A Study on Project Topic

Fundamental Analysis on Pvt Ltd Bank

A Project Submitted to

HVPS’s R. J. College of Arts, Science & Commerce, (Autonomous)

Bachelor of Management Studies

Under the Faculty of Commerce

By
Ms. Deepa Rajesh Singh
Roll Number: 2052

Under the Guidance of

Prof. Akash Gupta

Hindi Vidya Prachar Samiti’s

Ramniranjan Jhunjhunwala College of Arts, Science & Commerce
(Autonomous College)
Affiliated to UNIVERSITY OF MUMBAI
March 2023
 Hindi Vidya Prachar Samiti’s
Ramniranjan Jhunjhunwala College of Arts, Science & Commerce
(Autonomous College)
Affiliated to UNIVERSITY OF MUMBAI

CERTIFICATE

This is to certify that Ms. Deepa Rajesh Singh has worked and duly completed her/his Project Work for the degree of Bachelor of
Management Studies under the Faculty of Commerce in the subject of ________________________________________ and her/his
project is entitled, “Fundamental Analysis On Pvt Ltd Bank” under my supervision.

I further certify that the entire work has been done by the learner under my guidance and that no part of it has been submitted
previously for any Degree or Diploma of any University.
It is her/ his own work and facts reported by her/his personal findings and investigations.

Prof. Akash Gupta

Name and Signature of
Project Guide

Date of submission: DD/MM/2023

DECLARATION BY LEARNER

I the undersigned Miss / Mr. ______________________________________here by, declare that the work embodied in this project
work titled “________ ____________________________________________________________________”, forms my own
contribution to the research work carried out under the guidance of ________________________________ is a result of my own
research work and has not been previously submitted to any other University for any other Degree/ Diploma to this or any other
University. Wherever reference has been made to previous works of others, it has been clearly indicated as such and included in the
bibliography. I, here by further declare that all information of this document has been obtained and presented in accordance with
academic rules and ethical conduct.

By Student Name and Sign: Deepa Rajesh singh

Roll Number: 2052
Date:

Certify by
Name of Guide: Prof. Akash Gupta
Signature:

External Examiner:
Name: Prof.____________________
Signature:
 ACKNOWLEDGEMENT

To list who all have helped me is difficult because they are so numerous and the depth is so enormous.
I would like to acknowledge the following as being idealistic channels and fresh dimensions in the completion of this project.
I take this opportunity to thank the University of Mumbai for giving me the chance to do this Project.
I would like to thank my Principal, Dr. Himanshu Dawda for providing the necessary facilities required for completion of this
project.
I take this opportunity to thank our Coordinator Prof. Selvi Nadar for her moral support and guidance.
I would also like to express my sincere gratitude towards my project guide Prof. Akash Gupta whose guidance and care made the
project successful.
I would like to thank my College Library, for having provided various reference books and magazines related to my project.
Lastly, I would like to thank each and every person who directly or indirectly helped me in the completion of the project especially my
Parents and Peers who supported me throughout my project.
 Index

Chapter: Content
No.
1.1 Introduction

1.2: Introduction To Fundamental Analysis

1.3 History

1.4 Development Of Banking In India

1.5 Equity Scenario Of Public And Private Sector Banks

1.6 Function

1.7 Company Overview Of – Hdfc Bank, Icici Bank

Chapter: Objectives
No.2
Chapter: Literature Review
No.3
Chapter: Research Methodology
No.4
Chapter: Data Collection, Analysis & Interpretation
No.5
Conclusion &Suggestion

Bibliography
Chapter No.-1

1.1: INTRODUCTION

During the British rule in India, The East India Company had established three banks: Bank of Bengal, Bank
of Bombay and Bank of Madras and called them the Presidential Banks. These three banks were later merged
into one single bank in 1921, which was called the “Imperial Bank of India.”

Banking sector plays a crucial role in the functioning and economic development of an economy. In all
economic systems, banks play a leading role in planning and implementing financial policy. The difference lies
in prioritizing goals and methods embraced for their attainment. Going by the neo-liberal approach, earning
higher profits by utilizing all resources is an end, while in the socialistic systems bank operations also aims at
improving economy in general and at satisfying social needs. Banks accepts deposits and provide loans and
derive a profit from the difference in the interest rates paid and charged to depositors and borrowers
respectively. The process undertaken by banks of taking in funds from a depositor and then lending them out to
a borrower is termed as financial intermediation. Banking sector flourish on the financial intermediation
capabilities that allow them to lend out money and receiving money on deposit.

The bank is the most significant financial intermediary in the economy as it bridges the gap between surplus and
deficit economic agents. Banks contribute immensely towards the economic development of a nation by
facilitating business activities. Banks also facilitate the development of saving plans and hold a key position in
the determination of Government’s monetary strategies. With reference to India, banking sector is substantially
different from that of other Asian nations because of country’s distinct geographic, social and economic facets.
India possesses a gigantic land size, a diverse culture, and extreme income differences, which are marked
among its regions.

There are high levels of illiteracy among a substantial percentage of populace but at the same time, the country
has a huge pool of managerial and technologically advanced talents. Approximately 30 to 35 percent of the
population lives in metro and urban cities while the rest of population resides in semi-urban and rural areas.
 The country’s economic policy structure is a combination of both socialistic and capitalistic characteristics with
a heavy bias towards public sector investment. India’s emphasis on growth-led exports rather than “export led
growth” of other Asian economies, with thrust on self-reliance through import substitution and aforesaid
features are all reflected in the structure, size, diversity of the country’s banking and financial services sector.
Towards the dawn of the 20th century, with the arrival of modern industry in our country, the need for
government regulated system was released.

The British Government began to pay attention towards the requirement for an organized banking sector in the
country and the Reserve Bank of India was established to regulate the formal banking sector in the country.
Ever since the banks were nationalized in 1969, banks have been playing a crucial role in the socio-economic
life of the country.

Their role was not only restricted to suppliers of credit, but also as harbingers of social and economic
development through various enterprises, many of which were tiny but possess phenomenal capabilities. It is
noteworthy that India is one of the emerging economies of the globe and paucity of proper banking services will
jeopardize its economic growth. In past several decades, Indian banking sector have attained numerous
milestones. Its operations are no longer shackled in big cities, rather they have expanded their wings to Tier-II
& III towns and far-flung areas of India, thereby contributing immensely towards the objective of ‘Financial
Inclusion.’

Banks have diversified their activities and forayed into new products and services that include opportunities in
credit cards, consumer finance, wealth management, life and general insurance, investment banking, mutual
funds, pension fund regulation, stock broking services, custodian services, private equity and so on and so forth.
Further, several leading Indian banks have forayed into offshore markets by establishing offices in foreign
countries, by themselves or through their subsidiaries.

Growth of Indian banking sector and the role it is playing in adding steam to the economic growth is evident
from the deposit and credit statistics (please refer exhibit 1 & 2). It can be observed from the exhibits that
deposits have taken a giant leap from US$ billion 495 in FY06 to US$ billion 1,466 in FY16, whereas, Credit
soared from US$ billion 428 in FY07 to US$ billion 1016 in FY16. Deposits under Pradhan Mantri Jan Dhan
Yojana (PMJDY) are rising. As on November 09, 2016, US$ 6,971.68 million were deposited, while 255.1
million accounts were opened

Contribution towards Financial Inclusion India has nearly 600,000 villages and 640 districts. A substantial
chunk of population, particularly in rural areas, is excluded from the convenient access to finance
(Gounasegaran, Kuriakose & Iyer, 2013). Forty percent of the households having bank accounts, but merely 38
percent of the 117,200 branches of scheduled commercial banks are functioning in rural areas. Accessibility of
financial services at affordable and apposite prices has always been a global issue.
Hence, a need of inclusive financial system has been felt in a broader way not only in India, but has become a
policy priority in different countries. It is a well-accepted fact that financial access can play a big role in
improving the financial conditions and living standard of the poor and the deprived class. In view of this, RBI
has been constantly fostering the banking sector to extend the banking network both by establishing new
branches and installation of new ATMs (Dangi & Kumar, 2013).

Financial inclusion implies the delivery of financial services, including banking services and credit, at a
reasonable cost to the majority sections of the disadvantaged and lowincome groups, based on the magnitude of
their access to financial services like savings and payment account, credit insurance, pensions etc. (Singh et al.,
2014). The various financial services cover access to savings, loans, insurance, payments and remittance
facilities provided by the formal financial system. This facet of financial inclusion is of big significance in
offering economic security to individuals and families (Kelkar, 2014). It is heartening to note that Financial
Stability and Development Council (FSDC) of India have a specific mandate for financial inclusion and
financial literacy.
 1.2: INTRODUCTION TO FUNDAMENTAL ANALYSIS

Fundamental analysis (FA) measures a security's intrinsic value by examining related economic and financial
factors. Intrinsic value is the value of an investment based on the issuing company's financial situation and
current market and economic conditions.

Fundamental analysts’ study anything that can affect the security's value, from macroeconomic factors such as
the state of the economy and industry conditions to microeconomic factors like the effectiveness of the
company's management.

The end goal is to determine a number that an investor can compare with a security's current price to see
whether the security is undervalued or overvalued by other investors.

KEY TAKEAWAYS

 Fundamental analysis is a method of determining a stock's real or "fair market" value.

 Fundamental analysts search for stocks currently trading at prices higher or lower than their real value.
 If the fair market value is higher than the market price, the stock is deemed undervalued, and a buy recommendation is
given.
 If the fair market value is lower than the market price, the stock is deemed overvalued, and the recommendation might be
not to buy or to sell if the stock is held.
 In contrast, technical analysts favor studying the historical price trends of the stock to predict short-term future trends.

Understanding Fundamental Analysis

Fundamental analysis is usually done from a macro to micro perspective to identify securities that are not
correctly priced by the market.

Analysts typically study, in order:

 The overall state of the economy

 The strength of the specific industry
 The financial performance of the company issuing the stock

This ensures they arrive at a fair market value for the stock.

Sources for Fundamental Analysis

Fundamental analysis uses publicly available financial data to evaluate the value of an investment. The data is recorded on financial
statements such as quarterly and annual reports and filings like the 10-Q (quarterly) or 10-K (annual). The 8-K is also informative
because public companies must file it any time a reportable event occurs, like an acquisition or upper-level management change.

Fundamental analysis uses a company's revenues, earnings, future growth, return on equity, profit margins, and other data to
determine a company's underlying value and potential for future growth.
 Intrinsic Value
One of the primary assumptions behind fundamental analysis is that a stock's current price often does not fully
reflect the value of the company when compared to publicly available financial data. A second assumption is
that the value reflected from the company's fundamental data is more likely to be closer to the true value of the
stock.

For example, say that a company's stock was trading at $20, and after extensive research on the company, an
analyst determines that it ought to be worth $24. Another analyst does equal research but decides it should be
worth $26.

Many investors will consider the average of these estimates and assume that the stock's intrinsic value may be
near $25. Often investors consider these estimates highly relevant because they want to buy stocks trading at
prices significantly below these intrinsic values.

This leads to a third major assumption of fundamental analysis: In the long run, the stock market will reflect
the fundamentals. The problem is, no one knows how long "the long run" really is. It could be days or years.

This is what fundamental analysis is all about. By focusing on a particular business, an investor can estimate
the intrinsic value of a firm and find opportunities to buy at a discount or sell at a premium. The investment
will pay off when the market catches up to the fundamentals.

Fundamental Analysis vs. Technical Analysis

This method of analysis starkly contrasts with technical analysis, which attempts to forecast price direction
through analyzing historical market data such as price and volume. Technical analysis uses price trends and
price action to create indicators. Some of the indicators create patterns that have names resembling their
shapes, such as the head and shoulders pattern. Others use trend, support, and resistance lines to demonstrate
how traders view investments and indicate what will happen. Some examples are the symmetrical triangle or
the wedge.

Fundamental analysis relies on financial information reported by the company whose stock is being analyzed.
Ratios and metrics are created using the data which indicate how a company is performing compared to similar
companies.

Quantitative and Qualitative Fundamental Analysis

The problem with defining the word fundamentals is that it can cover anything related to the economic well-being of a company.
They include numbers like revenue and profit, but they can also include anything from a company's market share to the quality of its
management.

The various fundamental factors can be grouped into two categories: quantitative and qualitative. The financial meaning of these
terms isn't much different from well-known definitions:

 Quantitative: information that can be shown using numbers, figures, ratios, or formulas
 Qualitative: rather than a quantity of something, it is its quality, standard, or nature
 In this context, quantitative fundamentals are hard numbers. They are the measurable characteristics of a business. That's
why the biggest source of quantitative data is financial statements. Revenue, profit, assets, and more can be accurately
measured.

The qualitative fundamentals are less tangible. They might include the quality of a company's key executives, brand-name
recognition, patents, and proprietary technology.

Neither qualitative nor quantitative analysis is inherently better. Many analysts consider them together.

Qualitative Fundamentals to Consider

There are four key fundamentals that analysts always consider when regarding a company. All are qualitative
rather than quantitative. They include:

The Business Model

What exactly does the company do? This isn't as straightforward as it seems. If a company's business model is
based on selling fast-food chicken, is it making its money that way? Or is it just coasting on royalty and
franchise fees?

Competitive Advantage
A company's long-term success is primarily driven by its ability to maintain a competitive advantage—and
keep it. Powerful competitive advantages, such as Coca-Cola's brand name and Microsoft's domination of the
personal computer operating system, create a moat around a business allowing it to keep competitors at bay
and enjoy growth and profits. When a company can achieve a competitive advantage, its shareholders can be
well rewarded for decades.

Management
Some believe management is the most important criterion for investing in a company. It makes sense: Even the
best business model is doomed if the company's leaders fail to execute the plan properly. While it's hard for
retail investors to meet and truly evaluate managers, you can look at the corporate website and check the
resumes of the top brass and the board members. How well did they perform in previous jobs? Have they been
unloading a lot of their stock shares lately?

Corporate Governance
Corporate governance describes the policies in place within an organization denoting the relationships and
responsibilities between management, directors, and stakeholders. These policies are defined and determined in
the company charter, its bylaws, and corporate laws and regulations. You want to do business with a company
that is run ethically, fairly, transparently, and efficiently. Particularly note whether management respects
shareholder rights and shareholder interests. Make sure their communications to shareholders are transparent,
clear, and understandable. If you don't get it, it's probably because they don't want you to.
 Industry
It is also important to consider a company's industry: its customer base, market share among firms, industry-
wide growth, competition, regulation, and business cycles. Learning how the industry works will give an
investor a deeper understanding of a company's financial health.

Quantitative Fundamentals to Consider: Financial Statements

Financial statements are the medium by which a company discloses information concerning its financial
performance. Followers of fundamental analysis use quantitative information from financial statements to
make investment decisions. The three most important financial statements are income statements, balance
sheets, and cash flow statements.

The Balance Sheet

The balance sheet represents a record of a company's assets, liabilities, and equity at a particular point in time.
It is called a balance sheet because the three sections—assets, liabilities, and shareholders' equity—must
balance using the formula

Assets = Liabilities + Shareholders' Equity

Assets represent the resources the business owns or controls at a given time. This includes items such as cash,
inventory, machinery, and buildings. The other side of the equation represents the total financing value the
company has used to acquire those assets.

Financing comes as a result of liabilities or equity. Liabilities represent debts or obligations that must be paid.
In contrast, equity represents the total value of money that the owners have contributed to the business—
including retained earnings, which is the profit left after paying all current obligations, dividends, and taxes.

The Income Statement

While the balance sheet takes a snapshot approach in examining a business, the income statement measures a
company's performance over a specific time frame. Technically, you could have a balance sheet for a month or
even a day, but you'll only see public companies report quarterly and annually.

The income statement presents revenues, expenses, and profit generated from the business' operations for that
period.

Statement of Cash Flows

The statement of cash flows represents a record of a business' cash inflows and outflows over a period of time.
Typically, a statement of cash flows focuses on the following cash-related activities:

 Cash from investing (CFI): Cash used for investing in assets, as well as the proceeds from the sale of
other businesses, equipment, or long-term assets
  Cash from financing (CFF): Cash paid or received from the issuing and borrowing of funds
 Operating Cash Flow (OCF): Cash generated from day-to-day business operations

The cash flow statement is important because it's challenging for a business to manipulate its cash
situation. There is plenty that aggressive accountants can do to manipulate earnings, but it's tough to fake
cash in the bank. For this reason, some investors use the cash flow statement as a more conservative
measure of a company's performance.

Fundamental analysis relies on using financial ratios drawn from data on corporate financial statements to
make inferences about a company's value and prospects.

Example of Fundamental Analysis

The Coca-Cola Company is a prime example that can be used in fundamental analysis. To begin, an analyst
would examine the economy using some published metrics:

 Consumer price index (inflation measure)

 Gross domestic product growth
 Exports/imports
 Purchasing manager's index
 Interest rate

Then, the sector and industry would be examined using statistics and metrics from various reports and
competitor companies. Lastly, the analysts would gather the reports from Coca-Cola or the Security and
Exchange Commission's Edgar filings database.1

Analysts might also use data gathered by another firm, such as CSIMarket. CSIMarket provides fundamental
analysis data for investors, so you could begin by assessing the value of Coca-Cola's assets, income streams,
debts, and liabilities. You might find comparisons of objective metrics such as revenue, profits, and growth,
especially in the context of the broader beverage industry.

Using CSIMarket's analysis, the analyst could compare growth rates to the industry and sector Coca-Cola
operates in, along with the other information provided, to see if the company is valued correctly. For example,
as of August 2022, for the trailing twelve months (TTM), Coca-Cola had (using only a few of the possible
ratios and metrics):

One factor not shown in an analysis of ratios and numbers is how long a company has been around and the
conditions they have weathered. Coca-Cola was founded in 1892 in Atlanta, Georgia. 3 It has stayed in
business through several wars, depressions, recessions, epidemics, pandemics, stock market crashes, and a
global financial crisis. Not many companies can claim a history like that.
 1.3: HISTORY

Banking in India forms the base for the economic development of the country. Major changes in the banking
system and management have been seen over the years with the advancement in technology, considering the
needs of people.
The History of Banking in India dates to before India got independence in 1947 and is a key topic in terms of
questions asked in various Government exams. In this article, we shall discuss in detail the evolution of the
banking sector in India.
The banking sector development can be divided into three phases:
Phase I: The Early Phase which lasted from 1770 to 1969
Phase II: The Nationalisation Phase which lasted from 1969 to 1991
Phase III: The Liberalisation or the Banking Sector Reforms Phase which began in 1991 and continues
to flourish till date

Pre Independence-Period (1786-1947)

The first bank of India was the “Bank of Hindustan,” established in 1770 and located in the then Indian capital,
Calcutta. However, this bank failed to work and ceased operations in 1832.
During the Pre Independence period over 600 banks had been registered in the country, but only a few managed
to survive.Following the path of Bank of Hindustan, various other banks were established in India. They were:

 The General Bank of India (1786-1791)

 Oudh Commercial Bank (1881-1958)
 Bank of Bengal (1809)
 Bank of Bombay (1840)
 Bank of Madras (1843)

During the British rule in India, The East India Company had established three banks: Bank of Bengal, Bank of
Bombay and Bank of Madras and called them the Presidential Banks. These three banks were later merged into
one single bank in 1921, which was called the “Imperial Bank of India.”
The Imperial Bank of India was later nationalised in 1955 and was named The State Bank of India, which is
currently the largest public sector Bank.
Given below is a list of other banks which were established during the Pre-Independence period:

If we talk of the reasons as to why many major banks failed to survive during the pre-independence period, the
following conclusions can be drawn:
  Indian account holders had become fraud-prone
 Lack of machines and technology
 Human errors & time-consuming
 Fewer facilities
 Lack of proper management skill

Following the Pre-Independence period was the post-independence period, which observed some
significant changes in the banking industry scenario and has till date developed a lot.

Post Independence Period (1947-1991)

At the time when India got independence, all the major banks of the country were led privately which was a
cause of concern as the people belonging to rural areas were still dependent on money lenders for financial
assistance.
With an aim to solve this problem, the then Government decided to nationalise the Banks. These banks were
nationalised under the Banking Regulation Act, 1949. Whereas, the Reserve Bank of India was nationalised in
1949.
Candidates can check the list of Banking sector reforms and acts at the linked article.
Following it was the formation of State Bank of India in 1955 and the other 14 banks were nationalised between
the time duration of 1969 to 1991. These were the banks whose national deposits were more than 50 crores.
Given below is the list of these 14 Banks nationalised in 1969:

1. Allahabad Bank
2. Bank of India
3. Bank of Baroda
4. Bank of Maharashtra
5. Central Bank of India
6. Canara Bank
7. Dena Bank
8. Indian Overseas Bank
9. Indian Bank
10. Punjab National Bank
11. Syndicate Bank
12. Union Bank of India
13. United Bank
14. UCO Bank
 Impact of Nationalization
There were various reasons why the Government chose to nationalise the banks. Given below is the impact of
Nationalising Banks in India:

 This led to an increase in funds and thereby increasing the economic condition of the country
 Increased efficiency
 Helped in boosting the rural and agricultural sector of the country
 It opened a major employment opportunity for the people
 The Government used profit gained by Banks for the betterment of the people
 The competition decreased, which resulted in increased work efficiency
This post-Independence phase was the one that led to major developments in the banking sector of India
and also in the evolution of the banking sector.

Liberalization Period (1991-Till Date)

Once the banks were established in the country, regular monitoring and regulations need to be followed to
continue the profits provided by the banking sector. The last phase or the ongoing phase of the banking sector
development plays a hugely significant role.
To provide stability and profitability to the Nationalised Public sector Banks, the Government decided to set up
a committee under the leadership of Shri. M Narasimha to manage the various reforms in the Indian banking
industry.
The biggest development was the introduction of Private sector banks in India. RBI gave license to 10 Private
sector banks to establish themselves in the country. These banks included:

1. Global Trust Bank

2. ICICI Bank
3. HDFC Bank
4. Axis Bank
5. Bank of Punjab
6. IndusInd Bank
7. Centurion Bank
8. IDBI Bank
9. Times Bank
10. Development Credit Bank

The other measures taken include:

 Setting up of branches of the various Foreign Banks in India

 No more nationalization of Banks could be done
 The committee announced that RBI and Government would treat both public and private sector banks
equally
  Any Foreign Bank could start joint ventures with Indian Banks
 Payments banks were introduced with the development in the field of banking and technology
 Small Finance Banks were allowed to set their branches across India

 A major part of Indian banking moved online with internet banking and apps available for fund transfer
Thus, the history of banking in India shows that with time and the needs of people, major developments
have been brought about in the banking sector with an aim to prosper it.
In the year 1980, another 6 banks were nationalised, taking the number to 20 banks. These banks
included:

1. Andhra Bank
2. Corporation Bank
3. New Bank of India
4. Oriental Bank of Comm.
5. Punjab & Sind Bank
6. Vijaya Bank

Apart from the above mentioned 20 banks, there were seven subsidiaries of SBI which were nationalised in
1959:

1. State Bank of Patiala

2. State Bank of Hyderabad
3. State Bank of Bikaner & Jaipur
4. State Bank of Mysore
5. State Bank of Travancore
6. State Bank of Saurashtra
7. State Bank of Indore

All these banks were later merged with the State Bank of India in 2017, except for the State Bank of Saurashtra,
which merged in 2008 and State Bank of Indore, which merged in 2010.
 1.4: DEVELOPMENT OF BANKING IN INDIA

Since the last three decades, Indian banking system has numerous wonderful achievements to its credit. It is not
restricted for only metropolitans but it has also reached to the remote centers in India which is one of the main
reasons of growth. In 1951, after independence, Indian government accepted the concept of planned economic
growth for the country. Banking system in India has its unique features. Hence, it is very interesting to study the
evolution of Indian banking over the last five decades.

These decades have witnessed many economic developments indifferent ways in different period. In the post-
independence period, RBI adopted some policies to strength the banking system and to reduce the bank failures.
Banking industry in India has passed through different stages and developed in many respects. It has grown
geographically, structurally, and functionally. RBI, having extensive regulatory powers from The Banking
Regulation Act, has carried out some structural reforms in the banking system. In India, commercial banks have
made considerable progress on the basis of deposit mobilization and also the higher rate of growth in time
deposit relative to demand deposit and rise in the number of personal accounts relative to business accounts.

Earlier, banks were considered as an organization which only accepted and safeguarded deposits from the
customers and out of that money; they lent these money to the people who required it. But now, this concept is
no longer inexistence. Now recently banking activities have been increased to a great extent. Technology has
made noteworthy moves in their working style.

Since independence, banking in India has evolved through five major phases like,1.

Foundation phase: (1949-1969)2.

Expansion phase: (1969-1984)3.

Consolidation phase: (1984-1990)4.

Reformatory phase: (1991 onwards)5.

Present phase: (beyond 2002 to up to date)1.

1.FOUNDATION PHASE (1949-1969):

 The banking segment came into the existence in the year 1950 to give rise to Indian economic development.
This phase was the witness of the legal framework for the banking industry. This was the first initial step
towards the development, which helped to change the future scenario. During those days, The Indian Banking
System was patterned on the British Banking System. Many joint stock companies were doing banking
business. There was no uniform law to governing banking activities.

As a result, the growth was very slow and banks also experienced periodic failures. After independence, the
Government of India came up with the Banking Companies Act in March1949, which was later changed to
Banking Regulation Act 1949. As per amending act of 1965, RBI was given extensive powers for the
supervision of banking sector in India as the Central Banking Authority. As a result, banking industry came to
be organized for the first time on certain uniform laws.

The act prohibited the use of the word „BANK‟ by financial companies which were not complying
with certain minimum requirements. In those years many legal and governmental steps towards banking
industry development have taken place. At that time, public had less confidence in the bank and deposit
mobilization was slow and savings bank facility provided by the postal departments was comparatively safer.
Funds were largely given to the traders. Government took major steps in this phase to reform the Indian banking
sector after independence.

This base is considered here for the development of the rurales well as urban segment. So, to serve the
economy overall particularly in rural sector the „All Indian Rural Credit Survey Committee‟ appointed by the
RBI,33which reviewed the rural credit scheme in 1954 and made few major recommendations for improving the
flow of rural credit.

Based on its recommendations an act was accordingly passed in the parliament in May, 1955and The Imperial
Bank of India was nationalized and renamed as State Bank of India (SBI) from July, 1955. SBI, to act as the
principle agent of RBI and to handle banking transactions of the union and state government all over the country
SBI had the responsibility for the expansion of branch network in rural area and to give credit also. As a part of
geographical expansion and to meet the credit need, certain banking companies were converted into subsidiaries
of SBI in year 1959, which later came to be known as associate banks of SBI.

The expansion came into existence from the year 1960 and onwards. In this period, expansion took place in the
following manner.1.

1.Growth in the number of branches of the bank.

More attention was given to the development of the rural segment of theeconomy.3.

The neglected industrial segment also given sufficient attention. In 1960, due to such crash, public lost their
confidence in the banking system and so that RBI gave two schemes to stabilize the banking system.
Establishment of the deposit insurance corporation, to ensure the deposits of small depositors.
The compulsory mergers and amalgamation of weak bank with stronger one. In terms of The Banking
Companies Act 1963, RBI got powers of control over the bank activities of group of persons, as well as to
regulate loan, advances and guarantees given by bank. In 1966, RBI got powers to appoint or remove bank is
executive personal. The op. banking system was brought within the statutory supervision and control of RBI.
Foreign exchange trade and transactions increased by the Indian banks in these years.

2.EXPANSION PHASE (1969-1984):

Till 1969 most of banks like Central Bank (owned by Tata’s), United Commercial Bank (Birla’s) and Syndicate
Bank (Pia’s) were owned and managed by large business houses, except The State Bank of India, known as The
Imperial Bank of 34India before 1955.

The business houses that had control over such banks they channelized major deposits in their own companies
because of their own benefit. They were ignoring the area of government focus like agriculture, small scale
industries etc. So, the need of nationalization of banks was raised.

The scheme of social control for banks was announced in parliament in December, 1967 with a view to ensure
an equal and purposive distribution of credit within the available resources for the needed sectors. Banking
framework was designed to achieve social orientation. To identify, the credit demand of various sectors of
economy and to determine their priorities, The National Credit Council was setup in 1968.During December,
1967 to June 1969 government of India adopted the policy of social control of banks.

Their aim for this was an equitable and purposeful distribution of credit to needed sectors. But, due to some
reasons, government not satisfied with this social control over banks to achieve such social goals. So,
government realized that to fulfill the social objectives, social ownership is a better rather than social control.
So, government decided to have ownership with the banks in the form of nationalization.

Problems before nationalization:

1.Negligence of needy sectors by the business houses.
2.Less spread the banking habit in rural and semi-urban areas.
3.The reach of banking services to rural areas and neglected sections.
4.Control of big business houses over commercial banks which results in concentration of wealth and
economic power. And, a step of milestone was taken and major process of Nationalization was carried
out by the then Prime Minister of India,
Late Mrs. Indira Gandhi.
On bank nationalization the then Prime Minister
Late Mrs. Indira Gandhi
stated in her broadcast
t address of July 19, 1969 that

“Nationalization” was meant for an early realization of the objectives of social control which were spelt out as
 1. Removal of control by a few.
2.Provision of adequate credit for agriculture and small industry and export.
3.Giving a professional bent to management.
4.Encouragement of a new class of entrepreneurs.
5.The provision of adequate training as well as terms of service for bank staff.

Objectives of nationalization
1.To give service to agriculture sector to promote agriculture production and rural development.
2.To give credit and other facilities to small entrepreneurs.
3.Ending the control of big business houses.
4.To create development professional management atmosphere in banking sector.
5.Widening banks branch network in rural and semi-urban area.
6.Mobilization of saving through bank deposits.
7.Re-orientation of credit flows.

Steps to achieve objectives

To, achieve these objectives, several steps have been taken like
1.Initially 33 % and latterly 40 % proportion of net bank credit to lend, required by a bank to the
agriculture and the weaker section.
2.Banks were required to open offices in rural and semi-urban areas to increase branch network rather
than urban areas.
3.Banks were required to maintain a credit deposit ratio of 60% in rural and semiurban areas.
4.To achieve overall monetary and credit policy, banks required to formulate a credit plan each year.
5.Credit Authorization Scheme was introduced.
6.Lending rate structure was built up in such a manner that large borrowers paid higher rates of interest
and certain sectors paid lower rates of interest.
7.Regional Rural Banks were setup as separate institutions in the mid-seventies, to meet the credit
needs of the weak section more effectively.
8.To ensure that credit given by banks were used in development plan; the districtcredit plans and
annual action plan were formulated.

Nationalization

A chronology The following are the steps taken by the government of India to regulate banking institutions in
the country.1949: Enactment of Banking Regulation Act1955: Nationalization of SBI195Nationalization of SBI
subsidiaries1961 : Insurance cover extended to deposits1969 : Nationalization of 14 major banks1971 : Creation
of credit guarantee corporation1975 : Creation of regional rural banks1980 : Nationalization of 6 banks with
deposits over Rs. 200 crores In 1969, The Government nationalized 14 largest commercial banks which are
asunder:
 1.The Central Bank of India.
2.The Bank of India Ltd.
3.The Punjab National Bank Ltd.4.The Bank of Baroda Ltd.
5.The United Commercial Bank Ltd.6.The Canara Bank Ltd.
7.The United Bank of India Ltd.
8.The Dena Bank Ltd.
9.The Syndicate Bank Ltd.

10.The Union Bank of India Ltd.

11.The Allahabad Bank Ltd.
12.The Bank of Maharashtra Ltd.
13.The Indian Overseas Bank Ltd.
14.The Indian bank

Each bank was having deposits of more than Rs. 50 crore and having among themselves aggregate deposits of
Rs. 2632 crore with 4130 branches. This was a revolution in the Indian banking system. As a result, 85 % of the
banking business in terms of deposits was brought under public control.

The nationalization is a shift from class banking to mass banking. This in turn resulted in a significant growth
in the geographical coverage of banks. Every bank had to earmark a minimum percentage of their loan portfolio
to sectors identified
as „
Priority Sector‟
The manufacturing sector also grew during the 1970s in protected environment. The next wave saw the
nationalization of 6 morecommercial banks in 1980.

On 15th April 1980, 6 more banks were nationalized

with deposits of over Rs. 200 crores. These banks are….
1.The Andhra Bank Ltd.
2.The Corporation Bank Ltd.
3.The New Bank of India Ltd.
4.The Oriental Bank of Commerce Ltd.
5.The Punjab and Sind Bank Ltd.
6.The Vijaya Bank Ltd. Since then the number of scheduled commercial banks increased fourfold and
the number of bank branches increased eight fold.

The prefix „THE‟ and suffix „LTD‟ were removed from the names of these banks
after their nationalization.
 Nationalization and after
India is a country of villages, about 75% of the population lives in villages and they are mostly dependent on
agriculture. They are the backbone of the country. Without improvement of their day-to-day life, the country
cannot march ahead. So, it can be said that the progress of the villages is the progress of the country.

The two significant aspects of nationalization were rapid branch expansion and channeling credit according to
priorities. In the wake of nationalization the growth and development of the Indian banking system was
phenomenal. By the end of the second decade of nationalization, Indian banking was relatively sophisticated,
with a wide network of branches, huge deposit resources and extensive credit operations. So, it is found out that
the nationalization of banks was a bold and major economic step in the evolution of public sector banking.

3.CONSOLIDATION PHASE: (1984-1990):

Many important developments in the banking sector took place in this phase. Here, 85 serious policies were
developed by the banking industry. Some of them
are ….

1.Increase in the number of branches.

2.Improvement in the ratio of housing loan.
3.Improvement in the customer services.
4.Increase the bank deposits and advances given to the customer.
5.Improvement in the market money condition.
6.Increase banking profitable aspect.
7.Improvement in bank service and product line.
8.Provide sufficient training to the staff of the bank.
9.Improvement in customer satisfaction criteria.

4.REFORMATORY PHASE: (1991 ONWARDS):

Problems of banking prior to reform:
Following were the problems the Indian banking sector was facing prior to reforms. Banking sector reforms
were introduced to remove the deficiencies in the
banking sector as

Banking sector was highly regulated by the Reserve Bank of India.

Eroded productivity and efficiency of public sector banks.
Continuous losses suffered by public sector banks by year after year.
Increasing level of NPAs.
Deteriorating portfolio quality.
Poor customer services.
Obsolete work technology.
Increase in expenditure.
Inability to face the competitive environment etc.

The Narsimham Committee - I

The major recommendations of the committee related to banking sector accepted
by the Government are…

1.Reduction in reserve:
For a long time, the Government
intervention in India‟s banking sector was in the
form of high SLR and CRR which was directly responsible for eroding the profits of the banks. The committee
recommended a reduction in the SLR to 25 % by1996 and, an unspecified reduction in the CRR.

2.Abolition of directed credit programme:

In practice, however, the directed credit not only undermined the profitability of the banks but also failed to
promote efficiency and equity. The effects of directed credit on equity are not encouraging. So, the committee
noted that the case for directed credit under existing conditionsis quite weak. So, committee recommended a
phasing out of the directed credit programme. Some credit support was recommended in the medium term to the
priority sector, which have been redefined. The other suggestion was that the credit target for this sector is to be
reduced from 40 % to 10 % of the aggregate.
The area covered in this is…
Small and marginal farmers.

Tiny sector of industry.

Small business & transport operation.

Village & cottage industries.

3.Interest rate deregulation:

The existing interest rate system in India at that time was very complex. This reduced its ability to promote
effective use of credit. This was not realized in the official circles until its features were highlighted by the
Chakravarty Committee of the RBI.A system of concessional interest rates was developed in this country. The
Chakravarty Committee was in favor of this, to target groups under the priority sector lending. This committee
observed that this system had become too complex and needed some kind of rationalization.

So, in beginning the system of multiple concessional interest rates was adopted due to genuine social concern.
The CHAKRAVARTY Committee had favored a very selective approach to the use of concessional interest
rates. But, the NARSIMHAM Committee ignored social concerned and argued that the system of directed credit
programs based on too many concessional interests rate has acquired too many distortions and thus it would be
desirable to phase out concessional interest rates.

The correct interest policy is to provide 1 to 3 % per annum real interest on fixed deposit of various maturities.
For the same reasons the rate of interest on savings deposits with banks should be positive in real terms. On the
lending interest rates the CHAKRAVARTY Committee recommended that the controlled competition among
banks should be allowed and banks should have some freedom to vary their lending rates of interest, subject to
some minimum rate fixed by the RBI and not the maximum.
The NARSIMHAM Committee has argued that “interest rates should increasingly
be allowed to perform their main function of allocating scarce loanable funds among alternative users. For them
to do so, rates will have to be allowed broadly
to be determined by market forces.”

However, the committee suggested that banks should give the authorities to set their interest rates on deposits
and lending.

4.Capital adequacy norms

The committee recommended that the banks and financial institutions should achieve a minimum 4% capital
adequacy ratio in relation to risk weightage assets by March, 1993.
5.Loan recovery
The recommendation was that Government should take steps to ensure recovery of bank dues by creating some
special recovery tribunals and provide for quick recovery process.
6.Restructuring the banks
The recommendation was to create 3-4 large banks to restructure the banks and those banks would become
international in character, 8-10 national banks with wide branch network throughout the country and engaged in
universal banking, local banks in specific regions and rural banks for rural areas. This revised system should be
market driven and based on profitability consideration and brought about through a process of mergers and
acquisition.
7.Income recognition
The recommendation in this regard was that no income should be recognized in the accounts in respectof Non-
Performing Assets. An asset would be considered non-Performing if interest on such asset not received up to
more than 180 days in the balance sheet date. They are given a period of 3 years, to move forward for the
norms.
8.Transparency
The committee recommended the modification of the format of bank balance sheet and profit and loss account
so that it discloses more information.
9.Asset classification
The asset should be classified in to 4 categories like…

Standard assets.
Substandard assets.
Doubtful assets.
Loss assets. And such provision should be created in this regard.
Tackling doubtful debts
The creation of Asset Reconstruction Fund (ARF) to take over bad debt of the bank on discount and bank
balance sheet should be made clean. The ARF should provide such special powers for recovery and its capital
should subscribed by public sector bank and financial institution.
11.Entry of private banks the indication of no further nationalization of banks, will remove the existing
disincentives of banks. Equal treatment should be given to public sector and private sector banks. Restrictions
should be removed for the private sector banks to being set up.
12.Foreign banks
Recommendation is that foreign banks be allowed to open offices in India either as branches or subsidiaries.
13.Branch licensing
Individual commercial banks should allow such authorities to operate or close their branch.
14.Abolition of dual control
End of the dual control over the banking system between RBI and the Banking Division of the Ministry of
Finance. RBI should be the primary agency for the regulation of the banking system.
15.Supervision of banks
Supervision should be based on evolving prudential norms and regulations rather than over regulated and over
administered.

Implementation of recommendation of Narsimham committee

1.SLR reduced up to 25%.

2.The Government did not accept the recommendation of the committee to reduce the level of priority sector
lending from 40%.
3. Banks are given freedom to set their own interest rates.
4.RBI implemented the recommendation on capital adequacy norms As per the guidelines of RBI banks
classified their loan assets based on recovery record.
6.Format of the bank balance sheet and profit and loss account was modified by the RBI and Government.
7.The Government passed an Act during August, 1993 for creation of recovery tribunals for loan accounts, and
established eight such tribunals also.
8.No steps have been taken regarding creation of Asset Reconstruction Fund.
9.Liberalization of the branch licensing.
10.Merger of strong banks with weak uninspired of the growth and improvement of the banking industry
especially in terms of branch expansion, deposit mobilization etc., banks were suffering from several
hurdles like…

Increasing competition.

Increasing NPA.

Problems in technology adoption etc. Due to such hurdles, the Government of India appointed the second
Committee under the Chairmanship of same person Mr. NARSIMHAM in 1998, to review the progress of first
phase of banking reforms and further to give suggestion to make improvement and strengthen the banking
system by which, to put it into international competition. The competition was arising in each industry mainly
due to the global changes in the world economy. The committee reviewed the performance of the banks in the
first phase of the reforms and as regard submitted its report with some new recommendations, which
are as under

Narsimham committee - II1.

1. Strengthening the banking system:

The following recommendations have been made to strengthen the banking system,

Capital adequacy requirement should take into consideration market risks in addition to credit risks.
Risk weight on a government guaranteed advance should be the same as other advance.
Minimum Capital to Risk Assets Ratio (CRAR) be increased from the existing 8% to 10 %

2. Asset quality:
The following recommendations have been made to improve asset quality,
The ratio of Non-Performing Assets to the total assets should be reduced.
For evaluating the quality of asset portfolio, advance covered by Government guarantees, which have turned
sticky, be treated as Non-Performing Assets.
The interest subsidy element in credit for the private sector should be totally eliminated

3. System and methods in banks:

The committee made the following recommendations to improve the systems and methods in banks,
There should be an independent loan review mechanism especially for large borrowed accounts and systems to
identify potential Non-Performing Assets.
Banks and financial institutions should have a system of recruiting skilled manpower from the open market.
Public sector banks should be given flexibility to determine managerial remuneration levels taking into account
market trends.
There is need to develop information and control system in several areas concerning the banking operation

4. Structural issues:
The following recommendations have been made regarding structural issues of the banks,
There should be merger of large and strong banks with the large and strong banks only. Large banks should not
be merged with weaker banks.
Weak banks should be either untried into healthy units or close.
The Reserve Bank of India should not be the owner of any other bank.

There is need for a reform of the deposit insurance scheme.

IMPACT OF BANKING SECTOR REFORMS

Indian banking system has increased in terms of expansion of branches and ATMs in the post reform period.
Asset and liabilities of banks have grown consistently at a high rate. The financial performance of the banks also
improved is reflected in their increased profitability. Another development has been the sharp reduction in non-
performing loans. By restructuring of the workforce they cut down the staff cost and increased business per
employee

5. PRESENT PHASE (BEYOND 2002 TO UP TO DATE):

The banking industry is currently in a transition phase. Public sector banks are in the process of reducing their
excessive manpower, excessive NPA, excessive governmental equity etc. whereas private sector banks are
consolidating themselves by mergers and acquisitions. Though, the public sector banks are facing many
challenges these days, like adoption of new technology, increasing level of Napa, falling revenues, massive
workforce, credit risk, market risk, global competition etc. they are trying to shift themselves from traditional
banking. They have implemented multiple new functions. However, the private sector banks are good in modern
technology, infrastructure, customer orientation etc. they cannot reach public sector banks in size, access to low-
cost deposits, area of network, manpower etc. private sector banks have pioneered internet banking, phone
banking, mobile banking, anywhere banking, ATM machines, debit cards, credit cards, manifold other services
on the other hand, public sector banks are struggling with all new challenges. Due to the economic and
corporate sectors slowdown, banks are focusing more on retail segment these days. Many of them have entered
in new vista of insurance and many other are on the way to. Hence, current phase has changed the way of
banking as it was earlier. It has done a lot and still a lot to do in future.
 1.5 Equity Scenario of Public and Private Sector Banks

Before proceeding to the capital raising scenario of public and private sector banks in India by espousing the
IPO trajectory it is pertinent to have a brief discussion on Primary Market in India and Initial Public Offering. A
sound capital market is an important prerequisite for the industrial and commercial development of a country.
Capital market is a central coordinating and directing mechanism for free and balanced flow of financial
resources into the economic system functioning in a country. It assists the corporate houses in need of capital to
expand, modernize or diversify their business.

To obtain the capital that is needed by the company it usually embrace the primary market for issue of shares
and the process of issuing shares is done in the primary market.
The primary market in a simple way can be defined as a market where the securities are issued to procure funds
or capital require by the company. It is a market for new issues, i.e. a market for fresh capital. It provides the
medium for sale of new securities. The securities can take different forms, such as, equity shares, preference
shares, debt instruments, bonds etc.

A company may raise capital in the primary market with the help of IPO, rights issue or private placement. An
Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is the biggest source
of funds with long or indefinite maturity for the company. “An initial public offering (IPO), referred to simply
as an "offering" or "flotation", is when a company (called the issuer) issues common stock or shares to the
public for the first time.”

The Reserve Bank of India in 2010 stated that private sector banks should take its approval before espousing the
IPO route, preferential issues, or qualified institutional placement. It was mandatory for private sector banks to
approach RBI for prior ‘in principle’ approval in case of qualified institutional placements. Banks required to
approach RBI along with details of the issue once the bank’s board gave nod to the raising of capital through
IPO route. Public sector banks were permitted to procure capital from the capital market to fortify their capital
adequacy ratios and bring down the government holdings.

The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/ 1980 and State Bank of India
Act, 1955 were amended to permit banks to raise capital not more than 49 percent of their equity. The State
Bank was the first public sector bank to tap the equity market in December 1993. In October 1996, it once again
knocked the doors of the capital market through a GDR issue of INR 1,270 crores. With these two issues, the
holdings of the RBI slashed to 59.7 percent in State Bank of India. Over the years 1993 to 2001, 12 PSBs
procured capital through IPO trajectory to the extent of INR 6,50 crore. The market responded positively to
public sector banks IPOs. The year 2002 witnessed the IPO market dominated

1.5: BANKING STRUCTURE

Indian Banking System: Structure and other Details!

Bank is an institution that accepts deposits of money from the public.

Anybody who has account in the bank can withdraw money. Bank also lends money.

Indigenous Banking:

The exact date of existence of indigenous bank is not known. But it is certain that the old banking system has

been functioning for centuries. Some people trace the presence of indigenous banks to the Vedic times of 2000-

1400 BC. It has admirably fulfilled the needs of the country in the past.

However, with the coming of the British, its decline started. Despite the fast growth of modern commercial
banks, however, the indigenous banks continue to hold a prominent position in the Indian money market even in

the present times. It includes shroffs, seths, mahajans, chettis, etc. The indigenous bankers lend money; act as

money changers and finance internal trade of India by means of hundis or internal bills of exchange.

Defects:

The main defects of indigenous banking are:

(i) They are unorganised and do not have any contact with other sections of the banking world.

(ii) They combine banking with trading and commission business and thus have introduced trade risks into their

banking business.
(iii) They do not distinguish between short term and long-term finance and also between the purpose of finance.

(iv) They follow vernacular methods of keeping accounts. They do not give receipts in most cases and interest

which they charge is out of proportion to the rate of interest charged by other banking institutions in the country.

Suggestions for Improvements:

(i) The banking practices need to be upgraded.

(ii) Encouraging them to avail of certain facilities from the banking system, including the RBI.

(iii) These banks should be linked with commercial banks based on certain understanding in the respect of

interest charged from the borrowers, the verification of the same by the commercial banks and the passing of the

concessions to the priority sectors etc.

(iv) These banks should be encouraged to become corporate bodies rather than continuing as family-based

enterprises.

Structure of Organized Indian Banking System:

The organised banking system in India can be classified as given below:
 Reserve Bank of India (RBI):

The country had no central bank prior to the establishment of the RBI. The RBI is the supreme monetary and

banking authority in the country and controls the banking system in India. It is called the Reserve Bank’ as it

keeps the reserves of all commercial banks.

Commercial Banks:

Commercial banks mobilise savings of general public and make them available to large and small industrial and

trading units mainly for working capital requirements.Commercial banks in India are largely Indian-public

sector and private sector with a few foreign banks. The public sector banks account for more than 92 percent of

the entire banking business in India—occupying a dominant position in the commercial banking. The State

Bank of India and its 7 associate banks along with another 19 banks are the public sector banks.

Scheduled and Non-Scheduled Banks:

The scheduled banks are those which are enshrined in the second schedule of the RBI Act, 1934. These banks

have a paid-up capital and reserves of an aggregate value of not less than Rs. 5 lakhs, hey have to satisfy the

RBI that their affairs are carried out in the interest of their depositors.
All commercial banks (Indian and foreign), regional rural banks, and state cooperative banks are scheduled

banks. Non- scheduled banks are those which are not included in the second schedule of the RBI Act, 1934. At

present these are only three such banks in the country.

Regional Rural Banks:

The Regional Rural Banks (RRBs) the newest form of banks, came into existence in the middle of 1970s

(sponsored by individual nationalised commercial banks) with the objective of developing rural economy by

providing credit and deposit facilities for agriculture and other productive activities of al kinds in rural areas.

The emphasis is on providing such facilities to small and marginal farmers, agricultural labourers, rural artisans

and other small entrepreneurs in rural areas.

Other special features of these banks are:

(i) their area of operation is limited to a specified region, comprising one or more districts in any state; (ii) their

lending rates cannot be higher than the prevailing lending rates of cooperative credit societies in any particular

state; (iii) the paid-up capital of each rural bank is Rs. 25 lakh, 50 percent of which has been contributed by the

Central Government, 15 percent by State Government and 35 percent by sponsoring public sector commercial

banks which are also responsible for actual setting up of the RRBs.

These banks are helped by higher-level agencies: the sponsoring banks lend them funds and advise and train

their senior staff, the NABARD (National Bank for Agriculture and Rural Development) gives them short-term

and medium, term loans: the RBI has kept CRR (Cash Reserve Requirements) of them at 3% and SLR

(Statutory Liquidity Requirement) at 25% of their total net liabilities, whereas for other commercial banks the

required minimum ratios have been varied over time.

Cooperative Banks:

Cooperative banks are so-called because they are organised under the provisions of the Cooperative Credit

Societies Act of the states. The major beneficiary of the Cooperative Banking is the agricultural sector in

particular and the rural sector in general.

The cooperative credit institutions operating in the country are mainly of two kinds: agricultural (dominant) and

non-agricultural. There are two separate cooperative agencies for the provision of agricultural credit: one for

short and medium-term credit, and the other for long-term credit. The former has three tier and federal structure.

At the apex is the State Co-operative Bank (SCB) (cooperation being a state subject in India), at the

intermediate (district) level are the Central Cooperative Banks (CCBs) and at the village level are Primary

Agricultural Credit Societies (PACs).

Long-term agriculture credit is provided by the Land Development Banks. The funds of the RBI meant for the

agriculture sector actually pass through SCBs and CCBs. Originally based in rural sector, the cooperative credit

movement has now spread to urban areas also and there are many urban cooperative banks coming under SCBs.
 1.6: FUNCTION

Banking-experts pass their opinion that banking system was introduced from the primitive stages of human
civilization in some way or other in the world. While reviewing historical backgrounds of social, economic, and
religious activities of ages, origin of modern banking can be better known.
From different angles the source and origin of modern banking can be justified

1. Introduction of coins: From the ancient times coins were introduced in different countries as a medium of
exchange. So, banking system was in vogue for preservation and safety of coins. The discovery of
archaeological symbols have intensified the arguments. At that time excess residual coins were kept with the
religious and local elite persons for the purpose of extending help to the needy poor people. Gradually, this
became a profitable business for the businessmen and money-lenders.

2. Different Civilization: At different stages of human civilization, many evidences were recorded for the
existence of banks and coins. The archaeological symbols are the evidences of this statement. During Indus
Civilization (5000-2000) coins were available in Mohenjudaru of Pakistan, in Egypt coins were found in
mummy of Pyramid. In Bangladesh coins of ancient civilization were found at Moynamati of Comilla and
Paharpur of Bogra.

3. Expansion of business and trade: The expansion of business and trade played a vital role for the advancement
of modern banking. Because in the middle age Indo- sub-continent, Middle-East and Europe progressed
tremendously and thus banking business improved for their smooth functioning of transaction.
4. Various Religions and Religious books: A lot of information regarding banking business were incorporated in
the Quran, the Bible, the Bedh and the Mahabharat.

5. The contributions of Goldsmith, money-lenders, and the businessmen: or the growth and development of
banking business the Goldsmiths, Money-lenders(mahajan) and businessmen had positive roles.

(a) The Goldsmiths:

From the very ancient periods the Goldsmiths, over and above their own activities, used to act as custodians of
the surplus funds of the general people of the society. For that reason, they were recognized as a symbol of
honesty, sincerity, solvency, and security. On receipt of money, they used to issue receipts and on return of
money they used to take acknowledgements. Later, these receipts were treated deposit slip and cheque
respectively. The deposits receipts were undoubtedly acceptable and popular as notes of the Goldsmiths and
afterwards converted into bank notes.

Besides these, they used to lend money with interest to the needy people and thus, the words interest and profit
were introduced. In the Middle Ages, the Goldsmiths became very rich and affluent.
At one time Goldsmiths used to deposit their money with the treasury of England. During the regime of King,
the First Charles, in 1640, the reserve funds of the Goldsmiths with London Tower were confiscated and they
had to pay penalty for taka two lacs pounds.

Then they left gold business and got involved with banking business. Thus, the Goldsmiths had a definite role
for the advancement of modern bank.
(b) The Money-Lenders: The Money-Lenders (Mahajan) also played an important role for the growth and
development of modern banking.
They used to keep surplus money of the people and refund those in case of need. Later, they took it as a
profession. They used to pay interest to the depositors and earn interest on loans. They also used to take
security, mortgage against loan. In Europe they were called Medici, Bengkuci, Piti, Missouri and in Indian
subcontinent Seth, Chetti, Multani, Kabuliwala were the Mahajans.In Europe, most of the Mahajans were jews.
Amongst them Shylock of Italy was one of them. Besides, Medici of Lombardi was the world-famous.

Lombardi Street in London was recognized after the name of Medici. Patheh Chand was also famous in
India.The Emperor Farook Shayar ornamented him with the title of world banker.

(c) Businessmen: Business Class also played vital role for the growth and development of modern banking.
From the ancient periods the Business Class were trustworthy to the general people. They were honest, faithful,
and solvent. As a result, general people used to deposit money to them for the safety and security of fund. In
course of time, they were involved in money-lending business.
The businessmen of seven-hills of Rome were world-famous. Brief History of Banking system of Bangladesh
and Indo-Pak Subcontinent. For the growth and development of modern banking, Indo-Pak Subcontinent have a
positive role. With the gradual evolution of ages banking activities have got momentum

(a) The Ancient Era: Many Economists and Experts have expressed their opinion that banking business have
been going on since ancient era. Many evidences are found with the archaeological symbols of Harappa and
Mohenjodaro. From different religious scriptures we find a lot of information regarding modern banking
activities.

(b) The Moghal Era: The banking system has been extensively developed during the Moghal Era. During that
time government treasury was formed. The Govt. introduced gold and silver coins of different denominations
named „Ashrafi‟. Thus, banking system has been developed. During that period „Seth Family‟ was world
famous.

They used to conduct business through agency house. Among the local bankers Marwari, multani, Kabuli
Wala, sharaf, chetti etc. Worth mentions. In the 4 seventeenth century, English Tradesmen were involved with
them. In 1700 The Hindustan Bank was established as a joint venture bank.

(c) The British Era: The expansion program of the modern bank started when the English took power of India.
In 1784 the Bengal Bank introduced paper currency notes and gold coins of different denominations. Later, in
1787 General Bank of India, in 1806 Bank of Bengal, in 1840 Bank of Bombay and in 1843 Bank of Madras
were established. With merging of three banks, the Imperial Bank of India was established in 1920 and in 1935
the Reserve Bank of India came intobeing.

(d) The Pakistan Era: In 1947 during the separation of India, 639 branches of different banks were the parts of
Pakistan. Besides, Head Offices of Habib Bank Limited and Muslim Commercial Bank Limited were
transferred to Karachi. In 1948 the State Bank of Pakistan was established.

(e) The Bangladesh Era: Bangladesh came into being in 1971. Since then, a branch of state bank of Pakistan
stationed at Dhaka was declared Central Bank of Bangladesh named as Bangladesh Bank under Special Act.
Excepting other banks, Head Offices of two banks e.g., Eastern Mercantile Bank Limited (1959) and Eastern
Banking Corporation Limited (1965) were at Dhaka which were renamed as Public Bank Limited and Uttara
Bank Limited respectively. In this country of 14 crores people about 57 banks (Govt. bank 4; Local private 30;
Foreign 12; specialized 7 and others 4) with about 5500 branches and about 1,10,000 officers / staff; are
functioning for socio-economic development. With two banks as above many branches of more than 10 banks
were in Bangladesh. When the Non- Bengali owners had left the country the disastrous condition of banks in
Bangladesh knew no bounds.

The fact remains that most of the bankers and staff were non-Bengalis. Consequently, the management and
control of all such banks were reposed on Bangladesh Government. In 1972 Government, pursuant to
Presidents‟ Order 26, had nationalized all banks. The banking system of Bangladesh came to a standstill. After
nationalization the banks were renamed as under:

Commercial Bank and Central Bank: Their functions and mutual relationships

In common parlance, Bank means Commercial Bank and its functions. Central Bank is a separate entity and
plays distinctive roles. The function of a Bank is to collect deposits from the public and lend those deposits for
the development of Agriculture, Industry, Trade and Commerce. Bank pays interest at lower rates to the
depositors and receives interests on loans and advances from them at higher rates. In modern banking, Bank
carries out many other activities, e.g., creation of debts and money, transmission of money from one country to
another country, increase of foreign trade, preservation of valuables in safe custody etc.

Thus, Bank earns profits through executing various types of activities. Commercial Bank: Historically,
commercial bank came into being for its commercial purpose. The inception of modern banking is the outcome
of commercial bank. In the words of Professor Roger, “the bank which deals with money and money’s worth
with a view to earning profit is known as ``Commercial bank.” Professor Hart says, “A banker is one who, in
the ordinary course of business, honors cheques drawn upon him by persons for and for whom he receives
money on current account.”

A: General Functions:

1. Receiving Deposits: The first and foremost function of commercial bank is to receive or collect
deposits from the public in different forms of accounts e.g. current, savings, term deposits. No interest
is charged in the current account, lower rate of interest is charged in the savings account and
comparatively higher interest rates charged in fixed deposits. Thus, commercial bank builds up
customer network.

2. Accommodation of loans and advances: Commercial Bank attaches much importance to providing loans and
advances at a higher rate than the deposit rates and thus earns profits on it. Working capital is accommodated to
the borrower for expansion and smooth running of business. In the similar manner, commercial bank extends
financial accommodation for the development of agriculture and industry.

2. Credit accommodation is provided to the entrepreneurs for reviving sick and old industries as per Govt.
directives. Thus, commercial bank also extends welfare services to the people at large. 3. Creation of
Loan Deposits: Commercial Bank not only receives deposits from public and accommodates loans to
public but also creates loan deposits.
For example: while disbursing loans as per sanction stipulation, the amount of loan is credited to the borrower’s
account. The borrower may not withdraw the full amount at a time. The residual amount i.e., balance left in the
account creates loan deposits.

4. Creation of medium of exchange: Central Bank has got exclusive right to issue notes. On the other hand,
Commercial Bank creates medium of exchange by issuing cheques. Like notes, cheque is transferrable being
popularly used in the banking transactions.

5. Contribution in foreign trade: Commercial Bank plays a vital role in expediting foreign exchange and foreign
trade business e.g., import, export etc. It contributes greatly in the economy through import finance and export
finance and thus, earn foreign exchange for the country.

6. Formation of capital: Commercial Bank extends financial assistance for the formation of capital in the trade,
commerce and industry in the country which expedites its economic development.

7. Creation of Investment Environment: Commercial Bank plays a significant role in creating investment
environments in the country.

B. Public Utility Functions:

In modern banking, commercial bank executes public utility services:

1. Remittance of Money: Remittance of money to the public from one place to another is one of the
functions of commercial bank. Remittance is affected in the form of demand draft, telegraphic transfer
etc. through different branches and correspondents home and abroad.

2. Help in trade and commerce: Commercial Bank helps expand trade and commerce. In inland and foreign
trade customers are allowed credit accommodation in the form of letter of credit, bill purchased and
discounted etc.

3. Safe custody of valuables: Commercial Bank introduces „locker‟ services to the customers for safe custody
of valuables e.g., documents, shares, securities etc.
4. Help in Foreign Exchange business: While opening letter of credit, commercial bank obtains credit report of
the suppliers and thus help expedite import and export business.

5. Act as a Referee: Commercial Bank acts as a referee for and on behalf of the customers.

7. Act as an Adviser: Commercial Bank provides valuable advice to the customers on different products,
business growth and development, feasibility of business and industry.

8. Collect utility service bills: As a social commitment, Commercial Bank collects utility service bills e.g.
water, electricity, gas, telephone etc. from the public.

9. Purchase and sale of prize bonds, sanchaya patra, shares etc. Commercial Bank undertakes to purchase
and sale of prize bonds, sanchaya patra, shares etc. as a part of social commitment.

10. Help people travel abroad: Commercial Bank helps customers in traveling abroad through issuance of
travelers cheques, drafts, cash etc. in favour of the customers.

C. Agency Functions: Besides above stated functions, commercial bank acts as a representative of the
customers.
1. Collection and payment: Commercial Bank is engaged in collection and payment of cheque, bill of exchange,
promissory notes, pension, dividends, subscription, insurance premium, interest etc. on behalf of the clients.

3. Purchase and sale of shares and securities: Commercial Bank is entrusted with the responsibility of
purchase and sale of shares and securities on behalf of the customers.

4. Maintenance of secrecy: Maintenance of secrecy is one of the most important functions of commercial
bank.Act as a trustee: Commercial Bank acts as a trustee on behalf of the customer

. 5. Economic Development and Welfare activities: Commercial Bank contributes much for the welfare and
economic development of the country.

6.Central Bank: The bank which governs banking system and money market is Central Bank.

7.The primary function of a central bank is to assist Government in formulating economic policy, in controlling
and conducting money-market and also controlling bank‟ credit. Some specialized Bankers, Economists and
thinkers have given different definitions: “A central bank is a bank whose essential duty is to maintain stability
of the monetary standard.”
8 In the words of DeCock, “The central bank is a banking system in which a single bank has either a complete
or a residuary monopoly of note issue.” Professor Hatley says, “Central Bank is the lender of the last resort.”

Functions of Central Bank: The functions of central bank are different from other banks. The following
functions of central bank are stated below:
A Traditional or general functions:
1. Issue of notes and coins: The first and foremost function of central bank is to issue notes and coins as per
needs of the public and requirement of business and commerce. As per rules, notes are issued against gold,
silver and foreign currency. Bangladesh Bank (Central Bank) keeps foreign currency reserves as security against
issuance of notes. Bangladesh Bank unilaterally reserves the right to issue notes.
The arguments in its favour are as follows: (a) To maintain equilibrium in quality between notes and currency
issue
(b) To maintain equilibrium in size, types and values of notes and currency
© To maintain stability in rates of exchange both inland and foreign
(d) To create confidence on the people
(d) To control money market.

3. Government Bank: Central Bank acts as banker and economic adviser of the Government. The central
bank conducts and maintains Government accounts for all Government receipts and payments.

4. Banker’s Bank: Central Bank acts as bankers bank. As a rule, all scheduled and commercial banks have
to maintain Statutory Liquidity Reserve (SLR) 18% with Bangladesh Bank(CRR: 5% and Bonds &
Securities 13%).

5. Lender of the last Resort: In case of financial crisis of the commercial banks, central bank acts as a
lender of the last resort through lending against first class securities, bill of exchange etc.

6. Reservoir of foreign currency: Central Bank maintains Foreign Currency Reserve. For the purpose of
control of foreign currency, the following factors are responsible: (a) For issuance of notes (b) For
payments of liabilities (c) For payments of debts.

7. Clearing House: Central Bank acts as a Clearing House for settlement of interbank transactions.

8. Credit Control: Credit Control is one of the major functions of central bank. The following are the ways of
controlling credit: (a) Change in bank rates (b) Open market operation © Change (increase or decrease) in
reserve- ratio (d) Selective credit (e) Direct influence (f) Moral suasion (g) propaganda.
 B. Purposeful functions: (a) Control Currency Market: Central Bank acts as a controller and guardian of the
currency market. For the purpose of formation, control and maintenance of currency market and for its overall
development, central bank is the pioneer.

(b) Stabilize Exchange Rate: Central Bank maintains stability of the foreign currency exchange rates by means
of controlling credit. Stable exchange rates position helps create favourable balance of trade and acceptability of
stable currency gets momentum in the international market.

(c) Maintain Gold Standard: Central Bank is responsible for maintenance and control of gold reserve.

(d) Stabilize Price-Level: Fluctuations and frequent changes of price-level affect economic growth. With a view
to making good of the economic imbalances and crisis situations, central bank takes necessary measures for
stabilizing price-level.

(e) Stabilize business activities: Central Bank formulates credit policy and with this spirit, central bank takes
necessary steps to protect economic depression for stabilizing business activities.

(f) Employment opportunities: Central Bank takes initiatives for creating employment opportunities by means of
credit-control mechanism.

C. Expansion and Development Functions:

(a) Development of Agriculture Sector: Central Bank formulates policy for expansion of Agri-sector
for the purpose of economic upliftment’s in the country.

(b) Development of Industry Sector:

(c) Development of natural resources:

Central Bank plays vital role for tapping natural resources which may lead to economic growth. D.
Other Functions:

(a) Adviser and Representative of Government: Central Bank advises Government on economic issues
and sometimes acts as a representative of the Government.
(b) Economic Research: Central Bank conducts various economic research works and formulates
policies for economic development. Central Bank conducts survey on different economic issues for the
knowledge of the general public of the country
 1.7: COMPANY OVERVIEW OF – HDFC BANK, ICICI BANK

“A bank is a place that will lend you money only if you can prove that you don’t really need it.” This famous quote
by Bob Hope explores the funny side of banking. Above all, there is one statement about banks that do not need any
validation which is- Banks are the money pumping factories of an economy, the pillars of an economy. On that note,
we will dig deeper into the vaults of two major banks of our country: HDFC Bank and ICICI Bank.
  Incorporation Year: 1994

 Ownership Group: HDFC Group

 Headquarter: Mumbai, Maharashtra, India

 Chairman: Deepak S. Parekh

 Present Head (MD): Aditya Puri

 Chief Financial Officer: Sashidhar Jagdishan

HDFC Bank happens to be one of the largest banks in India. Further, it is the market leader in e-commerce. Such a
pioneer would require adequate infrastructure to cater to its customers. As a matter of fact, HDFC Bank’s web of
distribution is woven of 4,715 branches and 12,260 ATMs across 2,657 cities.

Moreover, it provides a number of products and services which includes Wholesale banking, Retail banking,
Treasury, auto (car) Loans, Two-Wheeler Loans, Personal loans, Loan against Property and Credit Cards. In 2017,
HDFC bank’s revenue amounted to ₹81,602 crore and gave employment to 84,325.

HDFC Bank incorporated in 1994, began operations with its first registered office in Mumbai, India. In fact, Dr.
Manmohan Singh, our then Finance Minister, inaugurated HDFC Bank’s full-service branch and first corporate
office at Sandoz House, Worli.

To point out, it is the only private bank to receive in-principle approval from the RBI for the establishment of a
bank.

Company’s Own Words

Mission: To be a World Class Indian Bank. The objective is to build sound customer franchises across distinct
businesses so as to be the preferred provider of banking services for target retail and wholesale customer segments,
and to achieve healthy growth in profitability, consistent with the bank’s risk appetite.
HDFC Bank’s business philosophy is based on five core values: Operational Excellence, Customer Focus, Product
Leadership, People and Sustainability.

Portfolio
HDFC Group companies are HDFC Ltd., HDFC Securities., HDFC Mutual Fund, HDFC Realty, HDFC Life,
HDFC ERGO, HDFC Pension, and HDB Financial Services.

In News
According to Brand rankings in 2016, HDFC Bank was the most valuable brand in India for a third consecutive
year. Also, in 2016 again, a study of India’s best banks by KPMG declared HDFC Bank as the best bank of the year
and awarded it the best digital banking initiative award.

On February 2000, HDFC Bank merged with the Times Bank. Then again in 2008, it acquired the Centurion Bank.
Lastly, in 2016 it was awarded as the best-performing branch in the microfinance among the private sector banks by
NABARD.

 Incorporation Year: 1994

 Ownership Group: ICICI Group

 Headquarter: Mumbai, Maharashtra, India

 Chairman: M.K. Sharma

 Present Head (MD and CEO): Sandeep Bakhshi

 Chief Financial Officer: Rakesh Jha

One of the oldest private banks standing in our country, ICICI Bank is the leader in the private sector.

ICICI Bank (Industrial Credit and Investment Corporation of India) is a multinational banking and financial
services company.
The bank caters to both corporate and retail customers through a variety of delivery channels and subsidiaries.
These subsidiaries focus on areas like investment banking, life, non-life insurance, venture capital, and asset
management.

Further, it is indeed an international bank with a presence in 19 countries. The bank currently has a network of 4867
branches and 14367 ATMs across India. In 2016, it saw a revenue of US$10.3 billion and employed 74,096.

Company’s Own Words

Vision: To be the leading provider of financial services in India and a major global bank.

Mission: ICICI will leverage our people, technology, speed, and financial capital to:

 be the banker of the first choice for our customers by delivering high quality, world-class products,
and services.

 expand the frontiers of our business globally.

 play a proactive role in the full realization of India’s potential.

 maintain a healthy financial profile and diversify our earnings across businesses and geographies.

 maintain high standards of governance and ethics.

 contribute positively to the various countries and markets in which we operate.

 create value for our stakeholders.

Portfolio
ICICI Group companies and its subsidiaries are ICICI Prudential Life Insurance Company, ICICI Securities, ICICI
Lombard General Insurance Company, ICICI Prudential AMC & Trust, ICICI Venture, ICICI Direct, ICICI
Foundation, and Disha Financial Counselling.

Also, it has banking subsidiaries in the UK and Canada. Further, the various products in the portfolio bag of this
bank are Credit cards, consumer banking, corporate banking, finance and insurance, investment banking, mortgage
loans, private banking, wealth management, personal loans, payment solutions.
In the News
To point out, ICICI bank has etched so many acquisitions in its history that it is out of the scope of our study to
mention them all. However, recently in 2010, it acquired the Bank of Rajasthan for a staggering ₹ 30 billion.

Moreover, a survey by Brand Equity in 2016 for India’s most trusted brands of 2016, ranked ICICI Bank first
amongst all the private sector banks.

Likewise, ICICI Foundation won the ‘Best CSR & Sustainability Practices Award for 2016’ at the 4th Asia
Business Responsibility Summit. On the contrary, ICICI Bank gathered negative attention for being India’s one of
the leading private banks to be accused of blatant money laundering through violation of RBI guidelines.

In the famous Cobra Post sting operation, which shook up Indian banking industry during April–May 2013.

Chapter-2
OBJECTIVES
Fundamental analysis of public and private sector banks in India has been done with the objective of analyzing
the profitability position of the selected banks which is helpful in taking investment decisions.

It is felt that the Share market is fluctuating very quickly and the real worth of the shares also is unstable. The
value of the shares of a bank is either undervalued or overvalued. To know the trend of the share value
fluctuations, the intrinsic value of the shares is to be computed. The share values of the banks may be either
undervalued or overvalued based on the performance of the banks in purview.

Profile of the Selected Banks

ICICI Bank

ICICI Bank Limited is a banking company which with its subsidiaries, joint ventures and associates, is a
diversified financial services group providing a range of banking and financial services, including commercial
banking, retail banking, project and corporate finance, working capital finance, insurance, venture capital and
private equity, investment banking, broking and treasury products and services.

It operates under four segments: retail banking, wholesale banking, treasury and other banking. Retail Banking
includes exposures, which satisfy the four criteria of orientation, product, granularity and low value of
individual exposures for retail exposures. Wholesale Banking includes all advances to trusts, partnership firms,
companies and statutory bodies, which are not included under Retail Banking. Treasury includes the entire
investment portfolio of the Bank. Other Banking includes hire purchase and leasing operations and other items.
·

HDFC Bank

HDFC Bank Limited is a banking company which is engaged in providing a range of banking and financial
services. The Bank operates in four segments: treasury, retail banking, wholesale banking and other banking
business. The treasury segment primarily consists of net interest earnings from the Bank's investments portfolio,
money market borrowing and lending, gains or losses on investment operations and on account of trading in
foreign exchange and derivative contracts. The retail banking segment raises deposits from customers and
makes loans and provides other services.

The wholesale banking segment provides loans, non-fund facilities and transaction services to large corporates,
emerging corporates, public sector units, government bodies, financial institutions and medium scale
enterprises. The other banking business segment includes income from banking related activities, such as credit
cards, debit cards and third party product distribution, primary dealership business

OBJECTIVES · To do the fundamental analysis of the selected banking companies · Evaluating the intrinsic
value of shares for decision making · To recommend for a buy or sell option by comparing the intrinsic value of
the share with the market price using fundamental analysis.
SCOPE OFTHE STUDY

The scope of the study is limited to five selected banks in India.The significance of the study lies in the fact that
it helps to make decision as regard to whether it is wise to invest in banking institutions in India and in case of
investment which is already made in the with banking companies whether it is wise to hold or to sell the shares.
The investment decision is made on the basis of analysis of general trend on banking sector.The study helps to
select securities which maximizes the yield and minimizes risk.

RESEARCH METHODOLOGY

Data of the study was collected from secondary sources. Data was collected from the websites, Company
websites, newspapers and periodicals were also referred which includes,
1. Observations of financial status of the company
2. Study of intrinsic value and extrinsic factors of a company
3. Interaction with stock broker in the stock market
4. Internet

Population and Sample

According to the Indian Banking industry, it estimates there is a total of 274 commercial banks operating in
India out of which 223 banks are in the public sectors and 51 banks are in the private sector.
These total 274 banks have been taken as the population for the study. On the basis of the relative performance
of the banks in the market, 10 banks have been chosen from the population and 5 ranked according to their
market capitalization. Thus, convenient sampling is used for carrying out the study.

Research Design
Out of the ten companies which were taken on the basis of the market capitalization from the BSE listing and
ranked accordingly, five were selected to conduct a detail study. Fundamental analysis involves finding the
intrinsic value of the selected banking shares.
It provides additional strength to the investor in choosing the option of buy / sell strategy.

Tools used in Fundamental Analysis

1. Earnings per Share (EPS) = PAT / No. of Equity shares.

2. Dividend per Share (DPS) = Dividend % * Face value of a share
3. Dividend Payout Ratio (DPOR) = DPS /EPS
4. Average DPOR = Sum of DPOR / No. of years taken
5. Average Retention Ratio = 1- Average DPOR
6. Return On Equity (ROE) = PAT / Net worth where N.W = Capital + Reserves and Surplus
7. Average Return on Equity = Sum of ROE / No. of years
8. Growth Rate in Equity = Average Retention Ratio * Average Return on Equity
9. Price Earnings Ratio = Market Price of the Share i.e. MPS / EPS
10. Normalized average P/E ratio = Sum of Price earnings Ratio / No. of years 11. Projected EPS for
next year = EPS for the current year * (1+ Growth rate / 100) 12. Intrinsic value = Projected EPS *
Normalized Price Earnings Ratio

FUNDAMENTALANALYSIS AND INTERPRETATION

Basis for Selection of the Companies Out of the ten companies which were taken on the basis of high
market capitalization, the top five were selected to perform the detailed study. Five top ranked banks
have been selected out of ten banking companies based on their market capitalization. Then, Ratio
analysis was done on the banks using the related data of the respective bank and tabled as follows.

1. ICICI Bank

ITEMS 2009 -10 2010 -11 2011 -12 2012 -13

Current Ratio 0.61 0.72 0.78 1.94
Debt Equity Ratio 15.30 13.75 12.75 14.85
Net Profit Margin (%) 15.30 10.57 9.74 12.17

ITEMS ITEMS 2009 -10 2010 -11 2011 -12 2012 -13
Reported EPS 34.58 37.37 33.76 36.10
Market High 1349 1455.5 980 1279
Market Low 791 283.1 252.3 712
Market High/EPS 39.010 38.948 29.0284 35.429
Market Low/EPS 22.874 7.575 7.4733 19.722
Avg. P/E 30.942 23.261 18.250 27.575

3. HDFC Bank

ITEMS 2009 -10 2010 -11 2011 -12 2012 -13

 Current Ratio 0.26 0.26 0.27 0.28
Debt Equity Ratio 10.62 8.76 9.75 7.78
Net Profit Margin (%) 13.57 12.82 11.35 14.76

ITEMS ITEMS 2009 -10 2010 -11 2011 -12 2012 -13
Reported EPS 35.74 44.87 52.77 64.42
Market High 359.96 365 367.8 507.98
Market Low 176.71 158.31 154.8 309.8
Market High/EPS 10.071 8.134 6.969 7.885
Market Low/EPS 4.944 3.528 2.933 4.809
Avg. P/E 7.5075 5.8313 4.951 6.347

ICICI Bank The intrinsic value of ICICI Bank is higher than the current market price. So the investors
may buy the share. He can buy the scrip as early as possible because there is possibility of rise in
market prices towards intrinsic value as the time passes. ·

HDFC Bank The intrinsic value of HDFC Bank is higher than the current market price. So in order to
gain the advantage over the future increase in market prices, the investors may choose for a buy option.
If investors have already bought the scrip, they are advised to hold on. The investors are recommended
to hold the shares.

Chapter: No-3

LITERATURE REVIEW
Ajay Shah (1995) studied the basic time-series properties of the number and value of Indian IPOs per month,
variation in issue and listed price, factors leading to delay in listing, and modelling the cross-sectional variation
of issue and listed price. 2056 IPOs traded and listed during 1991 – 1995 were chosen by the researcher in
which 1819 (88.5%) provided positive returns from issue date to listing date and aggregate variation between
issue price and listed price was 105.6%. Time series analysis showed a remarkable rise in the number of IPOs
per month from 20 a month before the abolition of Controller of Capital Issues in May 1992 to the region of 80
a month from the later part of 1993 onwards due to the commencement of free pricing of securities.

Arwah Arjun Madan (2003) assessed the long run performance of IPOs in the Indian primary market during the
pre and post liberalization eon. A sample of 1597 companies having made IPOs during 1989 to 1995 at Bombay
Stock Exchange, now BSE Ltd. were studied. Considering the net return, 79.4% of the total 1597 IPOs recorded
a positive return on the listing day and 20.6% of IPOs registered negative returns.

Ajay Pandey (2005) studied initial returns (difference between issue price and listing price) and long run
performance of IPOs. The researcher considered 84 IPOs from the period 1992-2002, coming out with fixed
price and book building trajectory from the Indian capital market. The study revealed that the IPOs offered
through fixed price method raised only a small amount of capital. On the contrary, IPOs offered through book
building approach mobilized. It was further observed that IPOs offered through both fixed price and book
building approach under performed in the first two years subsequent to listing.

Kumar (2007) analyzed the short-run and long-run performance of IPOs issued through book building method.
For the analysis, offer to close return, open to close return, buy and hold market adjusted return and monthly
market adjusted returns were computed for 156 IPOs listed from 1999 to 2007. It was found that in the short-
run, IPO listing didn’t provide economically significant trading opportunities for day traders and in the long-run,
IPOs beat the market after two years of listing.

Shikha Sehgal & Balinder Singh (2007) investigated the initial and long-run performance of 438 IPOs listed on
the BSE from 1992 to 2006. To observe the long-run performance of Indian IPOs, Buy-and-Hold Abnormal
Returns (BHAR) and Cumulative Abnormal Returns (CARs) were computed for 120 months. Buy-and-hold
returns were found to be negative between 18 and 40 months of holding. After 40 months, the
underperformance of IPOs has vanished, i.e. in India, underperformance persists for nearly one-and-a-half years
to a little above three years

Priyanka Singh & Brajesh Kumar (2008) investigated on the short as well as long-run performance of the Initial
Public Offerings in the Indian Capital Market. The study proposed an approach taking oversubscription
variables along with age and issue size to explain the performance of IPOs in India. Since various sectors have
varied level of private and public information, the researchers performed industry wise analysis. The period for
the study was 22 months (Jan, 2006- Oct, 2007) considering 116 IPOs. It was observed that both short and long
run return of IPOs are positive for this period. In the short run, only 18% of IPOs lisited price was more than
offer price and in

the long run, it was only 11.5%. Oversubscription variables, namely, total oversubscription, institutional
investors and retail investors oversubscription, were found to be the main determinants for listing and offer price
performance of Indian IPOs. Infrastructure, financial and entertainment sectors with positive long run return fell
under this category for the period of study. On the contrary, IT sector gave higher initial return but negative
return in the long run.

Seshadev Sahoo and Prabina Rajiv (2010) attempted to specify the relationship between post-issue promoter
groups’ retention and IPO performance on listing. The researchers investigated the impact of financial
variables., offer size, times subscribed, age of the firm, book value, leverage, market volatility, ex-ante
uncertainty and the post issue promoter group holding on listing performance of an IPO. 92 IPOs from
manufacturing and non-manufacturing sectors were used as sample and found that in 46.55% of IPOs, listing
price was more than the offer price during 2002 - 2006. The study documented a positive relationship between
post-issue promoter group holding and IPO performance on listing. The results further indicated that offer size,
times subscribed and post-issue promoter group holding were statistically significant in influencing the
performance of listing.

Bandgar & Atul Rawal (2012) studied the impact of pricing of Banks IPOs in long and short run. The
researchers also evaluated the effect of size and issue nature (par, premium or at discount) of IPOs on its
pricing. A sample of 10 banks were selected randomly which issued their equities through initial public offering
(IPO) during the period 2000 – 2010.It was found that the average return in short run was at - 8% and long run
was at - 53%. Further findings from the study revealed that big issue size IPOs got listed with a higher listing
price and the small issue size IPOs got listed with a lower listing price. IPOs with lower issue price gave more
returns on the listing day than the IPOs with higher issue price. Private sector banks IPO’s gave higher return
than the public sector banks IPOs during the study period.

Ganesamoorthy & Shankar (2012) attempted to study the price behavior of IPOs and its persistent effect after
listing . For this purpose, a standard event study methodology by taking market adjusted return model was used.
As per the methodology, Annual average abnormal return (AAR) and cumulative average abnormal return
(CAAR) were calculated along with the t-statistics for testing significance.
The study covered a ten years period from 2001 to 2010. 219 initial public offerings made by Indian companies
during the period were selected as sample for the study. The overall result indicated that the issue price was
more than listed price for the Indian IPOs during 2001 to 2010. Even though the AAR on the first trading day
was more than one per cent, in the subsequent days the price was adjusted by the market. CAAR at the end of
the event window (75th day) stood at -10.7 per cent. The negative CAAR of 68 days out of 75 days were found
to be significant, which strongly indicate the underperformance of Indian IPOs during the period.

Baluja Garima (2013) observed the efficiency of IPO grading mechanism by using a sample of 50 graded IPOs
listed with BSE from 2007 to 2010. The researcher identified that the IPO grading is not an effective mechanism
in reducing information asymmetry. The One-Way ANOVA result exhibits no significant difference in listing
price performance of the different graded IPOs. Hence, listing price performance of different graded IPOs varies
due to chance or due to some other factors such as subscription level, Issue size, age of the firm etc. but it was
irrespective of level of grades obtained by IPOs

Chapter: No-4
 RESEARCH METHODOLOGY

I will prefer interview and filling of questionnaire to ensure and encourage frank responses to the questions.
While framing a questionnaire I will try to list a series of questions, which can provide me the needed
information. For study purpose I also keep in mind the respondent’s understanding capacity, ability to
recall the information and his experience limits. I will not include those questions, which can have
misconceptions and promote non-co-operation. SOURCE OF DATA Source of data is classified in to two
categories: 1. Primary data 2. Secondary data

PRIMARY DATA Primary data do not exist in records and publication. The researcher has to gather
primary data a fresh for the specific study under taken by him. Market researchers are interested in primary
data about demographic/ socio economic characteristics, attitude / opinions / interests, motivation and
behavior. Three basic means of primary data: 1. Observation 2. Survey 3. Experiment

SECONDARY DATA The data referred to those, which gathered for some other purpose and are
already available in the firm initial records and commercial, trade or government publications are
secondary data. Sources of secondary data:

Data of the study was collected from secondary sources. Data was collected from the websites, Company
websites, newspapers and periodicals were also referred which includes,
1. Observations of financial status of the company
2. Study of intrinsic value and extrinsic factors of a company
3. Interaction with stock broker in the stock market
4. Internet

METHODS OF DATA COLLECTION: -

According to the Indian Banking industry, it estimates there is a total of 274 commercial banks operating in
India out of which 223 banks are in the public sectors and 51 banks are in the private sector.
These total 274 banks have been taken as the population for the study.
On the basis of the relative performance of the banks in the market, 10 banks have been chosen from the
population and 5 ranked according to their market capitalization. Thus, convenient sampling is used for carrying
out the study.

Chapter: No.5
 Data Collection, Analysis & Interpretation

Which Back you Preferer to hold and account?

ICICI Bank- 60
HDFC Bank- 40

CUSTOMER PREFRENCE

ICICI Bank HDFC Bank

The Data Collected It’s Shows That 60% People Prefer ICICI Bank to Hold An Account 40% In
HDFC Bank.
Which firm is better to work in?

ICICI Bank- 49
HDFC Bank- 51

51% 49% ICICI Bank

HDFC Bank

The Data Collected It’s Shows That 49% People Prefer ICICI Bank TO Work With 51% People In
HDFC Bank.

In Which companies stock you would like to invest?

ICICI Bank- 69
HDFC Bank- 31

ICICI Bank HDFC Bank

The Data Collected 69% People Prefer ICICI Bank As Best Investment 31% People In HDFC Bank.
Which sector bank you will prefer to use?

Private -46

Public-64

Private Public
- 64

The Data Collected Shows That 64% People Prefer Public Sector Bank 46% People Prefer Private
Sector Banks.
 CONCLUSION &SUGGESTION

The study is meant to do the analysis of the share price movements of selected banking companies in India.
The market is fluctuating very quickly. Real worth of the shares is unstable. The value of the shares of a
company is either undervalued or overvalued. To arrive at the intrinsic value, share prices and their intrinsic
values were computed. The share values of the companies that are under study were observed. Through this
study, we could find that these banking companies have grown well and if we invest in such companies it will
be fruitful. Real worth of the shares may not be always reflecting in the market price.

The selected banking companies and the real worth of their shares have to be evaluated and the intrinsic value
of the shares computed. In this way, the appropriate investment decisions could be made with the help of
intrinsic value of shares. The study has thrown lighter on the strength of banking sector performance and as a
tool for generating and distributing the wealth of nation. It can be concluded that fundamental analysis is
always the proper method of arriving the results of the company or industry over its financial performance. If
the company is fundamentally strong, that will help the investor to get a return in the long run. Hence, before
making an investment decision the investor has to check the results of the fundamental analysis of the
companies.

The study is meant to do the analysis of the share price movements of selected banking companies in India. The
market is fluctuating very quickly. Real worth of the shares is unstable. The value of the shares of a company is
either undervalued or overvalued. To arrive at the intrinsic value, share prices and their intrinsic values were
computed. The share values of the companies that are under study were observed.

Through this study, we could find that these banking companies have grown well and if we invest in such
companies it will be fruitful. Real worth of the shares may not be always reflecting in the market price.
The selected banking companies and the real worth of their shares have to be evaluated and the intrinsic value of
the shares computed. In this way, the appropriate investment decisions could be made with the help of intrinsic
value of shares. The study has thrown lighter on the strength of banking sector performance and as a tool for
generating and distributing the wealth of nation.

It can be concluded that fundamental analysis is always the proper method of arriving the results of the
company or industry over its financial performance. If the company is fundamentally strong, that will help the
investor to get a return in the long run. Hence, before making an investment decision the investor has to check
the results of the fundamental analysis of the companies. References Pandey, L.M. (1981). Financial
Management. Vikas Publications House pvt. Ltd., New Delhi. Kulkarni, R. (1986). Financial Management.
Himalaya Publishing House, Mumbai.
 BIBLIOGRAPHY

1. Sathye, Milind. (2003). Efficiency of Banks in a Developing Economy: The Case of India. European
Journal of Operational Research, 148 (3), 662-671. 2. Das, Abhiman & S. Ghosh. (2006).
2. Financial Deregulation and Efficiency: An Empirical Analysis of Indian Banks during the Post Reform
Period. Review of Financial Economics, Vol. 15 (3), 193-221. 3. Mariappan, V. (2005-2006). Changing
the Way of Banking in India. Vinimaya, Vol.26 (2): 26-34. 4. Uppal R.K. (2011).
3. Global Crisis: Problems and Prospects for Indian Banking Industry Journal of Economics and
Behavioral Studies Vol.2 (4), 171-176.
4. Walia, Karan (2012).
5. A Study on Fundamental Analysis of Banking sector. Asian Journal of research in Banking & Finance,
Vol.2 (4).
6. . Malik, Seema (2014) Technological Innovations in Indian Banking Sector: Changed face of Banking.
International Journal of Advance Research in Computer Science and Management Studies, Volume 2 (
7. . Samreen, Sana, (2014). An Analysis of Indian Banking Industry with Special Reference to ICICI Bank.
International Journal of Recent Research in Social Sciences and Humanities, Vol.1 (1), 29-39.

Pandey, L.M. (1981). Financial Management. Vikas Publications House pvt. Ltd., New Delhi. Kulkarni, R.
(1986).
Financial Management. Himalaya Publishing House, Mumbai.

BOOK 1. Priyanka Singh & Rajkumar Singh “Accounting for Managers”, Thakur Publisher.

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