Description
It explains the Industry Trends of banking industry, PEST Analysis of banking Industry, Competitor Analysis of ICICI bank, SWOT analysis of banking industry, Company Description, General Information about the ICICI bank, it's Finance performance, SWOT analysis of ICICI bank and Various Strategies employed.
Banking Industry Analysis: The Indian banking industry witnessed healthy business growth in FY11 on the back of robust economic environment and demand for credit. Profitability as well as asset quality among Scheduled Commercial Banks improved while their capital adequacy ratio remained well above the stipulated levels. However, the environment for the banking industry in FY12 and first half of FY13 is expected to be difficult owing to the prevailing uncertainties in the global and domestic economy. Nevertheless, banks are expected to leverage on the emerging opportunities such as financial inclusion and infrastructure financing to grow in the coming years. Some key regulatory developments in the Indian Banking sector during fiscal 2012 include: - In May 2011, RBI increased the interest rate on savings deposits by 50 basis points from 3.5% to 4.0%. - Further, in October 2011, interest rates on savings accounts were deregulated with a uniform interest rate to be paid on deposits up to ` 100,000 and differential rates permitted for deposits of over ` 100,000 depending on the amount. - RBI enhanced the rates of provisioning for non-performing loans in May 2011. Accordingly, the provision for restructured non-performing advances when upgraded to standard assets was increased to 2.0% in the first year of up gradation from the earlier level of 0.25-1.0%. For the secured portion of assets classified as doubtful, 25.0% provision was required to be made for assets that were classified as doubtful for a year (earlier at 20%), 40.0% for assets that were classified as doubtful for one to three years (earlier at 30%) and 100.0% for assets classified as doubtful for more than three years. Further, for sub-standard assets, a provision of 15.0% of the total outstanding was required with effect from May 2011. This was an increase over the earlier requirement of 10.0%. Unsecured exposures, which were identified as substandard, attract an additional provision of 10.0%, i.e., a total of 25.0% on the outstanding balance. - In May 2011, the report of the working group to draw up a roadmap for the introduction of holding company structure was released with key recommendations favoring the financial holding company structure for the financial sector, particularly large financial groups, with a separate regulatory framework for these holding companies. - In August 2011, RBI released draft guidelines for licensing of new banks in the private sector. The minimum capital requirement prescribed is ` 5.00 billion. - In October 2011, branch opening in tier 2 centers (centers with population of 50,000 to 99,999 as per census 2001) was exempted from prior approval of RBI. - The all-in cost ceiling (over 6 month LIBOR) on external commercial borrowings of three years to five years maturity was raised from 300 basis points to 350 basis points in November 2011. The all-in cost ceiling (over 6 month LIBOR) for five years and above maturity was kept unchanged at 500 basis points. Further, the all-in-cost ceiling (over 6 month LIBOR) for trade credit was enhanced from 200 basis points to 350 basis points. - In November 2011, RBI issued prudential guidelines for single name credit default swaps on corporate bonds. Banks were allowed to undertake such transactions, both as market makers as well as users.
- In November 2011, RBI announced guidelines permitting the setting up of Infrastructure Debt Funds (IDF) structured as non-banking finance companies (NBFC). Guidelines for banks sponsoring IDF-NBFC include cap on equity holding of 49.0% of the IDF-NBFC, and investment not exceeding 10% of the bank‘s paid up capital and reserves. - In December 2011, RBI announced the deregulation of interest rates on non-resident (external) rupee deposits and ordinary non-resident accounts, thus permitting banks to determine the interest rate on savings and term deposits of maturity of one year and above. - RBI issued guidelines on investments in subsidiaries and other companies, including investments in non-financial services companies in December 2011. According to the guidelines, equity investments by a bank in a subsidiary company or other financial services company cannot exceed 10% of the bank‘s paid-up share capital and reserves. Equity investment by banks in non-financial services companies was capped at 10.0% of the investee company‘s paid-up share capital. Equity investments in non-financial services companies at the group level, including investments by the bank‘s subsidiaries, cannot exceed 20% of the investee company‘s paid-up share capital. Also, overall equity investments by a bank, including investments in its subsidiaries and other companies, cannot exceed 20.0% of the bank‘s paid-up share capital and reserves. - In December 2011, draft guidelines for implementing the Basel III capital regulations were announced by RBI. Further, in May 2012, final guidelines were issued as per which Indian banks would have to maintain a minimum common equity tier I capital of 5.5%, a minimum tier 1 capital ratio of 7.0% of risk weighted assets, a capital conservation buffer of 2.5% comprising only common equity capital and a minimum overall capital adequacy ratio of 9.0%. The Basel III regulations would be implemented in phases beginning from January 2013 and would be fully implemented by March 31, 2018. - In December 2011, RBI issued guidelines on the internal ratings based approach for calculation of capital charge for credit risks. Banks intending to migrate to the Advanced Measurement Approach for operational risk and internal ratings based approaches for credit risk are required to apply to RBI after April 1, 2012. - Microfinance institutions (MFIs) were brought under the regulatory ambit of RBI. Also, RBI decided to give priority sector status to bank credit to MFIs extended on or after April 1, 2011 for on-lending for specified purposes. In other related announcements, in December 2011, RBI decided to provide NBFC status to MFIs by allowing a new category of NBFC-MFIs having a minimum net worth of ` 50.0 million, a minimum capital adequacy ratio of 15.0% of risk weighted assets and with interest on individual loans capped at 25.0% per annum with an aggregate margin cap of 12.0%. Also, MFIs were allowed to raise external commercial borrowings of up to US$ 10 million. - In February 2012, RBI released a draft report of the committee set up to review the extant classification and guidelines pertaining to priority sector lending. The committee has recommended maintaining the priority sector lending target of 40% of adjusted net bank credit. It has recommended that the distinction between direct and indirect agriculture lending be removed, while maintaining the overall target for agriculture lending at 18% of adjusted net bank credit and having a new sub-target of 9% for loans to small and marginal farmers and 7% for loans to micro and small enterprises. The committee has also recommended that deposits deployed against shortfall in achievement
of priority sector lending targets be netted from the actual penalty for the subsequent years for non-achievement of targets. - In March 2012, RBI released a discussion paper on dynamic loan loss provisioning framework, which proposes to replace the existing general provisioning norms. The objective is to limit the volatility in loan loss provisioning requirements witnessed during an economic cycle.
PEST Analysis: Political/ Legal Government and RBI policies affect the banking sector. Sometimes looking into the political advantage of a particular party, the Government declares some measures to their benefits like waiver of short-term agricultural loans, to attract the farmer‘s votes. With this, the profits of the bank get affected. Various banks in the cooperative sector are open and run by the politicians. They exploit these banks for their benefits. Sometimes the government appoints various chairmen of the banks. Various policies are framed by the RBI looking at the present situation of the country for better control over the banks
ECONOMICAL ENVIROMENT Banking is as old as authentic history and the modern commercial banking are traceable to ancient times. In India, banking has existed in one form or the other from time to time. The present era in banking may be taken to have commenced with establishment of bank of Bengal in 1809 under the government charter and with government participation in share capital. Allahabad bank was started in the year 1865 and Punjab national bank in 1895, and thus, others followed. Every year RBI declares its 6 monthly policy and accordingly the various measures and rates are implemented which has an impact on the banking sector. Also the Union budget affects the banking sector to boost the economy by giving certain concessions or facilities. If in the Budget savings are encouraged, then more deposits will be attracted towards the banks and in turn they can lend more money to the agricultural sector and industrial sector, therefore, booming the economy. If the FDI limits are relaxed, then more FDI are brought in India through banking channels.
SOCIAL ENVIROMENT Before nationalization of the banks, their control was in the hands of the private parties and only big business houses and the effluent sections of the society were getting benefits of banking in India. In 1969 government nationalized 14 banks. To adopt the social development in the banking sector it was necessary for speedy economic progress, consistent with social justice, in democratic political system, which is free from domination of law, and in which opportunities are open to all. Accordingly, keeping in mind both the national and social objectives, bankers were given direction to help economically weaker section of the society and also provide need-based finance to all the sectors of the economy with flexible and liberal attitude. Now the banks provide various types of loans to farmers, working women, professionals, and traders. They also provide education loan to the students and housing loans, consumer loans, etc. Banks having big clients or big companies have to provide services like personalized banking to their clients because these customers do not believe in running about and waiting in queues for getting their work done. The bankers also have to provide these customers with special provisions and at times with benefits like food and parties. But the banks do not mind incurring these costs because of the kind of business these clients bring for the bank. Banks have changed the culture of human life in India and have made life much easier for the people.
TECHNOLOGICAL ENVIROMENT Technology plays a very important role in bank‘s internal control mechanisms as well as services offered by them. It has in fact given new dimensions to the banks as well as services that they cater to and the banks are enthusiastically adopting new technological innovations for devising new products and services. The latest developments in terms of technology in computer and telecommunication have encouraged the bankers to change the concept of branch banking to anywhere banking. The use of ATM and Internet banking has allowed ?anytime, anywhere banking facilities. Automatic voice recorders now answer simple queries, currency accounting machines makes the job easier and self-service counters are now encouraged. Credit card facility has encouraged an era of cashless society. Today MasterCard and Visa card are the two most popular cards used world over. The banks have now started issuing smartcards or debit cards to be used for making payments. These are also called as electronic purse. Some of the banks have also started home banking through telecommunication facilities and computer technology by using terminals installed at customers home and they can make the balance inquiry, get the statement of accounts, give instructions for fund transfers, etc. Through ECS we can
receive the dividends and interest directly to our account avoiding the delay or chance of loosing the post. Today banks are also using SMS and Internet as major tool of promotions and giving great utility to its customers. For example SMS functions through simple text messages sent from your mobile. The messages are then recognized by the bank to provide you with the required information. Apart from these, there are many innovative ways by which customers can use the bank services on the go. All these technological changes have forced the bankers to adopt customer-based approach instead of product-based approach.
Competitor Analysis: The major competitors of ICICI bank are HDFC and Axis. Name HDFC Bank ICICI Bank Axis Bank Last Price 582.60 935.15 1,040.80 Market Cap Net Interest Income 137,255.8627 27,286.35 107,823.51 33,542.65 43,127.43 21,994.65 Net Profit 5,167.07 6,465.26 4,242.21 Total Assets 337,909.49 473,647.09 285,627.79
(Source- moneycontrol.com as on 20th July 2012.)
Between May 2003 when the stock market began rising, and January 2008 when it peaked, ICICI Bank shares outperformed those of arch rival HDFC Bank by a wide margin. However, since January 2008 till now, the trend has reversed and the HDFC Bank stock has been consistently ahead of ICICI Bank on the returns curve. In terms of loan book size, ICICI Bank is still number one at Rs 2.54 lakh crore compared to HDFC Bank‘s Rs 1.95 lakh crore. But HDFC Bank scores over ICICI Bank in terms of asset quality, which largely explains the out performance of the stock. HDFC Bank‘s restructured loans—the process wherein terms of repayment are altered to accommodate a borrower facing financial difficulty—comprise around 0.5% of the loan book compared to ICICI Bank‘s nearly 2%. Also, HDFC Bank‘s net NPAs are about 0.2% of the loan book, compared to ICICI Bank‘s 0.6%. ICICI Bank‘s fourth quarter financial performance was better than analyst estimates, and there was noticeable improvement in its gross and net NPA ratios.
SWOT Analysis (Banking industry):
Strengths: 1. Greater Securities of funds. 2. Banking Network. 3. Large Customer Base. 4. Low cost of capital. Weaknesses: 1. Need to comply with Basel committee norms. 2. Powerful Unions as a result of Nationalization of banks. 3. Priority sector lending (sometimes for non productive purposes). 4. High Non performing assets. Opportunities: 1. Universal Banking by providing customers with more services and products. 2. Differential Interest rates. 3. High household savings. 4. Overseas market. 5. Internet Banking. Threats: 1. NBFCs, Capital Market and Mutual Funds. 2. Change in the Government policies. 3. Inflation. 4. Recession.
ICICI Bank- Company Analysis: ICICI Bank is India's second-largest bank with total assets of Rs. 4,736.47 billion
(US$ 93 billion) at March 31, 2012 and profit after tax Rs. 64.65 billion (US$ 1,271 million) for the year ended March 31, 2012. The Bank has a network of 2,758 branches and 9,363 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 specialized subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and asset management. The services offered include: - Personal Banking - Privilege Banking - Wealth Management - NRI Banking - Corporate Banking - Business Banking 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. The UK subsidiary has established branches in Belgium and Germany. Key Subsidiaries: ICICI Prudential Life Insurance Company (ICICI Life) ICICI Lombard General Insurance Company (ICICI General) ICICI Prudential Asset Management Company (ICICI AMC) ICICI Venture Funds Management Company (ICICI Venture) ICICI Securities (I-Sec) ICICI Securities Primary Dealership (I-Sec PD) ICICI Bank UK plc (ICICI Bank UK) ICICI Bank Canada
ICICI Bank's equity shares are listed in India on Bombay Stock Exchange (BSE- 532174) and the National Stock Exchange (NSE-ICICIBANK) of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE- IBN).
ICICI Headquarter: ICICI BANK TOWERS, Bandra Kurla Complex, Mumbai Employee Strength: 58,276 (As on 27th April 2012) Founding Year : 1955(ICICI) and 1994(ICICI BANK) Top Management: Board Members Board Members Mr. K. V. Kamath, Chairman Mr. Sridar Iyengar Dr. Swati Piramal Mr. Homi R. Khusrokhan Mr. Arvind Kumar Mr. M.S. Ramachandran Dr. Tushaar Shah Mr. V. Sridar Ms. Chanda Kochhar, Managing Director & CEO Mr. N. S. Kannan, Executive Director & CFO Mr. K. Ramkumar, Executive Director Mr. Rajiv Sabharwal, Executive Director Credit Rating: ICICI Bank‘s credit ratings by various credit rating agencies at March 31, 2012 are given below: Agency Rating Moody‘s Investor Service (Moody‘s) : Baa21 Standard & Poor‘s (S&P) : BBB-1 Credit Analysis & Research Limited (CARE) : CAREAAA Investment Information and Credit Rating Agency (ICRA) : [ICRA] AAA CRISIL Limited CRISIL : AAA Japan Credit Rating Agency (JCRA) : BBB+1 1- Senior foreign currency debt ratings.
Share Holding Pattern (As on 31st March 2012) : Shareholder Category Deutsche Bank Trust Company Americas (Depository for ADS holders) FIIs, NRIs, Foreign Banks, Foreign Companies, OCBs and Foreign Nationals Insurance Companies Bodies Corporate (including Government Companies) Banks & Financial Institutions Mutual Funds Individuals, HUF and Trusts Total Shares 309,514,994 %holding 26.85
418,530,775
36.31
203,722,676 51,826,761 1,369,399 101,972,844 65,776,993 1,152,714,442
17.68 4.49 0.12 8.84 5.71 100.00
Share Prices: Month BSE High
BSE Low
BSE Volume
NSE High
NSE Low
NSE Volume
March 2012 Fiscal 2012
953.85
853.20 12,281,567
953.90
853.25 104,029,786
Total Volume on BSE and NSE 116,311,353
1,128.05 652.40 133,017,951 1,126.85 653.40 1,106,739,697 1,239,757,648
Public Recognition: (Some of the Awards) The Bank received several awards during fiscal 2012 in India and abroad including: - ?Most Trusted Private Sector Bank? and 10th in the list of ?India‘s Most Trusted Service Brands?, by - Brand Equity - Most Trusted Brands 2011 - ?NFS Operational Excellence Award -2011? in ?Best Bank- Private & Foreign Banks Category?, for ATM network - Only Indian brand to figure in ?100 Most Valuable Global Brands Report 2011?, for the second consecutive year, by BrandZ - ?Best Local Bank – Gold? by Trade and Forfaiting Awards - ?Best Foreign Exchange Bank (India)? by Finance Asia
Financial Performance: Rs.( billion) Fiscal 2011 Net interest income 156.65 and other income Provisions & 22.87 contingencies* Profit before tax 67.61 Profit after tax 51.51 Consolidated profit 60.93 after tax *- Excludes provision for taxes Fiscal 2012 182.36 15.83 88.03 64.65 76.43 % Change 16.4% (30.8)% 30.2% 25.5% 25.4%
Segment Analysis: - ICICI General recorded a loss of ` 4.16 billion in fiscal 2012 compared to a loss of 0.80 billion in fiscal 2011. - The profit after tax for ICICI Life was ` 13.84 billion in fiscal 2012 compared to 8.08 billion in fiscal 2011. - ICICI Prudential AMC achieved a profit after tax of ` 0.88 billion in fiscal 2012 compared to ` 0.72 billion in fiscal 2011. - ICICI Venture achieved a profit after tax of ` 0.68 billion in fiscal 2012 compared to ` 0.74 billion in fiscal 2011. - ICICI Securities achieved a profit of ` 0.77 billion in fiscal 2012 compared to ` 1.13 billion in fiscal 2011. - Despite a challenging market environment, I-Sec PD achieved a profit after tax of 0.86 billion in fiscal 2012 compared to ` 0.53 billion in fiscal 2011. Retail banking segment The profit before tax of the retail banking segment was ` 5.50 billion in fiscal 2012 compared to a loss of 5.14 billion in fiscal 2011, primarily due to decline in provisions for loan losses in the unsecured retail portfolio and increase in net interest income. Wholesale Banking Segment Profit before tax of the wholesale banking segment increased from ` 49.00 billion in fiscal 2011 to 62.07 billion in fiscal 2012 primarily due to increase in net interest income offset, in part, by increase in provisions. Treasury banking segment Profit before tax of the treasury segment decreased from 22.01 billion in fiscal 2011 to ` 20.81 billion in fiscal 2012 primarily due to increase in provisions against investments, offset, in part, by increase in non-interest income. The non-interest income was higher primarily due to higher level of dividend income from subsidiaries and reversal of MTM loss/ realized gain on its government securities portfolio and other fixed income positions, offset, in part, by higher level of losses on security receipts.
Other Banking Segment The other banking segment incurred a loss of ` 0.35 billion in fiscal 2012 compared to profit of 1.74 billion in fiscal 2011 primarily due to lower interest on income-tax refunds. SWOT ANALYSIS: Strength: - ICICI bank is 2nd largest bank. - It has a network of 2,758 branches and 9,363 ATMs in India, and has a presence in 19 countries, including India. - One of the major strengths is its strong and transparent balance sheet. - It has first mover advantage in some banking and financial services and was 1st to start mobile banking in India. - Marketing and advertising of ICICI have a better reach than other banks. - Longest working hours and additional services at ATMs attract customers. Weakness: - Lot of consumer complaints filed against ICICI. - Bank service charges are higher than competitors. - Stringent policies in terms of recovering debt, loans and credit payment. Third party agency handles recovery management. - Employees are always under pressure of competitor banks. This might affect productivity. Opportunities: - ICICI bank has minimum amount of Non Performing Assets. - Expansion in rural banking. - Planning to open hundreds of new branches. - Can acquire small and non performing banks based on its financial strength. - Growth in banking sector in coming years. Threats: - RBI has allowed foreign banks to invest up to 74% in Indian banking. - HDFC and Axis banks are major competitors of ICICI bank and hence a big threat. - Although customer acquisition is high, unsatisfied customers easily switch to other banks.
ICICI Bank’s Strategies: Amalgamation of Bank of Rajasthan in May 2010: The objectives and benefits of this merger by ICICI Bank were its customer centric strategy that places branches as the focal points of relationship management, sales, and service in geographical micro markets. It was evident that the BoR had deep penetration with huge brand value in the State of Rajasthan, where it had 294 branches with a market share of 9.3% in total deposits of scheduled commercial banks. Other Strategies: -Latest Facilities provided by ICICI bank: -Bank App on Facebook -Interactive kiosk -iWealth App -Treasure 360 -During fiscal 2012, the Bank continued its focus on the 5Cs strategy – Credit growth, CASA mobilization, Cost optimization, Credit quality improvement and Customer centricity -Customer convenience and high quality service backed by a strong distribution network and innovative use of technology continued to be the bedrock of ICICI‘s growth strategy. -ICICI has reduced our net non-performing asset ratio from 2.19% at the peak to 0.62% by March 2012. Retail Banking: -During the year, ICICI expanded distribution network by adding 223 branches and 2,902 ATMs, taking the total number of branches and ATMs to 2,752 and 9,006 respectively. -The Bank has the largest branch network among private sector banks in the country. -During the year, ICICI has set up over 100 specialized business banking branches to cater to the growing self-employed and small business segments. Customers can undertake their trade transactions and obtain business loans at these branches. -Healthy growth in current & savings accounts deposits continued to be their key priority for fiscal 2012. -It had focus on residential mortgages, auto loans & commercial business, with credit quality in these portfolios continuing to be robust. -They launched the ?Gemstone Collection? of cards during the year to suit requirements of various customer segments. -ICICI leveraged their distribution infrastructure to increase the cross sell of third party products including life insurance and mutual funds. -They were among the first banks to introduce account number portability and also the only bank to enable customers to avail of portability through internet banking and phone banking. Internet banking customers can now avail of unique facilities like end-to-end customer service through Click2Call with instant call back and online chat.
-During the year 2011-2012, ICICI added a number of features to ATMs, such as instant fund transfer, fixed deposits, bill payment, mobile number updation and insurance premium payments for the convenience of our customers. -They enhanced their capabilities in data warehousing and analytics for timely and accurate insights on the large customer base. This has helped the Bank make better decisions in the areas of customer relationship management, cross sell, risk management and fraud prevention.
SME -ICICI continued to enhance their delivery capabilities to SME customers through specialized branches in synergy with the Bank‘s Commercial Banking Group. They also introduced technology solutions like Trade Online to enable seamless service delivery to SME customers. Wholesale Banking -In 2011-2012, the Bank focused on proactively addressing asset quality issues, and growing its granular transaction banking revenues given the limited opportunities in project and structured financing. Project Financing As India enters the Twelfth Five Year Plan period, significant opportunities are expected in project financing across infrastructure and manufacturing sectors. ICICI bank will look for possible opportunities in following sectors: -Road Sector-As NHAI has implemented e-tendering. -Port Sector - With various major and minor ports preparing to award projects for new cargo berths and container terminal development. -Power Sector- As there is a huge demand-supply gap. -Coal Sector- Introduction competitive bidding for allocation of coal blocks will spur private sector investments in the development of coal blocks. -Oil and Gas Sector- Demand for gas and associated investment in LNG terminals. - Emerging sectors such as water and waste management International Banking: -ICICI opened their second retail branch in Singapore in fiscal 2012. -Money2India – the flagship brand of the remittance business completed a decade and reached the landmark of serving a million people. -Through their branch in Frankfurt, they launched a dedicated online Money Transfer to India service for Indians living in the Euro zone countries, thereby expanding ICICI Bank‘s international reach significantly.
Inclusive Growth -There have been focused efforts of the ICICI Foundation for Inclusive Growth in the areas of education, healthcare and sustainable livelihoods.
Training -ICICI continued with their efforts to further strengthen the delivery of their employee value proposition -?Saath Aapka” - a promise of care, nurturing and opportunity to accomplish professional aspirations. -During the year, they launched two new internal training academies – The Rural & Inclusive Banking Academy and The Privilege Banking Academy – to support and strengthen the execution of Bank‘s rural and retail banking strategies. -The Bank also launched two programs under the aegis of ICICI Business Leadership Program, one in partnership with NIIT University and the other with National Institute of Securities Markets (NISM). These programs aim to create a talent pool for specialized functions such as wholesale banking, risk management, treasury and information technology.
Sources: Annual Report 2011-2012 ICICI Bank www.icicibank.com www.moneycontrol.com
doc_724858025.doc
It explains the Industry Trends of banking industry, PEST Analysis of banking Industry, Competitor Analysis of ICICI bank, SWOT analysis of banking industry, Company Description, General Information about the ICICI bank, it's Finance performance, SWOT analysis of ICICI bank and Various Strategies employed.
Banking Industry Analysis: The Indian banking industry witnessed healthy business growth in FY11 on the back of robust economic environment and demand for credit. Profitability as well as asset quality among Scheduled Commercial Banks improved while their capital adequacy ratio remained well above the stipulated levels. However, the environment for the banking industry in FY12 and first half of FY13 is expected to be difficult owing to the prevailing uncertainties in the global and domestic economy. Nevertheless, banks are expected to leverage on the emerging opportunities such as financial inclusion and infrastructure financing to grow in the coming years. Some key regulatory developments in the Indian Banking sector during fiscal 2012 include: - In May 2011, RBI increased the interest rate on savings deposits by 50 basis points from 3.5% to 4.0%. - Further, in October 2011, interest rates on savings accounts were deregulated with a uniform interest rate to be paid on deposits up to ` 100,000 and differential rates permitted for deposits of over ` 100,000 depending on the amount. - RBI enhanced the rates of provisioning for non-performing loans in May 2011. Accordingly, the provision for restructured non-performing advances when upgraded to standard assets was increased to 2.0% in the first year of up gradation from the earlier level of 0.25-1.0%. For the secured portion of assets classified as doubtful, 25.0% provision was required to be made for assets that were classified as doubtful for a year (earlier at 20%), 40.0% for assets that were classified as doubtful for one to three years (earlier at 30%) and 100.0% for assets classified as doubtful for more than three years. Further, for sub-standard assets, a provision of 15.0% of the total outstanding was required with effect from May 2011. This was an increase over the earlier requirement of 10.0%. Unsecured exposures, which were identified as substandard, attract an additional provision of 10.0%, i.e., a total of 25.0% on the outstanding balance. - In May 2011, the report of the working group to draw up a roadmap for the introduction of holding company structure was released with key recommendations favoring the financial holding company structure for the financial sector, particularly large financial groups, with a separate regulatory framework for these holding companies. - In August 2011, RBI released draft guidelines for licensing of new banks in the private sector. The minimum capital requirement prescribed is ` 5.00 billion. - In October 2011, branch opening in tier 2 centers (centers with population of 50,000 to 99,999 as per census 2001) was exempted from prior approval of RBI. - The all-in cost ceiling (over 6 month LIBOR) on external commercial borrowings of three years to five years maturity was raised from 300 basis points to 350 basis points in November 2011. The all-in cost ceiling (over 6 month LIBOR) for five years and above maturity was kept unchanged at 500 basis points. Further, the all-in-cost ceiling (over 6 month LIBOR) for trade credit was enhanced from 200 basis points to 350 basis points. - In November 2011, RBI issued prudential guidelines for single name credit default swaps on corporate bonds. Banks were allowed to undertake such transactions, both as market makers as well as users.
- In November 2011, RBI announced guidelines permitting the setting up of Infrastructure Debt Funds (IDF) structured as non-banking finance companies (NBFC). Guidelines for banks sponsoring IDF-NBFC include cap on equity holding of 49.0% of the IDF-NBFC, and investment not exceeding 10% of the bank‘s paid up capital and reserves. - In December 2011, RBI announced the deregulation of interest rates on non-resident (external) rupee deposits and ordinary non-resident accounts, thus permitting banks to determine the interest rate on savings and term deposits of maturity of one year and above. - RBI issued guidelines on investments in subsidiaries and other companies, including investments in non-financial services companies in December 2011. According to the guidelines, equity investments by a bank in a subsidiary company or other financial services company cannot exceed 10% of the bank‘s paid-up share capital and reserves. Equity investment by banks in non-financial services companies was capped at 10.0% of the investee company‘s paid-up share capital. Equity investments in non-financial services companies at the group level, including investments by the bank‘s subsidiaries, cannot exceed 20% of the investee company‘s paid-up share capital. Also, overall equity investments by a bank, including investments in its subsidiaries and other companies, cannot exceed 20.0% of the bank‘s paid-up share capital and reserves. - In December 2011, draft guidelines for implementing the Basel III capital regulations were announced by RBI. Further, in May 2012, final guidelines were issued as per which Indian banks would have to maintain a minimum common equity tier I capital of 5.5%, a minimum tier 1 capital ratio of 7.0% of risk weighted assets, a capital conservation buffer of 2.5% comprising only common equity capital and a minimum overall capital adequacy ratio of 9.0%. The Basel III regulations would be implemented in phases beginning from January 2013 and would be fully implemented by March 31, 2018. - In December 2011, RBI issued guidelines on the internal ratings based approach for calculation of capital charge for credit risks. Banks intending to migrate to the Advanced Measurement Approach for operational risk and internal ratings based approaches for credit risk are required to apply to RBI after April 1, 2012. - Microfinance institutions (MFIs) were brought under the regulatory ambit of RBI. Also, RBI decided to give priority sector status to bank credit to MFIs extended on or after April 1, 2011 for on-lending for specified purposes. In other related announcements, in December 2011, RBI decided to provide NBFC status to MFIs by allowing a new category of NBFC-MFIs having a minimum net worth of ` 50.0 million, a minimum capital adequacy ratio of 15.0% of risk weighted assets and with interest on individual loans capped at 25.0% per annum with an aggregate margin cap of 12.0%. Also, MFIs were allowed to raise external commercial borrowings of up to US$ 10 million. - In February 2012, RBI released a draft report of the committee set up to review the extant classification and guidelines pertaining to priority sector lending. The committee has recommended maintaining the priority sector lending target of 40% of adjusted net bank credit. It has recommended that the distinction between direct and indirect agriculture lending be removed, while maintaining the overall target for agriculture lending at 18% of adjusted net bank credit and having a new sub-target of 9% for loans to small and marginal farmers and 7% for loans to micro and small enterprises. The committee has also recommended that deposits deployed against shortfall in achievement
of priority sector lending targets be netted from the actual penalty for the subsequent years for non-achievement of targets. - In March 2012, RBI released a discussion paper on dynamic loan loss provisioning framework, which proposes to replace the existing general provisioning norms. The objective is to limit the volatility in loan loss provisioning requirements witnessed during an economic cycle.
PEST Analysis: Political/ Legal Government and RBI policies affect the banking sector. Sometimes looking into the political advantage of a particular party, the Government declares some measures to their benefits like waiver of short-term agricultural loans, to attract the farmer‘s votes. With this, the profits of the bank get affected. Various banks in the cooperative sector are open and run by the politicians. They exploit these banks for their benefits. Sometimes the government appoints various chairmen of the banks. Various policies are framed by the RBI looking at the present situation of the country for better control over the banks
ECONOMICAL ENVIROMENT Banking is as old as authentic history and the modern commercial banking are traceable to ancient times. In India, banking has existed in one form or the other from time to time. The present era in banking may be taken to have commenced with establishment of bank of Bengal in 1809 under the government charter and with government participation in share capital. Allahabad bank was started in the year 1865 and Punjab national bank in 1895, and thus, others followed. Every year RBI declares its 6 monthly policy and accordingly the various measures and rates are implemented which has an impact on the banking sector. Also the Union budget affects the banking sector to boost the economy by giving certain concessions or facilities. If in the Budget savings are encouraged, then more deposits will be attracted towards the banks and in turn they can lend more money to the agricultural sector and industrial sector, therefore, booming the economy. If the FDI limits are relaxed, then more FDI are brought in India through banking channels.
SOCIAL ENVIROMENT Before nationalization of the banks, their control was in the hands of the private parties and only big business houses and the effluent sections of the society were getting benefits of banking in India. In 1969 government nationalized 14 banks. To adopt the social development in the banking sector it was necessary for speedy economic progress, consistent with social justice, in democratic political system, which is free from domination of law, and in which opportunities are open to all. Accordingly, keeping in mind both the national and social objectives, bankers were given direction to help economically weaker section of the society and also provide need-based finance to all the sectors of the economy with flexible and liberal attitude. Now the banks provide various types of loans to farmers, working women, professionals, and traders. They also provide education loan to the students and housing loans, consumer loans, etc. Banks having big clients or big companies have to provide services like personalized banking to their clients because these customers do not believe in running about and waiting in queues for getting their work done. The bankers also have to provide these customers with special provisions and at times with benefits like food and parties. But the banks do not mind incurring these costs because of the kind of business these clients bring for the bank. Banks have changed the culture of human life in India and have made life much easier for the people.
TECHNOLOGICAL ENVIROMENT Technology plays a very important role in bank‘s internal control mechanisms as well as services offered by them. It has in fact given new dimensions to the banks as well as services that they cater to and the banks are enthusiastically adopting new technological innovations for devising new products and services. The latest developments in terms of technology in computer and telecommunication have encouraged the bankers to change the concept of branch banking to anywhere banking. The use of ATM and Internet banking has allowed ?anytime, anywhere banking facilities. Automatic voice recorders now answer simple queries, currency accounting machines makes the job easier and self-service counters are now encouraged. Credit card facility has encouraged an era of cashless society. Today MasterCard and Visa card are the two most popular cards used world over. The banks have now started issuing smartcards or debit cards to be used for making payments. These are also called as electronic purse. Some of the banks have also started home banking through telecommunication facilities and computer technology by using terminals installed at customers home and they can make the balance inquiry, get the statement of accounts, give instructions for fund transfers, etc. Through ECS we can
receive the dividends and interest directly to our account avoiding the delay or chance of loosing the post. Today banks are also using SMS and Internet as major tool of promotions and giving great utility to its customers. For example SMS functions through simple text messages sent from your mobile. The messages are then recognized by the bank to provide you with the required information. Apart from these, there are many innovative ways by which customers can use the bank services on the go. All these technological changes have forced the bankers to adopt customer-based approach instead of product-based approach.
Competitor Analysis: The major competitors of ICICI bank are HDFC and Axis. Name HDFC Bank ICICI Bank Axis Bank Last Price 582.60 935.15 1,040.80 Market Cap Net Interest Income 137,255.8627 27,286.35 107,823.51 33,542.65 43,127.43 21,994.65 Net Profit 5,167.07 6,465.26 4,242.21 Total Assets 337,909.49 473,647.09 285,627.79
(Source- moneycontrol.com as on 20th July 2012.)
Between May 2003 when the stock market began rising, and January 2008 when it peaked, ICICI Bank shares outperformed those of arch rival HDFC Bank by a wide margin. However, since January 2008 till now, the trend has reversed and the HDFC Bank stock has been consistently ahead of ICICI Bank on the returns curve. In terms of loan book size, ICICI Bank is still number one at Rs 2.54 lakh crore compared to HDFC Bank‘s Rs 1.95 lakh crore. But HDFC Bank scores over ICICI Bank in terms of asset quality, which largely explains the out performance of the stock. HDFC Bank‘s restructured loans—the process wherein terms of repayment are altered to accommodate a borrower facing financial difficulty—comprise around 0.5% of the loan book compared to ICICI Bank‘s nearly 2%. Also, HDFC Bank‘s net NPAs are about 0.2% of the loan book, compared to ICICI Bank‘s 0.6%. ICICI Bank‘s fourth quarter financial performance was better than analyst estimates, and there was noticeable improvement in its gross and net NPA ratios.
SWOT Analysis (Banking industry):
Strengths: 1. Greater Securities of funds. 2. Banking Network. 3. Large Customer Base. 4. Low cost of capital. Weaknesses: 1. Need to comply with Basel committee norms. 2. Powerful Unions as a result of Nationalization of banks. 3. Priority sector lending (sometimes for non productive purposes). 4. High Non performing assets. Opportunities: 1. Universal Banking by providing customers with more services and products. 2. Differential Interest rates. 3. High household savings. 4. Overseas market. 5. Internet Banking. Threats: 1. NBFCs, Capital Market and Mutual Funds. 2. Change in the Government policies. 3. Inflation. 4. Recession.
ICICI Bank- Company Analysis: ICICI Bank is India's second-largest bank with total assets of Rs. 4,736.47 billion
(US$ 93 billion) at March 31, 2012 and profit after tax Rs. 64.65 billion (US$ 1,271 million) for the year ended March 31, 2012. The Bank has a network of 2,758 branches and 9,363 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 specialized subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and asset management. The services offered include: - Personal Banking - Privilege Banking - Wealth Management - NRI Banking - Corporate Banking - Business Banking 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. The UK subsidiary has established branches in Belgium and Germany. Key Subsidiaries: ICICI Prudential Life Insurance Company (ICICI Life) ICICI Lombard General Insurance Company (ICICI General) ICICI Prudential Asset Management Company (ICICI AMC) ICICI Venture Funds Management Company (ICICI Venture) ICICI Securities (I-Sec) ICICI Securities Primary Dealership (I-Sec PD) ICICI Bank UK plc (ICICI Bank UK) ICICI Bank Canada
ICICI Bank's equity shares are listed in India on Bombay Stock Exchange (BSE- 532174) and the National Stock Exchange (NSE-ICICIBANK) of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE- IBN).
ICICI Headquarter: ICICI BANK TOWERS, Bandra Kurla Complex, Mumbai Employee Strength: 58,276 (As on 27th April 2012) Founding Year : 1955(ICICI) and 1994(ICICI BANK) Top Management: Board Members Board Members Mr. K. V. Kamath, Chairman Mr. Sridar Iyengar Dr. Swati Piramal Mr. Homi R. Khusrokhan Mr. Arvind Kumar Mr. M.S. Ramachandran Dr. Tushaar Shah Mr. V. Sridar Ms. Chanda Kochhar, Managing Director & CEO Mr. N. S. Kannan, Executive Director & CFO Mr. K. Ramkumar, Executive Director Mr. Rajiv Sabharwal, Executive Director Credit Rating: ICICI Bank‘s credit ratings by various credit rating agencies at March 31, 2012 are given below: Agency Rating Moody‘s Investor Service (Moody‘s) : Baa21 Standard & Poor‘s (S&P) : BBB-1 Credit Analysis & Research Limited (CARE) : CAREAAA Investment Information and Credit Rating Agency (ICRA) : [ICRA] AAA CRISIL Limited CRISIL : AAA Japan Credit Rating Agency (JCRA) : BBB+1 1- Senior foreign currency debt ratings.
Share Holding Pattern (As on 31st March 2012) : Shareholder Category Deutsche Bank Trust Company Americas (Depository for ADS holders) FIIs, NRIs, Foreign Banks, Foreign Companies, OCBs and Foreign Nationals Insurance Companies Bodies Corporate (including Government Companies) Banks & Financial Institutions Mutual Funds Individuals, HUF and Trusts Total Shares 309,514,994 %holding 26.85
418,530,775
36.31
203,722,676 51,826,761 1,369,399 101,972,844 65,776,993 1,152,714,442
17.68 4.49 0.12 8.84 5.71 100.00
Share Prices: Month BSE High
BSE Low
BSE Volume
NSE High
NSE Low
NSE Volume
March 2012 Fiscal 2012
953.85
853.20 12,281,567
953.90
853.25 104,029,786
Total Volume on BSE and NSE 116,311,353
1,128.05 652.40 133,017,951 1,126.85 653.40 1,106,739,697 1,239,757,648
Public Recognition: (Some of the Awards) The Bank received several awards during fiscal 2012 in India and abroad including: - ?Most Trusted Private Sector Bank? and 10th in the list of ?India‘s Most Trusted Service Brands?, by - Brand Equity - Most Trusted Brands 2011 - ?NFS Operational Excellence Award -2011? in ?Best Bank- Private & Foreign Banks Category?, for ATM network - Only Indian brand to figure in ?100 Most Valuable Global Brands Report 2011?, for the second consecutive year, by BrandZ - ?Best Local Bank – Gold? by Trade and Forfaiting Awards - ?Best Foreign Exchange Bank (India)? by Finance Asia
Financial Performance: Rs.( billion) Fiscal 2011 Net interest income 156.65 and other income Provisions & 22.87 contingencies* Profit before tax 67.61 Profit after tax 51.51 Consolidated profit 60.93 after tax *- Excludes provision for taxes Fiscal 2012 182.36 15.83 88.03 64.65 76.43 % Change 16.4% (30.8)% 30.2% 25.5% 25.4%
Segment Analysis: - ICICI General recorded a loss of ` 4.16 billion in fiscal 2012 compared to a loss of 0.80 billion in fiscal 2011. - The profit after tax for ICICI Life was ` 13.84 billion in fiscal 2012 compared to 8.08 billion in fiscal 2011. - ICICI Prudential AMC achieved a profit after tax of ` 0.88 billion in fiscal 2012 compared to ` 0.72 billion in fiscal 2011. - ICICI Venture achieved a profit after tax of ` 0.68 billion in fiscal 2012 compared to ` 0.74 billion in fiscal 2011. - ICICI Securities achieved a profit of ` 0.77 billion in fiscal 2012 compared to ` 1.13 billion in fiscal 2011. - Despite a challenging market environment, I-Sec PD achieved a profit after tax of 0.86 billion in fiscal 2012 compared to ` 0.53 billion in fiscal 2011. Retail banking segment The profit before tax of the retail banking segment was ` 5.50 billion in fiscal 2012 compared to a loss of 5.14 billion in fiscal 2011, primarily due to decline in provisions for loan losses in the unsecured retail portfolio and increase in net interest income. Wholesale Banking Segment Profit before tax of the wholesale banking segment increased from ` 49.00 billion in fiscal 2011 to 62.07 billion in fiscal 2012 primarily due to increase in net interest income offset, in part, by increase in provisions. Treasury banking segment Profit before tax of the treasury segment decreased from 22.01 billion in fiscal 2011 to ` 20.81 billion in fiscal 2012 primarily due to increase in provisions against investments, offset, in part, by increase in non-interest income. The non-interest income was higher primarily due to higher level of dividend income from subsidiaries and reversal of MTM loss/ realized gain on its government securities portfolio and other fixed income positions, offset, in part, by higher level of losses on security receipts.
Other Banking Segment The other banking segment incurred a loss of ` 0.35 billion in fiscal 2012 compared to profit of 1.74 billion in fiscal 2011 primarily due to lower interest on income-tax refunds. SWOT ANALYSIS: Strength: - ICICI bank is 2nd largest bank. - It has a network of 2,758 branches and 9,363 ATMs in India, and has a presence in 19 countries, including India. - One of the major strengths is its strong and transparent balance sheet. - It has first mover advantage in some banking and financial services and was 1st to start mobile banking in India. - Marketing and advertising of ICICI have a better reach than other banks. - Longest working hours and additional services at ATMs attract customers. Weakness: - Lot of consumer complaints filed against ICICI. - Bank service charges are higher than competitors. - Stringent policies in terms of recovering debt, loans and credit payment. Third party agency handles recovery management. - Employees are always under pressure of competitor banks. This might affect productivity. Opportunities: - ICICI bank has minimum amount of Non Performing Assets. - Expansion in rural banking. - Planning to open hundreds of new branches. - Can acquire small and non performing banks based on its financial strength. - Growth in banking sector in coming years. Threats: - RBI has allowed foreign banks to invest up to 74% in Indian banking. - HDFC and Axis banks are major competitors of ICICI bank and hence a big threat. - Although customer acquisition is high, unsatisfied customers easily switch to other banks.
ICICI Bank’s Strategies: Amalgamation of Bank of Rajasthan in May 2010: The objectives and benefits of this merger by ICICI Bank were its customer centric strategy that places branches as the focal points of relationship management, sales, and service in geographical micro markets. It was evident that the BoR had deep penetration with huge brand value in the State of Rajasthan, where it had 294 branches with a market share of 9.3% in total deposits of scheduled commercial banks. Other Strategies: -Latest Facilities provided by ICICI bank: -Bank App on Facebook -Interactive kiosk -iWealth App -Treasure 360 -During fiscal 2012, the Bank continued its focus on the 5Cs strategy – Credit growth, CASA mobilization, Cost optimization, Credit quality improvement and Customer centricity -Customer convenience and high quality service backed by a strong distribution network and innovative use of technology continued to be the bedrock of ICICI‘s growth strategy. -ICICI has reduced our net non-performing asset ratio from 2.19% at the peak to 0.62% by March 2012. Retail Banking: -During the year, ICICI expanded distribution network by adding 223 branches and 2,902 ATMs, taking the total number of branches and ATMs to 2,752 and 9,006 respectively. -The Bank has the largest branch network among private sector banks in the country. -During the year, ICICI has set up over 100 specialized business banking branches to cater to the growing self-employed and small business segments. Customers can undertake their trade transactions and obtain business loans at these branches. -Healthy growth in current & savings accounts deposits continued to be their key priority for fiscal 2012. -It had focus on residential mortgages, auto loans & commercial business, with credit quality in these portfolios continuing to be robust. -They launched the ?Gemstone Collection? of cards during the year to suit requirements of various customer segments. -ICICI leveraged their distribution infrastructure to increase the cross sell of third party products including life insurance and mutual funds. -They were among the first banks to introduce account number portability and also the only bank to enable customers to avail of portability through internet banking and phone banking. Internet banking customers can now avail of unique facilities like end-to-end customer service through Click2Call with instant call back and online chat.
-During the year 2011-2012, ICICI added a number of features to ATMs, such as instant fund transfer, fixed deposits, bill payment, mobile number updation and insurance premium payments for the convenience of our customers. -They enhanced their capabilities in data warehousing and analytics for timely and accurate insights on the large customer base. This has helped the Bank make better decisions in the areas of customer relationship management, cross sell, risk management and fraud prevention.
SME -ICICI continued to enhance their delivery capabilities to SME customers through specialized branches in synergy with the Bank‘s Commercial Banking Group. They also introduced technology solutions like Trade Online to enable seamless service delivery to SME customers. Wholesale Banking -In 2011-2012, the Bank focused on proactively addressing asset quality issues, and growing its granular transaction banking revenues given the limited opportunities in project and structured financing. Project Financing As India enters the Twelfth Five Year Plan period, significant opportunities are expected in project financing across infrastructure and manufacturing sectors. ICICI bank will look for possible opportunities in following sectors: -Road Sector-As NHAI has implemented e-tendering. -Port Sector - With various major and minor ports preparing to award projects for new cargo berths and container terminal development. -Power Sector- As there is a huge demand-supply gap. -Coal Sector- Introduction competitive bidding for allocation of coal blocks will spur private sector investments in the development of coal blocks. -Oil and Gas Sector- Demand for gas and associated investment in LNG terminals. - Emerging sectors such as water and waste management International Banking: -ICICI opened their second retail branch in Singapore in fiscal 2012. -Money2India – the flagship brand of the remittance business completed a decade and reached the landmark of serving a million people. -Through their branch in Frankfurt, they launched a dedicated online Money Transfer to India service for Indians living in the Euro zone countries, thereby expanding ICICI Bank‘s international reach significantly.
Inclusive Growth -There have been focused efforts of the ICICI Foundation for Inclusive Growth in the areas of education, healthcare and sustainable livelihoods.
Training -ICICI continued with their efforts to further strengthen the delivery of their employee value proposition -?Saath Aapka” - a promise of care, nurturing and opportunity to accomplish professional aspirations. -During the year, they launched two new internal training academies – The Rural & Inclusive Banking Academy and The Privilege Banking Academy – to support and strengthen the execution of Bank‘s rural and retail banking strategies. -The Bank also launched two programs under the aegis of ICICI Business Leadership Program, one in partnership with NIIT University and the other with National Institute of Securities Markets (NISM). These programs aim to create a talent pool for specialized functions such as wholesale banking, risk management, treasury and information technology.
Sources: Annual Report 2011-2012 ICICI Bank www.icicibank.com www.moneycontrol.com
doc_724858025.doc