ANALYSIS

66

4.1 SBI VS ICICI

4.1.1 DU PONT ANALYSIS

ICICI BANK

PARTICULARS 2007 2008 2009 2010NET INCOME 31,102,200 41,577,279 37,581,332 40,249,829AVERAGE TOTAL

ASSETS

2980235334 3722265944 3895480193 3713503387

RETURN ON ASSETS 0.01 0.01 0.01 0.01AVERAGE EQUITY 236096280 357417369.5 483516142.

5

507506924.5

EQUITY MULTIPLER 12.62296608 10.41433982 8.05656698

9

7.317148216

RETURN ON EQUITY 0.13173524 0.116326968 0.07772508

2

0.079308926

TABLE 13: DU PONT ANALYSIS OF ICICI

67

FIGURE 14: DU PONT ANALYSIS OF ICICI

DU PONT ANALYSIS (SBI)

PARTICULARS 2007 2008 2009 2010

NET INCOME 45,413,073 67,291,247 91,212,265 91,660,530

AVERAGE TOTAL ASSETS 2832826194 6440457755 8429791964 10089229056

RETURN ON ASSETS 0.02 0.01 0.01 0.01

AVERAGE EQUITY 156492782 401656089.5 534901789.5 619484475

EQUITY MULTIPLER 18.1019607

3

16.0347569 15.75951348 16.28649218

RETURN ON EQUITY 0.29 0.17 0.17 0.15

TABLE 14: DU PONT ANALYSIS OF SBI

68

RETURN ON EQUITY(7.9%)

RETURN ON ASSETS(1.08%)

NET INCOME AVERAGE ASSETS

EQUITY MULTIPLIER(7.31)

AVERAGE ASSETS

AVERAGE EQUITY

FIGURE 15: DU PONT ANALYSIS OF SBI

4.1.2YEAR ON YEAR GROWTH

ICICI BANKPARTICULAR

S

2005 2006 2007 2008 2009 2010

Deposits 1,650.83 2,305.10 2,444.3

1

2,183.48 2,020.17GROWTH - 142.38% 39.63% 6.04% 10.67% -7.48%

Advances 914.05 1,461.63 1,958.66 2,256.1

6

2,183.11 1,812.06

GROWTH - 59.91% 34.01% 15.19% -3.24% -17.00%Total Assets 1,676.59 2,513.89 3,446.58 3,997.9

5

3,793.01 3,634.00

GROWTH - 49.94% 37.10% 16.00% -5.13% -4.19%69

RETURN ON EQUITY(15%)

RETURN ON ASSETS(1%)

NET INCOME AVERAGE ASSETS

EQUITY MULTIPLIER(16.29)

AVERAGE ASSETS

AVERAGE EQUITY

TABLE 15: YEAR ON YEAR GROWTH OF ICICI

SBIPARTICULAR

S

2005 2006 2007 2008 2009 2010

Deposits 3670.48 3800.4

6

4355.2

1

5374.0

5

7420.73 8041.16

GROWTH - 3.54% 14.60

%

23.39

%

38.08% 8.36%

Advances 2023.74 2618.0

1

3373.3

6

4168.9

5

5425.03 6319.14

GROWTH - 29.36

%

28.85

%

23.58

%

30.13% 16.48%

Total Assets 4598.83 4940.2

9

5665.6

5

7215.2

6

9644.32 10534.1

3

GROWTH - 7.42% 14.68

%

27.35

%

33.67% 9.23%

Interest Income 324.28 359.8 394.91 489.5 637.88 709.94GROWTH - 10.95

%

9.76% 23.95

%

30.31% 11.30%

Interest

Expenses

184.83 203.9 234.37 319.29 429.15 473.22

GROWTH - 10.32 14.94 36.23 34.41% 10.27%

70

TABLE 16: YEAR ON YEAR GROWTH OF ICICI

4.1.3 CAMEL ANALYSIS

CAPITAL ADEQUACY

ICICIRATIO 2006 2007 2008 2009 2010

TIER-I 9.20% 7.42% 11.76% 11.84% 13.96%

TIER-II 4.15% 4.27% 2.20% 3.69% 5.45%

CAPITAL

ADEQUACY

13.35% 11.69% 13.96% 15.53% 19.41%

SBIRATIO 2006 2007 2008 2009 2010

TIER-I 9.36% 8.01% 9.14% 8.53% 8.46%

TIER-II 2.52% 4.33% 4.40% 4.44% 3.54%

CAPITAL

ADEQUACY

11.88% 12.34% 13.28% 12.97% 12%

TABLE 17: CAPITAL ADEQUACY OF SBI AND ICICI

71

ASSET QUALITY

ICICI

RATIO 2006 2007 2008 2009 2010

GROSS NPA 22225.9 41260.6 75795.4 96493.1 94806.5

NET NPA 10526.8 19920.4 34905.5 45539.5 38411.1

NET NPA/

TOTAL ADVANCES

2.03% 1% 1.55% 2.09% 2.12%

SBI

RATIO 2006 2007 2008 2009 2010

GROSS NPA 9268.14 9998 13599 15589 19554

NET NPA 4911.41 5258 7424 9677 10870

NET NPA/

TOTAL ADVANCES

1.88 1.56 1.78 1.79 1.72

TABLE 18: ASSETS QUALITY

72

MANAGERIAL EFFICIENCY

ICICI

RATIO 2006 2007 2008 2009 2010

TOTAL INVESTMENT/

TOTAL ASSETS

28.46% 26.47% 27.88% 27.17

%

33.26%

COST/INCOME 39.9% 41.2% 40.2% 43.3% 37.0%

PROFIT PER EMPLOYEE 1.0 0.9 1.0 1.1. 1.2

BUSINESS PER EMPLOEE 90.5 102.7 100.8 115.4 102.9

SBI

RATIO 2006 2007 2008 2009 2010

TOTAL INVESTMENT/

TOTAL ASSETS

32.90% 26.32% 26.26% 28.61

%

27.13%

COST/INCOME 58.70% 54.18% 49.03% 46.62

%

52.59%

PROFIT PER EMPLOYEE 216.76 236.81 372.57 473.77 446.03

BUSINESS PER EMPLOYEE 29923 35700 45600 55600 63600

TABLE 19: MANAGERIAL EFFICIENCY

73

EARNING AND PROFITABILITY

ICICI

RATIO 2006 2007 2008 2009 2010

RETURN ON EQUITY 16.4% 13.4% 11.63% 7.77% 7.93%

OPERATING PROFIT/

AVERAGE WORKING FUNDS

1.98% 2.05% 2.14% 2.33% 2.72%

PROFIT AFTER TAX/

TOTAL ASSETS

1.01% 0.90% 0.88% 0.99% 1.10%

SBI

RATIO 2006 2007 2008 2009 2010

RETURN ON EQUITY 15.47% 14.24% 17.82% 15.07% 14.84%

OPERATING PROFIT/

AVERAGE WORKING FUNDS

1.75% 1.86% 1.96% 2.05% 1.75%

PROFIT AFTER TAX/

TOTAL ASSETS

0.89% 0.80% 0.93% 0.95% 0.87%

74

NET INTEREST MARGIN (ICICI BANK)

PARTICULARS 2008 2009 2010

NET INTEREST INCOME 73,041,006 83,666,141 81,143,627

AVERAGE INTEREST

EARNING ASSET

3256359530 3397667031 3236285932

NET INTEREST MARGIN 22.4% 24.6% 25.07%

NET INTEREST MARGIN (SBI)

PARTICULARS 2008 2009 2010

NET INTEREST

INCOME

170,212,302 208,731,401 236,714,395

AVERAGE INCOME

EARNING ASSET

5,657,894,136.50 7,447,579,866.5

0

9,099,559,930.0

0

NET INTEREST

MARGIN

3.01% 2.80% 2.60%

TABLE 20: EARNING AND PROFITABILITY

75

LIQUIDITY

ICICI

RATIO 2006 2007 2008 2009 2010

LAON/DEPOSIT 88.53

%

84.97% 92.30% 99.98

%

89.70%

GOVT. SECURITIES/

TOTAL INVESTMENT

71.38

%

73.82% 67.63% 61.50

%

56.60%

SBI

RATIO 2006 2007 2008 2009 2010

LAON/DEPOSIT 68.87

%

77.45% 77.55% 73.11

%

78.58%

GOVT. SECURITIES/

TOTAL INVESTMENT

78.86

%

79.29% 82.245 82.70

%

79.70%

TABLE 21: LIQUIDITY

76

4.1.4 SWOT ANALYSIS

ICICI BANK

STRENGTHS 

BRAND NAME

HUGE NETWORK

DIVERSIFIED PORTFOLIO

AGGRESSIVE MARKETING

TECHNOLOGY

WEAKNESS

TRANSACTION COST IS HIGH

FOCUS ONLY ON HIGH END CUSTOMERS

77

OPPORTUNITIES 

BUSINESS ADVISOR FOR SMALLER PLAYERS

DISSATISFIED CUSTOMERS OF OTHER BANKS

THREATS 

DISSATISFIED CUSTOMERS

EVER IMPROVING NATIONALIZED BANKS

ADVENT OF MNC BANKS

STATE BANK OF INDIA

STRENGTHS

BRAND NAME

MARKET LEADER

WIDE DISTRIBUTION NETWORK

GOVERNMENT OWNED

LOW TRANSITION COSTS

WEAKNESSES

EXISTING HIERARCHICAL MANAGEMENT STRUCTURE OF THE BANK

HIGH NON PERFORMING ASSETS (NPAS)

LACK OF MODERNISATION

78

OPPORTUNITIES

MERGER OF ASSOCIATE BANKS WITH SBI

PLANNING TO ADD MORE BRANCHES AND ATMS 

THREATS

ADVENT OF MNC BANKS

EMPLOYEE STRIKE

INCREASING CUSTOMER EXPECTATION

4.1.5 ANOVA TEST

TOTAL ASSETSYEAR ICICI

(X1)

SBI(X2)

2006 2,513.8

9

4940.29

2007 3,446.5

8

5665.65

2008 3,997.9

5

7215.26

2009 3,793.0

1

9644.32

2010 3,634.0

0

10534.1

3

Anova: Single

Factor

79

SUMMARY

Groups Count Sum Average

Varian

ce

Column 1 5

17385.

43

3477.08

6

331101

.6

Column 2 5

37999.

65 7599.93

593803

9

ANOVA

Source of

Variation SS Df MS F P-value F crit

Between

Groups

424946

07 1

424946

07

13.556

76

0.0062

02

5.3176

55

Within Groups

250765

62 8

313457

0

Total

675711

68 9        

NET PROFIT

YEAR ICICI SBI

2006 25.4 44.07

2007 31.1 45.41

2008 41.58 67.29

2009 37.58 91.21

2010 40.25 91.66

80

Anova: Single Factor

SUMMARY

Groups Count Sum Average

Varianc

e

Column 1 5 175.91 35.182

46.1799

2

Column 2 5 339.64 67.928

545.482

7

ANOVA

Source of

Variation SS df MS F P-value F crit

Between

Groups

2680.75

1 1

2680.75

1

9.06175

6

0.01680

7 5.317655063

Within

Groups

2366.65

1 8

295.831

3

Total

5047.40

2 9        

Calculated value is higher than the tabulated value. Therefore alternate hypothesis is accepted.

There is significant difference between the performance of two banks i.e. SBI and ICICI.

4.1.6 TECHNICAL ANALYSIS

81

ICICI

5 YEAR CHART(13-04-06 TO 12-04-11)

SBI

ICICI

82

DOWN-TREND

UP-TREND

SIMPLE MOVING AVERAGE(150 DAYS)

SBI

83

ICICI BANK(13-04-2010 TO 12-04-2011)

SBI

SIMPLE MOVING AVRAGE(90 DAYS)

84

ICICI

SBI

85

FINDING OF STUDY

Du Pont Analysis

Return on Aseets of both banks are almost same which is around 0.01 but equity

multipler of SBI is higher as compared to ICICI. So, the return on equity of ICICI is

more.

Technical Analysis

The most popular method of interpreting a moving average is to compare the

relationship between a moving average of the security's price with the security's price

itself. A buy signal is generated when the security's price rises above its moving

average and a sell signal is generated when the security's price falls below its moving

average. In this case looking at charts it can be say that one can buy the stock because

price rise above its moving average in both the chart.

ANOVA Test

With the help of ANOVA test, alternate hypothesis is accepted i.e. there is significant

difference between the performance of both banks.

CAMEL analysis

With the help of Camel analysis, SBI outperforms the ICICI in the term of NPAs and

profitability but in managerial effeciency and capital adequacy, ICICI is better.

Year on year Growth

With the help of trend analysis it comes to know that total asset, advances and deposits

grown at higher rate of SBI as compared to ICICI.

86

Chapter-5

SUMMARY

AND

CONCLUSIONS

87

5.1 CONCLUSION

Indian Banking sector is in the growth phase and expects a higher growth rate. Banking stock

share gives a very higher return of 51% as compared to other industries and sensex. Indian

banking industry has lot of scope and due to emerging of new technology, its scope is also

increasing at a higher rate. Demand for new product and services are also increasing.

According to Indian Statistical Organization the per capita income (Rs.38000) is increasing

and national income at the rate of 14.4% and saving rate is also increased upto 32.3%.

The shares of both banks SBI and ICICI are worth for investment purposes. SBI gave higher

return as compared to ICICI in last 5 years. SBI fundamentals are very strong in terms of

deposit, advances and total assets but in capital adequacy ratio, ICICI is strong. Asset quality

of both banks is improved. Managerial level of ICICI is more strong and efficient to take

decisions and effective implementation.

Growth rate of net profit of ICICI is higher than SBI.

ICICI increased its scope of business by merging with Bank of Rajasthan. Technical analysis

of both share give the signal of buy/hold with the help of simple moving indicators method.

By analyzing the current trend of Indian Economy and Banking Industry we can say that being

a developing economy there is lot of scope for growth and this industry still have to cross

88

many levels so there is huge opportunities to invest in and this is proving as more and more

foreign Companies setting up there ventures in India.

5.2 RECOMMENDATION

By analyzing the industry on various parameters with the help of implementing

Fundamental and Technical tools we came to know that this industry has a lot of

potential to grow in future. So recommending to invest in Banking Industry have no

doubt is going to be a good and smart option because this industry is booming like

never before not only in India but all around the world. The returns which came out of

this industry were very impressive recently.

Both banks should try to improve its non-performing assets to improve its fundamental.

SBI should adopt new programmes and practices to improve its managerial efficiency

to compete with new private sector banks and foreign banks

To compete with other type of competitors mutual funds, banks should upgrade

themselves

RBI policies are great challenges for banking sector players. So, they should make its

policies in such a way that they fulfil all the regulations of RBI and make profit at the

same time.

89

5.3 LIMITATION OF STUDY

The scope of study was limited due to some constraints given below:-

Analysis is only means not an end. The analysis has been done on the basis of my own

interpretations and up to my best knowledge but every analyst have his or her own

interpretations and suggestions.

Time is the main constraint in this study.

The non-monetary factors are not taken into consideration for the analysis

No personal contacts with stakeholders of companies also a limitation for analyzing the

Project.

Error due to some oversight or misinterpretation.

90

5.4 SCOPE FOR FURTHER RESEARCH

Due to lack of time, I have used only three tools to study the fundamentals of banks. For

further research, various other useful tools like Z altman score can be used and equity

valuation can be done with fundamental analysis. For technical analysis, the other indicators

like momentum, relative strength index can be used.

91

BIBLIOGRAPHY

BOOKS

Kothari C. R., “Research Methodology”, Second Revised Edition, New Age

International Publisher

Rustagi R. P.,”Investment Analysis and Portfolio Management”, Sultan Chand

Publication, 2nd edition

92

WEB-SITES

http://www.nseindia.com/

http://www.sharekhan.com/

http://www.moneycontrol.com/

http://www.indiainfoline.com/

http://www.icicidirect.com/

http://economictimes.indiatimes.com/

93