Performance Analysis of Top 5 Banks in India Hdfc Sbi Icici Axis Idbi by Satishpgoyal

KinG Of uNfoRtunAteS

Email: - [email protected] PUNE 2010 1 | P a g e

Chapter No. Content Page No

List of Tables

List of Figures

Executive summary

1. Introduction

Overview of Banking

Objective of study

Research methodology

Limitation of study

2. Review of literature

CAMELS Framework

3. Company profile

HDFC BANK

SBI

AXIS BANK

IDBI

ICICI BANK

4. Findings and conclusion

5. Bibliography



Table of content


List of Tables

List of Figures

Executive summary

1. Introduction

Overview of Banking

Objective of study


Limitation of study


CAMELS Framework

3. Company profile

HDFC BANK

SBI

AXIS BANK

IDBI

ICICI BANK


5. Bibliography




List of Tables

List of Figures

Executive summary

1. Introduction

Overview of Banking

Objective of study


Limitation of study


CAMELS Framework

3. Company profile

HDFC BANK

SBI

AXIS BANK

IDBI

ICICI BANK


5. Bibliography

mailto:[email protected]





TableNo.

Table Content PageNo.

3.1 Capital Adequacy ratio3.2 Earnings Per Share3.3 Net Profit Margin3.4 Return On Assets3.5 Credit Deposit Ratio3.6 Gross NPA3.7 Net NPA

FigureNo.

Title PageNo.

3.1 HDFC BANK3.2 STATE BANK OF INDIA3.3 AXIS BANK3.4 IDBI BANK3.5 ICICI BANK3.6 Capital Adequacy ratio3.7 Earnings Per Share3.8 Net Profit Margin3.9 Return On Assets3.10 Credit Deposit Ratio3.11 Gross NPA3.12 Net NPA



TableNo.



FigureNo.

Title PageNo.


List of Tables

List of Figures



TableNo.



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Title PageNo.







The banking sector has been undergoing a complex, but comprehensive phase of

restructuring since 1991, with a view to make it sound, efficient, and at the same

time it is forging its links firmly with the real sector for promotion of savings,

investment and growth. Although a complete turnaround in banking sector

performance is not expected till the completion of reforms, signs of improvement

are visible in some indicators under the CAMELS framework. Under this bank is

required to enhance capital adequacy, strengthen asset quality, improve

management, increase earnings and reduce sensitivity to various financial risks.

The almost simultaneous nature of these developments makes it difficult to

disentangle the positive impact of reform measures.

CAMELS Framework

CAMELS’ norms are the supervisory framework consisting of risk-monitoring

factors used for evaluating the performance of banks. This framework involves

the analysis of six groups of indicators reflecting the health of financial

institutions. The indicators are as follows:













CAMELS Framework





Executive Summery













CAMELS Framework










CAPITAL ADEQUACY ASSET QUALITY MANAGEMENT SOUNDNESS EARNINGS & PROFITABILITY LIQUIDITY SENSITIVITY TO MARKET RISK

The whole banking scenario has changed in the very recent past on the

recommendations of Narasimham Committee. Further BASELL II Norms were

introduced to internationally standardize processes and make the banking

industry more adaptive to the sensitive market risks. Amongst these reforms and

restructuring the CAMELS Framework has its own contribution to the way

modern banking is looked up on now. The attempt here is to see how various

ratios have been used and interpreted to reveal a bank’s performance and how

this particular model encompasses a wide range of parameters making it a widely

used and accepted model in today’s scenario. The project attempts to analyse the

performance of Axis bank on the basis of CAMELS model and

gives suggestions on the basis of the finding of the analysis. The overall strategy

of Axis bank is also studied to gain a better understanding of the working of the

bank and to identify its strength and weakness.




Introduction



Chapter-01

Introduction








Without a sound and effective banking system in India it cannot have a healthyeconomy. The banking system of India should not only be hassle free but itshould be able to meet new challenges posed by the technology and any otherexternal and internal factors.

For the past three decades India's banking systemhas several outstanding achievements to its credit. The most striking is itsextensive reach. It is no longer confined to only metropolitans or cosmopolitansin India. In fact, Indian banking system has reached even to the remote cornersof the country. This is one of the main reasons of India's growth process. Thegovernment's regular policy for Indian bank since 1969 has paid rich dividendswith the nationalization of 14 major private banks of India.

Not long ago, an account holder had to wait for hours at the bankcounters for getting a draft or for withdrawing his own money. Today, he has achoice. Gone are days when the most efficient bank transferred money from onebranch to other in two days. Now it is simple as instant messaging or dials apizza. Money has become the order of the day. The first bank in India, thoughconservative, was established in 1786. From 1786 till today, the journey ofIndian Banking System can be segregated into three distinct phases.They are as mentioned below:

Early phase from 1786 to 1969 of Indian Banks

Nationalization of Indian Banks and up to 1991 prior to Indianbanking sector Reforms.

New phase of Indian Banking System with the advent of IndianFinancial & Banking Sector Reforms after 1991.




The General Bank of India was set up in the year 1786. Next came Bank of

Hindustan and Bengal Bank. The East India Company established Bank of

Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as

independent units and called it Presidency Banks. These three banks were

amalgamated in 1920 and Imperial Bank of India was established which started

as private shareholders banks, mostly Europeans shareholders.

In 1865 Allahabad Bank was established and first time

exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with

headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank

of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore

were set up. Reserve Bank of India came in 1935. During the first phase the

growth was very slow and banks also experienced periodic failures between

1913 and 1948. There were approximately 1100 banks, mostly small. To

streamline the functioning and activities of commercial banks, the Government

of India came up with The Banking Companies Act, 1949 which was later

changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No.

23 of 1965). Reserve Bank of India was vested with extensive powers for the

supervision of banking in India as the Central Banking Authority. During those

day’s public has lesser confidence in the banks. As an aftermath deposit

mobilization was slow. Abreast of it the savings bank facility provided by the

Postal department was comparatively safer. Moreover, funds were largely given

to traders.

PHASE-01
























to traders.
























to traders.






Government took major steps in this Indian Banking Sector Reform afterindependence. In 1955, it nationalized Imperial Bank of India with extensivebanking facilities on a large scale especially in rural and semi-urban areas. Itformed State Bank of India to act as the principal agent of RBI and to handlebanking transactions of the Union and State Governments all over the country.Seven banks forming subsidiary of State Bank of India was nationalized in 1960on 19th July, 1969, major process of nationalization was carried out. It was theeffort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 majorcommercial banks in the country were nationalized. Second phase ofnationalization Indian Banking Sector Reform was carried out in 1980 withseven more banks. This step brought 80% of the banking segment in India underGovernment ownership. The following are the steps taken by the Government ofIndia to Regulate Banking Institutions in the Country:

• 1949: Enactment of Banking Regulation Act.

• 1955: Nationalization of State Bank of India.

• 1959: Nationalization of SBI subsidiaries.

• 1961: Insurance cover extended to deposits.

• 1969: Nationalization of 14 major banks.

• 1971: Creation of credit guarantee corporation.

• 1975: Creation of regional rural banks.

• 1980: Nationalization of seven banks with deposits over 200 crore.

After the nationalization of banks, the branches of the public sector bank Indiarose to approximately 800% in deposits and advances took a huge jump by11,000%. Banking in the sunshine of Government ownership gave the publicimplicit faith and immense confidence about the sustainability of theseinstitutions.

PHASE-02






























This phase has introduced many more products and facilities in the banking

sector in its reforms measure. In 1991, under the chairmanship of M

Narasimham, a committee was set up by his name which worked for the

liberalization of banking practices. The country is flooded with foreign banks

and their ATM stations. Efforts are being put to give a satisfactory service to

customers. Phone banking and net banking is introduced. The entire system

became more convenient and swift. Time is given more importance than money.

The financial system of India has shown a great deal of resilience. It is sheltered

from any crisis triggered by any external macroeconomics shock as other East

Asian Countries suffered. This is all due to a flexible exchange rate regime,

the foreign reserves are high, the capital account is not yet fully convertible, and

banks and their customers have limited foreign exchange exposure.

PHASE-03


































RESERVE BANK OF INDIA (RBI) ------------------------------

The central bank of the country is the Reserve Bank of India (RBI). It was

established in April 1935 with a share capital of Rs. 5 crores on the basis of the

recommendations of the Hilton Young Commission. The share capital was

divided into shares of Rs. 100 each fully paid which was entirely owned by

private shareholders in the beginning. The Government held shares of nominal

value of Rs. 2, 20,000. Reserve Bank of India was nationalized in the year 1949.

The general superintendence and direction of the Bank is entrusted to Central

Board of Directors of 20 members, the Governor and four Deputy Governors,

one Government official from the Ministry of Finance, ten nominated Directors

by the Government to give representation to important elements in the economic

life of the country, and four nominated Directors by the Central Government to

represent the four local Boards with the headquarters at Mumbai, Kolkata,

Chennai and New Delhi. Local Boards consist of five members each Central

Government appointed for a term of four years to represent territorial and

economic interests and the interests of co-operative and indigenous banks. The

Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act,

1934 (II of 1934) provides the statutory basis of the functioning of the Bank. The

Bank was constituted for the need of following:

• To regulate the issue of banknotes

• To maintain reserves with a view to securing monetary stability and

• To operate the credit and currency system of the country to its

advantage.




Functions of Reserve Bank of India

The Reserve Bank of India Act of 1934 entrust all the important functions of a

central bank the Reserve Bank of India.

• Issue Of Notes

Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right

to issue bank notes of all denominations. The distribution of one rupee notes and

coins and small coins all over the country is undertaken by the Reserve Bank as

agent of the Government. The Reserve Bank has a separate Issue Department

which is entrusted with the issue of currency notes. The assets and liabilities of

the Issue Department are kept separate from those of the Banking Department.

Originally, the assets of the Issue Department were to consist of not less than

two-fifths of gold coin, gold bullion or sterling securities provided the amount of

gold was not less than Rs. 40 crores in value. The remaining three-fifths of the

assets might be held in rupee coins, Government of India rupee securities,

eligible bills of exchange and promissory notes payable in India. Due to the

exigencies of the Second World War and the post-was period, these provisions

were considerably modified. Since 1957, the Reserve Bank of India is required

to maintain gold and foreign exchange reserves of Ra. 200 crores, of which at

least Rs. 115 crores should be in gold. The system as it exists today is known as

the minimum reserve system.

Banker to Government

The second important function of the Reserve Bank of India is to act as

Government banker, agent and adviser. The Reserve Bank is agent of Central

Government and of all State Governments in India excepting that of Jammu and

Kashmir. The Reserve Bank has the obligation to transact Government business,




via. to keep the cash balances as deposits free of interest, to receive and to make

payments on behalf of the Government and to carry out their exchange

remittances and other banking operations. The Reserve Bank of India helps the

Government - both the Union and the States to float new loans and to manage

public debt. The Bank makes ways and means advances to the Governments for

90 days. It makes loans and advances to the States and local authorities. It acts as

adviser to the Government on all monetary and banking matters.

Bankers' Bank and Lender of the Last Resort

The Reserve Bank of India acts as the bankers' bank. According to the provisions

of the Banking Companies Act of 1949, every scheduled bank was required to

maintain with the Reserve Bank a cash balance equivalent to 5% of its demand

liabilities and 2 per cent of its time liabilities in India. By an amendment of

1962, the distinction between demand and time liabilities was abolished and

banks have been asked to keep cash reserves equal to 3 per cent of their

aggregate deposit liabilities. The minimum cash requirements can be changed by

the Reserve Bank of India. The scheduled banks can borrow from the Reserve

Bank of India on the basis of eligible securities or get financial accommodation

in times of need or stringency by rediscounting bills of exchange. Since

commercial banks can always expect the Reserve Bank of India to come to their

help in times of banking crisis the Reserve Bank becomes not only the banker's

bank but also the lender of the last resort.




Controller of Credit

The Reserve Bank of India is the controller of credit i.e. it has the power to

influence the volume of credit created by banks in India. It can do so through

changing the Bank rate or through open market operations. According to the

Banking Regulation Act of 1949, the Reserve Bank of India can ask any

particular bank or the whole banking system not to lend to particular groups or

persons on the basis of certain types of securities. Since 1956, selective controls

of credit are increasingly being used by the Reserve Bank.

The Reserve Bank of India is armed with many more powers to control the

Indian money market. Every bank has to get a license from the Reserve Bank of

India to do banking business within India, the license can be cancelled by the

Reserve Bank of certain stipulated conditions are not fulfilled. Every bank will

have to get the permission of the Reserve Bank before it can open a new branch.

Each scheduled bank must send a weekly return to the Reserve Bank showing, in

detail, its assets and liabilities. This power of the Bank to call for information is

also intended to give it effective control of the credit system. The Reserve Bank

has also the power to inspect the accounts of any commercial bank. As supreme

banking authority in the country, the Reserve Bank of India, therefore, has the

following powers:

a) It holds the cash reserves of all the scheduled banks.

(b) It controls the credit operations of banks through quantitative and

qualitative controls.

(c) It controls the banking system through the system of licensing, inspection

and calling for information.

(d) It acts as the lender of the last resort by providing rediscount facilities to

scheduled banks.




Custodian of Foreign Reserves

The Reserve Bank of India has the responsibility to maintain the official rate of

exchange. According to the Reserve Bank of India Act of 1934, the Bank was

required to buy and sell at fixed rates any amount of sterling in lots of not less

than Rs. 10,000. The rate of exchange fixed was Re. 1 = sh. 6d. Since 1935 the

Bank was able to maintain the exchange rate fixed at lsh.6d. Though there were

periods of extreme pressure in favor of or against the rupee. After India became a

member of the International Monetary Fund in 1946, the Reserve Bank has the

responsibility of maintaining fixed exchange rates with all other member

countries of the I.M.F. Besides maintaining the rate of exchange of the rupee, the

Reserve Bank has to act as the custodian of India's reserve of international

currencies. The vast sterling balances were acquired and managed by the Bank.

Further, the RBI has the responsibility of administering the exchange controls of

the country.

Supervisory functions

In addition to its traditional central banking functions, the Reserve bank has

certain non-monetary functions of the nature of supervision of banks and

promotion of sound banking in India. The Reserve Bank Act, 1934, and the

Banking Regulation Act, 1949 have given the RBI wide powers of supervision

and control over commercial and co-operative banks, relating to licensing and

establishments, branch expansion, liquidity of their assets, management and

methods of working, amalgamation, reconstruction, and liquidation. The RBI is

authorized to carry out periodical inspections of the banks and to call for returns

and necessary information from them. The nationalization of 14 major




Indian scheduled banks in July 1969 has imposed new responsibilities on the

RBI for directing the growth of banking and credit policies towards more rapid

development of the economy and realization of certain desired social objectives.

The supervisory functions of the RBI have helped a great deal in improving the

standard of banking in India to develop on sound lines and to improve the

methods of their operation.

Promotional functions

The Bank now performs variety of developmental and promotional functions,

which, at one time, were regarded as outside the normal scope of central

banking. The Reserve Bank was asked to promote banking habit, extend banking

facilities to rural and semi-urban areas, and establish and promote new

specialized financing agencies. Accordingly, the Reserve Bank has helped in the

setting up of the IFCI and the SFC; it set up the Deposit Insurance Corporation

in 1962, the Unit Trust of India in 1964, the Industrial Development Bank of

India also in 1964, the Agricultural Refinance Corporation of India in 1963 and

the Industrial Reconstruction Corporation of India in 1972. These institutions

were set up directly or indirectly by the Reserve Bank to promote saving habit

and to mobilize savings, and to provide industrial finance as well as agricultural

finance. The Bank has developed the co-operative credit movement to encourage

saving, to eliminate moneylenders from the villages and to route its short term

credit to agriculture. The RBI has set up the Agricultural Refinance and

Development Corporation to provide long-term finance to farmers.




SCOPE OF THE RESEARCH

“To study the strength of using CAMELS framework as a tool of performance

evaluation for banking institutions.”

RESEARCH METHODOLOGY

Research methodology is a very organized and systematic way through which a

particular case or problem can be solved efficiently.

It is a step-by-step logical process, which involves:

Defining a problem

Laying the objectives of the research

Sources of data

Methods of data collection

Tabulation of data

Data analysis & processing

Conclusions & Recommendations










Defining a problem

Laying the objectives of the research

Sources of data

Methods of data collection

Tabulation of data

Data analysis & processing

Conclusions & Recommendations















STATEMENT OF THE PROBLEM

In the recent years the financial system especially the banks have undergone

numerous changes in the form of reforms, regulations & norms. CAMELS

framework for the performance evaluation of banks is an addition to this. The

study is conducted to analyze the pros & cons of this model.

OBJECTIVES OF STUDY

To do an in-depth analysis of the model.

To analyze 5 banks to get the desired results by using CAMELS as a tool

of measuring performance.

1. Type of research: Descriptive

i) AREA OF SURVEY: The survey was done for three banks. The study environment

was the Banking industry.

ii) DATA SOURCE:

Primary Data: Primary data was collected from the company balance

sheets and company profit and loss statements.

Secondary Data: Secondary data on the subject was collected from ICFAI

journals, company prospectus, company annual reports and IMF websites.




iii) SAMPLING TECHNIQUE :

Convenience sampling: Convenience sampling was done for the

selection of the banks.

iv) PLAN OF ANALYSIS:

The data analysis of the information got from the balance sheets was done and

ratios were used. Graph and charts were used to illustrate trends..

2. Identification of the parameter:-

The different parameters that were selected for the comparison is:-

CAR

Net Profit Margin

EPS

Credit Deposit Ratio

GNPA

NPA

ROA.

4. Sampling plane:-

Sample- ICICI, HDFC, IDBI, AXIS Bank and State Bank of India.




1) The study was limited to 5 banks.

2) Time and resource constrains.

3) The method discussed pertains only to banks though it can be used for

performance evaluation of other financial institutions.

4) The study was completely done on the basis of ratios calculated from

the balance sheets.

5) It has not been possible to get a personal interview with the top

management employees of all banks under study.

LIMITATIONS OF THE STUDY








the balance sheets.











the balance sheets.











Chapter-02

Review of literature








Number of studies has been conducted about the use of CAMEL model. Andnumber of reviews on the previous researches is present but due to paucity oftime, a few snapshots of literature are given here.

Swindle, C, (1995) This study uses the capital adequacy component of the

CAMEL rating system to assess whether regulators in the 1980s influenced

inadequately capitalized banks to improve their capital. Using a measure of

regulatory pressure that is based on publicly available information, I find that

inadequately capitalized banks responded to regulators' demands for greater

capital. This conclusion is consistent with that reached by Keeley (1988). Yet, a

measure of regulatory pressure based on confidential capital adequacy ratings

reveals that capital regulation at national banks was less effective than at state-

chartered banks.

Cole, Rebel A. and Gunther(1995) Their findings suggest that, if a bank

has not been examined for more than two quarters, off-site monitoring systems

usually provide a more accurate indication of survivability than its CAMEL

rating. The lower predictive accuracy for CAMEL ratings "older" than two

quarters causes the overall accuracy of CAMEL ratings to fall substantially

below that of off-site monitoring systems. The higher predictive accuracy of off-

site systems derives from both their timeliness-an updated off-site rating is

available for every bank in every quarter-and the accuracy of the financial data

on which they are based. Cole and Gunther conclude that off-site monitoring

systems should continue to play a prominent role in the supervisory process, as a

complement to on-site examinations.




Gilbert R., Meyer A., & Vaughan M. (2000) This article examines the

potential contribution to bank supervision of a model designed to predict which

banks will have their supervisory ratings downgraded in future periods. Bank

supervisors rely on various tools of off-site surveillance to track the condition of

banks under their jurisdiction between on-site examinations, including

econometric models. One of the models that the Federal Reserve System uses for

surveillance was estimated to predict bank failures. The number of banks

downgraded to problem status in recent years has been substantially larger than

the number of bank failures. During a period of few bank failures, the relevance

of this bank failure model for surveillance depends to some extent on the

accuracy of the model in predicting which banks will have their supervisory

ratings downgraded to problem status in future periods. This paper compares the

ability of two models to predict downgrades of supervisory ratings to problem

status: the Board staff model, which was estimated to predict bank failures,

and a model estimated to predict downgrades of supervisory ratings. We find that

both models do about as well in predicting downgrades of supervisory ratings for

the early 1990s. Over time, however, the ability of the downgrade model to

predict downgrades improves relative to that of the model estimated to predict

failures. This pattern reflects the value of using a model for surveillance that can

be re-estimated frequently. We conclude that the downgrade model may prove to

be a useful supplement to the Board's model for estimating failures during

periods when most banks are healthy, but that the downgrade model should not

be considered a replacement for the current surveillance framework.




Lacewell, Stephen Kent (2001). Stage one in the estimation of cost and

alternative profit efficiency scores using a national model and a size-specific

model. Previous research referred in the paper asserts that an efficiency

component should be added to the current CAMEL regulatory rating system to

account for the ever-increasing diverse components of modern financial

institutions. Stage two is the selection and computation of financial ratios

deemed to be highly correlated with each component of the CAMEL rating. The

research shows that there is definitely a relationship between bank efficiency

scores and financial ratios used to proxy a bank's CAMEL rating. It is also

evident that certain types of efficiency models are better suited to large banks

than to small banks and vice versa.

Richard S Barr, Kory A Killgo, Thomas F Siems, & Sheri Zimmel.

(2002) This study reviews previous research on the efficiency and performance

of financial institutions and uses Siems and Barr's (1998) data envelopment

analysis (DEA) model to evaluate the relative productive efficiency of US

commercial banks 1984-1998. It explains the methodology, discusses the input

and output measures used and relates bank performance measures to efficiency.

It describes the CAMEL rating system used by bank examiners and regulators;

and finds that banks with high efficiency scores also have strong CAMEL

ratings. The study summarizes the other relationship identified and recommends

the use of DEA to help analysts and policy makers understand organizations in

greater depth, regulators and examiners to develop monitoring tools and banks to

benchmark their processes.




Godlewski (2003) has tested the validity of the CAMEL rating typology for

bank's default modification in emerging markets. He focused explicitly on using

a logical model applied to a database of defaulted banks in emerging markets. He

found that the principle results of the early warning signals models follow the

CAMEL typology. The proxy variables of bank solvability, assets' quality and

liquidity, particularly loan losses provisions, management quality, profitability,

and intermediation rate have a negative impact on the one year probability of

bank's default.

Said and Saucier (2003) examined the liquidity, solvency and efficiency of

Japanese Banks. Using CAMEL rating methodology, for a representative sample

of Japanese banks for the period 1993-1999, they evaluated capital adequacy,

assets and management quality, earnings ability and liquidity position. They

quantified bank’s managerial quality by calculating X-inefficiency using data

envelopment analysis (DEA). Results support the view that the major problem of

failed banks was not inefficiency of management, but below standard capital

adequacy and considerable problems in their assets quality. Significantly above

average efficiency of ailing banks could be explained by a survival strategy that

pushed them to drastically improve management.

Derviz et al. (2004) investigated the determinants of the movements in the

long term Standard & Poor’s and CAMEL bank ratings in the Czech Republic

during the period when the three biggest banks, representing approximately 60%

of the Czech banking sector's total assets, were privatized (i.e., the time span

1998-2001). The same list of explanatory variables corresponding to the

CAMEL rating inputs employed by the Czech National Bank's banking sector




regulators were examined for both ratings in order to select significant predictors

among them. They employed an ordered response logit model to analyze the

monthly long-run S&P rating and a panel data framework for the analysis of the

quarterly CAMEL rating.

Gasbarro et al. (2004) examined the changing financial soundness of

Indonesian banks during the crisis. During the recent Southeast Asian financial

crisis, numerous banks failed quickly and unexpectedly. This study used a

unique data set provided by Bank Indonesia to examine the changing financial

soundness of Indonesian banks during this crisis. Bank Indonesia's non-public

CAMEL ratings data allowed the use of a continuous bank soundness measure

rather than ordinal measures. They argued that the nature of the risks facing the

Indonesian banking community calls for the addition of a systemic risk

component to the Indonesian ranking system. The empirical results show that

during Indonesia's stable economic periods, four of the five traditional CAMEL

components provided insights into the financial soundness of Indonesian banks.

Baral (2005) analysed the performance of joint ventures banks in Nepal on the

basis of CAMEL Model. For the purpose of the study data set published by joint

venture banks in their annual reports was used. This paper examined the

financial health of joint venture banks in the CAMEL framework. The health

check up was conducted on the basis of publicly available financial data. It

concluded that the health of joint venture banks is better than that of the other

commercial banks. In addition, the perusal of indicators of different components

of CAMEL indicated that the financial health of joint venture banks was not so

strong to manage the possible large scale shocks to their balance sheet and their

health was fair.




Kapil (2005) examined the relationship between the CAMEL ratings and the

bank stock performance. The viability of the banks was analyzed on the basis of

the Offsite Supervisory Exam Model—CAMEL Model. The M for Management

was not considered in this paper because all Public Sector Banks, (PSBs) were

government regulated, and also because all other four components—C, A, E and

L—reflect management quality. The remaining four components were analyzed

and rated to judge the composite rating. Part A of the study analyzed the

interbank performance by determining their CAEL composite score. Part B of

the study assessed the relation between the banks’ composite CAMEL ratings

with the banks’ stock performance. The paper revealed that the Off-site

Supervisory Exam Model, CAMEL, is related to the banks’ stock performance in

the capital market.

Hirtle and Lopez, (2005),This research paper was carried out; to find the

adequacy of CAMEL in capturing the overall performance of a bank; to find the

relative weights of importance in all the factors in CAMEL; and lastly to inform

on the best ratios to always adopt by banks regulators in evaluating banks'

efficiency. In addition, the best ratios in each of the factors in CAMEL were

identified. For example, the best ratio for Capital Adequacy was found to be the

ratio of total shareholders' fund to total risk weighted assets. The paper

concluded that no one factor in CAMEL suffices to depict the overall

performance of a bank. Among other recommendations, banks' regulators are

called upon to revert to the best identified ratios in CAMEL when evaluating

banks performance.




Sarker (2005) examined the CAMEL model for regulation and supervision of

Islamic banks by the central bank in Bangladesh. With the experience of more

than two decades the Islamic banking now covers more than one third of the

private banking system of the country and no concerted effort has been made to

add a Shariah component both in on-site and off-site banking supervision system

of the central bank. Rather it is being done on the basis of the secular supervisory

and regulatory system as chosen for the traditional banks and financial

institutions. To fill the gap, an attempt had been made in this paper to review the

CAMEL standard set by the BASEL Committee for off-site supervision of the

banking institutions. This study enabled the regulators and supervisors to get a

Shariah benchmark to supervise and inspect Islamic banks and Islamic financial

institutions from an Islamic perspective.




"Nuts and Bolts"

Concept of CAMELS Framework?

Capital Adequacy

Asset Quality

Management Soundness

Earnings & Profitability

Liquidity

Sensitivity To Market Risk



"Nuts and Bolts"


Capital Adequacy

Asset Quality


Earnings & Profitability




"Nuts and Bolts"







A Capital Adequacy Ratio is a measure of a bank's capital. It is expressed as a

percentage of a bank's risk weighted credit exposures.

Also known as ""Capital to Risk Weighted Assets Ratio (CRAR).

Capital adequacy is measured by the ratio of capital to risk-weighted assets

(CRAR). A sound capital base strengthens confidence of depositors. This ratio is

used to protect depositors and promote the stability and efficiency of financial

systems around the world.

Asset quality determines the robustness of financial institutions against loss of

value in the assets. The deteriorating value of assets, being prime source of

banking problems, directly pour into other areas, as losses are eventually written-

off against capital, which ultimately jeopardizes the earning capacity of the

institution. With this backdrop, the asset quality is gauged in relation to the level

and severity of non-performing assets, adequacy of provisions, recoveries,

distribution of assets etc. Popular indicators include non-performing loans to

advances, loan default to total advances, and recoveries to loan default ratios.

Capital Adequacy

Asset Quality


















Capital Adequacy

Asset Quality























The solvency of financial institutions typically is at risk when their assets

become impaired, so it is important to monitor indicators of the quality of their

assets in terms of overexposure to specific risks, trends in nonperforming loans,

and the health and profitability of bank borrowers— especially the corporate

sector. Share of bank assets in the aggregate financial sector assets: In most

emerging markets, banking sector assets comprise well over 80 per cent of total

financial sector assets, whereas these figures are much lower in the developed

economies. Furthermore, deposits as a share of total bank liabilities have

declined since 1990 in many developed countries, while in developing countries

public deposits continue to be dominant in banks. In India, the share of banking

assets in total financial sector assets is around 75 per cent, as of end-March 2008.

There is, no doubt, merit in recognizing the importance of diversification in the

institutional and instrument-specific aspects of financial intermediation in the

interests of wider choice, competition and stability. However, the dominant role

of banks in financial intermediation in emerging economies and particularly in

India will continue in the medium-term; and the banks will continue to be

“special” for a long time. In this regard, it is useful to emphasise the dominance

of banks in the developing countries in promoting non-bank financial

intermediaries and services including in development of debt-markets. Even

where role of banks is apparently diminishing in emerging markets,

substantively, they continue to play a leading role in non-banking financing

activities, including the development of financial markets.

One of the indicators for asset quality is the ratio of non-performing loans to

total loans (GNPA). The gross non-performing loans to gross advances ratio is

more indicative of the quality of credit decisions made by bankers. Higher

GNPA is indicative of poor credit decision-making.




NPA: Non-Performing Assets

Advances are classified into performing and non-performing advances (NPAs) as

per RBI guidelines. NPAs are further classified into sub-standard, doubtful and

loss assets based on the criteria stipulated by RBI. An asset, including a leased

asset, becomes non-performing when it ceases to generate income for the Bank.

An NPA is a loan or an advance where:

1. Interest and/or instalment of principal remains overdue for a period of more than

90 days in respect of a term loan;

2. The account remains "out-of-order'' in respect of an Overdraft or Cash Credit

(OD/CC);

3. The bill remains overdue for a period of more than 90 days in case of bills

purchased and discounted;

4. A loan granted for short duration crops will be treated as an NPA if the

installments of principal or interest thereon remain overdue for two crop

seasons; and

5. A loan granted for long duration crops will be treated as an NPA if the

installments of principal or interest thereon remain overdue for one crop season.

The Bank classifies an account as an NPA only if the interest imposed during

any quarter is not fully repaid within 90 days from the end of the relevant

quarter. This is a key to the stability of the banking sector. There should be no

hesitation in stating that Indian banks have done a remarkable job in containment

of non-performing loans (NPL) considering the overhang issues and overall

difficult environment. For 2008, the net NPL ratio for the Indian scheduled




commercial banks at 2.9 per cent is ample testimony to the impressive efforts

being made by our banking system. In fact, recovery management is also linked

to the banks’ interest margins. The cost and recovery management supported by

enabling legal framework hold the key to future health and competitiveness of

the Indian banks. No doubt, improving recovery-management in India is an area

requiring expeditious and effective actions in legal, institutional and judicial

processes.

Management of financial institution is generally evaluated in terms of capital

adequacy, asset quality, earnings and profitability, liquidity and risk sensitivity

ratings. In addition, performance evaluation includes compliance with set norms,

ability to plan and react to changing circumstances, technical competence,

leadership and administrative ability. In effect, management rating is just an

amalgam of performance in the above-mentioned areas.

Sound management is one of the most important factors behind financial

institutions’ performance. Indicators of quality of management, however, are

primarily applicable to individual institutions, and cannot be easily aggregated

across the sector. Furthermore, given the qualitative nature of management, it is

difficult to judge its soundness just by looking at financial accounts of the banks.

Nevertheless, total expenditure to total income and operating expense to total

expense helps in gauging the management quality of the banking institutions.










processes.























processes.



















Sound management is key to bank performance but is difficult to measure. It is

primarily a qualitative factor applicable to individual institutions. Several

indicators, however, can jointly serve—as, for instance, efficiency measures

do—as an indicator of management soundness.

The ratio of non-interest expenditures to total assets (MGNT) can be one of the

measures to assess the working of the management. . This variable, which

includes a variety of expenses, such as payroll, workers compensation and

training investment, reflects the management policy stance.

Efficiency Ratios demonstrate how efficiently the company uses its assets and

how efficiently the company manages its operations.

Asset Turnover Ratio = Total Revenue/Total Assets

Indicates the relationship between assets and revenue.

Companies with low profit margins tend to have high asset turnover, thosewith high profit margins have low asset turnover - it indicates pricing strategy

This ratio is more useful for growth companies to check if in fact they aregrowing revenue in proportion to sales

Asset Turnover Analysis:

This ratio is useful to determine the amount of sales that are generated from each

dollar of assets. As noted above, companies with low profit margins tend to have

high asset turnover, those with high profit margins have low asset turnover.




Earnings and profitability, the prime source of increase in capital base, is

examined with regards to interest rate policies and adequacy of provisioning. In

addition, it also helps to support present and future operations of the institutions.

The single best indicator used to gauge earning is the Return on Assets (ROA),

which is net income after taxes to total asset ratio.

Strong earnings and profitability profile of banks reflects the ability to support

present and future operations. More specifically, this determines the capacity to

absorb losses, finance its expansion, pay dividends to its shareholders, and build

up an adequate level of capital. Being front line of defense against erosion of

capital base from losses, the need for high earnings and profitability can hardly

be overemphasized. Although different indicators are used to serve the purpose,

the best and most widely used indicator is Return on Assets (ROA). However,

for in-depth analysis, another indicator Net Interest Margins (NIM) is also used.

Chronically unprofitable financial institutions risk insolvency. Compared with

most other indicators, trends in profitability can be more difficult to interpret—

for instance, unusually high profitability can reflect excessive risk taking.

ROA-Return On Assets

An indicator of how profitable a company is relative to its total assets. ROA

gives an idea as to how efficient management is at using its assets to generate

Earnings and Profitability






















Earnings and Profitability



























earnings. Calculated by dividing a company's annual earnings by its total assets,

ROA is displayed as a percentage. Sometimes this is referred to as "return on

investment".

The formula for return on assets is:

ROA tells what earnings were generated from invested capital (assets). ROA for

public companies can vary substantially and will be highly dependent on the

industry. This is why when using ROA as a comparative measure, it is best to

compare it against a company's previous ROA numbers or the ROA of a similar

company.

The assets of the company are comprised of both debt and equity. Both of these

types of financing are used to fund the operations of the company. The ROA

figure gives investors an idea of how effectively the company is converting the

money it has to invest into net income. The higher the ROA number, the better,

because the company is earning more money on less investment. For example, if

one company has a net income of $1 million and total assets of $5 million, its

ROA is 20%; however, if another company earns the same amount but has total

assets of $10 million, it has an ROA of 10%. Based on this example, the first

company is better at converting its investment into profit. When you really think

about it, management's most important job is to make wise choices in

allocating its resources. Anybody can make a profit by throwing a ton of money

at a problem, but very few managers excel at making large profits with little

investment




An adequate liquidity position refers to a situation, where institution can obtain

sufficient funds, either by increasing liabilities or by converting its assets quickly

at a reasonable cost. It is, therefore, generally assessed in terms of overall assets

and liability management, as mismatching gives rise to liquidity risk. Efficient

fund management refers to a situation where a spread between rate sensitive

assets (RSA) and rate sensitive liabilities (RSL) is maintained. The most

commonly used tool to evaluate interest rate exposure is the Gap between RSA

and RSL, while liquidity is gauged by liquid to total asset ratio.

Initially solvent financial institutions may be driven toward closure by poor

management of short-term liquidity. Indicators should cover funding sources and

capture large maturity mismatches. The term liquidity is used in various ways,

all relating to availability of, access to, or convertibility into cash.

An institution is said to have liquidity if it can easily meet its needs for

cash either because it has cash on hand or can otherwise raise or borrow

cash.

A market is said to be liquid if the instruments it trades can easily be

bought or sold in quantity with little impact on market prices.

An asset is said to be liquid if the market for that asset is liquid.

Liquidity

















cash.




Liquidity

















cash.









The common theme in all three contexts is cash. A corporation is liquid if it has

ready access to cash. A market is liquid if participants can easily convert

positions into cash—or conversely. An asset is liquid if it can easily be converted

to cash. The liquidity of an institution depends on:

the institution's short-term need for cash;

cash on hand;

available lines of credit;

the liquidity of the institution's assets;

The institution's reputation in the marketplace—how willing will

counterparty is to transact trades with or lend to the institution?

The liquidity of a market is often measured as the size of its bid-ask spread, but

this is an imperfect metric at best. More generally, Kyle (1985) identifies three

components of market liquidity:

Tightness is the bid-ask spread;

Depth is the volume of transactions necessary to move prices;

Resiliency is the speed with which prices return to equilibrium following

a large trade.

Examples of assets that tend to be liquid include foreign exchange; stocks traded

in the Stock Exchange or recently issued Treasury bonds. Assets that are often

illiquid include limited partnerships, thinly traded bonds or real estate.

Cash maintained by the banks and balances with central bank, to total asset ratio

(LQD) is an indicator of bank's liquidity. In general, banks with a larger volume




of liquid assets are perceived safe, since these assets would allow banks to meet

unexpected withdrawals.

Credit deposit ratio is a tool used to study the liquidity position of the bank. It

is calculated by dividing the cash held in different forms by total deposit. A high

ratio shows that there is more amounts of liquid cash with the bank to met its

clients cash withdrawals.

It refers to the risk that changes in market conditions could adversely impact

earnings and/or capital.

Market Risk encompasses exposures associated with changes in interest rates,

foreign exchange rates, commodity prices, equity prices, etc. While all of these

items are important, the primary risk in most banks is interest rate risk (IRR),

which will be the focus of this module. The diversified nature of bank operations

makes them vulnerable to various kinds of financial risks. Sensitivity analysis

reflects institution’s exposure to interest rate risk, foreign exchange volatility and

equity price risks (these risks are summed in market risk). Risk sensitivity is

mostly evaluated in terms of management’s ability to monitor and control market

risk.

Banks are increasingly involved in diversified operations, all of which are

subject to market risk, particularly in the setting of interest rates and the carrying

out of foreign exchange transactions. In countries that allow banks to make

trades in stock markets or commodity exchanges, there is also a need to monitor

indicators of equity and commodity price risk.




















risk.

























risk.











Interest Rate Risk Basics

In the most simplistic terms, interest rate risk is a balancing act. Banks are

trying to balance the quantity of re-pricing assets with the quantity of re-pricing

liabilities. For example, when a bank has more liabilities re-pricing in a rising

rate environment than assets re-pricing, the net interest margin (NIM) shrinks.

Conversely, if your bank is asset sensitive in a rising interest rate environment,

your NIM will improve because you have more assets re-pricing at higher rates.

An extreme example of a re-pricing imbalance would be funding 30-year fixed-

rate mortgages with 6-month CDs. You can see that in a rising rate environment

the impact on the NIM could be devastating as the liabilities re-price at higher

rates but the assets do not. Because of this exposure, banks are required to

monitor and control IRR and to maintain a reasonably well-balanced position.

Liquidity risk is financial risk due to uncertain liquidity. An institution might

lose liquidity if its credit rating falls, it experiences sudden unexpected cash

outflows, or some other event causes counterparties to avoid trading with or

lending to the institution. A firm is also exposed to liquidity risk if markets on

which it depends are subject to loss of

liquidity.

Liquidity risk tends to compound other risks. If a trading organization has a

position in an illiquid asset, its limited ability to liquidate that position at short

notice will compound its market risk. Suppose a firm has offsetting cash flows

with two different counterparties on a given day. If the counterparty that owes it

a payment defaults, the firm will have to raise cash from other sources to make




its payment. Should it be unable to do so, it too we default. Here, liquidity risk is

compounding credit risk.

Accordingly, liquidity risk has to be managed in addition to market, credit and

other risks. Because of its tendency to compound other risks, it is difficult or

impossible to isolate liquidity risk. In all but the most simple of circumstances,

comprehensive metrics of liquidity risk don't exist. Certain techniques of asset-

liability management can be applied to assessing liquidity risk. If an

organization's cash flows are largely contingent, liquidity risk may be assessed

using some form of scenario analysis. Construct multiple scenarios for market

movements and defaults over a given period of time. Assess day-to-day cash

flows under each scenario. Because balance sheets differed so significantly from

one organization to the next, there is little standardization in how such analyses

are implemented. Regulators are primarily concerned about systemic

implications of liquidity risk.

Business activities entail a variety of risks. For convenience, we distinguish

between different categories of risk: market risk, credit risk, liquidity risk, etc.

Although such categorization is convenient, it is only informal. Usage and

definitions vary. Boundaries between categories are blurred. A loss due to

widening credit spreads may reasonably be called a market loss or a credit loss,

so market risk and credit risk overlap. Liquidity risk compounds other risks, such

as market risk and credit risk. It cannot be divorced from the risks it compounds.

An important but somewhat ambiguous distinguish is that between market risk

and business risk. Market risk is exposure to the uncertain market value of a

portfolio. Business risk is exposure to uncertainty in economic value that cannot




be marked-to-market. The distinction between market risk and business risk

parallels the distinction between market-value accounting and book-value

accounting.

The distinction between market risk and business risk is ambiguous because

there is a vast "gray zone" between the two. There are many instruments for

which markets exist, but the markets are illiquid. Mark-to-market values are not

usually available, but mark-to-model values provide a more-or-less accurate

reflection of fair value. Do these instruments pose business risk or market risk?

The decision is important because firms employ fundamentally different

techniques for managing the two risks.

Business risk is managed with a long-term focus. Techniques include the careful

development of business plans and appropriate management oversight. book-

value accounting is generally used, so the issue of day-to-day performance is not

material. The focus is on achieving a good return on investment over an

extended horizon.

Market risk is managed with a short-term focus. Long-term losses are avoided by

avoiding losses from one day to the next. On a tactical level, traders and

portfolio managers employ a variety of risk metrics —duration and convexity,

the Greeks, beta, etc.—to assess their exposures. These allow them to identify

and reduce any exposures they might consider excessive. On a more strategic

level, organizations manage market risk by applying risk limits to traders' or

portfolio managers' activities. Increasingly, value-at-risk is being used to define

and monitor these limits. Some organizations also apply stress testing to their

portfolios.




BANK PROFILE



Chapter-03

BANK PROFILE








HDFC BANK

State Bank of India

AXIS BANK

IDBI

ICICI



HDFC BANK

State Bank of India

AXIS BANK

ICICI








HDFC Bank Ltd. is a major Indian financial services company based in Mumbai,

incorporated in August 1994, after the Reserve Bank of India allowed

establishing private sector banks. The Bank was promoted by the Housing

Development Finance Corporation, a premier housing finance company (set up

in 1977) of India. HDFC Bank has 1,412 branches and over 3,295 ATMs, in 528

cities in India, and all branches of the bank are linked on an online real-time

basis. As of September 30, 2008 the bank had total assets of INR 1006.82

billion. For the fiscal year 2008-09, the bank has reported net profit of

Rs.2,244.9 crore, up 41% from the previous fiscal. Total annual earnings of the

bank increased by 58% reaching at Rs.19,622.8 crore in 2008-09.

HDFC Bank is one of the Big Four Banks of India, along with State Bank of

India, ICICI Bank and Axis Bank — its main competitors.

History

HDFC Bank was incorporated in the year of 1994 by Housing Development

Finance Corporation Limited (HDFC), India's premier housing finance company.

It was among the first companies to receive an 'in principle' approval from the

Reserve Bank of India (RBI) to set up a bank in the private sector.The Bank

commenced its operations as a Scheduled Commercial Bank in January 1995

with the help of RBI's liberalization policies.

In a milestone transaction in the Indian banking industry, Times Bank Limited

(promoted by Bennett, Coleman & Co. / Times Group) was merged with HDFC

Bank Ltd., in 2000. This was the first merger of two private banks in India. As















History










HDFC BANK















History















per the scheme of amalgamation approved by the shareholders of both banks and

the Reserve Bank of India, shareholders of Times Bank received 1 share of

HDFC Bank for every 5.75 shares of Times Bank.

In 2008 HDFC Bank acquired Centurion Bank of Punjab taking its total

branches to more than 1,000. The amalgamated bank emerged with a strong

deposit base of around Rs. 1,22,000 crore and net advances of around Rs. 89,000

crore. The balance sheet size of the combined entity is over Rs. 1,63,000 crore.

The amalgamation added significant value to HDFC Bank in terms of increased

branch network, geographic reach, and customer base, and a bigger pool of

skilled manpower.

Figure 3.1 HDFC BANK












skilled manpower.













skilled manpower.







State Bank of India is the largest banking and financial services company in

India, by almost every parameter - revenues, profits, assets, market

capitalization, etc. The bank traces its ancestry to British India, through the

Imperial Bank of India, to the founding in 1806 of the Bank of Calcutta, making

it the oldest commercial bank in the Indian Subcontinent. The Government of

India nationalized the Imperial Bank of India in 1955, with the Reserve Bank of

India taking a 60% stake, and renamed it the State Bank of India. In 2008, the

Government took over the stake held by the Reserve Bank of India.

SBI provides a range of banking products through

its vast network of branches in India and overseas, including products aimed at

NRIs. The State Bank Group, with over 16,000 branches, has the largest banking

branch network in India. With an asset base of $260 billion and $195 billion in

deposits, it is a regional banking behemoth. It has a market share among Indian

commercial banks of about 20% in deposits and advances, and SBI accounts for

almost one-fifth of the nation's loans.

SBI has tried to reduce over-staffing by computerizing operations and "golden

handshake" schemes that led to a flight of its best and brightest managers. These

managers took the retirement allowances and then went on to become senior

managers in new private sector banks.






















SBI



























The State bank of India is the 29th most reputed company in the world according

to Forbes.

Figure 3.2 SBI




to Forbes.

Figure 3.2 SBI




to Forbes.

Figure 3.2 SBI






Axis Bank, formally UTI Bank, is a financial services firm that had begun

operations in 1994, after the Government of India allowed new private banks to

be established. The Bank was promoted jointly by the Administrator of the

Specified Undertaking of the Unit Trust of India (UTI-I), Life Insurance

Corporation of India (LIC), General Insurance Corporation Ltd., National

Insurance Company Ltd., The New India Assurance Company, The Oriental

Insurance Corporation and United India Insurance Company UTI-I holds a

special position in the Indian capital markets and has promoted many leading

financial institutions in the country. The bank changed its name to Axis Bank in

April 2007 to avoid confusion with other unrelated entities with similar name.

After the Retirement of Mr. P. J. Nayak, Shikha Sharma was named as the bank's

managing director and CEO on 20 April 2009.

As on the year ended March 31, 2009 the Bank had a total income of Rs

13,745.04 crore (US$ 2.93 billion) and a net profit of Rs. 1,812.93 crore (US$

386.15 million). On February 24, 2010, Axis Bank announced the launch of

'AXIS CALL & PAY on atom', a unique mobile payments solution using Axis

Bank debit cards. Axis Bank is the first bank in the country to provide a secure

debit card-based payment service over IVR.

Axis Bank is one of the Big Four Banks of India, along with ICICI Bank, State

Bank of India and HDFC Bank























AXIS BANK




























Branch Network

At the end of March 2009, the Bank has a very wide network of more than 835

branch offices and Extension Counters. Total number of ATMs went up to 3595.

The Bank has loans now (as of June 2007) account for as much as 70 per cent of

the bank’s total loan book of Rs 2,00,000 crore. In the case of Axis Bank, retail

loans have declined from 30 per cent of the total loan book of Rs 25,800 crore in

June 2006 to around 23 per cent of loan book of Rs.41,280 crore (as of June

2007). Even over a longer period, while the overall asset growth for Axis Bank

has been quite high and has matched that of the other banks, retail exposures

grew at a slower pace. The bank, though, appears to have insulated such

pressures. Interest margins, while they have declined from the 3.15 per cent seen

in 2003-04, are still hovering close to the 3 per cent mark.

Figure 3.3 AXIS BANK



Branch Network















Branch Network


















The Industrial Development Bank of India Limited commonly known by its

acronym IDBI is one of India's leading public sector banks and 4th largest Bank

in overall ratings. RBI categorized IDBI as an "other public sector bank". It was

established in 1964 by an Act of Parliament to provide credit and other facilities

for the development of the fledgling Indian industry. It is currently 10th largest

development bank in the world in terms of reach with 1210 ATMs, 720 branches

and 486 centers. Some of the institutions built by IDBI are the National Stock

Exchange of India (NSE), the National Securities Depository Services Ltd

(NSDL), the Stock Holding Corporation of India (SHCIL), the Credit Analysis

& Research Ltd, the Export-Import Bank of India (Exim Bank), the Small

Industries Development bank of India(SIDBI), the Entrepreneurship

Development Institute of India, and IDBI BANK, which today is owned by the

Indian Government, though for a brief period it was a private scheduled bank.

The Industrial Development Bank of India (IDBI) was established on July 1,

1964 under an Act of Parliament as a wholly owned subsidiary of the Reserve

Bank of India. In 16 February 1976, the ownership of IDBI was transferred to

the Government of India and it was made the principal financial institution for

coordinating the activities of institutions engaged in financing, promoting and

developing industry in the country. Although Government shareholding in the

Bank came down below 100% following IDBI’s public issue in July 1995, the

former continues to be the major shareholder (current shareholding: 52.3%).

IDBI
























IDBI





























During the four decades of its existence, IDBI has been instrumental not only in

establishing a well-developed, diversified and efficient industrial and

institutional structure but also adding a qualitative dimension to the process of

industrial development in the country. IDBI has played a pioneering role in

fulfilling its mission of promoting industrial growth through financing of

medium and long-term projects, in consonance with national plans and priorities.

Over the years, IDBI has enlarged its basket of products and services, covering

almost the entire spectrum of industrial activities, including manufacturing and

services. IDBI provides financial assistance, both in rupee and foreign

currencies, for green-field projects as also for expansion, modernization and

diversification purposes. In the wake of financial sector reforms unveiled by the

government since 1992, IDBI evolved an array of fund and fee-based services

with a view to providing an integrated solution to meet the entire demand of

financial and corporate advisory requirements of its clients.

Figure 3.4 IDBI

















Figure 3.4 IDBI

















Figure 3.4 IDBI






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

major banking and financial services organization in India. It is the 4th largest

bank in India and the largest private sector bank in India by market

capitalization. The bank also has a network of 1,700+ branches (as on 31 March

2010) and about 4,721 ATMs in India and presence in 19 countries, as well as

some 24 million customers (at the end of July 2007). ICICI Bank offers a wide

range of banking products and financial services to corporate and retail

customers through a variety of delivery channels and specialization subsidiaries

and affiliates in the areas of investment banking, life and non-life insurance,

venture capital and asset management. (These data are dynamic.) ICICI Bank is

also the largest issuer of credit cards in India. ICICI Bank's shares are listed on

the stock exchanges at Kolkata and Vadodara, Mumbai and the National Stock

Exchange of India Limited; its ADRs trade on the New York Stock Exchange

(NYSE).

The Bank is expanding in overseas markets and has the largest international

balance sheet among Indian banks. ICICI Bank now has wholly-owned

subsidiaries, branches and representatives offices in 19 countries, including an

offshore unit in Mumbai. This includes wholly owned subsidiaries in Canada,

Russia and the UK (the subsidiary through which the Hi SAVE savings brand is

operated), offshore banking units in Bahrain and Singapore, an advisory branch

in Dubai, branches in Belgium, Hong Kong and Sri Lanka, and representative

offices in Bangladesh, China, Malaysia, Indonesia, South Africa, Thailand, the
















(NYSE).









ICICI
















(NYSE).














United Arab Emirates and USA. Overseas, the Bank is targeting the NRI (Non-

Resident Indian) population in particular.

ICICI reported a 1.15% rise in net profit to Rs. 1,014.21 crore on a 1.29%

increase in total income to Rs. 9,712.31 crore in Q2 September 2008 over Q2

September 2007. The bank's CASA ratio increased to 30% in 2008 from 25% in

2007.

Figure 3.5 ICICI BANK








2007.









2007.







Data Analysis



Data Analysis








Particular 2005 - 06 2006 - 07 2007 - 08 2008 - 09 2009 - 10HDFC 11.40% 13.10% 13.60% 15.10% 17.40%SBI 11.88% 12.34% 13.47% 14.25% 13.39%AXIS 11.08% 11.57% 13.73% 13.69% 15.80%IDBI 14.80% 13.73% 11.95% 11.57% 11.31%ICICI 13.35% 11.69% 13.97% 15.53% 19.41%

Table 3.1 CAR

Figure 3.6 CAR

Capital Adequacy Ratio

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

HDFC SBI




Table 3.1 CAR

Figure 3.6 CAR

Capital Adequacy Ratio

SBI AXIS IDBI ICICI

2005 - 062006 - 072007 - 082008 - 092009 - 10




Table 3.1 CAR

Figure 3.6 CAR

2005 - 062006 - 072007 - 082008 - 092009 - 10






.

Reserve Bank of India prescribes Banks to maintain a minimum Capital to risk-

weighted Assets Ratio (CRAR) of 9 percent with regard to credit risk, market

risk and operational risk on an ongoing basis, as against 8 percent prescribed in

Basel Documents. Capital adequacy ratio of the ICICI Bank was well above the

industry average of 13.97% t. CAR of HDFC bank is below the ratio of ICICI

bank. HDFC Bank’s total Capital Adequacy stood at 15.26% as of March 31,

2010. The Bank adopted the Basel 2 framework as of March 31, 2009 and the

CAR computed as per Basel 2 guidelines stands higher against the regulatory

minimum of 9.0%.

HDFC CAR is gradually increased over the last 5 year and the capital adequacy

ratio of Axis bank is the increasing by every 2 year. SBI has maintained its CAR

around in the range of 11 % to 14 %. But IDBI should reconsider their business

as its CAR is falling YOY. Higher the ratio the banks are in a comfortable

position to absorb losses. So ICICI and HDFC are the strong one to absorb their

loses.



.









minimum of 9.0%.






loses.

Interpretation



.









minimum of 9.0%.






loses.







Table 3.2 EPS

Figure 3.7 EPS

Earning Per Share

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

160.00%

HDFC




Table 3.2 EPS

Figure 3.7 EPS

Earning Per Share

SBI AXIS IDBI ICICI




Table 3.2 EPS

Figure 3.7 EPS

2005 - 06

2006 - 07

2007 - 08

2008 - 09

2009 - 10






Calculating EPSTo calculate this ratio, simply divide the company’s net income by the number ofshares outstanding during the same period. If the number of shares out in themarket has changed during that period (ex. a share buyback), a weighted averageof the quantity of shares is used.

Importance of EPSThe significance of EPS is obvious, as the viability of any business depends onthe income it can generate. A money losing business will eventually go bankrupt,so the only way for long term survival is to make money. Earnings per shareallow us to compare different companies’ power to make money. The higher theearnings per share with all else equal, the higher each share should be worth.

EPS is often considered the single most important metric to determine acompany’s profitability. It is also a major component of another importantmetric, price per earnings ratio (P/E).

When we do our analysis, we should look for a positive trend of EPS in order tomake sure that the company is finding more ways to make more money.Otherwise, the company is not growing and thus should be considered only ifyou are confident that it can at least sustain its income.

When we do our analysis, we should look for a positive trend of EPS in order tomake sure that the company is finding more ways to make more money. It isclear from the figure 3.7 that SBI tops the group so that investors would selectSBI to invest. HDFC is also showing the positive trend over last 5 year. AXISbank must be attracted by investors as positive growth in EPS is highest amongpeers who show its ability to generate profit for shareholders.

ICICI has not any remarkable performances in EPS. There were so many up’sand down in ICICI business performance during economic crises which is









Interpretation














reflected in its EPS. IDBI’s performance is just okay. It’s neither high nor low.IDBI maintained its EPS but it’s slightly growing.

Net Profit Margin

Particular 2005 - 06 2006 - 07 2007 - 08 2008 - 09 2009 - 10HDFC 19.46 16.57 15.72 13.75 18.23SBI 12.31 11.5 13.75 14.3 12.91AXIS 16.79 14.45 15.29 16.75 21.61IDBI 10.42 9.93 9.09 7.38 6.75ICICI 18.43 13.53 13.5 12.09 15.66

Table 3.3 NPM

Net Profit Margin

0

5

10

15

20

25

HDFC




Net Profit Margin


Table 3.3 NPM

Net Profit Margin

SBI AXIS IDBI ICICI

2005 - 06

2006 - 07

2007 - 08

2008 - 09

2009 - 10




Net Profit Margin


Table 3.3 NPM

2005 - 06

2006 - 07

2007 - 08

2008 - 09

2009 - 10






Figure 3.8 NPM

Net Profit margin is a key method of measuring profitability. It can beinterpreted as the amount of money the company gets to keep forevery dollar of revenue. That is,

Net Profit Margin = Net Income ÷ Net Sales.

Profit margins can be useful metrics, but typically require some specificcircumstances to really have significance. Suppose we have Company A fromabove (15% profit margins) and Company B (with 20% profit margins). If A andB are in the same industry and, indeed, are competitors, then B may be a moreintelligent investment.

If, however, companies A and B are not in the same space, then the differencesin profit margins may not be so insightful. Suppose A is in an industry whereprofit margins are typically less than 10%, and B is in an industry where marginsare typically greater than 25%, then A is probably a higher quality candidate.

AXIS bank shown its performance in Net Profit Margin as it’s highest amonggroup. HDFC’s NPM is better but it decreased in first 4 year (2005-09) and thenin 2009-10 its rises. SBI is slightly low as compared to HDFC but itsperformance is constant. IDBI’s NPM is gradually decreasing; reason is the risein expenditures and poor performance in economic crisis.ICICI in 2005-06 has second highest NPM (18.43%) but it decreased to the only12 % in 2008-09. ICICI has incurred huge losses in financial crisis but in 2009-10 it again shows its ability to perform and achieve 15.66%



Figure 3.8 NPM






Interpretation



Figure 3.8 NPM











Particular 2005-06 2006-07 2007 - 08 2008 - 09 2009 - 10HDFC 1.39% 1.39% 1.42% 1.42% 1.45%SBI 0.92% 0.98% 1.01% 1.04% 0.88%AXIS 1.11% 1.07% 1.24% 1.44% 1.67%IDBI 0.66% 0.66% 0.67% 0.62% 0.53%ICICI 1.21% 1.04% 1.12% 0.98% 1.13%

Table 3.4 ROA

Figure 3.9 ROA

Return on Assets

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

1.80%

HDFC




Table 3.4 ROA

Figure 3.9 ROA

Return on Assets

HDFC SBI AXIS IDBI ICICI




Table 3.4 ROA

Figure 3.9 ROA

2005-06

2006-07

2007 - 08

2008 - 09

2009 - 10






Return on Assets

Where asset turnover tells an investor the total sales for each $1 of assets, return

on assets, or ROA for short, tells an investor how much profit a company

generated for each $1 in assets. The return on assets figure is also a sure-fire way

to gauge the asset intensity of a business. ROA measures a company’s earnings

in relation to all of the resources it had at its disposal (the shareholders’ capital

plus short and long-term borrowed funds). Thus, it is the most stringent and

excessive test of return to shareholders. If a company has no debt, the return on

assets and return on equity figures will be the same. HDFC has shown

remarkable ROA over 5 years but AXIS bank will attract more eyes as its ROA

increases for last 5 year. SBI’s ROA is slightly low as compared to HDFC;

reason is the SBI has highest assets in Indian bank industry that’s why its ROA

is low as compared to AXIS bank and HDFC bank. IDBI is out performed in

ROA but ICICI’s ROA is quite enough to attract investors. Its rise and fall

alternatively YOY.



Return on Assets














alternatively YOY.

Interpretation



Return on Assets














alternatively YOY.







Table 3.5 Credit Deposit Ratio

Figure 3.10 Credit Deposit Ratio


0

50

100

150

200

250

300

HDFC SBI







AXIS IDBI ICICI

2005 - 06

2006 - 07

2007 - 08

2008 - 09

2009 - 10











It is the proportion of loan-assets created by banks from the deposits received.The higher the ratio, the higher the loan-assets created from deposits.

Consider Bank X which has deposits worth Rs. 100 crores and a credit-depositratio of 60 per cent. That means Bank X has used deposits worth Rs. 60 crores tocreate loan-assets. Only Rs. 40 crores is available for other investments.

Now, the Indian government is the largest borrower in the domestic creditmarket. The government borrows by issuing securities (G-secs) through auctionsheld by the RBI. Banks, thus, lend to the government by investing in these G-secs. And Bank X has only Rs. 40 crores to invest in G-secs. If more banks likeX have lesser money to invest in G-Secs, what will the government do? After all,it needs to raise money to meet its expenditure.

If the money so released is large, ``too much money will chase too few goods'' inthe economy resulting in higher inflation levels. This would prompt investors todemand higher returns on debt instruments. In other words, higher interest rates

HDFC, SBI and AXIS bank has CDR in equal range from last 5 year. IDBI hashighest CDR all 5 year but good thing is that is gradually fall YOY. ICICIbank’s CDR is slightly higher than SBI , AXIS and HDFC but it also maintainedits CDR YOY.








Interpretation













Column1 2007 - 08 2008 - 09 2009 - 10HDFC 1.30% 1.98% 1.43%SBI 3.04% 2.84% 3.05%AXIS 0.72% 0.96% 1.13%IDBI 1.87% 1.38% 1.53%ICICI 3.30% 4.32% 5.06%

Table 3.6 GNPA

Gross Non Performing Assets

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

HDFC




Table 3.6 GNPA

Gross Non Performing Assets





Table 3.6 GNPA

2007 - 08

2008 - 09

2009 - 10






Figure 3.11 Gross NPA

Gross NPA:

Gross NPAs are the sum total of all loan assets that are classified as NPAs as

per RBI guidelines as on Balance Sheet date. Gross NPA reflects the quality of

the loans made by banks. It consists of all the non standard assets like as sub-

standard, doubtful, and loss assets.

It can be calculated with the help of following ratio:

Gross NPAs Ratio

Gross Advances

SBI maintained its GNPA to 3% which is very good sign of performances as SBIis the largest lender in INDIA. HDFC’s GNPA is quite good as it is low withcompared to ICICI and SBI but in 2008-09 GNPA rises. The reason may beeconomic crises. AXIS bank has lowest GNPA which shown its managementability. ICICI has the highest GNPA in banking industry and rising YOY.




Gross NPA:






Gross NPAs Ratio

Gross Advances


Interpretation




Gross NPA:






Gross NPAs Ratio

Gross Advances







Particular 2007 - 08 2008 - 09 2009 - 10HDFC 0.50% 0.60% 0.50%SBI 1.78% 1.76% 1.72%AXIS 0.36% 0.35% 0.36%IDBI 1.30% 0.92% 1.02%ICICI 1.12% 2.09% 2.12%

Table 3.7

Figure 3.12 Net NPA

Net Non Performing Assets

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

HDFC




Table 3.7

Figure 3.12 Net NPA

Net Non Performing Assets


2007 - 08

2008 - 09

2009 - 10




Table 3.7

Figure 3.12 Net NPA

2007 - 08

2008 - 09

2009 - 10






NNeett NNPPAA::

Net NPAs are those type of NPAs in which the bank has deducted the provision

regarding NPAs. Net NPA shows the actual burden of banks. Since in India, bank

balance sheets contain a huge amount of NPAs and the process of recovery and

write off of loans is very time consuming, the provisions the banks have to make

against the NPAs according to the central bank guidelines, are quite significant. That

is why the difference between gross and net NPA is quite high.

It can be calculated by following_

Net NPAs = Gross NPAs – ProvisionsGross Advances - Provisions

AXIS Bank has least Net NPA and ICICI has highest NNPA among group.HDFC shown its management quality as it maintained its NNPA YOY. SBI hasto keep NNPA below. IDBI has successful to control NNPA YOY.



NNeett NNPPAA::










Interpretation



NNeett NNPPAA::















Findings & conclusion



Chapter-04










Capital adequacy: HDFC BANK has shown best performance in CAR as its

gradually rising YOY and IDBI’s decreasing YOY. IDBI should reconsider their

business tactics.

Return on Assets: HDFC tops the group and IDBI again at last but this tie IDBI

shown consistent performance as compared to ICICI having higher ROA.

Earnings Per Share: SBI’s EPS is highest among group. IDBI has least EPS.

Investors will choice SBI over all banks and IDBI at last.

Net Profit Margin: AXIS Bank has highest NPM in 2009-10 and rising YOY.

IDBI’s NPM is decreasing YOY.

Credit Deposit Ratio: HDFC maintains its CDR and tops the group. IDBI again

on worst side but good thing is that it’s decreasing YOY.

Gross NPA: AXIS bank has least GNPA and ICICI has highest among peers.

Net NPA: AXIS Bank again performed better than others and ICICI has

maintained its position. SBI has rise in NNPA over the GNPA.





business tactics.












Findings





business tactics.

















1) The banks should adapt themselves quickly to the changing norms.

2) The system is getting internationally standardized with the coming of BASELL

II accords so the Indian banks should strengthen internal processes so as to cope

with the standards.

3) The banks should maintain a 0% NPA by always lending and investing or

creating quality assets which earn returns by way of interest and profits.

4) The banks should find more avenues to hedge risks as the market is very

sensitive to risk of any type.

5) Have good appraisal skills, system, and proper follow up to ensure that banks

are above the risk.

SUGGESTIONS FOR FURTHER RESEARCH

Research on which industries are best suited for the use of the CAMELS

Framework.

Research on how other variables can be added or how variables can be

selected to suit the industry needs.

Research on why the CAMELS Framework can not be used as a tool of

performance evaluation.






with the standards.






are above the risk.



Framework.





Recommandations






with the standards.






are above the risk.



Framework.










1. Websites:

www.investmentz.com

www.sify.business.com

www.investopedia.com

www.bseindia.com

http://www.icicibank.com

http://www.hdfcbank.com

http://www.axisbank.com

www.moneycontrol.com

http://www.allbankingsolutions.com/camels.htm



1. Websites:

www.investmentz.com



www.bseindia.com






Bibliography



1. Websites:

www.investmentz.com



www.bseindia.com







www.investmentz.com



www.bseindia.com







www.investmentz.com



www.bseindia.com







www.investmentz.com



www.bseindia.com




