fundamentals of banking a project report

8/7/2019 fundamentals of banking a project report

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MBA@GIT Belgaum Page 1

A) GENRAL INTRODUCTION

INTRODUCTION TO FUNDAMENTAL ANALYSIS

Fundamental Analysis involves examining the economic, financial and other qualitative

and quantitative factors related to a security in order to determine its intrinsic value.It attempts to study everything that can affect the security's value, including

macroeconomic factors (like the overall economy and industry conditions) and

individually specific factors (like the financial condition and management of companies).

Fundamental analysis, which is also known as quantitative analysis, involves delving intoa companys financial statements (such as profit and loss account and balance sheet) inorder to study various financial indicators (such as revenues, earnings, liabilities,

expenses and assets). Such analysis is usually carried out by analysts, brokers and savvyinvestors.

Many analysts and investors focus on a single number--net income (or earnings)--toevaluate performance. When investors attempt to forecast the market value of a firm, theyfrequently rely on earnings. Many institutional investors, analysts and regulators believeearnings are not as relevant as they once were. Due to nonrecurring events, disparities inmeasuring risk and management's ability to disguise fundamental earnings problems,other measures beyond net income can assist in predicting future firm earnings.

Two Approaches of fundamental analysis

While carrying out fundamental analysis, investors can use either of the followingapproaches:

1 .Top-down approach: In this approach, an analyst investigates both international andnational economic indicators, such as GDP growth rates, energy prices, inflation andinterest rates. The search for the best security then trickles down to the analysis of totalsales, price levels and foreign competition in a sector in order to identify the best businessin the sector.2. Bottom-up approach: In this approach, an analyst starts the search with specificbusinesses, irrespective of their industry/region.

How does fundamental analysis works?

Fundamental analysis is carried out with the aim of predicting the future performance of acompany. It is based on the theory that the market price of a security tends to movetowards its 'real value' or 'intrinsic value.' Thus, the intrinsic value of a security beinghigher than the securitys market value represents a time to buy. If the value of thesecurity is lower than its market price, investors should sell it.


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The steps involved in fundamental analysis are:

1. Macroeconomic analysis, which involves considering currencies, commoditiesand indices.2. Industry sector analysis, which involves the analysis of companies that are a

part of the sector.3. Situational analysis of a company.4. Financial analysis of the company.5. Valuation

The valuation of any security is done through the discounted cash flow (DCF) model,which takes into consideration:

1. Dividends received by investors2. Earnings or cash flows of a company3. Debt, which is calculated by using the debt to equity ratio and the current ratio

(current assets/current liabilities)

Benefits of fundamental analysis

Fundamental analysis helps in:

1. Identifying the intrinsic value of a security.2. Identifying long-term investment opportunities

Since it involves real-time data.

Fundamental Analysis Tools

These are the most popular tools of fundamental analysis.

1. Earnings per Share EPS2. Price to Earnings Ratio P/E3. Projected Earnings Growth PEG4. Price to Sales P/S5. Price to Book P/B6. Dividend Payout Ratio7. Dividend Yield8. Book Value

9. Return on Equity


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Ratio analysis

Financial ratios are tools for interpreting financial statements to provide a basis forvaluing securities and appraising financial and management performance.

A good financial analyst will build in financial ratio calculations extensively in afinancial modeling exercise to enable robust analysis. Financial ratios allow a financialanalyst to:

y Standardize information from financial statements across multiple financial yearsto allow comparison of a firms performance over time in a financial model.

y Standardize information from financial statements from different companies toallow an apple to apples comparison between firms of differing size in afinancial model.

y Measure key relationships by relating inputs (costs) with outputs (benefits) andfacilitates comparison of these relationships over time and across firms in a

financial model.

In general, there are 4 kinds of financial ratios that a financial analyst will use mostfrequently, these are:

y Performance ratiosy Working capital ratiosy Liquidity ratiosy Solvency ratios

These 4 financial ratios allow a good financial analyst to quickly and efficiently addressthe following questions or concerns:

Performance ratios

y What return is the company making on its capital investment?y What are its profit margins?

Working capital ratios

y

How quickly are debts paid?y How many times is inventory turned?

Liquidity ratios

y Can the company continue to pay its liabilities and debts?


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Solvency ratios (Longer term)

y What is the level of debt in relation to other assets and to equity?y Is the level of interest payable out of profits?

Technical analysis is the practice of anticipating price changes of a financial instrument

by analyzing prior price changes and looking for patterns and relationships in price

history.

Since all the investors in the stock market want to make the maximum profits possible,

they just cannot afford to ignore either fundamental or technical analysis.

The price of a security represents a consensus. It is the price at which one person agrees

to buy and another agrees to sell. The price at which an investor is willing to buy or sell

depends primarily on his expectations. If he expects the security's price to rise, he will

buy it; if the investor expects the price to fall, he will sell it. These simple statements are

the cause of a major challenge in forecasting security prices, because they refer to human

expectations. As we all know firsthand, humans expectations are neither easily

quantifiable nor predictable.

If prices are based on investor expectations, then knowing what a security should sell for

(i.e., fundamental analysis) becomes less important than knowing what other investors

expect it to sell for. That's not to say that knowing what a security should sell for isn't

important--it is. But there is usually a fairly strong consensus of a stock's future earnings

that the average investor cannot disprove.

STAEMENY OF THE PROBLEM

There is no significant relationship between return on equity, dividend payout

ratio, book value, dividend yield, earning per share, and market price.


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OBJECTIVE & SCOPE OF THE STUDY

y To assess the performance of selected banking companies listed in NSE and BSE

y To evaluate the financial strength of the selected banking companies listed in BSE

and NSE

y To evaluate intrinsic value of shares & compare it with present market price to

decide whether a share is overvalued or undervalued

y To evaluate managements efficiency & internal decisions taken by them to run the

business

y To calculate credit risk

METHODOLOGY

Date and sources of data

The study is purely based on secondary data. The required data are obtained from

the official directory of the Bombay stock exchange, Center for Monitoring Indian

Economy private Ltd. (CMIE) reports and also from Moneycontrol.com. Additionally,

text books are also referred extensively to collect information relating to this study.

Limitation of the study

y The study is restricted to five years only.

y The sample is limited to two Public and Private sector banks for analysis.

y This study uses only nine fundamental financial tools for analysis.

y Only BSE listed (Group A) public and private limited banking companies were

taken for the study


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B) Indian Economy Overview

The Centre for Monitoring Indian Economy (CMIE) has estimated Indias gross

domestic product (GDP) to expand at 9.2 per cent in 2010-11 as compared to the growth

of 7.4 per cent in 2009-10. Overall growth in industrial output was 10.8 per cent year-on-

year (y-o-y) in October 2010. The growth in the industrial sector is expected to increase

at 9.4 per cent in 2010-11, as compared to 9.2 per cent in 2009-10. According to a survey

by the Confederation of Indian Industry (CII) and ASCON, around 50 segments (out of

127) in the manufacturing sector grew by 39 per cent, entering the 'excellent growth'

category, during April-December 2010-11 compared to 29 sectors (22.9 per cent) in

April-December 2009 which shows a marked improvement. Also, services sector is

projected to expand by 10 per cent as compared to 8.6 per cent last year, led by the trade

and transport segment. The major turnaround is expected from the agriculture and allied

sector, which is being projected to grow by 5.7 per cent in 2010-11.

As per Use-based classification, the Sectoral growth rates in October 2010 over

October 2009 are 7.7 per cent in Basic goods, 22 per cent in Capital goods and 9.5 per

cent in Intermediate goods. The Consumer durables and Consumer non-durables have

expanded by 31 per cent and 0.1 per cent respectively in the reported month.

The industrial output registered a robust growth of 10.8 per cent year-on-year (y-

o-y) in October 2010. Among the three major constituents of the IIP, manufacturing and

electricity recorded higher growth rates of 11.3 per cent and 8.8 per cent in October as

against their corresponding levels of 10.8 per cent and 4 per cent for the corresponding

month in 2009. The third constituent mining index registered 6.5 per cent in October

2010.

The Economic scenario

Foreign injections amounted to US$ 6.4 billion in October 2010, which was

almost 25 per cent of the total inflows in the stock market registered so far in 2010. The

net foreign fund investment crossed the US$ 100 billion mark on November 8 2010,

since the liberalization policy was implemented in 1992. As per the data given by SEBI,

the total figure stood at US$100.9 billion, wherein US$ 4.78 billion were infused in


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November itself. The humungous increase in investment mirrors the foreign investors

faith in the Indian markets. FIIs have made investments worth US$ 4.11 billion in

equities and poured US$ 667.71 million into the debt market.

Data sourced from SEBI shows that the number of registered FIIs stood at 1,738

and number of registered sub-accounts rose to 5,592 as of November 10, 2010.

As on December 17, 2010, India's foreign exchange reserves totaled US$ 294.60

billion, an increase of US$ 11.13 billion over the same period last year, according to the

Reserve Bank of India's (RBI) Weekly Statistical Supplement.

Moreover, India received foreign direct investment (FDI) equity worth US$ 12.39

billion during April-October, 2010-11, taking the cumulative amount of FDI inflows

during April 2000 - October 2010 to US$ 179.45 billion, according to the Department of

Industrial Policy and Promotion (DIPP).

The services sector comprising financial and non-financial services attracted 21

per cent of the total FDI equity inflow into India, with FDI worth US$ 2,163 million

during April-October 2010, while telecommunications including radio paging, cellular

mobile and basic telephone services attracted second largest amount of FDI worth US$

1,062 million during the same period. Metallurgical industries were the third highest

sector attracting FDI worth US$ 920 million followed by power sector which garnered

US$ 729 million during the financial year April-October 2010.

y Exports from India have increased by 26.8 per cent year-on-year (y-o-y) to touch

US$ 18.9 billion in November 2010, urging the Government to exude confidence

that overall shipments in 2010-11 may touch US$ 215 billion. For the April-

November 2010 period, exports have grown by 26.7 per cent to US$ 140.3

billion, while imports totaled up to US$ 222 billion, expanding 24 per cent.

y India's logistics sector is witnessing increased activity. According to the Indian

Shipping ministry, the country's major ports handled 44.4 million tons of cargo

during September 2010, 4.5 per cent higher as compared to 5.9 per cent growth in

September 2009. Leading consultants Frost Sullivan, as cited by The Economic

Times, are expecting traffic to boost at Indian ports from 814.1 million tons (MT)

to 1,373.1 MT from 2010 to 2015 at a CAGR of 11 per cent. The study group has

underlined three key trends in the sector, namely, increase in containerized cargo,


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increased private sector participation and traffic diversion toward minor ports.

y Foreign Tourist Arrivals (FTA) in India during the period of January- November

2010 was 4.93 million as compared to the FTAs of 4.46 million during the same

period of 2009, showing a growth of 10.4 per cent. The Foreign Exchange

Earnings (FEE) during the period of January-November 2010 were US$ 12.88

billion as compared to US$ 10.67 billion during the same period of 2009,

registering a growth rate of 20.7 per cent, according to data released by the

Ministry of Tourism.

y The total telephone subscriber base in the country reached 742.12 million as on

October 31, 2010, taking the overall tale-density to 62.51, according to the figures

released by the Telecom Regulatory Authority of India (TRAI). Also the wireless

subscriber base increased to 706.69 million.

y The average assets under management of the mutual fund industry stood at US$

160.44 billion for the month of September 2010, according to the data released by

Association of Mutual Funds in India (AMFI).

y As per NASSCOMs Strategic Review 2010, the Indian IT-BPO sector continues

to be the fastest growing segment of the industry and is estimated to aggregate

revenues of USD 73.1 billion in FY2010, with the IT software and services

industry accounting for USD 63.7 billion of revenues.

y The cumulative production of vehicles in India grew by 32.4 per cent upto August

2010 as compared to the same period in 2009, Mr. B S Meena, Secretary, Ministry

ofHeavy Industry, reported. Passenger vehicles, commercial vehicles and two-

wheeler segments had all recorded impressive growth rates of 32 per cent, 49 per

cent and 31 per cent, respectively during the period upto August 2010.

y According to the Gem and Jewellery Export Promotion Council, jewellery

shipments were worth US$ 23.57 billion in April-November 2010, registering a

rise of 38.25 per cent as compared to US$ 17.05 billion in the corresponding

period of 2009.

y According to the Ministry of Civil Aviation, passengers carried by domestic

airlines from January-November, 2010 were 46.81 million as against 39.35

million in the corresponding period of year 2009, thereby registering a growth of


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THE INDIAN BANKING SECTOR REVIEW

Without a sound and effective banking system in India it cannot have a healthy economy.

The banking system of India should not only be hassle free but it should be able to meet

new challenges posed by the technology and any other external and internal factors.

For the past three decades India's banking system has several outstanding achievements

to its credit. It is no longer confined to only metropolitans or cosmopolitans in India; in

fact, Indian banking system has reached even to the remote corners of the country. This is

one of the main reasons of India's growth process. The government's regular policy for

Indian bank since 1969 has paid rich dividends with the nationalization of 14 major

private banks of India. Not long ago, an account holder had to wait for hours at the bank

counters for getting a draft or for withdrawing his own money. Today, he has a choice.

Gone are days when the most efficient bank transferred money from one branch to other

in two days. Now it is simple as instant messaging or dial a pizza. Money has become the

order of the day.

Post independence

In 1948, the Reserve Bank of India India's central banking authority was nationalized,

and it became an institution owned by the Government of India.

18.9 per cent.

y According to Ernst & Young (E&Y), a global consultancy firm, India is expected

to receive more than US$ 7 billion in private equity (PE) investments in 2010, on

the back of robust economic growth. According to research firm VCCEdge,

mergers and acquisition (M&A) deals worth US$ 54.6 billion have been signed

till December 15, 2010, significantly more than the previous high of US$ 42

billion achieved in 2007.

y The HSBC Markit Business Activity Index, which measures business activity

among Indian services companies, based on a survey of 400 firms, rose to 60.1 in

November 2010 from 56.2 in October 2010.


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In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank

of India (RBI) "to regulate, control, and inspect the banks in India."

The Banking Regulation Act also provided that no new bank or branch of an existing

bank may be opened without a license from the RBI, and no two banks could have

common directors.

Liberalization

The new policy shook the Banking sector in India completely. Bankers, till this time,

were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of functioning.

In the early 1990s the then Narsimha Rao government embarked on a policy of

liberalization and gave licenses to a small number of private banks, which came to be

known as New Generation tech-savvy banks, which included banks such as Global Trust

Bank (the first of such new generation banks to be set up)which later amalgamated with

Oriental Bank of Commerce, UTI Bank(now re-named as Axis Bank), ICICI Bank and

HDFC Bank.

Current situation

Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks

(that is with the Government of India holding a stake), 29 private banks (these do not

have government stake; they may be publicly listed and traded on stock exchanges) and

31 foreign banks. They have a combined network of over 53,000 branches and 17,000

ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks

hold over 75 percent of total assets of the banking industry, with the private and foreign

banks holding 18.2% and 6.5% respectively.

Over the last four years, Indias economy has been on a high growth trajectory, creating

unprecedented opportunities for its banking sector. Most banks have enjoyed high

growth and their valuations have appreciated significantly during this period. Looking

ahead, the most pertinent issue is how well the banking sector is positioned to cater to

continued growth. A holistic assessment of the banking sector is possible only by

looking at the roles and actions of banks, their core capabilities and their ability to meet


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systemic objectives, which include increasing shareholder value, fostering financial

inclusion, contributing to GDP growth, efficiently managing intermediation cost, and

effectively allocating capital and maintaining system stability.

BANKING STRUCTURE IN INDIA

The banking institutions in the organized sector, commercial banks are the oldestinstitutions, some of them having their genesis in the nineteenth century. Initially they

were set up in large numbers, mostly as corporate bodies with shareholding with private

individuals. Today 27 banks constitute a strong Public Sector in Indian Commercial

Banking. Commercial Banks operating in India fall under different sub categories on the

basis of their ownership and control over management;

RESERVE BANK OF INDIA

SCHEDULED BANKS

COMMERCIAL BANKS

PUBLIC SECTOR BANKS (27)

SBI AND ASSOCIATES (8)

NATIONALIZED BANKS (19)

PRIVATE BANKS (31)

OLD BANKS (23)

NEW BANKS (8)

CO-OPERATIVE BANKS

URBAN CO-OPERATIVE(52)

STATE CO-OPERATIVE (16)


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Public Sector Banks

Public Sector Banks emerged in India in three stages. First the conversion of the then

existing Imperial Bank of India into State Bank of India in 1955, followed by the taking

over of the seven associated banks as its subsidiary. Second the nationalization of 14

major commercial banks in 1969and last the nationalization of 6 more commercial Bankin 1980. Thus 27 banks constitute the Public Sector Banks.

New Private Sector Banks

After the nationalization of the major banks in the private sector in 1969 and 1980, no

new bank could be setup in India for about two decades, though there was no legal bar to

that effect. The Narasimham Committee on financial sector reforms recommended the

establishment of new banks of India. RBI thereafter issued guidelines for setting up of

new private sector banks in India in January 1993. These guidelines aim at ensuring that

new banks are financially viable and technologically up to date from the start. They have

to work in a professional manner, so as to improve the image of commercial banking

system and to win the confidence of the public. Eight private sector banks have been

established including banks sector by financially institutions like IDBI, ICICI, and UTI

etc.

Local Area Banks

Such Banks can be established as public limited companies in the private sector and can

be promoted by individuals, companies, trusts and societies. The minimum paid up

capital of such banks would be 5 crores with promoters contribution at least Rs. 2 crores.

They are to be set up in district towns and the area of their operations would be limited to

a maximum of 3 districts. At present, four local area banks are functional, one each in

Punjab, Gujarat, Maharashtra and Andhra Pradesh.

Foreign Banks

Foreign commercial banks are the branches in India of the joint stock banks incorporatedabroad. There number was 38 as on 31.03.2009.

Scheduled Commercial Banks in India

The commercial banking structure in India consists of:

Scheduled Commercial Banks in India

Unscheduled Banks in India


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Scheduled Banks in India constitute those banks which have been included in the Second

Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those

banks in this schedule which satisfy the criteria laid down vide section42 (6) a) of the

Act.

"Scheduled banks in India" means the State Bank of India constituted under the State

Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of

India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted

under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings)

Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and

Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank

included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but

does not include a co-operative bank". "Non-scheduled bank in India" means a banking

company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of

1949), which is not a scheduled bank".

Cooperative Banks

Besides the commercial banks, there exists in India another set of banking

institutions called cooperative credit institutions. These have been made in existence in

India since long. They undertake the business of banking both in urban and rural areas on

the principle of cooperation. They have served a useful role in spreading the banking

habit throughout the country. Yet, there financial position is not sound and a majority of

cooperative banks has yet to achieve financial viability on a sustainable basis.

The cooperative banks have been set up under various Cooperative Societies Acts enacted

by State Governments. Hence the State Governments regulate these banks. In 1966, need

was felt to regulate their activities to ensure their soundness and to protect the interests of

depositors


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COMPANY ANALYSIS

FUNDAMENTAL ANALYSIS OF

y HDFC (Housing Development Finance Corporation Bank) BANK

y ICICI (Industrial Credit and Investment Corporation ofIndia) BANKy SBI (State Bank ofIndia)

y PNB (Punjab National Bank)

HDFC (Housing Development Finance Corporation Bank) BANK

COMPANY PROFILE

Housing Development Finance Corporation Limited, more popularly known as HDFC

Bank Ltd, was established in the year 1994, as a part of the liberalization of the Indian

Banking Industry by Reserve Bank of India (RBI). It was one of the first banks to receive

an 'in principle' approval from RBI, for setting up a bank in the private sector.

The bank was incorporated with the name 'HDFC Bank Limited', with its registered

office in Mumbai. The following year, it started its operations as a Scheduled

Commercial Bank. Today, the bank boasts of as many as 1725 branches and over 5016

ATMs across India.

Description Details

Industry Bank - Private

House Private

BSE Code 500180

NSE Code HDFCBANK

Incorporation Year -08 1994

Registered Office HDFC Bank House, Senapati Bapat Marg, Kamala Mills


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PROFIT AND LAOSS A/c (Amount Rs. In Cr)

Profit & Loss A/c of HDFC Bank

Particulars Mar 2010 Mar 2009 Mar 2008 Mar 2007 Mar 2006

Income

Interest Earned 16,172.90 16,332.26 10,115.00 6,889.02 4,475.3Other Income 3,810.62 3,470.63 2,205.38 1,510.24 1,213.6

Total Income 19,983.52 19,802.89 12,320.38 8,399.26 5,688.9

Interest expended 7,786.30 8,911.10 4,887.12 3,179.45 1,929.5

Employee Cost 2,289.18 2,238.20 1,301.35 776.86 486.8

S and A Expenses 3,395.83 2,851.26 974.79 727.53 943.0

Depreciation 394.39 359.91 271.72 219.60 178.5

Miscellaneous Expenses 3,169.12 3,197.49 3,295.22 2,113.28 1,035.1

Preoperative Exp Cap. 0.00 0.00 0.00 0.00 0.0

Operating Expenses 7,703.41 7,290.66 3,935.28 2,590.66 2,170.8

Provisions & Contingencies 1,545.11 1,356.20 1,907.80 1,246.61 472.6

Total Expenses 17,034.82 17,557.96 10,730.20 7,016.72 4,573.0

Net Profit for the Year 2,948.70 2,244.94 1,590.18 1,382.54 1,115.9

Extra ordinary Items -0.93 -0.59 -0.06 -0.35 0.0

Profit brought forward 3,455.57 2,574.63 1,932.03 1,455.02 602.3

Total 6,403.34 4,818.98 3,522.15 2,837.21 1,718.2

Preference Dividend 0.00 0.00 0.00 0.00 0.0

Equity Dividend 549.29 425.38 301.27 223.57 172.2

Corporate Dividend Tax 91.23 72.29 51.20 38.00 24.1

Per share data (annualized)

Earnings Per Share (Rs) 64.42 52.77 44.87 43.29 35.6

Equity Dividend (%) 120.00 100.00 85.00 70.00 55.0Book Value (Rs) 470.19 344.44 324.38 201.42 169.2

Appropriations

Transfer to Statutory Reserves 935.15 641.25 436.05 288.38 -265.3

Transfer to Other Reserves 294.87 224.50 159.02 114.14 87.0

Proposed Dvd./Trans. to Govt 640.52 497.67 352.47 261.57 196.3

Balance c/f to Balance Sheet 4,532.79 3,455.57 2,574.61 1,932.03 1,455.0

Total 6,403.33 4,818.99 3,522.15 2,596.12 1,473.1


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BALANCE SHEET OF HDFC LTD (Amount Rs. In Cr)

BALANCE SHEET OF HDFC

Bank----------------------------------------------Rs. In Cr--------------------------------------------

Particulars Mar '10 Mar '09 Mar '08 Mar '07 Mar '0

Capital and Liabilities

Total Share Capital 457.74 425.38 354.43 319.39 313.1

Equity Share Capital 457.74 425.38 354.43 319.39 313.1

Share Application Money 0.00 400.92 0.00 0.00 0.0

Preference Share Capital 0.00 0.00 0.00 0.00 0.0

Reserves 21,064.75 14,226.43 11,142.80 6,113.76 4,986.3

Revaluation Reserves 0.00 0.00 0.00 0.00 0.0

NetWorth 21,522.49 15,052.73 11,497.23 6,433.15 5,299.6

Deposits 167,404.44 142,811.58 100,768.60 68,297.94 55,796.8

Borrowings 12,915.69 2,685.84 4,478.86 2,815.39 4,560.4

Total Debt 180,320.13 145,497.42 105,247.46 71,113.33 60,357.3Other Liabilities & Provisions 20,615.94 22,720.62 16,431.91 13,689.13 7,849.4

Total Liabilities 222,458.56 183,270.77 133,176.60 91,235.61 73,506.3

Assets

Cash & Balances with RBI 15,483.28 13,527.21 12,553.18 5,182.48 3,306.6

Balance with Bank, M@C 14,459.11 3,979.41 2,225.16 3,971.40 3,612.3

Advances 125,830.59 98,883.05 63,426.90 46,944.78 35,061.2

Investments 58,607.62 58,817.55 49,393.54 30,564.80 28,393.9

Gross Block 4,707.97 3,956.63 2,386.99 1,917.56 1,589.4

Accumulated Depreciation 2,585.16 2,249.90 1,211.86 950.89 734.3

Net Block 2,122.81 1,706.73 1,175.13 966.67 855.0

Capital Work In Progress 0.00 0.00 0.00 0.00 0.0Other Assets 5,955.15 6,356.83 4,402.69 3,605.48 2,277.0

Total Assets 222,458.56 183,270.78 133,176.60 91,235.61 73,506.3

Contingent Liabilities 466,236.24 396,594.31 582,835.94 202,126.7 138,898.6

Bills for collection 20,940.13 17,939.62 17,092.85 7,211.88 5,239.2

Book Value (Rs) 470.19 344.44 324.38 201.42 169.2


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RATIO ANALYSIS

Particulars Mar 10 Mar09 Mar 08 Mar07 Mar 07

Investment Valuation Ratios

Dividend Per Share 10.00 8.50 7.00 5.50 4.50Operating Profit Per Share (Rs) 92.36 107.32 86.19 52.56 41.65

Net Operating Profit Per Share (Rs) 464.77 348.57 259.98 177.80 120

Free Reserves Per Share (Rs) 252.37 269.89 155.69 132.01 99.78

Bonus in Equity Capital -- -- -- -- --

Profitability Ratios

Interest Spread 6.98 7.08 5.47 5.25 5.39

Net Profit Margin 11.35 12.82 13.57 15.55

Return on Long Term Fund(%) 83.31 62.34 74.91 60.06 50.77

Return on Net Worth (%) 15.32 13.83 23.57 22.73 23.67

Management Efficiency Ratios

Interest Income / Total Funds 12.50 11.01 10.08 8.91 7.95Operating Expense / Total Funds 4.38 3.27 2.88 3.19 2.38

Net Profit / Total Funds 1.42 1.42 1.68 1.79

Loans Turnover 0.24 0.22 0.20 0.18 0.17

Total Income / Capital Employed (%) 12.50 11.05 10.21 8.96 7.99

Total Assets Turnover Ratios 0.13 0.11 0.10 0.09 0.08

Asset Turnover Ratio 5.00 5.18 4.33 3.50 2.89

Profit And Loss Account Ratios

Interest Expended / Interest Earned 54.56 48.32 46.15 43.11 42.53

Other Income / Total Income -- 0.35 1.22 0.56 0.55

Operating Expense / Total Income 35.06 29.55 28.21 35.58 29.84

SellingDistribution Cost Composition 0.54 0.92 0.90 1.45 1.47

Balance Sheet RatiosCapital Adequacy Ratio 15.69 13.60 13.08 11.41 12.16

Advances/ Loans Funds (%) 78.87 71.93 71.41 68.75 68.21

Debt Coverage Ratios

Credit Deposit Ratio 66.64 65.28 66.08 65.79 64.87

Investment Deposit Ratio 44.43 47.29 47.51 51.81 57.83

Cash Deposit Ratio 10.71 10.49 6.84 6.46 7.78

Total Debt to Owners Fund 9.75 8.76 10.62 10.53 8.04

Leverage Ratios

Current Ratio 0.04 0.04 0.04 0.04 0.03

Quick Ratio 5.23 4.89 4.07 5.18 5.61

Cash Flow Indicator Ratios

Dividend Payout Ratio Net Profit 22.16 22.16 22.91 22.55 23.99

Dividend Payout Ratio Cash Profit 19.10 18.93 16.32 15.17 16.00

Earning Retention Ratio 77.79 77.83 77.11 77.44 76.00

Cash Earning Retention Ratio 80.87 81.07 83.69 84.83 83.99


19/45


PERFORMANCE HIGHLIGHTS

Net profit has grown 31.35% to 2,948.70cr in 2010 from 2244.97 in 2009 largely due

to treasury gains.

ROE is 13.7% in 2010 as compared to 17.2% in 2009.

ROA is 1.3% in 2010 as compared to 1.2 in 2009.

Net interest spread is 10.39 in 2009 as compared to 11.30 in 2008.

NIM is 4.2% in 2010 as compared to 4.9 in 2009.

P/E IS 32.58% in 2010 as compared to 28.38% in 2009.

The banks CAR stood at comfortable 19.41% as at 31st

March 2010, with tier I at

10.6%. Warrant conversion by HDFC Ltd will further boost the tier I capital

adequacy.

CASA ratio is maintained at 39.61% this year.

The NPA in 2010 was 903.64crores.

OUTLOOK AND VALUATION

I believe that HDFC Bank is among the most competitive banks in the Banking Sector

and is poised to maintain its profitable growth over the long term. I believe that the

Banks competitive advantages, driving gains in CASA market share and traction in

multiple Fee Revenue streams, can support up to 5% higher core sustainable RoEs vis--

vis sectoral averages over the long term, creating a material margin of safety in our Target

valuation multiples.

We should maintain our view that the substantial inorganic and organic network

expansion since 3QFY2010 will enable the Bank regain strong traction in CASA

Deposits and Fee Income market share gains over the next 1-2 years, especially once the

macro-environment starts improving, progressively restoring financial parameters like

CASA ratio and RoE back to pre-merger levels. While HR and IT integration of the

eCBoP branches has been completed, it is likely to take the Bank 12-18 months for

productivity improvements to scale up closer to levels of its own branches, so that merger

benefits start accruing to its Bottom-line.


20/45


FUNDAMENTAL ANALYSIS OF ICICI BANK LTD

COMPANY PROFILE

ICICI Bank(formerly Industrial Credit and Investment Corporation of India) is India's

largest private sector bank in market capitalization and second largest overall in terms of

assets. ICICI Bank has total assets of about Rs. 363399.71cr (end-Mar 2010), a network

of 2,528 branches & extension counters, about 5808 ATMs and 25 million customers at

March 31, 2010. 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. ICICI Bank's equity shares

are listed in India on stock exchanges at Kolkata and Vadodara, the Stock Exchange,

Mumbai and the National Stock Exchange of India Limited and its ADRs are listed on the

New York Stock Exchange (NYSE).

Description Details

Industry Bank - Private

House Private

BSE Code 532174

NSE Code ICICIBANK

Incorporation Year 1994

Registered OfficeLandmark,Race Course Circle,Alkapuri Vadodara,

Gujarat-390007 .

ISINNO INE090A01013Industry Bank - Private

Chairman K V Kamath

Managing Director Chanda D Kochhar

Company Secretary Jyotin Mehta

Listing BSE,NSE,Luxembourg, New York


21/45


SHAREHOLDING PATTERN (%)

PROFIT AND LOSS A/c (Amount Rs. In Cr.)

Mar '10 Mar '09 Mar '08 Mar '07 Mar '06

Income

Interest Earned 25,706.93 31,092.55 30,788.34 22,994.29 13,784.50

Other Income 7,292.43 8,117.76 8,878.85 6,962.95 5,036.62

Total Income 32,999.36 39,210.31 39,667.19 29,957.24 18,821.12Expenditure


Employee Cost 1,925.79 1,971.70 2,078.90 1,616.75 1,082.29

Selling and Admin Expenses 6,056.48 5,977.72 5,834.95 4,900.67 2,360.72

Depreciation 619.50 678.60 578.35 544.78 623.79


Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.00


Provisions & Contingencies 1,159.81 1,931.10 1,170.05 1,638.66 1,409.35

Total Expenses 28,974.37 35,452.17 35,509.47 26,847.02 16,281.03

Net Profit for the Year 4,024.98 3,758.13 4,157.73 3,110.22 2,540.07Extraordinary Items 0.00 -0.58 0.00 0.00 0.00

Profit brought forward 2,809.65 2,436.32 998.27 293.44 188.22

Total 6,834.63 6,193.87 5,156.00 3,403.66 2,728.29


Equity Dividend 1,337.95 1,224.58 1,227.70 901.17 759.33


27%

59%

4%

1%

0%

9%


Banks Fin. Inst. & Insurance

FII's

Pvt. Corporate Bodies

NRI's

Directors/Employee

eneral Pu lic


22/45




Equity Dividend (%) 120.00 110.00 110.00 100.00 85.00

Book Value (Rs) 463.01 444.94 417.64 270.37 249.55

Appropriations

Transfer to Statutory Reserves 1,867.22 2,008.42 1,342.31 1,351.12 248.69Transfer to Other Reserves 1.04 0.01 0.01 0.00 1,320.34

Proposed Dvd./Transfer to Govt 1,501.99 1,375.79 1,377.37 1,054.27 865.83

Balance c/f to Balance Sheet 3,464.38 2,809.65 2,436.32 998.27 293.44

Total 6,834.63 6,193.87 5,156.01 3,403.66 2,728.30

BALANCE SHEET (Amount Rs. In Cr.)

Mar '10 Mar '09 Mar '08 Mar '07 Mar '06Capital and Liabilities:

Total Share Capital 1,114.89 1,463.29 1,462.68 1,249.34 1,239.83

Equity Share Capital 1,114.89 1,113.29 1,112.68 899.34 889.83



Reserves 50,503.48 48,419.73 45,357.53 23,413.92 21,316.16


NetWorth 51,618.37 49,883.02 46,820.21 24,663.26 22,555.99

Deposits 202,016.60 218,347.82 244,431.05 230,510.19 165,083.17

Borrowings 94,263.57 67,323.69 65,648.43 51,256.03 38,521.91

Total Debt 296,280.17 285,671.51 310,079.48 281,766.22 203,605.08Other Liabilities & Prov. 15,501.18 43,746.43 42,895.39 38,228.64 25,227.88


Assets


Balance with Banks, M@C 11,359.40 12,430.23 8,663.60 18,414.45 8,105.85

Advances 181,205.60 218,310.85 225,616.08 195,865.60 146,163.11

Investments 120,892.80 103,058.31 111,454.34 91,257.84 71,547.39

Gross Block 7,114.12 7,443.71 7,036.00 6,298.56 5,968.57

Accumulated Depreciation 3,901.43 3,642.09 2,927.11 2,375.14 1,987.85

Net Block 3,212.69 3,801.62 4,108.89 3,923.42 3,980.72

Capital Work In Progress 0.00 0.00 0.00 189.66 147.94Other Assets 19,214.93 24,163.62 20,574.63 16,300.26 12,509.57

Total Assets 363,399.71 379,300.96 399,795.07 344,658.11 251,388.95




23/45


RATIO ANALYSIS



Dividend Per Share 12.00 11.00 11.00 10.00 8.50

Operating Profit Per Share (Rs) 49.80 48.58 51.29 42.19 36.75 Net Operating Profit Per Share (Rs) 293.74 343.59 354.71 316.45 196.8




Interest Spread 5.66 3.66 3.51 3.43 2.67


Return on Long Term Fund (%) 44.72 56.72 62.34 82.46 56.24

Return on Net Worth (%) 7.79 7.58 8.94 13.17 14.33


Interest Income / Total Funds 8.82 9.82 10.60 9.55 8.36

Operating Expense / Total Funds 2.59 2.60 2.76 2.79 2.22

Net Profit / Total Funds 1.08 0.96 1.12 1.04 Loans Turnover 0.17 0.18 0.20 0.17 0.15

Total Income / Capital Employed (%) 8.90 9.90 10.62 9.65 8.58





Other Income / Total Income 0.92 0.86 0.17 1.07 2.59


Selling Distribution Cost Composition 0.72 1.74 4.43 6.12 4.80

Balance Sheet Ratios

Capital Adequacy Ratio 19.41 15.53 13.97 11.69 13.35Advances / Loans Funds(%) 58.57 69.86 72.67 77.72 84.89






Leverage Ratios

Current Ratio 0.14 0.13 0.11 0.09 0.08

Quick Ratio 14.70 5.94 6.42 6.04 6.64



Dividend Payout Ratio Cash Profit 32.33 31.00 29.08 28.84 27.36Earning Retention Ratio 61.40 63.23 66.35 64.80 65.82



24/45


PERFORMANCE HIGHLIGHTSNII has decreased 17.32% to 25706.93 from 31092.55 in 2010.

Net profit has increased 7.10% to 4024.98 from 3758.13 in 2010.

P/E ratio is 29.52 in 2010 compared to 22.5 in 2009.


Banks balance sheet contraction continued with advances decline by 4.19% and

deposit by 7.48%.

Interest spread has decreased to 5.66% in 2010 from 6.29% in 2009.

Net interest margin has decreased to 2.60% in 2010 from 3.83% in 2009.

The bank is comfortably placed with Capital adequacy at 19.41%

The net NPA increased to 4554 in 2010 from 3490 in 2009 an increase of 30.5%.

In this chart we can see that companys

C

ASA ratio has been improved to 39

.61%


I have a positive view on ICICI Bank, given its market-leading businesses across the

financial services spectrum. Moreover, I believe that the Bank is decisively executing a

credible strategy of consolidation that should result in an improved deposit and loan mix

and consequently in improved operating metrics over the medium term.

The strategy involves maintaining strong capital adequacy in the current environment,

while building the necessary base for strong CASA mobilization, going forward. This is

to be achieved through a substantial branch expansion, without diluting the current focus

on stringent cost-control measures. The management has indicated that cost

rationalizations still in process to further bring down the operating expenses. The Banks

Capital Adequacy is also amongst the highest at 19.41%.

I believe that the Banks substantial branch expansion and large Capital Adequacy,

especially on Tier 1, are a precursor to market share gains that will contribute to a

substantial Core business growth, though with a lag effect until the macro-environment

starts improving again (hence, potentially in 12-18 months). It is focusing again on

replacing wholesale funds with retail deposits in the international subsidiaries as well. In

the short term, while the Asset-quality deterioration is likely to start plotting only after a

few quarters, the increased focus on Treasury as a profit-centre, as well as the continued

focus on cost controls should provide some support to the Banks P/L account.


25/45


FUNDAMENTAL ANALYSIS OF SBI

COMPANY PROFILE:

The State Bank of India, the countrys oldest Bank and a premier in terms of balance

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

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

sector behemoth is today stirring out of its Public Sector legacy and moving with an

ability to give the Private and Foreign Banks a run for their money. The bank is entering

into many new businesses with strategic tie ups Pension Funds, General Insurance,

Custodial Services, Private Equity, Mobile Banking, Point of Sale Merchant Acquisition,

Advisory Services, structured products etc each one of these initiatives having a huge

potential for growth.

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

processes to help improve the total customer experience. With about 13858 of its ownbranches and another 12642 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 2100 ATMs, and

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

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

presently has 131 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


26/45


Description Details

Industry Bank - Public

House Government

BSE Code 500112

NSE Code SBINIncorporation Year 02-06 1806

Registered OfficeState Bank Bhavan, Madame Cama Marg, Nariman Point

Mumbai,Maharashtra-400021 .

ISINNO INE062A01012

Phone 91-022-22883888/22022678/22830535

E-mail [email protected]

URL www.sbi.co.in


Chairman O P BhattManaging Director Mr. R Sridharan

Listing BSE, NSE, Ahmedabad, Chennai, Delhi, Kolkata, London

SHARE HOLDING PATTERN (%)

62%14%

11%

3% 0%4%

6%


Indian Promoters

NBFC'S

FII's

Pvt. Corporate Bodies

NRI/OCB"s/Foreighn others

Others

General Public


27/45




Income

Interest Earned 70,993.92 63,788.43 48,950.31 39,491.03 35,794.93Other Income 14,968.15 12,691.35 9,398.43 7,446.76 7,388.69

Total Income 85,962.07 76,479.78 58,348.74 46,937.79 43,183.62

Expenditure


Employee Cost 12,754.65 9,747.31 7,785.87 7,932.58 8,123.04

Selling and Admin Expenses 7,898.23 5,122.06 4,165.94 3,251.14 1,853.32

Depreciation 932.66 763.14 679.98 602.39 729.13


Preoperative Exp Capitalized 0.00 0.00 0.00 0.00 0.00


Provisions & Contingencies 4,532.53 6,319.60 5,080.99 5,707.88 6,744.75Total Expenses 76,796.02 67,358.55 51,619.62 42,396.48 38,776.93


Extraordinary Items 0.00 0.00 0.00 0.00 0.00

Profit brought forward 0.34 0.34 0.34 0.34 0.34

Total 9,166.39 9,121.57 6,729.46 4,541.65 4,407.01


Equity Dividend 1,904.65 1,841.15 1,357.66 736.82 736.82


Per share data (annualised)


Equity Dividend (%) 300.00 290.00 215.00 140.00 140.00

Book Value (Rs) 1,038.76 912.73 776.48 594.69 525.25

Appropriations

Transfer to Statutory Reserves 6,495.14 6,725.15 5,205.69 3,682.15 3,566.51

Transfer to Other Reserves 529.50 306.90 -0.10 -2.88 0.00

Proposed Dvd./ Transfer to Govt 2,141.41 2,089.18 1,523.53 862.04 840.16

Balance c/f to Balance Sheet 0.34 0.34 0.34 0.34 0.34

Total 9,166.39 9,121.57 6,729.46 4,541.65 4,407.01


28/45




Capital and Liabilities:


Equity Share Capital 634.88 634.88 631.47 526.30 526.30Share Application Money 0.00 0.00 0.00 0.00 0.00


Reserves 65,314.32 57,312.82 48,401.19 30,772.26 27,117.79


NetWorth 65,949.20 57,947.70 49,032.66 31,298.56 27,644.09

Deposits 804,116.23 742,073.13 537,403.94 435,521.09 380,046.06

Borrowings 103,011.60 53,713.68 51,727.41 39,703.34 30,641.24

Total Debt 907,127.83 795,786.81 589,131.35 475,224.43 410,687.30

Other Liabilities & Provision 80,336.70 110,697.57 83,362.30 60,042.26 55,538.17

Total Liabilities 1,053,413.73 964,432.08 721,526.31 566,565.25 493,869.56

Assets

Cash & Balances with RBI 61,290.87 55,546.17 51,534.62 29,076.43 21,652.70Balance with Banks, Moneyat Call

34,892.98 48,857.63 15,931.72 22,892.27 22,907.30

Advances 631,914.15 542,503.20 416,768.20 337,336.49 261,641.53

Investments 285,790.07 275,953.96 189,501.27 149,148.88 162,534.24

Gross Block 11,831.63 10,403.06 8,988.35 8,061.92 7,424.84

Accumulated Depreciation 7,713.90 6,828.65 5,849.13 5,385.01 4,751.73

Net Block 4,117.73 3,574.41 3,139.22 2,676.91 2,673.11

Capital Work In Progress 295.18 263.44 234.26 141.95 79.82

Other Assets 35,112.76 37,733.27 44,417.03 25,292.31 22,380.84

Total Assets 1,053,413.74 964,432.08 721,526.32 566,565.24 493,869.54



RATIO ANALYSIS




Operating Profit Per Share (Rs) 229.63 230.04 173.61 147.72 124.77

Net Operating Profit Per Share (Rs) 1,353.15 1,179.45 899.83 833.38 719.5


Bonus in Equity Capital -- -- -- -- --Profitability Ratios

Interest Spread 3.82 4.34 4.32 4.20 4.31



Return on Net Worth(%) 13.89 15.74 13.72 14.50 15.94




29/45


RARIO ANALYSIS

PERFORMANCE HIGHLIGHTS

Net profit has grown marginally 0.49% to 9,166.05cr in 2010 from 9121.23crores in

2009


ROA is 0.95 in 2010 as compared to 0.93 in 2009.

Net interest spread is 3.82% in 2009 as compared to 6.37% in 2008.

NIM is 3.40% in 2009 as compared to 3.85% in 2008.

P/E IS 17.35 in 2009 as compared to 12.6 in 2008.

The bank is comfortably placed in terms of capital adequacy as the banks total CAR

as on March 2010 was 13.39%.

CASA ratio is 48.2% in 2010 as compared to 38.5% in 2009.



Loans Turnover 0.15 0.16 0.15 0.15 0.16

Total Income / Capital Employed(%) 8.62 8.99 8.96 8.46 8.24





Other Income / Total Income 1.21 1.18 1.56 2.25 3.60




Capital Adequacy Ratio 13.39 14.25 13.47 12.34 11.88

Advances / Loans Funds(%) 74.22 78.34 78.31 76.16 65.66




Cash Deposit Ratio 7.56 8.37 8.29 6.22 5.15Total Debt to Owners Fund 12.19 12.81 10.96 13.92 13.75

Leverage Ratios

Current Ratio 0.04 0.04 0.07 0.05 0.05

Quick Ratio 9.07 5.74 6.15 6.52 5.50







30/45


The NPA in FY 2009 was 12576.08cr


With its surplus liquidity and balance sheet size, we believe SBI will be a major

beneficiary of pickup in credit demand. SBIs non banking subsidiaries (SBI Capital

Markets, SBI Mutual Fund and SBI Life Insurance) will benefit from up-tick in capital

markets and corporate activity. At current price of Rs 2079 the stock is trading at ~1.8x

FY10E P/BV. We maintain a Buy on SBI with a target of Rs 2251, giving an upside

potential of 8.27% from the current levels, on account of:

y Pickup in credit demand (we estimate SBIs FY11 credit growth at 20% and FY12

at 22%) will allow the bank to redeploy surplus liquidity to advances frominvestments;

y Rebound in earnings growth (23 25% CAGR from FY 11 FY12) on back of

higher credit growth and strong fee income performance;

y Sharp pickup in margins in FY11 as high cost deposits are repriced and yields

improve;

y Asset quality headwinds (especially the concerns over the higher proportion of

restructured assets and low loan loss coverage) subsiding as economy returns to

a secular growth path.

Key Risks include:

1) Sharper than expected asset quality deterioration;

2) Slower credit growth;

3) Margin compression.


31/45


FUNDAMENTAL ANALYSIS OF PUNJAB NATIONALBANK LTD

COMPANY PROFILE

Since its humble beginning in 1895 with the distinction of being the first Indian bank to

have been started with Indian capital, PNB has achieved significant growth in business

which at the end of March 2010 amounted to Rs 3,64,463 crores. Today, with assets of

more than Rs 2,46,900 crores, PNB is ranked as the 3rd largest bank in the country (after

SBI and ICICI Bank) and has the 2nd largest network of branches (5000 including 238

extension counters and 3 overseas offices).During the FY 2009-10, with 39% share of

low cost deposits, the bank achieved a net profit of Rs 3,905crores, maintaining its

number ONE position amongst nationalized banks.

Description Details


House Govt

BSE Code 532461

NSE Code PNB

Incorporation Year 1895

Registered Office 7 Bhikaiji Cama Place, , New Delhi, New Delhi-110066 .

ISINNO INE160A01014

Phone 011- 26102303

E-mail [email protected]

URL www.pnbindia.com


Chairman & MD Mr. K R Kamath

Company Secretary Mr. Ramesh Kumar Kochar

Listing BSE,NSE


32/45


SHAREHOLDING PATTERN



Income

Interest Earned 21,466.91 19,326.16 14,265.02 11,537.48 9,584.15

Other Income 3,565.31 2,919.69 1,997.56 1,343.64 1,478.23

Total Income 25,032.22 22,245.85 16,262.58 12,881.12 11,062.38

Expenditure


Employee Cost 3,121.14 2,924.38 2,461.54 2,352.45 2,114.97

Selling and Admin Expenses 1,701.46 1,406.42 884.19 1,032.50 638.79

Depreciation 222.83 191.06 170.23 194.80 186.65


Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.00


Provisions & Contingencies 2,421.49 1,832.85 1,580.39 1,392.08 1,442.53

Total Expenses 21,126.87 19,154.96 14,213.80 11,341.04 9,623.07


Extraordinary Items 0.00 0.00 0.00 0.00 0.00

Profit brought forward 7.64 0.00 15.52 183.49 0.00

Total 3,913.00 3,090.88 2,064.28 1,723.57 1,439.31

Preference Dividend 0.00 0.00 0.00 0.00 0.00Equity Dividend 693.67 630.61 409.89 409.89 189.18




Equity Dividend (%) 220.00 200.00 100.00 100.00 60.00

Book Value (Rs) 514.77 416.74 341.98 321.65 287.79

Appropriations

58%18%

4%

15%5%

ChartTitle

Promoters

FIIs

MFs/UTI

Banks/Fis

Others


33/45


Transfer to Statutory Reserves 1,532.46 1,155.46 596.14 435.06 -1,512.23

Transfer to Other Reserves 1,570.44 1,190.00 988.59 800.00 2,552.34

Proposed Dvd/Transfer to Govt 810.10 737.78 479.55 473.00 215.71

Balance c/f to Balance Sheet 0.00 7.64 0.00 15.52 183.49

Total 3,913.00 3,090.88 2,064.28 1,723.58 1,439.31



Capital and Liabilities:


Equity Share Capital 315.30 315.30 315.30 315.30 315.30



Reserves 15,915.63 12,824.59 10,467.35 9,826.31 8,758.68

Revaluation Reserves 1,491.99 1,513.74 1,535.70 293.85 302.38

NetWorth 17,722.92 14,653.63 12,318.35 10,435.46 9,376.36

Deposits 249,329.80 209,760.50 166,457.23 139,859.67 119,684.92

Borrowings 19,262.37 4,374.36 5,446.56 1,948.86 6,687.18

Total Debt 268,592.17 214,134.86 171,903.79 141,808.53 126,372.10

Other Liabilities & Provisions 10,317.69 18,130.13 14,798.23 10,178.51 9,518.93


Assets


Balance with Banks, Money at Call 5,145.99 4,354.89 3,572.57 3,273.49 1,397.14

Advances 186,601.21 154,702.99 119,501.57 96,596.52 74,627.37

Investments 77,724.47 63,385.18 53,991.71 45,189.84 41,055.31

Gross Block 4,215.21 3,930.36 3,699.64 2,247.74 2,106.92Accumulated Depreciation 1,701.74 1,533.25 1,384.12 1,237.92 1,076.69

Net Block 2,513.47 2,397.11 2,315.52 1,009.82 1,030.23

Capital Work In Progress 0.00 0.00 0.00 0.00 0.00

Other Assets 6,320.07 5,020.20 4,380.84 3,980.80 3,762.79

Total Assets 296,632.79 246,918.62 199,020.36 162,422.50 145,267.40



Book Value (Rs) 514.77 416.74 341.98 321.65 287.79

RATIO ANALYSIS




Operating Profit Per Share (Rs) 191.63 151.48 109.81 74.53 57.00

Net Operating Profit Per Share (Rs) 777.82 694.81 505.09 383.89 310.5



34/45


PERFORMANCE HIGHLIGHT

Net profit has grown 26.35% to 3,905.36crores in 2010 from 3090.88crores in 2009

largely due to treasury gains.

ROE is 24.06% in 2010 as compared to 23.52in 2009.

ROA is 1.25% in 2010 as compared to 1.03% in 2009.



Interest Spread 4.46 4.18 4.18 4.40 3.94



Return on Net Worth(%) 24.06 23.52 19.00 16.03 17.01Management Efficiency Ratios




Loans Turnover 0.14 0.16 0.15 0.14 0.15

Total Income / Capital Employed(%) 9.24 10.14 8.99 8.00 7.33





Other Income / Total Income 1.75 2.46 1.43 1.52 1.33Operating Expense / Total Income 22.19 21.53 23.10 30.36 31.00



Capital Adequacy Ratio 14.16 14.03 13.46 12.29 11.95

Advances / Loans Funds(%) 77.31 80.15 76.19 72.04 64.26






Leverage Ratios

Current Ratio 0.02 0.02 0.02 0.03 0.03

Quick Ratio 20.47 9.75 9.40 11.10 10.69







35/45


Net interest spread is 4.46 in 2010 as compared to 4.18% in 2009.

NIM is 4.10% in 2010 as compared to 4.54% in 2009.

P/E IS 9.06 in 2010 as compared to 7.2 in 2009.

The bank is comfortably placed in terms of capital adequacy as the banks total CAR

as on March 2010 was 14.16%.

CASA ratio is 38.21% in 2010 as compared to 38% in 2009.

The NPA in FY 2009 was 3319.30crores.


While we like the robust performance of PNB on both earnings quality (and quantity too)

and asset quality, we believe that the margins in coming quarter may come under

Pressure in future. PNB has taken advantage of liquidity squeeze ofH2FY09 and lent too

many of the large corporate at BPLR. But we believe that if the liquidity position of large

corporate improves, the strategy of lending strictly at BPLR may not sustain. However,

asset quality may continue to remain robust. The stock is currently quoting at 1.5x FY11E

ABV and 1.3x FY11E ABV. We do not find valuations compelling at this level for

absolute return. However the stock may continue to outperform other PSU banks because

of earnings and asset quality, rating is to hold with a price target of Rs700.


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FINDINGS AND CONCLUSIONFINDINGS

From the study of banking sector I find out that most of the shares in banking sector are

bullish. The valuations of most banks are good and banks are maintaining the Basel normof CAR%. The growth percentages of banks are also good. Now lets do a comparative

study of the bank taken in these studies.

BANKS HDFCBANK ICICIBANK SBI PNB

P/E 32.58 29.558 18.75 9.06

ROE (%) 13.7 7.79 13.89 24.06

CAR (%)capital adequacy ratio 15.69 19.41 13.39 14.16

RETURN ON NETWORTH 15.32 7.79 13.89 24.06

EPS 64.42 36.10 144.37 123.86

EPS GROWTH (%) 29.32 6.85 9.72 18.77

NET PROFIT GROWTH (%) 31.35 7.10 0.49 26.35

DPS 10.00 12.00 30.00 22.00

NET PROFIT MARGIN (%) 11.35 12.17 10.54 15.64

NET INTREST MARGIN (%) 4.20 2.60 3.40 4.10

NET INTEREST SPREAD (%) 6.98 5.66 3.82 4.67

EARNING RETENTION RATIO 84.48 66.48 79.22 82.23

CASA (%) 49.00 39.61 48.17 38.21

Recommendation BUY HOLD HOLD BUY

Current market price (31/03/2010) 1932.50 952.70 2079.00 1013.45

Target 2489.10 1005.95 2251.08 1181.67

Current market price (26/02/2010) 2087.00 1038.30 2679.25 1136.55

Achieved NO YES YES NO

As per P/E ratio SBI can be considered at a fair value, PNB is undervalued and

ICICI bank is growth stock with earnings expected to increase substantially in

future and HDFCBANK have high expected future growth in earnings.

All selected bank has maintained the CAR% as per Basel norm.


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SBI has the highest Book value of 1038.76.

The net interest spread ofHDFC BANK is highest at 6.98% which means there is

large disparity between the rate of lending and deposit.

Except for SBI and ICICI Bank the recommendation of all selected banks are of

BUY.

HIERARCHY FOR CHOOSING BANKING STOCK FOR INVESTMENT

1)HDFC Bank Ltd

HDFC Bank is among the most competitive bank in the Banking Sector and is poised to

maintain its profitable growth over the long term. Network expansion since 3QFY2010-

11 will enable the Bank regains strong traction in CASA Deposits and Fee Income.

Market share gains over the next 1-2 years.

While HR and IT integration of the centurion bank of Punjab branches has been

completed, it is likely to take the Bank 12-18 months for productivity improvements to

scale up closer to levels of its own branches, so that merger benefits start accruing to its

Bottom-line. The bank stock is likely to get highest return comparatively with other bank.

2)ICICI Bank Ltd

The banks strategy of strengthening its profitability by expanding branch network,

replacing bulk deposits with retail deposits and improving CASA ratio. These measures

are likely to result in margin improvement and subsequent increase in medium-term

ROEs from the current levels. Looking at the future growth this bank is 2 nd most

preferred stock for investing.

3)SBI LTD

Banks balance sheet is coming to Rs10 trillion. SBI has maintained its leadership positionacross financial product and had aggressively expanded its book in recent past and had

gained market share. SBI currently has 1111 branches and plans to add 1000 branches

this fiscal catering to over 50000 villages. It is also aiming at extending banking services

to 100000 un banked villages in FY 10

Key risk to bank is- 1) sharper than expected asset quality deterioration,


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2) Slower credit growth,

3) Margin compression.

4)Punjab NationalBankLtdPNB Ltd has been ranked on 5th position in preference this is because there is asset

quality concerns could continue to weigh in overseas branches. The bank is growing

rapidly on the international front and plans to continue its growth globally. It has already

acquired permission from RBI to open further branches abroad especially one in DIFC,

Dubai. Although it is a positive sign, there is a concern of FOREX losses that could be

reported by the bank in the future quarters due to adverse fluctuation in currency. Further

spreads in countries abroad may not be as healthy as in India and asset quality concerns

could continue to weigh in overseas branches.

CONCLUSION

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 Personal Research

tool for companies.

Investors should become skilled readers to weed out the important information

and ignore the hype.


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BIBLIOGRAPHY

www.google.com

www.investopedia.com

www.moneycontrol.com

http://www.allbankingsolutions.com/CRR-SLR-BANK-RATE-REPO-

REVERSE.HTM

http://www.bitpipe.com/tlist/Electronic-Funds-Transfer.html

http://www.banknetindia.com/banking/chqtruncation.htm

http://www.bharatbook.com/Market-Research-Reports/Indian-Banking-Sector-

Forecast.html http://www.bseindia.com/

http://business.mapsofindia.com/banks-in-india/

http://www.business-standard.com/india/index2.php

http://economictimes.indiatimes.com/

http://en.wikipedia.org/wiki/Magnetic_ink_character_recognition

http://finance.indiabizclub.com/info/indian_banking_industry

http://finance.indiamart.com/investment_in_india/banking_in_india.html

http://www.moneycontrol.com/

http://money.rediff.com/companies/hdfc-bank-ltd/14030055/share-holding

http://mevenky.blogspot.com/2009/11/what-is-electronic-clearing-system-ecs.html

http://www.nseindia.com/

http://www.pnbindia.in/english_web/profile.htm

http://www.pnbindia.in/invst_info.htm

http://www.sharegyan.com/


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RATIO ANALYSIS

----------------------------Rs in million----------------------------

Particulars Mar 2009 Mar 2008 Mar 2007 Mar 2006 Mar 2005Operational & Financial Ratios


DPS(Rs) 10.00 8.50 7.00 5.50 4.50

Book NAV/Share(Rs) 344.31 324.39 201.42 169.24 145.87

Margin RatiosYield on Advances 16.52 15.95 14.16 12.76 12.10

Yield on Investments 7.51 6.15 6.49 5.88 6.37

Cost of Liabilities 6.12 4.64 4.47 3.29 3.20

NIM 7.50 8.24 7.39 7.26

Interest Spread 10.39 11.30 9.69 9.47 8.90

Performance Ratios

ROA(%) 1.22 1.19 1.25 1.18 1.29ROE(%) 15.33 13.83 17.74 16.43 14.72

ROCE(%) 6.66 5.38 5.28 4.33 4.46

Efficiency Ratios

Cost Income Ratio 73.61 69.63 68.60 64.66 64.11

Core Cost Income Ratio 45.41 39.42 38.94 34.46 35.13

Operating Costs to Assets 11.02 10.27 9.68 8.40 7.70

Capitalisation Ratios

Tier 1 ratio 0 0 0 0 0

Tier 2 ratio 0 0 0 0 0

CAR 0 0 0 0 0

Valuation Parameters

PER(x) 18.31 29.42 26.56 27.81 25.34PCE(x) 15.81 25.13 22.28 23.08 20.83

Price/Book(x) 2.81 4.07 4.71 4.57 3.73

Yield (%) 1.03 0.64 0.74 0.71 0.83

EV/Net Sales 2.69 5.07 4.98 6.05 7.00

EV/Core EBITDA 8.47 13.61 12.92 13.69 16.11

EV/EBIT 3.59 7.15 6.88 8.51 9.44

EV/CE 0.24 0.38 0.36 0.37 0.42

M Cap / Sales 2.52 4.63 4.56 5.41 5.45

Growth Ratio

Core Operating Income Growth 41.95 50.73 36.24 43.19 32.89

Operating Profit Growth -100.95 -21386.61 29.57 47.24 33.33

Net Profit Growth 41.18 39.31 31.08 30.83 BVPS Growth -98.94 61.05 19.01 16.02 54.24

Advances Growth 55.90 35.11 33.89 37.14 44.08

EPS Growth (%) 17.78 25.55 28.51 29.47 20.06

Liquidity Ratios

Loans/Deposits 0.02 0.04 0.04 0.05 0.13

Total Debt/Equity 0.09 0.12 0.07 0.06 0.07

Current Ratio 0.41 0.49 0.45 0.51 0.53

Quick Ratio 1.88 4.44 4.12 5.12 13.18


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Interest Coverage RatioTotal Debt/Mcap 0 0 0 0 0

Net NPA in Rs. Million 0 0 0 0

Fundamental analysis is performed on historical and present data, but with the goal of making

financial forecasts. There are several possible objectives:

to conduct a company stock valuation and predict its probable price evolution,

to make a projection on its business performance,

to evaluate its management and make internal business decisions,

to calculate its credit risk.

To highlight several objectives of fundamentalanalysis items are listed below:

(1) To evaluate intrinsic value of shares & compare it with present market

price to decide whether a share is overvalued or undervalued (2) To evaluate managements efficiency & internal decisions taken by them to

run the business

(3) To calculate credit risk

Technical Analysis: Opposite to fundamental analysis, technical analysis of sharesdoes not care about true worth (value) of shares. Instead they give more importanceto trends, investor emotions, and speculations.

Warren buffets approach to quantify the intrinsic valueof a share

Warren Buffett use the top down approach to calculate the intrinsic value of

business. In the following order:

(1) Evaluating international and national indicators (Gross domestic product GDP

growth, rate of inflation, interest rates on bank deposits, foreign exchange rates,

productivity and energy prices)

(2) Sector wise analysis of business

(3) Price level analysis of shares within a sector

(4) Competitors analysis of a share (both domestic and international)

(5) Analysis and entry and exit points of a particular share

(6) And finally he selects the best company to invest in


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What procedure shall be followed to do fundamentalanalysis of a share?

Step (1) Analysis Financial Statements

(a) Calculate Ratios of past 5 years

(b) Note Dividend paid in last 5 years

(c) Evaluate how company is generating its funds for doing business (Balance

Sheet)

(d) Evaluate how company is spending its funds on business (Balance Sheet)

(e) Observe Operating cash flow of last five years

(f) Observe equity/ share issued by company in last five years

(g) Evaluate net profit and operating profit made by company in last five years

Step (2) Discounted Cash Flow Analysis

(a) The present value of all future cash flows is calculated.

(b) Future cash flow in terms of dividends received by investors

(c) Appreciation of market price of shares

Step (3) Levels of Debts of Company

(a) Companies financial health is also greatly determined by the levels of debts it

carries. Keeping track of debt equity ratio of last five years and also comparing them

with other competing companies is crucial.

Step (4) Comparing Market Price of stocks with its earnings

(a) Fundamentally all share prices are valued on basis of companys net earnings. If

earnings are high market price will go up and vice versa.

Indian Economy Overview

Last Updated: December 2010

The Centre for Monitoring Indian Economy (CMIE) has estimated Indias gross domesticproduct (GDP) to expand at 9.2 per cent in 2010-11 as compared to the growth of 7.4 percent in 2009-10. Overall growth in industrial output was 10.8 per cent year-on-year (y-o-y) in October 2010. The growth in the industrial sector is expected to increase at 9.4 per


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cent in 2010-11, as compared to 9.2 per cent in 2009-10. According to a survey by theConfederation of Indian Industry (CII) and ASCON, around 50 segments (out of 127) inthe manufacturing sector grew by 39 per cent, entering the 'excellent growth' category,during April-December 2010-11 compared to 29 sectors (22.9 per cent) in April-December 2009 which shows a marked improvement. Also, services sector is projected to

expand by 10 per cent as compared to 8.6 per cent last year, led by the trade and transportsegment. The major turnaround is expected from the agriculture and allied sector, whichis being projected to grow by 5.7 per cent in 2010-11.As per Use-based classification, the Sectoral growth rates in October 2010 over October2009 are 7.7 per cent in Basic goods, 22 per cent in Capital goods and 9.5 per cent inIntermediate goods. The Consumer durables and Consumer non-durables have expandedby 31 per cent and 0.1 per cent respectively in the reported month.The industrial output registered a robust growth of 10.8 per cent year-on-year (y-o-y) inOctober 2010. Among the three major constituents of the IIP, manufacturing andelectricity recorded higher growth rates of 11.3 per cent and 8.8 per cent in October asagainst their corresponding levels of 10.8 per cent and 4 per cent for the corresponding

month in 2009. The third constituent mining index registered 6.5 per cent in October2010.

The Economic scenarioForeign injections amounted to US$ 6.4 billion in October 2010, which was almost 25per cent of the total inflows in the stock market registered so far in 2010. The net foreignfund investment crossed the US$ 100 billion mark on November 8 2010, since theliberalization policy was implemented in 1992. As per the data given by SEBI, the totalfigure stood at US$100.9 billion, wherein US$ 4.78 billion were infused in Novemberitself. The humungous increase in investment mirrors the foreign investors faith in theIndian markets. FIIs have made investments worth US$ 4.11 billion in equities andpoured US$ 667.71 million into the debt market.Data sourced from SEBI shows that the number of registered FIIs stood at 1,738 andnumber of registered sub-accounts rose to 5,592 as of November 10, 2010.As on December 17, 2010, India's foreign exchange reserves totaled US$ 294.60 billion,an increase of US$ 11.13 billion over the same period last year, according to the ReserveBank of India's (RBI) Weekly Statistical Supplement.Moreover, India received foreign direct investment (FDI) equity worth US$ 12.39 billionduring April-October, 2010-11, taking the cumulative amount of FDI inflows during April2000 - October 2010 to US$ 179.45 billion, according to the Department of IndustrialPolicy and Promotion (DIPP).The services sector comprising financial and non-financial services attracted 21 per centof the total FDI equity inflow into India, with FDI worth US$ 2,163 million during April-October 2010, while telecommunications including radio paging, cellular mobile andbasic telephone services attracted second largest amount of FDI worth US$ 1,062 millionduring the same period. Metallurgical industries were the third highest sector attractingFDI worth US$ 920 million followed by power sector which garnered US$ 729 millionduring the financial year April-October 2010.

y Exports from India have increased by 26.8 per cent year-on-year (y-o-y) to touchUS$ 18.9 billion in November 2010, urging the Government to exude confidencethat overall shipments in 2010-11 may touch US$ 215 billion. For the April-


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November 2010 period, exports have grown by 26.7 per cent to US$ 140.3billion, while imports totaled up to US$ 222 billion, expanding 24 per cent.

y India's logistics sector is witnessing increased activity. According to the IndianShipping ministry, the country's major ports handled 44.4 million tones of cargoduring September 2010, 4.5 per cent higher as compared to 5.9 per cent growth in

September 2009. Leading consultants Frost Sullivan, as cited by The EconomicTimes, are expecting traffic to boost at Indian ports from 814.1 million tones(MT) to 1,373.1 MT from 2010 to 2015 at a CAGR of 11 per cent. The studygroup has underlined three key trends in the sector, namely, increase incontainerized cargo, increased private sector participation and traffic diversiontoward minor ports.

y Foreign Tourist Arrivals (FTA) in India during the period of January- November2010 was 4.93 million as compared to the FTAs of 4.46 million during the same period of 2009, showing a growth of 10.4 per cent. The Foreign ExchangeEarnings (FEE) during the period of January-November 2010 were US$ 12.88 billion as compared to US$ 10.67 billion during the same period of 2009,

registering a growth rate of 20.7 per cent, according to data released by theMinistry of Tourism.y The total telephone subscriber base in the country reached 742.12 million as on

October 31, 2010, taking the overall tale-density to 62.51, according to the figuresreleased by the Telecom Regulatory Authority of India (TRAI). Also the wirelesssubscriber base increased to 706.69 million.

y The average assets under management of the mutual fund industry stood at US$160.44 billion for the month of September 2010, according to the data released byAssociation of Mutual Funds in India (AMFI).

y As per NASSCOMs Strategic Review 2010, the Indian IT-BPO sector continuesto be the fastest growing segment of the industry and is estimated to aggregaterevenues of USD 73.1 billion in FY2010, with the IT software and servicesindustry accounting for USD 63.7 billion of revenues.

y The cumulative production of vehicles in India grew by 32.4 per cent upto August2010 as compared to the same period in 2009, Mr B S Meena, Secretary, MinistryofHeavy Industry, reported. Passenger vehicles, commercial vehicles and two-wheeler segments had all recorded impressive growth rates of 32 per cent, 49 percent and 31 per cent, respectively during the period upto August 2010.

y According to the Gem and Jewellery Export Promotion Council, jewelleryshipments were worth US$ 23.57 billion in April-November 2010, registering arise of 38.25 per cent as compared to US$ 17.05 billion in the correspondingperiod of 2009.

y According to the Ministry of Civil Aviation, passengers carried by domesticairlines from January-November, 2010 were 46.81 million as against 39.35million in the corresponding period of year 2009, thereby registering a growth of18.9 per cent.

y According to Ernst & Young (E&Y), a global consultancy firm, India is expectedto receive more than US$ 7 billion in private equity (PE) investments in 2010, onthe back of robust economic growth. According to research firm VCCEdge,mergers and acquisition (M&A) deals worth US$ 54.6 billion have been signed


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till December 15, 2010, significantly more than the previous high of US$ 42billion achieved in 2007.

y The HSBC Markit Business Activity Index, which measures business activityamong Indian services companies, based on a survey of 400 firms, rose to 60.1 inNovember 2010 from 56.2 in October 2010.

Documents

fundamentals of banking a project report