Fundamental analysis can be done on the basis of

following areas.

ECONOMICAL

INDUSTRIAL

COMPANY
SPECIFIC

 Leading indicators - growth, monsoon,

stock market.

Lagging indicators GDP

Economic features of banking industry

Supply

Liquidity is controlled by the Reserve

Bank of India (RBI).

Demand

India is a growing economy and demand

for credit is high though it could be
cyclical.

Barriers to entry

Licensing requirement, investment in

technology and branch network.

Bargaining power of suppliers

High during periods of tight liquidity. Trade

unions in public sector banks can be anti
reforms. Depositors may invest elsewhere
if interest rates fall.

The liquidity crisis that swept the heavyweights of global financial sector off
their feet in FY09 did affect the entities in Indian banking sector as well, albeit
marginally. Other than the temporary crunch after bankruptcy of Lehman
Brothers, the global financial meltdown was weathered by banks in India with
relative ease. The monetary stimuli (reduction in repo rate, cash reserve ratio
(CRR) and statutory liquidity ratio (SLR)) offered to the banks by the RBI
made things easier. Despite the severe liquidity pressure and poor credit
appetite at the retail and corporate levels, Indian banks managed to grow
their advances and deposits by 24% YoY and 22% YoY respectively in FY09.
The growth was mainly driven by a sharp expansion in term deposits and
growth in agricultural and large corporate credit. Having said that, higher
delinquency levels in retail credit and debt restructuring took its toll on the
sector. Repo rate 4.75%, RRR 3.25%, CRR 5.5% recently.

Indian Banks :
Marginal signs
of stress

FY08
No. of banks (nos.) 79
Branches (nos.)
776
Networth (Rs m) 39,940
Deposits (Rs m)
420,260
Advances (Rs m) 313,540
NIM (%)
4.1
RoA (%)
1.1
CAR (%)
13.0
Net
NPA
/
1.0
advances (%)

FY09

Change

78
825
47,080
519,700
383,890
4.4
1.1
14.0

-1.3%
6.3%
17.9%
23.7%
22.4%
7.3%
0.0%
7.7%

1.1

5.0%

Banking in India Issues and Challenges for the Future

However, even as the opportunities increase, there are some issues
and challenges that Indian banks will have to contend with if they are
to emerge successful in the medium to long term. This analysis
discusses these issues and challenges -- both intrinsic and external,
such as

Risk management
Consolidation
Overseas expansion
Technology
Government reforms
Non Performing Assets (NPAs)
Skilled manpower
Consumer protection
The report concludes with thrust
areas for future growth.

Foreign banks
Assets

2008-09:Q3

2008-09:Q2

2008-09:Q1

2007-08:Q4

2007-08:Q3

42,666.97

41,250.84

42,232.47

41,932.70

38,094.49

Fixed Assets

4,126.99

4,042.45

3,994.92

3,966.91

3,620.94

Investments

109,902.77

105,189.78

96,094.21

100,218.41

101,250.25

Loans and
Advances (net)

172,047.82

185,623.89

171,658.90

161,132.63

145,543.46

Other Assets

121,382.63

123,415.83

114,889.68

57,915.22

59,418.88

Total Assets

450,127.18

459,522.79

428,870.18

365,165.87

347,928.02

2008-09:Q3

2008-09:Q2

2008-09:Q1

2007-08:Q4

2007-08:Q3

57,188.84

55,051.38

52,496.38

49,157.97

41,415.87

Other Liabilities
and provisions

128,094.37

132,955.96

122,077.30

66,733.69

68,535.95

Total Borrowings

47,988.53

60,084.09

55,353.87

58,079.07

47,993.81

Total Deposits

216,855.44

211,431.36

198,942.63

191,195.14

189,982.39

Total Liabilities
and Capital

450,127.18

459,522.79

428,870.18

365,165.87

347,928.02

Cash Funds and

Balances with other
Banks

Liabilities

Capital and
Reserves

Nationalised Banks
Assets

2008-09:Q3

2008-09:Q2

2008-09:Q1

2007-08:Q4

2007-08:Q3

153,026.19

204,765.11

185,217.19

187,343.00

164,772.22

Fixed Assets

27,128.87

24,662.59

23,645.44

23,704.32

18,977.14

Investments

593,165.38

530,940.57

557,114.25

528,891.92

516,638.19

Cash Funds and Balances with other Banks

Loans and Advances (net)

Other Assets
Total Assets

1,316,599.00 1,246,985.84 1,145,719.41 1,137,078.52 1,004,564.86

76,436.39

62,358.15

67,268.39

56,126.36

53,994.25

2,166,355.83 2,069,712.26 1,978,964.68 1,933,144.12 1,758,946.66

Liabilities

2008-09:Q3

2008-09:Q2

2008-09:Q1

2007-08:Q4

2007-08:Q3

Capital and Reserves

135,820.45

126,167.64

119,315.94

116,405.02

113,002.15

Other Liabilities and provisions

152,741.99

146,374.95

143,489.32

141,669.61

128,564.46

70,185.57

69,568.82

76,091.57

69,440.09

58,304.49

Total Borrowings
Total Deposits

1,807,607.82 1,727,600.85 1,640,067.85 1,605,629.40 1,459,075.56

Total Liabilities and Capital

2,166,355.83 2,069,712.26 1,978,964.68 1,933,144.12 1,758,946.66

Private Sector Banks

Assets
2008-09:Q3 2008-09:Q2 2008-09:Q1 2007-08:Q4
Cash Funds and Balances with other Banks

2007-08:Q3

20,490.80

23,388.97

21,990.84

23,071.55

20,904.68

Fixed Assets

2,132.66

2,086.76

2,040.72

2,016.82

1,943.07

Investments

61,875.62

54,884.71

56,588.04

54,124.09

49,469.39

123,389.56

121,703.21

114,073.25

111,222.69

100,798.78

5,535.17

5,155.39

4,942.31

4,319.42

3,985.33

13,42300.81 1207,219.04 1199,635.16 1194,754.57

1177,101.25

2008-09:Q3 2008-09:Q2 2008-09:Q1 2007-08:Q4

2007-08:Q3

Loans and Advances (net)

Other Assets
Total Assets
Liabilities

Capital and Reserves

17,404.77

16,583.13

15,936.97

15,363.12

13,293.57

Other Liabilities and provisions

11,542.15

11,556.23

11,134.56

10,284.00

9,872.94

3,655.75

4,691.24

4,384.69

3,477.19

3,544.88

180,821.14

174,388.44

168,178.94

165,630.26

150,389.86

199,635.16 1194,754.57

1177,101.25

Total Borrowings
Total Deposits
Total Liabilities and Capital

13,42300.81 1207,219.04

Profitability ratios
Operating margin (%)
Gross profit margin (%)
Net profit margin (%)

18.44333
16.06333
12.09
14.43

Adjusted cash margin (%)

12.57333

Adjusted return on net worth (%)

12.56667

Reported return on net worth (%)

69.28667

Return on long term funds (%)

LIQUIDITY RATIO
Current ratio

0.47
0.166667
4.133333

Current ratio (inc. st loans)

Quick ratio

7.123333

P = [D + (E - D) x ROI / Kc] / Kc
P= Market price per share
E= Earnings per share
D = Dividend per share
Kc= Cost of Capital (Capitalisation rate)
ROI = Return on Investment (also called return on internal retention)

P= ??
E= RS. 50.55
D = RS.10.00
Kc= 6%
ROI = 13%

P=[10+(50.55-10)*.13/.06]/.06 = 1811 RS