Description
Fundamental analysis is a time-honored and value based techniques which relies on fundamental of economies, industries and companies for the purpose of analyzing and drawing conclusions.
FUNDAMENTAL ANALYSIS
Fundamental analysis is a time-honored and value based techniques which relies on fundamental of economies,
industries and companies for the purpose of analyzing and drawing conclusions.
This analysis is not unduly affected by short term fluctuations or day to day fluctuations in the stock market. this
approach suggest that whether we are analyzing securities we should move from macro to micro factors.
In this approach we study the general economic conditions, make an in-depth analysis of industries and perform a
comparative study of various companies on the basis of financial as well as non-financial parameters. past and present
data are used for forecasting future and decision making.
Fundamental analysis is the examination of the underlying forces that affect the well being of the economy, industry groups,
and companies. As with most analysis, the goal is to derive a forecast and profit from future price movements. At the
company level, fundamental analysis may involve examination of financial data, management, business concept and
competition. At the industry level, there might be an examination of supply and demand forces for the products offered. For
the national economy, fundamental analysis might focus on economic data to assess the present and future growth of the
economy. To forecast future stock prices, fundamental analysis combines economic, industry, and company analysis to
derive a stock's current fair value and forecast future value. If fair value is not equal to the current stock price, fundamental
analysts believe that the stock is either over or under valued and the market price will ultimately gravitate towards fair value.
Fundamentalists do not heed the advice of the random walkers and believe that markets are weak-form efficient. By
believing that prices do not accurately reflect all available information, fundamental analysts look to capitalize on perceived
price discrepancies.
General Steps to Fundamental Evaluation:
1) Economic analysis/Economy analysis
2) Industry analysis
3) Company analysis
A) ECONOMIC ANALYSIS:
In economic analysis we analyse economic environment of the country. The basic objective of this analysis is to assess
the general economic situation within the country as well as internationally. this analysis is performed by studying the
economic indicators which may have a direct or indirect bearing on the performance of stock exchanges.
The present and past data is analyzed to forecast the future and on the basis of forecasting the decision is taken. This
analysis tells us whether this is the right time to invest for investment or not.
Economic analysis Systematic approach to determining the optimum use of scarce resources, involving comparison of
two or more alternatives in achieving a specific objective under the given assumptions and constraints. It takes into
account the opportunity costs of resources employed and attempts to measure in monetary terms the private and social
costs and benefits of a project to the community or economy. Economic analysis is in the Economics, Politics, &
Society and Statistics, Mathematics, & Analysis subjects.
First and foremost in a top-down approach would be an overall evaluation of the general economy. The economy is like the
tide and the various industry groups and individual companies are like boats. When the economy expands, most industry
groups and companies benefit and grow. When the economy declines, most sectors and companies usually suffer. Many
economists link economic expansion and contraction to the level of interest rates. Interest rates are seen as a leading
indicator for the stock market as well. Below is a chart of the S&P 500 and the yield on the 10-year note over the last 30
years. Although not exact, a correlation between stock prices and interest rates can be seen. Once a scenario for the overall
economy has been developed, an investor can break down the economy into its various industry groups.
Important indicators of Economic analysis:
1) Trend of national income(GDP,GNP,NNP, per capita income)
2) Inflation rate
3) Interest rate
4) Industrial and agriculture production condition of monsoon
5) Condition of foreign exchange reserve
6) Condition of infrastructure
7) Situation of internal and external debt
8) Government policy and political factors
9) Conditions of saings and capital formation.
B) INDUSTRY ANALYSIS:
Once the result of economic analysis is positive the next step is to perform comparative study of various industries
which will help us in realizing our investment objectives can be selected. A detailed analysis of the characteristics of
these industries their past records and their present states is done to find out their future prospects.
If the prognosis is for an expanding economy, then certain groups are likely to benefit more than others. An investor can
narrow the field to those groups that are best suited to benefit from the current or future economic environment. If most
companies are expected to benefit from an expansion, then risk in equities would be relatively low and an aggressive
growth-oriented strategy might be advisable. A growth strategy might involve the purchase of technology, biotech,
semiconductor and cyclical stocks. If the economy is forecast to contract, an investor may opt for a more conservative
strategy and seek out stable income-oriented companies. A defensive strategy might involve the purchase of consumer
staples, utilities and energy-related stocks.
To assess a industry group's potential, an investor would want to consider the overall growth rate, market size, and
importance to the economy. While the individual company is still important, its industry group is likely to exert just as
much, or more, influence on the stock price. When stocks move, they usually move as groups; there are very few lone guns
out there. Many times it is more important to be in the right industry than in the right stock! The chart below shows that
relative performance of 5 sectors over a 7-month time frame. As the chart illustrates, being in the right sector can make all
the difference.
Narrow Within the Group
Once the industry group is chosen, an investor would need to narrow the list of companies before proceeding to a more
detailed analysis. Investors are usually interested in finding the leaders and the innovators within a group. The first task is to
identify the current business and competitive environment within a group as well as the future trends. How do the companies
rank according to market share, product position and competitive advantage? Who is the current leader and how will
changes within the sector affect the current balance of power? What are the barriers to entry? Success depends on an edge,
be it marketing, technology, market share or innovation. A comparative analysis of the competition within a sector will help
identify those companies with an edge and those most likely to keep it.
Parameters of industries analysis:
1) Size of the industries
2) Opportunities and threat available whether the industries is affected by
business cycle or not.
3) The attitude of government towards that industry.
4) Nature of product and competition
5) Industry life cycle analysis
6) Stock market perception
C) COMPANY ANALYSIS:
Once the industry analysis is over and we have selected the best possible industries the next step is to perform a
comparative study of company belonging to selected industries so that the best possible company can be chosen for
investment. This step is known as Company analysis. With a shortlist of companies, an investor might analyze the
resources and capabilities within each company to identify those companies that are capable of creating and maintaining a
competitive advantage. The analysis could focus on selecting companies with a sensible business plan, solid management
and sound financials.
Business Plan
The business plan, model or concept forms the bedrock upon which all else is built. If the plan, model or concepts stink,
there is little hope for the business. For a new business, the questions may be these: Does its business make sense? Is it
feasible? Is there a market? Can a profit be made? For an established business, the questions may be: Is the company's
direction clearly defined? Is the company a leader in the market? Can the company maintain leadership?
Management
In order to execute a business plan, a company requires top-quality management. Investors might look at management to
assess their capabilities, strengths and weaknesses. Even the best-laid plans in the most dynamic industries can go to waste
with bad management (AMD in semiconductors). Alternatively, even strong management can make for extraordinary
success in a mature industry (Alcoa in aluminum). Some of the questions to ask might include: How talented is the
management team? Do they have a track record? How long have they worked together? Can management deliver on its
promises? If management is a problem, it is sometimes best to move on.
Financial Analysis
The final step to this analysis process would be to take apart the financial statements and come up with a means of valuation.
Below is a list of potential inputs into a financial analysis.
Accounts Payable
Accounts Receivable
Acid Ratio
Amortization
Assets - Current
Assets - Fixed
Book Value
Brand
Business Cycle
Business Idea
Business Model
Business Plan
Capital Expenses
Cash Flow
Cash on hand
Current Ratio
Customer Relationships
Days Payable
Days Receivable
Debt
Debt Structure
Debt:Equity Ratio
Depreciation
Derivatives-Hedging
Discounted Cash Flow
Dividend
Good Will
Gross Profit Margin
Growth
Industry
Interest Cover
International
Investment
Liabilities - Current
Liabilities - Long-term
Management
Market Growth
Market Share
Net Profit Margin
Pageview Growth
Pageviews
Patents
Price/Book Value
Price/Earnings
PEG
Price/Sales
Product
Product Placement
Regulations
R & D
Revenues
Sector
Dividend Cover
Earnings
EBITDA
Economic Growth
Equity
Equity Risk Premium
Expenses
Stock Options
Strategy
Subscriber Growth
Subscribers
Supplier Relationships
Taxes
Trademarks
Weighted Average Cost of Capital
The list can seem quite long and intimidating. However, after a while, an investor will learn what works best and develop a
set of preferred analysis techniques. There are many different valuation metrics and much depends on the industry and stage
of the economic cycle. A complete financial model can be built to forecast future revenues, expenses and profits or an
investor can rely on the forecast of other analysts and apply various multiples to arrive at a valuation. Some of the more
popular ratios are found by dividing the stock price by a key value driver.
Ratio
Price/Book Value
Price/Earnings
Price/Earnings/Growth
Price/Sales
Price/Subscribers
Price/Lines
Price/Page views
Price/Promises
Company Type
Oil
Retail
Networking
B2B
ISP or cable company
Telecom
Web site Biotech
This methodology assumes that a company will sell at a specific multiple of its earnings, revenues or growth. An investor
may rank companies based on these valuation ratios. Those at the high end may be considered overvalued, while those at
the low end may constitute relatively good value.
Putting it All Together
After all is said and done, an investor will be left with a handful of companies that stand out from the pack. Over the
course of the analysis process, an understanding will develop of which companies stand out as potential leaders and
innovators. In addition, other companies would be considered laggards and unpredictable. The final step of the
fundamental analysis process is to synthesize all data, analysis and understanding into actual picks.
Comparative study of company is performed on the basis of:
1) Financial analysis
2) Non-financial analysis
1) Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a
company's financial statements. The level and historical trends of these ratios can be used to make inferences about
a company's financial condition, its operations and attractiveness as an investment.
A ratio gains utility by comparison to other data and standards. Taking our example, a gross profit margin for a
company of 25% is meaningless by itself. If we know that this company's competitors have profit margins of 10%, we
know that it is more profitable than its industry peers which are quite favorable. If we also know that the historical
trend is upwards, for example has been increasing steadily for the last few years, this would also be a favorable sign
that management is implementing effective business policies and strategies.
Financial ratio analysis groups the ratios into categories which tell us about different facets of a company's finances and
operations. An overview of some of the categories of ratios is given below.
? Leverage Ratios which show the extent that debt is used in a company's capital structure.
? Liquidity Ratios which give a picture of a company's short term financial situation or solvency.
? Operational Ratios which use turnover measures to show how efficient a company is in its
operations and use of assets.
? Profitability Ratios which use margin analysis and show the return on sales and capital employed.
? Solvency Ratios which give a picture of a company's ability to generate cashflow and pay it
financial obligations.
2) Non-financial analysis:
Non-financial analysis includes technology, vision, mission, market leadership, market share of a company.
Strengths of Fundamental Analysis
Long-term Trends
Fundamental analysis is good for long-term investments based on long-term trends, very long-term. The ability to identify
and predict long-term economic, demographic, technological or consumer trends can benefit patient investors who pick the
right industry groups or companies.
Value Spotting
Sound fundamental analysis will help identify companies that represent a good value. Some of the most legendary investors
think long-term and value. Graham and Dodd, Warren Buffet and John Neff are seen as the champions of value investing.
Fundamental analysis can help uncover companies with valuable assets, a strong balance sheet, stable earnings, and staying
power.
Business Acumen
One of the most obvious, but less tangible, rewards of fundamental analysis is the development of a thorough understanding
of the business. After such painstaking research and analysis, an investor will be familiar with the key revenue and profit
drivers behind a company. Earnings and earnings expectations can be potent drivers of equity prices. Even some technicians
will agree to that. A good understanding can help investors avoid companies that are prone to shortfalls and identify those
that continue to deliver. In addition to understanding the business, fundamental analysis allows investors to develop an
understanding of the key value drivers and companies within an industry. A stock's price is heavily influenced by its industry
group. By studying these groups, investors can better position themselves to identify opportunities that are high-risk (tech),
low-risk (utilities), growth oriented (computer), value driven (oil), non-cyclical (consumer staples), cyclical (transportation)
or income-oriented (high yield).
Knowing Who's Who
Stocks move as a group. By understanding a company's business, investors can better position themselves to categorize
stocks within their relevant industry group. Business can change rapidly and with it the revenue mix of a company. This
happened to many of the pure Internet retailers, which were not really Internet companies, but plain retailers. Knowing a
company's business and being able to place it in a group can make a huge difference in relative valuations.
Weaknesses of Fundamental Analysis
Time Constraints
Fundamental analysis may offer excellent insights, but it can be extraordinarily time-consuming. Time-consuming models
often produce valuations that are contradictory to the current price prevailing on Wall Street. When this happens, the analyst
basically claims that the whole street has got it wrong. This is not to say that there are not misunderstood companies out
there, but it is quite brash to imply that the market price, and hence Wall Street, is wrong.
Industry/Company Specific
Valuation techniques vary depending on the industry group and specifics of each company. For this reason, a different
technique and model is required for different industries and different companies. This can get quite time-consuming, which
can limit the amount of research that can be performed. A subscription-based model may work great for an Internet Service
Provider (ISP), but is not likely to be the best model to value an oil company.
Subjectivity
Fair value is based on assumptions. Any changes to growth or multiplier assumptions can greatly alter the ultimate
valuation. Fundamental analysts are generally aware of this and use sensitivity analysis to present a base-case valuation, a
best-case valuation and a worst-case valuation. However, even on a worst-case valuation, most models are almost always
bullish, the only question is how much so. The chart below shows how stubbornly bullish many fundamental analysts can
be.
Analyst Bias
The majority of the information that goes into the analysis comes from the company itself. Companies employ investor
relations managers specifically to handle the analyst community and release information. As Mark Twain said, "there are
lies, damn lies, and statistics." When it comes to massaging the data or spinning the announcement, CFOs and investor
relations managers are professionals. Only buy-side analysts tend to venture past the company statistics. Buy-side analysts
work for mutual funds and money managers. They read the reports written by the sell-side analysts who work for the big
brokers (CIBC, Merrill Lynch, Robertson Stephens, CS First Boston, Paine Weber, DLJ to name a few). These brokers are
also involved in underwriting and investment banking for the companies. Even though there are restrictions in place to
prevent a conflict of interest, brokers have an ongoing relationship with the company under analysis. When reading these
reports, it is important to take into consideration any biases a sell-side analyst may have. The buy-side analyst, on the other
hand, is analyzing the company purely from an investment standpoint for a portfolio manager. If there is a relationship with
the company, it is usually on different terms. In some cases this may be as a large shareholder.
Definition of Fair Value
When market valuations extend beyond historical norms, there is pressure to adjust growth and multiplier assumptions to
compensate. If Wall Street values a stock at 50 times earnings and the current assumption is 30 times, the analyst would be
pressured to revise this assumption higher. There is an old Wall Street adage: the value of any asset (stock) is only what
someone is willing to pay for it (current price). Just as stock prices fluctuate, so too do growth and multiplier assumptions.
Are we to believe Wall Street and the stock price or the analyst and market assumptions?
It used to be that free cash flow or earnings were used with a multiplier to arrive at a fair value. In 1999, the S&P 500
typically sold for 28 time’s free cash flow. However, because so many companies were and are losing money, it has become
popular to value a business as a multiple of its revenues. This would seem to be OK, except that the multiple was higher than
the PE of many stocks! Some companies were considered bargains at 30 times revenues.
Conclusions
Fundamental analysis can be valuable, but it should be approached with caution. If you are reading research written by a
sell-side analyst, it is important to be familiar with the analyst behind the report. We all have personal biases, and every
analyst has some sort of bias. There is nothing wrong with this, and the research can still be of great value. Learn what the
ratings mean and the track record of an analyst before jumping off the deep end. Corporate statements and press releases
offer good information, but they should be read with a healthy degree of skepticism to separate the facts from the spin.
Press releases don't happen by accident; they are an important PR tool for companies. Investors should become skilled
readers to weed out the important information and ignore the hype.
HDFC: HOUSING DEVELOPMENT FINANCE CORPORATION
H.D.F.C was set up on 17th October, 1977 by I.C.I.C.I. out of the consideration that a specialized institution was needed to
channel household savings as well as funds from the capital market into the housing sector. H.D.F.C. has emerged as the
largest mortgage finance institution in the country. The main objective of H.D.F.C. is to develop significant expertise in
retail mortgage loans to different market segments and to have a large corporate client base for its housing related credit
facilities. The main aim of H.D.F.C. is to support or aid in the promotion of home ownership. H.D.F.C. is India's leading
housing finance company and for all practical purposes is synonymous with the domestic housing finance industry.
The primary objective of H.D.F.C is to enhance residential housing stock and promote home ownership. One of its major
objectives is to increase flow of resources for housing through the integration of housing financial institutions with the
domestic market. H.D.F.C. has developed a strong market reputation large shareholder base and unique consumer franchise.
H.D.F.C. is India's premier housing finance company in India as well as in international markets. It has maintained a
consistent and healthy growth in its operations to remain the clear market leader in mortgages in India. The company has
been constantly engaged into innovation and innovative practices since its birth.
HDFC Bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered
office in Mumbai, India. The Bank commenced operations as a Scheduled Commercial Bank in January
1995.
The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval
from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalization of the Indian
Banking Industry in 1994.
Headquartered in Mumbai, HDFC Bank, has a network of over 531 branches spread over 228 cities across India. All
branches are linked on an online real-time basis. Customers in over 120 locations are serviced through Telephone Banking.
The Bank also has a network of about over 1054 networked ATMs across these cities. HDFC Bank's ATM network can be
accessed by all domestic and international Visa / MasterCard, Visa Electron / Maestro, Plus / Cirrus and American Express
Credit / Charge cardholders.
HDFC Bank has won many awards for its excellent service. Major among them are "Best Bank in India" by Hong Kong-
based Finance Asia magazine in 2005 and "Company of the Year" Award for Corporate Excellence 2004-05.
Non-financial:-
Vision: Join the winning team
HDFC Bank is a young and dynamic bank, with a youthful and enthusiastic team determined to accomplish the vision of
becoming a world-class Indian bank.
Our business philosophy is based on four core values - Customer Focus, Operational Excellence, Product Leadership
and People. We believe that the ultimate identity and success of our bank will reside in the exceptional quality of our people
and their extraordinary efforts. For this reason, we are committed to hiring, developing, motivating and retaining the best
people in the industry.
Mission And business strategy:
Our mission is to be "a World Class Indian Bank", benchmarking ourselves against international standards and best practices
in terms of product offerings, technology, service levels, risk management and audit & compliance. The objective is to build
sound customer franchises across distinct businesses so as to be a preferred provider of banking services for target retail and
wholesale customer segments, and to achieve a healthy growth in profitability, consistent with the Bank's risk appetite. We
are committed to do this while ensuring the highest levels of ethical standards, professional integrity, corporate governance
and regulatory compliance.
Our business strategy emphasizes the following:
1) Increase our market share in India’s expanding banking and financial services industry by following a disciplined growth
strategy focusing on quality and not on quantity and delivering high quality customer service.
2) Leverage our technology platform and open scaleable systems to deliver more products to more
customers and to control operating costs.
3) Maintain our current high standards for asset quality through disciplined credit risk management.
4) Develop innovative products and services that attract our targeted customers and address inefficiencies in the Indian
financial sector.
5) Continue to develop products and services that reduce our cost of funds.
6) Focus on high earnings growth with low volatility.
Board of Directors:
Managing Director Aditya Puri
Director Arvind Pande
Director Ashim Samanta
Director (upto 17/10/06) Bobby Parikh
Director C M Vasudev
Executive Director Harish Engineer
Chairman Jagdish Capoor
Director Gautam Divan
Director(upto 29/03/006) Ranjan Kapur
Executive Director Paresh Sukthankar
Director Renu Karnad
Director Vineet Jain
Director (upto 14/3/07) Venkat Rao Gadwal
Performance of HDFC:
Industry: Banking
Country: India
Size
Valuation
Performance
Market Value $9.8 bil Forward P/E 20 5 yr avg ROC
1
7%
Sales $2.0 bil Price to Sales 4.5 EPS Growth Est
2
24%
Dividend Yield 0.6%
What credit crunch? India's third-largest bank by market cap is in the midst of a credit surge. With the economy
growing at 9% and India's growing professional ranks borrowing more, hdfc is increasing its loan portfolio at a 30%
clip. Raised $600 million in July to meet demand for loans from Indian companies and consumers. More than half its
loans go to individuals, which helped the bank stretch revenues 52% last year. Opening bank branches in rural areas; its
microfinance business doubled last year, says managing director Aditya Puri.
HDFC Banks on India's Growth
According to the International Monetary Fund's recent biannual report, World Economic Outlook, India's economy is
projected to grow by roughly 7.3% in 2006 -- powered by strong performances in the manufacturing and services
sectors -- and by a further 7% in 2007. As Asian Development Bank President Haruhiko Kuroda recently noted,
"India's GDP will double in 10 years if there is a 7% growth rate.
To risk stating the obvious, as India's economy powers ahead, the ranks of the country's 300 million
middle-class consumers will continue to grow, as will demand for consumer goods. India's annual sales
of passenger cars are expected to nearly double to 2 million by 2010; a current nationwide housing
shortage of more than 22 million units, according to the National Real Estate Development Council,
should help fuel housing growth.
India’s credit market
According to The Silk Road To Riches, by Mostrous, Gue, and Martchev, in 2004 India had total loans outstanding in
the economy of just $221 billion. That's a mere 35% of its $649 billion in GDP. In contrast, economic rival China
sported a GDP-to-loan ratio of close to 140% during that period, roughly in line with other regional economies such as
Australia and Korea. In essence, China's economy was a little more than twice the size of India's, but had 10 times
more loans outstanding.
Aside the obvious prospects of lending to expanding corporations such as Tata Motors (NYSE: TTM),
Indian banks have even greater opportunities for growth in the consumer market. Take card issuance and
the home mortgage market, for example.
According to Visa, the world's largest credit card company, fiscal 2005 was a banner year in India, with
spending on its credit cards growing 66% to $3.8 billion. To put that number in perspective, American
consumers spent more than $1.5 trillion on all credit cards during the same period.
The scale of opportunity in the home mortgage market is similarly impressive. The National Real Estate
Development council recently reported that mortgages only accounted for 2% of India's GDP, compared
with 54% in the U.S. HDFC Bank is well-positioned to capitalize on these opportunities.
In a prime spot
HDFC Bank is one of the top mortgage lenders in India, and one of the country's fastest-growing banks. As of the end
of the fiscal year ended March 31, 2006, the company had 535 branches in 228 cities nationwide, as well as 1,323
ATMs, all linked online in real time. HDFC has three divisions -- Retail Banking, Wholesale Banking, and Treasury --
offering everything from mortgages to credit cards to derivatives, and even gold trading. It also offers third-party
products such as life insurance from sister company HDFC Standard Life, as well as mutual funds.
HDFC has distinguished itself as an extremely efficient operator. For example, HDFC boasted an
average cost of deposit of 3.3% for fiscal year 2006, down from 3.9% in 2004, and one of the lowest
rates in the industry. Net interest margin stood at 4%, well ahead of the 2.4% posted by rival ICICI
Bank, and up from 3.8% in 2004. Non-performing loans stood at 1.2%, lower than even many Western
banks, and the company had a Tier 1 capital ratio (basically required reserves) of 8.3%, nearly twice the
Reserve Bank of India's requirement of 4.5%.
In simple terms, this operational efficiency, coupled with the company's growing customer base -- now
9.6 million, up from 1.4 million in 2001 -- has enabled HDFC to post a compound annual earnings
growth rate exceeding 30% since it went public back in July 2001.
HDFC's card business has grown to nearly 3.9 million debit cards and 2.4 million credit cards (up 86%
and 380%, respectively) and carries higher margins than the traditional loan business. Furthermore,
while the company's mortgage sales have been growing strongly, there remains plenty of room for
growth, since HDFC holds less than 5% of India's fragmented loan market.
Shares of HDFC Bank aren't exactly inexpensive, trading at around 17 times forward earnings. I know
that's pretty rich -- especially for an emerging-market bank in these uncertain times -- but it does
represent a 43% discount to its projected long-term growth rate, which may likely prove conservative.
Awards and Achievements - Banking Services
HDFC Bank began operations in 1995 with a simple mission: to be a "World-class Indian Bank". We realised that
only a single-minded focus on product quality and service excellence would help us get there. Today, we are proud to
say that we are well on our way towards that goal.
It is extremely gratifying that our efforts towards providing customer convenience have been appreciated
both nationally and internationally.
2007
Outlook Money & NDTV
Profit
Best Bank award in the Private sector category.
The Asian Banker
Excellence in Retail
Financial Services Awards
Best Retail Bank in India
Asian Banker Our Managing Director Aditya Puri wins the Leadership Achievement Award for
India
2006
Business Today Best Bank in India.
Forbes Magazine One of Asia Pacific's Best 50 companies.
Businessworld Best listed Bank of India.
The Asset Magazine's
Triple A Country Awards
Best Domestic Bank.
Asiamoney Awards Best Local Cash Management Bank in Large and Medium segments.
Euromoney Awards "Best Bank" in India.
2005
Asiamoney Awards Best Domestic Commercial Bank
Asiamoney Awards Best Cash Management Bank - India .
The Asian Banker Retail Banking Risk Management Award in India.
Excellence
Hong Kong-based Finance
Asia magazine
Best Bank India
Economic Times Awards "Company of the Year" Award for Corporate Excellence.
The Asset Triple A
Country Awards
Best Domestic Bank in India Region - 2005
The Business Today-
KPMG Survey
Best Local Cash Management Bank in India US$11-100m - 2005
The Business Today-
KPMG Survey
"Best Bank in India" for the third consecutive year in 2005.
Economic Times - Avaya
Global Connect Customer
Responsiveness Awards
"Most Customer Responsive Company - Banking and Financial Services - 2005
2004
Asiamoney Awards Best Local Cash Management Bank in India US$11-100m
Asiamoney Awards Best Local Cash Management Bank in India >US$501m
Asiamoney Awards Best Local Cash Management Bank in India 1989-2004 (poll of polls)
Asiamoney Awards Best Overall Domestic Trade Finance Services in India - 2004
Asiamoney Awards Most Improved company for Best Management Practices in India - 2004
Business World One of India's Most Respected Companies - 2004
Forbes Global Best Under a Billion, 100 Best Smaller Size Enterprises in Asia/Pacific and Europe
- 2004
Asian Banker Awards Operational Excellence in Retail Financial Services - 2004
The Asset Triple A
Country Awards
Best Domestic Bank in India - 2004
HDFC Bank Agrees to India's Biggest Banking Takeover
HDFC Bank Ltd., India's third- biggest by market value, agreed to acquire Centurion Bank of Punjab Ltd. in the nation's
biggest banking takeover as it seeks to extend its reach and become more competitive. The boards of both banks will meet
on Feb. 25 to set the share-swap ratio, and on Feb. 28 to consider the merger, the lenders said in a joint statement in Mumbai
today. Centurion is worth $2.6 billion, one-fourth HDFC Bank's value.
HDFC Bank would add 2.5 million customers at 394 branches, extending its reach before the central bank reviews rules next
year to permit Citigroup Inc. and other overseas banks to buy local rivals. Indian banks combined are worth less than half the
value of the Industrial & Commercial Bank of China Ltd., the world's biggest, according to Bloomberg data.
HDFC Bank's strong financial position and the aggressive management team from Centurion Bank can be the right kind of
competition to the fast-growing ICICI, P.R. Dilip, managing director at Impetus Wealth Management, said in Mumbai. The
merged entity will have 1,148 branches, surpassing the 955 of ICICI Bank Ltd., the second-largest lender, according to their
Web sites. The transaction must be approved by the central bank and shareholders, the banks said today.
State Bank of India, ICICI and other local lenders are vying for a larger share in an economy estimated to expand 8.7 percent
this financial year. The 200-year-old State Bank plans to combine its seven units with itself.
Centurion shares fell 1.1 percent yesterday to 56.4 rupees in Mumbai, after surging 14.4 percent on Feb. 21 amid newspaper
reports about the merger. HDFC Bank fell 4.4 percent to 1,474.95, valuing the lender at 522 billion rupees ($13 billion).
OverseasPush
HDFC Bank may raise as much as $1 billion to fund expansion abroad and plans to open offices in Bahrain, Hong Kong and
London in a year. State Bank of India, the nation's biggest by assets, is currently raising $4.2 billion selling shares to
stakeholders to finance growth. ICICI Bank sold $5 billion of shares to local and overseas investors in June.
Both HDFC Bank and Centurion Bank got licenses in the mid- 1990s as part of the central bank's initiative to encourage so-
called new-age banks that would operate efficiently with the latest technology to compete with global banks. HDFC Bank has
10 million customers, compared with Centurion's 2.5 million.
FINANIAL ANALYSIS:
Balance sheet (Rs crore)
Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04 Mar ' 03
Sources of funds
Owner's fund
Equity share capital 319.39 313.14 309.88 284.79 282.05
Share application money - 0.07 0.43 1.45 6.91
Preference share capital - - - - -
Reserves & surplus 6,113.76 4,986.39 4,209.97 2,407.09 1,962.78
Loan funds
Secured loans - - - - -
Unsecured loans 68,297.94 55,796.82 36,354.25 30,408.86 22,376.07
Total 74,731.09 61,096.42 40,874.53 33,102.19 24,627.81
Uses of funds
Fixed assets
Gross block 1,917.56 1,589.47 1,290.51 1,061.33 854.11
Less : revaluation reserve - - - - -
Less : accumulated depreciation 950.89 734.39 582.19 444.42 325.53
Net block 966.67 855.08 708.32 616.91 528.58
Capital work-in-progress - - - - -
Investments 30,564.80 28,393.96 19,349.81 19,256.79 13,388.08
Net current assets
Current assets, loans & advances 3,605.48 2,277.09 1,330.57 1,031.23 1,583.34
Less : current liabilities & provisions 13,689.13 7,849.49 5,264.46 6,296.98 3,511.62
Total net current assets -10,083.65 -5,572.40 -3,933.89 -5,265.75 -1,928.28
Miscellaneous expenses not written - - - - -
Total 21,447.82 23,676.64 16,124.24 14,607.95 11,988.38
Notes:
Book value of unquoted investments - - - - -
Market value of quoted investments - - - - -
Contingent liabilities 2,09,338.61 1,44,137.86 89,928.65 82,116.17 41,559.85
Number of equity shares outstanding (Lacs) 3193.90 3131.42 3098.75 2847.92 2820.46
Profit loss account (Rs crore)
Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04 Mar ' 03
Income:
Operating income 8,303.34 5,567.67 3,723.86 2,970.15 2,441.77
Expenses
Material consumed - - - - -
Manufacturing expenses - - - - -
Personnel expenses 776.86 486.82 276.67 204.09 151.95
Selling expenses 74.88 80.85 54.95 37.06 17.51
Adminstrative expenses 1,519.32 1,424.59 785.93 621.41 354.18
Expenses capitalised - - - - -
Cost of sales 2,371.06 1,992.26 1,117.55 862.56 523.64
Operating profit 2,752.83 1,645.91 1,290.75 896.54 726.17
Other recurring income 102.96 31.38 20.76 59.26 53.22
Adjusted PBDIT 2,855.79 1,677.29 1,311.51 955.80 779.39
Financial expenses 3,179.45 1,929.50 1,315.56 1,211.05 1,191.96
Depreciation 219.60 178.59 144.07 125.72 158.71
Other write offs 241.09 245.16 188.06 93.22 50.44
Adjusted PBT 2,395.10 1,253.54 979.38 736.86 570.24
Tax charges 497.70 383.03 314.03 210.21 183.72
Adjusted PAT 1,142.50 870.51 665.35 509.95 386.52
Non recurring items -1.05 0.27 0.21 -0.45 1.08
Other non cash adjustments -0.35 - -0.26 - -
Reported net profit 1,141.10 870.78 665.30 509.50 387.60
Earnigs before appropriation 2,596.12 1,473.12 1,070.62 865.63 577.98
Equity dividend 223.57 172.23 140.07 100.05 85.05
Preference dividend - - - - -
Dividend tax 38.00 24.16 19.64 12.82 10.88
Retained earnings 2,334.55 1,276.73 910.91 752.76 482.05
Ratios (Rs crore)
Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04 Mar ' 03
Per share ratios
Adjusted EPS (Rs) 35.77 27.80 21.47 17.91 13.70
Adjusted cash EPS (Rs) 50.20 41.33 32.19 25.59 21.12
Reported EPS (Rs) 35.74 27.81 21.48 17.89 13.74
Reported cash EPS (Rs) 50.16 41.34 32.20 25.58 21.16
Dividend per share 7.00 5.50 4.50 3.50 3.00
Operating profit per share (Rs) 86.19 52.56 41.65 31.48 25.75
Book value (excl rev res) per share (Rs) 201.42 169.24 145.86 94.52 79.59
Book value (incl rev res) per share (Rs.) 201.42 169.24 145.86 94.52 79.59
Net operating income per share (Rs) 259.98 177.80 120.17 104.29 86.57
Free reserves per share (Rs) 155.69 132.01 99.78 53.76 49.04
Profitability ratios
Operating margin (%) 33.15 29.56 34.66 30.18 29.73
Gross profit margin (%) 30.50 26.35 30.79 25.95 23.23
Net profit margin (%) 13.57 15.55 17.77 16.81 15.53
Adjusted cash margin (%) 19.07 23.11 26.63 24.06 23.87
Adjusted return on net worth (%) 17.75 16.42 14.72 18.94 17.21
Reported return on net worth (%) 17.74 16.43 14.72 18.92 17.26
Return on long term funds (%) 74.91 60.06 50.77 71.74 78.50
Leverage ratios
Long term debt / Equity - - - - -
Total debt/equity 10.62 10.53 8.04 11.30 9.97
Owners fund as % of total source 8.60 8.67 11.05 8.13 9.11
Fixed assets turnover ratio 4.33 3.50 2.89 2.80 2.86
Liquidity ratios
Current ratio 0.26 0.29 0.25 0.16 0.45
Current ratio (inc. st loans) 0.04 0.03 0.03 0.02 0.06
Quick ratio 4.07 5.18 5.61 3.39 4.39
Inventory turnover ratio - - - - -
Payout ratios
Dividend payout ratio (net profit) 22.91 22.55 23.99 22.15 24.74
Dividend payout ratio (cash profit) 16.32 15.17 16.00 15.49 16.07
Earning retention ratio 77.11 77.44 76.00 77.87 75.19
Cash earnings retention ratio 83.69 84.83 83.99 84.52 83.90
Coverage ratios
Adjusted cash flow time total debt 42.60 43.11 36.45 41.72 37.56
Financial charges coverage ratio 1.90 1.87 2.00 1.79 1.65
Fin. charges cov.ratio (post tax) 1.50 1.67 1.76 1.60 1.50
Component ratios
Material cost component (% earnings) - - - - -
Selling cost Component 0.90 1.45 1.47 1.24 0.71
Exports as percent of total sales - - - - -
Import comp. in raw mat. consumed - - - - -
Long term assets / total Assets 0.89 0.92 0.93 0.95 0.89
Bonus component in equity capital (%) - - - - -
ICICI BANK
ICICI Bank is India's second-largest bank with total assets of Rs. 3,767.00 billion (US$ 96 billion) at December 31, 2007
and profit after tax of Rs. 30.08 billion for the nine months ended December 31, 2007. ICICI Bank is second amongst all the
companies listed on the Indian stock exchanges in terms of free float market capitalization. The Bank has a network of about
955 branches and 3,687 ATMs in India and presence in 17 countries. ICICI Bank offers a wide range of banking products
and financial services to corporate and retail customers through a variety of delivery channels and through its specialized
subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset
management. The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in Unites States,
Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in
United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has
established a branch in Belgium.
ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock Exchange
of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange
(NYSE)
History
ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its
wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering
of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000,
ICICI Bank's acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and
secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed
in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry.
The principal objective was to create a development financial institution for providing medium-term and
long-term project financing to Indian businesses. In the 1990s, ICICI transformed its business from a
development financial institution offering only project finance to a diversified financial services group
offering a wide variety of products and services, both directly and through a number of subsidiaries and
affiliates like ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial
institution from non-Japan Asia to be listed on the NYSE.
After consideration of various corporate structuring alternatives in the context of the emerging competitive
scenario in the Indian banking industry, and the move towards universal banking, the managements of ICICI
and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic
alternative for both entities, and would create the optimal legal structure for the ICICI group's universal
banking strategy. The merger would enhance value for ICICI shareholders through the merged entity's access
to low-cost deposits, greater opportunities for earning fee-based income and the ability to participate in the
payments system and provide transaction-banking services. The merger would enhance value for ICICI Bank
shareholders through a large capital base and scale of operations, seamless access to ICICI's strong corporate
relationships built up over five decades, entry into new business segments, higher market share in various
business segments, particularly fee-based services, and access to the vast talent pool of ICICI and its
subsidiaries. In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of
ICICI and two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial Services Limited and
ICICI Capital Services Limited, with ICICI Bank. The merger was approved by shareholders of ICICI and
ICICI Bank in January 2002, by the High Court of Gujarat at Ahmedabad in March 2002, and by the High
Court of Judicature at Mumbai and the Reserve Bank of India in April 2002. Consequent to the merger, the
ICICI group's financing and banking operations, both wholesale and retail, have been integrated in a single
entity.
NON-FINANCIAL ANALYSIS:
Board Members
Mr. N. Vaghul, Chairman
Mr. Sridar Iyengar
Mr. Lakshmi N. Mittal
Mr. Narendra Murkumbi
Mr. Anupam Puri
Mr. Arun Ramanathan
Mr. M.K. Sharma
Mr. P.M. Sinha
Prof. Marti G. Subrahmanyam
Mr. T.S. Vijayan
Mr. V. Prem Watsa
Mr. K.V. Kamath, Managing Director & CEO
Ms. Chanda Kochhar, Joint Managing Director & Chief Financial Officer
Mr. V. Vaidyanathan, Executive Director
Ms. Madhabi Puri-Buch, Executive Director
Mr. Sonjoy Chatterjee, Executive Director
Board Committees
Audit Committee
Board Governance &
Remuneration Committee
Mr. Sridar Iyengar
Mr. Narendra Murkumbi
Mr. M. K. Sharma
Mr. N. Vaghul
Mr. Anupam Puri
Mr. M. K. Sharma
Mr. P. M. Sinha
Prof. Marti G. Subrahmanyam
Customer Service Committee Credit Committee
Mr. N. Vaghul
Mr. Narendra Murkumbi
Mr. M.K. Sharma
Mr. P.M. Sinha
Mr. K. V. Kamath
Mr. N. Vaghul
Mr. Narendra Murkumbi
Mr. M .K. Sharma
Mr. P. M. Sinha
Mr. K. V. Kamath
Fraud Monitoring Committee Risk Committee
Mr. M. K. Sharma
Mr. Narendra Murkumbi
Mr. K. V. Kamath
Ms. Chanda D. Kochhar
Mr. V. Vaidyanathan
Mr. N. Vaghul
Mr. Sridar Iyengar
Prof. Marti G. Subrahmanyam
Mr. V. Prem Watsa
Mr. K. V. Kamath
Share Transfer & Shareholders'/
Investors' Grievance Committee
Asset-Liability Management
Committee
Mr. M. K. Sharma
Mr. Narendra Murkumbi
Ms. Chanda D. Kochhar
Ms. Madhabi Puri-Buch
Ms. Chanda D. Kochhar
Ms. Madhabi Puri-Buch
Mr. Sonjoy Chatterjee
Mr. V. Vaidyanathan
Committee of Directors
Mr. K. V. Kamath
Ms. Chanda D. Kochhar
Ms. Madhabi Puri-Buch
Mr. Sonjoy Chatterjee
Mr. V. Vaidyanathan
Performance Review: -2008
Highlights
? 35% increase in profit after tax to Rs. 12.30 billion in 2008 from Rs. 9.10 billion in 2007
? 32% increase in net interest income to Rs. 19.60 billion in 2008 from Rs. 14.85
billion in 2007
? 33% increase in fee income to Rs. 17.85 billion in Q3- 2008 from Rs. 13.45
billion in Q3-2007
? 25% growth in total advances to Rs. 2,155.17 bn at December 31, 2007 from Rs.
1,727.63 bn at December 31, 2006
? Retail loan growth at 12%
? Continued growth in loan portfolio of international
branches with 115% y-o-y growth
? Deposit growth of 17% from Rs. 1,968.93 bn at December 31, 2006 to Rs.
2,297.79 bn at December 31, 2007
? CASA deposit growth of 33%
FINANCIAL ANALYSIS:
Balance sheet (Rs crore)
Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04 Mar ' 03
Sources of funds
Owner's fund
Equity share capital 899.34 889.83 736.75 616.40 612.66
Share application money - - 0.02 - -
Preference share capital 350.00 350.00 350.00 350.00 350.00
Reserves & surplus 23,413.92 21,316.16 11,813.20 7,394.16 6,320.65
Loan funds
Secured loans - - - - -
Unsecured loans 2,30,510.19 1,65,083.17 99,818.78 68,108.58 48,169.31
Total 2,55,173.45 1,87,639.16 1,12,718.75 76,469.14 55,452.62
Uses of funds
Fixed assets
Gross block 6,298.56 5,968.57 5,525.65 5,090.20 4,812.98
Less : revaluation reserve - - - - -
Less : accumulated depreciation 2,375.14 1,987.85 1,487.61 1,033.79 752.26
Net block 3,923.42 3,980.71 4,038.04 4,056.41 4,060.73
Capital work-in-progress 189.66 147.94 96.30 93.99 156.21
Investments 91,257.84 71,547.39 50,487.35 42,742.86 35,462.30
Net current assets
Current assets, loans & advances 23,551.85 15,642.79 11,115.99 9,107.61 8,169.24
Less : current liabilities & provisions 38,228.64 25,227.88 21,396.16 18,019.49 17,056.93
Total net current assets -14,676.78 -9,585.09 -10,280.17 -8,911.89 -8,887.68
Miscellaneous expenses not written - - - - -
Total 80,694.15 66,090.96 44,341.52 37,981.38 30,791.56
Notes:
Book value of unquoted investments - - - - -
Market value of quoted investments - - - - -
Contingent liabilities 1,99,771.41 1,34,920.99 1,07,311.46 82,116.13 46,339.01
Number of equity shares outstanding (Lacs) 8992.67 8898.24 7367.16 6130.21 6130.31
Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04 Mar ' 03
Per share ratios
Adjusted EPS (Rs) 33.30 28.47 27.25 26.76 19.78
Adjusted cash EPS (Rs) 39.36 35.48 35.26 35.56 28.03
Reported EPS (Rs) 34.59 28.55 27.22 26.71 19.68
Reported cash EPS (Rs) 40.64 35.56 35.23 35.51 27.93
Dividend per share 10.00 8.50 8.50 7.50 7.50
Operating profit per share (Rs) 42.19 36.75 36.37 34.06 14.40
Book value (excl rev res) per share (Rs) 270.37 249.55 170.35 130.67 113.10
Book value (incl rev res) per share (Rs.) 270.37 249.55 170.35 130.67 113.10
Net operating income per share (Rs) 316.45 196.87 160.69 187.90 190.10
Free reserves per share (Rs) 200.08 193.24 110.70 66.38 70.11
Profitability ratios
Operating margin (%) 13.33 18.66 22.63 18.12 7.57
Gross profit margin (%) 11.41 15.10 17.64 13.44 3.23
Net profit margin (%) 10.81 14.12 16.32 13.67 9.86
Adjusted cash margin (%) 12.30 17.55 21.14 18.20 14.05
Adjusted return on net worth (%) 12.31 11.40 15.99 20.47 17.49
Reported return on net worth (%) 12.79 11.43 15.97 20.43 17.39
Return on long term funds (%) 82.46 56.24 70.54 106.69 119.87
Leverage ratios
Long term debt / Equity 0.01 0.01 0.02 0.04 0.05
Total debt/equity 9.50 7.45 7.98 8.55 7.00
Owners fund as % of total source 9.52 11.83 11.13 10.47 12.50
Fixed assets turnover ratio 4.52 2.94 2.14 2.26 2.42
Liquidity ratios
Current ratio 0.61 0.62 0.51 0.50 0.47
Current ratio (inc. st loans) 0.08 0.08 0.09 0.10 0.12
Quick ratio 6.04 6.64 4.98 4.18 3.84
Inventory turnover ratio - - - - -
Payout ratios
Dividend payout ratio (net profit) 33.89 34.08 36.05 37.49 43.00
Dividend payout ratio (cash profit) 28.84 27.36 27.85 28.19 30.29
Earning retention ratio 64.80 65.82 63.98 62.59 57.23
Cash earnings retention ratio 70.22 72.58 72.17 71.85 69.82
Coverage ratios
Adjusted cash flow time total debt 65.12 52.30 38.43 31.25 28.03
Financial charges coverage ratio 1.25 1.39 1.48 1.36 1.18
Fin. charges cov.ratio (post tax) 1.22 1.33 1.40 1.31 1.22
Component ratios
Material cost component (% earnings) - - - - -
Selling cost Component 6.12 4.80 5.08 0.59 0.49
Exports as percent of total sales - - - - -
Import comp. in raw mat. consumed - - - - -
Long term assets / total Assets 0.80 0.82 0.83 0.83 0.82
Bonus component in equity capital (%) - - - - -
State Bank of India
The Bank is actively involved since 1973 in non-profit activity called Community Services Banking. All our branches and
administrative offices throughout the country sponsor and participate in large number of welfare activities and social causes. Our
business is more than banking because we touch the lives of people anywhere in many
ways.
Our commitment to nation-building is complete & comprehensive.
TRANSFORMATION JOURNEY IN STATE BANK OF INDIA
The State Bank of India, the country’s oldest Bank and a premier in terms of balance sheet size, number of branches, market
capitalization and profits is today going through a momentous phase of Change and Transformation – the two hundred year old
Public sector behemoth is today stirring out of its Public Sector legacy and moving with an agility to give the Private and Foreign
Banks a run for their money.
The bank is entering into many new businesses with strategic tie ups – Pension Funds, General Insurance, Custodial Services,
Private Equity, Mobile Banking, Point of Sale Merchant Acquisition, Advisory Services, structured products etc – each one of
these initiatives having a huge potential for growth.
The Bank is forging ahead with cutting edge technology and innovative new banking models, to expand its Rural Banking base,
looking at the vast untapped potential in the hinterland and proposes to cover 100,000 villages in the next two years.
It is also focusing at the top end of the market, on whole sale banking capabilities to provide India’s growing mid / large
Corporate with a complete array of products and services. It is consolidating its global treasury operations and entering into
structured products and derivative instruments. Today, the Bank is the largest provider of infrastructure debt and the largest
arranger of external commercial borrowings in the country. It is the only Indian bank to feature in the Fortune 500 list.
The Bank is changing outdated front and back end processes to modern customer friendly processes to help improve the total
customer experience. With about 8500 of its own 10000 branches and another 5100 branches of its Associate Banks already
networked, today it offers the largest banking network to the Indian customer. The Bank is also in the process of providing
complete payment solution to its clientele with its over 8500 ATMs, and other electronic channels such as Internet banking, debit
cards, mobile banking, etc.
With four national level Apex Training Colleges and 54 learning Centres spread all over the country the Bank is continuously
engaged in skill enhancement of its employees. Some of the training programes are attended by bankers from banks in other
countries.
The bank is also looking at opportunities to grow in size in India as well as Internationally. It presently has 82 foreign offices in 32
countries across the globe. It has also 7 Subsidiaries in India – SBI Capital Markets, SBICAP Securities, SBI DFHI, SBI Factors,
SBI Life and SBI Cards - forming a formidable group in the Indian Banking scenario. It is in the process of raising capital for its
growth and also consolidating its various holdings.
Throughout all this change, the Bank is also attempting to change old mindsets, attitudes and take all employees together on this
exciting road to Transformation. In a recently concluded mass internal communication programme termed ‘Parivartan’ the Bank
rolled out over 3300 two day workshops across the country and covered over 130,000 employees in a period of 100 days using
about 400 Trainers, to drive home the message of Change and inclusiveness. The workshops fired the imagination of the
employees with some other banks in India as well as other Public Sector Organizations seeking to emulate the programme.
The CNN IBN, Network 18 recognized this momentous transformation journey, the State Bank of India is undertaking, and has
awarded the prestigious Indian of the Year – Business, to its Chairman, Mr. O. P. Bhatt in January 2008.
EVOLUTION OF SBI
The origin of the State Bank of India goes back to the first decade of the nineteenth century with
the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three years later the bank
received its charter and was re-designed as the Bank of Bengal (2 January 1809). A unique
institution, it was the first joint-stock bank of British India sponsored by the Government of
Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July 1843) followed the
Bank of Bengal. These three banks remained at the apex of modern banking in India till their
amalgamation as the Imperial Bank of India on 27 January 1921.
Primarily Anglo-Indian creations, the three presidency banks came into existence either as a
result of the compulsions of imperial finance or by the felt needs of local European commerce
and were not imposed from outside in an arbitrary manner to modernize India's economy. Their
evolution was, however, shaped by ideas culled from similar developments in Europe and
England, and was influenced by changes occurring in the structure of both the local trading
environment and those in the relations of the Indian economy to the economy of Europe and the
global economic framework.
Bank of Bengal H.O.
Establishment
The establishment of the Bank of Bengal marked the advent of limited liability, joint-stock
banking in India. So was the associated innovation in banking, viz. the decision to allow the Bank
of Bengal to issue notes, which would be accepted for payment of public revenues within a
restricted geographical area. This right of note issue was very valuable not only for the Bank of
Bengal but also its two siblings, the Banks of Bombay and Madras. It meant an accretion to the
capital of the banks, a capital on which the proprietors did not have to pay any interest. The
concept of deposit banking was also an innovation because the practice of accepting money for
safekeeping (and in some cases, even investment on behalf of the clients) by the indigenous
bankers had not spread as a general habit in most parts of India. But, for a long time, and
especially upto the time that the three presidency banks had a right of note issue, bank notes and
government balances made up the bulk of the investible resources of the banks.
The three banks were governed by royal charters, which were revised from time to time. Each
charter provided for a share capital, four-fifth of which were privately subscribed and the rest
owned by the provincial government. The members of the board of directors, which managed the
affairs of each bank, were mostly proprietary directors representing the large European managing
agency houses in India. The rest were government nominees, invariably civil servants, one of
whom was elected as the president of the board.
Group Photogaph of Central Board (1921)
The business of the banks was initially confined to discounting of bills of exchange or other
negotiable private securities, keeping cash accounts and receiving deposits and issuing and
circulating cash notes. Loans were restricted to Rs.one lakh and the period of accommodation
confined to three months only. The security for such loans was public securities, commonly
called Company's Paper, bullion, treasure, plate, jewels, or goods 'not of a perishable nature' and
no interest could be charged beyond a rate of twelve per cent. Loans against goods like opium,
indigo, salt woollens, cotton, cotton piece goods, mule twist and silk goods were also granted but
such finance by way of cash credits gained momentum only from the third decade of the
nineteenth century. All commodities, including tea, sugar and jute, which began to be financed
later, were either pledged or hypothecated to the bank. Demand promissory notes were signed by
the borrower in favour of the guarantor, which was in turn endorsed to the bank. Lending against
shares of the banks or on the mortgage of houses, land or other real property was, however,
forbidden.
Indians were the principal borrowers against deposit of Company's paper, while the business of
discounts on private as well as salary bills was almost the exclusive monopoly of individuals
Europeans and their partnership firms. But the main function of the three banks, as far as the
government was concerned, was to help the latter raise loans from time to time and also provide a
degree of stability to the prices of government securities.
Old Bank of Bengal
Major change in the conditions
A major change in the conditions of operation of the Banks of Bengal, Bombay and Madras
occurred after 1860. With the passing of the Paper Currency Act of 1861, the right of note issue
of the presidency banks was abolished and the Government of India assumed from 1 March 1862
the sole power of issuing paper currency within British India. The task of management and
circulation of the new currency notes was conferred on the presidency banks and the Government
undertook to transfer the Treasury balances to the banks at places where the banks would open
branches. None of the three banks had till then any branches (except the sole attempt and that too
a short-lived one by the Bank of Bengal at Mirzapore in 1839) although the charters had given
them such authority. But as soon as the three presidency bands were assured of the free use of
government Treasury balances at places where they would open branches, they embarked on
branch expansion at a rapid pace. By 1876, the branches, agencies and sub agencies of the three
presidency banks covered most of the major parts and many of the inland trade centres in India.
While the Bank of Bengal had eighteen branches including its head office, seasonal branches and
sub agencies, the Banks of Bombay and Madras had fifteen each.
Presidency Banks Act
The presidency Banks Act, which came into operation on 1 May 1876, brought the three
presidency banks under a common statute with similar restrictions on business. The proprietary
connection of the Government was, however, terminated, though the banks continued to hold
charge of the public debt offices in the three presidency towns, and the custody of a part of the
government balances. The Act also stipulated the creation of Reserve Treasuries at Calcutta,
Bombay and Madras into which sums above the specified minimum balances promised to the
presidency banks at only their head offices were to be lodged. The Government could lend to the
presidency banks from such Reserve Treasuries but the latter could look upon them more as a
favour than as a right.
Bank of Madras
The decision of the Government to keep the surplus balances in Reserve Treasuries outside the
normal control of the presidency banks and the connected decision not to guarantee minimum
government balances at new places where branches were to be opened effectively checked the
growth of new branches after 1876. The pace of expansion witnessed in the previous decade fell
sharply although, in the case of the Bank of Madras, it continued on a modest scale as the profits
of that bank were mainly derived from trade dispersed among a number of port towns and inland
centres of the presidency.
India witnessed rapid commercialisation in the last quarter of the nineteenth century as its railway
network expanded to cover all the major regions of the country. New irrigation networks in
Madras, Punjab and Sind accelerated the process of conversion of subsistence crops into cash
crops, a portion of which found its way into the foreign markets. Tea and coffee plantations
transformed large areas of the eastern Terais, the hills of Assam and the Nilgiris into regions of
estate agriculture par excellence. All these resulted in the expansion of India's international trade
more than six-fold. The three presidency banks were both beneficiaries and promoters of this
commercialization process as they became involved in the financing of practically every trading,
manufacturing and mining activity in the sub-continent. While the Banks of Bengal and Bombay
were engaged in the financing of large modern manufacturing industries, the Bank of Madras
went into the financing of large modern manufacturing industries; the Bank of Madras went into
the financing of small-scale industries in a way which had no parallel elsewhere. But the three
banks were rigorously excluded from any business involving foreign exchange. Not only was
such business considered risky for these banks, which held government deposits, it was also
feared that these banks enjoying government patronage would offer unfair competition to the
exchange banks which had by then arrived in India. This exclusion continued till the creation of
the Reserve Bank of India in 1935.
Bank of Bombay
Presidency Banks of Bengal
The presidency Banks of Bengal, Bombay and Madras with their 70 branches were merged in
1921 to form the Imperial Bank of India. The triad had been transformed into a monolith and a
giant among Indian commercial banks had emerged. The new bank took on the triple role of a
commercial bank, a banker's bank and a banker to the government.
But this creation was preceded by years of deliberations on the need for a 'State Bank of India'.
What eventually emerged was a 'half-way house' combining the functions of a commercial bank
and a quasi-central bank.
The establishment of the Reserve Bank of India as the central bank of the country in 1935 ended
the quasi-central banking role of the Imperial Bank. The latter ceased to be bankers to the
Government of India and instead became agent of the Reserve Bank for the transaction of
government business at centres at which the central bank was not established. But it continued to
maintain currency chests and small coin depots and operate the remittance facilities scheme for
other banks and the public on terms stipulated by the Reserve Bank. It also acted as a bankers'
bank by holding their surplus cash and granting them advances against authorised securities. The
management of the bank clearing houses also continued with it at many places where the Reserve
Bank did not have offices. The bank was also the biggest tenderer at the Treasury bill auctions
conducted by the Reserve Bank on behalf of the Government.
The establishment of the Reserve Bank simultaneously saw important amendments being made to
the constitution of the Imperial Bank converting it into a purely commercial bank. The earlier
restrictions on its business were removed and the bank was permitted to undertake foreign
exchange business and executor and trustee business for the first time.
ImperialBank
The Imperial Bank during the three and a half decades of its existence recorded an impressive
growth in terms of offices, reserves, deposits, investments and advances, the increases in some
cases amounting to more than six-fold. The financial status and security inherited from its
forerunners no doubt provided a firm and durable platform. But the lofty traditions of banking
which the Imperial Bank consistently maintained and the high standard of integrity it observed in
its operations inspired confidence in its depositors that no other bank in India could perhaps then
equal. All these enabled the Imperial Bank to acquire a pre-eminent position in the Indian
banking industry and also secure a vital place in the country's economic life.
Stamp of Imperial Bank of India
When India attained freedom, the Imperial Bank had a capital base (including reserves) of
Rs.11.85 crores, deposits and advances of Rs.275.14 crores and Rs.72.94 crores respectively and
a network of 172 branches and more than 200 sub offices extending all over the country.
First Five Year Plan
In 1951, when the First Five Year Plan was launched, the development of rural India was given
the highest priority. The commercial banks of the country including the Imperial Bank of India
had till then confined their operations to the urban sector and were not equipped to respond to the
emergent needs of economic regeneration of the rural areas. In order, therefore, to serve the
economy in general and the rural sector in particular, the All India Rural Credit Survey
Committee recommended the creation of a state-partnered and state-sponsored bank by taking
over the Imperial Bank of India, and integrating with it, the former state-owned or state-associate
banks. An act was accordingly passed in Parliament in May 1955 and the State Bank of India was
constituted on 1 July 1955. More than a quarter of the resources of the Indian banking system
thus passed under the direct control of the State. Later, the State Bank of India (Subsidiary Banks)
Act was passed in 1959, enabling the State Bank of India to take over eight former State-
associated banks as its subsidiaries (later named Associates).
The State Bank of India was thus born with a new sense of social purpose aided by the 480
offices comprising branches, sub offices and three Local Head Offices inherited from the Imperial
Bank. The concept of banking as mere repositories of the community's savings and lenders to
creditworthy parties was soon to give way to the concept of purposeful banking subserving the
growing and diversified financial needs of planned economic development. The State Bank of
India was destined to act as the pacesetter in this respect and lead the Indian banking system into
the exciting field of national development.
NON-FINANCIAL ANALYSIS:
BOARD OF DIRECTORS
Sl.No. Name of Director Sec. of SBI Act, 1955
1.
Shri O.P. Bhatt
Chairman
19(a)
2.
Shri S.K. Bhattacharyya
MD & CC&RO
19 (b)
3. Shri Suman Kumar Bery 19(c)
4. Dr. Ashok Jhunjhunwala 19(c)
5. Shri Ananta Chandra Kalita 19(ca)
6. Shri Amar Pal 19(cb)
7. Dr. Deva Nand Balodhi 19(d)
8.
Prof. Mohd. Salahuddin Ansari
19(d)
9.
Dr.(Mrs.) Vasantha Bharucha
19(d)
10.
Shri Arun Ramanathan
19(e)
11. Smt. Shyamala Gopinath 19(f)
:
FINANCIAL ANALYSIS:
Balance sheet (Rs crore)
Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04 Mar ' 03
Sources of funds
Owner's fund
Equity share capital 526.30 526.30 526.30 526.30 526.30
Share application money - - - - -
Preference share capital - - - - -
Reserves & surplus 30,772.26 27,117.79 23,545.84 19,704.98 16,677.08
Loan funds
Secured loans - - - - -
Unsecured loans 4,35,521.09 3,80,046.06 3,67,047.53 3,18,618.67 2,96,123.28
Total 4,66,819.65 4,07,690.14 3,91,119.66 3,38,849.95 3,13,326.66
Uses of funds
Fixed assets
Gross block 8,061.92 7,424.84 6,691.09 5,897.96 5,100.85
Less : revaluation reserve - - - - -
Less : accumulated depreciation 5,385.01 4,751.73 4,114.67 3,399.38 2,739.97
Net block 2,676.91 2,673.11 2,576.43 2,498.57 2,360.88
Capital work-in-progress 141.95 79.82 121.27 146.54 27.67
Investments 1,49,148.88 1,62,534.24 1,97,097.91 1,85,676.48 1,72,347.91
Net current assets
Current assets, loans & advances 25,292.31 22,380.84 18,390.71 17,993.53 18,200.56
Less : current liabilities & provisions 60,042.26 55,538.17 49,578.89 55,534.00 53,246.21
Total net current assets -34,749.95 -33,157.32 -31,188.18 -37,540.47 -35,045.65
Miscellaneous expenses not written - - - - -
Total 1,17,217.80 1,32,129.85 1,68,607.42 1,50,781.13 1,39,690.80
Notes:
Book value of unquoted investments - - - - -
Market value of quoted investments - - - - -
Contingent liabilities 3,29,954.73 2,49,437.78 1,76,119.50 1,22,018.86 1,13,633.13
Number of equity sharesoutstanding (Lacs) 5262.99 5262.99 5262.99 5262.99 5262.99
Profit loss account (Rs crore)
Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04 Mar ' 03
Income:
Operating income 43,860.57 37,869.52 36,470.27 37,005.81 36,154.26
Expenses
Material consumed - - - - -
Manufacturing expenses - - - - -
Personnel expenses 7,932.58 8,123.04 6,552.83 6,447.69 5,688.72
Selling expenses 88.43 109.44 67.08 67.36 34.44
Adminstrative expenses 4,628.38 2,911.29 3,551.53 5,725.45 4,318.00
Expenses capitalised - - - - -
Cost of sales 12,649.38 11,143.78 10,171.44 12,240.50 10,041.16
Operating profit 7,774.36 6,566.46 7,815.45 5,491.13 5,003.63
Other recurring income 1,008.35 1,413.65 740.10 582.11 253.73
Adjusted PBDIT 8,782.71 7,980.11 8,555.55 6,073.24 5,257.37
Financial expenses 23,436.82 20,159.29 18,483.38 19,274.18 21,109.46
Depreciation 602.39 729.13 752.21 698.35 493.69
Other write offs - - - - -
Adjusted PBT 8,180.32 7,250.98 7,803.34 5,374.89 4,763.68
Tax charges 3,083.77 2,499.48 2,217.08 546.64 2,162.50
Adjusted PAT 4,529.18 4,404.73 4,659.86 4,379.16 3,105.27
Non recurring items 12.13 1.94 -355.35 -0.44 -0.27
Other non cash adjustments - - - -697.72 -
Reported net profit 4,541.31 4,406.67 4,304.52 3,681.00 3,105.00
Earnigs before appropriation 4,541.65 4,407.01 4,304.86 3,681.34 3,105.34
Equity dividend 736.82 736.82 657.87 578.93 447.36
Preference dividend - - - - -
Dividend tax 125.22 103.34 93.75 74.18 57.32
Retained earnings 3,679.61 3,566.85 3,553.23 3,028.23 2,600.66
Ratios (Rs crore)
Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04 Mar ' 03
Per share ratios
Adjusted EPS (Rs) 86.06 83.69 88.54 83.21 59.00
Adjusted cash EPS (Rs) 97.50 97.55 102.83 96.48 68.38
Reported EPS (Rs) 86.29 83.73 81.79 69.94 59.00
Reported cash EPS (Rs) 97.73 97.58 96.08 83.21 68.38
Dividend per share 14.00 14.00 12.50 11.00 8.50
Operating profit per share (Rs) 147.72 124.77 148.50 104.33 95.07
Book value (excl rev res) per share (Rs) 594.69 525.25 457.39 384.41 326.87
Book value (incl rev res) per share (Rs.) 594.69 525.25 457.39 384.41 326.87
Net operating income per share (Rs) 833.38 719.54 692.96 703.13 686.95
Free reserves per share (Rs) 184.43 178.33 68.67 68.67 68.67
Profitability ratios
Operating margin (%) 17.72 17.33 21.42 14.83 13.83
Gross profit margin (%) 16.35 15.41 19.36 12.95 12.47
Net profit margin (%) 10.12 11.21 11.56 9.79 8.52
Adjusted cash margin (%) 11.43 13.06 14.54 13.50 9.88
Adjusted return on net worth (%) 14.47 15.93 19.35 21.64 18.05
Reported return on net worth (%) 14.50 15.94 17.88 18.19 18.04
Return on long term funds (%) 99.20 97.89 105.35 119.61 153.32
Leverage ratios
Long term debt / Equity - - - - -
Total debt/equity 13.91 13.75 15.25 15.75 17.21
Owners fund as % of total source 6.70 6.78 6.15 5.97 5.49
Fixed assets turnover ratio 5.44 5.10 5.45 6.27 7.09
Liquidity ratios
Current ratio 0.42 0.40 0.37 0.32 0.34
Current ratio (inc. st loans) 0.05 0.05 0.04 0.04 0.05
Quick ratio 6.52 5.50 4.79 3.51 3.17
Inventory turnover ratio - - - - -
Payout ratios
Dividend payout ratio (net profit) 18.98 19.06 17.46 17.74 16.25
Dividend payout ratio (cash profit) 16.75 16.35 14.86 14.91 14.02
Earning retention ratio 80.97 80.93 83.88 85.09 83.75
Cash earnings retention ratio 83.21 83.64 86.12 87.14 85.98
Coverage ratios
Adjusted cash flow time total debt 84.87 74.03 67.82 62.75 82.28
Financial charges coverage ratio 1.37 1.40 1.46 1.31 1.25
Fin. charges cov.ratio (post tax) 1.22 1.25 1.27 1.23 1.17
Component ratios
Material cost component (% earnings) - - - - -
Selling cost Component 0.20 0.28 0.18 0.18 0.09
Exports as percent of total sales - - - - -
Import comp. in raw mat. consumed - - - - -
Long term assets / total Assets 0.85 0.88 0.91 0.91 0.90
Bonus component in equity capital (%) - - - - -
COMPARISIONS
ICICI Bank Ltd. vs HDFC Bank
ICICI
Report card
PE ratio 24.13 27/03/08
EPS (Rs) 34.58 Mar, 07
Sales (Rs crore) 7,911.77 Dec, 07
Face Value (Rs) 10
Net profit margin (%) 10.81 Mar, 07
Last dividend (%) 100 30/04/07
Return on average equity 12.79 Mar, 07
HDFC
Report card
PE ratio 40.15 27/03/08
EPS (Rs) 35.74 Mar, 07
Sales (Rs crore) 2,726.90 Dec, 07
Face Value (Rs) 10
Net profit margin (%) 13.57 Mar, 07
Last dividend (%) 70 24/04/07
Return on average equity 17.74 Mar, 07
ICICI Bank Ltd. vs SBI
ICICI
Report card
PE ratio 24.13 27/03/08
EPS (Rs) 34.58 Mar, 07
Sales (Rs crore) 7,911.77 Dec, 07
Face Value (Rs) 10
Net profit margin (%) 10.81 Mar, 07
Last dividend (%) 100 30/04/07
Return on average equity 12.79 Mar, 07
SBI
Report card
PE ratio 19.13 27/03/08
EPS (Rs) 86.29 Mar, 07
Sales (Rs crore) 12,666.81 Dec, 07
Face Value (Rs) 10
Net profit margin (%) 10.12 Mar, 07
Last dividend (%) 140 09/05/07
Return on average equity 14.5 Mar, 07
State Bank of India vs HDFC Bank
SBI
Report card
PE ratio 19.13 27/03/08
EPS (Rs) 86.29 Mar, 07
Sales (Rs crore) 12,666.81 Dec, 07
Face Value (Rs) 10
Net profit margin (%) 10.12 Mar, 07
Last dividend (%) 140 09/05/07
Return on average equity 14.5 Mar, 07
HDFC
Report card
HDFC BANK:
? Net profit margin of HDFC bank is 13.57% in march 2007.
? Return on average equity of HDFC bank is13.57% in march 2007.
? Last dividend was 10% which rise to 12%in current year.
? HDFC bank merge with centurian bank of Punjab.
? It’s income and profit have grown consistently year after year.
? It’s compound annual growth rate is 15.8% and 20.4% respectively.
? HDFC bank managed to maintain its profitability despite treasury losses last quarter as a rise in net
interest income fueled profitability.
? India’s economy is projected to grow by roughly 7.3% in 2006 powered by strong performance in
manufacturing service sector.
? HDFC boasted an average cost of deposit of 3.3% for fiscal year down from 3.9 in 2004, one of the
lowest rate in industry.
ICICI bank :
? Net profit margin of ICICI bank is 10.81% in march 2007.
? Return on average equity ICICI bank is12.79% in march 2007.
? With effect from November 1,2005 ICICI bank will revise the Hi save saving interest rate to 5.5%.
? Global asset account for 22%-23% of its business.
? 35% increase in profit after tax to Rs. 12.30 billion in 2008 from Rs. 9.10 billion in 2007.
? 32% increase in net interest income to Rs. 19.60 billion in 2008 from Rs. 14.85 billion in 2007.
? 25% growth in total advances to Rs. 2,155.17 bn at December 31, 2007 from Rs. 1,727.63 bn at December 31,
2006.
? Retail loan growth at 12%.
? Deposit growth of 17% from Rs. 1,968.93 bn at December 31, 2006 to Rs. 2,297.79 bn at
December 31, 2007.
SBI:
? Net profit margin of SBI is 10.12% in march 2007.
? Return on average equity SBI is14.5% in march 2007.
? Remarkable improvement in business quality over the 3 years.
? Net profit grow 34.8%in last three years.
? SBI country’s largest lender saw a home loan portfolio growth rate of 16%in 2007.
Conclusions
? HDFC bank has made greater net profit margin as net profit margin of ICICI bank is 10.81%, net profit margin of
HDFC bank is 13.57% and net profit of State bank of India is 10.12% in march 2007.
? Return on average equity of HDFC bank is greater as return on average equity of ICICI bank is 10.81%, Return on
average equity of HDFC bank is13.57% and Return on average equity of State bank of India is14.5% in march 2007.
? Net interest margin stood at 4%,well ahead of 2.4% posted by rival ICICI bank and up from 3.8% in 2004.
doc_274371596.docx
Fundamental analysis is a time-honored and value based techniques which relies on fundamental of economies, industries and companies for the purpose of analyzing and drawing conclusions.
FUNDAMENTAL ANALYSIS
Fundamental analysis is a time-honored and value based techniques which relies on fundamental of economies,
industries and companies for the purpose of analyzing and drawing conclusions.
This analysis is not unduly affected by short term fluctuations or day to day fluctuations in the stock market. this
approach suggest that whether we are analyzing securities we should move from macro to micro factors.
In this approach we study the general economic conditions, make an in-depth analysis of industries and perform a
comparative study of various companies on the basis of financial as well as non-financial parameters. past and present
data are used for forecasting future and decision making.
Fundamental analysis is the examination of the underlying forces that affect the well being of the economy, industry groups,
and companies. As with most analysis, the goal is to derive a forecast and profit from future price movements. At the
company level, fundamental analysis may involve examination of financial data, management, business concept and
competition. At the industry level, there might be an examination of supply and demand forces for the products offered. For
the national economy, fundamental analysis might focus on economic data to assess the present and future growth of the
economy. To forecast future stock prices, fundamental analysis combines economic, industry, and company analysis to
derive a stock's current fair value and forecast future value. If fair value is not equal to the current stock price, fundamental
analysts believe that the stock is either over or under valued and the market price will ultimately gravitate towards fair value.
Fundamentalists do not heed the advice of the random walkers and believe that markets are weak-form efficient. By
believing that prices do not accurately reflect all available information, fundamental analysts look to capitalize on perceived
price discrepancies.
General Steps to Fundamental Evaluation:
1) Economic analysis/Economy analysis
2) Industry analysis
3) Company analysis
A) ECONOMIC ANALYSIS:
In economic analysis we analyse economic environment of the country. The basic objective of this analysis is to assess
the general economic situation within the country as well as internationally. this analysis is performed by studying the
economic indicators which may have a direct or indirect bearing on the performance of stock exchanges.
The present and past data is analyzed to forecast the future and on the basis of forecasting the decision is taken. This
analysis tells us whether this is the right time to invest for investment or not.
Economic analysis Systematic approach to determining the optimum use of scarce resources, involving comparison of
two or more alternatives in achieving a specific objective under the given assumptions and constraints. It takes into
account the opportunity costs of resources employed and attempts to measure in monetary terms the private and social
costs and benefits of a project to the community or economy. Economic analysis is in the Economics, Politics, &
Society and Statistics, Mathematics, & Analysis subjects.
First and foremost in a top-down approach would be an overall evaluation of the general economy. The economy is like the
tide and the various industry groups and individual companies are like boats. When the economy expands, most industry
groups and companies benefit and grow. When the economy declines, most sectors and companies usually suffer. Many
economists link economic expansion and contraction to the level of interest rates. Interest rates are seen as a leading
indicator for the stock market as well. Below is a chart of the S&P 500 and the yield on the 10-year note over the last 30
years. Although not exact, a correlation between stock prices and interest rates can be seen. Once a scenario for the overall
economy has been developed, an investor can break down the economy into its various industry groups.
Important indicators of Economic analysis:
1) Trend of national income(GDP,GNP,NNP, per capita income)
2) Inflation rate
3) Interest rate
4) Industrial and agriculture production condition of monsoon
5) Condition of foreign exchange reserve
6) Condition of infrastructure
7) Situation of internal and external debt
8) Government policy and political factors
9) Conditions of saings and capital formation.
B) INDUSTRY ANALYSIS:
Once the result of economic analysis is positive the next step is to perform comparative study of various industries
which will help us in realizing our investment objectives can be selected. A detailed analysis of the characteristics of
these industries their past records and their present states is done to find out their future prospects.
If the prognosis is for an expanding economy, then certain groups are likely to benefit more than others. An investor can
narrow the field to those groups that are best suited to benefit from the current or future economic environment. If most
companies are expected to benefit from an expansion, then risk in equities would be relatively low and an aggressive
growth-oriented strategy might be advisable. A growth strategy might involve the purchase of technology, biotech,
semiconductor and cyclical stocks. If the economy is forecast to contract, an investor may opt for a more conservative
strategy and seek out stable income-oriented companies. A defensive strategy might involve the purchase of consumer
staples, utilities and energy-related stocks.
To assess a industry group's potential, an investor would want to consider the overall growth rate, market size, and
importance to the economy. While the individual company is still important, its industry group is likely to exert just as
much, or more, influence on the stock price. When stocks move, they usually move as groups; there are very few lone guns
out there. Many times it is more important to be in the right industry than in the right stock! The chart below shows that
relative performance of 5 sectors over a 7-month time frame. As the chart illustrates, being in the right sector can make all
the difference.
Narrow Within the Group
Once the industry group is chosen, an investor would need to narrow the list of companies before proceeding to a more
detailed analysis. Investors are usually interested in finding the leaders and the innovators within a group. The first task is to
identify the current business and competitive environment within a group as well as the future trends. How do the companies
rank according to market share, product position and competitive advantage? Who is the current leader and how will
changes within the sector affect the current balance of power? What are the barriers to entry? Success depends on an edge,
be it marketing, technology, market share or innovation. A comparative analysis of the competition within a sector will help
identify those companies with an edge and those most likely to keep it.
Parameters of industries analysis:
1) Size of the industries
2) Opportunities and threat available whether the industries is affected by
business cycle or not.
3) The attitude of government towards that industry.
4) Nature of product and competition
5) Industry life cycle analysis
6) Stock market perception
C) COMPANY ANALYSIS:
Once the industry analysis is over and we have selected the best possible industries the next step is to perform a
comparative study of company belonging to selected industries so that the best possible company can be chosen for
investment. This step is known as Company analysis. With a shortlist of companies, an investor might analyze the
resources and capabilities within each company to identify those companies that are capable of creating and maintaining a
competitive advantage. The analysis could focus on selecting companies with a sensible business plan, solid management
and sound financials.
Business Plan
The business plan, model or concept forms the bedrock upon which all else is built. If the plan, model or concepts stink,
there is little hope for the business. For a new business, the questions may be these: Does its business make sense? Is it
feasible? Is there a market? Can a profit be made? For an established business, the questions may be: Is the company's
direction clearly defined? Is the company a leader in the market? Can the company maintain leadership?
Management
In order to execute a business plan, a company requires top-quality management. Investors might look at management to
assess their capabilities, strengths and weaknesses. Even the best-laid plans in the most dynamic industries can go to waste
with bad management (AMD in semiconductors). Alternatively, even strong management can make for extraordinary
success in a mature industry (Alcoa in aluminum). Some of the questions to ask might include: How talented is the
management team? Do they have a track record? How long have they worked together? Can management deliver on its
promises? If management is a problem, it is sometimes best to move on.
Financial Analysis
The final step to this analysis process would be to take apart the financial statements and come up with a means of valuation.
Below is a list of potential inputs into a financial analysis.
Accounts Payable
Accounts Receivable
Acid Ratio
Amortization
Assets - Current
Assets - Fixed
Book Value
Brand
Business Cycle
Business Idea
Business Model
Business Plan
Capital Expenses
Cash Flow
Cash on hand
Current Ratio
Customer Relationships
Days Payable
Days Receivable
Debt
Debt Structure
Debt:Equity Ratio
Depreciation
Derivatives-Hedging
Discounted Cash Flow
Dividend
Good Will
Gross Profit Margin
Growth
Industry
Interest Cover
International
Investment
Liabilities - Current
Liabilities - Long-term
Management
Market Growth
Market Share
Net Profit Margin
Pageview Growth
Pageviews
Patents
Price/Book Value
Price/Earnings
PEG
Price/Sales
Product
Product Placement
Regulations
R & D
Revenues
Sector
Dividend Cover
Earnings
EBITDA
Economic Growth
Equity
Equity Risk Premium
Expenses
Stock Options
Strategy
Subscriber Growth
Subscribers
Supplier Relationships
Taxes
Trademarks
Weighted Average Cost of Capital
The list can seem quite long and intimidating. However, after a while, an investor will learn what works best and develop a
set of preferred analysis techniques. There are many different valuation metrics and much depends on the industry and stage
of the economic cycle. A complete financial model can be built to forecast future revenues, expenses and profits or an
investor can rely on the forecast of other analysts and apply various multiples to arrive at a valuation. Some of the more
popular ratios are found by dividing the stock price by a key value driver.
Ratio
Price/Book Value
Price/Earnings
Price/Earnings/Growth
Price/Sales
Price/Subscribers
Price/Lines
Price/Page views
Price/Promises
Company Type
Oil
Retail
Networking
B2B
ISP or cable company
Telecom
Web site Biotech
This methodology assumes that a company will sell at a specific multiple of its earnings, revenues or growth. An investor
may rank companies based on these valuation ratios. Those at the high end may be considered overvalued, while those at
the low end may constitute relatively good value.
Putting it All Together
After all is said and done, an investor will be left with a handful of companies that stand out from the pack. Over the
course of the analysis process, an understanding will develop of which companies stand out as potential leaders and
innovators. In addition, other companies would be considered laggards and unpredictable. The final step of the
fundamental analysis process is to synthesize all data, analysis and understanding into actual picks.
Comparative study of company is performed on the basis of:
1) Financial analysis
2) Non-financial analysis
1) Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a
company's financial statements. The level and historical trends of these ratios can be used to make inferences about
a company's financial condition, its operations and attractiveness as an investment.
A ratio gains utility by comparison to other data and standards. Taking our example, a gross profit margin for a
company of 25% is meaningless by itself. If we know that this company's competitors have profit margins of 10%, we
know that it is more profitable than its industry peers which are quite favorable. If we also know that the historical
trend is upwards, for example has been increasing steadily for the last few years, this would also be a favorable sign
that management is implementing effective business policies and strategies.
Financial ratio analysis groups the ratios into categories which tell us about different facets of a company's finances and
operations. An overview of some of the categories of ratios is given below.
? Leverage Ratios which show the extent that debt is used in a company's capital structure.
? Liquidity Ratios which give a picture of a company's short term financial situation or solvency.
? Operational Ratios which use turnover measures to show how efficient a company is in its
operations and use of assets.
? Profitability Ratios which use margin analysis and show the return on sales and capital employed.
? Solvency Ratios which give a picture of a company's ability to generate cashflow and pay it
financial obligations.
2) Non-financial analysis:
Non-financial analysis includes technology, vision, mission, market leadership, market share of a company.
Strengths of Fundamental Analysis
Long-term Trends
Fundamental analysis is good for long-term investments based on long-term trends, very long-term. The ability to identify
and predict long-term economic, demographic, technological or consumer trends can benefit patient investors who pick the
right industry groups or companies.
Value Spotting
Sound fundamental analysis will help identify companies that represent a good value. Some of the most legendary investors
think long-term and value. Graham and Dodd, Warren Buffet and John Neff are seen as the champions of value investing.
Fundamental analysis can help uncover companies with valuable assets, a strong balance sheet, stable earnings, and staying
power.
Business Acumen
One of the most obvious, but less tangible, rewards of fundamental analysis is the development of a thorough understanding
of the business. After such painstaking research and analysis, an investor will be familiar with the key revenue and profit
drivers behind a company. Earnings and earnings expectations can be potent drivers of equity prices. Even some technicians
will agree to that. A good understanding can help investors avoid companies that are prone to shortfalls and identify those
that continue to deliver. In addition to understanding the business, fundamental analysis allows investors to develop an
understanding of the key value drivers and companies within an industry. A stock's price is heavily influenced by its industry
group. By studying these groups, investors can better position themselves to identify opportunities that are high-risk (tech),
low-risk (utilities), growth oriented (computer), value driven (oil), non-cyclical (consumer staples), cyclical (transportation)
or income-oriented (high yield).
Knowing Who's Who
Stocks move as a group. By understanding a company's business, investors can better position themselves to categorize
stocks within their relevant industry group. Business can change rapidly and with it the revenue mix of a company. This
happened to many of the pure Internet retailers, which were not really Internet companies, but plain retailers. Knowing a
company's business and being able to place it in a group can make a huge difference in relative valuations.
Weaknesses of Fundamental Analysis
Time Constraints
Fundamental analysis may offer excellent insights, but it can be extraordinarily time-consuming. Time-consuming models
often produce valuations that are contradictory to the current price prevailing on Wall Street. When this happens, the analyst
basically claims that the whole street has got it wrong. This is not to say that there are not misunderstood companies out
there, but it is quite brash to imply that the market price, and hence Wall Street, is wrong.
Industry/Company Specific
Valuation techniques vary depending on the industry group and specifics of each company. For this reason, a different
technique and model is required for different industries and different companies. This can get quite time-consuming, which
can limit the amount of research that can be performed. A subscription-based model may work great for an Internet Service
Provider (ISP), but is not likely to be the best model to value an oil company.
Subjectivity
Fair value is based on assumptions. Any changes to growth or multiplier assumptions can greatly alter the ultimate
valuation. Fundamental analysts are generally aware of this and use sensitivity analysis to present a base-case valuation, a
best-case valuation and a worst-case valuation. However, even on a worst-case valuation, most models are almost always
bullish, the only question is how much so. The chart below shows how stubbornly bullish many fundamental analysts can
be.
Analyst Bias
The majority of the information that goes into the analysis comes from the company itself. Companies employ investor
relations managers specifically to handle the analyst community and release information. As Mark Twain said, "there are
lies, damn lies, and statistics." When it comes to massaging the data or spinning the announcement, CFOs and investor
relations managers are professionals. Only buy-side analysts tend to venture past the company statistics. Buy-side analysts
work for mutual funds and money managers. They read the reports written by the sell-side analysts who work for the big
brokers (CIBC, Merrill Lynch, Robertson Stephens, CS First Boston, Paine Weber, DLJ to name a few). These brokers are
also involved in underwriting and investment banking for the companies. Even though there are restrictions in place to
prevent a conflict of interest, brokers have an ongoing relationship with the company under analysis. When reading these
reports, it is important to take into consideration any biases a sell-side analyst may have. The buy-side analyst, on the other
hand, is analyzing the company purely from an investment standpoint for a portfolio manager. If there is a relationship with
the company, it is usually on different terms. In some cases this may be as a large shareholder.
Definition of Fair Value
When market valuations extend beyond historical norms, there is pressure to adjust growth and multiplier assumptions to
compensate. If Wall Street values a stock at 50 times earnings and the current assumption is 30 times, the analyst would be
pressured to revise this assumption higher. There is an old Wall Street adage: the value of any asset (stock) is only what
someone is willing to pay for it (current price). Just as stock prices fluctuate, so too do growth and multiplier assumptions.
Are we to believe Wall Street and the stock price or the analyst and market assumptions?
It used to be that free cash flow or earnings were used with a multiplier to arrive at a fair value. In 1999, the S&P 500
typically sold for 28 time’s free cash flow. However, because so many companies were and are losing money, it has become
popular to value a business as a multiple of its revenues. This would seem to be OK, except that the multiple was higher than
the PE of many stocks! Some companies were considered bargains at 30 times revenues.
Conclusions
Fundamental analysis can be valuable, but it should be approached with caution. If you are reading research written by a
sell-side analyst, it is important to be familiar with the analyst behind the report. We all have personal biases, and every
analyst has some sort of bias. There is nothing wrong with this, and the research can still be of great value. Learn what the
ratings mean and the track record of an analyst before jumping off the deep end. Corporate statements and press releases
offer good information, but they should be read with a healthy degree of skepticism to separate the facts from the spin.
Press releases don't happen by accident; they are an important PR tool for companies. Investors should become skilled
readers to weed out the important information and ignore the hype.
HDFC: HOUSING DEVELOPMENT FINANCE CORPORATION
H.D.F.C was set up on 17th October, 1977 by I.C.I.C.I. out of the consideration that a specialized institution was needed to
channel household savings as well as funds from the capital market into the housing sector. H.D.F.C. has emerged as the
largest mortgage finance institution in the country. The main objective of H.D.F.C. is to develop significant expertise in
retail mortgage loans to different market segments and to have a large corporate client base for its housing related credit
facilities. The main aim of H.D.F.C. is to support or aid in the promotion of home ownership. H.D.F.C. is India's leading
housing finance company and for all practical purposes is synonymous with the domestic housing finance industry.
The primary objective of H.D.F.C is to enhance residential housing stock and promote home ownership. One of its major
objectives is to increase flow of resources for housing through the integration of housing financial institutions with the
domestic market. H.D.F.C. has developed a strong market reputation large shareholder base and unique consumer franchise.
H.D.F.C. is India's premier housing finance company in India as well as in international markets. It has maintained a
consistent and healthy growth in its operations to remain the clear market leader in mortgages in India. The company has
been constantly engaged into innovation and innovative practices since its birth.
HDFC Bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered
office in Mumbai, India. The Bank commenced operations as a Scheduled Commercial Bank in January
1995.
The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval
from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalization of the Indian
Banking Industry in 1994.
Headquartered in Mumbai, HDFC Bank, has a network of over 531 branches spread over 228 cities across India. All
branches are linked on an online real-time basis. Customers in over 120 locations are serviced through Telephone Banking.
The Bank also has a network of about over 1054 networked ATMs across these cities. HDFC Bank's ATM network can be
accessed by all domestic and international Visa / MasterCard, Visa Electron / Maestro, Plus / Cirrus and American Express
Credit / Charge cardholders.
HDFC Bank has won many awards for its excellent service. Major among them are "Best Bank in India" by Hong Kong-
based Finance Asia magazine in 2005 and "Company of the Year" Award for Corporate Excellence 2004-05.
Non-financial:-
Vision: Join the winning team
HDFC Bank is a young and dynamic bank, with a youthful and enthusiastic team determined to accomplish the vision of
becoming a world-class Indian bank.
Our business philosophy is based on four core values - Customer Focus, Operational Excellence, Product Leadership
and People. We believe that the ultimate identity and success of our bank will reside in the exceptional quality of our people
and their extraordinary efforts. For this reason, we are committed to hiring, developing, motivating and retaining the best
people in the industry.
Mission And business strategy:
Our mission is to be "a World Class Indian Bank", benchmarking ourselves against international standards and best practices
in terms of product offerings, technology, service levels, risk management and audit & compliance. The objective is to build
sound customer franchises across distinct businesses so as to be a preferred provider of banking services for target retail and
wholesale customer segments, and to achieve a healthy growth in profitability, consistent with the Bank's risk appetite. We
are committed to do this while ensuring the highest levels of ethical standards, professional integrity, corporate governance
and regulatory compliance.
Our business strategy emphasizes the following:
1) Increase our market share in India’s expanding banking and financial services industry by following a disciplined growth
strategy focusing on quality and not on quantity and delivering high quality customer service.
2) Leverage our technology platform and open scaleable systems to deliver more products to more
customers and to control operating costs.
3) Maintain our current high standards for asset quality through disciplined credit risk management.
4) Develop innovative products and services that attract our targeted customers and address inefficiencies in the Indian
financial sector.
5) Continue to develop products and services that reduce our cost of funds.
6) Focus on high earnings growth with low volatility.
Board of Directors:
Managing Director Aditya Puri
Director Arvind Pande
Director Ashim Samanta
Director (upto 17/10/06) Bobby Parikh
Director C M Vasudev
Executive Director Harish Engineer
Chairman Jagdish Capoor
Director Gautam Divan
Director(upto 29/03/006) Ranjan Kapur
Executive Director Paresh Sukthankar
Director Renu Karnad
Director Vineet Jain
Director (upto 14/3/07) Venkat Rao Gadwal
Performance of HDFC:
Industry: Banking
Country: India
Size
Valuation
Performance
Market Value $9.8 bil Forward P/E 20 5 yr avg ROC
1
7%
Sales $2.0 bil Price to Sales 4.5 EPS Growth Est
2
24%
Dividend Yield 0.6%
What credit crunch? India's third-largest bank by market cap is in the midst of a credit surge. With the economy
growing at 9% and India's growing professional ranks borrowing more, hdfc is increasing its loan portfolio at a 30%
clip. Raised $600 million in July to meet demand for loans from Indian companies and consumers. More than half its
loans go to individuals, which helped the bank stretch revenues 52% last year. Opening bank branches in rural areas; its
microfinance business doubled last year, says managing director Aditya Puri.
HDFC Banks on India's Growth
According to the International Monetary Fund's recent biannual report, World Economic Outlook, India's economy is
projected to grow by roughly 7.3% in 2006 -- powered by strong performances in the manufacturing and services
sectors -- and by a further 7% in 2007. As Asian Development Bank President Haruhiko Kuroda recently noted,
"India's GDP will double in 10 years if there is a 7% growth rate.
To risk stating the obvious, as India's economy powers ahead, the ranks of the country's 300 million
middle-class consumers will continue to grow, as will demand for consumer goods. India's annual sales
of passenger cars are expected to nearly double to 2 million by 2010; a current nationwide housing
shortage of more than 22 million units, according to the National Real Estate Development Council,
should help fuel housing growth.
India’s credit market
According to The Silk Road To Riches, by Mostrous, Gue, and Martchev, in 2004 India had total loans outstanding in
the economy of just $221 billion. That's a mere 35% of its $649 billion in GDP. In contrast, economic rival China
sported a GDP-to-loan ratio of close to 140% during that period, roughly in line with other regional economies such as
Australia and Korea. In essence, China's economy was a little more than twice the size of India's, but had 10 times
more loans outstanding.
Aside the obvious prospects of lending to expanding corporations such as Tata Motors (NYSE: TTM),
Indian banks have even greater opportunities for growth in the consumer market. Take card issuance and
the home mortgage market, for example.
According to Visa, the world's largest credit card company, fiscal 2005 was a banner year in India, with
spending on its credit cards growing 66% to $3.8 billion. To put that number in perspective, American
consumers spent more than $1.5 trillion on all credit cards during the same period.
The scale of opportunity in the home mortgage market is similarly impressive. The National Real Estate
Development council recently reported that mortgages only accounted for 2% of India's GDP, compared
with 54% in the U.S. HDFC Bank is well-positioned to capitalize on these opportunities.
In a prime spot
HDFC Bank is one of the top mortgage lenders in India, and one of the country's fastest-growing banks. As of the end
of the fiscal year ended March 31, 2006, the company had 535 branches in 228 cities nationwide, as well as 1,323
ATMs, all linked online in real time. HDFC has three divisions -- Retail Banking, Wholesale Banking, and Treasury --
offering everything from mortgages to credit cards to derivatives, and even gold trading. It also offers third-party
products such as life insurance from sister company HDFC Standard Life, as well as mutual funds.
HDFC has distinguished itself as an extremely efficient operator. For example, HDFC boasted an
average cost of deposit of 3.3% for fiscal year 2006, down from 3.9% in 2004, and one of the lowest
rates in the industry. Net interest margin stood at 4%, well ahead of the 2.4% posted by rival ICICI
Bank, and up from 3.8% in 2004. Non-performing loans stood at 1.2%, lower than even many Western
banks, and the company had a Tier 1 capital ratio (basically required reserves) of 8.3%, nearly twice the
Reserve Bank of India's requirement of 4.5%.
In simple terms, this operational efficiency, coupled with the company's growing customer base -- now
9.6 million, up from 1.4 million in 2001 -- has enabled HDFC to post a compound annual earnings
growth rate exceeding 30% since it went public back in July 2001.
HDFC's card business has grown to nearly 3.9 million debit cards and 2.4 million credit cards (up 86%
and 380%, respectively) and carries higher margins than the traditional loan business. Furthermore,
while the company's mortgage sales have been growing strongly, there remains plenty of room for
growth, since HDFC holds less than 5% of India's fragmented loan market.
Shares of HDFC Bank aren't exactly inexpensive, trading at around 17 times forward earnings. I know
that's pretty rich -- especially for an emerging-market bank in these uncertain times -- but it does
represent a 43% discount to its projected long-term growth rate, which may likely prove conservative.
Awards and Achievements - Banking Services
HDFC Bank began operations in 1995 with a simple mission: to be a "World-class Indian Bank". We realised that
only a single-minded focus on product quality and service excellence would help us get there. Today, we are proud to
say that we are well on our way towards that goal.
It is extremely gratifying that our efforts towards providing customer convenience have been appreciated
both nationally and internationally.
2007
Outlook Money & NDTV
Profit
Best Bank award in the Private sector category.
The Asian Banker
Excellence in Retail
Financial Services Awards
Best Retail Bank in India
Asian Banker Our Managing Director Aditya Puri wins the Leadership Achievement Award for
India
2006
Business Today Best Bank in India.
Forbes Magazine One of Asia Pacific's Best 50 companies.
Businessworld Best listed Bank of India.
The Asset Magazine's
Triple A Country Awards
Best Domestic Bank.
Asiamoney Awards Best Local Cash Management Bank in Large and Medium segments.
Euromoney Awards "Best Bank" in India.
2005
Asiamoney Awards Best Domestic Commercial Bank
Asiamoney Awards Best Cash Management Bank - India .
The Asian Banker Retail Banking Risk Management Award in India.
Excellence
Hong Kong-based Finance
Asia magazine
Best Bank India
Economic Times Awards "Company of the Year" Award for Corporate Excellence.
The Asset Triple A
Country Awards
Best Domestic Bank in India Region - 2005
The Business Today-
KPMG Survey
Best Local Cash Management Bank in India US$11-100m - 2005
The Business Today-
KPMG Survey
"Best Bank in India" for the third consecutive year in 2005.
Economic Times - Avaya
Global Connect Customer
Responsiveness Awards
"Most Customer Responsive Company - Banking and Financial Services - 2005
2004
Asiamoney Awards Best Local Cash Management Bank in India US$11-100m
Asiamoney Awards Best Local Cash Management Bank in India >US$501m
Asiamoney Awards Best Local Cash Management Bank in India 1989-2004 (poll of polls)
Asiamoney Awards Best Overall Domestic Trade Finance Services in India - 2004
Asiamoney Awards Most Improved company for Best Management Practices in India - 2004
Business World One of India's Most Respected Companies - 2004
Forbes Global Best Under a Billion, 100 Best Smaller Size Enterprises in Asia/Pacific and Europe
- 2004
Asian Banker Awards Operational Excellence in Retail Financial Services - 2004
The Asset Triple A
Country Awards
Best Domestic Bank in India - 2004
HDFC Bank Agrees to India's Biggest Banking Takeover
HDFC Bank Ltd., India's third- biggest by market value, agreed to acquire Centurion Bank of Punjab Ltd. in the nation's
biggest banking takeover as it seeks to extend its reach and become more competitive. The boards of both banks will meet
on Feb. 25 to set the share-swap ratio, and on Feb. 28 to consider the merger, the lenders said in a joint statement in Mumbai
today. Centurion is worth $2.6 billion, one-fourth HDFC Bank's value.
HDFC Bank would add 2.5 million customers at 394 branches, extending its reach before the central bank reviews rules next
year to permit Citigroup Inc. and other overseas banks to buy local rivals. Indian banks combined are worth less than half the
value of the Industrial & Commercial Bank of China Ltd., the world's biggest, according to Bloomberg data.
HDFC Bank's strong financial position and the aggressive management team from Centurion Bank can be the right kind of
competition to the fast-growing ICICI, P.R. Dilip, managing director at Impetus Wealth Management, said in Mumbai. The
merged entity will have 1,148 branches, surpassing the 955 of ICICI Bank Ltd., the second-largest lender, according to their
Web sites. The transaction must be approved by the central bank and shareholders, the banks said today.
State Bank of India, ICICI and other local lenders are vying for a larger share in an economy estimated to expand 8.7 percent
this financial year. The 200-year-old State Bank plans to combine its seven units with itself.
Centurion shares fell 1.1 percent yesterday to 56.4 rupees in Mumbai, after surging 14.4 percent on Feb. 21 amid newspaper
reports about the merger. HDFC Bank fell 4.4 percent to 1,474.95, valuing the lender at 522 billion rupees ($13 billion).
OverseasPush
HDFC Bank may raise as much as $1 billion to fund expansion abroad and plans to open offices in Bahrain, Hong Kong and
London in a year. State Bank of India, the nation's biggest by assets, is currently raising $4.2 billion selling shares to
stakeholders to finance growth. ICICI Bank sold $5 billion of shares to local and overseas investors in June.
Both HDFC Bank and Centurion Bank got licenses in the mid- 1990s as part of the central bank's initiative to encourage so-
called new-age banks that would operate efficiently with the latest technology to compete with global banks. HDFC Bank has
10 million customers, compared with Centurion's 2.5 million.
FINANIAL ANALYSIS:
Balance sheet (Rs crore)
Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04 Mar ' 03
Sources of funds
Owner's fund
Equity share capital 319.39 313.14 309.88 284.79 282.05
Share application money - 0.07 0.43 1.45 6.91
Preference share capital - - - - -
Reserves & surplus 6,113.76 4,986.39 4,209.97 2,407.09 1,962.78
Loan funds
Secured loans - - - - -
Unsecured loans 68,297.94 55,796.82 36,354.25 30,408.86 22,376.07
Total 74,731.09 61,096.42 40,874.53 33,102.19 24,627.81
Uses of funds
Fixed assets
Gross block 1,917.56 1,589.47 1,290.51 1,061.33 854.11
Less : revaluation reserve - - - - -
Less : accumulated depreciation 950.89 734.39 582.19 444.42 325.53
Net block 966.67 855.08 708.32 616.91 528.58
Capital work-in-progress - - - - -
Investments 30,564.80 28,393.96 19,349.81 19,256.79 13,388.08
Net current assets
Current assets, loans & advances 3,605.48 2,277.09 1,330.57 1,031.23 1,583.34
Less : current liabilities & provisions 13,689.13 7,849.49 5,264.46 6,296.98 3,511.62
Total net current assets -10,083.65 -5,572.40 -3,933.89 -5,265.75 -1,928.28
Miscellaneous expenses not written - - - - -
Total 21,447.82 23,676.64 16,124.24 14,607.95 11,988.38
Notes:
Book value of unquoted investments - - - - -
Market value of quoted investments - - - - -
Contingent liabilities 2,09,338.61 1,44,137.86 89,928.65 82,116.17 41,559.85
Number of equity shares outstanding (Lacs) 3193.90 3131.42 3098.75 2847.92 2820.46
Profit loss account (Rs crore)
Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04 Mar ' 03
Income:
Operating income 8,303.34 5,567.67 3,723.86 2,970.15 2,441.77
Expenses
Material consumed - - - - -
Manufacturing expenses - - - - -
Personnel expenses 776.86 486.82 276.67 204.09 151.95
Selling expenses 74.88 80.85 54.95 37.06 17.51
Adminstrative expenses 1,519.32 1,424.59 785.93 621.41 354.18
Expenses capitalised - - - - -
Cost of sales 2,371.06 1,992.26 1,117.55 862.56 523.64
Operating profit 2,752.83 1,645.91 1,290.75 896.54 726.17
Other recurring income 102.96 31.38 20.76 59.26 53.22
Adjusted PBDIT 2,855.79 1,677.29 1,311.51 955.80 779.39
Financial expenses 3,179.45 1,929.50 1,315.56 1,211.05 1,191.96
Depreciation 219.60 178.59 144.07 125.72 158.71
Other write offs 241.09 245.16 188.06 93.22 50.44
Adjusted PBT 2,395.10 1,253.54 979.38 736.86 570.24
Tax charges 497.70 383.03 314.03 210.21 183.72
Adjusted PAT 1,142.50 870.51 665.35 509.95 386.52
Non recurring items -1.05 0.27 0.21 -0.45 1.08
Other non cash adjustments -0.35 - -0.26 - -
Reported net profit 1,141.10 870.78 665.30 509.50 387.60
Earnigs before appropriation 2,596.12 1,473.12 1,070.62 865.63 577.98
Equity dividend 223.57 172.23 140.07 100.05 85.05
Preference dividend - - - - -
Dividend tax 38.00 24.16 19.64 12.82 10.88
Retained earnings 2,334.55 1,276.73 910.91 752.76 482.05
Ratios (Rs crore)
Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04 Mar ' 03
Per share ratios
Adjusted EPS (Rs) 35.77 27.80 21.47 17.91 13.70
Adjusted cash EPS (Rs) 50.20 41.33 32.19 25.59 21.12
Reported EPS (Rs) 35.74 27.81 21.48 17.89 13.74
Reported cash EPS (Rs) 50.16 41.34 32.20 25.58 21.16
Dividend per share 7.00 5.50 4.50 3.50 3.00
Operating profit per share (Rs) 86.19 52.56 41.65 31.48 25.75
Book value (excl rev res) per share (Rs) 201.42 169.24 145.86 94.52 79.59
Book value (incl rev res) per share (Rs.) 201.42 169.24 145.86 94.52 79.59
Net operating income per share (Rs) 259.98 177.80 120.17 104.29 86.57
Free reserves per share (Rs) 155.69 132.01 99.78 53.76 49.04
Profitability ratios
Operating margin (%) 33.15 29.56 34.66 30.18 29.73
Gross profit margin (%) 30.50 26.35 30.79 25.95 23.23
Net profit margin (%) 13.57 15.55 17.77 16.81 15.53
Adjusted cash margin (%) 19.07 23.11 26.63 24.06 23.87
Adjusted return on net worth (%) 17.75 16.42 14.72 18.94 17.21
Reported return on net worth (%) 17.74 16.43 14.72 18.92 17.26
Return on long term funds (%) 74.91 60.06 50.77 71.74 78.50
Leverage ratios
Long term debt / Equity - - - - -
Total debt/equity 10.62 10.53 8.04 11.30 9.97
Owners fund as % of total source 8.60 8.67 11.05 8.13 9.11
Fixed assets turnover ratio 4.33 3.50 2.89 2.80 2.86
Liquidity ratios
Current ratio 0.26 0.29 0.25 0.16 0.45
Current ratio (inc. st loans) 0.04 0.03 0.03 0.02 0.06
Quick ratio 4.07 5.18 5.61 3.39 4.39
Inventory turnover ratio - - - - -
Payout ratios
Dividend payout ratio (net profit) 22.91 22.55 23.99 22.15 24.74
Dividend payout ratio (cash profit) 16.32 15.17 16.00 15.49 16.07
Earning retention ratio 77.11 77.44 76.00 77.87 75.19
Cash earnings retention ratio 83.69 84.83 83.99 84.52 83.90
Coverage ratios
Adjusted cash flow time total debt 42.60 43.11 36.45 41.72 37.56
Financial charges coverage ratio 1.90 1.87 2.00 1.79 1.65
Fin. charges cov.ratio (post tax) 1.50 1.67 1.76 1.60 1.50
Component ratios
Material cost component (% earnings) - - - - -
Selling cost Component 0.90 1.45 1.47 1.24 0.71
Exports as percent of total sales - - - - -
Import comp. in raw mat. consumed - - - - -
Long term assets / total Assets 0.89 0.92 0.93 0.95 0.89
Bonus component in equity capital (%) - - - - -
ICICI BANK
ICICI Bank is India's second-largest bank with total assets of Rs. 3,767.00 billion (US$ 96 billion) at December 31, 2007
and profit after tax of Rs. 30.08 billion for the nine months ended December 31, 2007. ICICI Bank is second amongst all the
companies listed on the Indian stock exchanges in terms of free float market capitalization. The Bank has a network of about
955 branches and 3,687 ATMs in India and presence in 17 countries. ICICI Bank offers a wide range of banking products
and financial services to corporate and retail customers through a variety of delivery channels and through its specialized
subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset
management. The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in Unites States,
Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in
United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has
established a branch in Belgium.
ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock Exchange
of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange
(NYSE)
History
ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its
wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering
of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000,
ICICI Bank's acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and
secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed
in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry.
The principal objective was to create a development financial institution for providing medium-term and
long-term project financing to Indian businesses. In the 1990s, ICICI transformed its business from a
development financial institution offering only project finance to a diversified financial services group
offering a wide variety of products and services, both directly and through a number of subsidiaries and
affiliates like ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial
institution from non-Japan Asia to be listed on the NYSE.
After consideration of various corporate structuring alternatives in the context of the emerging competitive
scenario in the Indian banking industry, and the move towards universal banking, the managements of ICICI
and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic
alternative for both entities, and would create the optimal legal structure for the ICICI group's universal
banking strategy. The merger would enhance value for ICICI shareholders through the merged entity's access
to low-cost deposits, greater opportunities for earning fee-based income and the ability to participate in the
payments system and provide transaction-banking services. The merger would enhance value for ICICI Bank
shareholders through a large capital base and scale of operations, seamless access to ICICI's strong corporate
relationships built up over five decades, entry into new business segments, higher market share in various
business segments, particularly fee-based services, and access to the vast talent pool of ICICI and its
subsidiaries. In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of
ICICI and two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial Services Limited and
ICICI Capital Services Limited, with ICICI Bank. The merger was approved by shareholders of ICICI and
ICICI Bank in January 2002, by the High Court of Gujarat at Ahmedabad in March 2002, and by the High
Court of Judicature at Mumbai and the Reserve Bank of India in April 2002. Consequent to the merger, the
ICICI group's financing and banking operations, both wholesale and retail, have been integrated in a single
entity.
NON-FINANCIAL ANALYSIS:
Board Members
Mr. N. Vaghul, Chairman
Mr. Sridar Iyengar
Mr. Lakshmi N. Mittal
Mr. Narendra Murkumbi
Mr. Anupam Puri
Mr. Arun Ramanathan
Mr. M.K. Sharma
Mr. P.M. Sinha
Prof. Marti G. Subrahmanyam
Mr. T.S. Vijayan
Mr. V. Prem Watsa
Mr. K.V. Kamath, Managing Director & CEO
Ms. Chanda Kochhar, Joint Managing Director & Chief Financial Officer
Mr. V. Vaidyanathan, Executive Director
Ms. Madhabi Puri-Buch, Executive Director
Mr. Sonjoy Chatterjee, Executive Director
Board Committees
Audit Committee
Board Governance &
Remuneration Committee
Mr. Sridar Iyengar
Mr. Narendra Murkumbi
Mr. M. K. Sharma
Mr. N. Vaghul
Mr. Anupam Puri
Mr. M. K. Sharma
Mr. P. M. Sinha
Prof. Marti G. Subrahmanyam
Customer Service Committee Credit Committee
Mr. N. Vaghul
Mr. Narendra Murkumbi
Mr. M.K. Sharma
Mr. P.M. Sinha
Mr. K. V. Kamath
Mr. N. Vaghul
Mr. Narendra Murkumbi
Mr. M .K. Sharma
Mr. P. M. Sinha
Mr. K. V. Kamath
Fraud Monitoring Committee Risk Committee
Mr. M. K. Sharma
Mr. Narendra Murkumbi
Mr. K. V. Kamath
Ms. Chanda D. Kochhar
Mr. V. Vaidyanathan
Mr. N. Vaghul
Mr. Sridar Iyengar
Prof. Marti G. Subrahmanyam
Mr. V. Prem Watsa
Mr. K. V. Kamath
Share Transfer & Shareholders'/
Investors' Grievance Committee
Asset-Liability Management
Committee
Mr. M. K. Sharma
Mr. Narendra Murkumbi
Ms. Chanda D. Kochhar
Ms. Madhabi Puri-Buch
Ms. Chanda D. Kochhar
Ms. Madhabi Puri-Buch
Mr. Sonjoy Chatterjee
Mr. V. Vaidyanathan
Committee of Directors
Mr. K. V. Kamath
Ms. Chanda D. Kochhar
Ms. Madhabi Puri-Buch
Mr. Sonjoy Chatterjee
Mr. V. Vaidyanathan
Performance Review: -2008
Highlights
? 35% increase in profit after tax to Rs. 12.30 billion in 2008 from Rs. 9.10 billion in 2007
? 32% increase in net interest income to Rs. 19.60 billion in 2008 from Rs. 14.85
billion in 2007
? 33% increase in fee income to Rs. 17.85 billion in Q3- 2008 from Rs. 13.45
billion in Q3-2007
? 25% growth in total advances to Rs. 2,155.17 bn at December 31, 2007 from Rs.
1,727.63 bn at December 31, 2006
? Retail loan growth at 12%
? Continued growth in loan portfolio of international
branches with 115% y-o-y growth
? Deposit growth of 17% from Rs. 1,968.93 bn at December 31, 2006 to Rs.
2,297.79 bn at December 31, 2007
? CASA deposit growth of 33%
FINANCIAL ANALYSIS:
Balance sheet (Rs crore)
Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04 Mar ' 03
Sources of funds
Owner's fund
Equity share capital 899.34 889.83 736.75 616.40 612.66
Share application money - - 0.02 - -
Preference share capital 350.00 350.00 350.00 350.00 350.00
Reserves & surplus 23,413.92 21,316.16 11,813.20 7,394.16 6,320.65
Loan funds
Secured loans - - - - -
Unsecured loans 2,30,510.19 1,65,083.17 99,818.78 68,108.58 48,169.31
Total 2,55,173.45 1,87,639.16 1,12,718.75 76,469.14 55,452.62
Uses of funds
Fixed assets
Gross block 6,298.56 5,968.57 5,525.65 5,090.20 4,812.98
Less : revaluation reserve - - - - -
Less : accumulated depreciation 2,375.14 1,987.85 1,487.61 1,033.79 752.26
Net block 3,923.42 3,980.71 4,038.04 4,056.41 4,060.73
Capital work-in-progress 189.66 147.94 96.30 93.99 156.21
Investments 91,257.84 71,547.39 50,487.35 42,742.86 35,462.30
Net current assets
Current assets, loans & advances 23,551.85 15,642.79 11,115.99 9,107.61 8,169.24
Less : current liabilities & provisions 38,228.64 25,227.88 21,396.16 18,019.49 17,056.93
Total net current assets -14,676.78 -9,585.09 -10,280.17 -8,911.89 -8,887.68
Miscellaneous expenses not written - - - - -
Total 80,694.15 66,090.96 44,341.52 37,981.38 30,791.56
Notes:
Book value of unquoted investments - - - - -
Market value of quoted investments - - - - -
Contingent liabilities 1,99,771.41 1,34,920.99 1,07,311.46 82,116.13 46,339.01
Number of equity shares outstanding (Lacs) 8992.67 8898.24 7367.16 6130.21 6130.31
Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04 Mar ' 03
Per share ratios
Adjusted EPS (Rs) 33.30 28.47 27.25 26.76 19.78
Adjusted cash EPS (Rs) 39.36 35.48 35.26 35.56 28.03
Reported EPS (Rs) 34.59 28.55 27.22 26.71 19.68
Reported cash EPS (Rs) 40.64 35.56 35.23 35.51 27.93
Dividend per share 10.00 8.50 8.50 7.50 7.50
Operating profit per share (Rs) 42.19 36.75 36.37 34.06 14.40
Book value (excl rev res) per share (Rs) 270.37 249.55 170.35 130.67 113.10
Book value (incl rev res) per share (Rs.) 270.37 249.55 170.35 130.67 113.10
Net operating income per share (Rs) 316.45 196.87 160.69 187.90 190.10
Free reserves per share (Rs) 200.08 193.24 110.70 66.38 70.11
Profitability ratios
Operating margin (%) 13.33 18.66 22.63 18.12 7.57
Gross profit margin (%) 11.41 15.10 17.64 13.44 3.23
Net profit margin (%) 10.81 14.12 16.32 13.67 9.86
Adjusted cash margin (%) 12.30 17.55 21.14 18.20 14.05
Adjusted return on net worth (%) 12.31 11.40 15.99 20.47 17.49
Reported return on net worth (%) 12.79 11.43 15.97 20.43 17.39
Return on long term funds (%) 82.46 56.24 70.54 106.69 119.87
Leverage ratios
Long term debt / Equity 0.01 0.01 0.02 0.04 0.05
Total debt/equity 9.50 7.45 7.98 8.55 7.00
Owners fund as % of total source 9.52 11.83 11.13 10.47 12.50
Fixed assets turnover ratio 4.52 2.94 2.14 2.26 2.42
Liquidity ratios
Current ratio 0.61 0.62 0.51 0.50 0.47
Current ratio (inc. st loans) 0.08 0.08 0.09 0.10 0.12
Quick ratio 6.04 6.64 4.98 4.18 3.84
Inventory turnover ratio - - - - -
Payout ratios
Dividend payout ratio (net profit) 33.89 34.08 36.05 37.49 43.00
Dividend payout ratio (cash profit) 28.84 27.36 27.85 28.19 30.29
Earning retention ratio 64.80 65.82 63.98 62.59 57.23
Cash earnings retention ratio 70.22 72.58 72.17 71.85 69.82
Coverage ratios
Adjusted cash flow time total debt 65.12 52.30 38.43 31.25 28.03
Financial charges coverage ratio 1.25 1.39 1.48 1.36 1.18
Fin. charges cov.ratio (post tax) 1.22 1.33 1.40 1.31 1.22
Component ratios
Material cost component (% earnings) - - - - -
Selling cost Component 6.12 4.80 5.08 0.59 0.49
Exports as percent of total sales - - - - -
Import comp. in raw mat. consumed - - - - -
Long term assets / total Assets 0.80 0.82 0.83 0.83 0.82
Bonus component in equity capital (%) - - - - -
State Bank of India
The Bank is actively involved since 1973 in non-profit activity called Community Services Banking. All our branches and
administrative offices throughout the country sponsor and participate in large number of welfare activities and social causes. Our
business is more than banking because we touch the lives of people anywhere in many
ways.
Our commitment to nation-building is complete & comprehensive.
TRANSFORMATION JOURNEY IN STATE BANK OF INDIA
The State Bank of India, the country’s oldest Bank and a premier in terms of balance sheet size, number of branches, market
capitalization and profits is today going through a momentous phase of Change and Transformation – the two hundred year old
Public sector behemoth is today stirring out of its Public Sector legacy and moving with an agility to give the Private and Foreign
Banks a run for their money.
The bank is entering into many new businesses with strategic tie ups – Pension Funds, General Insurance, Custodial Services,
Private Equity, Mobile Banking, Point of Sale Merchant Acquisition, Advisory Services, structured products etc – each one of
these initiatives having a huge potential for growth.
The Bank is forging ahead with cutting edge technology and innovative new banking models, to expand its Rural Banking base,
looking at the vast untapped potential in the hinterland and proposes to cover 100,000 villages in the next two years.
It is also focusing at the top end of the market, on whole sale banking capabilities to provide India’s growing mid / large
Corporate with a complete array of products and services. It is consolidating its global treasury operations and entering into
structured products and derivative instruments. Today, the Bank is the largest provider of infrastructure debt and the largest
arranger of external commercial borrowings in the country. It is the only Indian bank to feature in the Fortune 500 list.
The Bank is changing outdated front and back end processes to modern customer friendly processes to help improve the total
customer experience. With about 8500 of its own 10000 branches and another 5100 branches of its Associate Banks already
networked, today it offers the largest banking network to the Indian customer. The Bank is also in the process of providing
complete payment solution to its clientele with its over 8500 ATMs, and other electronic channels such as Internet banking, debit
cards, mobile banking, etc.
With four national level Apex Training Colleges and 54 learning Centres spread all over the country the Bank is continuously
engaged in skill enhancement of its employees. Some of the training programes are attended by bankers from banks in other
countries.
The bank is also looking at opportunities to grow in size in India as well as Internationally. It presently has 82 foreign offices in 32
countries across the globe. It has also 7 Subsidiaries in India – SBI Capital Markets, SBICAP Securities, SBI DFHI, SBI Factors,
SBI Life and SBI Cards - forming a formidable group in the Indian Banking scenario. It is in the process of raising capital for its
growth and also consolidating its various holdings.
Throughout all this change, the Bank is also attempting to change old mindsets, attitudes and take all employees together on this
exciting road to Transformation. In a recently concluded mass internal communication programme termed ‘Parivartan’ the Bank
rolled out over 3300 two day workshops across the country and covered over 130,000 employees in a period of 100 days using
about 400 Trainers, to drive home the message of Change and inclusiveness. The workshops fired the imagination of the
employees with some other banks in India as well as other Public Sector Organizations seeking to emulate the programme.
The CNN IBN, Network 18 recognized this momentous transformation journey, the State Bank of India is undertaking, and has
awarded the prestigious Indian of the Year – Business, to its Chairman, Mr. O. P. Bhatt in January 2008.
EVOLUTION OF SBI
The origin of the State Bank of India goes back to the first decade of the nineteenth century with
the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three years later the bank
received its charter and was re-designed as the Bank of Bengal (2 January 1809). A unique
institution, it was the first joint-stock bank of British India sponsored by the Government of
Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July 1843) followed the
Bank of Bengal. These three banks remained at the apex of modern banking in India till their
amalgamation as the Imperial Bank of India on 27 January 1921.
Primarily Anglo-Indian creations, the three presidency banks came into existence either as a
result of the compulsions of imperial finance or by the felt needs of local European commerce
and were not imposed from outside in an arbitrary manner to modernize India's economy. Their
evolution was, however, shaped by ideas culled from similar developments in Europe and
England, and was influenced by changes occurring in the structure of both the local trading
environment and those in the relations of the Indian economy to the economy of Europe and the
global economic framework.
Bank of Bengal H.O.
Establishment
The establishment of the Bank of Bengal marked the advent of limited liability, joint-stock
banking in India. So was the associated innovation in banking, viz. the decision to allow the Bank
of Bengal to issue notes, which would be accepted for payment of public revenues within a
restricted geographical area. This right of note issue was very valuable not only for the Bank of
Bengal but also its two siblings, the Banks of Bombay and Madras. It meant an accretion to the
capital of the banks, a capital on which the proprietors did not have to pay any interest. The
concept of deposit banking was also an innovation because the practice of accepting money for
safekeeping (and in some cases, even investment on behalf of the clients) by the indigenous
bankers had not spread as a general habit in most parts of India. But, for a long time, and
especially upto the time that the three presidency banks had a right of note issue, bank notes and
government balances made up the bulk of the investible resources of the banks.
The three banks were governed by royal charters, which were revised from time to time. Each
charter provided for a share capital, four-fifth of which were privately subscribed and the rest
owned by the provincial government. The members of the board of directors, which managed the
affairs of each bank, were mostly proprietary directors representing the large European managing
agency houses in India. The rest were government nominees, invariably civil servants, one of
whom was elected as the president of the board.
Group Photogaph of Central Board (1921)
The business of the banks was initially confined to discounting of bills of exchange or other
negotiable private securities, keeping cash accounts and receiving deposits and issuing and
circulating cash notes. Loans were restricted to Rs.one lakh and the period of accommodation
confined to three months only. The security for such loans was public securities, commonly
called Company's Paper, bullion, treasure, plate, jewels, or goods 'not of a perishable nature' and
no interest could be charged beyond a rate of twelve per cent. Loans against goods like opium,
indigo, salt woollens, cotton, cotton piece goods, mule twist and silk goods were also granted but
such finance by way of cash credits gained momentum only from the third decade of the
nineteenth century. All commodities, including tea, sugar and jute, which began to be financed
later, were either pledged or hypothecated to the bank. Demand promissory notes were signed by
the borrower in favour of the guarantor, which was in turn endorsed to the bank. Lending against
shares of the banks or on the mortgage of houses, land or other real property was, however,
forbidden.
Indians were the principal borrowers against deposit of Company's paper, while the business of
discounts on private as well as salary bills was almost the exclusive monopoly of individuals
Europeans and their partnership firms. But the main function of the three banks, as far as the
government was concerned, was to help the latter raise loans from time to time and also provide a
degree of stability to the prices of government securities.
Old Bank of Bengal
Major change in the conditions
A major change in the conditions of operation of the Banks of Bengal, Bombay and Madras
occurred after 1860. With the passing of the Paper Currency Act of 1861, the right of note issue
of the presidency banks was abolished and the Government of India assumed from 1 March 1862
the sole power of issuing paper currency within British India. The task of management and
circulation of the new currency notes was conferred on the presidency banks and the Government
undertook to transfer the Treasury balances to the banks at places where the banks would open
branches. None of the three banks had till then any branches (except the sole attempt and that too
a short-lived one by the Bank of Bengal at Mirzapore in 1839) although the charters had given
them such authority. But as soon as the three presidency bands were assured of the free use of
government Treasury balances at places where they would open branches, they embarked on
branch expansion at a rapid pace. By 1876, the branches, agencies and sub agencies of the three
presidency banks covered most of the major parts and many of the inland trade centres in India.
While the Bank of Bengal had eighteen branches including its head office, seasonal branches and
sub agencies, the Banks of Bombay and Madras had fifteen each.
Presidency Banks Act
The presidency Banks Act, which came into operation on 1 May 1876, brought the three
presidency banks under a common statute with similar restrictions on business. The proprietary
connection of the Government was, however, terminated, though the banks continued to hold
charge of the public debt offices in the three presidency towns, and the custody of a part of the
government balances. The Act also stipulated the creation of Reserve Treasuries at Calcutta,
Bombay and Madras into which sums above the specified minimum balances promised to the
presidency banks at only their head offices were to be lodged. The Government could lend to the
presidency banks from such Reserve Treasuries but the latter could look upon them more as a
favour than as a right.
Bank of Madras
The decision of the Government to keep the surplus balances in Reserve Treasuries outside the
normal control of the presidency banks and the connected decision not to guarantee minimum
government balances at new places where branches were to be opened effectively checked the
growth of new branches after 1876. The pace of expansion witnessed in the previous decade fell
sharply although, in the case of the Bank of Madras, it continued on a modest scale as the profits
of that bank were mainly derived from trade dispersed among a number of port towns and inland
centres of the presidency.
India witnessed rapid commercialisation in the last quarter of the nineteenth century as its railway
network expanded to cover all the major regions of the country. New irrigation networks in
Madras, Punjab and Sind accelerated the process of conversion of subsistence crops into cash
crops, a portion of which found its way into the foreign markets. Tea and coffee plantations
transformed large areas of the eastern Terais, the hills of Assam and the Nilgiris into regions of
estate agriculture par excellence. All these resulted in the expansion of India's international trade
more than six-fold. The three presidency banks were both beneficiaries and promoters of this
commercialization process as they became involved in the financing of practically every trading,
manufacturing and mining activity in the sub-continent. While the Banks of Bengal and Bombay
were engaged in the financing of large modern manufacturing industries, the Bank of Madras
went into the financing of large modern manufacturing industries; the Bank of Madras went into
the financing of small-scale industries in a way which had no parallel elsewhere. But the three
banks were rigorously excluded from any business involving foreign exchange. Not only was
such business considered risky for these banks, which held government deposits, it was also
feared that these banks enjoying government patronage would offer unfair competition to the
exchange banks which had by then arrived in India. This exclusion continued till the creation of
the Reserve Bank of India in 1935.
Bank of Bombay
Presidency Banks of Bengal
The presidency Banks of Bengal, Bombay and Madras with their 70 branches were merged in
1921 to form the Imperial Bank of India. The triad had been transformed into a monolith and a
giant among Indian commercial banks had emerged. The new bank took on the triple role of a
commercial bank, a banker's bank and a banker to the government.
But this creation was preceded by years of deliberations on the need for a 'State Bank of India'.
What eventually emerged was a 'half-way house' combining the functions of a commercial bank
and a quasi-central bank.
The establishment of the Reserve Bank of India as the central bank of the country in 1935 ended
the quasi-central banking role of the Imperial Bank. The latter ceased to be bankers to the
Government of India and instead became agent of the Reserve Bank for the transaction of
government business at centres at which the central bank was not established. But it continued to
maintain currency chests and small coin depots and operate the remittance facilities scheme for
other banks and the public on terms stipulated by the Reserve Bank. It also acted as a bankers'
bank by holding their surplus cash and granting them advances against authorised securities. The
management of the bank clearing houses also continued with it at many places where the Reserve
Bank did not have offices. The bank was also the biggest tenderer at the Treasury bill auctions
conducted by the Reserve Bank on behalf of the Government.
The establishment of the Reserve Bank simultaneously saw important amendments being made to
the constitution of the Imperial Bank converting it into a purely commercial bank. The earlier
restrictions on its business were removed and the bank was permitted to undertake foreign
exchange business and executor and trustee business for the first time.
ImperialBank
The Imperial Bank during the three and a half decades of its existence recorded an impressive
growth in terms of offices, reserves, deposits, investments and advances, the increases in some
cases amounting to more than six-fold. The financial status and security inherited from its
forerunners no doubt provided a firm and durable platform. But the lofty traditions of banking
which the Imperial Bank consistently maintained and the high standard of integrity it observed in
its operations inspired confidence in its depositors that no other bank in India could perhaps then
equal. All these enabled the Imperial Bank to acquire a pre-eminent position in the Indian
banking industry and also secure a vital place in the country's economic life.
Stamp of Imperial Bank of India
When India attained freedom, the Imperial Bank had a capital base (including reserves) of
Rs.11.85 crores, deposits and advances of Rs.275.14 crores and Rs.72.94 crores respectively and
a network of 172 branches and more than 200 sub offices extending all over the country.
First Five Year Plan
In 1951, when the First Five Year Plan was launched, the development of rural India was given
the highest priority. The commercial banks of the country including the Imperial Bank of India
had till then confined their operations to the urban sector and were not equipped to respond to the
emergent needs of economic regeneration of the rural areas. In order, therefore, to serve the
economy in general and the rural sector in particular, the All India Rural Credit Survey
Committee recommended the creation of a state-partnered and state-sponsored bank by taking
over the Imperial Bank of India, and integrating with it, the former state-owned or state-associate
banks. An act was accordingly passed in Parliament in May 1955 and the State Bank of India was
constituted on 1 July 1955. More than a quarter of the resources of the Indian banking system
thus passed under the direct control of the State. Later, the State Bank of India (Subsidiary Banks)
Act was passed in 1959, enabling the State Bank of India to take over eight former State-
associated banks as its subsidiaries (later named Associates).
The State Bank of India was thus born with a new sense of social purpose aided by the 480
offices comprising branches, sub offices and three Local Head Offices inherited from the Imperial
Bank. The concept of banking as mere repositories of the community's savings and lenders to
creditworthy parties was soon to give way to the concept of purposeful banking subserving the
growing and diversified financial needs of planned economic development. The State Bank of
India was destined to act as the pacesetter in this respect and lead the Indian banking system into
the exciting field of national development.
NON-FINANCIAL ANALYSIS:
BOARD OF DIRECTORS
Sl.No. Name of Director Sec. of SBI Act, 1955
1.
Shri O.P. Bhatt
Chairman
19(a)
2.
Shri S.K. Bhattacharyya
MD & CC&RO
19 (b)
3. Shri Suman Kumar Bery 19(c)
4. Dr. Ashok Jhunjhunwala 19(c)
5. Shri Ananta Chandra Kalita 19(ca)
6. Shri Amar Pal 19(cb)
7. Dr. Deva Nand Balodhi 19(d)
8.
Prof. Mohd. Salahuddin Ansari
19(d)
9.
Dr.(Mrs.) Vasantha Bharucha
19(d)
10.
Shri Arun Ramanathan
19(e)
11. Smt. Shyamala Gopinath 19(f)
:
FINANCIAL ANALYSIS:
Balance sheet (Rs crore)
Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04 Mar ' 03
Sources of funds
Owner's fund
Equity share capital 526.30 526.30 526.30 526.30 526.30
Share application money - - - - -
Preference share capital - - - - -
Reserves & surplus 30,772.26 27,117.79 23,545.84 19,704.98 16,677.08
Loan funds
Secured loans - - - - -
Unsecured loans 4,35,521.09 3,80,046.06 3,67,047.53 3,18,618.67 2,96,123.28
Total 4,66,819.65 4,07,690.14 3,91,119.66 3,38,849.95 3,13,326.66
Uses of funds
Fixed assets
Gross block 8,061.92 7,424.84 6,691.09 5,897.96 5,100.85
Less : revaluation reserve - - - - -
Less : accumulated depreciation 5,385.01 4,751.73 4,114.67 3,399.38 2,739.97
Net block 2,676.91 2,673.11 2,576.43 2,498.57 2,360.88
Capital work-in-progress 141.95 79.82 121.27 146.54 27.67
Investments 1,49,148.88 1,62,534.24 1,97,097.91 1,85,676.48 1,72,347.91
Net current assets
Current assets, loans & advances 25,292.31 22,380.84 18,390.71 17,993.53 18,200.56
Less : current liabilities & provisions 60,042.26 55,538.17 49,578.89 55,534.00 53,246.21
Total net current assets -34,749.95 -33,157.32 -31,188.18 -37,540.47 -35,045.65
Miscellaneous expenses not written - - - - -
Total 1,17,217.80 1,32,129.85 1,68,607.42 1,50,781.13 1,39,690.80
Notes:
Book value of unquoted investments - - - - -
Market value of quoted investments - - - - -
Contingent liabilities 3,29,954.73 2,49,437.78 1,76,119.50 1,22,018.86 1,13,633.13
Number of equity sharesoutstanding (Lacs) 5262.99 5262.99 5262.99 5262.99 5262.99
Profit loss account (Rs crore)
Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04 Mar ' 03
Income:
Operating income 43,860.57 37,869.52 36,470.27 37,005.81 36,154.26
Expenses
Material consumed - - - - -
Manufacturing expenses - - - - -
Personnel expenses 7,932.58 8,123.04 6,552.83 6,447.69 5,688.72
Selling expenses 88.43 109.44 67.08 67.36 34.44
Adminstrative expenses 4,628.38 2,911.29 3,551.53 5,725.45 4,318.00
Expenses capitalised - - - - -
Cost of sales 12,649.38 11,143.78 10,171.44 12,240.50 10,041.16
Operating profit 7,774.36 6,566.46 7,815.45 5,491.13 5,003.63
Other recurring income 1,008.35 1,413.65 740.10 582.11 253.73
Adjusted PBDIT 8,782.71 7,980.11 8,555.55 6,073.24 5,257.37
Financial expenses 23,436.82 20,159.29 18,483.38 19,274.18 21,109.46
Depreciation 602.39 729.13 752.21 698.35 493.69
Other write offs - - - - -
Adjusted PBT 8,180.32 7,250.98 7,803.34 5,374.89 4,763.68
Tax charges 3,083.77 2,499.48 2,217.08 546.64 2,162.50
Adjusted PAT 4,529.18 4,404.73 4,659.86 4,379.16 3,105.27
Non recurring items 12.13 1.94 -355.35 -0.44 -0.27
Other non cash adjustments - - - -697.72 -
Reported net profit 4,541.31 4,406.67 4,304.52 3,681.00 3,105.00
Earnigs before appropriation 4,541.65 4,407.01 4,304.86 3,681.34 3,105.34
Equity dividend 736.82 736.82 657.87 578.93 447.36
Preference dividend - - - - -
Dividend tax 125.22 103.34 93.75 74.18 57.32
Retained earnings 3,679.61 3,566.85 3,553.23 3,028.23 2,600.66
Ratios (Rs crore)
Mar ' 07 Mar ' 06 Mar ' 05 Mar ' 04 Mar ' 03
Per share ratios
Adjusted EPS (Rs) 86.06 83.69 88.54 83.21 59.00
Adjusted cash EPS (Rs) 97.50 97.55 102.83 96.48 68.38
Reported EPS (Rs) 86.29 83.73 81.79 69.94 59.00
Reported cash EPS (Rs) 97.73 97.58 96.08 83.21 68.38
Dividend per share 14.00 14.00 12.50 11.00 8.50
Operating profit per share (Rs) 147.72 124.77 148.50 104.33 95.07
Book value (excl rev res) per share (Rs) 594.69 525.25 457.39 384.41 326.87
Book value (incl rev res) per share (Rs.) 594.69 525.25 457.39 384.41 326.87
Net operating income per share (Rs) 833.38 719.54 692.96 703.13 686.95
Free reserves per share (Rs) 184.43 178.33 68.67 68.67 68.67
Profitability ratios
Operating margin (%) 17.72 17.33 21.42 14.83 13.83
Gross profit margin (%) 16.35 15.41 19.36 12.95 12.47
Net profit margin (%) 10.12 11.21 11.56 9.79 8.52
Adjusted cash margin (%) 11.43 13.06 14.54 13.50 9.88
Adjusted return on net worth (%) 14.47 15.93 19.35 21.64 18.05
Reported return on net worth (%) 14.50 15.94 17.88 18.19 18.04
Return on long term funds (%) 99.20 97.89 105.35 119.61 153.32
Leverage ratios
Long term debt / Equity - - - - -
Total debt/equity 13.91 13.75 15.25 15.75 17.21
Owners fund as % of total source 6.70 6.78 6.15 5.97 5.49
Fixed assets turnover ratio 5.44 5.10 5.45 6.27 7.09
Liquidity ratios
Current ratio 0.42 0.40 0.37 0.32 0.34
Current ratio (inc. st loans) 0.05 0.05 0.04 0.04 0.05
Quick ratio 6.52 5.50 4.79 3.51 3.17
Inventory turnover ratio - - - - -
Payout ratios
Dividend payout ratio (net profit) 18.98 19.06 17.46 17.74 16.25
Dividend payout ratio (cash profit) 16.75 16.35 14.86 14.91 14.02
Earning retention ratio 80.97 80.93 83.88 85.09 83.75
Cash earnings retention ratio 83.21 83.64 86.12 87.14 85.98
Coverage ratios
Adjusted cash flow time total debt 84.87 74.03 67.82 62.75 82.28
Financial charges coverage ratio 1.37 1.40 1.46 1.31 1.25
Fin. charges cov.ratio (post tax) 1.22 1.25 1.27 1.23 1.17
Component ratios
Material cost component (% earnings) - - - - -
Selling cost Component 0.20 0.28 0.18 0.18 0.09
Exports as percent of total sales - - - - -
Import comp. in raw mat. consumed - - - - -
Long term assets / total Assets 0.85 0.88 0.91 0.91 0.90
Bonus component in equity capital (%) - - - - -
COMPARISIONS
ICICI Bank Ltd. vs HDFC Bank
ICICI
Report card
PE ratio 24.13 27/03/08
EPS (Rs) 34.58 Mar, 07
Sales (Rs crore) 7,911.77 Dec, 07
Face Value (Rs) 10
Net profit margin (%) 10.81 Mar, 07
Last dividend (%) 100 30/04/07
Return on average equity 12.79 Mar, 07
HDFC
Report card
PE ratio 40.15 27/03/08
EPS (Rs) 35.74 Mar, 07
Sales (Rs crore) 2,726.90 Dec, 07
Face Value (Rs) 10
Net profit margin (%) 13.57 Mar, 07
Last dividend (%) 70 24/04/07
Return on average equity 17.74 Mar, 07
ICICI Bank Ltd. vs SBI
ICICI
Report card
PE ratio 24.13 27/03/08
EPS (Rs) 34.58 Mar, 07
Sales (Rs crore) 7,911.77 Dec, 07
Face Value (Rs) 10
Net profit margin (%) 10.81 Mar, 07
Last dividend (%) 100 30/04/07
Return on average equity 12.79 Mar, 07
SBI
Report card
PE ratio 19.13 27/03/08
EPS (Rs) 86.29 Mar, 07
Sales (Rs crore) 12,666.81 Dec, 07
Face Value (Rs) 10
Net profit margin (%) 10.12 Mar, 07
Last dividend (%) 140 09/05/07
Return on average equity 14.5 Mar, 07
State Bank of India vs HDFC Bank
SBI
Report card
PE ratio 19.13 27/03/08
EPS (Rs) 86.29 Mar, 07
Sales (Rs crore) 12,666.81 Dec, 07
Face Value (Rs) 10
Net profit margin (%) 10.12 Mar, 07
Last dividend (%) 140 09/05/07
Return on average equity 14.5 Mar, 07
HDFC
Report card
HDFC BANK:
? Net profit margin of HDFC bank is 13.57% in march 2007.
? Return on average equity of HDFC bank is13.57% in march 2007.
? Last dividend was 10% which rise to 12%in current year.
? HDFC bank merge with centurian bank of Punjab.
? It’s income and profit have grown consistently year after year.
? It’s compound annual growth rate is 15.8% and 20.4% respectively.
? HDFC bank managed to maintain its profitability despite treasury losses last quarter as a rise in net
interest income fueled profitability.
? India’s economy is projected to grow by roughly 7.3% in 2006 powered by strong performance in
manufacturing service sector.
? HDFC boasted an average cost of deposit of 3.3% for fiscal year down from 3.9 in 2004, one of the
lowest rate in industry.
ICICI bank :
? Net profit margin of ICICI bank is 10.81% in march 2007.
? Return on average equity ICICI bank is12.79% in march 2007.
? With effect from November 1,2005 ICICI bank will revise the Hi save saving interest rate to 5.5%.
? Global asset account for 22%-23% of its business.
? 35% increase in profit after tax to Rs. 12.30 billion in 2008 from Rs. 9.10 billion in 2007.
? 32% increase in net interest income to Rs. 19.60 billion in 2008 from Rs. 14.85 billion in 2007.
? 25% growth in total advances to Rs. 2,155.17 bn at December 31, 2007 from Rs. 1,727.63 bn at December 31,
2006.
? Retail loan growth at 12%.
? Deposit growth of 17% from Rs. 1,968.93 bn at December 31, 2006 to Rs. 2,297.79 bn at
December 31, 2007.
SBI:
? Net profit margin of SBI is 10.12% in march 2007.
? Return on average equity SBI is14.5% in march 2007.
? Remarkable improvement in business quality over the 3 years.
? Net profit grow 34.8%in last three years.
? SBI country’s largest lender saw a home loan portfolio growth rate of 16%in 2007.
Conclusions
? HDFC bank has made greater net profit margin as net profit margin of ICICI bank is 10.81%, net profit margin of
HDFC bank is 13.57% and net profit of State bank of India is 10.12% in march 2007.
? Return on average equity of HDFC bank is greater as return on average equity of ICICI bank is 10.81%, Return on
average equity of HDFC bank is13.57% and Return on average equity of State bank of India is14.5% in march 2007.
? Net interest margin stood at 4%,well ahead of 2.4% posted by rival ICICI bank and up from 3.8% in 2004.
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