August 27

State Bank of India: Analysis

The document is the financial statement analysis of State Bank of India. It looks through CAMEL framework, du-pont analysis and other ratios.

Saurabh Gupta Arup Sarkar Arjun Kapur Karthik TNVM Mohan

1|Page

Contents
1. 2. Introduction .......................................................................................................................................... 3 Balance Sheet and P&L Statements ...................................................................................................... 7 2.1. 2.2. 3. Balance Sheet ................................................................................................................................ 7 Profit and Loss Statement ............................................................................................................. 8

CAMEL ................................................................................................................................................... 9 3.1. 3.2. 3.3. 3.4. 3.5. Capital Adequacy .......................................................................................................................... 9 Asset Quality ............................................................................................................................... 11 Management ............................................................................................................................... 11 Earnings ....................................................................................................................................... 14 Liquidity....................................................................................................................................... 17

4.

Other key ratios .................................................................................................................................. 19 4.1. 4.2. 4.3. 4.4. 4.5. CASA Ratio................................................................................................................................... 19 Deposits and Advances ............................................................................................................... 20 Term Deposits ............................................................................................................................. 22 Cost of funds ............................................................................................................................... 23 Some more important ratios ...................................................................................................... 24

5.

Du Pont Analysis ................................................................................................................................. 29

1. Introduction State Bank of India (SBI or "the group") is the leading commercial bank in India, offering services such as retail banking, commercial banking, international banking and treasury operations. The bank is an integral part of State Bank Group, which includes seven other banks and offers additional services such as mutual funds and insurance. The bank primarily operates in India. It is headquartered in Mumbai, India and employed about 222,933 people, as on March 31, 2012. The group recorded revenues of Rs. 1,770,328.2 million ($36,929 million) during the financial year ended March 2012 (FY2012), an increase of 19.7% over FY2011. The operating profit of the group was Rs. 246,128 million ($5,134.2 million) in FY2012, an increase of 23.6% over FY2011. The net profit was Rs. 159,733 million ($3,332 million) in FY2012, an increase of 42.9% over FY2011.

Part 1 - Inter-relationships between Balance sheet and Income statement items

Balance Sheet Assets
Cash and balances with RBI Balance with Banks, Money at Call Investments Advances Fixed Assets Other assets Interest earned other income Interest expense Operating expense Net profit

Income Statement

Liabilities
Capital Reserves & Surplus Deposits Borrowings

The lines of connection in the figure, starting from the top and working down to the bottom:

Interest is earned from Advances/Loans Interest is expended on Deposits, Borrowings Depreciation expense and maintenance charges are recorded in operating expenses for the use of fixed assets. Earning Net Profit increases Capital and Reserves &Surplus

In crores 1,200,000.00
1,000,000.00 800,000.00 600,000.00 400,000.00 200,000.00 0.00 Deposits Borrowings Interest expenses

1,400,000.00

2011 933,932.81 119,568.96 48,867.96

2012 1,043,647.36 127,005.57 63,230.37

2013 1,202,739.57 169,182.71 75,325.80

400,000.00 350,000.00 300,000.00 250,000.00 200,000.00 150,000.00 100,000.00 50,000.00 0.00 Investments Cash & Balances with Banks & at Call market Other income

2011 295,600.57 28,478.65 14,935.09

2012 312,197.61 43,087.23 14,351.45

2013 350,927.27 48,989.75 16,034.84

PART 2: Different Functional Areas reflecting in Balance Sheet and Income Statement

RETAIL BANKING: CORPORATE BANKING: TREASURY: BUSINESS BANKING:

Balance Sheet Income Statement Deposits, Cross-selling, Cash, Interest earned and paid Loans Loans/Credit, Capital Interest earned and paid Investment, Borrowings Other income and expenses Cash, Funds borrowed Interest earned and paid

The following are the primary segments of the bank: - Treasury - Corporate / Wholesale Banking - Retail Banking - Other Banking Business The secondary segments of the bank include: Domestic Operations - Branches/Offices having operations in India Foreign Operations - Branches/Offices having operations outside India and offshore banking units having operations in India

2. Balance Sheet and P&L Statements

2.1. Balance Sheet As we can see from the graph that majority of contribution comes from deposits which expected from the balance sheet of the bank. But the contribution of borrowings in the liabilities has increased from 5.5% to 10.8% from Mar 09 to Mar 13 i.e. borrowing increased by 33.21% from 2012 Mainly attributable to increased borrowings from RBI in India and borrowings & refinance outside India, while deposits increased by 15.24%.

%age Liabilities
90 88 86 84 82 80 78 76 74 72 70 9.509827197 9.7788359 5.569462185 78.14543919 76.33432213 76.31814847 9.770811716 Borrowings Deposits 76.79049273 10.80169306

Percentage

76.94405292

Mar '09

Mar '10

Mar '11

Mar '12

Mar '13

Total asset of the bank increased by 17.28% for 2012-13, with increase in loan portfolio by 20.52% and investments increased by 12.41% major portion of the investment was in the domestic market in government securities. As we can see from the graph that the %age contribution of investment and advances is almost similar to that of last year.

Assets
80 70 60 50 40 30 20 10 0 Advances Investments Fixed Assets Percentage

5.065948242 56.25105295 28.61310462 1.078672124

3.312371832 59.98727053 27.1298977 1.123170275

2.327188654 61.83681172 24.15557945 1.077787843

3.226253034 64.96191624 23.37649662 1.107608903

3.127815144 66.75876647 22.40541398 0.447244733

2.2. Profit and Loss Statement Continuing the trend the contribution of operating income is substantial and increasing. But the operating profit of SBI bank suffered marginal decline of 1.56% the major reason for this was increase in operating expense was 12.33% which is attributable to higher staff cost and other expenses.

Total Income
Interest Earned Other Income

16.59

17.41

15.50

11.87

11.82

83.41

82.59

84.50

88.13

88.18

Mar '09

Mar '10

Mar '11

Mar '12

Mar '13

Other Operating Expenses registered an increase of 19.89% mainly due to increase in expenses on rent, taxes and lighting, advertisement & publicity, law charges, postage, telegrams & telephones, insurance and miscellaneous expenditure. Also as we can see from the graph that the contribution of interest expended increased, this can be correlated to increased deposit amount and hence the interest paid also increase. Provision and contingencies included provision for taxes, standard assets, depreciation while provision for NPA decreased as compared to 2011-12.

Total Expenses
Interest expended 5.27% 29.01% Operating Expenses 8.99% 32.63% Provisions & Contingencies 6.94% 31.08%

8.26% 23.70%

12.51% 21.58%

56.11%

55.05%

50.73%

52.31%

55.51%

Mar '09

Mar '10

Mar '11

Mar '12

Mar '13

As we can see from the graph that the net profit has increased registering growth of 20.48%. There was decrease in net profit in 2010-2011, but after there is increase in profitability of the bank.

Net Profit for the Year

Net Profit for the Year 14104.98 11686.01 9121.23 9166.05 7370.35

PART 3: Capital Adequacy, Asset Quality, Management, Earning, Liquidity

3. CAMEL The CAMELS ratings or Camels rating is a supervisory rating system originally developed in the U.S. to classify a bank's overall condition. 3.1. Capital Adequacy SBI Bank has CAR above the stipulated norms i.e. 9%. CRAR is calculated as

CRAR= Capital/Risk Weighted Assets, where Capital includes tier 1 and tier 2 capital. Higher CAR ratio for SBI, the main reasons can be Robust internal generation and plough back of profits of 10,890 crores Capital infusion of 3004 crores by the Government Continuous and on-going efforts at optimizing capital 2009-10 2010-11 2011-12 2012-13 12% 10.69% 12.05% 11.22% 8.46 3.54 13.39% 6.93 3.76 11.98% 8.5 3.55 13.86% 8.23 2.99 12.92% 9.49 3.43

Capital Adequacy Ratio(Basel-1) Tier 1 Tier 2 Capital Adequacy Ratio(Basel-2)

Tier 1 9.45 7.77 9.79 Tier 2 3.94 4.21 4.07 As we can see that the in Basel II norms the, the capital from Tier2 is less and as per the management SBI do not promote this capital as this increases the risk.

CRAR
16% 14% 12% 10% 8% 6% 4% 2% 0% 2009-10 2010-11 2011-12 2012-13 Capital Adequacy Ratio(Basel-I) Capital Adequacy Ratio(Basel-II)

Higher CRAR depicts higher capacity of SBI to make loans. Increasing CAR also suggests that SBI has a high risk absorbing capacity and is in a better position to counter future losses.

3.2. Asset Quality Asset quality is measured through Net NPA ratio, where Non-performing asset (NPA) is defined as a credit facility in respect of which the interest and/or installment of principal has remained past due for a specified period of time (90 days): 2010-11 Net NPA Ratio Gross NPA Provision for NPA Net NPA ratio is calculated through Net NPA ratio= Net NPA/Net advances Net NPA ratio for SBI is increasing over a period of time and has increased to 2.1 in 2012-13. The major reason for this increase is due to loans given in mid-corporate sector like Paper and Plastics, Iron and Steel, Textiles, Engineering Goods, Transport etc which are in depression. 1.63 39,676 8,792 2011-12 1.82 53,458 11,546 2012-13 2.1 51,189 11,368

Net NPA Ratio

2.5 2 1.5 1 0.5 0 2010-11 2011-12 2012-13 Net NPA Ratio

More stringent loan screening process and more interaction with customers are the some of the steps taken by SBI for improved results and lower NPA in next 2013-14. 3.3. Management I. Profit Per Employee 2008-09 Profit Per Employee (` in 000) 474 2009-10 446 2010-11 385 2011-12 531 2012-13 645

Increased productivity of SBI employees can be seen, this is attributed to improvement in work culture, more engagement of technology in daily processes. Also human resource and recruitment policies also play part in increased productivity.

Profit Per Employee (` in 000)

Profit Per Employee (` in 000) 645 474 531 446 385

2008-09

2009-10

2010-11

2011-12

2012-13

In year 2010-11 with effect of decreased profitability per employee can be seen as there was negative growth in net profit for SBI. II. Business Per Employee Business per employee shows the efficiency of employees to generate business for the organization. It is calculated by:
Business per employee= total business/total no. of employees.

2010-11

2011-12

2012-13 944

Business Per Employee(in Lac) 704 798 As we can see from the following graph that the business per employee has always seen an increasing trend and also from 2011-12 and 2012-13 it has increased at higher rate. This ratio also shows the productivity of the employees.

Business Per Employee(in Lac)

Business Per Employee(in Lac) 798 944

704

2010-11

2011-12

2012-13

Unlike many other private players like axis bank where business per employee is at declining spree, SBI performs better than many private players

Management Ratios
9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 2010-11 2011-12 2012-13 Net Interest Income to working funds Non Interest Income to working funds Interest Income to working funds

III.

Net Interest Income to working funds It is defined as the net interest income i.e. (interest earned interest expended) to the average working funds. 2010-11 2011-12 2.38 2012-13 2.01

Net Interest Income to working funds

2.66

Net interest income to working funds are decreasing for SBI this is due to the fact that in 2012-13 the contribution of interest expended was high as compared to interest income which itself showed decreasing growth rate.

IV.

In 2012-13, although the interest earned increased, cost of funds also increased due to increase of interest rates on term deposits. Interest Income to working funds

It shows a banks ability to leverage its average total resources in enhancing its main stream of operational interest income. For SBI bank as we can see that interest income to working funds has declined from the previous year. 2010-11 2011-12 2012-13

Interest Income to working funds 6.6513 8.04 7.70 This decline is due to the rate of increase in interest income has been slower to that of previous year which is 12.33%. Also decrease in other management ratio like net interest income and non-interest income shows that SBI is not gaining from non-operating counterparts but they are not able to utilize working funds for interest income. V. Non Interest Income to working funds

This is other income of a bank. It includes items such as exchange commission, brokerage, gains on sale and revaluation of investments and fixed assets and profits from exchange transactions.
2010-11 Non Interest Income to working funds 1.22 2011-12 1.07 2012-13 1.04

Non-interest income was 16,034.84 crores in 2012-13 as against 14,351.45 crores in 2011-12 with increase of 11.73%. The major source of this income was dividends from Associate Banks/ subsidiaries and joint ventures in India and abroad. 3.4. Earnings I. Operating Profit Operating profit is calculated as gross profit operating expenses. 2011-12 Operating Profit 31,573.54 2012-13 31,081.72

II.

Net Profit Margin

Net profit margin is a measure of profitability. It is calculated by finding the net profit as a percentage of the revenue.
2010-11 2011-12 2012-13

Net Profit Margin

8.55

9.73

10.39

For SBI the net profit margin is increasing even, hence shows the increase in profitability of the bank. This can be attributed to increased involvement in foreign operations. Also the provision for NPAs has not increased higher CRAR and hence higher capability to make loans to earn operating income.

Net Profit Margin

12 10 8 6 4 2 0 Net Profit

2010-11 8.55

2011-12 9.73

2012-13 10.39

III.

Return on Assets

An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company's annual earnings by its total assetsReturn on Assets = Net Income/Total Assets 20102011201211 12 13 0.71 0.88 0.91

Return on Average Assets

SBI bank has increasing ROA, which shows efficiency of management in using its assets to generate income. SBI has reduced the number of fixed asset and have tried to optimize the use

of resources.

Return on Average Assets

1 0.8 0.6 0.4 0.2 0 Return on Average Assets 2010-11 0.71 2011-12 0.88 2012-13 0.91

IV.

Return on Equity

The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. Return on Equity = Net Income/Shareholder's Equity 20102011201211 12 13 12.84 14.36 15.94

Return on Equity

As we can see that ROE for SBI is increasing which shows increased profits generated with money of shareholders. This increase in ROE is because of the increased net profits of SBI Bank.

Return on Equity
20 15 10 5 0 Return on Equity 2010-11 12.84 2011-12 14.36 2012-13 15.94

3.5. Liquidity Liquidity is measured through 3 ratios i.e. cash to deposit ratio, advances to deposit ratio and investment to deposit ratio. For SBI only advances to deposit ratio has increased due to high CRAR, gives opportunity for SBI to lend more. For cash to deposit ration and investment to deposit ratio, are going down as amount of deposits has increased substantially. 2010-11 10.10731 81.02504 31.65116 2011-12 5.181438 83.12951 29.91409 2012-13 5.473372 86.93624 29.17733

Cash to Deposit Ratio Advances to Deposit Ratio Investment to Deposit Ratio

I. Cash to Deposit Ratio- It is the cash in hand and balances with RBI to the amount deposited. It is calculated byCash deposit ratio= (Cash in hand+ balances with RBI)/Total deposits This has decreased considerably in 2011-12 because cash balances was reduced from 94395 to 54075, and hence reducing cash to deposit ratio.

100 90 80 70 60 50 40 30 20 10 0 Cash to Deposit Ratio Advances to Deposit Ratio Investment to Deposit Ratio

2010-11 10.10731168 81.02504183 31.65116022

2011-12 5.181437914 83.12950554 29.91408995

2012-13 5.473371929 86.93623924 29.17732806

II.

Advances to Deposit Ratio- It is also known as loan to deposit ratio. It is calculated byAdvances to deposit ratio= (Total Loans)/Total deposits

This is the only ratio in liquidity which is increasing as high capital adequacy provides it to loan more. Loan from 2009 to 2013 has considerable gone up by 100%. This also shows aggressive strategy of giving loans by SBI. III. Investment to Deposit Ratio- It is the investment made by the Bank to the amount deposited. It is calculated byInvestment to deposit ratio= Investment /Total deposits It has decreased over the time because the amount or contribution towards investment has remained constant or increased marginally as compared to increase in the deposits.

PART 4: Other key Ratios

4. Other key ratios

4.1.CASA Ratio

CASA Ratio (%)

51 50 49

Percentage

48 47 46 45 44 2010-11 46.64 2011-12 49.82 2012-13 46.5

CASA Ratio (%)

SBI has been able to maintain CASA ratio at FY10 levels Despite an elevated interest rate environment, SBIN has been able to maintain its CASA ratio at levels similar to FY10. Its peers (ex-ICICIBC), on the other hand, have reported a decline of 3-6pp in CASA ratio in last two years. The outperformance was largely led by ~25% CAGR in savings accounts (SA) over FY08- 12 and moderating balance sheet growth over FY10-12. While SA deposit growth moderated to 11% in FY12, the trend was similar for most banks, given the elevated interest rate scenario.

The Bank continued to have good domestic CASA ratio at 46.50% which is better than all the major public sector banks and most private sector banks which helped in keeping the cost of funds low at 6.46% as at 31.03.2013.

Significant scope to improve SA deposits per branch SBINs extensive network of 14,709 branches has enabled it to consistently garner low cost CASA deposits and render stability to its deposit base. Nearly half its CASA deposits come from rural and semi-urban areas, where SBIN remains the most preferred bank. In these areas, SBIN has 65%+ CASA ratio. Despite the strong CAGR in SBINs SA deposits, its SA deposits per branch are just INR266m. Though SBIN beats its PSB peers on this parameter, it is behind its private peers INR327m for HDFCB, INR288m for ICICIBC and INR343m for AXSB. There is further scope for SBIN to improve.

4.2.Deposits and Advances

Deposits and Advances

1400000 1200000 1000000 800000 600000 400000 200000 0 Deposits Advances 2009-10 804116 631914 2010-11 933933 756719 2011-12 1043647 867579 2012-13 1202740 1045617

` Crores

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

Deposits Advances 804116 631914 933933 756719 1043647 867579 1202740 1045617

Deposits Growth Rate (YoY) 8.36 16.14 11.75 15.24

Advances Growth Rate (YoY) 16.48 19.75 14.65 20.52

Deposits The deposits of SBI have risen to ` 12,02,740 crores with the annual growth at 15.24% over that of last years level of ` 10,43,647 crores. What is noteworthy is that not only is this better than last years growth, which was 11.75% but SBI has achieved this against the trend prevailing in the industry. Furthermore, it has come on the back of retail deposits and the deposit profile of

SBI shows a significant move away from high cost bulk deposits. Out of the total Term Deposits of ` 6,04,649 crores, retail TDs comprise 78.27% at ` 4,73,235 crores. SBIs strength lies in its wide reach covering all strata of society and the trust of the people. Due to this the customer acquisition growth is also encouraging. Under Savings Bank, 287 lac new accounts came to the books of SBI representing 18.62% growth over last year and in Current Accounts SBI expects a growth of 8.43% with new accounts accretion at 2.20 lacs. Advances On the advances front, SBI has crossed the ` 10,00,000 crores level and now the advances stand at ` 10,78,557 crores. Like the deposits, the growth of 20.70% over last year is better than the growth recorded by All Scheduled Commercial Banks. The growth has come mainly from a surge in advances to large corporates at ` 50,549 crores, which represents an unprecedented growth of 40.28% during this FY compared to 15.23% (16,298 crores) achieved last FY. Mid corporate segment too has made a significant contribution of ` 31,472 crores giving an 18.15% growth, as against ` 12,173 crores (8.78% growth) last year. SME segment has, however, seen a lower offtake of ` 20,383 crores with growth at 12.45% against 17.41% last year reflecting market conditions. It may be noted that SBI has been mindful of asset quality and nearly 80% of the incremental exposure is to investment grade assets based on external ratings. It was a conscious strategy of SBI to provide competitive rates of interest to the better rated companies. The above performance enabled the Bank to record an improvement in its market share in deposits from 16.29% last year to 16.46% during the current year i.e 2012-13 and in advances from 16.09% to 16.66% in the corresponding period.

4.3.Term Deposits

Term Deposits (Rs. Crores)

700000 600000 500000 400000 300000 200000 100000 0 Term Deposits ( ` Crores) 2010-11 424076 2011-12 576040 2012-13 663676

Higher the term deposits, higher is the cost of funds for the bank since the interest rates on term deposits are generally higher than the interest rates on CASA deposits (taken together) Term Deposits Ratio = Term Deposits / Total Deposits Year 2010-11 2011-12 2012-13 Term Deposits ( ` Crores) 424076 576040 663676 Term Deposits (%) 53.36 55.19 55.18

60.00 50.00

Percentage

40.00 30.00 20.00 10.00 0.00

2010-11 53.36 46.64

2011-12 55.19 44.81

2012-13 55.18 44.82

Term Deposits (%) CASA Ratio (%)

As can be seen from the above graph, the CASA deposits have been increasing, which is a good sign as higher the CASA deposits, lower the cost of funds. During 2011-12, a steady growth of low-cost CASA deposits, which on a daily average basis increased to ` 576040 crores from ` 424076 crores last year, helped in containing the cost of funds. During 2012-13, a steady growth of low-cost CASA deposits, which on a daily average basis increased to ` 6,63,676 crores from ` 576040 crores, helped in containing the cost of funds, which had risen over the period due to the hardening of interest rates on term deposits. The reduction in term deposits is a good sign as the cost of funds goes down when the proportion of term deposits goes down. 4.4. Cost of funds This ratio determines the expenses incurred by a bank on the funds that it raises by way of deposits and borrowings. Cost of Funds = Total Interest Paid / (Total deposits + Borrowings) Year 2010-11 Cost of Funds 4.64%

2011-12 2012-13

5.40% 5.49%

Cost of Funds
5.6 5.4 5.2 5 4.8 4.6 4.4 4.2 2010-11 2011-12 2012-13 Cost of Funds

SBI is maintaining low cost of funds as compared to its peers in the business, helping it become highly efficient in business. Though Cost of funds for SBI has increased gradually over the years, but this due to increase in cost of deposits.

4.5. Some more important ratios Operating Profits to Total Assets (%) This ratio tells about how well the banks assets are being used to generate operating profits. This ratio is given by: Operating Profit to total asset = Operating Profits/Total Assets Year 2010-11 2011-12 2012-13 Operating Profits to Total Assets 2.07% 2.36% 1.98%

Operating Profits to Total Assets

2.4 2.3 2.2 2.1 2 1.9 1.8 1.7 2010-11 2011-12 2012-13 Operating Proits to Total Assets

In 2012-13 the Operating Profits of the company came down by 1.5% whereas the Total assets of the company increased by 17.2% thus, getting a decline in the ratio. We can give the reason for the decrease in the operating profits of the company to be the recessionary trends in the market.

Borrowings to Assets Ratio This ratio determines as to how well are the bank borrowings covered by the assets of the bank. It is calculated asBorrowing to Asset Ratio = Total Borrowings / Total Assets Year 2010-11 2011-12 2012-13 Borrowings to Assets Ratio 0.098 0.095 0.108

Borrowings to Asset Ratio

0.11 0.105 0.1 0.095 0.09 0.085 2010-11 2011-12 2012-13 Borrowings to Asset Ratio

The company has maintained a consistently low ratio of borrowings to the assets, implying that the bank is safe and it can cover its borrowings by its assets.

Provisioning Coverage Ratio This indicates the extent of funds that a bank has kept aside to cover loan losses. Greater the provisioning ratio, better it is for the bank. Provisioning Coverage Ratio = Provisioning / Gross non-performing Assets Year 2010-11 2011-12 2012-13 Provisioning Coverage Ratio 0.65 0.681 0.717

Provisioning Coverage Ratio

0.74 0.72 0.7 0.68 0.66 0.64 0.62 0.6 2010-11 2011-12 2012-13 Provisioning Coverage Ratio

The ratio is consistently increasing; signifying that the bank is making sufficient provisions for the NPAs and is able to meet the requirements with its increasing trend.

Cost to Income Ratio This ratio measures the income generated per rupee of cost incurred i.e. how expensive it is for the bank to produce a unit of output. The lower the C/I ratio, the better is the performance of the bank. Cost to Income Ratio = Operating Expenses / Total Income Year Cost to Income Ratio 2010-11 2011-12 2012-13 0.48 0.45 0.48

Cost to Income Ratio

0.485 0.48 0.475 0.47 0.465 0.46 0.455 0.45 0.445 0.44 0.435 2010-11 2011-12 2012-13 Cost to Income Ratio

The cost to income ratio of the bank is consistent depicting the fact that bank is maintaining its operating efficiency over the years and is consistent in its performance.

Earnings per Share (Rs.) The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability. EPS = (Net Income Dividends on Preferred Stock) / Average Outstanding Shares Year 2010-11 2011-12 EPS 130.16 160.78

2012-13

210.06

EPS
250

200

150 EPS 100

50

0 201-11 2011-12 2012-13

The continuous growth of EPS shows the robust growth of the company. Increase in EPS is substantial over the years, so customers can think of it as a good investing option.

PART 5: Du-pont analysis

5. Du Pont Analysis

Profit Margin (Profit/Net Sales)

Asset Turnover (Sales/Assets)

Return on Assets (ROA)

Equity Multiplier (Assets/Equity)

This method shows that return on equity depends on three parameters namely: Profit margin- This signifies the operating efficiency Asset turnover ratio- This signifies the asset utilization Equity multiplier- This signifies the financial leverage used by the company. Return on equity= Profit margin*Asset turnover ratio* Equity multiplier We have taken SBI, PNB and Bank of Baroda for comparison of these parameters: Net Profit margin 2011 2012 2013 8.55% 9.73% 10.39% 14.56% 12.09% 10.29% 17.18% 15.23% 11.54%

SBI PNB Bank of Baroda

20.00% 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00%

17.18% 14.56% 15.23% 12.09% 8.55% 9.73% 11.54% 10.39% 10.29% SBI PNB Bank of Baroda

2011

2012

2013

Asset turnover ratio 2011 0.09 0.09 0.08 2012 0.1 0.1 0.08 2013 0.09 0.09 0.07

SBI PNB Bank of Baroda

0.12 0.1 0.09 0.08 0.06 0.04 0.02 0 2011 2012 0.08 0.08 0.1

0.09 0.07

SBI PNB Bank of Baroda

2013

Equity Multiplier

SBI PNB Bank of Baroda

2011 15.37 16.62 15.55

2012 13.43 15.4 15.01

2013 13.16 12.98 15.82

18 16 14 12 10 8 6 4 2 0 2011 2012 2013 16.62 15.55 15.37 15.4 15.01 13.43 15.82 13.16 12.98 SBI PNB Bank of Baroda

Return on Equity 2011 2012 2013 12.84% 14.36% 15.94% 22.11% 18.50% 14.52% 20.20% 18.22% 14.01%

SBI PNB Bank of Baroda

25.00% 20.00% 15.00% 12.84% 10.00% 5.00% 0.00% 2011 2012 2013 22.11% 20.20% 18.50% 18.22% 14.36% 15.94% 14.52% 14.01% SBI PNB Bank of Baroda

 The DuPont analysis on SBI highlights the companys ROE figures over the last 3 years in comparison to its competitiors PNB and Bank of Baroda. The ROE of SBI has been increasing over the years due to consistent increase in net profit margin and increased financial leverage. Except SBI all remaining two banks has shown bad performance in net profit margin in last 3 years. The performance of SBI in terms of profit margins has increased in the last three years but its profit margins are lower than PNB and Bank of Baroda.

Part 6 Comparison Between SBI, Punjab national Bank and ICICI Bank
Ratio Capital Adequacy Ratio Net NPA to Net Advance Ratio Interest income to working fund ratio SBI 12.92% PnB 12.57% ICICI Bank 18.74%

2.1%

2.2%

0.77%

8.90%

8.96%

8.17%

Profit per employee Business per employee Return on Assets Net Interest Margin Cash to Deposit Earnings per share

Rs. 6.40 lacs Rs.9.44 crores

Rs. 7.50 Lac Rs. 66, 19 Lac

Rs. 14 lacs Rs.7.35 crores 1.66% 3.11% 6.51% Rs. 72.20

.91% 2.01% 5.46% Rs. 206.2

1.90% 3.18% 4.72% Rs. 134.31

Dividend per share

Rs. 41.5

Rs. 23.51

Rs. 20

Above table shows comparison between SBI, PnB and ICICI, on the basis on ratios which majorly include CAMEL ratios and their performance is compared. Capital adequacy ratio of ICICI bank is highest which way above the required norms i.e. 9% is. This shows ICICI bank has highest capability to raise loans followed by SBI Bank. ICICI bank has lowest Net NPA ratio, hence lower amount of nonperforming asset to advances. Interest income to working fund ratio is highest for PnB and nominally less of SBI bank. Hence showing better use of working funds. Profit per employee is maximum for ICICI bank, hence contribution by each employee towards the profit of bank is maximum for ICICI and is minimum for SBI. This is due to higher other operating expense and operating expenses. Though for SBI in last 2 years it has increased and is showing increasing productivity. Business per employee of SBI is maximum, employees are able to generate more business. Return on assets is maximum for Punjab national bank, hence showing they are utilizing their assets better than that of other two companies. Net interest margin for Punjab national bank is maximum which shows higher operating income on the total assets. Cash to deposit ratio of ICICI bank is maximum, showing they have higher cash available with the bank. Highest earning per share is for SBI followed b y Punjab national bank. It shows both public sector banks have higher EPS than privately owned bank. Similarly dividend per share is maximum for State Bank of India followed by Punjab national bank.

PART 7: Profitability of various Lines of Business

SEGMENT PROFITABILITY: Segment Profit/ Total Profit

80

%age 70 Segment 60 Profitability 50

40 30 20 10 0 Treasury Wholesale Banking Retail Banking 2011-2012 1 27.82 71.18 2012-2013 20.51 31.39 48.1

Retail banking forms the major contributor of profits for SBI. Treasury has seen a tremendous growth in profits from the previous year and a comparable decline is observed in the retail banking segment.

Segment Assets/Total Assets

45.00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Treasury Wholesale Banking Retail Banking

2011-2012 25.29% 34.83% 39.88%

2012-2013 24.06% 37.52% 38.42%

PART 8- Questions in Annexure

Would the bank have been significantly impacted by the downslide in the equity markets in 2012-13? The effect of downside can be seen in two different ways, one in the point of view of the bank and other from the point of view of the investor. Banks view: As the equity market is on a down side there is a lot of uncertainties involved and the returns from the equity market is very low. In these situations investments will be made in risk free and fixed income securities. Investors view: Investing in equities is very risky and since the markets are on a down side the returns will be very less. In these situations investors prefer to invest in deposits in the banks.

What will be the impact on cost of funds of SBI, if market rates move upward tomorrow? With increase in the interest rates the cost of deposits will increase and hence more interest will be expended, which will in turn decrease the net interest margin. Cost of funds includes cost of deposits and cost of operations. With increase in cost of deposits cost of funds will also increase. Key Drivers of Non-Interest Income and Non-Interest 1. Key drivers of non interest income: Many ways for the banks to earn other than interest are by Banks investment portfolio Dividends from subsidiary/ associate banks Dividends from Joint ventures in India and abroad. Commission or brokerage and exchange Profit earned on sale of investments Profit earned on sale of fixed assets Profit earned on exchange or derivative transactions Income earned by way of dividends etc. from subsidiaries/companies and/or joint venture abroad/in India Miscellaneous income like recovering advances or investments written off in earlier years and net loss on account of portfolio sell downs/securitization.

2. Key drivers of non-interest expense: Payments to and provisions for employees

Other non operating expenses- Rent, taxes, lighting, Printing and stationery Advertisement and publicity Depreciation on banks property Directors fees, allowance and expenses Auditors fees and expenses Law charges Postage, telegrams, telephones etc. Insurance Other expenditure

Key Measures of Risks in SBI Risk management system SBI has developed a risk management system which covers wide areas like Credit risk management: The Bank has strong credit appraisal and risk assessment practices in place. The Bank uses various internal Credit Risk Assessment Models for assessing credit risk under different exposure segments. Internal ratings of the bank are subject to comprehensive rating validation framework. Market risk management: Market Risk is the possibility of loss a Bank may suffer on account of changes in values of its trading portfolio due to change in market variables such as exchange rates, interest rates, equity price, etc. The Market Risk management process at the Bank consists of identification, and measurement of risks, control measures, monitoring and reporting systems. Operation risk management: Operational Risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Group risk management: Group Risk Management aims to put in place standardised risk management processes in Group entities Basel implementation: RBI Guidelines on Basel III Capital Regulations have been implemented from April 1, 2013. Bank has put in place appropriate mechanism to comply with these guidelines. Enterprise risk management: For assessment of Pillar I risks and Pillar 2 risks such as Liquidity Risk, Interest Rate Risk, Credit Concentration Risk, as well as adequacy of Capital and overall Risk Management practices under normal and stressed conditions,

the Bank has comprehensive Internal Capital Adequacy Assessment Process (ICAAP) in place. Information security: Bank has implemented a robust IT policy and Information System Security policy which are in line with the international best practices. These policies are reviewed periodically and suitably strengthened in order to address emerging threats

Capital Adequacy Ratio If a bank is having higher CAR then it is considered good because this shows the capacity of the bank to absorb a loan even if it goes bad. SBI has lately moved to stringent loan screening process. Leverage Ratios Implications They imply the trade-o of a regulator between the banking stability and the credit banking activity. Lower leverage can improve the banking stability. But high leverage is thought to be more risky because they have more liabilities and less equity and less ability to meet its financial obligations. Liquidity Ratios If a bank has high liquidity ratio it tells that bank is in a very good position to satisfy cash demand or payment or meet any financial emergency. In this case the effect of credit multiplier is less.

Total number of branches: SBI is Indias largest bank and it has the most widest network. SBI has got branches overseas as well. Private sector banks are growing in India. ICICI is Indias largest private sector bank. PNB is the second largest public sector bank and it is on a very fast growth phase.We are showing a comparison of the number of branches of these three banks in the past three years. Bank/year SBI ICICI PNB 2012-13 14816 3100 5874 2011-12 14097 2752 5670 2010-11 13542 2529 5189

Number of branches
20000 10000 0 2012-13 2011-12 2010-11 SBI ICICI PNB

The above graph gives a clear picture of how SBI is faring over other banks in terms of the total number of branches. This clearly shows that SBI is way ahead of its closest competitors in both public and private sectors.

The number of foreign branches has increased over the 5 last years, showing the expansion spree of State Bank of India.

Number of ATMs
25000 20000 15000 10000 5000 0 SBI ICICI HDFC 2012-13 22175 10481 10743 2011-12 22141 9006 8913

SBI has largest number of ATMs amongst other two players, but the rate of increase of new ATM is less than that of other banks.
SBI ICICI HDFC 2012-13 22175 10481 10743 2011-12 22141 9006 8913