GLOBSYN BUSINESS SCHOOL

PRESENTED BY: Learning Group 5 & 6 (PGPM-11B)

Members of Learning Group 5

Members of Learning Group 6 - Vasundhara Kedia - Sourabh Soni - Sudeshna Chowdhary - Mandeep Pradhan - Sauryadipta Basu - Niloy Biswas

-Alisha Ali
-Ankita Ghosh -Ashutosh Dutt Pandey -Sayantan Roy -Sougata Ghosh Choudhury

ACKNOWLEDGMENT

The time spent in the making of this project, as a part of our curriculum requirement of PGPM course, is invaluable in terms of learning. The application of concepts to the project added more depth and meaning to the knowledge gained in the classroom. We take this opportunity to express our profound gratitude and deep regards to Professor Dr. J.N.Mukhopadhay, Professor Dr. Prithviraj S. Banerjee and Professor Avik Mukherjee for their exemplary guidance, monitoring and constant encouragement throughout this project. We would also like to thank them for reminding us of the core objectives of the project every time we diverted from it.

TABLE OF CONTENTS PAGE NO.

1. EXECUTIVE SUMMARY.. 4-5

2. INDIAN ECONOMY. 6 -8

3. INDIAN BANKING INDUSTRY... 9 -12

4. COMPANY- ICICI BANK. 13-19

5. LATEST QUATERLY RESULTS.... 20-23

6. ICICI VS HDFC : PERFORMANCE ANALYSIS.. 24 -28

7. FINANCIAL ANALYSIS OF ICICI & HDFC 29 - 40

8. COBRAPOST: MONEY LAUNDERING 41 -42

EXECUTIVE SUMMARY

PARTICULARS

ICICI

HDFC

RELIANCE
1.68 6% 0.29 11.42% 56.91 18,616 cr 3,29,932 cr

Current ratio 0.13 0.08 Net profit margin 16.14 15.93 Debt to equity 7.2 8.24 Return on net 10.7 7.26 worth EPS 56.10 22.02 PAT 2645cr 1705 cr Total income 67,035.96 cr 32,523 cr *AS PER Q3FY13 (CONSOLIDATED)

The Banking sector in India has always been one of the most preferred avenues of employment. In the current decade, this has emerged as a resurgent sector in the Indian economy. As per the McKinsey report India Banking 2010, the banking sector index has grown at a compounded annual rate of over 51 per cent since the year 2001, as compared to a 27 per cent growth in the market index during the same period. It is projected that the sector has the potential to account for over 7.7 per cent of GDP with over Rs.7, 500 billion in market cap, and to provide over 1.5 million jobs. For our project we have taken 2 banks and compared some of their important ratios for the last 3 years. In the following table, we can see the ratios of the banks for the last financial year and also the ratios of reliance to know the difference among them. From the above table we can the difference in the ratios of banks and reliance. The total income of both ICICI and HDFC combined is about 30% of the total income of reliance. The PAT for HDFC and AXIS is one-third to the PAT of reliance. The EPS of reliance is almost at par with ICICI. HDFC is keeping parts of profits for their future expansion. The return on equity is also not high for reliance. When we see at the debt to equity ratio, we see that reliance has the least debt as compared to ICICI and HDFC which means that reliance is issuing new shares and increasing its market cap and not issuing debt to raise further capital. The current ratio for reliance is also more than 1 which means that the current asset is more than the current liabilities which means it has enough capital to fund its shot term liabilities but it may also mean that the company is not able to collect payments from the customers or is not able to manage its stock properly.

In this project our area of focus is to detect the current position of ICICI Bank in terms of three major perspective- Economy, Industry & Company. In this project we will analyze the different types of ratio of ICICI Bank & will try to see the current position of ICICI in our economy. We will try to analyze ICICI Banks current position with respect to the Banking sector as a whole & ICICI Banks current standing with respect to its peers.

THE INDIAN ECONOMY India's Economy Expected to Grow At Over 6 Percent

With recent global developments contributing to a significant rebalancing of portfolios as a result of rapidly changing risk perceptions and appetites, the Indian macroeconomic environment has looked turbulent during the past year. After a promising start to the decade in 2010-11, with achievements like maintaining GDP growth rate around 8 percent, bringing down fiscal deficit to 4.8 percent of GDP as well as containing current account deficit to 2.6%, the fiscal year 2011-12 has been challenging for the Indian Economy. The year started on a note of optimism through impressive growth in exports and high levels of foreign exchange inflows, only to moderate as the year progressed through continued monetary tightening in response to the untamed inflationary pressures. Gradually, high levels of inflation gave way to a slow-down in the growth. Additionally, as fiscal conditions worsened over the year, export numbers were revised in light of data discrepancies leading to a widening of trade deficit. In light of a perceivably weak macroeconomic environment, a well-planned economic revival policy from the Governments part is required to get back the Indian Economy on the path to stable and prosperous growth.

Global winds Performance of major advanced economies has been a point of concern as the economic outlook of the Euro Area continues to be grim in the shadow of a protracted sovereign debt crisis. Japan is still trying to cope up with the economic impact of natural calamities which is having an impact on its export partners. Despite some modest signs of improvement in the US, the European debt problem has unquestionably remained as a dominant global factor and a source of volatility in asset and currency markets all over the world. By contrast, emerging market economies have generally shown reasonable robustness mainly on account of their domestic drivers and increasing linkages with each other. Nevertheless a slowdown in advanced economies is a point of concern as it impacts the investment and exchange rate channel of the domestic economy. India is still growing at a rapid pace in comparison to other countries; however that should not deter from the opportunity to push through further reforms, create infrastructure and generate economic opportunities.

The Domestic growth story While the rest of the world has been grappling with the after effects of the European debt crisis, the Indian economy in 2011-12 has also seen moderation in growth. Quarterly growth rates have consistently fallen in 2011-12 and for the first time since the global crisis of 2008, GDP growth rates in India has declined below 7 percent to reach 6.1 percent in the third quarter of 2011-12. Earlier expectations in the range of 8 percent to 8.5 percent have been reduced gradually and now the Economy is expected to grow at less than 7 percent. GDP grew at a modest 7.3 percent during the first half of the financial year but turbulent global conditions coupled with a weak industrial sector has resulted in a slowdown in GDP growth in the second half of the year. With the exception of Services, GDP growth and its two main components - Agriculture and Industry have recorded lower growth in 2011-12 as compared to the last year.

While India's recent slowdown is partly rooted in external causes, domestic causes are also important. The slowdown in the rate of growth of services in 2011-12 at 8.2 percent, and particularly in 2012-13 to 6.6 percent from the double-digit growth of the previous six years, contributed significantly to slowdown in the overall growth of the economy, while some slowdown could also be attributed to the lower growth in agriculture and industrial activities. But despite the slowdown, the services sector has shown more resilience to worsening external conditions than agriculture and industry. For improved agricultural growth, the survey underlines the need for stable and consistent policies where markets play an appropriate role, private investment in
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infrastructure is stepped up, food price, food stock management and food distribution improves, and a predictable trade policy is adopted for agriculture. FDI in retail allowed by the government can pave the way for investment in new technology and marketing of agricultural produce in India. Fast agricultural growth remains vital for jobs, incomes and food security. With net exports declining, India's balance of payments has come under pressure. Moreover, in the current fiscal, foreign exchange reserves have fluctuated between US$ 286 billion and US$ 295.6 billion, while the rupee remained volatile in the range of Rs 53.02 to Rs 54.78 per US dollar during October 2012 to January 2013. On financial sector reform, it takes note of the high level of gross NPAs (nonperforming assets) of the banking sector which increased from 2.36 percent of the total credit advanced in March 2011 to 3.57 percent of total credit advanced in September 2012. We that revival of growth will help contain NPAs, but more attention will have to be paid to whether projects are adequately capitalized up front given the risks. To sum up, with increasing financial as well as trade integration of the Indian economy with the global economy, the potential for achieving sustained growth is high. However there remains a need for efficient ground level implementation of policy decisions and the need of a long term outlook to resolve economic challenges. Indias competitive edge in services may only remain for a short period in the future and newer engines of growth need to be discovered. An effective manufacturing policy which is integrated into the rural framework can go a long way in bridging the rural urban divide and unite the economy to grow inclusively as one.

THE INDIAN BANKING INDUSTRY The present Rs 64 trillion (US$ 1.17 trillion) Indian banking industry is governed by the Banking Regulation Act of India, (1949) and is closely monitored by the Reserve Bank of India (RBI). RBI manages the country's money supply and foreign exchange and also serves as a bank for the Government of India and for the country's commercial banks. As of now, public sector banks account for 70 per cent of the Indian banking assets. The Indian Banking industry, which is governed by the Banking Regulation Act of India, 1949 can be broadly classified into two major categories, non-scheduled banks and scheduled banks. Scheduled banks comprise commercial banks and the co-operative banks. In terms of ownership, commercial banks can be further grouped into nationalized banks, the State Bank of India and its group banks, regional rural banks and private sector banks (the old/ new domestic and foreign). These banks have over 67,000 branches spread across the country. The first phase of financial reforms resulted in the nationalization of 14 major banks in 1969 and resulted in 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 sectors. The manufacturing sector also grew during the 1970s in protected environs and the banking sector was a critical source. The next wave of reforms saw the nationalization of 6 more commercial banks in 1980. Since then the number of scheduled commercial banks increased four-fold and the number of bank branches increased eightfold. After the second phase of financial sector reforms and liberalization of the sector in the early nineties, the Public Sector Banks (PSB) s found it extremely difficult to compete with the new private sector banks and the foreign banks. The new private sector banks first made their appearance after the guidelines permitting them were issued in January 1993. Eight new private sector banks are presently in operation. These banks due to their late start have access to state-of the-art technology, which in turn helps them to save on manpower costs and provide better services.

Current Scenario The industry is currently in a transition phase. On the one hand, the PSBs, which are the mainstay of the Indian Banking system are in the process of shedding their flab in terms of excessive manpower, excessive non Performing Assets (Npas) and excessive governmental equity, while on the other hand the private sector banks are consolidating themselves through mergers and acquisitions.

Private sector Banks have pioneered internet banking, phone banking, anywhere banking, mobile banking, debit cards, Automatic Teller Machines (ATMs) and combined various other services and integrated them into the mainstream banking arena, while the PSBs are still grappling with disgruntled employees in the aftermath of successful VRS schemes. Also, following Indias commitment to the W To agreement in respect of the services sector, foreign banks, including both new and the existing ones, have been permitted to open up to 12 branches a year with effect from 1998-99 as against the earlier stipulation of 8 branches. Meanwhile the economic and corporate sector slowdown has led to an increasing number of banks focusing on the retail segment. Many of them are also entering the new vistas of Insurance. Banks with their phenomenal reach and a regular interface with the retail investor are the best placed to enter into the insurance sector. Banks in India have been allowed to provide fee-based insurance services without risk participation, invest in an insurance company for providing infrastructure and services support and set up of a separate joint-venture insurance company with risk participation.

CHALLENGES FACED BY BANKS Major challenges faced by banks Increased competition from domestic and international markets; Transaction costs of carrying non-performing assets and substandard assets in its books; Frequent changes in key policy rates and reserve requirements by the RBI; Maintaining sufficient liquidity.

The major challenges faced by banks today are as to how to cope with competitive forces and strengthen their balance sheet. Today, banks are groaning with burden of NPAs. It is rightly felt that these contaminated debts, if not recovered, will eat into the very vitals of the banks. Another major anxiety before the banking industry is the high transaction cost of carrying Non Performing Assets in their books. The Indian banks are subject to tremendous pressures to perform as otherwise their very survival would be at stake. Information technology (IT) plays an important role in the banking sector as it would not only ensure smooth passage of interrelated transactions
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over the electric medium but will also facilitate complex financial product innovation and product development. The application of IT and e-banking is becoming the order of the day with the banking system heading towards virtual banking.

FUTURE OUTLOOK Everyone today is convinced that the technology is going to hold the key to future of banking. The achievements in the banking today would not have make possible without IT revolution. Therefore, the key point is while changing to the current environment the banks has to understand properly the trigger for change and accordingly find out the suitable departure point for the change. Although, the adoption of technology in banks continues at a rapid pace, the concentration is perceptibly more in the metros and urban areas. The benefit of Information Technology is yet to percolate sufficiently to the common man living in his rural hamlet. More and more programs and software in regional languages could be introduced to attract more and more people from the rural segments also.

RECESSION IN THE INDIAN BANKING SECTOR Banks act as important players in the financial markets. They play a vital role in the economy of a country. The Recession that began in December 2007 impacted the revenues and profitability of businesses worldwide. We are in a globalised world and no more immune to the things happening outside our country. The banking sector faces profitability pressures due to higher funding costs, mark-tomarket requirements on investment portfolios, and asset quality pressures due to a slowing economy. But Indian banks global exposure is relatively small, with international assets at about 6 per cent of the total assets.

Banks Profit, Even in This Recession The banks are doing so well in this time of recession. The 5 reasons that big banks are able to beat the recession and rake in the profits are: 1. Underwriting increases provide investment banks with more income as businesses go to investment banks. Banks that do the underwriting collect fees, and if they actually make the loans, they also collect the interest.

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2. Trading revenue is also up as investors try to play the market, getting in when prices are low and trading to take profits on the rallies. Many of the big banks (like Goldman) do over the counter trades, so they get commissions as well.

3. Less competition is the result of failed banks and takeovers. This means a bigger piece of the pie for those banks that are left.

4. Toxic assets have been working their way through the system. Additionally, some banks (like Goldman) had limited exposure to toxic assets to begin with.

5. Retail banking has been providing a boost. People still need a place to keep their money. With a lower Fed funds rate, they can pay less in interest to their savings customers, while still charging between 5% and 10% interest (more for credit cards) on loans they make. That difference is resulting in profitability.

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COMPANY- ICICI BANK In todays banking scenario ICICI Bank has its own name and presence all over the India. The bank has a global presence with a network of 2907 Branches across India & 19 Branches across the globe. It is the second largest Bank in India in terms of its assets worth Rs.4736.47 Billion(93 billion US$) and Profit After Tax was Rs 65.64 Billion (1271 million US$)as per the year ended on 31 March 2012. ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. ICICI Bank was originally promoted in the year 1994 by ICICI Limited, an Indian Financial Institution and was its wholly owned subsidiary. In 1999 ICICI become the first Indian Company & the first bank of financial Institution from non Japan Asia to be listed on the NYSE. ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. After consideration of various corporate structuring alternatives in the context of the emerging competitive scenario in the Indian banking industry, and the move towards universal banking, the managements of ICICI and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic alternative for both entities, and would create the optimal legal structure for the ICICI group's universal banking strategy. The merger would enhance value for ICICI shareholders through the merged entity's access to low-cost deposits, greater opportunities for earning fee-based income and the ability to participate in the payments system and provide transactionbanking services. The merger would enhance value for ICICI Bank shareholders through a large capital base and scale of operations, seamless access to ICICI's strong corporate relationships built up over five decades, entry into new business segments, higher market share in various business segments, particularly fee-based services, and access to the vast talent pool of ICICI and its subsidiaries. In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI and two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by shareholders of ICICI and ICICI Bank in January 2002, by the High Court of Gujarat at Ahmadabad in March 2002, and by the High Court of Judicature at Mumbai and the Reserve Bank of India in April 2002. Consequent to the
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merger, the ICICI group's financing and banking operations, both wholesale and retail, have been integrated in a single entity. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and asset management. The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany. ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).

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INCOME STATEMENT AND COMMON SIZE FOR ICICI BANK

Mar '12 12 mths Income Interest Earned Other Income Total Income Expenditure Interest expended Employee Cost Selling and Admin Expenses Depreciation Miscellaneous Expenses Preoperative Exp Capitalised Operating Expenses Provisions & Contingencies Total Expenses 25,013.25 5,101.27 3,828.77 671.44 24,483.60 0 30,630.96 3,454.12 59,098.33 Mar '12 12 mths Net Profit for the Year Minority Interest Share Of P/L Of Associates Net P/L After Minority Interest & Share Of Associates Extraordionary Items Profit brought forward Total Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs) Appropriations Transfer to Statutory Reserves Transfer to Other Reserves Proposed Dividend/Transfer to Govt Balance c/f to Balance Sheet Total 2,358.07 187.79 2,227.76 6,876.65 11,650.27 68.86 0 531.56 7,937.63 294.7 0 7,642.94 -0.43 4,007.76 11,944.96 0 1,902.04 325.72 0.118408538 0.004396148 0 0.114012539 -6.41447E-06 0.059785226 0.178187349 0 0.028373428 0.004858885 0 0.00102721 0 0.007929475 0 0.035176195 0.002801332 0.033232313 0.10258151 0.17379135 1,827.29 67.94 1,876.75 4,007.76 7,779.74 54.86 0 480.15 37,994.86 29,041.10 67,035.96 0.566783261 0.433216739 1 0 0.373131824 0.076097515 0.057115166 0.010016117 0.36523084 0 0.456933264 0.051526375 0.881591462 19,342.57 4,392.60 4,786.65 739.68 26,467.90 0 33,357.99 3,028.84 55,729.40 Mar '11 12 mths 6,318.19 224.93 0 6,093.27 -2.17 1,688.64 8,004.66 0 1,612.58 264.17 0.101828145 0.003625121 0 0.098203185 -3.49732E-05 0.027215244 0.129008416 0 0.02598941 0.004257539 0 0.00088416 0 0.007738416 0 0.029449819 0.001094966 0.030246949 0.064591721 0.125383456 1,900.22 52.18 1,566.33 1,688.64 5,207.37 43.44 0 460.12 30,081.40 31,966.18 62,047.58 0.484811817 0.515188183 1 0 0.311737702 0.070794058 0.07714483 0.011921174 0.426574252 0 0.537619517 0.048814797 0.898172016 20,729.19 3,678.43 7,347.40 762.87 21,846.12 0 32,207.77 1,427.05 54,364.01 Mar '10 12 mths 4,843.41 173.12 0 4,670.29 -0.09 537.17 5,380.49 0 1,337.86 228.47 0.081804091 0.002923957 0 0.078880134 -1.52008E-06 0.009072679 0.09087525 0 0.022596151 0.003858806 0 0.000733692 0 0.007771322 0 0.032094283 0.000881308 0.026454957 0.028520745 0.087951293 30,153.71 29,053.72 59,207.43 0.50928929 0.49071071 1 0 0.350111295 0.062127844 0.124095912 0.0128847 0.368975988 0 0.543981896 0.024102549 0.91819574 % OF TOTAL INCOME 2012 Mar '11 12 mths %OF TOTAL INCOME 2011 Mar '10 12 mths %OF TOTAL INCOME 2010

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BALANCE SHEET & COMMON SIZE BALANCE SHEET OF ICICI BANK

Mar '12 12 mths Capital and Liabilities: Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Net Worth Deposits Borrowings Total Debt Other Liabilities & Provisions Total Liabilities 1,152.77 1,152.77 2.39 0 59,250.09 0 60,405.25 2,55,499.96 1,40,164.91 3,95,664.87 17,576.98 4,73,647.10 Mar '12 12 mths Assets Cash & Balances with RBI Balance with Banks, Money at Call Advances Investments Gross Block Accumulated Depreciation Net Block Capital Work In Progress Other Assets Total Assets Contingent Liabilities Bills for collection Book Value (Rs) 20,461.29 15,768.02 2,53,727.66 1,59,560.04 9,424.39 4,809.70 4,614.69 0 19,515.39 4,73,647.09 8,58,566.64 64,457.72 524.01

% total asset 2012

Mar '11 12 mths

%total asset 2011

Mar '10 12 mths

%total assets 2010

0.002433816 0.002433816 5.04595E-06 0 0.125093326 0 0.127532189 0.539431077 0.295926889 0.835357967 0.037109866 1.000000021

1,151.82 1,151.82 0.29 0 53,938.82 0 55,090.93 2,25,602.11 1,09,554.28 3,35,156.39 15,986.35 4,06,233.67 Mar '11 12 mths

0.002835363 0.002835363 7.13875E-07 0 0.132777817 0 0.135613894 0.555350594 0.269682914 0.825033508 0.039352597 1

1,114.89 1,114.89 0 0 50,503.48 0 51,618.37 2,02,016.60 94,263.57 2,96,280.17 15,501.18 3,63,399.72 Mar '10 12 mths

0.003067944 0.003067944 0 0 0.138975015 0 0.142042959 0.555907433 0.25939363 0.815301063 0.042656005 1.000000028

0.043199442 0.033290651 0.535689262 0.336875373 0.019897494 0.010154607 0.009742887 0 0.041202386 1

20,906.97 13,183.11 2,16,365.90 1,34,685.96 9,107.47 4,363.21 4,744.26 0 16,347.47 4,06,233.67 8,83,774.77 47,864.06 478.31

0.05146538 0.032452037 0.532614394 0.331547998 0.022419289 0.010740641 0.011678648 0 0.040241544 1

27,514.29 11,359.40 1,81,205.60 1,20,892.80 7,114.12 3,901.43 3,212.69 0 19,214.93 3,63,399.71 6,94,948.84 38,597.36 463.01

0.075713572 0.031258693 0.498639914 0.332671702 0.01957657 0.010735919 0.008840651 0 0.052875469 1

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Analysis As per the income statement we can clearly make out that the business of ICICI BANK in FY 2012 has gone up by almost 38% as compared to last year. The total income has also increased in the year 2011 as compared to 2010. Even though the other incomes have increased as compared to last year but the percentage of other income to total income has gone down by 0.51 to 0.43 or 0.08%. The total income of the company has also increased by almost 23 % which signifies that the company is doing well and is in the growth stage. With the rise in the income the expenses of the company have also gone up by around 18.5%. But with the rise in income, the companies ratio of net profit to total income has gone down which says the company is may be not utilising its resources adequately. From the balance sheet of the company we can see that the companies capital has gone up as compared to last year which means that company has raised more funds from the market. Amount of reserves and surplus has also gone as compared to last year but the percentage to total assets is somewhat the same. There has been a drastic fall in the employee stock option plan. Other liabilities, deposits and borrowings have also increased but the proportion on the same with total assets has remained more or less same as compared to last year. Financial Summary Y/e 31 Mar (Rs m) Total operating income Yoy growth (%) Operating profit (pre-prov) Net profit Yoy growth (%) FY12 182,369 16.4 103,864 64,652 25.5 FY13E 220,268 20.8 129,595 80,504 24.5 FY14E 250,340 13.7 145,613 89,139 10.7 FY15E 294,591 17.7 173,631 106,627 19.6

EPS (Rs) Adj.BVPS (Rs) P/E (x) P/Adj.BV (x)

56.1 507.9 21.0 2.3

69.8 553.3 16.9 2.1

77.3 604.1 15.3 2.0

92.4 664.1 12.8 1.8

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ROE (%) ROA (%) Dividend yield (%) CAR (%)

11.2 1.47 1.4 18.5

12.7 1.59 1.5 17.6

12.9 1.51 1.7 16.1

14.0 1.52 2.1 14.4

Source: Company, India Infoline Research

ICICI Bank recently released its Q3FY13 results. The results were slightly above expectations overall with retail book reporting some improvement in growth as compared to Q2 and asset quality remained stable. NIM improved on a q-o-q as well as y-o-y basis even as cost to income declined on q-o-q as well as y-o-y basis and return ratios improved during the quarter. On a consolidated basis, the group reported 21.6% y-o-y growth in net profit to Rs 2644.6 cr on 13.4% y-o-y growth in total income to Rs 18715.4 cr during Q3FY13. The net profit grew 21.9% to Rs 7111.6 cr on 14% growth in total income to Rs 53964.5 cr during the nine month period ended December 2012.

On a standalone basis, net interest income grew 29% y-o-y to Rs 3499 cr during Q3FY13. Non interest income grew 17.1% y-o-y to Rs 2214.6 cr. PAT grew 30.2% y-oy to Rs 2250.24 cr as the bank made provision of only Rs 368.7 cr, up 8.1% y-o-y. Loan book grew 16.5% y-o-y to Rs 286,766 cr. Of this, Retail book, which constituted 33.7%, grew 17.2% to Rs 96,528 cr. NIMs have improved to 3.1% as CASA ratio increased from 40.7% in Q2 to 40.9% and cost to income ratio declined from 40.9% to 39.5% q-oq. During the nine month period ended December 2012, Net interest income grew 31.9% to Rs 10063.2 cr while the PAT grew 32% to Rs 6021.4 cr. NIMs rose to 3.03% from 2.63%.

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Latest Quarterly Results of Banking Sector The overall banking result for Q3FY13 was broadly on expected lines. The highlights of the overall banking results are: - Flattish growth in Net interest income - Decline in bond yields supported growth in non interest income. However core fee income continued to disappoint with lower growth in loan book - Loan book witnessed moderate growth reflecting cautious approach adopted by most of the banks - Provisions continued to remain higher impacting bottom line performance - Additions to NPA continued to remain elevated though the pace has gradually subsided as compared to Q1 and Q2FY13. - Private Banks continued to impress with an all round show whereas PSU banks once again had to bear the brunt of stressed assets. - HDFC Bank, Yes Bank, Indusind Bank, ING Vysya and J&K Bank continued to demonstrate healthy performance across all parameters amongst the private sector banks. - Within PSU Banks space; Banks like PNB and Union Bank of India surprised positively with improvement in performance on the asset quality front.

In the last quarter we had witnessed a significant rally in the banking stocks driven by improved sentiments on the overall economic situation and initiatives taken from the government of India to revive the economy. Amidst the rally, the PSU banks were the forerunners and we saw an up move of nearly 25%-30% in the stocks prior to the results. However, the rally was not sustainable as there was no major improvement in the results. This quarter was no exception to the fact that the private banks once again outpaced the PSU banks in terms of performance on all fronts, be it asset quality, business growth, core performance or profitability. Going forward, after taking cues from various interactions with Management post results; declining interest rate cycle and improving macro economic conditions, Nirmal Bang believe that the asset quality woes for the banking sector on a whole seems to be peaking out. Although they do not expect an immediate recovery in the performance of the banks, Nirmal Bang believe that from Q1FY14E onwards the signs of improvement will be visible albeit on a gradual basis. Nirmal Bang have to accept the fact that
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slippages will continue to remain a part and parcel of the PSU banks but better recovery efforts are likely to help them in bringing down the NPAs from the current levels.

Latest Quaterly Results of ICICI BANK ICICI Bank recently released its Q3FY13 results. The results were slightly above expectations overall with retail book reporting some improvement in growth as compared to Q2 and asset quality remained stable. NIM improved on a QoQ as well as YoY basis even as cost to income declined on QoQ as well as YoY basis and return ratios improved during the quarter. On a consolidated basis, the group reported 21.6% YoY growth in net profit to Rs2644.6 cr on 13.4% YoY growth in total income to Rs18715.4 cr during Q3FY13. The net profit grew 21.9% to Rs7111.6 cr on 14% growth in total income to Rs53964.5 cr during the nine month period ended December 2012. On a standalone basis, net interest income grew 29% YoY to Rs3499 cr during Q3FY13. Non interest income grew 17.1% YoY to Rs2214.6 cr. PAT grew 30.2% YoY to Rs2250.24 cr as the bank made provision of only Rs368.7 cr, up 8.1% YoY. Loan book grew 16.5% YoY to Rs286,766 cr. Of this, Retail book, which constituted 33.7%, grew 17.2% to Rs96,528 cr. NIMs have improved to 3.1% as CASA ratio increased from 40.7% in Q2 to 40.9% and cost to income ratio declined from 40.9% to 39.5% QoQ. During the nine month period ended December 2012, Net interest income grew 31.9% to Rs10063.2 cr while the PAT grew 32% to Rs6021.4 cr. NIMs rose to 3.03% from 2.63%. ICICI Bank is one of Indias largest private sector banks and has a large international base. The bank has 2,895 branches as at the end of Q3FY13. The CAR of the bank under Basel II norms stood at 19.53% in Q3FY13 much higher than the RBI requirement. The banks substantial branch expansion in the past 24 months is expected to result in a more favorable deposit mix going forward. The bank expects the growth in advances for FY13 to be ~20% which at this time looks achievable. Over FY2010-12, the bank improved its market share of savings deposits by 14bp, capturing a substantial 5.6% incremental market share. The banks asset quality continues to show further improvement, with a stable to declining trend in additions to gross as well as net NPAs. The slippage ratio of the bank has remained comfortable so far. The strong results vindicate its low-risk strategy, as India's economy slows. The results also show that private banks are better placed for profit growth in the current environment than government-owned banks, which account for 70 percent of the market in India but whose lending decisions are not always driven by commercial
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considerations. Rising inflation and increase in the interest rates could be a cause for worry for the banking sector as a whole. This could impact credit growth on one hand and increase slippages on the other. However, the bank did well in order to reduce the delinquencies and improve its overall asset quality. Currently the bank has a good asset portfolio and is well capitalized. Further for the last four quarters the Bank has reported NIMs of 3%+ which is also healthy, looking at its past. For consolidated valuation, a large portion of valuation comes from valuation of insurance subsidiary. Hence the macro developments and regulatory changes in that sector need to be watched closely. This also leads to quarter-to-quarter volatility in consolidated earnings. Going forward, the management has guided towards 20% growth in domestic advances with a strong growth in both retail and corporate segments. NIMs are also expected to be steady ahead and remain at 3% for FY13 as per the managements guidance and the CASA as per management is expected to be in the range of 38 40% for FY13. The stock has seen a run-up over the past few months and partly reflect the improving fundamentals.

Latest Quarterly Result Review of HDFC Bank Maintained healthy performance on all fronts - Loan growth was robust at 23% YoY with deposit growth of 22% YoY. CASA ratio maintained at 46%. - NIMs were down by 10 bps QoQ to 4.1% due to decline in yield on advances higher than that of increase in cost of funds. - Asset quality witnessed a slight pressure with increase of 10 / 0 bps in Gross / Net NPA, in absolute terms up 14% / 28% QoQ. Provision coverage was healthy at 80%. Loan growth remains robust: HDFC bank has maintained its robust growth in advances at 23% YoY (4% QoQ) to Rs 2415 bn attributed to impressive growth in retail loan book. Ratio of retail:wholesale book remains stable at 53:47 as in Q3FY12. Further HDFC is likely to maintain ratio between retail and corporate book at current level of ~53:47. Deposits also grew at healthy pace of 22% YoY to Rs 2841 bn mainly due to comparatively higher growth in
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term deposits. CASA deposits increased by 13% YoY (3% QoQ) and CASA ratio were stable at 46%. Term deposits grew by 31% YoY(4% QoQ) to Rs 1540 bn. Further it has added 156 branches in Q3FY13 thereby taking the total network to 2776 branches and maintained its target of adding 250-300 branches each year. NIMs down marginally: NIMs (rep) were down marginally by 10 bps QoQ to 4.1% as against 4.2% Q2FY13 (4.1% in Q3FY12) mainly due to decline in yield on advances of 23 bps qoq to 11.4% which is more than decline in cost of funds of 19 bps QoQ. Net interest income grew by 22% YoY to Rs 38 bn with interest income increase of 21% YoY to Rs 87 bn and interest expense increase of 20% YoY to Rs 49 bn. Non interest income remains intact: Non interest income growth remains strong at 27% YoY (34% QoQ) to Rs 18 bn backed by healthy fee income growth of 22% to Rs 14 bn and gain of investments of Rs 1358 mn as against loss of Rs 818 mn in Q3FY12. Asset quality impacted: Asset quality of HDFC deteriorated a bit with Gross / Net NPA of 1% / 0.2% as against 0.9% / 0.2% in Q2FY13. In absolute terms, Gross and Net NPA were up 14% and 28% YoY to Rs 24.3 bn and Rs 4.9 bn respectively. Provision coverage remains healthy at 80% as against 82% in Q2FY13. Restructured loans ratio remains unchanged at 0.3% of gross advances. Valuation: HDFC bank has delivered a consistent performance in terms of overall business metrics. Robust loan growth of over 23%, healthy NIMs of 4.1% and high capitalization of 17% with improved return profile continues to remain the key positive for the banks. However asset quality has deteriorated marginally with increase of 14% / 28% QoQ in Gross / Net NPAs.

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ICICI Bank vs HDFC Bank performance & valuation gaps

HDFC Banks Market Capitalisation stands at close to Rs. 1.38 lakh crores, which is about 24% higher than ICICI Banks Market Cap of Rs. 1.11 lakh crores. HDFC Bank has commanded a substantial valuation premium over ICICI Bank for a very very long time, despite the fact that the latter is bigger than the former by atleast 50% in terms of Revenues and Profits. Even if we ignore ICICI Banks Insurance subsidiaries & look only at the Standalone numbers, the gap is still close to 30%. Since ICICI Bank does not declare its consolidated numbers on a quarterly basis, we have considered only the standalone numbers in my analysis. First have a look at HDFC Banks quarterly progress over the last 8 quarters in the following charts:

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HDFC Banks progress HDFC Banks consistant growth is clearly visible in the charts above. Its average Q -o-Q growth in Total Income & Net Profit is close to 7.5%, while the same for Y-o-Y comparison is close to 32%. HDFC Banks T-T-M Total Income figure is now very close to Rs.35,000 crores and its T-T-M Net Profit figure is Rs.5,500 crores, which translates into an EPS of Rs.23.3/-. At the current share price of Rs.587/-, HDFC Banks stock trades at about 25 times its EPS. As mentioned before HDFC Banks Market Cap is close to Rs. 1.38 lakh crores. HDFC Banks Interest Cost comprises about 47% of its Total Income, while its Net Profit margin stands at 15.73%.

Now lets have a look at ICICI Banks quarterly progress in the following charts:

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ICICI Banks quarterly progress ICICI Banks growth too has been rather consistant over the last 8 quarters. Its average Q-o-Q growth in Total Income is 5.5% and in Net Profit is 7.75%. On a Y-o-Y comparison, ICICI Banks Total Income has grown at an average rate of 18%, while its Net Profit has grown at about 29%. ICICI Banks T-T-M Standalone Total Income has now reached a level of Rs.43,200 crores, while its T-T-M Standalone Net Profit is now at Rs.6,950 crores, which translates into an EPS of Rs. 60.26/-. At the current share price of Rs.965/-, ICICI Banks stock trades at just about 16 times its EPS. This valuation is much cheaper than HDFC Banks valuation even though ICICI Banks Net Profit growth rate has been quite close to that of HDFC Banks growth rate in the last 2 years. Interest Cost comprises of little over 55% of ICICI Banks Total Income and its Net Profit margin is 16.08%. As per the logic ICICI Bank deserves to be valued much more than current levels. ICICI Banks consolidated Net Profit is atleast about 15% higher than its Standalone Net Profit.

HDFC Banks source mainly consists of low cost domestic deposits in the form of CASA (Current Account / Demand Deposit 0% Interest & Savings Account 4%-5% Interest) which accounts for 40% of portfolio as against 17% in ICICI. ICICI depends mainly on Term Deposit (41%) and Borrowings for fulfilling its requirement with overseas borrowing having a significant share of 13% (as against 2% in HDFC). Since, on Term deposit, ICICI Bank pays a higher rate of interest on term

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deposits to customers, the overseas borrowing gives them option to collect low cost funds (assuming there is no significant shift in currency exchange rate).

ICICI BANK Despite being the second largest bank in the country after SBI in terms of asset size, ICICI Bank lost its share of the banking sector's advances from 10.2% in FY07 to 8% in FY12. At the end of March 2012, the bank had assets of over Rs 4.8 trillion and a franchise of over 9,000 ATMs and 2,750 branches spread across the country. Retail assets constituted 34% of advances in FY12 as against 65% in FY07. The bank is focusing on loan origination in the large corporate, SME and agrie segments and on nonfund based products and services. Besides the bank itself being the market leader across retail loan portfolios, its subsidiaries ICICI Life Insurance, ICICI General Insurance and ICICI AMC are leaders in their respective businesses. HDFC BANK With 4.2% share of India's total non-food credit disbursements in FY12, HDFC Bank is the second largest private sector bank in the country (after ICICI Bank) in terms of asset size. The bank has tripled its share from 1.2% of total non-food credit in FY02 to 4.2% in FY12. Retail assets constituted 51.3% of advances in FY12. Its group companies, HDFC Standard Life (insurance), HDFC AMC (mutual funds) and HDFC Securities (equities) add scalability to the bank's offerings.

Stock Price Chart: ICICI BANK vs HDFC BANK

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Current Valuations ICICI BANK HDFC BANK ICICI BANK/ HDFC BANK

P/E (TTM) P/BV Dividend Yield .

x x %

14.7 1.9 1.6

23.0 4.8 0.7

64.2% 39.9% 231.0%

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FINANCIAL RATIOS
Financial Ratio Analysis is a study of relationship among various factors in a business It can be used as a preliminary screening tool for the assessment of a stock or future financial condition and hence result for a company Most importantly these ratios are used from the perspectives of credit rating agency(debt instruments) , equity research firm(equity growth) and shareholders or investors(financial health) and Managers

TYPES OF FINANCIAL RATIOS Liquidity Ratio Profitability Ratio Efficiency Ratio Capital Structure Ratio Cash Flow Ratio Activity Ratio

1. LIQUIDITY RATIOS A financial ratio indicating a companies ability to meet its short term financial obligations. Its a ratio between Liquid Assets (that can be converted to cash) to short term liabilities. Greater the coverage the more likely is that a business will able to pay its debt and vice-versa. Commonly used liquidity ratios are: Current Ratio Quick Ratio

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QUICK RATIO It measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately. It includes those current assets that presumably can be quickly converted to cash Quick Ratio = (Cash Equivalents + Short term investments + Accounts receivable )/

18 16 14 12 10 8 6 4 2 0 Mar'08 Mar'09 Mar'10 Mar'11 Mar'12 HDFC ICICI

current liabilities

A company with quick ratio < 1 cannot currently payback its current liabilities. Higher the quick ratio, more likely the company be able to pay its short term bills. Creditors are most concerned about the quick ratio and a lesser quick ratio leads to higher creditors concern The quick ratio for HDFC is 6.2 for Mar 12 which indicates the banks robustness and financial soundness in paying off short term obligation though the figure has dipped as compared to the last year. But ICICI bank has far better liquidity ratio implying ICICI bank highly robust and hence its ability to extinguish short term liabilities is better than HDFC.

2. EFFICIENCY RATIOS Analyzes how effectively the business is managing its assets to produce sales. If too much has been invested, the operating capital is high. If invested too low, it may affect sales hurting the profitability. There are various efficiency ratios: Inventory Turnover ratio
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Revenue per employee Receivables Turnover Assets Turnover

ASSET TURNOVER RATIO The amount of sales generated for every dollar's worth of assets. It indicates the effectiveness of the firms use of its total assets to create revenue Asset turnover = Sales/Assets
6 5 4 3 2 1 0 Mar'08 Mar'09 Mar'10 Mar'11 Mar'12 HDFC ICICI

Low asset turnover might mean that the company has too much capital tied up in its asset base. High turnover ratio may imply that the firm has too few assets for potential sales. Owners/Managers use these ratio to gauge the business performance There was a fall in assets turnover ratio of HDFC Bank to 0.12 from 4.65 in current period. This is due to the lesser rise in Net Revenue when compared to the rise in assets over the period We see that the ratio for ICICI bank too has fallen during the period and is lower than that of HDFC bank indicating lower efficiency. The management has to consider this seriously and take steps to improve the operating efficiency of the HDFC bank and ICICI Bank

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3. PROFITABILITY RATIOS

Margins Gross profit margin Operating profit margin Net profit margin

Returns Return on assets Return on equity

NET PROFIT MARGIN

ICICI BANK/ HDFC BANK = 105.8%

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RETURN ON NET WORTH Return on net worth=Net Income/Share holders equity

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15 10 5 0 2008 2009 2010 2011
15.74 13.83 13.7 15.47

17.27

RONW(%) HDFC ICICI

2012

EPS(Earning Per Share) The amount of earnings per each outstanding share of a company's stock Earning Per Share EPS=PAT/No. of outstanding shares

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It decides how much of a company's profit is allotted to the Companies outstanding stocks.It can be used as one of the comparison tools for picking up the stock for investment. The EPS has increased in 2012, this is due to increase in net profit Rs 113,413,323 for FY 2011-12 as compared to Rs 84,591,957 in FY2010-11 From investor point ICICI seems to better than HDFC as its EPS is considerably high. ICICI BANK/ HDFC BANK= 298.6%

ASSET TO EQUITY RATIO It shows the relationship of the total assets of the firm to the portion owned by shareholdersIt indicates a company's leverage, the amount of debt used to finance the firm Asset-to-Equity Ratio = Total Assets/Total Shareholders' Equity
14 12 10 8 HDFC 6 4 2 0 2007-08 2008-09 2009-10 2010-11 2011-12 ICICI

A relatively high asset/equity ratio may indicate the company has taken on substantial debt merely to remain in business. There is a high asset/equity ratio because the return on borrowed capital exceeds the cost of that capital incase of HDFC Bank. A low asset/equity ratio can indicate a strong firm that needs no debt, or an overly conservative company, foolishly foregoing business opportunities. As we see from the graph the Asset/Equity ratio has increased as compared to last year due to increase in total assets of the companies indicating high borrowing as compared
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to previous year. The ratio is more in case of HDFC than ICICI implying majority of the asset are financed through debt.

RETURN ON ASSETS ( ROA) : ICICI BANK/ HDFC BANK= 82.2%

RETURN ON EQUITY (ROE) : ICICI BANK/ HDFC BANK = 71.8%

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DEBT TO EQUITY RATIO: ICICI BANK/ HDFC BANK= 80.1% A financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets. The two components are often taken from the firm's balance sheet or statement of financial position (book value) Debt-to-Equity Ratio = Long Term Debt/Equity It indicates the what proportion of equity and debt HDFC is using to finance its assets. Increase in this ratio suggests greater reliance on debt as a source of financing and vice versa. Investing in a company with a higher debt/equity ratio may be riskier, especially in times of rising interest rates, due to the additional interest that has to be paid out for the debt If the ratio is greater than 1, the majority of assets are financed through debt and for less than assets are primarily financed through equity.
12 10 8 6 4 2 0 2008 2009 2010 2011 2012 HDFC ICICI

As we see the ratio for HDFC bank is higher than that of ICICI bank and as compared to last year it has been increased a little bit more indicating majority of assets are financed through debt.

INTEREST COVERAGE RATIO A risk ratio that help determining the firm's ability to repay its debt obligations Interest coverage ratio = Profit Before Interest and Taxes/ Interest Expenses
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1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 2011-12 2010-11 2009-10 2008-09 2007-08 HDFC ICICI

The lower the ratio, the more the company is burdened by debt expense and the firm will have difficulties in meeting its debt payments. When a company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses Here we see the ratio for HDFC bank is on the lower side indicating HDFC banks interest expenses are very high as compared to previous years. This is due to high borrowings the company has made in FY 2011-12 As compared to ICICI bank, HDFC is better placed indicating HDFC has less interest expenses as compared to ICICI bank.

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CASH FLOWS : CASH FLOW FROM OPERATIONS: ICICI BANK/ HDFC BANK= -184.0%

CASH FLOW FROM INVESTMENTS: ICICI BANK/ HDFC BANK= 3095.0%

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CASH FLOW FROM FINANCIAL ACTIVITY: ICICI BANK/ HDFC BANK= 52.1%

DIVIDEND PER SHARE: ICICI BANK/ HDFC BANK= 383.7%

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PROFIT AFTER TAX (PAT): ICICI BANK/ HDFC BANK= 145.7%

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COBRAPOST: ICICI, HDFC and Axis banks accused of money laundering Three top private banks - ICICI, HDFC and Axis banks - have been accused of running a nationwide money laundering racket by an investigative news website and production house, based on a sting operation that they said spanned some five months. Stating that it was a pan-India undercover investigation, Cobrapost on Thursday claimed to have caught on tape several officials of these banks indulging in "brazen criminal activity" by channelizing vast amounts of ill-gotten money into the regular banking system as laundered white money. "Our investigation, conducted across dozens of branches of these banks and their insurance affiliates revealed that the money laundering practices are part of a standard set of procedures within these banks," said Cobrapost. Editor of Cobrapost, Aniruddha Bahal, said: "These banks and their managements are violating several provisions and policies of the government with utter disregard to consequences to boost cheap deposits and increase profits." He said he had collected hundreds of hours of video recordings from "dozens and dozens" of bank branches across the country. He did not say when the recordings were compiled. An article on the website posted on Thursday said an associate editor, using an alias and pretending to work for a fictitious politician who wanted to launder money, sought advice from bank officials on how to do it. The article said branches across all the three banks suggested laundering methods that were "imaginative in their range and brazen in their approach." In one case, Bahal said, a video excerpt on his website showed an HDFC Bank official explaining to an undercover reporter for Cobrapost different methods to launder money. It said Cobrapost offered to hand over the videos to law enforcement officials or regulators. The article did not say if the recordings were eventually passed on to the authorities. Market regulator Securities and Exchange Board of India had no comment on the matter, according to a spokesman. The banks rake in vast amounts of black money in the form of illegal deposits, insurance and investment products, sold by them.

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"The interaction between officials of the banks and our reporter clearly brings out the connivance of senior management of these banks in facilitating money laundering and other illegal transactions," said Cobrapost. "The senior management has compromised all standards of governance and brazenly broken the law by offering money-laundering services practically as a nation-wide product," it added. 'Deeply Concerned' ICICI Bank said that it was "deeply concerned" about the accusations.

In a statement, it said: "ICICI Group conducts its business with the highest level of compliance to legal and regulatory requirements. All employees of the Group are trained and required to adhere strictly to the Group Code of Conduct... We have demonstrated our commitment to this by following a zero tolerance policy towards any violation." "We have constituted a high level inquiry committee to investigate into the matter and submit its findings in two weeks." HDFC Bank was investigating the matter on "top priority." "Any deviation is viewed very seriously and stringent action is taken both at an organizational and employee level," the bank said in a statement. Axis Bank also said it would investigate. "Axis Bank has systems and processes that are robust and fully compliant with extant regulations. We will examine whatever information that is brought to our notice and investigate thoroughly," the bank said in a statement. Axis Bank shares were up 0.5 percent at 3:15 p.m. after earlier dropping as much as 3.5 percent. ICICI Bank shares gained 2.2 percent after earlier falling over 2 percent, while HDFC Bank was up 2.3 percent, also recovering from earlier declines. The shares recovered after government data showed core inflation rose less than anticipated, reinforcing expectations that the central bank will deliver an interest rate cut next week to boost the economy.

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