Description
This is a presentation explains current situation of indian banking industry.
THE BANKING SECTOR
| Rahul | Milind | Jaipratap | Pulkit | Shweta | | Manoj | Ramprakash | Pranay | Atul |
Group-4
Dimensions of the sector
?
174 commercial banks in India (of which 91 RRBs)Operating
with 77773 branches (March 08)
? ?
Nearly 62% of branches are in rural/semi-urban areas Bulk of commercial bank finance is for short-term working
capital needs of industry, trade, agriculture & personal
segment
?
Banks are supporting growth in the economy by financing
productive sectors
?
The banking and financial sector currently employs 8.49 lakh individuals and this figure is expected to grow to 1.28 lakhs
approx. in next five years
Growth in Banking sector
Loans and Advances from scheduled commercial banks Rs.27,57,210 crores as on 05/06/2009 ? Deposits Rs.39,71,651 crores as on 5/06/2009 ? Cash-Deposit ratio 6.04 ? Investment deposit ratio 32.10 ? Credit deposit ratio 69.42 ? Deposit growth Rs.1,37,541 crores since March’09 ? Credit growth Rs.(18,339) crores since March’09 Profit after tax Rs.40,971 crore in 2007-08 with a growth of
?
39.17% as against 24.40 % in 2006-07
Growth in Banking sector
?
Aggregate Deposits in FY’09 is 21.2% against 25.1% in FY’08
? ?
Bank Credit in FY’09 is 24% against 21.4% in FY’08
Non-Food Credit in FY’09 is 23.9% against 22% in
FY’08
?
Flow of resources from Banks to commercial Sector in FY’09 is 23.4% against 21.7% in FY’08
Market share
Percentage Advances
Private Sector banks 26%
Public Sector banks 68% Foreign Banks 6%
Sectorial deployment of Gross Bank credit(Mar’08)
Percentage of credit
12.97 23.48
Agriculture and allied activities Industry
Services
24.31
39.24
Personal loans
Selected Financial indicators of Banking Sector
Industry-wise deployment of Gross Bank Credit(Mar’08)
Capital Investments required
?
Average Capital to risk weighted asset ratio for the Indian banking
system as at the end of march’08 was 12.6%
?
Under the current guidelines, banks are expected to have a capital to risk weighted asset ratio of 12 per cent. At the same time, they
are also expected to maintain a tier-I capital ratio of 6 per cent.
?
In the next five years Banking sector would require additional capital of Rs 5,68,744 crore is based on the assumption that banks would
maintain capital-to-risk-weighted assets ratio (CRAR) at 12 per
cent(Reserve Bank of India’s Report on Currency and Finance)
Capital Investments required
?
Public sector banks would require Rs 3,69,115 crore (64.9 per cent
of total requirements),
? ? ?
Old private sector banks Rs 23,319 crore (4.1 per cent), New private sector banks Rs 1,13,180 crore (19.9 per cent) And foreign banks Rs 63,131 crore (11.1 per cent).
Banking Services
?
Deposit Products: Savings Account, Current Account, Term Deposit schemes, Recurring Deposit Schemes etc.
?
Loan Facilities: Personal loans, Housing loans, Vehicle loans, Consumer loans, Farm Credit, Corporate loans, CC/OD etc.
?
Remittance facilities: Cheques, Drafts, RTGS/NEFT
etc.
?
Other facilities: Bank Guarantees, letter of credit etc.
Geographical reach
Number of bank branches(including offices) in India
?
? ? ? ?
Rural
Semi urban Urban Metropolitan
30977
17656 15245 13895
Number of branches increased in last 8 years i.e from
FY’2000 to FY’2008 are 9836
?
By March’08 there is 1 branch on every 15000 individuals
Regulatory permissions and their significance
?
?
? ? ?
Reserve bank of India is the chief regulatory body in India which ensures all the Banks follows the regulatory requirement for doing business in India Stipulation of capital requirements and strengthening of risk management processes to achieve and maintain financial stability Stable environment for market players Boosting investments Efficient allocation of resources
0% SBI 18% Others 47% ICICI Bank 9%
Bank of Standard HDFC Bank Baroda 5% Chartered 4% 2%
Canara Bank PNB 5% 6% Bank of India 5%
Market share of banks in India
Brand Value of Indian Banks in Global Market
Rank 70 Bank State Bank of India Brand Value
(US$ in mn)
Market Cap (US$ in mn) 9834
Brand Value/Market Cap 15%
1448
110 153
192 228 251 260 269 280 351
ICICI Bank HDFC Bank Punjab National Bank Bank of India Canara Bank Bank of Baroda Axis Bank Kotak Mahindra Bank
Union Bank of India
939 611
384 273 243 229 205 188 137
7893 7785
2853 2567 1363 1867 2935 2388 1466
12% 8%
13% 11% 18% 12% 7% 8% 9%
Source: BrandFinance Global Banking 500 Report, 2009
The methodology employed by Brand Finance in this Global Banking 500 listing uses a discounted cash flow (DCF) technique to discount estimated future royalties, at an appropriate discount rate, to arrive at a net present value (NPV) of the trademark and associated intellectual property: the brand value.
Indian Banking Scenario
PSU Banks State Bank of India Bank of India Central Bank of India Bank of India Punjab National Bank Private Banks ICICI Bank HDFC Bank Axis Bank Kotak Bank Rank among Indian Companies 13 92 134 135 136 Rank 98 124 190 226
Source: Brand equity survey, 2009
Brand Equity of Foreign Banks
Foreign Banks CitiBank Standard Chartered Bank HSBC American Express Bank ABN Amro Bank Rank 219 255 264 279 286
Although these foreign banks rank very high in world top 500 Brand Value, in India it is still very lowly ranked.
Inferences
?
?
?
?
Only 1 Indian Bank (SBI) in world’s top 100 banking brands while there are 3 Chinese banks in top 25 itself (Including rank 5). Combined Brand value of Indian Banks have declined while that of other BRIC countries including Russia increased over last year 2008-2009. Even in India, just SBI (13) is within top 50 companies w.r.t. Brand equity. Hence need to enhance the Brand Value of Indian banks both within India and outside to get more premiums on their services.
Challenges Ahead
?
?
?
Improving profitability: ? Increasing competition, narrowing of spreads. The challenge for banks is how to manage with thinning margins while at the same time working to improve productivity which remains low in relation to global standards. ? With falling spreads, rising provision for NPAs and falling interest rates, greater attention will need to be paid to reducing transaction costs. Reinforcing technology: ? Strategic and integral part of banking ? Implement systems that enable them to provide products and services in large volumes at a competitive cost with better risk management practices. Risk management: ? Credit Risk, Market Risk, Operational Risk, Country Risk
Challenges Ahead
?
?
?
?
Sharpening Skills ? Need for specialized Banking Functions(Retail, Treasury, Risk, Foreign Exchange, development banking and IT) Greater customer Orientation ? Strive and attract demanding customers, enhancing quality, innovative products, and market variety of products Corporate Governance ? Importance of institutional and individual shareholders will increase. Need a common code representing all the fractions International Standards ? Internationally followed best practices, universal codes of conduct is necessary. Full transparency in disclosures
Key Findings
?
General belief that valuation in Banking is slightly stretched. Material Risk still remains
? ?
Indian Banks outperformed regional and global peers .
Present Valuation factors in elevation level of
expectations.
?
Strong correlation between earnings volatility and valuation
Key Findings
?
Sharp Fall in Interest Rates can expend the Bank’s valuation
?
Negative impact on bonds seen more in public sector bank’s
balance sheet
?
RoE suffers more in case of public sector banks than the private sector bank.
?
PSU banks’ earnings are more sensitive due to relatively larger sized and longer-duration portfolios compared with private banks
Valuation of Banks
?
Key comparative Factors
Growth ? RoE ? Steady Earnings
?
?
Other Factors
New Product Introduction ? Consolidation ? Changes in Balance Sheet due to new regulation ? Changes in Legal environment ? Ownership limits ? Regulatory Impositions
?
Higher Growth and hence Higher Valuation
Valuation correlation with long term RoE
Future RoE outlooks for HDFC
Future RoE outlook for SBI
Relative Valuation of Banks
Relative Valuation of Banks
Earnings Volatility vs Valuation
Findings
?
PSU Banks continue to trade lower than private banks.
?
PSU earnings are more volatile due to bond losses/gains, tax refunds, wage agreement arrears.
?
PSU banks like Bank of Maharashtra, Dena
Bank, Syndicate Bank, UCO Bank and Vijaya
Bank need to be capitalised
Findings
?
PSU Banks more likely to face slower loan growth, margin pressures, increasing cost, rising credit cost and increasing capital requirements
?
Fundamentals overshot since the sector rides
out of the downturn.
?
Indian Banks performed much better than its regional and the global peers on a comparative note
Regional Comparison of Banks
Non-Bank Business Valuation
Annualized Premium Growth- Insurance
Positive Impact due to Insurance Amendment Bill tabled in Parliament which allows Insurance companies to list and hence unlock their value . Key beneficiary would include ICICI Bank, HDFC Bank, Kotak, SBI
Valuation of 5-6% of AUM is attributed to the Asset Management holdings of banks
Parameters in CMP
India’s Top 10 Banks- DNB
? ? ? ? ?
Bank of India - Overall Best Bank Bank of India - Best Public Sector Bank Axis Bank Ltd - Best Private Sector Bank Citibank - Best Foreign Bank
State Bank of India - Rural Reach
Breakup of a Financial Services Company
?
Front Office
? ?
Sales Personnel Corporate finance
?
Middle Office
?
Risk, research and IT services
?
Back Office
?
Administrative and support services
Outsourcing Scope
?
Support functions
? ? ? ? ?
HR Facilities Management Procurement Accounts Payable Accounts Receivable
?
?
Treasury
General Ledger
Outsourcing Scope
?
IT&ITES
? Software
Development and software maintenance
? Hardware
? Management
? Disaster
of data centres
recovery
? Maintenance ? Maintenance
of websites
and management of links at ATMs
Outsourcing Scope
?
IT&ITES (contd.)
? Call
centres, help desk support card processing and printing
? Credit
? Bill
printing, cheque processing and clearing
cash replenishment
? ATM
? Cheque ? Loan
box clearing and collection
servicing
Why Outsource IT&ITES
? ? ?
Hedging against technology obsolescence Access to best-of-breed software Freedom from specific IT operational responsibilities
? ?
Rapid IT deployment time-frame Reduce total cost of ownership and eventually focus on core banking business areas
Opportunities on hand
? ? ?
AMCs to Facilities Management Common ATM infrastructure Public Sector Banks
The flipside
? ? ?
Data Security risk Timely delivery and quality of service Qualities to look for in a service provider:
? Experience,
Expertise, Integrity, long-term
commitment to the industry
?
Sharing of same service provider
Mergers and Acquisition in Indian Banking Sector
?
?
?
?
With 27 public, 31 private and 29 foreign banks , a consolidation exercise is bound to happen in Indian Banking sector Shares as a risk mitigation and sharing exercise By 2010, Indian banking system needs a capital infusion of around $10 million. But consolidation enthusiasm doesn’t exists right now in Indian market
Mergers and Acquisition
?
?
?
SBI recently merged State Bank of Indore within itself Last year, it completed an acquisition of an Indonesian bank Bank of India expands its presence in Africa. Opens up branches in Kenya and is looking for an acquisition. Reports of SBI looking to buy a mid sized bank abroad, with a deal size between $1.5-2 billion
?
Major presence abroad in 27 countries
?
Reports of IDBI scouting for a bank has also emerged
INDIAN BANKS ABROAD
?
?
?
?
Bank of India is looking at buying out a local rival in Kenya State Bank of India acquired 76 % shares of IndoMonex (2006) , Mauritius bank ICICI Bank (NYSE:IBN) has acquired the entire paid-up capital of InvestitsionnoKreditny Bank (IKB), a Russian bank IDBI Bank has acquired a portfolio of over 2,500 merchant establishments from BNP Paribas, the French bank
INSURANCE related
?
?
?
?
From Bancassurance to insurance Bank-distribution model shaking Union Bank is a partner in Star Union Dai-ichi Life Insurance Bank of Baroda has tied up with Andhra Bank and Legal & General for an insurance venture
Brief financials
SBI ICICI HDFC Axis Corporation bank BoB BoI Canara
Sales
EBDIT PAT
63,788.43 31,092.55 16,332.27 10,835.48
15,499.20 9,124.18 5,738.55 3,740.62 3,928.87 2,240.75 3,081.73 1,823.56
6,067.35 15,091.58 16,347.36 17,119.06
1,436.52 802.19 3,730.20 4,429.42 2,227.25 3,007.35 3,963.77 2,072.42
CAR NIM
12.97 2.47%
15.53 2.14%
15.1 4.69%
13.69 2.86%
13.66 2.20%
12.88 0.03
13.01 2.74%
14.1 2.78%
EPS
143.71
33.62
52.68
50.79
55.93
61.14
57.26
50.55
BV/ share
P/E RATIO CMP
912.73
12.5 1748
445.17
23.3 754.00
344.44
29.3 1496
284.53
16.7 818
341.36
5.5 331
352.37
7.3 435
224.39
6.1 345
208.33
5.2 266
Indian banking sector set to open up
by 2009
?
?
?
March 2005 -2009 foreign banks that were so far restricted to branch operations could also set up wholly owned subsidiaries Foreign bank subsidiaries with a minimum capital requirement of Rs 3 bn would be allowed to carry out branch expansion Foreign banks cannot grow unrestrained; can buy only weak local banks the regulator identifies (with an investment of up to 74 per cent)
Important ratios
Ratios SBI ICICI HDFC AXIS CORPORATIO N BANK BANK OF BARODA BANK OF INDIA CANARA BANK
CreditDeposit(%)
75
95.9 66.6 68.9 39
67.77 32.66
72.78 27.96
75.47 27.79
69.4 32.06
Investment / 36.4 46.4 44.4 Deposit (%)
Other Income / Total Income 16.6 20.8 17.5 21.6 (%)
Operating Expenses / 20.5 19.3 28.9 20.8 Total Income (%) RONW (%) 17.1 7.83 16.9 19.1
15.44
15.58
15.73
13.98
13.97
20.14
15.95
17.49
19.57
18.65
29.18
19.08
Developmental and Regulatory framework
Financial Stability
?
Committee on Financial Sector Assessment (CFSA)
?
To constitute a task force with regard to G-20 working groups
?
To set up a Financial Stability unit in Reserve Bank
Interest Rate Policy
?
Benchmark Price Lending Rate (BPLR) Sytem Review
?
Payment of Interest on Savings Bank A/c on a daily product basis
Financial Markets: Money Market
? ? ? ? ?
Special Refinance Facility: Extension Special Term Repo Facility: Extension Export Credit Refinance: Extension Money Market Mutual Funds Interest Rate Futures
Financial Markets: Foreign Exchange
Market
? ?
Extension of Relaxation of all in cost ceilings Liberalization of the policy on buyback of FCCBs
? ?
Loans against Non-Resident Deposits Currency Futures
Credit Delivery Mechanism
? ?
Credit flow to the MSE Sector Rural Cooperative Banks
? ?
Licensing of Cooperatives Revival of Rural Co-operative Credit Structure Capital to Risk-weighted Assets Ratio Assistance to RRBs for adoption of ICT solutions Amalgamation Recapitalization Technology up gradation Kisan Credit Card Scheme and Rural Infrastructure Development Fund
?
Regional Rural Banks
? ? ? ? ?
?
Delivery of Credit to agriculture and other segments
?
?
Interest Subvention relief to farmers and Micro Finance
Prudential Measures
?
Further Relaxation in the Branch Authorization Policy
?
Mitigating Pro-cyclicality: Use of Floating
Precisions
?
Credit Rating Agencies
?
?
Liquidity Risk
Relaxing Eligibility Criteria for Banking
Correspondents
Institutional Developments
?
?
?
?
Final guidelines for Prepaid Payment Institution in India Consolidation of Information Technology System Adequacy of the feedback arrangements for managed IT Systems Recent Developments
? ? ?
Electronic Payment Systems National Electronic Clearing Service Rationalization of charges for payment systems
?
The Payment and Settlement Systems Act, 2007
THANK YOU
doc_432780586.pptx
This is a presentation explains current situation of indian banking industry.
THE BANKING SECTOR
| Rahul | Milind | Jaipratap | Pulkit | Shweta | | Manoj | Ramprakash | Pranay | Atul |
Group-4
Dimensions of the sector
?
174 commercial banks in India (of which 91 RRBs)Operating
with 77773 branches (March 08)
? ?
Nearly 62% of branches are in rural/semi-urban areas Bulk of commercial bank finance is for short-term working
capital needs of industry, trade, agriculture & personal
segment
?
Banks are supporting growth in the economy by financing
productive sectors
?
The banking and financial sector currently employs 8.49 lakh individuals and this figure is expected to grow to 1.28 lakhs
approx. in next five years
Growth in Banking sector
Loans and Advances from scheduled commercial banks Rs.27,57,210 crores as on 05/06/2009 ? Deposits Rs.39,71,651 crores as on 5/06/2009 ? Cash-Deposit ratio 6.04 ? Investment deposit ratio 32.10 ? Credit deposit ratio 69.42 ? Deposit growth Rs.1,37,541 crores since March’09 ? Credit growth Rs.(18,339) crores since March’09 Profit after tax Rs.40,971 crore in 2007-08 with a growth of
?
39.17% as against 24.40 % in 2006-07
Growth in Banking sector
?
Aggregate Deposits in FY’09 is 21.2% against 25.1% in FY’08
? ?
Bank Credit in FY’09 is 24% against 21.4% in FY’08
Non-Food Credit in FY’09 is 23.9% against 22% in
FY’08
?
Flow of resources from Banks to commercial Sector in FY’09 is 23.4% against 21.7% in FY’08
Market share
Percentage Advances
Private Sector banks 26%
Public Sector banks 68% Foreign Banks 6%
Sectorial deployment of Gross Bank credit(Mar’08)
Percentage of credit
12.97 23.48
Agriculture and allied activities Industry
Services
24.31
39.24
Personal loans
Selected Financial indicators of Banking Sector
Industry-wise deployment of Gross Bank Credit(Mar’08)
Capital Investments required
?
Average Capital to risk weighted asset ratio for the Indian banking
system as at the end of march’08 was 12.6%
?
Under the current guidelines, banks are expected to have a capital to risk weighted asset ratio of 12 per cent. At the same time, they
are also expected to maintain a tier-I capital ratio of 6 per cent.
?
In the next five years Banking sector would require additional capital of Rs 5,68,744 crore is based on the assumption that banks would
maintain capital-to-risk-weighted assets ratio (CRAR) at 12 per
cent(Reserve Bank of India’s Report on Currency and Finance)
Capital Investments required
?
Public sector banks would require Rs 3,69,115 crore (64.9 per cent
of total requirements),
? ? ?
Old private sector banks Rs 23,319 crore (4.1 per cent), New private sector banks Rs 1,13,180 crore (19.9 per cent) And foreign banks Rs 63,131 crore (11.1 per cent).
Banking Services
?
Deposit Products: Savings Account, Current Account, Term Deposit schemes, Recurring Deposit Schemes etc.
?
Loan Facilities: Personal loans, Housing loans, Vehicle loans, Consumer loans, Farm Credit, Corporate loans, CC/OD etc.
?
Remittance facilities: Cheques, Drafts, RTGS/NEFT
etc.
?
Other facilities: Bank Guarantees, letter of credit etc.
Geographical reach
Number of bank branches(including offices) in India
?
? ? ? ?
Rural
Semi urban Urban Metropolitan
30977
17656 15245 13895
Number of branches increased in last 8 years i.e from
FY’2000 to FY’2008 are 9836
?
By March’08 there is 1 branch on every 15000 individuals
Regulatory permissions and their significance
?
?
? ? ?
Reserve bank of India is the chief regulatory body in India which ensures all the Banks follows the regulatory requirement for doing business in India Stipulation of capital requirements and strengthening of risk management processes to achieve and maintain financial stability Stable environment for market players Boosting investments Efficient allocation of resources
0% SBI 18% Others 47% ICICI Bank 9%
Bank of Standard HDFC Bank Baroda 5% Chartered 4% 2%
Canara Bank PNB 5% 6% Bank of India 5%
Market share of banks in India
Brand Value of Indian Banks in Global Market
Rank 70 Bank State Bank of India Brand Value
(US$ in mn)
Market Cap (US$ in mn) 9834
Brand Value/Market Cap 15%
1448
110 153
192 228 251 260 269 280 351
ICICI Bank HDFC Bank Punjab National Bank Bank of India Canara Bank Bank of Baroda Axis Bank Kotak Mahindra Bank
Union Bank of India
939 611
384 273 243 229 205 188 137
7893 7785
2853 2567 1363 1867 2935 2388 1466
12% 8%
13% 11% 18% 12% 7% 8% 9%
Source: BrandFinance Global Banking 500 Report, 2009
The methodology employed by Brand Finance in this Global Banking 500 listing uses a discounted cash flow (DCF) technique to discount estimated future royalties, at an appropriate discount rate, to arrive at a net present value (NPV) of the trademark and associated intellectual property: the brand value.
Indian Banking Scenario
PSU Banks State Bank of India Bank of India Central Bank of India Bank of India Punjab National Bank Private Banks ICICI Bank HDFC Bank Axis Bank Kotak Bank Rank among Indian Companies 13 92 134 135 136 Rank 98 124 190 226
Source: Brand equity survey, 2009
Brand Equity of Foreign Banks
Foreign Banks CitiBank Standard Chartered Bank HSBC American Express Bank ABN Amro Bank Rank 219 255 264 279 286
Although these foreign banks rank very high in world top 500 Brand Value, in India it is still very lowly ranked.
Inferences
?
?
?
?
Only 1 Indian Bank (SBI) in world’s top 100 banking brands while there are 3 Chinese banks in top 25 itself (Including rank 5). Combined Brand value of Indian Banks have declined while that of other BRIC countries including Russia increased over last year 2008-2009. Even in India, just SBI (13) is within top 50 companies w.r.t. Brand equity. Hence need to enhance the Brand Value of Indian banks both within India and outside to get more premiums on their services.
Challenges Ahead
?
?
?
Improving profitability: ? Increasing competition, narrowing of spreads. The challenge for banks is how to manage with thinning margins while at the same time working to improve productivity which remains low in relation to global standards. ? With falling spreads, rising provision for NPAs and falling interest rates, greater attention will need to be paid to reducing transaction costs. Reinforcing technology: ? Strategic and integral part of banking ? Implement systems that enable them to provide products and services in large volumes at a competitive cost with better risk management practices. Risk management: ? Credit Risk, Market Risk, Operational Risk, Country Risk
Challenges Ahead
?
?
?
?
Sharpening Skills ? Need for specialized Banking Functions(Retail, Treasury, Risk, Foreign Exchange, development banking and IT) Greater customer Orientation ? Strive and attract demanding customers, enhancing quality, innovative products, and market variety of products Corporate Governance ? Importance of institutional and individual shareholders will increase. Need a common code representing all the fractions International Standards ? Internationally followed best practices, universal codes of conduct is necessary. Full transparency in disclosures
Key Findings
?
General belief that valuation in Banking is slightly stretched. Material Risk still remains
? ?
Indian Banks outperformed regional and global peers .
Present Valuation factors in elevation level of
expectations.
?
Strong correlation between earnings volatility and valuation
Key Findings
?
Sharp Fall in Interest Rates can expend the Bank’s valuation
?
Negative impact on bonds seen more in public sector bank’s
balance sheet
?
RoE suffers more in case of public sector banks than the private sector bank.
?
PSU banks’ earnings are more sensitive due to relatively larger sized and longer-duration portfolios compared with private banks
Valuation of Banks
?
Key comparative Factors
Growth ? RoE ? Steady Earnings
?
?
Other Factors
New Product Introduction ? Consolidation ? Changes in Balance Sheet due to new regulation ? Changes in Legal environment ? Ownership limits ? Regulatory Impositions
?
Higher Growth and hence Higher Valuation
Valuation correlation with long term RoE
Future RoE outlooks for HDFC
Future RoE outlook for SBI
Relative Valuation of Banks
Relative Valuation of Banks
Earnings Volatility vs Valuation
Findings
?
PSU Banks continue to trade lower than private banks.
?
PSU earnings are more volatile due to bond losses/gains, tax refunds, wage agreement arrears.
?
PSU banks like Bank of Maharashtra, Dena
Bank, Syndicate Bank, UCO Bank and Vijaya
Bank need to be capitalised
Findings
?
PSU Banks more likely to face slower loan growth, margin pressures, increasing cost, rising credit cost and increasing capital requirements
?
Fundamentals overshot since the sector rides
out of the downturn.
?
Indian Banks performed much better than its regional and the global peers on a comparative note
Regional Comparison of Banks
Non-Bank Business Valuation
Annualized Premium Growth- Insurance
Positive Impact due to Insurance Amendment Bill tabled in Parliament which allows Insurance companies to list and hence unlock their value . Key beneficiary would include ICICI Bank, HDFC Bank, Kotak, SBI
Valuation of 5-6% of AUM is attributed to the Asset Management holdings of banks
Parameters in CMP
India’s Top 10 Banks- DNB
? ? ? ? ?
Bank of India - Overall Best Bank Bank of India - Best Public Sector Bank Axis Bank Ltd - Best Private Sector Bank Citibank - Best Foreign Bank
State Bank of India - Rural Reach
Breakup of a Financial Services Company
?
Front Office
? ?
Sales Personnel Corporate finance
?
Middle Office
?
Risk, research and IT services
?
Back Office
?
Administrative and support services
Outsourcing Scope
?
Support functions
? ? ? ? ?
HR Facilities Management Procurement Accounts Payable Accounts Receivable
?
?
Treasury
General Ledger
Outsourcing Scope
?
IT&ITES
? Software
Development and software maintenance
? Hardware
? Management
? Disaster
of data centres
recovery
? Maintenance ? Maintenance
of websites
and management of links at ATMs
Outsourcing Scope
?
IT&ITES (contd.)
? Call
centres, help desk support card processing and printing
? Credit
? Bill
printing, cheque processing and clearing
cash replenishment
? ATM
? Cheque ? Loan
box clearing and collection
servicing
Why Outsource IT&ITES
? ? ?
Hedging against technology obsolescence Access to best-of-breed software Freedom from specific IT operational responsibilities
? ?
Rapid IT deployment time-frame Reduce total cost of ownership and eventually focus on core banking business areas
Opportunities on hand
? ? ?
AMCs to Facilities Management Common ATM infrastructure Public Sector Banks
The flipside
? ? ?
Data Security risk Timely delivery and quality of service Qualities to look for in a service provider:
? Experience,
Expertise, Integrity, long-term
commitment to the industry
?
Sharing of same service provider
Mergers and Acquisition in Indian Banking Sector
?
?
?
?
With 27 public, 31 private and 29 foreign banks , a consolidation exercise is bound to happen in Indian Banking sector Shares as a risk mitigation and sharing exercise By 2010, Indian banking system needs a capital infusion of around $10 million. But consolidation enthusiasm doesn’t exists right now in Indian market
Mergers and Acquisition
?
?
?
SBI recently merged State Bank of Indore within itself Last year, it completed an acquisition of an Indonesian bank Bank of India expands its presence in Africa. Opens up branches in Kenya and is looking for an acquisition. Reports of SBI looking to buy a mid sized bank abroad, with a deal size between $1.5-2 billion
?
Major presence abroad in 27 countries
?
Reports of IDBI scouting for a bank has also emerged
INDIAN BANKS ABROAD
?
?
?
?
Bank of India is looking at buying out a local rival in Kenya State Bank of India acquired 76 % shares of IndoMonex (2006) , Mauritius bank ICICI Bank (NYSE:IBN) has acquired the entire paid-up capital of InvestitsionnoKreditny Bank (IKB), a Russian bank IDBI Bank has acquired a portfolio of over 2,500 merchant establishments from BNP Paribas, the French bank
INSURANCE related
?
?
?
?
From Bancassurance to insurance Bank-distribution model shaking Union Bank is a partner in Star Union Dai-ichi Life Insurance Bank of Baroda has tied up with Andhra Bank and Legal & General for an insurance venture
Brief financials
SBI ICICI HDFC Axis Corporation bank BoB BoI Canara
Sales
EBDIT PAT
63,788.43 31,092.55 16,332.27 10,835.48
15,499.20 9,124.18 5,738.55 3,740.62 3,928.87 2,240.75 3,081.73 1,823.56
6,067.35 15,091.58 16,347.36 17,119.06
1,436.52 802.19 3,730.20 4,429.42 2,227.25 3,007.35 3,963.77 2,072.42
CAR NIM
12.97 2.47%
15.53 2.14%
15.1 4.69%
13.69 2.86%
13.66 2.20%
12.88 0.03
13.01 2.74%
14.1 2.78%
EPS
143.71
33.62
52.68
50.79
55.93
61.14
57.26
50.55
BV/ share
P/E RATIO CMP
912.73
12.5 1748
445.17
23.3 754.00
344.44
29.3 1496
284.53
16.7 818
341.36
5.5 331
352.37
7.3 435
224.39
6.1 345
208.33
5.2 266
Indian banking sector set to open up
by 2009
?
?
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March 2005 -2009 foreign banks that were so far restricted to branch operations could also set up wholly owned subsidiaries Foreign bank subsidiaries with a minimum capital requirement of Rs 3 bn would be allowed to carry out branch expansion Foreign banks cannot grow unrestrained; can buy only weak local banks the regulator identifies (with an investment of up to 74 per cent)
Important ratios
Ratios SBI ICICI HDFC AXIS CORPORATIO N BANK BANK OF BARODA BANK OF INDIA CANARA BANK
CreditDeposit(%)
75
95.9 66.6 68.9 39
67.77 32.66
72.78 27.96
75.47 27.79
69.4 32.06
Investment / 36.4 46.4 44.4 Deposit (%)
Other Income / Total Income 16.6 20.8 17.5 21.6 (%)
Operating Expenses / 20.5 19.3 28.9 20.8 Total Income (%) RONW (%) 17.1 7.83 16.9 19.1
15.44
15.58
15.73
13.98
13.97
20.14
15.95
17.49
19.57
18.65
29.18
19.08
Developmental and Regulatory framework
Financial Stability
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Committee on Financial Sector Assessment (CFSA)
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To constitute a task force with regard to G-20 working groups
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To set up a Financial Stability unit in Reserve Bank
Interest Rate Policy
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Benchmark Price Lending Rate (BPLR) Sytem Review
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Payment of Interest on Savings Bank A/c on a daily product basis
Financial Markets: Money Market
? ? ? ? ?
Special Refinance Facility: Extension Special Term Repo Facility: Extension Export Credit Refinance: Extension Money Market Mutual Funds Interest Rate Futures
Financial Markets: Foreign Exchange
Market
? ?
Extension of Relaxation of all in cost ceilings Liberalization of the policy on buyback of FCCBs
? ?
Loans against Non-Resident Deposits Currency Futures
Credit Delivery Mechanism
? ?
Credit flow to the MSE Sector Rural Cooperative Banks
? ?
Licensing of Cooperatives Revival of Rural Co-operative Credit Structure Capital to Risk-weighted Assets Ratio Assistance to RRBs for adoption of ICT solutions Amalgamation Recapitalization Technology up gradation Kisan Credit Card Scheme and Rural Infrastructure Development Fund
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Regional Rural Banks
? ? ? ? ?
?
Delivery of Credit to agriculture and other segments
?
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Interest Subvention relief to farmers and Micro Finance
Prudential Measures
?
Further Relaxation in the Branch Authorization Policy
?
Mitigating Pro-cyclicality: Use of Floating
Precisions
?
Credit Rating Agencies
?
?
Liquidity Risk
Relaxing Eligibility Criteria for Banking
Correspondents
Institutional Developments
?
?
?
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Final guidelines for Prepaid Payment Institution in India Consolidation of Information Technology System Adequacy of the feedback arrangements for managed IT Systems Recent Developments
? ? ?
Electronic Payment Systems National Electronic Clearing Service Rationalization of charges for payment systems
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The Payment and Settlement Systems Act, 2007
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