EQUITY RESEARCH IN BANKING SECTOR

Research Project submitted

In Part Completion of

Masters of Management Studies

University of Mumbai

By
Amit Kanowjia

Under the guidance of

Mr. Nikesh Ruparel

Vidyalankar Institute of Technology

Wadala (E), Mumbai – 400 037

JULY 2010

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 DECLARATION

I hereby declare that the project work entitled “Equity Research in

Banking Sector “ submitted to “Vidyalankar Institute of Technology,
wadala(E), Mumbai-400037 “ is a record of an original work done by
me under the guidance of “Mr. Nikesh Ruparel“ and this project work is
submitted in partial fulfillment of the requirement for the award of the
degree of Masters of Management Studies (MMS). The results
embodied in this report have not been submitted to any other University
or Institute for the award of any degree or diploma.

Amit Kanowjia

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 ACKNOWLEDGEMENT

I take this opportunity to sincerely thanks and express my gratitude to

my project guide Mr. Nikesh Ruparel for guiding me throughout my
entire project.
The experience and the knowledge acquired over the interactions with
the guide have been invaluable to say the least and will help me a great
deal in my future education and career.
I would also like to thank my co-guide Mr. Jitendra Bapna for valuable
input on coordination in my project.
My project was completed in a very supportive and interactive
environment and has been great learning experience. Last but not the
least I would like to thanks my family and friends for all the support
they have provided me.

Amit Kanowjia

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 TABLE OF CONTENT

Sr. No. Contents Page No.

1 Introduction to Equity 6
2 Fundamental Analysis 8
2.1 Qualitative Factor- Industry 10
2.2 Qualitative Factor- Company 12
2.3 Quantitative Factor-Ratios 14
3 Technical Analysis 21
3.1 Introduction to Technical Charts 23
3.2 Introduction to Trendline 27
3.3 Introduction to Support & Resistance 29
3.4 Introduction to Indicators 31
3.5 Moving Averages 32
4 Analysis of Banking Sector 33
4.1 The Indian Banking Sector 34
4.2 Recent development in Banking sector 36
4.3 SWOT Analysis of Banking sector 38
4.4 Banking Structure in India 41
4.5 Types of Banks & Banking activities 42
4.6 Income & Expenses profile of Banks 45
5 Analysis of Banks 48
5.1 Analysis of Punjab National Bank 50
5.2 Analysis of Union Bank of India 57
5.3 Analysis of Kotak Mahindra Bank 65
5.4 Analysis of Yes Bank 72
6 Recommendations 80
7 Conclusion 81
8 Bibliography 82

EXECUTIVE SUMMARY

Indian Economy being one of the fastest developing economies in the world,

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Companies in India are growing at farter rate as compared to their growth rate a decade
back. Many Indian companies are expanding their business globally with mergers and
acquisitions.

As companies grow their shareholders are benefitted with good dividend and capital
appreciation on investment in equity shares of such companies. Number of companies
listed in stock exchange (BSE & NSE) has been increasing every year with new IPO’s
coming in the market.

In India people are realizing that equity has potential to give highest return as compared
to other investment avenues however people are not aware how to do equity valuation,
they just invest in shares based on tips given by brokers, friends or family members.

Investing in equity shares based on tips is not the true investment but it is clear
gambling with your money which many of us would not like to do with our hard earned
money.

Equity valuation begins with analysis of the sector in which you want make investment;
if the sector looks positive then analyze various companies in the sector. A Company is
analyzed fundamentally to check its performance and financial strength. Technical
analysis is used to decide the right price to buy a stock so that higher return on
investment can be generated.

In this report I have explained How to do fundamental analysis & technical analysis with
analysis of banking sector and few banks in the sector.

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 INTRODUCTION TO EQUITY

What is Equity?

In accounting and finance, equity is the residual claim or interest of the most junior class
of investors in assets, after all liabilities are paid. If valuations placed on assets do not
exceed liabilities, negative equity exists. In an accounting context, Shareholders' equity
(or stockholders' equity, shareholders' funds, shareholders' capital or similar terms)
represents the remaining interest in assets of a company, spread among individual
shareholders of common or preferred stock.

At the start of a business, owners put some funding into the business to finance assets.
This creates liability on the business in the shape of capital as the business is a
separate entity from its owners. Businesses can be considered to be, for accounting
purposes, sums of liabilities and assets; this is the accounting equation. After liabilities
have been accounted for, the positive remainder is deemed the owner's interest in the
business.

This definition is helpful to understand the liquidation process in case of bankruptcy. At

first, all the secured creditors are paid against proceeds from assets. Afterward, a series
of creditors, ranked in priority sequence, have the next claim/right on the residual
proceeds. Ownership equity is the last or residual claim against assets, paid only after
all other creditors are paid. In such cases where even creditors could not get enough
money to pay their bills, nothing is left over to reimburse owners' equity. Thus owners'
equity is reduced to zero. Ownership equity is also known as risk capital, liable capital
and equity.

What is Equity Shares?

Total equity capital of a company is divided into equal units of small denominations,
each called a share. For example, in a company the total equity capital of Rs
2,00,00,000 is divided into 20,00,000 units of Rs 10 each. Each such unit of Rs 10 is
called a Share. Thus, the company then is said to have 20, 00,000 equity shares of Rs
10 each. The holders of such shares are members of the company and have voting
rights.

EQUITY INVESTMENT

Equity investments generally refers to the buying and holding of shares of stock on a
stock market by individuals and firms in anticipation of income from dividends and
capital gain as the value of the stock rises. It also sometimes refers to the acquisition of
equity (ownership) participation in a private (unlisted) company or a startup (a company
being created or newly created). When the investment is in infant companies, it is
referred to as venture capital investing and is generally understood to be higher risk
than investment in listed going-concern situations.

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How to invest in Equity Shares?

Investors can buy equity shares of a company from Security market that is from Primary
market or Secondary market.

The primary market provides the channel for sale of new securities. Primary market
provides opportunity to issuers of securities; Government as well as corporate, to raise
resources to meet their requirements of investment and/or discharge some obligation.
Investors can buy shares of a company through IPO (Initial Public Offering) when it is
first time issued to the public. Once shares are issued to the public it is traded in the
secondary market. Stock exchange only acts as facilitator for trading of equity shares.
Anyone who wishes to buy shares of a company can buy it from an existing shareholder
of a company.

Why should one invest in Equity in particular?

When you buy a share of a company you become a shareholder in that Company
.Equities have the potential to increase in value over time. It also provides your portfolio
with the growth necessary to reach your long term investment goals. Research studies
have proved that the equities have outperformed most other forms of investments in the
long term.

Equities are considered the most challenging and the rewarding, when compared to
other investment options. Research studies have proved that investments in some
shares with a longer tenure of investment have yielded far superior returns than any
other investment. However, this does not mean all equity investments would guarantee
similar high returns. Equities are high risk investments. One needs to study them
carefully before investing.

It is important for investors to note that while equity shares give highest return as
compared to other investment avenues it also carries highest risk therefore it is
important to find ‘ real value’ or ‘ intrinsic value’ of the security before investing in it.
The intrinsic value of a security being higher than the security’s market value represents
a time to buy. If the value of the security is lower than its market price, investors should
sell it.

To be able to value equity, we need to first understand how equity is to be analyzed.

Equity Share of any company can be analyzed through

1. Fundamental Analysis

2. Technical Analysis

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FUNDAMENTAL
ANALYSIS

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Introduction

Fundamental analysis is a technique that attempts to determine a security’s value by

focusing on underlying factors that affect a Company’s actual business and its future
prospects. Fundamental analysts attempt to study everything that can affect
the security's value, including macroeconomic factors (like the overall economy and
industry conditions) and company-specific factors (like financial condition and
management). 

Fundamental analysis of a business involves analyzing its financial statements and

health, its management and competitive advantages, and its competitors and markets.
Fundamental analysis is performed on historical and present data, but with the goal of
making financial forecasts. A fundamental analyst believes that analyzing strategy,
management, product, financial stats and many other readily and not-so-readily
quantifiable numbers will help choose stocks that will outperform the market.

There are several possible objectives:

 To conduct a company stock valuation and predict its probable price evolution,
 To make a projection on its business performance,
 To evaluate its management and make internal business decisions,
 To calculate its credit risk.

Fundamental analysis serves to answer questions, such as:

 Is the company’s revenue growing?
 Is it actually making a profit?
 Is it in a strong-enough position to beat out its competitors in the future?
 Is it able to repay its debts?
 Is management trying to "cook the books"?

Fundamentals: Quantitative and Qualitative

As mentioned in the introduction, fundamentals can include anything related to the

economic well-being of a company. Obvious items include things like revenue and profit,
but fundamentals also include everything from a company’s market share to the quality
of its management.

The various fundamental factors can be grouped into two categories: quantitative and
qualitative.
 Qualitative – related to or based on the quality or character of something, often
as opposed to its size or quantity.
 Quantitative – capable of being measured or expressed in numerical terms.

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 QUALITATIVE FACTOR – THE INDUSTRY

Each industry has differences in terms of its customer base, market share among
firms, industry-wide growth, competition, regulation and business cycles.
Learning about how the industry works will give an investor a deeper
understanding of a company's financial health.

 Customers

Some companies serve only a handful of customers, while others serve millions.
In general, it's negative if a business relies on a small number of customers for a
large portion of its sales because the loss of each customer could dramatically
affect revenues. For example, think of a military supplier who has 100% of its
sales with the Indian government. One change in government policy could
potentially wipe out all of its sales. For this reason, companies will always
disclose in their annual report if any one customer accounts for a majority of
revenues.

 Market Share

Understanding a company's present market share can tell volumes about the
company's business. The fact that a company possesses an 85% market share
tells you that it is the largest player in its market by far. Furthermore, this could
also suggest that the company possesses some sort of "economic moat," in
other words, a competitive barrier serving to protect its current and future
earnings, along with its market share. Market share is important because of
economies of scale. When the firm is bigger than the rest of its rivals, it is in a
better position to absorb the high fixed costs of a capital-intensive industry.

 Industry Growth

One way of examining a company's growth potential is to first examine whether

the amount of customers in the overall market will grow. This is crucial because
without new customers, a company has to steal market share in order to grow. In
some markets, there is zero or negative growth, a factor demanding careful
consideration. For example, a manufacturing company dedicated solely to
creating audio compact cassettes might have been very successful in the '70s,
'80s and early '90s. However, that same company would probably have a rough
time now due to the advent of newer technologies, such as CDs and MP3s. The
current market for audio compact cassettes is only a fraction of what it was
during the peak of its popularity.

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 Competition

Simply looking at the number of competitors goes a long way in understanding

the competitive landscape for a company. Industries that have limited barriers to
entry and a large number of competing firms create a difficult operating
environment for firms. One of the biggest risks within a highly competitive
industry is pricing power. This refers to the ability of a supplier to increase prices
and pass those costs on to customers. Companies operating in industries with
few alternatives have the ability to pass on costs to their customers. A great
example of this is Wal-Mart. They are so dominant in the retailing business, that
Wal-Mart practically sets the price for any of the suppliers wanting to do business
with them. If you want to sell to Wal-Mart, you have little, if any, pricing power.

 Regulation

Certain industries are heavily regulated due to the importance or severity of the
industry's products and/or services. As important as some of these regulations
are to the public, they can drastically affect the attractiveness of a company for
investment purposes. In industries where one or two companies represent the
entire industry for a region (such as utility companies), governments usually
specify how much profit each company can make. In these instances, while there
is the potential for sizable profits, they are limited due to regulation. In other
industries, regulation can play a less direct role in affecting industry pricing. For
example, the drug industry is one of most regulated industries. And for good
reason - no one wants an ineffective drug that causes deaths to reach the
market. As a result, the Food and Drug Administration (FDA) requires that new
drugs must pass a series of clinical trials before they can be sold and distributed
to the general public. However, the consequence of all this testing is that it
usually takes several years and millions of dollars before a drug is approved.
Keep in mind that all these costs are above and beyond the millions that the drug
company has spent on research and development.
All in all, investors should always be on the lookout for regulations that could
potentially have a material impact upon a business' bottom line. Investors should
keep these regulatory costs in mind as they assess the potential risks and
rewards of investing.

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QUALITATIVE FACTOR – THE COMPANY

Before diving into a company's financial statements, let’s take a look at some of the
qualitative aspects of a company.

Following are the qualitative factors of the company that investor should be aware of –

 Business Model

One of the most important questions that should be asked is what exactly does the
company do? This is referred to as a company's business model. Its how a company
makes money? You can get a good overview of a company's business model by
checking out its website or annual report.

 Competitive Advantage

Another business consideration for investors is competitive advantage. A company's

long-term success is driven largely by its ability to maintain a competitive advantage -
and keep it. Powerful competitive advantages, such as Reliance’s brand name and
Microsoft's domination of the personal computer operating system, create a moat
around a business allowing it to keep competitors at bay and enjoy growth and profits.
When a company can achieve competitive advantage, its shareholders can be well
rewarded for decades.

 Management

A company relies upon management to steer it towards financial success. Some

believe that management is the most important aspect for investing in a company. It
makes sense - even the best business model is doomed if the leaders of the company
fail to properly execute the plan.
Every public company has a corporate information section on its website. Usually there
will be a quick biography on each executive with their employment history, educational
background and any applicable achievements. Don't expect to find anything useful here.
Let's be honest: We're looking for dirt, and no company is going to put negative
information on its corporate website.

Instead, here are a few ways for you to get a feel for management:

1. Management Discussion and Analysis (MD&A)

The Management Discussion and Analysis is found at the beginning of the annual
report. In theory, the MD&A is supposed to be frank commentary on the management's
outlook. Sometimes the content is worthwhile, other times it's boilerplate. One tip is to
compare what management said in past years with what they are saying now. Is it the
same material rehashed? Have strategies actually been implemented? If possible, sit
down and read the last five years of MD&As.

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2. Ownership and Insider Sales

Just about any large company will compensate executives with a combination of cash,
restricted stock and options. It is a positive sign that members of management are also
shareholders. The ideal situation is when the founder of the company is still in charge.
Examples include Mukesh Ambani & Ajim Premji When you know that a majority of
management's wealth is in the stock, you can have confidence that they will do the right
thing. As well, it's worth checking out if management has been selling its stock. This has
to be filed with the Securities and Exchange Board of India (SEBI), so it's publicly
available information. Talk is cheap - think twice if you see management unloading all of
its shares while saying something else in the media.

3. Past Performance

Another good way to get a feel for management capability is to check and see how
executives have done at other companies in the past. You can normally find biographies
of top executives on company web sites. Identify the companies they worked at in the
past and do a search on those companies and their performance.

4. Conference Calls

Some of the big market capitalisation companies have conference calls do that
management can address critical issues such as performance review, critical
developments etc. The excerpts of these are later displayed on the company’s web
sites so as to enable investors to access these.

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QUANTITATIVE FACTOR

Now as we know the qualitative factor of fundamental analysis, let’s proceed to the
quantitative factor of fundamental analysis. Quantitative factor include analysis of
financial statement of the company.

RATIO ANALYSIS

Financial ratios are tools for interpreting financial statements to provide a basis for
valuing securities and appraising financial and management performance.

In general, there are 4 kinds of financial ratios that a financial analyst will use most
frequently, these are:

 Performance ratios
 Working capital ratios
 Liquidity ratios
 Solvency ratios

These 4 financial ratios allow a good financial analyst to quickly and efficiently address
the following questions or concerns:

Performance ratios

 What return is the company making on its capital investment?

 What are its profit margins?

Working capital ratios

 How quickly are debts paid?

 How many times is inventory turned?

Liquidity ratios

 Can the company continue to pay its liabilities and debts?

Solvency ratios (Longer term)

 What is the level of debt in relation to other assets and to equity?

 Is the level of interest payable out of profits?

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Following are some ratios which are used to analyze companies’ performance

1. Current Ratio: Current ratio is calculated in order to work out firm’s ability to pay off
its short-term liabilities. This ratio is also called working capital ratio. This ratio explains
the relationship between current assets and current liabilities of a business. Where
current assets are those assets which are either in the form of cash or easily convertible
into cash within a year. Similarly, liabilities, which are to be paid within an accounting
year, are called current liabilities.

Current Ratio = Current Assets/Current Liabilities

Current Assets include Cash in hand, Cash at Bank, Sundry Debtors, Bills
Receivable, Stock of Goods, Short-term Investments, Prepaid Expenses, Accrued
Incomes etc.

Current Liabilities include Sundry Creditors, Bills Payable, Bank Overdraft,

Outstanding Expenses etc.

Objective and Significance: Current ratio shows the short-term financial position of the
business. This ratio measures the ability of the business to pay its current liabilities. The
ideal current ratio is supposed to be 2:1 i.e. current assets must be twice the current
liabilities. In case, this ratio is less than 2:1, the short-term financial position is not
supposed to be very sound and in case, it is more than 2:1, it indicates idleness of
working capital.

2. Liquid Ratio: Liquid ratio shows short-term solvency of a business in a true manner.
It is also called acid-test ratio and quick ratio. It is calculated in order to know how
quickly current liabilities can be paid with the help of quick assets. Quick assets mean
those assets, which are quickly convertible into cash.

Liquid Ratio = Liquid Assets/Current Liabilities

Where liquid assets include Cash in hand, Cash at Bank, Sundry Debtors, Bills
Receivable, Short-term Investments etc. In other words, all current assets are liquid
assets except stock and prepaid expenses.

Current liabilities include Sundry Creditors, Bills Payable, Bank Overdraft, Outstanding
Expenses etc

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3. Debt-Equity Ratio: Debt equity ratio shows the relationship between long-term debts
and shareholders funds’. It is also known as ‘External-Internal’ equity ratio.

Debt Equity Ratio = Debt/Equity

Where Debt (long term loans) include Debentures, Mortgage Loan, Bank Loan,
Public Deposits, Loan from financial institution etc.

Equity (Shareholders’ Funds) = Share Capital (Equity + Preference) + Reserves and

Surplus – Fictitious Assets

Objective and Significance: This ratio is a measure of owner’s stock in the business.
Proprietors are always keen to have more funds from borrowings because:

(i) Their stake in the business is reduced and subsequently their risk too

(ii) Interest on loans or borrowings is a deductible expenditure while computing taxable

profits. Dividend on shares is not so allowed by Income Tax Authorities.

The normally acceptable debt-equity ratio is 2:1.

4. Fixed Assets Ratio: Fixed Assets Ratio establishes the relationship of Fixed Assets
to Long-term Funds.

Fixed Assets Ratio = Long-term Funds/Net Fixed Assets

Where Long-term Funds = Share Capital (Equity + Preference) + Reserves and Surplus
+ Long- term Loans – Fictitious Assets

Net Fixed Assets means Fixed Assets at cost less depreciation. It will also include trade
investments.

Objective and Significance: This ratio indicates as to what extent fixed assets are
financed out of long-term funds. It is well established that fixed assets should be
financed only out of long-term funds. This ratio workout the proportion of investment of
funds from the point of view of long-term financial soundness. This ratio should be equal
to 1. If the ratio is less than 1, it means the firm has adopted the impudent policy of
using short-term funds for acquiring fixed assets. On the other hand, a very high ratio
would indicate that long-term funds are being used for short-term purposes, i.e. for
financing working capital.

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5. Working Capital Turnover Ratio: Working capital turnover ratio establishes a
relationship between net sales and working capital. This ratio measures the efficiency of
utilization of working capital.

Working Capital Turnover Ratio = Net Sales or Cost of Goods Sold/Net Working
Capital

Where Net Working Capital = Current Assets – Current Liabilities

Objective and Significance: This ratio indicates the number of times the utilisation of
working capital in the process of doing business. The higher is the ratio, the lower is the
investment in working capital and the greater are the profits. However, a very high
turnover indicates a sign of over-trading and puts the firm in financial difficulties. A low
working capital turnover ratio indicates that the working capital has not been used
efficiently.

6. Stock Turnover Ratio: Stock turnover ratio is a ratio between cost of goods sold and
average stock. This ratio is also known as stock velocity or inventory turnover ratio.

Stock Turnover Ratio = Cost of Goods Sold/Average Stock

Where Average Stock = [Opening Stock + Closing Stock]/2

Cost of Goods Sold = Opening Stock + Net Purchases + Direct Expenses – Closing
Stock

Objective and Significance: Stock is a most important component of working capital.

This ratio provides guidelines to the management while framing stock policy. It
measures how fast the stock is moving through the firm and generating sales. It helps to
maintain a proper amount of stock to fulfill the requirements of the concern. A proper
inventory turnover makes the business to earn a reasonable margin of profit.

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7. Debtors’ Turnover Ratio: Debtors turnover ratio indicates the relation between net
credit sales and average accounts receivables of the year. This ratio is also known as
Debtors’ Velocity.

Debtors Turnover Ratio = Net Credit Sales/Average Accounts Receivables

Where Average Accounts Receivables = [Opening Debtors and B/R + Closing Debtors
and B/R]/2

Credit Sales = Total Sales – Cash Sales

Objective and Significance: This ratio indicates the efficiency of the concern to collect
the amount due from debtors. It determines the efficiency with which the trade debtors
are managed. Higher the ratio, better it is as it proves that the debts are being collected
very quickly.

8. Capital Turnover Ratio: Capital turnover ratio establishes a relationship between net
sales and capital employed. The ratio indicates the times by which the capital employed
is used to generate sales. It is calculated as follows: -

Capital Turnover Ratio = Net Sales/Capital Employed

Where Net Sales = Sales – Sales Return

Capital Employed = Share Capital (Equity + Preference) + Reserves and Surplus +

Long-term Loans – Fictitious Assets.

Objective and Significance: The objective of capital turnover ratio is to calculate how
efficiently the capital invested in the business is being used and how many times the
capital is turned into sales. Higher the ratio, better the efficiency of utilisation of capital
and it would lead to higher profitability.

9. Net Profit Ratio: Net Profit Ratio shows the relationship between Net Profit of the
concern and Its Net Sales. Net Profit Ratio can be calculated in the following manner: -

Net Profit Ratio = Net Profit/Net Sales x 100

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Where Net Profit = Gross Profit – Selling and Distribution Expenses – Office and
Administration Expenses – Financial Expenses – Non Operating Expenses + Non
Operating Incomes.

And Net Sales = Total Sales – Sales Return

Objective and Significance: In order to work out overall efficiency of the concern Net
Profit ratio is calculated. This ratio is helpful to determine the operational ability of the
concern. While comparing the ratio to previous years’ ratios, the increment shows the
efficiency of the concern.

10. Return on Investment or Return on Capital Employed: This ratio shows the
relationship between the profit earned before interest and tax and the capital employed
to earn such profit.

Return on Capital Employed

= Net Profit before Interest, Tax and Dividend/Capital Employed x 100

Where Capital Employed = Share Capital (Equity + Preference) + Reserves and Surplus
+ Long-term Loans – Fictitious Assets

Or

Capital Employed = Fixed Assets + Current Assets – Current Liabilities

Objective and Significance: Return on capital employed measures the profit, which a
firm earns on investing a unit of capital. The profit being the net result of all operations,
the return on capital expresses all efficiencies and inefficiencies of a business. This ratio
has a great importance to the shareholders and investors and also to management. To
shareholders it indicates how much their capital is earning and to the management as to
how efficiently it has been working. This ratio influences the market price of the shares.
The higher the ratio, the better it is.

11. Return on Equity: Return on equity is also known as return on shareholders’

investment. The ratio establishes relationship between profit available to equity
shareholders with equity shareholders’ funds.

Return on Equity

= Net Profit after Interest, Tax and Preference Dividend/Equity Shareholders’

Funds x 100

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Where Equity Shareholders’ Funds = Equity Share Capital + Reserves and Surplus –
Fictitious Assets

Objective and Significance: Return on Equity judges the profitability from the point of
view of equity shareholders. This ratio has great interest to equity shareholders. The
return on equity measures the profitability of equity funds invested in the firm. The
investors favour the company with higher ROE.

12. Earning Per Share: Earning per share is calculated by dividing the net profit (after
interest, tax and preference dividend) by the number of equity shares.

Earning Per Share

= Net Profit after Interest, Tax and Preference Dividend/No. Of Equity Shares

Objective and Significance: Earning per share helps in determining the market price
of the equity share of the company. It also helps to know whether the company is able
to use its equity share capital effectively with compare to other companies. It also tells
about the capacity of the company to pay dividends to its equity shareholders.

13. Price/Earning Ratio: This ratio shows the relationship between market price per
share and earning per share. In other words, if a company is reporting a profit of Rs.200
per share, and the stock is selling for Rs.2000 per share, the P/E ratio is 10 because
you are paying ten-times earnings (Rs.2000 per share divided by Rs.200 per share
earnings = 10 P/E.)

This ratio is calculated to find out the possibility of capital appreciation in future.

Price Earning Ratio = Market Price per Equity Share/ Earning per Share.

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TECHNICAL
ANALYSIS

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INTRODUCTION

Should I buy today? What will prices be tomorrow, next week, or next year? Wouldn't
investing be easy if we knew the answers to these seemingly simple questions?
technical analysis has the answers to these questions.

Technical analysis is the process of analyzing a security's historical prices in an effort to

determine probable future prices. This is done by comparing current price action (i.e.,
current expectations) with comparable historical price action to predict a reasonable
outcome.

Simply put, technical analysis is the study of prices, with charts being the primary tool.
Technical analysts are sometimes referred to as chartists because they rely almost
exclusively on charts for their analysis.

Technical analysis is applicable to stocks, indices, commodities, futures or any tradable

instrument where the price is influenced by the forces of supply and demand. Price
refers to any combination of the open, high, low or close for a given security over a
specific timeframe. The time frame can be based on intraday (tick, 5-minute, 15-minute
or hourly), daily, weekly or monthly price data and last a few hours or many years.

Technicians, as technical analysts are called, are only concerned with two things:

1. What is the current price?

2. What is the history of the price movement?

The price is the end result of the battle between the forces of supply and demand for the
company's stock. The objective of analysis is to forecast the direction of the future price.
By focusing on price and only price, technical analysis represents a direct approach.
Technicians believe it is best to concentrate on what and never mind why. Why did the
price go up? It is simple, more buyers (demand) than sellers (supply). After all, the value
of any asset is only what someone is willing to pay for it.

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What is Chart?

A price chart is a sequence of prices plotted over a specific timeframe. In statistical

terms, charts are referred to as time series plots.

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(Current Chart for Minnesota Mining & Manufacturing)

On the chart, the y-axis (vertical axis) represents the price scale and the x-axis
(horizontal axis) represents the time scale. Prices are plotted from left to right across the
x-axis with the most recent plot being the furthest right. The price plot for MMM extends
from January 1, 1999 to March 13, 2000.

What are the different Charts used in Technical Analysis?

1. Line Chart

The line chart is one of the simplest charts. It is formed by plotting one price
point, usually the close, of a security over a period of time. Connecting the dots,
or price points, over a period of time, creates the line.

(Current Chart for Sun Microsystems)

Some investors and traders consider the closing level to be more important than the
open, high or low. By paying attention to only the close, intraday swings can be ignored.

24
Line charts are also used when open, high and low data points are not available.
Sometimes only closing data are available for certain indices, thinly traded stocks and
intraday prices

2. Bar Chart

Perhaps the most popular charting method is the bar chart. The high, low and
close are required to form the price plot for each period of a bar chart. The high
and low are represented by the top and bottom of the vertical bar and the close is
the short horizontal line crossing the vertical bar. On a daily chart, each bar
represents the high, low and close for a particular day. Weekly charts would have
a bar for each week based on Friday's close and the high and low for that week.

25
3. Candlestick Chart

Originating in Japan over 300 years ago, candlestick charts have become quite
popular in recent years. For a candlestick chart, the open, high, low and close
are all required. A daily candlestick is based on the open price, the intraday high
and low, and the close. A weekly candlestick is based on Monday's open, the
weekly high-low range and Friday's close.

26
Many traders and investors believe that candlestick charts are easy to read, especially
the relationship between the open and the close. White (clear) candlesticks form when
the close is higher than the open and black (solid) candlesticks form when the close is
lower than the open. The white and black portion formed from the open and close is
called the body (white body or black body). The lines above and below are called
shadows and represent the high and low.

INTRODUCTION TO TRENDLINE

Trendlines are an important tool in technical analysis for both trend identification and
confirmation. A trendline is a straight line that connects two or more price points and
then extends into the future to act as a line of support or resistance.
Trends in charts are found to take decision regarding buying, selling or holding the
stock. When a stock is in uptrend it is good stock to buy and when a stock is in down
trend it is advisable to sell that particular stock or wait for trend in the stock to change

27
before taking buying decision.

Following charts show Uptrend and Downtrend movement in stocks

The above chart of GoodYear Tire shows uptrend movement in stock. The trendline is
formed by joining previous lowest closing prices of the stock.

28
The above chart of MERK&CO shows downtrend movement in stock. The trendline
is formed by joining previous highest closing prices of the stock.
Note: Trendline as it shows the uptrend or downtrend movement in stock, breakout
in the trendline indicates the trend reversal in the stock. Breakout in downtrend line
give bullish signal and it is the time to buy that particular stock whereas breakout in
uptrend line give bearish signal, it is advisable to sell the stock as the trend in the
stock has changed and the stock may further fall in price.

29
 INTRODUCTION TO SUPPORT AND RESISTANCE

Support and resistance represent key junctures where the forces of supply and demand
meet. In the financial markets, prices are driven by excessive supply (down) and
demand (up). Supply is synonymous with bearish, bears and selling. As demand
increases, prices advance and as supply increases, prices decline. When supply and
demand are equal, prices move sideways as bulls and bears slug it out for control .

What is Support?

Support is the price level at which demand is thought to be strong enough to prevent the
price from declining further. The logic dictates that as the price declines towards support
and gets cheaper, buyers become more inclined to buy and sellers become less inclined
to sell. By the time the price reaches the support level, it is believed that demand will
overcome supply and prevent the price from falling below support.

What is Resistance?

Resistance is the price level at which selling is thought to be strong enough to prevent
the price from rising further. The logic dictates that as the price advances towards
resistance, sellers become more inclined to sell and buyers become less inclined to buy.
By the time the price reaches the resistance level, it is believed that supply will
overcome demand and prevent the price from rising above resistance.

30
The above chart of PHILLIP MORRIS shows that the stock has Resistance at 51.5 with
double top confirmation and it has Support at 45.5 with double bottom confirmation.
Breakout in the resistance level gives bullish signal, it is the right time to buy the stock
as the stock is expected to rise further whereas breakout in the support level is bearish
sign for the stock and investors are advised to sell the stock when it’s price goes below
support level as it is expected that the stock may further fall in price.

Note: When a resistance level is successfully penetrated, that level becomes a support
level. Similarly when a support level is successfully penetrated, that level becomes a
resistance level.

31
 INTRODUCTION TO INDICATORS

An indicator is a series of data points that are derived by applying a formula to the price
data of a security. Price data includes any combination of the open, high, low or close
over a period of time. Some indicators may use only the closing prices, while others
incorporate volume and open interest into their formulas. The price data is entered into
the formula and a data point is produced.
An indicator offers a different perspective from which to analyze the price action.
Regardless of the complexity of the formula, indicators can provide unique perspective
on the strength and direction of the underlying price action.

Why use indicators?

Indicators serve three broad functions: to alert, to confirm and to predict.

 An indicator can act as an alert to study price action a little more closely. If
momentum is waning, it may be a signal to watch for a break of support. Or, if
there is a large positive divergence building, it may serve as an alert to watch for
a resistance breakout.
 Indicators can be used to confirm other technical analysis tools. If there is a
breakout on the price chart, a corresponding moving average crossover could
serve to confirm the breakout. Or, if a stock breaks support, a corresponding low
in the On-Balance-Volume (OBV) could serve to confirm the weakness.
 Some investors and traders use indicators to predict the direction of future prices.

Following are various indicators used in Technical Analysis

 Average Directional Index (ADX)

 Average True Range (ATR)
 Bollinger Bands
 Commodity Channel Index (CCI)
 Moving Average
 Moving Average Convergence Divergence (MACD)
 Relative Strength Index(RSI)
 Stochastic Oscillator

32
 Moving Averages

Moving averages are one of the most popular and easy to use tools available to the
technical analyst. By using an average of prices, moving averages smooth a data series
and make it easier to spot trends. This can be especially helpful in volatile markets.
Moving Averages like other indicators are mainly used to confirm the trend reversal and
take decision regarding Buying, Selling or Holding the stock.
If current stock price is above Moving Average Line then it is good stock to buy or hold.
Breakout in the Moving Average Line gives indication of buying or selling the stock.

The above chart of Sun Microsystems, Inc. shows 50 day SMA (Simple Moving
Average) and 200 day SMA line. The chart shows breakout in 200 day SMA line at 50
which gives bearish signal. Investors are advised to sell the stock at 50 as it is entering
the bearish zone.

Note: For long term investment horizon use 200 day SMA and for short or medium term
investment horizon use 50 day SMA.

33
 ANALYSIS OF
BANKING SECTOR

THE INDIAN BANKING SECTOR

34
Without a sound and effective banking system in India it cannot have a healthy
economy. The banking system of India should not only be hassle free but it should be
able to meet new challenges posed by the technology and any other external and
internal factors.
For the past three decades India's banking system has several outstanding
achievements to its credit. It is no longer confined to only metropolitans or
cosmopolitans in India; in fact, Indian banking system has reached even to the remote
corners of the country. This is one of the main reasons of India's growth process. The
government's regular policy for Indian bank since 1969 has paid rich dividends with the
nationalization of 14 major private banks of India. Not long ago, an account holder had
to wait for hours at the bank counters for getting a draft or for withdrawing his own
money. Today, he has a choice. Gone are days when the most efficient bank transferred
money from one branch to other in two days. Now it is simple as instant messaging or
dial a pizza. Money has become the order of the day.

Post Independence
 In 1948, the Reserve Bank of India, India's central banking authority, was
nationalized, and it became an institution owned by the Government of India.
 In 1949, the Banking Regulation Act was enacted which empowered the Reserve
Bank of India (RBI) "to regulate, control, and inspect the banks in India."
 The Banking Regulation Act also provided that no new bank or branch of an existing
bank may be opened without a license from the RBI, and no two banks could have
common directors.

35
Liberalization
The new policy shook the Banking sector in India completely. Bankers, till this time,
were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of
functioning. In the early 1990s the then Narsimha Rao government embarked on a
policy of liberalization and gave licenses to a small number of private banks, which
came to be known as New Generation tech-savvy banks, which included banks such as
Global Trust Bank (the first of such new generation banks to be set up) which later
amalgamated with Oriental Bank of Commerce, UTI Bank (now re-named as Axis
Bank), ICICI Bank and HDFC Bank.

RECENT DEVELOPMENT IN BANKING SECTOR

36
A retrospect of the events clearly indicates that the Indian banking sector has come far
away from the days of nationalization. The Narasimhan Committee laid the foundation
for the reformation of the Indian banking sector. Constituted in 1991, the Committee
submitted two reports, in 1992 and 1998, which laid significant thrust on enhancing the
efficiency and viability of the banking sector. As the international standards became
prevalent, banks had to unlearn their traditional operational methods of directed credit,
directed investments and fixed interest rates, all of which led to deterioration in the
quality of loan portfolios, inadequacy of capital and the erosion of profitability.

The recent international consensus on preserving the soundness of the banking system
has veered around certain core themes. These are: effective risk management systems,
adequate capital provision, sound practices of supervision and regulation, transparency
of operation, conducive public policy intervention and maintenance of macroeconomic
stability in the economy.

Until recently, the lack of competitiveness vis-à-vis global standards, low technological
level in operations, over staffing, high NPAs and low levels of motivation had shackled
the performance of the banking industry.

However, the banking sector reforms have provided the necessary platform for the
Indian banks to operate on the basis of operational flexibility and functional autonomy,
thereby enhancing efficiency, productivity and profitability. The reforms also brought
about structural changes in the financial sector and succeeded in easing external
constraints on its operation, i.e. reduction in CRR and SLR reserves, capital adequacy
norms, restructuring and recapitulating banks and enhancing the competitive element in
the market through the entry of new banks.

The reforms also include increase in the number of banks due to the entry of new
private and foreign banks, increase in the transparency of the banks’ balance sheets
through the introduction of prudential norms and increase in the role of the market
forces due to the deregulated interest rates. These have significantly affected the
operational environment of the Indian banking sector.

To encourage speedy recovery of Non-performing assets, the Narasimhan committee

laid directions to introduce Special Tribunals and also lead to the creation of an Asset
Reconstruction Fund. For revival of weak banks, the Verma Committee
recommendations have laid the foundation. Lastly, to maintain macroeconomic stability,
RBI has introduced the Asset Liability Management System.

The competitive environment created by financial sector reforms has nonetheless

compelled the banks to gradually adopt modern technology to maintain their market
share. Thus, the declaration of the Voluntary Retirement Scheme accounts for a positive
development reducing the administrative costs of Public Sector banks. The
developments, in general, have an emphasis on service and technology; for the first
time that Indian public sector banks are being challenged by the foreign banks and
private sector banks. Branch size has been reduced considerably by using technology

37
thus saving manpower.

The deregulation process has resulted in delivery of innovative financial products at

competitive rates; this has been proved by the increasing divergence of banks in retail
banking for their development and survival.

In order to survive and maintain strong presence, mergers and acquisitions has been
the most common development all around the world. In order to ensure healthy
competition, giving customer the best of the services, the banking sector reforms have
lead to the development of a diversifying portfolio in retail banking, and insurance, trend
of mergers for better stability and also the concept of virtual banking.

SWOT ANALYSIS OF BANKING SECTOR

38
STRENGTH
 Indian banks have compared favorably on growth, asset quality and profitability with
other regional banks over the last few years. The banking index has grown at a
compounded annual rate of over 51 per cent since April 2001 as compared to a 27
per cent growth in the market index for the same period.
 Policy makers have made some notable changes in policy and regulation to help
strengthen the sector. These changes include strengthening prudential norms,
enhancing the payments system and integrating regulations between commercial and
co-operative banks.
 Bank lending has been a significant driver of GDP growth and employment.
Extensive reach: the vast networking & growing number of branches & ATMs. Indian
banking system has reached even to the remote corners of the country.
 In terms of quality of assets and capital adequacy, Indian banks are considered to
have clean, strong and transparent balance sheets relative to other banks in
comparable economies in its region.
WEAKNESS
 Public Sector Banks need to fundamentally strengthen institutional skill levels
especially in sales and marketing, service operations, risk management and the
overall organisational performance ethic & strengthen human capital.

 Old private sector banks also have the need to fundamentally strengthen skill levels.

 The cost of intermediation remains high and bank penetration is limited to only a few
customer segments and geographies.

 Structural weaknesses such as a fragmented industry structure, restrictions on capital

availability and deployment, lack of institutional support infrastructure, restrictive
labour laws, weak corporate governance and ineffective regulations beyond
Scheduled Commercial Banks (SCBs), unless industry utilities and service bureaus.

39
 Refusal to dilute stake in PSU banks: The government has refused to dilute its
stake in PSU banks below 51% thus choking the headroom available to these banks
for raining equity capital.

 Impediments in sectoral reforms: Opposition from Left and resultant cautious

approach from the North Block in terms of approving merger of PSU banks may
hamper their growth prospects in the medium term.

OPPORTUNITY

 The market is seeing discontinuous growth driven by new products and services that
include opportunities in credit cards, consumer finance and wealth management on
the retail side, and in fee-based income and investment banking on the wholesale
banking side. These require new skills in sales & marketing, credit and operations.

 With increased interest in India, competition from foreign banks will only intensify.

 Given the demographic shifts resulting from changes in age profile and household
income, consumers will increasingly demand enhanced institutional capabilities and
service levels from banks.

 New private banks could reach the next level of their growth in the Indian banking
sector by continuing to innovate and develop differentiated business models to
profitably serve segments like the rural/low income and affluent/HNI segments;
actively adopting acquisitions as a means to grow and reaching the next level of
performance in their service platforms. Attracting, developing and retaining more
leadership capacity

 Foreign banks committed to making a play in India will need to adopt alternative
approaches to win the “race for the customer” and build a value-creating customer
franchise in advance of regulations potentially opening up post 2009.

40
 Reach in rural India for the private sector and foreign banks.

 Liberalization of ECB norms: The government also liberalised the ECB norms to
permit financial sector entities engaged in infrastructure funding to raise ECBs. This
enabled banks and financial institutions, which were earlier not permitted to raise
such funds, explore this route for raising cheaper funds in the overseas markets.

 Hybrid capital: In an attempt to relieve banks of their capital crunch, the RBI has
allowed them to raise perpetual bonds and other hybrid capital securities to shore up
their capital. If the new instruments find takers, it would help PSU banks, left with little
headroom for raising equity.

THREATS
 Threat of stability of the system: failure of some weak banks has often threatened the
stability of the system.

 Rise in inflation figures which would lead to increase in interest rates.

 Increase in the number of foreign players would pose a threat to the Public Sector
Bank as well as the private players.

BANKING STRUCTURE IN INDIA

41
 RESERVE BANK OF INDIA

SCHEDULED BANKS

COMMERCIAL BANKS CO-OPERATIVE BANKS

PRIVATE BANKS (31) URBAN CO-OPERATIVE

(52)

OLD BANKS (23)

STATE CO-OPERATIVE (16)

NEW BANKS (8)

PUBLIC SECTOR BANKS (27)

SBI AND ASSOCIATES (8)

NATIONALIZED BANKS (19)

According to the RBI in March 2009, number of all Scheduled Commercial Banks
(SCBs) was 171 of which, 86 were Regional Rural Banks and the number of Non-
Scheduled Commercial Banks including Local Area Banks stood at 5. Taking into
account all banks in India, there are overall 56,640 branches or offices, 893,356
employees and 27,088 ATMs. Public sector banks made up a large chunk of the
infrastructure, with 87.7 per cent of all offices, 82 per cent of staff and 60.3 per cent of
all automated teller machines (ATMs).

42
 TYPES OF BANKS AND BANKING ACTIVITIES
 

Scheduled And Non-Scheduled Banks

 In India the central banking authority is the Reserve Bank of India. It is also referred to
as the Apex Bank. It functions under an act called The Reserve Bank of India Act, 1934.
All the banks and other financial institutions operating in India come under the
monitoring and control of RBI. RBI controls the banking sector in India through an Act
called The Banking Regulations Act 1949. In the past, when there were very few banks,
RBI used to include all the scheduled banks in its schedule. Now a day, when the
number of banks has gone up substantially, RBI has to change the schedule every now
and then, hence irrespective of whether a bank finds its name in the schedule to the RBI
Act or not, its schedule status can be found out from its banking license. A Bank that is
not a scheduled bank is referred to as non scheduled bank even in it is having banking
license.

 The difference lies in the type of banking activities that a bank can carry out in India. In
the case of a scheduled bank, it is licensed by the RBI to carry on extensive banking
operations including foreign exchange operations, whereas, a non-scheduled bank can
carry out only limited operations. There are a number of factors considered by RBI to
declare a bank as a scheduled bank, like the amount of share capital, type of banking
activities that the bank is permitted to carry out etc. An example of difference between a
scheduled and non-scheduled bank is dealing in Foreign Exchange.

Commercial and Co-operative Banks

 Commercial banks are by far the most widespread banking institutions in India. They
provide major products and services in India. A commercial bank is run on commercial
lines, for profits of the organization.

A co-operative bank on the other hand is run for the benefit of a group of members of
the co-operative body. A co-operative bank distributes only a very small portion of its
profit as dividend, retaining a major portion of it in business.

All the nationalized banks in India and almost all the private sector banks are
commercial scheduled banks. There are a large number of private sector co-operative
banks and most of them are non-scheduled banks. In the public sector also, within a
state, starting from the State capital, there are State Co-operative Banks and District
Central Co-operative Banks at the District level. Under the District Central Co-operative
Bank, there are Co-operative Societies.

43
 At present, In India, the banks can be bifurcated into following categories.

 Public Sector Banks or Nationalized Banks, which are commercial and

scheduled. Examples: State Bank of India, Bank of India etc.

 Public Sector Banks, which are co-operative and non-scheduled: These are
state owned banks like the Maharashtra State Co-operative Bank, Junnar Co-
operative Society etc.

 Private Sector Banks, which are commercial and scheduled- These could be
foreign banks, as well as Indian Banks.
Examples: Foreign Banks- CITI Bank, Standard Chartered Bank etc.
Indian Banks- Bank of Rajasthan Limited, VYSYA Bank Limited etc.

 Private Sector Banks, which are co-operative and scheduled- These are
large co-operative sector banks but which are scheduled banks. Examples:
Saraswat Co-operative Bank Limited, Cosmos Co-operative Bank Limited etc.

 Private Sector Banks, which are co-operative and non-scheduled-These are

small co-operative banks but which are non-scheduled. Examples: Local co-
operative banks which operate within a town or a city. Example: Mahesh
Sahakari Bank Limited.

 Regional Rural Banks. These are state owned. These banks have been
established with a view to developing the rural economy by providing, for the
purpose of development of agriculture, trade, commerce, industry and other
productive activities in the rural areas, credit and other facilities, particularly to
the small and marginal farmers, agricultural labourers and artisans and small
entrepreneurs

 Gramin Banks, that are also state owned. They operate at still smaller level than
RRBs and serve at village level.

 Foreign banks, These banks have Head Office outside India and branch in
India, Besides, the Reserve Bank of India (hereinafter referred to as RBI) acts as
the central bank of the country. RBI is responsible for development and
supervision of the constituents of the Indian financial system (which comprises
banks and non-banking financial institutions) as well as for determining, in
conjunction with the central Government, the monetary and credit policies. They
are also controlled by RBI. 

44
Retail Banking Vs Wholesale Banking

 Whole sale banking typically involves a small number of very large customers such as
big corporations and governments, whereas retail banking consists of a large number of
small customers who consume personal banking and small business services.
Wholesale banking is largely inter-bank; banks use the inter-bank markets to borrow
from or lend to other banks/ large customers, to participate in large bond issues and to
engage in syndicated lending. Retail banking is largely intra-bank; the bank itself makes
many small loans.

 Most of the Indian public sector banks practice retail banking; they are slowly practicing
the concept of wholesale banking. On the other hand, most of the well established
foreign banks in India and the recent private sector banks practice wholesale banking
alongside retail banking.

 As a result of this difference, the composition of income for a public sector bank is
different. While a major portion of the income for large public sector banks is from
lending operations, in the case of any private sector bank in India, the amount of non-
operating income (other than interest income) is substantially higher. The composition of
other income is commission on bills/ guarantees/ letters of credit, counseling fees,
syndication fees, credit report fees, loan processing fees, correspondent bank charges
etc.

 Global Banking

 Global Banking activities are an extension of various activities listed above into the
international market. Global banking primarily consists of trade in international banking
services and establishment of branches and subsidiaries in foreign countries.

 Special kinds of Bank branches

Most Banks in India have special kind of branches. This is done to reap benefits of
specialisation as activities done by these braches are quite complex and require
specialised knowledge and attention.
Types of some special branches are

1. Foreign exchange branches

2. NPA recovery branches
3. Service branches dealing in Clearing house operations/Corporate banking and
Industrial finance branches
4. Personal banking branches
5. Housing finance branch
6. SSI branches
7. Agricultural finance branches

45
46
What are the sources of funds for banks in India?

The banks in India generate their funds from two types of sources:

Long-Term Sources:

1. Tier one and Tier two Capital in the form of equity/subordinate

debts/debentures/preference shares.
2. Internal accrual generated out of profits.
3. Long-term fixed deposits generated from public and corporate clients, financial
institutions, and mutual funds, etc.
4. Long-term borrowings from financial institutions like NABARD/SIDBI.

Short-Term Sources:

1. Call money market, i.e., funds generated among inter banking transactions
where there is online trading of money between bankers.
2. Fixed deposits generated from public and corporate clients, FIs, and MFs, etc.
3. Market-linked borrowings from RBI.
4. Sale of liquid certificate deposits in the open market.
5. Borrowing from RBI under Repo (Repurchase option).
6. Short and medium-term fixed deposits generated from public and corporate
clients, mutual funds, and financial institutions, etc.
7. Floating in current and saving accounts.
8. Short-term borrowings from FIs by way of rated papers placed, etc.

47
 Key players

Andhra Bank State Bank of India

Allahabad Bank Vijaya Bank

Punjab National Bank HDFC Bank

Axis Bank ICICI Bank

Kotak Mahindra Bank ABN AMRO

Citibank Standard Chartered Bank

HSBC Bank State Bank of Mysore

Bank of Baroda Union Bank of India

Bank of India Yes Bank

48
ANALYSIS OF BANKS

49
 Punjab National Bank

Union Bank of India

KOTAK MAHINDRA BANK

YES BANK

50
PNB (Punjab National Bank)

51
Profile of PNB

With over 56 million satisfied customers and 5002

offices, PNB has continued to retain its leadership position amongst the
nationalized banks. The bank enjoys strong fundamentals, large franchise value
and good brand image. Besides being ranked as one of India's top service
brands, PNB has remained fully committed to its guiding principles of sound and
prudent banking. Apart from offering banking products, the bank has also entered
the credit card & debit card business; bullion business; life and non-life insurance
business; Gold coins & asset management business, etc.

Since its humble beginning in 1895 with the distinction of being the first Indian
bank to have been started with Indian capital, PNB has achieved significant
growth in business which at the end of March 2010 amounted to Rs 435931
crore. Today, with assets of more than Rs 2,96,633 crore, PNB is ranked as the
3rd largest bank in the country (after SBI and ICICI Bank) and has the 2nd
largest network of branches (5002 offices including 5 overseas branches ).

Punjab National Bank continues to maintain its frontline position in the Indian
banking industry. In particular, the bank has retained its NUMBER ONE position
among the nationalized banks in terms of number of branches, Deposit,
Advances, total Business, Assets, Operating and Net profit in the year 2009-10.
The impressive operational and financial performance has been brought about by
Bank’s focus on customer based business with thrust on CASA deposits, Retail,
SME & Agri Advances and with more inclusive approach to banking; better asset
liability management; improved margin management, thrust on recovery and
increased efficiency in core operations of the Bank.

SHAREHOLDING PATTERN (%)

0.02 0.01 4.12

19.11
0.88
Indian Promoters
Banks,Financial Institutions &
Insurance
FII's
Private Corporate Bodies
57.8 NRI's/Foreign Others
14.7 Others
General Public

52
 Description Details

   

Industry Bank - Public  

House Government  

BSE Code 532461  

NSE Code PNB  

Incorporation Year 1895  

Registered Office 7 Bhikaiji Cama Place, New Delhi, New Delhi-110066.

ISINNO INE160A01014  

Phone 91-11-26102303/26108205/26196487

E-mail [email protected]

URL www.pnbindia.com

Industry Bank - Public  

Chairman K.R.KAMATH  

Managing Director K.R.KAMATH  

Executive Director M.V.TANKSALE & NAGESH PYDAH  

Listing BSE,NSE  

Profit & Loss

53
(Rs. in Crores)
Particulars Mar-09 Mar-08 Mar-07 Mar-06 Mar-05 Mar-04
INCOME :            
Interest Earned 19,326.16 14,265.02 11,236.14 9,584.15 8,459.85 7,778.95
Other Income 3,224.42 2,026.46 1,932.71 1,901.00 2,186.36 2,057.16
Total I 22,550.58 16,291.48 13,168.85 11,485.15 10,646.21 9,836.11
II. Expenditure            
Interest expended 12,295.30 8,730.86 6,022.91 4,917.39 4,453.11 4,154.99
Payments to/Provisions for
2,924.38 2,461.54 2,352.45 2,114.98 2,121.23 1,654.06
Employees
Operating Expenses &
663.76 563.61 485.00 455.22 384.44 321.56
Administrative Expenses
Depreciation 191.06 170.23 194.80 186.64 183.28 181.45
Other Expenses, Provisions &
1,712.66 1,072.78 1,945.94 1,777.05 1,457.07 1,754.57
Contingencies
Provision for Tax 1,701.32 1,264.75 739.21 412.83 494.64 660.79
Fringe Benefit tax 12.68 10.45 8.96 9.00 0.00 0.00
Deferred Tax -41.46 -31.50 -120.50 172.73 142.32 0.00
Total II 19,459.70 14,242.72 11,628.77 10,045.84 9,236.09 8,727.42
III. Profit & Loss            
Reported Net Profit 3,090.88 2,048.76 1,540.08 1,439.31 1,410.12 1,108.69
Extraordinary Items 1.18 0.70 -254.38 1.89 0.46 0.15
Adjusted Net Profit 3,089.70 2,048.06 1,794.46 1,437.42 1,409.66 1,108.54
Prior Year Adjustments 0.00 0.00 -13.27 0.00 0.00 0.00
Profit brought forward 0.00 15.52 183.49 0.00 0.00 0.00
IV. Appropriations            
Transfer to Statutory Reserve 772.72 512.19 385.02 359.83 352.53 277.17
Transfer to Other Reserves 1,572.74 1,072.54 850.03 680.28 859.93 711.80
Trans. to Government
737.78 479.55 459.73 215.71 197.66 119.72
/Proposed Dividend
Balance carried forward to
7.64 0.00 15.52 183.49 0.00 0.00
Balance Sheet
Equity Dividend % 200.00 130.00 100.00 90.00 60.00 40.00
Earnings Per Share-Unit Curr 94.63 62.77 47.26 44.81 43.98 41.28
Earnings Per Share(Adj)-Unit
94.63 62.77 47.26 44.81 43.98 41.28
Curr
Book Value-Unit Curr 416.74 341.98 321.65 287.79 248.93 176.81

Balance Sheet

54
(Rs. in Crores)

Particulars Mar-09 Mar-08 Mar-07 Mar-06 Mar-05 Mar-04

SOURCES OF FUNDS
           
Capital
315.30 315.30 315.30 315.30 315.30 265.30
Reserves Total
14,338.33 12,003.04 10,120.16 9,061.06 7,846.00 4,746.50
Deposits
209,760.50166,457.23139,859.67119,684.92103,166.89 87,916.40
Borrowings
4,374.36 5,446.56 1,948.86 6,664.87 2,718.29 1,289.06
Other Liabilities & Provisions
18,151.15 14,826.64 10,285.14 9,623.64 12,222.24 8,155.88
TOTAL LIABILITIES 246,939.64199,048.77162,529.13145,349.79126,268.72 102,373.14

APPLICATION OF FUNDS            

Cash & Balances with RBI

17,058.25 15,258.15 12,372.03 23,394.55 9,460.20 6,742.28
Balances with Banks & money at Call
4,354.89 3,572.57 3,273.49 1,397.14 1,628.83 2,078.23
Investments
63,385.18 53,991.71 45,189.84 41,055.31 50,672.83 42,125.49
Advances
154,702.99119,501.57 96,596.52 74,627.37 60,412.75 47,224.72
Fixed Assets
2,397.11 2,315.52 1,009.82 1,030.23 965.23 899.84
Other Assets
5,041.22 4,409.25 4,087.43 3,845.19 3,128.88 3,302.58
Miscellaneous Expenditure not written
off 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL ASSETS 246,939.64199,048.77162,529.13145,349.79126,268.72 102,373.14

Contingent Liability
103,650.26 96,951.50 66,758.42 53,035.43 43,001.29 32,230.03
Bills for collection 7,561.84 7,104.56 7,942.25 5,704.17 4,046.07 4,813.08

Key Ratios

55
   Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06

Per share ratios

Adjusted EPS (Rs) 123.78 97.97 64.94 48.82 45.56
Adjusted cash EPS (Rs) 130.85 104.03 70.34 55.00 51.48
Reported EPS (Rs) 123.86 98.03 64.98 48.84 45.65
Reported cash EPS (Rs) 130.93 104.09 70.38 55.02 51.57
Dividend per share 22.00 20.00 10.00 10.00 6.00
Operating profit per share (Rs) 191.63 151.48 109.81 74.53 57.00
Book value (excl rev res) per share (Rs) 514.77 41.28 341.98 321.65 287.79
Book value (incl rev res) per share (Rs.) 562.09 10.23 390.68 330.97 297.38
Net operating income per share (Rs) 777.82 694.81 505.09 383.89 310.53
Free reserves per share (Rs) 63.79 64.04 63.79 64.29 69.61

Profitability ratios
Operating margin (%) 24.63 21.80 21.74 19.41 18.35
Gross profit margin (%) 23.72 20.93 20.67 17.80 16.44
Net profit margin (%) 15.64 13.76 12.68 12.53 14.50
Adjusted cash margin (%) 16.52 14.60 13.72 14.10 16.35
Adjusted return on net worth (%) 24.04 23.50 18.99 15.17 15.83
Reported return on net worth (%) 24.06 23.52 19.00 15.18 15.86
Return on long term funds (%) 116.11 129.83 111.52 80.76 74.57

Leverage ratios
Long term debt / Equity - - - - -
Total debt/equity 15.36 15.96 15.44 13.79 13.19
Owners fund as % of total source 6.11 5.89 6.08 6.76 7.04
Fixed assets turnover ratio 5.89 5.64 4.35 5.48 4.75

Liquidity ratios
Current ratio 0.61 0.27 0.29 0.39 0.39
Current ratio (inc. st loans) 0.02 0.02 0.02 0.02 0.02
Quick ratio 20.47 9.75 9.40 11.10 10.69
Inventory turnover ratio - - - - -

Payout ratios
Dividend payout ratio (net profit) 20.74 23.86 23.40 30.71 14.98
Dividend payout ratio (cash profit) 19.62 22.47 21.61 27.26 13.26
Earning retention ratio 79.25 76.12 76.59 69.28 84.99

56
he above chart of Punjab National Bank shows uptrend in stock. The stock is current
(25/6/2010) trading at Rs.1045. It has resistance at Rs.1046 and Support at Rs. 836.
As the stock is in uptrend it is good stock to buy but investors are advised to wait for
some correction in the stock as stock is trading near the resistance level or Buy the
Stock above Rs. 1046.

57
UBI (Union Bank of India)

58
Profile of UBI

The dawn of twentieth century witnesses the birth of a banking enterprise par
excellence- UNION BANK OF INDIA- that was flagged off by none other than the Father
of the Nation, Mahatma Gandhi. Since that the golden moment, Union Bank of India has
this far unflinchingly traveled the arduous road to successful banking........ a journey that
spans 88 years.

Union Bank of India is firmly committed to consolidating and maintaining its identity as a
leading, innovative commercial Bank, with a proactive approach to the changing needs
of the society. This has resulted in a wide gamut of products and services, made
available to its valuable clientele in catering to the smallest of their needs. Today, with
its efficient, value-added services, sustained growth, consistent profitability and
development of new technologies, Union Bank has ensured complete customer delight,
living up to its image of, “GOOD PEOPLE TO BANK WITH”. Anticipative banking- the
ability to gauge the customer's needs well ahead of real-time - forms the vital ingredient
in value-based services to effectively reduce the gap between expectations and
deliverables.

The key to the success of any organization lie with its people. No wonder, Union Bank's
unique family of about 26,000 qualified / skilled employees is and ever will be dedicated
and delighted to serve the discerning customer with professionalism and
wholeheartedness.

Union Bank is a Public Sector Unit with 55.43% Share Capital held by the Government
of India. The Bank came out with its Initial Public Offer (IPO) in August 20, 2002 and
Follow on Public Offer in February 2006. Presently 44.57 % of Share Capital is
presently held by institutions, individuals and others.

Over the years, the Bank has earned the reputation of being a techno-savvy and is a
front runner among public sector banks in modern-day banking trends. It is one of the
pioneer public sector banks, which launched Core Banking Solution in 2002. Under this
solution umbrella, All Branches of the Bank have been 1135 networked ATMs, with
online Telebanking facility made available to all its Core Banking Customers - individual
as well as corporate. In addition to this, the versatile Internet Banking provides
extensive information pertaining to accounts and facets of banking. Regular banking
services apart, the customer can also avail of a variety of other value-added services
like Cash Management Service, Insurance, Mutual Funds and Demat.

59
SHAREHOLDING PATTERN (%)

4.37 10.37
0.04

Indian Promoters
Banks,Financial Institutions &
17.03 Insurance
FII's
Private Corporate Bodies
55.43
NRI's/Foreign Others
General Public
4.02

60
 Description Details

   

Industry Bank - Public  

House Government  

BSE Code 532477  

NSE Code UNIONBANK  

Incorporation Year 1922 

239 Vidhan Bhavan Marg, Nariman Point Union Bank Bhavan,

Registered Office
Mumbai,Maharashtra-400021

ISINNO INE632A01016 

Phone 91-22-22024647/22892000/6643/6636

E-mail [email protected]

URL www.unionbankofindia.co.in

Industry Bank - Public  

Chairman M.V.NAIR

Managing Director M.V.NAIR  

Executive Director S.C.KALIA & S.RAMAN  

Listing BSE,NSE  

Profit & Loss

61
(Rs. in Crores)
Particulars Mar-10 Mar-09 Mar-08 Mar-07 Mar-06 Mar-05
INCOME :            
Interest Earned 13,302.68 11,889.38 9,214.63 7,382.18 5,863.71 4,969.79
Other Income 2,092.72 1,521.55 1,349.57 1,221.18 819.67 766.71
Total I 15,395.40 13,410.93 10,564.20 8,603.36 6,683.38 5,736.50
II. Expenditure            
Interest expended 9,110.27 8,075.81 6,360.95 4,591.96 3,489.42 2,905.24
Payments to/Provisions for
1,354.50 1,151.88 845.28 873.68 866.79 806.42
Employees
Operating Expenses &
586.27 576.99 387.11 305.68 278.02 239.66
Administrative Expenses
Depreciation 160.14 136.58 101.82 86.37 86.13 73.29
Other Expenses, Provisions &
1,351.30 1,113.12 1,008.64 1,365.28 1,068.39 1,100.30
Contingencies
Provision for Tax 758.00 618.00 477.15 527.54 187.00 -107.47
Fringe Benefit tax 0.00 12.00 10.00 7.46 32.45 0.00
Deferred Tax 0.00 0.00 -13.78 0.00 0.00 0.00
Total II 13,320.48 11,684.38 9,177.17 7,757.97 6,008.20 5,017.44
III. Profit & Loss            
Reported Net Profit 2,074.92 1,726.55 1,387.03 845.39 675.18 719.06
Extraordinary Items -0.47 6.82 -0.22 -0.24 0.69 -0.61
Adjusted Net Profit 2,075.39 1,719.73 1,387.25 845.63 674.49 719.67
Prior Year Adjustments 0.00 0.00 0.00 0.00 0.00 0.00
Profit brought forward 0.83 0.65 0.48 0.55 40.99 77.44
IV. Appropriations            
Transfer to Statutory Reserve 625.00 518.00 418.00 254.00 203.00 216.00
Transfer to Other Reserves 1,124.09 912.89 732.47 386.87 311.04 357.42
Trans. to Government /Proposed
325.03 295.48 236.39 204.59 201.58 182.09
Dividend
Balance carried forward to
1.63 0.83 0.65 0.48 0.55 40.99
Balance Sheet
Equity Dividend % 55.00 50.00 40.00 35.00 35.00 35.00
Earnings Per Share-Unit Curr 40.14 33.33 26.78 16.19 12.88 15.17
Earnings Per Share(Adj)-Unit
40.14 33.33 26.78 16.19 12.88 15.17
Curr
Book Value-Unit Curr 174.37 139.66 111.33 93.71 81.02 68.23

Balance Sheet
62
(Rs. in Crores)
Particulars Mar-10 Mar-09 Mar-08 Mar-07 Mar-06 Mar-05
SOURCES OF FUNDS
           
Capital
505.12 505.12 505.12 505.12 505.12 460.12
Reserves Total
9,918.66 8,235.24 6,842.58 4,684.75 4,053.04 3,154.32
Deposits
170,039.74138,702.83103,858.64 85,180.2274,094.3061,830.59
Borrowings
9,215.31 8,774.89 4,760.49 4,215.53 3,974.40 2,020.95
Other Liabilities & Provisions
5,830.61 5,119.56 8,319.87 8,194.06 6,547.02 4,976.65
TOTAL LIABILITIES 195,509.44161,337.64124,286.70102,779.6889,173.8872,442.63
APPLICATION OF
FUNDS            

Cash & Balances with RBI

12,468.24 8,992.05 9,454.74 5,917.57 4,387.27 3,647.18
Balances with Banks &
money at Call 3,308.45 6,992.88 643.10 2,508.87 2,003.24 2,924.79

Investments
54,403.53 42,996.96 33,822.63 27,981.7725,917.6522,792.79
Advances
119,315.30 96,534.23 74,266.91 62,386.4353,379.9640,105.08
Fixed Assets
2,305.44 2,335.16 2,200.40 825.00 810.42 823.79
Other Assets
3,708.48 3,486.36 3,898.92 3,160.04 2,675.34 2,149.00
Miscellaneous Expenditure
not written off 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL ASSETS 195,509.44161,337.64124,286.70102,779.6889,173.8872,442.63

Contingent Liability
72,338.05 81,147.10 62,517.40 41,703.7640,508.4439,379.41
Bills for collection 4,565.80 3,231.72 3,177.02 1,728.81 4,116.48 9,519.12

Key Ratios

63
   Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06

Per share ratios

Adjusted EPS (Rs) 41.09 34.00 27.47 16.74 13.35
Adjusted cash EPS (Rs) 44.26 36.70 29.48 18.45 15.05
Reported EPS (Rs) 41.08 34.18 27.46 16.74 13.37
Reported cash EPS (Rs) 44.25 36.89 29.48 18.45 15.07
Dividend per share 5.50 5.00 4.00 3.50 3.50
Operating profit per share (Rs) 49.70 43.59 33.38 27.32 25.69
Book value (excl rev res) per share (Rs) 174.37 1.07 111.33 93.71 81.02
Book value (incl rev res) per share (Rs.) 206.36 1.08 145.47 102.75 90.24
Net operating income per share (Rs) 290.37 255.42 200.42 152.27 123.92
Free reserves per share (Rs) 58.38 47.04 41.91 41.33 26.15

Profitability ratios
Operating margin (%) 17.11 17.06 16.65 17.94 20.73
Gross profit margin (%) 16.02 16.00 15.65 16.81 19.35
Net profit margin (%) 13.47 12.88 13.20 10.62 10.51
Adjusted cash margin (%) 14.52 13.83 14.17 11.72 11.84
Adjusted return on net worth (%) 23.56 24.34 24.67 17.86 16.47
Reported return on net worth (%) 23.55 24.47 24.66 17.86 16.49
Return on long term funds (%) 135.60 147.75 146.45 126.18 107.10

Leverage ratios
Long term debt / Equity - - - - -
Total debt/equity 19.31 19.66 18.47 18.00 18.10
Owners fund as % of total source 4.92 4.83 5.13 5.26 5.23
Fixed assets turnover ratio 4.34 4.04 3.45 5.19 4.57

Liquidity ratios
Current ratio 0.61 0.32 0.44 0.37 0.40
Current ratio (inc. st loans) 0.01 0.02 0.03 0.03 0.03
Quick ratio 24.65 11.26 10.78 8.82 9.29
Inventory turnover ratio - - - - -

Payout ratios
Dividend payout ratio (net profit) 15.66 17.11 17.04 24.20 29.85
Dividend payout ratio (cash profit) 14.54 15.85 15.87 21.95 26.47
Earning retention ratio 84.35 82.80 82.97 75.82 70.11

64
The above chart of Union Bank of India shows support at Rs.284, It has broken
resistance at Rs.276. The stock is currently trading at Rs.315 (on 23/6/2010).It is
a good stock to buy at current price.

65
KOTAK MAHINDRA BANK

66
Profile of Kotak Mahindra Bank

The Kotak Mahindra group is a financial organization established in 1985 in India. It

was previously known as the Kotak Mahindra Finance Limited, a non-banking financial
company. In February 2003, Kotak Mahindra Finance Ltd, the group's flagship company
was given the license to carry on banking business by the Reserve Bank of India (RBI).
Kotak Mahindra Finance Ltd. is the first company in the Indian banking history to
convert to a bank.

The Kotak Mahindra Group was born in 1985 as Kotak Capital Management Finance
Limited. This company was promoted by Uday Kotak, Sidney A. A. Pinto and Kotak &
Company. Industrialists Harish Mahindra and Anand Mahindra took a stake in 1986, and
that's when the company changed its name to Kotak Mahindra Finance Limited.

Kotak Mahindra Bank Limited. The Group's principal activity is to provide banking and
related services. The Group operates in four business segments: Treasury and Balance
Sheet Management Unit (BMU), which includes dealing in money market, forex market,
derivatives, investments and primary dealership of government securities; Retail
Banking, which includes lending, commercial vehicle finance, personal loans,
agriculture finance, other loans and home loans, branch banking, which includes retail
borrowings covering savings, current, term deposit accounts and branch banking
network/services including distribution of financial products, and credit cards; Corporate
Banking, which comprises wholesale borrowings and lendings and other related
services to the corporate sector; As of 31-Mar-2010, it had a network of 249 branches.

SHAREHOLDING PATTERN (%)

13.87
0.27
1.29
2.64 Indian Promoters
48.4 Banks,Financial Institutions &
Insurance
FII's
Private Corporate Bodies
NRI's/Foreign Others
29.4 Others
General Public

4.13

67
Description Details

Industry Bank - Private  

House Private  

BSE Code 500247  

NSE Code KOTAKBANK  

Incorporation Year 2003 

36-38 A Nariman Bhavan, 227 Nariman Point,
Registered Office Mumbai,Maharashtra-400021

Phone 91-22-66581100

Email [email protected], [email protected]

Web www.kotak.com

ISINNO INE237A01010

Industry Bank - Private  

Chairman SHANKAR ACHARYA (Part Time)  

Executive vice
UDAY KOTAK
Chairman & MD

Director ANAND MAHINDRA   & ASIM GHOSH

Listing BSE,NSE

Profit & Loss

68
(Rs. in Crores)
Particulars Mar-10 Mar-09 Mar-08 Mar-07 Mar-06 Mar-05

           
INCOME :
Interest Earned 3,255.62 3,065.14 2,535.36 1,319.10 718.89 420.30
Other Income 733.79 575.49 601.08 360.65 293.77 143.70
Total I 3,989.41 3,640.63 3,136.44 1,679.75 1,012.66 564.00

           
II. Expenditure
Interest expended 1,397.47 1,546.60 1,309.56 699.24 338.92 194.82
Payments to/Provisions for Employees 583.48 583.63 519.23 292.98 171.39 85.86
Operating Expenses & Administrative Expenses 465.65 502.98 445.48 264.41 177.50 107.99
Depreciation 90.00 69.56 50.86 34.74 29.60 23.46
Other Expenses, Provisions & Contingencies 641.72 511.83 413.58 185.14 121.66 33.48
Provision for Tax 281.39 190.28 171.79 91.77 65.36 38.55
Fringe Benefit tax 0.00 5.70 5.50 3.50 2.50 0.00
Deferred Tax -31.41 -46.05 -73.49 -33.40 -12.50 -5.05
Total II 3,428.30 3,364.53 2,842.51 1,538.38 894.43 479.11

           
III. Profit & Loss
Reported Net Profit 561.11 276.10 293.93 141.37 118.23 84.89
Extraordinary Items -1.92 0.15 0.64 0.30 0.17 0.42
Adjusted Net Profit 563.03 275.95 293.29 141.07 118.06 84.47
Prior Year Adjustments 0.00 0.00 0.00 216.76 0.00 -0.03
Profit brought forward 648.94 528.17 354.18 286.36 194.42 182.04

           
IV. Appropriations
Transfer to Statutory Reserve 140.28 69.03 73.50 35.50 29.75 21.25
Transfer to Other Reserves 72.19 58.48 16.18 228.06 -25.65 33.65
Trans. to Government /Proposed Dividend 31.67 27.82 30.26 26.75 22.19 17.58
Balance carried forward to Balance Sheet 965.91 648.94 528.17 354.18 286.36 194.42
Equity Dividend % 8.50 7.50 7.50 7.00 6.00 12.50
Earnings Per Share-Unit Curr 16.06 7.93 8.40 4.22 3.73 6.71
Earnings Per Share(Adj)-Unit Curr 16.06 7.93 8.40 4.22 3.73 2.68
Book Value-Unit Curr 130.40 112.98 104.26 50.08 27.57 60.89

69
Balance Sheet
(Rs. in Crores)
Particulars Mar-10 Mar-09 Mar-08 Mar-07 Mar-06 Mar-05

SOURCES OF FUNDS            

Capital
348.14 345.67 344.67 326.16 309.29 123.32

Reserves Total
4,191.77 3,559.86 3,249.03 1,307.34 543.45 627.55

Deposits
23,886.47 15,644.00 16,423.65 11,000.09 6,565.92 4,299.54

Borrowings
6,140.51 6,734.01 5,119.25 5,099.75 1,609.23 901.81

Other Liabilities & Provisions

2,869.42 2,428.34 3,178.71 2,183.24 1,149.88 567.79

TOTAL LIABILITIES 37,436.31 28,711.88 28,315.31 19,916.58 10,177.77 6,520.01

APPLICATION OF FUNDS            

Cash & Balances with RBI

2,085.67 995.35 1,683.49 751.22 418.79 238.73

Balances with Banks & money at Call

214.59 145.32 439.18 544.75 173.71 181.66

Investments
12,512.66 9,110.18 9,141.99 6,861.96 2,855.53 1,826.97

Advances
20,775.05 16,625.34 15,552.22 10,924.07 6,348.31 4,017.14

Fixed Assets
427.65 213.36 210.25 141.09 105.22 97.10

Other Assets
1,420.69 1,622.33 1,288.18 693.49 276.21 158.41

Miscellaneous Expenditure not written off

0.00 0.00 0.00 0.00 0.00 0.00

TOTAL ASSETS 37,436.31 28,711.88 28,315.31 19,916.58 10,177.77 6,520.01

Contingent Liability 36,966.02 57,954.21 121,627.58 100,654.70 39,504.80 12,193.72
Bills for collection 649.32 317.58 290.88 219.44 92.76 21.01

70
Key Ratios

  Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05

Per share ratios

Adjusted EPS (Rs) 7.98 8.50 4.32 3.81 6.84
Adjusted cash EPS (Rs) 9.99 9.97 5.38 4.77 8.74
Reported EPS (Rs) 7.99 8.53 4.33 3.82 6.88
Reported cash EPS (Rs) 10.00 10.00 5.40 4.78 8.79
Dividend per share 0.75 0.75 0.70 0.60 1.25
Operating profit per share (Rs) 13.08 16.32 7.10 6.51 10.53
Book value (excl rev res) per share (Rs) 0.96 104.26 50.95 27.95 61.38
Book value (incl rev res) per share (Rs.) 0.96 104.26 50.95 27.95 61.38
Net operating income per share (Rs) 94.39 81.83 48.81 29.42 43.91
Free reserves per share (Rs) 89.63 85.15 34.53 13.00 39.50

Profitability ratios
Operating margin (%) 13.85 19.93 14.54 22.12 23.97
Gross profit margin (%) 11.72 18.13 12.35 18.87 19.64
Net profit margin (%) 8.35 10.37 8.84 12.97 15.35
Adjusted cash margin (%) 10.45 12.12 10.98 16.18 19.48
Adjusted return on net worth (%) 7.06 8.14 8.47 13.64 11.13
Reported return on net worth (%) 7.06 8.17 8.50 13.67 11.21
Return on long term funds (%) 50.50 47.47 54.27 59.26 41.30

Leverage ratios
Long term debt / Equity - - - - -
Total debt/equity 4.01 4.57 6.62 7.59 5.68
Owners fund as % of total source 19.97 17.95 13.12 11.63 14.96
Fixed assets turnover ratio 7.08 7.21 5.82 4.43 3.21

Liquidity ratios
Current ratio 0.49 0.39 0.32 0.24 0.32
Current ratio (inc. st loans) 0.08 0.06 0.05 0.03 0.03
Quick ratio 5.91 5.83 5.74 6.20 9.36
Inventory turnover ratio - - - - -

Payout ratios
Dividend payout ratio (net profit) 10.07 10.29 18.91 18.76 20.74
Dividend payout ratio (cash profit) 8.04 8.77 15.18 15.00 16.25

71
Earning retention ratio 89.92 89.67 81.01 81.20 79.11

From the above chart of Kotak Mahindra Bank we can see that the stock has moved in
uptrend direction in past however it is moving in sideways direction since March 2010.
Currently the stock has crossed its 50 day Exponential Moving average line which
indicates that current price of the stock is the right price to Buy Kotak Mahindra Bank’s
Shares

72
YES BANK

73
Profile of Yes Bank

Yes Bank India, founded under the initiative of Rana Kapoor and Ashok Kapur, is
known for comprehensive banking and providing financial solutions to its customers.
The main mission of the Yes Bank in India is to establish a hi-tech driven private Indian
bank catering to the needs of the emerging India. The founders got the financial
assistance from the Rabobank Nederland, the world's only AAA rated private bank, and
three respected global institutional private equity investors, CVC Citigroup, AIF Capital
and ChrysCapital. At present, Yes Bank India has forty fully operational branches.

Activities:

The main feature that differentiates Yes Bank India in the banking industry is their use of
knowledge bankers who are industry experts in various sectors of Indian economy
thereby helping their valued customers with in-depth knowledge of these sectors. In
general the products and services offered by the Yes Bank are:

 Corporate and Institutional Banking

 Financial Markets
 Investment Banking
 Business and Transactional Banking
 Retail Banking
 Private Banking

YES BANK has been recognized amongst the Top and the Fastest Growing Bank in
various Indian Banking League Tables by prestigious media houses and Global
Advisory Firms, and has received national and international honors for our Businesses
including Corporate Finance, Investment Banking, Treasury, Transaction Banking, and
Sustainable practices through Responsible Banking. The Bank has received several
recognitions for world-class IT infrastructure, and payments solutions, as well as
excellence in Human Capital.

74
SHAREHOLDING PATTERN (%)

0.57
8.86
0.51 31.27
2.51
Indian Promoters
Banks,Financial Institutions &
Insurance
FII's
Private Corporate Bodies
NRI's/Foreign Others
Others
General Public
47.54 1.25

75
Description Details

Industry Bank - Private  

House Private  

BSE Code 532648

NSE Code YESBANK 

Incorporation Year

Nehru Centre 9th Floor, Dr Annie Besant Road Worli ,

Registered Office
Mumbai, Maharashtra-400018

Phone 91-22-66699000

Email [email protected]

Web www.yesbank.in

ISINNO INE528G01019

Industry Bank - Private  

Chairman & MD RANA KAPOOR  

Part Time
S.L.KAPUR
Chairman

Director AJAY VOHRA & BHARAT PATEL

Listing BSE,NSE

Profit & Loss

76
(Rs. in Crores)
Particulars Mar-10 Mar-09 Mar-08 Mar-07 Mar-06 Mar-05
INCOME :            

Interest Earned 2,369.71 2,001.43 1,304.68 587.61 192.80 29.98

Other Income 581.15 458.93 360.68 200.71 99.81 18.20
Total I 2,950.86 2,460.36 1,665.36 788.32 292.61 48.18
           
II. Expenditure
Interest expended 1,581.76 1,492.13 974.11 416.26 104.72 11.85
Payments to/Provisions for Employees 256.89 218.02 202.41 117.47 50.12 21.27
Operating Expenses & Administrative 102.71 77.85 52.12 29.67 13.23 7.98
Expenses
Depreciation 30.26 30.10 19.23 11.07 5.66 1.25
Other Expenses, Provisions & 252.75 176.35 111.01 70.22 34.49 11.41
Contingencies
Provision for Tax 267.74 183.02 117.26 54.94 25.71 0.10
Fringe Benefit tax 0.00 1.68 1.65 0.92 NA NA
Deferred Tax -18.99 -22.63 -12.45 -6.60 2.81 -1.92
Total II 2,473.12 2,156.52 1,465.34 693.95 NA NA
           
III. Profit & Loss
Reported Net Profit 477.74 303.84 200.02 94.37 55.32 -3.76
Extraordinary Items -0.37 -0.10 -0.01 0.00 -0.02 -0.02
Adjusted Net Profit 478.11 303.94 200.03 94.37 55.34 -3.74
Prior Year Adjustments 0.00 0.00 0.00 0.00 0.00 0.00
Profit brought forward 405.78 245.08 105.30 37.73 -3.76 0.00
           
IV. Appropriations
Transfer to Statutory Reserve 119.44 75.96 50.01 23.59 13.83 0.00
Transfer to Other Reserves 31.52 67.18 10.23 3.21 0.00 0.00
Trans. to Government /Proposed 59.61 0.00 0.00 0.00 0.00 0.00
Dividend
Balance carried forward to Balance 672.95 405.78 245.08 105.30 37.73 -3.76
Sheet
Equity Dividend % 15.00 0.00 0.00 0.00 0.00 0.00
Earnings Per Share-Unit Curr 13.81 10.23 6.76 3.37 2.05 0.00
Earnings Per Share(Adj)-Unit Curr 13.81 10.23 6.76 3.37 2.05 NA
Book Value-Unit Curr 90.96 54.69 44.59 28.11 21.21 10.66

Balance Sheet
(Rs. in Crores)

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Particulars Mar-10 Mar-09 Mar-08 Mar-07 Mar-06 Mar-055

SOURCES OF FUNDS :            

Capital 339.67 296.98 295.79 280.00 270.00 200.00

Reserves Total 2,749.88 1,327.24 1,023.13 507.06 302.69 13.24

Deposits 26,798.56 16,169.42 13,273.16 8,220.39 2,910.38 663.03

Borrowings 4,749.08 3,701.68 986.21 867.32 464.76 369.74

Other Liabilities & Provisions 1,745.32 1,405.47 1,404.93 1,230.16 216.26 29.16

TOTAL LIABILITIES 36,382.51 22,900.79 16,983.22 11,104.93 4,164.09 1,275.17

APPLICATION OF FUNDS :            

Cash & Balances with RBI 1,995.31 1,277.72 959.24 389.76 88.17 41.34

Balances with Banks & money at Call 677.94 644.99 668.33 903.08 127.41 11.69

Investments 10,209.94 7,117.02 5,093.71 3,073.12 1,350.19 394.86

Advances 22,193.12 12,403.09 9,430.27 6,289.74 2,407.09 760.98

Fixed Assets 115.47 131.11 101.17 70.87 34.72 19.64

Other Assets 1,190.73 1,326.86 730.50 378.36 156.51 46.66

Miscellaneous Expenditure not written off 0.00 0.00 0.00 0.00 0.00 0.00

TOTAL ASSETS 36,382.51 22,900.79 16,983.22 11,104.93 4,164.09 1,275.17

Contingent Liability 105,778.93 65,765.55 68,883.40 52,150.40 17,508.24 6,689.23

Bills for collection 153.43 192.93 788.57 100.71 1.30 0.00

Key Ratios

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   Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06

Per share ratios

Adjusted EPS (Rs) 14.08 10.24 6.76 3.37 2.05
Adjusted cash EPS (Rs) 14.97 11.25 7.41 3.77 2.26
Reported EPS (Rs) 14.06 10.23 6.76 3.37 2.05
Reported cash EPS (Rs) 14.96 11.24 7.41 3.77 2.26
Dividend per share 1.50 - - - -
Operating profit per share (Rs) 21.69 16.37 9.43 4.82 3.38
Book value (excl rev res) per share (Rs) 90.96 54.69 1.18 28.11 21.21
Book value (incl rev res) per share (Rs.) 90.96 54.69 1.18 28.11 21.21
Net operating income per share (Rs) 84.68 81.62 53.78 26.31 10.51
Free reserves per share (Rs) 69.33 36.47 31.18 16.66 10.70

Profitability ratios
Operating margin (%) 25.62 20.06 17.54 18.31 32.16
Gross profit margin (%) 24.56 18.81 16.33 16.81 30.17
Net profit margin (%) 16.30 12.35 12.01 12.06 19.08
Adjusted cash margin (%) 17.35 13.59 13.16 13.48 21.04
Adjusted return on net worth (%) 15.48 18.71 15.16 11.99 9.66
Reported return on net worth (%) 15.46 18.70 15.16 11.98 9.66
Return on long term funds (%) 74.73 120.56 97.09 71.98 33.03

Leverage ratios
Long term debt / Equity - - - - -
Total debt/equity 8.67 9.96 10.06 10.44 5.08
Owners fund as % of total source 10.33 9.12 9.03 8.73 16.44
Fixed assets turnover ratio 13.93 12.44 11.96 8.50 7.83

Liquidity ratios
Current ratio 0.68 0.45 0.51 0.30 0.72
Current ratio (inc. st loans) 0.04 0.06 0.04 0.03 0.04
Quick ratio 14.54 5.14 7.92 5.74 12.34
Inventory turnover ratio - - - - -

Payout ratios
Dividend payout ratio (net profit) 12.47 - - - -
Dividend payout ratio (cash profit) 11.73 - - - -
Earning retention ratio 87.54 100.00 100.00 100.00 100.00

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The above chart of Yes bank shows that the stock has support at Rs.248 & Resistance
at Rs.284. Though the stock has shown uptrend movement in past, it is currently
moving in downward direction and reaching close to trendline also it is currently trading
below its 50 day Exponential moving Average, so its not the right time to buy Yes Bank
stock. Investors who are already holding this stock should be watchful about the stock
as it may break the trendline in near future. If it breaks the trendline then sell the Yes
Bank Shares.
RECOMMENDATIONS

80
From the study of banking sector I found that most of the banking sector stocks are
bullish. Most of the banks have good valuation & their percentage growth is also good.
Let’s do a comparative study of banks taken in these studies

BANKS PUNJAB NATL. BANK UNION BANK OF INDIA KOTAK MAH. BANK YES BANK
         
P/E(TTM) (x) 8.7 7.84 47.34 19.71
         
         
P/BV(TTM) (x) 2.04 1.81 5.85 2.99
         
         
EV/EBIDTA (x) 11.92 14.73 23.4 16.05
         
         
ROE (%) 25.8 26.2 13.3 20.3
         
         
RECOMMENDATION BUY BUY BUY HOLD

 As per P/E ratio Punjab natl. Bank and Union Bank of India are undervalued
stocks, Yes bank is fairly valued and Kotak Mahindra Bank is overvalued.

 ROE is highest for Union bank of India and it is lowest for Kotak Mahindra Bank.

CONCLUSION

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 We all have personal biases, and every analyst has some sort of bias. There is
nothing wrong with this, and the research can still be of great value.

 Check the track record of an analyst before taking any decision based on his
recommendation.

 Corporate statements and press releases offer good information, but they should
be read with a healthy degree of skepticism to separate the facts from the spin.

 Investors should become skilled readers to weed out the important information
and ignore the hype.

 Keep long term horizon for investment but book profits at the right times.

 Always keep diversified investment, do not invest all your money in the same
sector or in the same company.

BIBLIOGRAPHY

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www.answers.com

www.wikipedia.com

NCFM basic module 1

www.investopedia.com

www.stockcharts.com

www.docstoc.com

http://rbidocs.rbi.org.in/rdocs/Speeches/PDFs/81026.pdf

http://hubpages.com/hub/Banking-system-in-India-Why-banks-in-India-are-facing-
difficulty-in-getting-deposits

www.caclubindia.com

www.zignals.com

www.indiainfoline.com

www.pnbindia.com

www.unionbankofindia.co.in

www.money.rediff.com

www.kotak.com

www.yesbank.in

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