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Indian Banking System 201
0
A
PROJECT REPORT
ON
COMPREHENSIVE STUDY
OF
“INDIAN BANKING SYSTEM”
SUBMITTED TO: MAHARISHI DAYANAND

UNIVERSITY, ROHTAK
IN THE FULFILMENT OF DEGREE OF “MBA”
(SESSION 2008-2010)
UNDER THE GUIDENCE OF:

MRS. BHAWANA SHARMA (COLLEGE FACULTY)
SUBMITTED TO:
SUBMITTED BY:
THE CANTROLLER OF EXAM BAJRANG

KAUSHIK
M.D.U., ROHTAK MBA

(FINAL)
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REG.NO. 04-
VB-746
D.A.V. INSTITUTE OF MANAGEMENT, FARIDABAD

(HARYANA)
ACKNOWLEDGEMENT

I would take this opportunity to thank Mrs. Bhawana Sharma , Faculty, D.A.V. Institute of
Management, Faridabad for being cooperative and helpful guide.

A note of thanks is due to all those, too many to single out by names, which have helped in no
small measure by cooperating during by providing their valuable time, inputs and assistance.
Their support, guidance and motivation were very valuable and encouraging.
Bajrang Kaushik

0
PREFACE
The introduction and application of the concept of customer services entered in a welcoming way
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in India only after independence. The banking system in India has come a long way during the
last two centuries. Its growth was faster and the coverage wider since 1969. In 1969a major
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position of banking sector was entrusted to the public sector. This process continued and
embraced few private banks in 1980.
The transfer of ownership of banks from the public to private was aimed at entrusting the banks
Download Now with greater responsibilities for the economic development of India by taking banking services to
the masses and taking special care of the weaker section of the society and the priority sector of 
the economy. Though the number of banks offices magnitude and the variety of their operations
has grown considerably during the period of near about three decades, but it appears that the
banking sector has entered into serious among customers.
For overcoming this problem, banking industry should seek introspection and adopt refined
management techniques. It has been endeavor of this study to analyze the present state of various
banks keeping in view the primary data has been collected regarding the present state of loan
schemes in various banks by using a questionnaire.

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DECLARATION
I undersigned Bajrang Kaushik The student of MBA 3rd Sem. hereby declare that the
project work in my own work and has been carried out under the guidance of Mrs. Bhawana
Sharma Faculty Member of DAV Institute of Management of Studies in Faridabad
(Haryana) . This Report has been submitted to M.D. University for Evaluation.
Date:
Place:

Bajrang Kaushik

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Table of contents
S. No. Indian
Particulars 201
Banking SystemPages
1. EXECUTIVE SUMMERY 07-08
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2. INTRODUCTION: 09-19
 REVIEW OF LITERATURE
 OBJECTIVES OF THE STUDY
 SIGNIFICANCE OF THE STUDY
 CONCEPTULIZATION
 FOCUS OF THE PROBLEM
 LIMITATION OF THE STUDY
3. RESEARCH METHODOLOGY: 20-24
 RESEARCH DESIGN
 SAMPLING: DESIGN AND PROCEDURE
4. INDIAN ECONOMY: 25-31

 MACRO FACTORS AFFECTING INDIAN BANKING
SECTOR
5. INDIAN BANKING INDUSTRY: 32-37
 NEED FOR BANKS
 INDIAN BANKING SECTOR EXPERIENCE

 INDIAN FINANCIAL SERVICES SECTOR SWOT
6. STRUCTURE OF THE INDIAN BANKING SECTOR 38-41

 CREDIT GROWTH
7. MICRO FACTORS AFFECTING INDIAN BANKING 42-48

INDUSTRY:
 LOAN DEMAND
 RISING FUNDING
 NON-PERFORMING LOANS
6
 TECHNOLOGY
8. VALUATION TOOLS: 49-57

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EXECUTIVE
SUMMARY
8

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EXECUTIVE SUMMARY
Download Now The Indian Economy is driven by strong fundamentals with GDP growth at 9.1% for H1 FY07 – 
strongest growth in any six months since H1 FY04 and uptrend in Industrial Cycle with Average
Index of Industrial Production growth at 10.2% being the strongest run in the past 11 years.
On political front, the Indian Government has signed nuclear deal with America indicating
India’s importance in the global context opening up many opportunities. Along with this,
Chinese President Hu is expected to visit India. This will improve trade and other ties between
two of the fastest growing economies.
In Capital Market, Strong foreign inflows with Portfolio flows of nearby USD 9.2bn took BSE
Sensex to 14,000 + (50% higher) compared to FY 05-06. The Indian corporate raised USD 6bn
by issuing Initial public offer in India and abroad. High Credit growth at 30%, it continued the
trend of last 5 years where it has averaged around 25% and lastly M&A activity which was at its
peak with sectors beyond IT and Pharma making global & domestic acquisitions.
 The high growth sectors are Power where power ministry and local private players
announce 9 ultra mega projects (4,000 MW each) provides visibility on power & infra
front.
 Retail - a Point of inflection with major Indian corporate announcing plans, entry of
world majors like Wal-Mart & foreign investment allowed in single brand retail and Real
Estate with major huge build-out plans and Special Economic Zone policy of government
is major driver of growth.
 Banking in which Banks are allowed to raise hybrid capital which opens new avenues for
funding credit growth.
As such, the report focus on change factors in Banking Industry as this industry is expected to
have major impact on Indian Economy.

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INTRODUCTI
ON
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INTRODUCTION
In India, given the relatively underdeveloped capital market and with little internal resources,
firms and economic entities depend, largely, on financial intermediaries to meet their fund
requirements. In terms of supply of credit, financial intermediaries can broadly be categorized as
institutional and non-institutional. The major institutional suppliers of credit in India are banks
and non-bank financial institutions (that is, development financial institutions or DFIs), other
financial institutions (FIs), and non-banking finance companies (NBFCs). The non-institutional
or unorganized sources of credit include indigenous bankers and money-lenders. Information
about the unorganized sector is limited and not readily available.

An important feature of the credit market is its term structure:
(a) Short-term credit
(b) Medium-term credit
(c) Long-term credit.
While banks and NBFCs predominantly cater for short-term needs, FIs provide mostly medium
and long-term funds.
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REVIEW OF LITERATURE

http://indiapost.com/article/techbiz/1038/
IA Bank ties up with SBI for money transfers
Sunday, 09.23.2007, 11:59pm (GMT-7)

NEW JERSEY: Indus American Bank has tied up with State Bank of India to offer money
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transfer services to India for its clients. Under the new money transfer service, which will
provide expanded services to Indus American Bank customers can expect service at over 14,000
branch locations of State Bank of India within India, and at over 14,000 additional RTGS
participating banks.
Funds remitted from Indus American Bank would reach recipients typically within 24 hours. As
the largest bank in India, State Bank of India offers excellent exchange rates which are now
available to Indus American Bank customers. India is one of the biggest destinations for foreign
remittances.
http://www.myiris.com/newsCentre/newsPopup.php?
fileR=20070925165003043&dir=2007/09/25&secID=livenews
ICICI Bank allots equity shares
ICICI Bank allotted 17,800 equity shares of face value of Rs 10 each on Sep. 18, 2007 under the
employees stock option sceme, 2000 (ESOS).ICICI Bank (ICICIBANK) was promoted in 1994
by ICICI, an Indian development financial institution. The two entities subsequently merged to
become the largest commercial bank in the private sector.
12
Indian Banki
Shares of the company gained Rs 7.75, or 1.38%, to settle at

shares traded was 173,655 at the BSE.(Tuesday)
HDFC Asset Management to launch debt fund on Sept 27
Tue Sep 25, 2007 12:50pm IST
MUMBAI (Reuters) - HDFC Asset Management Co Ltd said o

close-ended debt fund on Sept. 27.
The fund, HDFC FMP 18M September 2007, will be open for
invest at least 60 percent of the assets in debt and money mar
government securities, the fund house said.

HDFC to cut interest rates

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Economic Times, India - Sat 2007 12:14pm
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Mortgage lender Housing Development Finance Corp is likely to

OBJECTIVES OF THE STUDY
Download Now the Economic Times reported on Saturday. 
 Today’s banking sector play a dominant role regarding investment decision. It basically
tells about how these funds are effectively and efficiently utilized in order to maximize
profits. "The cost of wholesale funding has come down and we are t
 To study the growth and performance of banking company.

the company.
benefits to borrowers," HDFC Chairman Deepak Parekh was quo
To find out what are the policies that we have to be adopted to increase the goodwill of
 To provide suggestions for better functioning of business.

 To know about the various loan schemes of these two banking companies i.e. ICICI &
SBI. The report also quoted HDFC Managing Director Keki Mist
looking at a half percentage point cut and that the new rates woul
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SIGNIFICANCE OF THE STUDY
 To make a detailed study of various financial services provide by the different banks.
 To analyze customers view point regarding their banks.
 To study effective and most popular bank among the customers regarding its services.
 To find out the rate of interest of banks and reaction of customers on it.
 To make analysis on the economic benefits provided by various banks.
 Suggest the investors whether to invest in shares of Banking Companies.
15


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CONCEPTUALIZATION
The last decade has seen many positive developments in the Indian banking sector. The policy
makers, which comprise the Reserve Bank of India (RBI), Ministry of Finance and related
government and financial sector regulatory entities, have made several notable efforts to improve
regulation in the sector. The sector now compares favourably with banking sectors in the region
on metrics like growth, profitability and non-performing assets (NPAs). A few banks have
established an outstanding track record of innovation, growth and value creation. This is
reflected in their market valuation. However, improved regulations, innovation, growth and
value creation in the sector remain limited to a small part of it.
The cost of banking intermediation in India is higher and bank penetration is far lower than in
other markets. India’s banking industry must strengthen itself significantly if it has to support the
modern and vibrant economy which India aspires to be. While the onus for this change lies
mainly with bank managements, an enabling policy and regulatory framework will also be
critical to their success.
The failure to respond to changing market realities has stunted the development of the financial
sector in many developing countries. A weak banking structure has been unable to fuel continued
growth, which has harmed the long-term health of their economies. In this “white paper”, we
emphasize the need to act both decisively and quickly to build an enabling, rather than a limiting,
banking sector in India
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FOCUS OF THE PROBLEM
The research report concentrates on macro and micro factors affecting Banking Industry,
Evolution of Banking Industry and its current status. Various regulatory and reform processes
also affect banking industry. The report also throws a light on them.
The report finally ends with valuation of major players in banking Industry and the major
challenges faced by this industry.
1. Banking Challenges
It is expected that the Indian banking and finance system will be globally competitive. For this
the market players will have to be financially strong and operationally efficient. Capital would be
a key factor in building a successful institution. The banking and finance system will improve
competitiveness through a process of consolidation, either through mergers and acquisitions
through strategic alliances. Technology would be the key to the competitiveness of banking and
finance system. Indian players will keep pace with global leaders in the use of banking
technology.
In such a scenario, on-line accessibility will be available to the customers from any part of the
globe; ‘Anywhere’ and ‘Anytime’ banking will be realized truly and fully. In this context, the
research paper approached “Indian Banking System” as the shape of the banking sector will be
the result of a strong interplay between the decisions taken by policy makers and
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managements.
17
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2. Banking Evolution & Regulatory Framework

Financial Sector Reforms set in motion in 1991 have greatly changed the face of Indian Banking.
The banking industry has moved gradually from a regulated environment to a deregulated market
economy. The market developments kindled by liberalization and globalization have resulted in
changes in the intermediation role of banks. The pace of transformation has been more
significant in recent times with technology acting as a catalyst.
While the banking system has done fairly well in adjusting to the new market dynamics, greater
challenges lie ahead. Financial sector would be opened up for greater international competition
under WTO. Banks will have to gear up to meet stringent prudential capital adequacy norms
under Basel II. In addition to WTO and Basel II, the Free Trade Agreements (FTAs) such as with
Singapore, may have an impact on the shape of the banking industry. Banks will also have to
cope with challenges posed by technological innovations in banking. Banks need to prepare for
the changes. In this context the need for drawing up a Road Map to the future assumes relevance.
The last decade has seen many positive developments in the Indian Banking Sector. The policy
makers, which comprise the Reserve Bank of India (RBI), Ministry of Finance and related
government and financial sector regulatory entities, have made several notable efforts to improve
regulation in the sector.
The sector now compares favorably with banking sectors in the region on metrics like growth,
profitability and non-performing assets (NPAs). A few banks have established an outstanding
track record of innovation, growth and value creation. This is reflected in their market valuation.
However, improved regulations, innovation, growth and value creation in the sector remain
limited to a small part of it. The cost of banking intermediation in India is higher and bank
18

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penetration is far lower than in other markets. India’s banking industry must strengthen itself
significantly, if it has to support the modern and vibrant economy which India aspires to be,
while the onus for this change lies mainly with bank managements, and enabling policy and
regulatory framework will also be critical to their success.
3. Internal Hindrances to Banking Industry
The research focuses on emphasizing the need of decisively and quickly to build and enabling,
rather than a limiting, banking sector in India. The major challenges ahead for bank management
are as follows:
 First, cost management, a key to sustainability of bank profits as well as their long-term
viability.
 Second, recovery management, which is a key to the stability of the banking sector.
 Third, technological intensity of banking, an area where India happens to be a world leader in
information technology, but its usage by our banking system is somewhat muted. It is wise
for Indian banks to exploit this globally state-of-art expertise domestically available to their
for Indian banks to exploit this globally state of art expertise, domestically available, to their
fullest advantage.
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Fourth, risk management, Banks can, on their part, formulate ‘early warning indicators’
suited to their own requirements, business profile and risk appetite in order to better monitor
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and manage risks.
Fifth, governance because the quality of corporate governance in the banks becomes critical as
competition intensifies, banks strive to retain their client base, and regulators move out of
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
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LIMITATION OF THE STUDY

The scope of the study will be restricted to selected Banks.
 Many of the respondents did not think hard enough while choosing the specific point.
This could have led to a biased view and thus affected the analysis.
 There may be other events during the Clean and Window Period which may distort the
results.
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RESEARCH
METHODOLO
GY
RESEARCH METHODOLOGY
Problem Definition:

22
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To determine and analyze the hidden potential in Banking sector in India so as to suggest the
investors whether to invest in shares of Banking Companies.
Objective:
Discover insights into and develop an understanding of the various Macro and Micro Economic
Factors that have bearing on the functioning of the Banking sector.
Evaluate the performance of some of the banks based on the past data and forecast the future
prospects.
Valuation :
The project involves valuation of major Indian Banks including ICICI Bank, SBI and HDFC
Bank. The methodology followed is Target Pricing, which includes estimating growth rate by
regression on historical sales to forecast next year sales, earning and Profit and Loss account.
Then EPS is calculated which is multiplied to Historical P/E to forecast intrinsic value of share.
Result:
All shares are undervalued and expected to give positive risk adjusted returns to investors. Since
the intrinsic value is more than current market price for all the companies, the share can be
recommended to conservative investors.
RESEARCH DESIGN
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Exploratory Research Design because the problem required an in-depth study of all the related
variables.
Past information and forecasts:
Collected the past information in the form of details of the various accounting statements
(Income Statement, Balance Sheet etc.), including the sales for the past 10 years (1997-2006).
Forecasts are done in relation to the future performance in terms of sales for HDFC Bank, ICICI
Bank, and SBI. Other forecasts include the EPS calculation and comparison of forecasted Future
Target Price with the Current Market Price.
Once the information was collected, the next step was to search for resources and constraints
with respect to the area of research.
Resources and Constraints:
Resources:
Various Publications like

 AT Kearney Report, 2005
 FICCI Survey on status of Indian Banking Industry – Progress and Agenda Ahead
 Indian Banks Association, Various Years, Performance Highlights of Banks (Mumbai).
 Reserve Bank of India, 2005, “Annual Policy Statement for the year 2005-06” (Mumbai).
 Company Reports
Download Now 24



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Constraints:
 Lack of time availability with the people involved in any manner with the research
especially when decisions were to be made quickly.
 Difficulty in application of Statistical Tools.

Difficulty in making accurate forecasts because of presence of Economic impediments
like inflation, RBI policies etc.
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SAMPLING: DESIGN AND PROCEDURE:
Sampling Technique:
“Convenience Sampling” as a part of Non-Probability sampling by taking the three banks as

the major performers in the Indian Banking Sector and highlighters of sector’s overall
performance.
Sample Size:
Sample Size was restricted to 3, including ICICI Bank, HDFC Bank and State Bank of India.
Executing the Sampling Process:
Through making a comparison among the various key figures of sales, profits and accounting
ratios deduced from accounting statements.
M th d f D t C ll ti
Method of Data Collection:
Secondary Data is collected to carry out the study. To review the literature available regarding
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INDIAN
ECONOMY
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INDIAN ECONOMY-MACRO FACTORS

AFFECTING INDIAN BANKING
Major Changes in FY 2006-07
 Robust economic growth in FY07. GDP is increased by over 8% in FY07; Agriculture,

industry and services to grow at 1.7%, 10.5% and 10.7% respectively
 Rabi season experiences normal monsoon
 IIP (Index of Industrial Production) growth dips in October 2006. The poor performance
of the manufacturing sector, which forms 80% of the IIP index lead to a blip in its robust
th t df th t9 th B th i i d l t i it f t th l t
growth trend for the past 9 months. Both mining and electricity grew faster than last year
at 4% and 9.7% Vs – 0.1% and 7.7% respectively
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WPI (Wholesale Price Index) rose to 5.43% for the week ending December 16; higher

inflation in primary commodities remains. The inflation in the coming weeks may remain
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high due to lower base effect.

 CRR (Cash Reserve Ratio) hike of 50 bps to absorb Rs.135bn from the system. The CRR
rate hike of 50bps came as a surprise but it reflects that RBI’s intention of controlling
Download Now credit off-take and liquidity management by raising repo and reverse repo rate could not
achieve the desired results due to which RBI used CRR rate hike – a new instrument to 
control liquidity
 Exports growth back on track in November 2006. On the basis of the BoP, in H1FY06
exports grew at 23%, imports at 25.3% resulting in the trade balance of US$35bn. Net
invisibles grew by 17.6% to US$23.5bn and capital inflows (in the form of FDI, NRI
deposits and ECB) at US$20.3bn (a yoy growth of 49%) brought the balance of payment
to US$8.6bn, (a yoy growth of 33%).
 Rupee appreciates further against dollar and yen but continues to depreciate against Euro
and pound on an YTD basis as on December 2006. In real terms, from April 2006 to
October 2006, the rupee appreciated by 1.8% vis-à-vis a basket of six currencies.
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The Indian Economy has seen major Macro changes in:
1. Gross Domestic Product:
The Indian Economy is driven by the strong fundamentals and uptrend in industrial cycle.
The Indian economy maintained a strong growth momentum for the third successive year in
2005-06 with real GDP growth accelerating to 8.4% 2005-06. The services sector recorded
double digit growth to contribute nearly three-fourths of incremental GDP. A consistent
increase in domestic investment rate from 23.0% of GDP in 2001-02 to 30.1% in 2004-05
supported a high credit growth witnessed during the past few years. The manufacturing
sector – the key growth driver for banking credit, clocked a healthy growth of 9.0% during
FY06.
Source: www.rbi.org.in
In FY 06-07, services sector account for major 55% of India GDP followed by 25% in Industrial
sector and 20% in agriculture sector.
FY07 Vs Q2FY06, the growth rate in GDP components are as follows:
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Agriculture: 1.7%
Industry: 10.5%
Service: 10.7
2. FDI Confidence Index:
Relaxation of foreign direct investment rules has expanded the mountain of capital in every
sector of Indian economy. The government is making efforts in liberalizing the guidelines
and norms for investment through FDI, making them more NRI friendly. Mainly due to

efforts taken by Indian Government, Indian rank 2nd among all countries in the world on FDI
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Confidence Index.  Sign In Join
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Source: AT Kearney Report, 2005
3. Inflation:
Inflation remained largely benevolent due to investment driven nature of growth and
subsidized nature of oil prices as pass-on of international crude price rise remained
incomplete in India. WPI Inflation has risen to 5.45% for the week ended November 18,
2006 after remaining in the range of 4.0-5.0% earlier. RBI has repeatedly cautioned that
maintaining inflation in the target range may call for substantial monetary tightening should
crude prices persist at high level. The money supply has grown by 18.7% yoy till November
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10, 2006 during the current fiscal, which poses a significant threat to RBI’s efforts of
containing inflation in the desired range of 5.0-5.5%.
4. Gross Fiscal Deficit:

The gross fiscal deficit (GFD) to GDP ratio for 2005-06 was at 4.1 per cent as against the
budget estimate of 4.3 per cent. Fiscal and revenue deficit for April-November 2006 widened
to 72.8% of BE and 99.7% of BE Vs 74.7% of BE and 91.5% of BE respectively in April-
November 2005. The current levels are much higher than the last month’s fiscal deficit of
58.6% of BE and revenue deficit of79.4% of BE. The improvement in the GFD was
facilitated by a decline in capital outlay and the availability of disinvestment proceeds. The
revenue deficit, though lower in absolute terms, remained at budgeted level of 2.7 per cent of
GDP in 2005-06.
Source: RBI, Ministry of commerce and Industry

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5. Interest Rate:
The yield on dated government securities (G-Sec) has been moving up since the
beginning of FY05. The yield on 10 year paper began during Q1 to close the quarter at
8.12%. During July 06, it continue to move up to 8.42% but reacted sharply thereafter to
once again come down to 7.4% at present as the market participants believed that US Fed
and other central banks worldwide would not only pause rate hikes but soon get into rate the
current fiscal at 7.50% but moved up quite sharply cut mode.
Source: RBI
Real interest rate indicated by spread between inflation and 10 year benchmark yield has trended
in the range of 2-4%. The real interest rate in developed economies is normally in the range of 2-
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3%. However, the marginal productivity of capital being much higher in the developing
economy like India. Due to this, real interest should be higher than those prevailing in more
matured economies.
6. Rising Oil prices and Exchange Rate:

World over, the central bankers led by US Federal Reserves embarked on withdrawal of
monetary accommodation through a series of rate hikes as the rising oil and asset prices
threatened the global economies with inflationary pressures. The US Fed, which embarked
on an aggressive rate hike campaign through 17 consecutive rate hikes of the magnitude of
25 bps, several economies including Euro-zone and Japan hiked their key policy rates. In
response to the same, RBI has hiked the key policy Repo and Reverse Repo rates five times
over the past two years. This has led to a significant hardening of interest rates over the past
4-5 quarters, which has adversely impacted the cost of funds for banks.
Financial markets in India and globally have seen little volatility over the 
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7. Capital Market:
last few Years.  Sign In Join
There have been only two spikes in India – in April 2004 when the UPA government came to
power and in May 2006. In India, stock markets will be the most impacted by negative news
flows as other areas where shocks can be absorbed such as the currency, interest rate and
corporate bond markets are not free or well developed. The Capital Market has seen balance
Download Now sheet value being unlocked through monetization of embedded assets, demergers, IPOs, etc.

Indian companies continue to build value in the balance sheet as newer opportunities emerge
through smart capex, inorganic growth and extracting value thru the revenue statement.
33

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INDIAN
BANKING
INDUSTRY
34

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INDIAN BANKING INDUSTRY

In India given the relatively underdeveloped capital market and with little internal resources
In India, given the relatively underdeveloped capital market and with little internal resources,
firms and economic entities depend, largely, on financial intermediaries to meet their fund
Search 
requirements. In terms of supply of credit, financial intermediaries can broadly be categorized as
institutional and non-institutional. The major institutional suppliers of credit in India are banks
 Sign In Join
and non-bank financial institutions (that is, development financial institutions or DFIs), other
financial institutions (FIs), and non-banking finance companies (NBFCs). The non-institutional
or unorganized sources of credit include indigenous bankers and money-lenders. Information
Download Now about the unorganized sector is limited and not readily available.

An important feature of the credit market is its term structure:
(a) Short-term credit
(b) Medium-term credit
(c) Long-term credit.
While banks and NBFCs predominantly cater for short-term needs, FIs provide mostly medium
and long-term funds.
Need for Banks
Role of Bank
35
Indian Banki
Channel Risk
household savings Transformation
Indian Banking Sector Experience
India inherited a weak financial system after Independence in 19

commercial banks in India, with an asset base of Rs. 11.51 billio
household savings through demand and term deposits, and dis
corporations. Following Independence, the development of ru

priority. The commercial banks of the country including the
operations to the urban sector and were not equipped to resp
economic regeneration of the rural areas. Indian Banki
In order to serve the e
sector in particular, the All India Rural Credit Survey Committee
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state-partnered and state-sponsored bank by taking over the I
 Sign In Join
commercial banks or SCBs and 551 non-SCBs) in 1947 to 89 in
former state-owned or state-associate banks. Accordingly, an a
16 non-SCBs). The lop-sided pattern of credit disbursal, and pe
Download Now May 1955, and the State Bank of India (SBI) was constituted 
during the sixties, forced the government to resort to nationaliza
quarter of the resources of the Indian banking system thus passe
GoI nationalized 14 scheduled commercial banks (SCBs), ea
State. Subsequently in 1959, the State Bank of India (Subsidia
deposits of Rs. 500 million. State-control was considered as a n
Act), enabling the SBI to take over 8 former State-associate bank
growth and ensuring an even distribution of banking facilities.
Associates).
nationalised another 6 banks2, each having deposits of Rs. 2,000
The GoI also felt the need to bring about wider diffusion of bank
uneven distribution of bank lending. The proportion of cred
The nationalization of banks was the culmination of pressur
increased from a high 83% in 1951 to 90% in 1968. This increase
instruments of development. The GoI imposed `social control’ on
crucial segment of the economy like agriculture and the sma
it was generally perceived that the operational efficiency of ba
failures and mergers resulted in a decline in number of banks fr

characterized by low profitability, high and growing non-perfo
capital base. Average returns on assets were only
Indian Banking System 201 36 around 0.15%
and capital aggregated an estimated
0 1.5% of assets. Poor interna
disclosure norms led to many problems being kept under cover.
did not keep pace with the increasing expectations. In 1991, a fre
with the introduction of banking sector reforms as part of the ov
India.
INDIAN FINANCIAL SERVICES SECTOR
SWOT ANALYSIS
Strengths:
 Proven asset quality resilience in past downturns

 Proven management teams, track record
 Stable industry dynamics
 Well-established regulatory framework
 Stable/low NPL formation rates
Weaknesses:
 Continued crowding out effect from govt budget deficit, combined with accelerating
private sector credit demands
 Ownership restrictions
 Constraints on state-owned banks' micro reforms, including HR, staff cut, branch cut
constraints
38
37
37
Indian Banki
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Opportunities:
 Improving secular GDP growth prospects
 Establishment of special economic zones likely to promot
 Years, if not decades, of catch-up economics— low per c
workforce
 Rapid financial deepening, i.e. loan growth as multiple of
 Rising consumer spending, consumer credit business

 Rising corporate capex, investments
 M&A optionality
Threats:
 Indian
"Running on empty" in terms of liquidity Banki
 Tightening in global liquidity may trickle down to India
 Potentially hawkish RBI stance on inflation/monetary pol
 Potential rise in long bond \ yields, MTM risk for banks
 Potential for valuation pullback, should earnings delivery
39
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STRUCTU
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0
banking
STRUCTURE OF THE BANKING SECTOR

Of
The banking sector in India functions under the umbrella of the RBI—the regulatory, central
bank. The Reserve Bank of India Act was passed in 1934 and the RBI was constituted in 1935 as
the apex bank. The Banking Regulations Act was passed in 1949. This Act brought the RBI
under government control. Under the Act, the RBI received wide-ranging powers in regards to 40
establishment of new banks, mergers and amalgamations of banks, opening and closing of
branches of banks, maintaining certain standards of banking business, inspection of banks, etc.
The Act also vested licensing powers and the authority to conduct inspections with the RBI.
Banks in India can broadly be classified as regional rural banks or RRBs, scheduled commercial
banks or SCBs, and co-operative banks. The scope of the report includes the SCBs only3.
The SCBs for the purpose of this comment can be classified into the following three categories:
 Public sector banks or PSBs (SBI & its associates, and nationalized banks);
 Private sector banks (old and new); and
 Foreign banks
41

0
No. of Banks in India for FY 05-06
29 30
20
SBI & Associa tes Na tiona lised Ba nks Priva te Ba nks Foreign Ba nks
Category of Banks
Source: IBA
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Asset Size of Banks for FY 05-06 ('000 crores)
1327

565
198 201
SBI & Associa tes Nationa lised Ba nks Priva te Ba nks Foreign Ba nks
Category o f Banks
Source : IBA
In terms of asset size, among Foreign banks – Citibank, HSBC and Standard Chartered bank are
leaders with asset base of Rs.45437 cr, Rs.37473 cr and Rs.48412 cr. Resp. in FY 05-06. Among
private sector banks, ICICI Bank is the leader with asset base of Rs.251389 cr followed by
HDFC Bank of size Rs.73506 cr and UTI Bank of size Rs.49731 cr. In terms of asset size,
public sector banks have highest base compared to private and foreign banks. SBI & Associated
42
Indian Banki
have asset base of Rs.691872 cr while other banks such as BO

Bank have each more than Rs.100000 cr.

0
Credit Growth
The bank lending has expanded in a number of emerging marke
and Latin America, in recent years. Bank credit to the private sec
Download Now 
rate between 10 and 40 per cent in a number of countries by 20
have contributed to the significant rise in bank lending in emer
growth, excess liquidity in banking systems reflecting easier
conditions, and substantial bank restructuring.
The recent surge in bank lending has been associated with impor
banks balance sheet. First, credit to the business sector - h
component of banks assets – has been weak, while the shar
increased sharply in several countries. Second, banks investm
increased sharply until 2004-05. As a result, commercial banks c
of their domestic assets in the form of Government securities
44
begun in the mid-1990s
Indian Banking System 201 43

0
MICRO
FACTORS
MICRO FACTORS AFFECTING INDIAN
BANKING INDUSTRY
 Loan Demand:
45

Search Indian Banking System 201   Sign In Join

0
Over the past three years, Indian Banking Industry has seen sustained strength in credit growth,
which is not just a function of economic buoyancy but also the broad-basing of loan demand.
Download Now This has recently been articulated by the central bank too:
“A contextual analysis of the co-movement between macroeconomic performance and bank 
credit in the current phase of the business cycle suggests that factors other than demand may
also be at work: financial deepening from a low base; structural shifts in supply elasticity’s;
rising efficiency of credit markets; and competitive pressures augmenting the overall supply of
credit.” (Reserve Bank of India, Monetary Policy Review, October 2006).
Loan growth sustained for very long
Source: RBI
The slowdown of the mid-1990s hit the banks very hard because corporate, which accounted for
a lion’s share of bank credit, went into a less profitable and hence a financial restructuring mode.
There was no retail credit then, banks did not focus on Small and Medium Enterprises and farm
lending was done grudgingly, under compulsion. Along with the diversification of the pie that
46

0
keeps the tempo of demand intact, after a long time industry has also started demanding higher
levels of credit. In the five years prior to FY05, growth in industrial credit was almost wholly
driven by infrastructure. There is a perceptibly wider participation from other segments during
FY05 and FY06.
If a substantial portion of loan growth gets driven by the banking system taking away market
shares from informal sectors – this is clearly happening to farm credit, SMEs and to a limited
extent non-mortgage retail – interest rate considerations influencing demand will be relatively
low. SMEs and the rural folk have accessed credit from other sources at exorbitant interest rates,
and hence banks’ rates going by 200-300bps is not so meaningful. That explains the apparent
lack of correlation between rates that have been rising and loan demand.
 Rising funding costs with soft lending rates irrational:
Plenty of historical evidence of return of pricing power to banks:

Concerns are often expressed about banks’ ability to increase lending rates in the face of
competition and government pressure. The reality is that banks, which led the mortgage price
war, have increased mortgage rate by 200-300bps from the bottom, and is yet to see significant
resistance. That PSU banks raised prime lending rates twice in. Competition from overseas
borrowings is a serious factor only with AAA companies, and banks have reduced exposure to
them considerably during the last 3-4 years. Government stand is understandably against higher
interest rates. However, it is unlikely that the government will be able to influence the course of
interest rates single-handedly.
Inflexibility of deposit growth a myth:

With 100-200bps increase in the card rates of deposits, banks have managed to move the deposit
growth rate from 15 16% to 19 20% on a larger base In the last five years household financial
growth rate from 15-16% to 19- 20%, on a larger base. In the last five years, household financial

47
Download Now Indian Banking System 201 

0
savings have moved out of equities and long-term products to bank deposits in percentage terms.
The point to note here is that component of cash (currency) has marginally risen – that’s the real,
incremental opportunity as more cash from chests moves into bank deposits first before
potentially going to other avenues.
The Q4FY07 is expected to be a period of margin pressure. This is because as the last interest-
rate cycle showed, deposit costs increase first, and followed by lending rates. Q4 is also usually a
period of tight liquidity, and the RBI could be increasing CRR or SLR requirements to further
tighten the liquidity. Also, banks will be cautious about the actual implementation of the lending
rate increases and may do it in a graduated fashion so as not to invite outright resistance or overt
attention from the government. HDFC Bank, PNB, SBI and a few others have nevertheless
already made a beginning by increasing their prime lending rates after the cash reserve ratio hike
by the RBI. However, the fight for deposits has intensified and it is possible that in Q4FY07
banks could be increasing their exposure to high-cost wholesale deposits, taken at higher than
card rates.
Banks’ increased risk appetite good for loan yields:

The banks’ lending risk appetite has increased significantly over the last five years – banks
veering more towards lending at increasing spreads rather than investing in risk-free bonds.
Accordingly, banks are willing to take higher risks, which is good for overall asset yields.
Investment spreads may increase in future:

As long-duration bonds at high interest rates have been coming up for maturity and getting re-
priced at lower interest rates, yields on investments have been continuously falling over the last
few years.
 Non – Performing Loans (NPLs): concerns overstated:
Loan growth-NPL
48

0
The asset price deflation (read real estate prices) may hurting banks’ asset quality has been
blown out of proportion.
Residential mortgages:
It is very unlikely in near term that there can be a large-scale increase in delinquencies on loans
taken for the first house (typically self-occupied); unless there is a household income problem, it
does not matter to the borrower whether the price of the house he is staying in is rising or falling.
Even then, with an average loan-to-value of 75%, a 25% fall is theoretically not possible. LTV
ratios had gone up to more risky levels at the peak of the mortgage boom.
Problems can arise more frequently for loans taken for the second house, typically for
investment/speculation. Banks have been reluctant to disclose the exact volume of second houses
financed. Most banks claim that it is in the range of 2-5% of incremental mortgage lending.
There is a possibility that some individuals have been hiding from banks the fact that they
already have one more loan, but this is becoming increasingly difficult with a credit bureau now
in full swing. Even if the assumption that 10% of the outstanding mortgages are for the second
house and all of that goes bad, it will mean 1% of the banking system’s loans go bad.
Commercial real estate: According to figures disclosed by the RBI itself, real estate loans
constituted 2.0% of gross non-food credit of banks as of end-June 2006. Even if it has been
growing at high percentage rates is not material as the base was very low. In any case, by
increasing standard assets provisioning on these loans to 100bps from 25bps, risk weights from
100% to 150% and instructing banks not to lend unless the developer has “all the permissions.
One stark example of this is the largest bank SBI itself. In the mid 1990s, SBI’s portfolio was
distributed between large corporate, farm credit and trade, with little coming from others. The
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Sep’06 portfolio looks dramatically different.
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SBI’s loan portfolio now quite diversified
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

Indian Banki

Source: Company data,
Cost of borrowing has risen, but so have incomes:

The apparent disconnect between interest rates rising now for tw
steam can be explained by i) rising incomes in case of individua
thrustover
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million titles improved
adscorporate profitability th
or interruptions!
While there are several studies illustrating the household incom
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percentage of households earning Rs91, 000-1,000,000 pa,
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borrowers for banks.

The corporate pricing power story is less known because o

competition and margin compression. While these issues cannot
competition and margin compression. While these issues cannot
Search  inflation
fact that manufactured product  has Sign
beenIn rising.Join
Indian Banki Even th
on the increased ability of manufacturers to pass on cost increas
leveraged corporate India compared with the early/mid 1990s, th
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costs havein
The trend been easilyisabsorbed
banking changingby companies.
from computerization of branch
by having a core banking solution in all the branches. At the sam
at internet banking which promises to grow into an alternate self-
 Technology:
of the Indian customer undergoes a change, Indian banks need to
the services that are required and dictated by customers.
50 In futu
value-differentiating services by keeping in-Houser their
partnering with others who complement its services. The em
transmission mechanisms (such as Western Union Money Trans

role of bankers and emphasizes the role of robust payment sys
and promoting financial stability.
Areas of Improvement:

Few challenges associated with technology adoption by banks ar

 Indian banks still don’t have the robust systems r
Indian
of online banking. RBI has provided Banki
guideline
issues and hopefully, online banking will see a sur
to at least 10% in the next couple of years.
 Banks need to explore newer channels such a
telephony applications to facilitate online access to
 Banks, in a drive to carry on with tremendous e
base, needs to have employees who are well inform

and are comfortable with technology which requir
Potential Pitfalls:
Banks should not get overwhelmed by the concept of automation
need to realize that they need to maintain different delivery for d
need to maintain brick-and-mortar locations that people feel com
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VALUAT   Sign In
51

Indian Banki
Join
TOOL
Business
ICICI Bank was promoted in 1994 by ICICI Ltd., an Indian deve
The two entities subsequently merged to become the largest com
sector. A new generation bank, ICICI Bank started with all the la
Indian banking industry in the second half of the nineties. All its
with the state-of-the-art technology and systems, networked throu
bank is connected to the SWIFT International network. In 2005,
branches and 1,910 ATMs. It continued to expand its electronic c
banking, mobile banking, call centers and ATMs, and migrate cu
these channels. Over 70% of customer induced transactions take
channels. It has acquired a small Russian banking entity, Investit
which
ICICIwill help boost its corporate business and deposit franchise
Bank:

built several strategic alliances with banks like Wells Fargo in US

52
DBS in Singapore.
 ICICI has entered into strategic alliance with Prudential p
Indian Banki
business. The duo has been fairly aggressive through thei
Asset Management Company Limited and Prudential ICI
also keen to offer its services to the Indian agricultural se
 The bank is in the process of the reverse merger of ICIC
and 70 agri-desks have been established in locations with
of two wholly-owned subsidiaries of ICICI, ICICI Perso
 Developments
and ICICI Capital Services Limited, with ICICI Bank is a
ICICI Bank launched `Mutual Fund Sweep Account` - an
 ICRA
which has assigned
allows anaccount
current A1+ rating, indicating
holders to park highest safe
their short-t
500 crore certificates of deposit (CD) programme of ICIC
funds and earn higher returns. Initially, ICICI Bank curren
agency said in its report that the rating takes into consider
the facility to invest their account surpluses in the liquid f
importance to its parent ICICI, IBL`s comfortable profitab
ICICI Asset Management Company and GIC Mutual Fun
good control on asset quality.
 ICICI Bank has tied up with MasterCard
Search   SignInternational
In Join to
credit cards. At present ICICI Bank’s credit card base stan

for debit cards it is 4,50,000. ICICI Bank is the largest car
Download Now 
bank is adding credit and debit cards at the rate of 1,00,00
launched the credit card business 2 years
53back, while the
new.
Indian Banki
ICICI Bank is India's second-largest bank with total assets o
billion) at December 31, 2009 and profit after tax Rs. 30.19 bill
nine months ended December 31, 2009. The Bank has a netwo
HDFC Bank:
4,883 ATMs in India and presence in 18 countries. ICICI Bank
products
HDFC Bankand financial services
Ltd was set up into1994
corporate and retail
by India’s custome
leading hous
channels and Finance
Development throughCorporation
its specialised subsidiaries
(HDFC). The bankand affiliat
offers aw
banking, life and
be classified intonon-life insurance, venture
three categories namely, capital and wholesa
treasury, asset m
services. The bank has a distribution network of 535 (in 228
has subsidiaries in the United Kingdom, Russia and Canad
Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai In
customer base of 9.6 million as of March 2006.
representative
Under offices
wholesale in United
banking, Arab Emirates,
it provides China, South
working capital financ
Malaysia and cash
services and Indonesia. Our UK subsidiary
management. has established
Treasury function bran
includes fo
ICICI Bank's
money marketequity sharesand
securities are equities.
listed in India
Retailonloan
Bombay Stock
products areE
Exchange
loans of India Limited
for two-wheelers. and provides
It also its American Depositary
depository Receipt
participant
York Stock
was the firstExchange (NYSE).
Indian bank which launched an international debit c

With products including the Kisan Gold Card, rural supply ch

54
finance covering the entire agriculture financing cycle, the bank
Indian
by over 60% during the year. The proportion of NPA`sBanki
to total ad
from 0.3 per cent last year. This marginal increase is because o
HDFC Bank has a high share of auto loans.
The bank’s focus on semi-urban and under banked markets cont
retail loans being given in non-metro markets. The bank’s total
on March 31, 2006 stood at 11.41%

The authorized capital of HDFC Bank is Rs.450 crore (Rs.4.5
Technology:
HDFC Bank
Rs.311.9 operates
crore (Rs.3.1inbillion).
a highly The
automated
HDFCenvironment
Group holdsin22.1%
term
communication systems.
19.4% of the equity is All
heldthe
bybank's branches
the ADS have online
Depository (in rec
Depository
bank to offer speedy
Shares funds
(ADS) transfer
Issue). facilities
Roughly 31.3% toofitsthecustomer
equity
Investors
provided (FIIs)
to retail
and customers through
the bank has the branch
about 190,000 network Th
shareholders. an
(ATMs).
Exchange, Mumbai and the National Stock Exchange. The ban
Download Now The Bankonhasthe
made 
are listed Newsubstantial
York Stock efforts and investments
Exchange in acquiri
(NYSE) under the sy
internationally, to build the infrastructure for a world class
supported by scalable and robust systems which ensure that o

services we offer.
The BankIndian
has prioritised its engagement
Banking System 201 55
in technology and the
0
and has already made significant progress in web-enabling its
businesses, the Bank has succeeded in leveraging its market posit
Based on its superior product delivery / service levels and strong customer orientation,
create a competitive advantage and build market share.

the Bank has made significant inroads into the banking consortia of a number of leading
Indian corporates including multinationals, companies from the domestic business houses
and prime public sector companies. It is recognised as a leading provider of cash
management and transactional banking solutions to corporate customers, mutual funds,

Business:
stock exchange members and banks.
Retail Banking Services:
The objective of the Retail Bank is to provide its target market customers a full range of
HDFC Bank offers a wide range of commercial and transaction
financial products and banking services, giving the customer a one-stop window for all
his/her banking requirements. The products are backed by world-class service and
products to wholesale and retail customers. The bank has three ke
delivered to customers through the growing branch network, as well as through
alternative delivery channels like ATMs, Phone Banking, NetBanking and Mobile
Banking.
 Wholesale Banking Services:
The HDFC Bank Preferred program for high net worth individuals, the HDFC Bank Plus
and the Investment Advisory Services programs have been designed keeping in mind
The Bank's target market ranges from large, blue-chip m

needs of customers who seek distinct financial solutions, information and advice on
various investment avenues. The Bank also has a wide array of retail loan products
Indian corporate to small & mid-sized corporates and a
including Auto Loans, Loans against marketable securities, Personal Loans and Loans for
Two-wheelers. It is also a leading provider of Depository Participant (DP) services for
customers, the Bank provides a wide range of comme

retail customers, providing customers the facility to hold their investments in electronic
form.
HDFC Bank was the first bank in India to launch an International Debit Card in
services, including working capital finance, trade servic
association with VISA (VISA Electron) and issues the Mastercard Maestro debit card as
well. The Bank launched its credit card business in late 2001. By March 2009, the bank
management, etc. The bank is also a leading provider
had a total card base (debit and credit cards) of over 13 million. The Bank is also one of
the leading players in the “merchant acquiring” business with over 70,000 Point-of-sale
combine
57 cash management services with vendor and di
superior supply chain management for its corporate custo

56
Indian Banki
(POS) terminals for debit / credit cards acceptance at mer

is well positioned as a leader in various net based B2C
range of internet banking services for Fixed Deposits, Loa
 Treasury
Within this business, the bank has three main product
Download Now 
Derivatives, Local Currency Money Market & Debt Se
liberalisation of the financial markets in India, corporat
management information, advice and product structur
various treasury products are provided through the bank's
statutory reserve requirements, the bank is required t

government securities. The Treasury business is responsib
market risk on this investment portfolio.
0
Management:
SBI : Mr. Jagdish Capoor took over as the bank's Chairman in July 200
a Deputy Governor of the Reserve Bank of India. The Managin
State Bank of India (SBI) is the largest bank in India. It is also, measured by the number of
branch offices and employees, the largest bank in the world. Established in 1806 as Bank of
Bengal, it remains the oldest commercial bank in the Indian Subcontinent and also the most
been a professional banker for over 25 years, and before joi
successful one providing various domestic, international and NRI products and services, through
its vast network in India and overseas. With an asset base of $126 billion and its reach, it is a
heading Citibank's operations in Malaysia. The Bank's Board

regional banking behemoth. The bank was nationalized in 1955 with the Reserve Bank of India
having a 60% stake. It has laid emphasis on reducing the huge manpower through Golden
handshake schemes and computerizing its operations.
eminent individuals with a wealth of experience in public polic
State Bank of India has often acted as guarantor to the Indian Government, most notably during
Chandra Shekhar 's tenure as Prime Minister of India. With more than 9400 branches and a
commercial banking. Senior executives representing HDF
further 4000+ associate bank branches, the SBI has extensive coverage. State Bank of India has
electronically networked most of its metropolitan, urban and semi-urban branches under Core
Banking System(CBS). The bank has the largest ATM network in the country having more than
Senior banking professionals with substantial experience in
5600 in number [1]. The State Bank of India has had steady growth over its history, though it
businesses and functions and report to the Managing Director. G

was marred by the Harshad Mehta scam in 1992.Following its arch-rival ICICI Bank , the bank
has started Core banking process by which more than 4400+ branched have been completed so
far. In recent years, the bank has sought to expand its overseas operations by buying foreign
of the management team and the overall focus on recruiting an
banks. It is the only Indian bank to feature in the top 100 world banks in the Fortune Global 500
rating and various other rankings. According to the Forbes 2000 listing it tops all Indian
companies. industry, the bank believes that its people are a significant compe
Group companies
 SBI Capital Markets Ltd

 SBI Mutual Fund (A Trust)
59
Indian Banking System 201 58

0
 SBI Factors and Commercial Services Ltd
 SBI DFHI Ltd

SBI Cards and Payment Services Pvt Ltd
 SBI Life Insurance Co. Ltd - Bancassurance (Life Insurance)
 SBI Funds Management Pvt Ltd
According to PM Network, State Bank of India launched a project in 2002 to network more than
14,000 domestic and 70 foreign offices and branches. The first and the second phases of the
project have already been completed and the third phase is still in progress. As of December
Search 
2006, over 10,000 branches have been covered.The new infrastructure serves as the bank's  Sign In Join
backbone, carrying all applications, such as the IP telephone network, ATM network, Internet
banking and internal e-mail. The new infrastructure has enabled the bank to further grow its
ATM network with plans to add another 3,000 by the end of 2008 raising the total number to
8,600.
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60
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0
MAJOR
FINDINGS
Download Now 61



0
MAJOR FINDINGS
Major Macro – Economic Factors include Gross Domestic Product – which has grown by over
8% in 2005-06, FDI Confidence Index – where India stands II in the world, Inflation – which has
slow down due to falling crude prices, Gross Fiscal Deficit Interest Rate – the UPA government
is confident to achieve the budgeted targets, Rising Oil prices & Exchange Rate – Indian
government and oil companies are relax as oil prices have fallen beside Indian Rupee has
strengthen against USD, EURO and Yen and Capital Market – the year is booming for market
with FII and mutual fund are pumping money increasing BSE Sensex returns over 50%.
In June 2006, Indian Banking System is spread through 66000 branches with an asset base of
about $270 billion. There are 87 Scheduled Commercial Banks operating in India including 8
Bank of SBI & Associates, 20 Nationalized Banks, 29 Private Banks and 30 Foreign Banks. In
terms of asset size, public sector banks have highest base compared to private and foreign banks.
SBI & Associated have asset base of Rs.691872 cr. Bank group-wise, new private sector banks
grew at the highest rate during 2005-06 (43.2 per cent), followed by foreign banks (31.2 per
cent), public sector banks (13.6 per cent) and old private sector banks (12.2 per cent).
As a result, the relative significance of PSBs declined significantly with their share in total assets
of SCBs declining to 72.3 per cent at end-March 2006 from 75.3 per cent at end-March 2005,
while that of new private sector banks increasing to 15.1 per cent from 12.5 per cent.
Credit to the priority sector increased by 33.7 per cent in 2005-06 as against 40.3 per cent in the
previous year. The agriculture and housing sectors were the major beneficiaries, which together
accounted for more than two-third of incremental priority sector lending in 2005-06. Credit to
62

0
small scale industries also accelerated. Retail loans, which witnessed a growth of over 40.0 per
cent in 2004-05 and again in 2005-06, have been the prime driver of the credit growth in recent
years. Retail loans as a percentage of gross advances increased from 22.0 per cent in March 2004
to 25.5 per cent in March 2006.
ICICI Bank is the leading market player with change in loans market share in FY02-06 of over
5% and change in deposits market share in FY 02-06 is nearby 2.5%. HDFC Bank and UTI Bank
are also in high growth phase. The laggards are SBI Bank, Bank of Baroda Bank, Bank of India
and Punjab National Bank.
Micro-Economic Factors affecting Banking Industry: Some of Micro-Economic factors

identified in the report are:
 Loan Demand in which the Indian Banking Industry has seen sustained strength in credit
growth (a 30% increase in Oct 2006 of which 58% growth has seen in service sector and
growth (a 30% increase in Oct 2006, of which 58% growth has seen in service sector and
100% in real estate sector).
Search
 of 22% of
Rising funding costs with soft lending rates – Deposits has seen a growth  Sign In Join
which household savings contribute to 43%, credit spread increase to 3.3% and Yield on
government bonds reduced to 7.75% due to rising interest cost
 Non – Performing Loans (NPLs) - The Total bank loans stood at Rs 15,231.7bn, of which
Download Now housing loans are Rs. 1719.2bn. However, the Industry’s share of total credit has dropped
to 40% 
 Technology - Indian banks still don’t have the robust systems required for efficient
functioning of online banking and Banks need to explore newer channels such as SMS,
WAP and 3G mobile telephony applications to facilitate online access to customers.
63

0
conclusion
64

0
CONCLUSION
The project involves valuation of major Indian Banks including ICICI Bank, SBI and HDFC
Bank The methodology followed is Target Pricing which including estimating growth rate by
Bank. The methodology followed is Target Pricing, which including estimating growth rate by
regression on historical sales to forecast next year sales, earning and Profit and Loss account.
All shares are undervalued and expected to give positive risk adjusted returns to 
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Then EPS is calculated which is multiplied to Historical P/E to forecast intrinsic value of share.
investors. Since  Sign In Join
the intrinsic value is more than current market price for all the companies, the share can be
recommended to conservative investors.
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BIBLIOGRAPH
Y
66

0
Download Now BIBLIOGRAPHY 
 Company Reports
 Government of India, 1998, Report of the Committee on Banking Sector Reforms
 Government of India, 1991, Report of the Committee on the Financial System
 IMF Working Paper - Competition in Indian Banking by A. Prasad and Saibal Ghosh
 Indian Banks Association, Various Years, Performance Highlights of Banks (Mumbai).
 Indian Banking Association
 Ministry of commerce and Industry
 Reserve Bank of India, 2008, “Annual Policy Statement for the year 2007-08” (Mumbai).
67
0
 Reserve Bank of India (a), Various Years, Report on Trend and Progress of Banking in
India (Mumbai).
 Reserve Bank of India (b), Various Years, Statistical Tables Relating to Banks in India
(Mumbai).
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Indian Banking System 201

“INDIAN BANKING SYSTEM”

SUBMITTED TO: MAHARISHI DAYANAND

UNDER THE GUIDENCE OF:

THE CANTROLLER OF EXAM BAJRANG

M.D.U., ROHTAK MBA

Indian Banking System 201

D.A.V. INSTITUTE OF MANAGEMENT, FARIDABAD

Management, Faridabad for being cooperative and helpful guide.

Indian Banking System 201

Indian Banking System 201

Indian Banking System 201

 OBJECTIVES OF THE STUDY

 SIGNIFICANCE OF THE STUDY

 LIMITATION OF THE STUDY

3. RESEARCH METHODOLOGY: 20-24

 SAMPLING: DESIGN AND PROCEDURE

4. INDIAN ECONOMY: 25-31

5. INDIAN BANKING INDUSTRY: 32-37

 NEED FOR BANKS

 INDIAN BANKING SECTOR EXPERIENCE

6. STRUCTURE OF THE INDIAN BANKING SECTOR 38-41

7. MICRO FACTORS AFFECTING INDIAN BANKING 42-48

8. VALUATION TOOLS: 49-57

Indian Banking System 201

Indian Banking System 201

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have major impact on Indian Economy.

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Indian Banking System 201

Sunday, 09.23.2007, 11:59pm (GMT-7)

ICICI Bank allots equity shares

Shares of the company gained Rs 7.75, or 1.38%, to settle at

HDFC Asset Management to launch debt fund on Sept 27

Tue Sep 25, 2007 12:50pm IST

MUMBAI (Reuters) - HDFC Asset Management Co Ltd said o

government securities, the fund house said.

HDFC to cut interest rates

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Mortgage lender Housing Development Finance Corp is likely to

 To provide suggestions for better functioning of business.

Indian Banking System 201

SIGNIFICANCE OF THE STUDY

Indian Banking System 201

Indian Banking System 201

FOCUS OF THE PROBLEM

Indian Banking System 201

2. Banking Evolution & Regulatory Framework

Indian Banking System 201

3. Internal Hindrances to Banking Industry

Indian Banking System 201

LIMITATION OF THE STUDY

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Indian Banking System 201