Financial

Analysis of
Banks
Corporate Finance Project

Agenda

Goal and Objective

Industry Analysis

Company analysis

Financial Analysis of respective company

Goal and Objective

Conduct a top down approach to understand the

financial of banks

Understand the Macro factor impacting bank

sector in India

Applying learning and methodology of corporate

finance

Top Down Approach

Macro and Industry

analysis
Company Analysis
Share Valuation
Methodology

Macro and Industry analysis

Indian banking credit growth is growing at a healthy pace

Demand has grown for both corporate and retail loans.

Credit off-take has been surging ahead over the past decade, aided by strong
economic growth, rising disposable incomes, increasing consumerism and
easier access to credit.

Moody's has upgraded its outlook for the Indian banking system to stable
from negative based on its assessment of five drivers including improvement
in operating environment and stable asset risk and capital scenario.

Government policy like Jan dhan yojana , Bima yojana , OROP will catalyse
the banking sector.

Approval of 11 payment banks and 10 small finance bank will transform the
banking sector.

Company Analysis
ICICI Bank
. Found in 1994 , one of the biggest private sector bank in India .

Chairman- M K Sharma previously vice chairman of HUL.

Managing Director - Chanda Kochhar 50 most influencial people on earth by

Bloomberg

Shareholding :

ICICI Bank

ICICI Bank
Institutions

29%

9%

Non-Institutions

62%

Shares held by Custodians and

against which Depository
Receipts have been issued

Axis Bank

Found in 1993 , third largest private bank in india.

Chairman : Sanjiv misra , an IAS officer and experience in finance

department in government.

Managing Director : Shikha Sharma , mba from IIM A , PGDM in

software technology and 29 yrs work tenure in ICICI .

Shareholding :

Axis Bank

10%

Indian Promoters

4%
30%

Institutions
Non-Institutions
GDRs

57%

HDFC bank

Incorporated in 1994 , fifth largest bank in India.

Chairman : Shyamala Gopinath ,former deputy governor of RBI and

director of NSE india.

Manafing Director : Aditya Puri ,took position 1994 making him the
longest serving head of any bank in the country.

Shareholding :

HDFC Bank
Indian Promoters

19%

22%

Institutions
Non-Institutions
Shares held by Custodians and
against which Depository Receipts
have been issued

16%
43%

Cost of Debt

Cost of debtis the overall average rate an organization pays on all its debts, typically consisting
primarily of bonds andbankloans
We can see that HDFC has minimum cost of debt i.e. 5.73 which is because of high saving
deposits . Saving and current account are cheapest source of finance for bank.

CAPM
Risk Free rate
Expected market
Rate

7.76

Cost of Equity = RFR + Beta * (Rm - RFR)

=7.76 + * ( 14.69 7.76 )

14.69

Banks

Value of Beta

Cost of Equity

ICICI Bank

1.50

18.155

Axis Bank

1.40

17.46

HDFC Bank

.88

13.85

The risk free rate of return has been taken as the return on India
Government Bond 10 Year
The Expected Market Return has been calculated as the CAGR of BSE
Sensex over a 10 year period.

WACC
ICICI
Debt

HDFC

AXIS

1,72,417.35

45,213.56

79,758.27

7.73

5.73

6.28

Share Capital

1,159.66

501.30

474.10

Cost of Equity

18.155

13.85

17.46

Equity weight

0.006

0.010

0.005

Debt Weight

0.993

0.989

0.994

WACC

7.799

5.819

6.346

Cost of debt

Financial Ratio

We can see most of the financial ratio are approximately same except:
Net NPA to Net advances which is really high for ICICI i.e. 1.61 which show that lot of loans
may go bad and in tern effect the returns of the bank.
Similarly we can see that Interest spread of HDFC is quite high which might effect its credit
growth.

Dividend Analysis

This line graph show the dividend policy of

different banks.
ICICI has not distributed much of its earning .
HDFC though not shared its earning but its
earning per share has been increasing at a high
rate.

Conclusion

According to our analysis HDFC Bank looks most favorable to invest because of less
i.e. 0.88 value which signify less risk but currently it is traded at 1072 in market in
comparison of ICICI and Axis which is 260 and 452 respectively.

So by comparing the fundamentals and market price , ICICI looks most lucrative
investment except its net NPA to net advances which is high i.e. 1.61

Finally, with digital initiative and under market price of 260 ,ICICI seems to be the
best option for investors.

Thank You