Description
Describes the current scenario of banking sector in India and challenges faced by banking sector, compares bank by market cap and financials, provides ratio analysis of bank nifty, State bank of india SWOT analysis.
Global Scenario
• “Does a strong financial sector lead to a strong economy or does a strong economy lead to a strong financial sector?” • Accelerating shift in economic power from developed to emerging economies • Global turmoil – US crisis, EU soverign debt crisis • Downgrading by credit rating agencies • Inflation concerns in Asian countries and emerging economies
Indian Scenario
• • • • • • • • Strong banking regulator RBI Entry of foreign banks (e.g. ICBC) Licences to NBFCs & private firms Capital crunch in PSUs – SBI, Vijaya Bank Fast changing regulations Inflation concerns and high interest rates Increased NPAs – 13% to 69% Financial Inclusion
Brief History & Developments
• Banking industry quite old in India – started with the Presidency banks of Bengal, Madras, and Bombay • Formation of the RBI – RBI Act 1934 • Banking Regulations Act, 1949 • Nationalisation of banks on 14 July, 1969 • 1970 to 1980 - Rapid expansion of banking branches • 1994 & 1995 - Entry of Private Sector Banks – HDFC, ICICI, Axis bank • Late 1990s – Opposing of using Computers in PSBs by Trade Unions ( using the ALMs)
Brief History & Developments
• Late Entrants – Yes Bank(2004) • 2001 – 2004 – Irregularities in GTB & GTB taken over by OBC • Early 2000s – Core Banking Solutions in Banks, Development of e-Banking • New HR policies in banks – VRS, • Increased mergers and acquisitions in Indian Corporates across the globe • Importance to Financial Inclusion • RBI as regulator for Microfinance institutions also
Business Cycle
• Matches with the state of the economy
Types of Banks in India
• • • • • PSU Banks – market share – 70% to 75% PSB - commercial & scheduled e.g. SBI, BOI PSB - co-operative & non-scheduled Private Banks - commercial & scheduled Private Banks - co-operative - scheduled – e.g. Saraswat Co-operative Bank - non-scheduled – Local co-operative banks • Regional Rural Banks & Grameen Banks • Foreign Banks - e.g. Bank of Nova Scotia
Regulations
• Till FEMA – no foreign companies can set up banks as representative offices
PSU Banks – By Market Cap
As on 24th November 2011
Bank Name
State Bank of India Punjab National Bank Bank of Baroda Canara Bank Bank of India Union Bank IDBI Bank
Market Capitalization (Rs Cr.)
104,981 27,946 26,980 19,270 18,810 13,542 9,152
Private Banks – By Market Cap
As on 24th November 2011
Bank Name
HDFC Bank ICICI Bank Axis Bank Kotak Mahindra Bank Indusind Bank
Market Capitalization (Rs Cr.)
100,535 84,133 39,483 32,714 11,932
YES Bank
Federal Bank
9,708
6,050
On 16th November 2011, HDFC Bank overtook SBI in market capitalization
Indian Banks – By Financials
Bank Revenues (Cr) Large Banks 96,590 24,393 32,376 19,695 30,449 24,686 Promising Small Banks 4,672 PAT Revenue PAT Growth Growth Rate (%) Rate (%) 11.1 22.1 (2.0) 26.2 21.9 24.1 59.4 (9.8) 11.8 28.0 34.8 13.5 38.6 52.1
State Bank of India HDFC Bank ICICI Bank Axis Bank Punjab National Bank Bank of Baroda Yes Bank
8,264 3,296 5,151 3,389 4,433 4,241 727
P/E & P/B Ratio Analysis of Bank Nifty
• Bank Nifty – Good Representative of Indian Banking Sector
Constituents
SBI HDFC Bank ICICI Bank Axis Bank Kotak Mahindra Bank PNB BOB Canara Bank Bank Of India Union Bank IndusInd Bank IDBI Bank
Weightage
21.44 20.51 17.18 8.06 6.67 5.72 5.50 3.97 3.86 2.78 2.43 1.88
• •
Historical Average P/E Ratio of Bank Nifty – 11.8 Historical Price/Book Value – 1.91
P/E Ratio Analysis of Bank Nifty
30
Current P/E 13.31
25
20
15
P/E PE Average
10
5
0
P/B Ratio Analysis of Bank Nifty
6
Current P/B 1.94
5
4
3
P/B P/B Average
2
1
0
State Bank of India – SWOT Analysis
Strengths
* Strong Domestic Position * Merger with Associate Banks would strengthen leadership position * Strong Capital Position
Weaknesses
* Reduction is Asset Quality * Susceptible to Political Intervention
SBI
Opportunities
* Investment will reduce transaction costs * New business initiatives will expand market share
Threats
* Competitions from existing PSU and private banks
SBI - Analysis
PARTICULARS Total Income Net Profit EPS (in Rs) Book Value (in Rs) Mar-11 Mar-10 Mar-09 Mar-08 Mar-07 Mar-06 Mar-05 Mar-04 Mar-03 Mar-02 97276.24 86960.52 76482.74 58437.42 44671.37 43278.22 39582.03 38141.14 37582.79 34087.84 8264.519 9166.053 9121.227 6729.125 4541.307 4406.672 4304.517 130.1501 144.374 143.6685 106.5628 86.2876 83.7294 81.7885 3681 69.9412 3105 58.9969 2431.618 46.2022
1023.404 1038.762 912.7343 776.4839 594.6917 525.2545 457.3853 384.4066 326.8748 289.2725
100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0 Total Income Net Profit
SBI Growth Rates
35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 1.5 3.8 13.7 10.3 9.3 3.2 11.9 30 20 10 2.4 0 -10 27.7 18.6 16.9 30.8 30.9 50 40 48.2
35.5
3.1
0.5
-9.8
Revenue – Growth Rates
PAT – Growth Rates
SBI Vs Yes Bank - Growth Rates
120.0 100.0 80.0 59.9 60.0 40.0 20.0 0.0 Mar-08 Mar-09 Mar-10 Mar-11 -20 30.8 47.7 111.3 120 100 80 60 40 19.9 13.7 11.9 20 0 Mar-08 Mar-09 Mar-10 Mar-11 -9.8 48.2 52 35.5 57 52 112
30.9
0.5
Revenue
Net Profits
Current Challenges for the sector
• IFRS Reporting challenges: To five challenges in this regard are as follows: • Loan/Investment impairment • Required use of fair value for more financial instruments • Derivatives and hedge accounting • De recognition of financial assests • Consolidation of entities
Current Challenges for the sector
• Strong growth in infrastructure credit drives credit growth in 2010-11; pace of deposit growth slows • Large government borrowings may allow for just 17-18% credit growth in 2011-12 • On asset quality, PSBs report some deterioration while private banks show improvement • Asset quality related challenges ahead • Spill-over from restructuring window not over yet
Current Challenges for the sector
• Exposure to State utilities remains an area of concern • Credit loss from exposure to micro lending institutions in AP likely • Gross NPA percentage could rise to 2.3-2.7% by end-year 2011-12 • Comfortable capitalisation against current norms • Comfortable capitalisation against current norms
Current Challenges for the sector
• Unamortised pension/gratuity liability could lower Tier I of PSBs (excluding SBI) by30-35 bps • Some banks may require capital to meet Basel III norms • Interest rate sensitivity may rise; ability to pass on increase in cost of funds to influence trend in NIMs • Operating expenses may remain at an elevated level in the short term • Credit costs may decline from 2010-11 levels
Trends In Banking Sector
• • • • • Intensified competition Greater emphasis on service and technology Fee based income Greater emphasis on service and technology Questionable if sizeable treasury gains can be made
Thanks
doc_455618606.pptx
Describes the current scenario of banking sector in India and challenges faced by banking sector, compares bank by market cap and financials, provides ratio analysis of bank nifty, State bank of india SWOT analysis.
Global Scenario
• “Does a strong financial sector lead to a strong economy or does a strong economy lead to a strong financial sector?” • Accelerating shift in economic power from developed to emerging economies • Global turmoil – US crisis, EU soverign debt crisis • Downgrading by credit rating agencies • Inflation concerns in Asian countries and emerging economies
Indian Scenario
• • • • • • • • Strong banking regulator RBI Entry of foreign banks (e.g. ICBC) Licences to NBFCs & private firms Capital crunch in PSUs – SBI, Vijaya Bank Fast changing regulations Inflation concerns and high interest rates Increased NPAs – 13% to 69% Financial Inclusion
Brief History & Developments
• Banking industry quite old in India – started with the Presidency banks of Bengal, Madras, and Bombay • Formation of the RBI – RBI Act 1934 • Banking Regulations Act, 1949 • Nationalisation of banks on 14 July, 1969 • 1970 to 1980 - Rapid expansion of banking branches • 1994 & 1995 - Entry of Private Sector Banks – HDFC, ICICI, Axis bank • Late 1990s – Opposing of using Computers in PSBs by Trade Unions ( using the ALMs)
Brief History & Developments
• Late Entrants – Yes Bank(2004) • 2001 – 2004 – Irregularities in GTB & GTB taken over by OBC • Early 2000s – Core Banking Solutions in Banks, Development of e-Banking • New HR policies in banks – VRS, • Increased mergers and acquisitions in Indian Corporates across the globe • Importance to Financial Inclusion • RBI as regulator for Microfinance institutions also
Business Cycle
• Matches with the state of the economy
Types of Banks in India
• • • • • PSU Banks – market share – 70% to 75% PSB - commercial & scheduled e.g. SBI, BOI PSB - co-operative & non-scheduled Private Banks - commercial & scheduled Private Banks - co-operative - scheduled – e.g. Saraswat Co-operative Bank - non-scheduled – Local co-operative banks • Regional Rural Banks & Grameen Banks • Foreign Banks - e.g. Bank of Nova Scotia
Regulations
• Till FEMA – no foreign companies can set up banks as representative offices
PSU Banks – By Market Cap
As on 24th November 2011
Bank Name
State Bank of India Punjab National Bank Bank of Baroda Canara Bank Bank of India Union Bank IDBI Bank
Market Capitalization (Rs Cr.)
104,981 27,946 26,980 19,270 18,810 13,542 9,152
Private Banks – By Market Cap
As on 24th November 2011
Bank Name
HDFC Bank ICICI Bank Axis Bank Kotak Mahindra Bank Indusind Bank
Market Capitalization (Rs Cr.)
100,535 84,133 39,483 32,714 11,932
YES Bank
Federal Bank
9,708
6,050
On 16th November 2011, HDFC Bank overtook SBI in market capitalization
Indian Banks – By Financials
Bank Revenues (Cr) Large Banks 96,590 24,393 32,376 19,695 30,449 24,686 Promising Small Banks 4,672 PAT Revenue PAT Growth Growth Rate (%) Rate (%) 11.1 22.1 (2.0) 26.2 21.9 24.1 59.4 (9.8) 11.8 28.0 34.8 13.5 38.6 52.1
State Bank of India HDFC Bank ICICI Bank Axis Bank Punjab National Bank Bank of Baroda Yes Bank
8,264 3,296 5,151 3,389 4,433 4,241 727
P/E & P/B Ratio Analysis of Bank Nifty
• Bank Nifty – Good Representative of Indian Banking Sector
Constituents
SBI HDFC Bank ICICI Bank Axis Bank Kotak Mahindra Bank PNB BOB Canara Bank Bank Of India Union Bank IndusInd Bank IDBI Bank
Weightage
21.44 20.51 17.18 8.06 6.67 5.72 5.50 3.97 3.86 2.78 2.43 1.88
• •
Historical Average P/E Ratio of Bank Nifty – 11.8 Historical Price/Book Value – 1.91
P/E Ratio Analysis of Bank Nifty
30
Current P/E 13.31
25
20
15
P/E PE Average
10
5
0
P/B Ratio Analysis of Bank Nifty
6
Current P/B 1.94
5
4
3
P/B P/B Average
2
1
0
State Bank of India – SWOT Analysis
Strengths
* Strong Domestic Position * Merger with Associate Banks would strengthen leadership position * Strong Capital Position
Weaknesses
* Reduction is Asset Quality * Susceptible to Political Intervention
SBI
Opportunities
* Investment will reduce transaction costs * New business initiatives will expand market share
Threats
* Competitions from existing PSU and private banks
SBI - Analysis
PARTICULARS Total Income Net Profit EPS (in Rs) Book Value (in Rs) Mar-11 Mar-10 Mar-09 Mar-08 Mar-07 Mar-06 Mar-05 Mar-04 Mar-03 Mar-02 97276.24 86960.52 76482.74 58437.42 44671.37 43278.22 39582.03 38141.14 37582.79 34087.84 8264.519 9166.053 9121.227 6729.125 4541.307 4406.672 4304.517 130.1501 144.374 143.6685 106.5628 86.2876 83.7294 81.7885 3681 69.9412 3105 58.9969 2431.618 46.2022
1023.404 1038.762 912.7343 776.4839 594.6917 525.2545 457.3853 384.4066 326.8748 289.2725
100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0 Total Income Net Profit
SBI Growth Rates
35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 1.5 3.8 13.7 10.3 9.3 3.2 11.9 30 20 10 2.4 0 -10 27.7 18.6 16.9 30.8 30.9 50 40 48.2
35.5
3.1
0.5
-9.8
Revenue – Growth Rates
PAT – Growth Rates
SBI Vs Yes Bank - Growth Rates
120.0 100.0 80.0 59.9 60.0 40.0 20.0 0.0 Mar-08 Mar-09 Mar-10 Mar-11 -20 30.8 47.7 111.3 120 100 80 60 40 19.9 13.7 11.9 20 0 Mar-08 Mar-09 Mar-10 Mar-11 -9.8 48.2 52 35.5 57 52 112
30.9
0.5
Revenue
Net Profits
Current Challenges for the sector
• IFRS Reporting challenges: To five challenges in this regard are as follows: • Loan/Investment impairment • Required use of fair value for more financial instruments • Derivatives and hedge accounting • De recognition of financial assests • Consolidation of entities
Current Challenges for the sector
• Strong growth in infrastructure credit drives credit growth in 2010-11; pace of deposit growth slows • Large government borrowings may allow for just 17-18% credit growth in 2011-12 • On asset quality, PSBs report some deterioration while private banks show improvement • Asset quality related challenges ahead • Spill-over from restructuring window not over yet
Current Challenges for the sector
• Exposure to State utilities remains an area of concern • Credit loss from exposure to micro lending institutions in AP likely • Gross NPA percentage could rise to 2.3-2.7% by end-year 2011-12 • Comfortable capitalisation against current norms • Comfortable capitalisation against current norms
Current Challenges for the sector
• Unamortised pension/gratuity liability could lower Tier I of PSBs (excluding SBI) by30-35 bps • Some banks may require capital to meet Basel III norms • Interest rate sensitivity may rise; ability to pass on increase in cost of funds to influence trend in NIMs • Operating expenses may remain at an elevated level in the short term • Credit costs may decline from 2010-11 levels
Trends In Banking Sector
• • • • • Intensified competition Greater emphasis on service and technology Fee based income Greater emphasis on service and technology Questionable if sizeable treasury gains can be made
Thanks
doc_455618606.pptx