Indian Banking IndustryAn analysis Institute for Technology and Management, Kharghar August 2010
Agenda Section I • Banking industry overview • Global banking industry overview • Indian banking industry overview • Indian Banks Segmentation • Growth Drivers and Challenges • Competitive Landscape • Banking regulation Section II • ICICI bank profile • Company business description and segmentation • Company history and details • Company milestones • Company financials and trends
Section I: Banking Industry overview Global Banking overview
Global banking industry overview • Due to RBI regulations banking sector is not over exposed in India as in other economies as US and China, but this also represent growth scope available to Indian banking industry. • There is scope of improvement as NPA in India is more than that of developed economies. In comparison to china banking sector in this aspect is performing well. Source:- World Bank Database Source:- World Bank Database
‘Indian banks need to recognise their inherent brandvalue potential’……. • 20 Indian banks in the Brand Finance® Global Banking 500, • SBI became the first Indian bank to break into the world’s Top 50 list, its brand value tripled • ICICI Bank, the country’s largest private bank, joined it in the Top 100 list with a 130% jump in its brand value Source:- Brand Finance Global banking 500 report 2010
‘Banks in India with stand the crisis’……. • Despite economics crisis across the world; banks in India have significant growth • Assets with banks have grow by 35% in FY09 as of 17% in FY08. Total assets as of end-March ‘09 is ` 4,960,064 crores • Deposits have grown by 20% in FY09 as to 22% in FY08 & credits disbursed has grown by 18% in FY09 to 22% in FY08. Source:- RBI Database
‘Economic growth fueling banking performance’… OPERATING ENVIRONMENT • FY 09 • High volatility • Economic slowdown, Weak business sentiment Countered by fiscal and monetary measures • FY 10 • Revival in growth • Abundant liquidity • Current Scenario (FY 11) • Strong growth momentum, Policy tightening • Credit demand expected to increase in retail & infrastructure sectors • Industrial production revives; average growth of 10.4% in FY10 against 2.7% in FY09 • Capital goods growing at double digit point to revival in investment activity • Capacity utilisation survey of RBI indicates utilisation close to pre-crisis levels • Exports growing since November ‘09 Foreign Capital Inflows • Net FII inflow of USD 30 bn in FY10 as against net outflow in FY09 • Rupee appreciation of 11.4% vis-à-vis US dollar during FY10
‘Development in new sectors ensuring excellent future for banks’…… • Rapid development in infrastructure, iron and steel and computer services have raised demand for credit projecting healthy growth in the banking sector. • Gross NPAs same at 1.3% as FY08 in FY09; Loan disbursement grew by 16.04% • Credit deposit ratio - down marginally to 73.9% in FY09 from 74.6% in FY08 • NIM has gone up to 2.4% as compared to previous year, however it is less than the former years • Interest income as a percentage of total assets has gone up to 7.4% for FY09 from 7.1 % in FY08 • The Total Assets of the Banking Industry grew by 21.2% in 2009 as against 25% in 2008 Source:- RBI Database
Income and expense growth rate of SCBs in India Source:- RBI Database Source:- RBI Database Other income has show greater growth potential than interest income towards total income over the years. With increase in income a subsequent increase in expense is observed although operation expense have reduced considerably. * Other income consist of fee income, commissions
Indian Banking Industry Segmentation Source:- RBI Database • PSU banks majority stakes are held by the Government of India(GoI) & make up the largest category in the Indian banking system. • Regional Rural Banks (RRBs); established during 1976-1987 & are owned jointly by the Central Government, concerned State Government and a sponsoring public sector commercial bank. • Private Sector banks have the majority of share capital with private individuals & corporates. Non-nationalized are ‘old’ and nationalised in 1993 are stated as ‘new private banks’. • Foreign banks have their registered and head offices in a foreign country but operate their branches in India.
Growth Drivers to banking industry • Industrial development is fueling rapid economics growth giving banking sector a major boost. • Retail Demand: Increase in demand for housing, Car and personal loans • Infrastructure: Infrastructure one of the biggest growth driver is expected to grow @ 35% -3yrCAGR. • Telecom spectrum lending: 3G and broadband spectrum auction have increased credit demand • Rural Penetration: Rural penetration by private banks is increasing • Export Imports: Increase in export import enhances inland and outland bills business • Consolidations and Expansions: Acquisition, merger and expansion by the industries is very much prevalent since 2009
Competitive Landscape of Indian banking industry • Public sector banks enjoy over 70% share of gross loans and advances • New private sector banks have shown decline in growth in terms of assets and investments • Credit deposit ratio indicate Foreign banks have been much more aggressive in their lending, followed by the new private sector banks, while the public sector banks have been maintaining a mediocre path. Source:- RBI Database Source:- RBI Database
Profits and income of bank group wise • Public sector banks and private sector banks have show increasing trend in their respective profit and incomes; while foreign banks have shown a negative trend. Source:- RBI Database
Banking regulators Banking companies in india is governed by two main legislations • Banking regulation act 1949 • The reserve bank of india act 1934 • Reviewing monetary policy to maintain economic and financial stability and to ensure adequate financial resources for development • Meeting the currency requirement of the public • Promotion of an efficient financial system • Foreign exchange reserve management • Quarterly monitoring visits to banks displaying financial and systemic weaknesses • The department monitors cases of frauds perpetrated in banks and reported to it • Other regulation: • The negotiable instruments act 1881 • Transfer of property act 1882 • Banking secrecy act • Companies act 1956 • Banker’s book evidence act • Banking companies act 1970/1980 – for nationalized bank only
Regulations (Policy) impact on company • With increase in SLR, lending resources of the banks contract and their capacity to grant credit is reduced correspondingly or vice versa • CAR Ratio depicts the Solvency Position of the bank • Repo Rate and Bank Rate have direct impact on cost of Fund & profitability of the banks. • High credit to deposit ratio increases the profitability of the banks Regulation - Limiting Factor: • Bank cant sanction loan below base rate, despite of having funds they are underutilized. • Bank have to follow Quota limit while lending to the various sectors (Agriculture, Housing, Education, SSI etc.) Foreign bank in India: • They have to take the permission of RBI and FEMA • Take over of an Indian bank except for weak bank identified by RBI not permitted • FDI limit for a foreign bank is 74% of total paid-up capital of the bank. • The initial minimum paid up capital for a new bank is ` 200 crores which is increased to 300 crore with in 3 years of commencement of business International: Barriers for Indian banks • Indian bank have to follow that respective country norms as well as the Basel II norms.
Current policy rates • Average Credit-Deposit ratio of the banking industry is -70 % • CAR: Capital Adequacy Ratio : 9% • CRR – 6 %, SLR – 25 % • Base Rate: 7.5 - 8% • Deposit Rate: 6% - 7.5% • Saving banking rate: 3.5% • Repo Rate: 5.75% • Reverse Repo :4.5% • Although the critical rates have reduced since the global economic crisis (FY08); RBI is still maintaining a tight monetary policy in order to curb inflation and attain stability along with superior economic growth. Source:- RBI
Agenda Section I • Banking industry overview • Global banking industry overview • Indian banking industry overview • Indian Banks Segmentation • Growth Drivers and Challenges • Competitive Landscape Section II • ICICI bank profile • Company business description and segmentation • Company history and milestones • Company details • Company peer group comparison • Company financials and trends
Business Description and segmentation ICICI Bank Limited, a private sector banking company engaged in providing a range of banking products and financial services • Investment Banking • Commercial Banking • Retail Banking • Private Banking • Asset Management • Mortgages • Credit Cards • Others Business Segmentation • Retail Banking- Retail assets business, Rural micro-banking. • Wholesale Banking- Corporate Banking business, Banking services(for government, large corporate), Treasury, Structured finance • Project Finance- Infrastructure, Oil & Gas, Manufacturing and Shipping sectors • International Business & Special Assets Management-International operations • Corporate Centre- Investor relations, Risk management, Corporate branding Source:- ICICI bank website
Company History and Milestones • 2006: 1st Indian bank to issue hybrid Tier-1 perpetual debt in the international markets. Opened branches in UK, Belgium & representative offices in Bangkok, Jakarta & Kuala Lumpur. • 2007: Amalgamated Sangli Bank-headquartered in Sangli, in Maharashtranwhich had 158 branches in Maharashtra and another 31 in Karnataka. • 2008: Launched I Mobile - banking transactions through mobile. US Federal Reserve permitted ICICI to establish branch at New York and Frankfurt. • 2009: ICICI NRI Services wins Asian Banker Award for Excellence in Business Model Innovation • 2010: ICICI Bank announces Base Rate (“I-Base”) at 7.50% p.a. Announced merger with Bank of Rajasthan with it through share-swap in a non-cash deal that values the Bank of Rajasthan at about Rs 3,000 crore. The Monetary Authority of Singapore (MAS) has today granted Qualified Full Banking (QFB) privileges to ICICI Bank Singapore branch. Source:- ICICI bank website
Company Details • ICICI Bank's equity shares are listed in India on • Bombay Stock Exchange • National Stock Exchange • American Depositary Receipts (ADRs) listed on the New York Stock Exchange (NYSE). • Branches 2016 , ATMs 5,219 Employees 34,596 • Presence in 18 countries including- - Branches in U.S, Singapore, Bahrain, Hong Kong - Subsidiaries in United Kingdom, Russia and Canada Source:- ICICI bank website
ICICI BANK • Founded:- 1955 • Headquarters:- ICICI Bank Ltd.,ICICI Bank Towers, Bandra Kurla,Mumbai, India • Products:- Loans, Credit Cards, Savings, Investment vehicles, Insurance • Revenue ▲ USD 15.06 billion
About ICICI BANK • ICICI Bankis India's largest private sectorbank by market capitalisation and second largest overall in terms of assets. • The Bank also has a network of 1,700+ branches and about 4,721 ATMs in India and presence in 18 countries, as well as some 24 million customers. • ICICI Bank is also the largest issuer of credit cards in India
Service by icici bank • Internet Banking • Bill Pay • Smart Money Order • Prepaid Mobile Recharge • Trade MIS • Top Online Scams • Salary ebook • Online Bill Payment
History • 1955: The Industrial Credit and Investment Corporation of India Limited (ICICI) was incorporated at the initiative of World Bank, the Government of India and representatives of Indian industry, with the objective of creating a development financial institution for providing medium-term and long-term project financing to Indian businesses.
History • 2001: ICICI acquired Bank of Madura . Bank of Madura was a Chettiar bank and had acquired Chettinad Mercantile Bank and Illanji Bank in the 1960s. • 2002: The Boards of Directors of ICICI and ICICI Bank approved the reverse merger of ICICI, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, into ICICI Bank.
HIstory • 2008: The US Federal Reserve permitted ICICI to convert its representative office in New York into a branch. • 2009: ICICI made huge changes in its organistion like elimination of loss making department and restreching outsourced staff or renegotiate their charges in consequent to the recession.
Icici bank standing in its peer group • Ratio represent a strong foundation and aggressive growth strategy for ICICI. • ICICI is still out performed by Axis bank in most margins. Source:- RBI Database
Icici bank standing in its peer group • ICICI has high percentage of non-performing assets in its peers. • For ICICI, CAR is higher than its closest competitors; Axis and HDFC bank. Source:- RBI Database
Geographical revenue Segmentation Index • Revenue from has been increased to more than 3 times from 2006 to 2010 and is still growing at acceptable pace, however pace has gone down in 2010 • There is negative growth in terms of domestic revenues and needs to take care upon domestic industry. BoR acquisition can help Source:- ICICI Annual Report Computed
Segmental Contribution in Revenue • In last years share of retail banking is shrinking due to inclusion of various other segments • Venture fund management has added another revenue potential • Total banking revenue has always ahead of other non banking revenue taking together(all insurance, Venture fund, others)
Segmental Growth in Revenue • Retail band wholesale banking is growth segment and grown about 77% in 2010 • Treasury and investment banking business is also increasing at the pace and due to growing market it is expected to grow in the same way • Venture fund provided new dimension and its growth can be significant in further years • Other are also growing at good pace but could not be identified Source:- ICICI Annual Report Computed
Segmental Contribution in PBT • Life insurance recovered from the losses and earned profits • Contribution of wholesale banking is going down • Retail banking earned negative figure which can be a concern as it form major par of revenues • Treasury and investment banking can be a star product for the future
Segmental Growth in Profits • Negative profit of retail banking are very much disastrous as it is major revenue base • Wholesale banking growth continued and forms major revenues which is strong point for the company • General insurance growth is just base effect but growth chances are high • Venture fund growth in PBT is less then in revenues which is around 55%
Segment Focus ICICI is focusing on SME under wholesale segment. Strategies & Initiatives: SME enterprises CEO Knowledge Series- a platform to mentor and assist entrepreneurs. SME Enterprises Toolkit- an online business & advisory resource for SME Emerging India Awards- SME recognition platform ICICI is also focusing on Rural Banking under retail segment. Strategies & Initiatives: Offering micro-credit through micro financing institutions(MFI’s),micro-insurance and micro-investment products. Financial inclusion through business correspondents, farmer financing and integration of agri-value chain.
New Segment and its impact Future plans • Focus on stability and recovery of the segment with negative growth and profits • Want to stabilize in both domestic as well as foreign segment as especially in foreign they had a huge impact of recession and hence stabilization is their strategy • To harness the potential of current segments rather than hitting in dark • Venture capital • Contributing positive to revenues • Growth in revenue is as high as 57% • Growth in PBT however, is 37% only • Provide good growth as market is growing for the segment with the new industrial transformations and entrepreneurial age
Financials and Trends • Segmental Charts on the Basis of Business • Earning in retail banking shows decline as well as in whole sale banking. Source:- ICICI Annual Reports 08, 09, 10 Source:- ICICI Annual Reports 08, 09, 10
Financials and Trends • Segmental Charts on the Basis of Business • Decline in treasury and other banking venture due to economic slowdown. Source:- ICICI Annual Reports 08, 09, 10 Source:- ICICI Annual Reports 08, 09, 10
Financials and Trends • Segmental Charts on the Basis of Geography • Foreign- emphasis was more on retail segment as ICICI strategy was to build more retail deposit franchise. Also was seeking to build stable wholesale funding. • Domestic- • emphasis was given to small and medium scale enterprises as it adopted cluster financing approach to fund small enterprises. • In retail loan segment emphasis was given more to Home loan and vehicle loan. Source:- ICICI Annual Reports 08, 09, 10 Source:- ICICI Annual Reports 08, 09, 10
Financials and Trends Dividend per Share & Earning Per Share Source:- ICICI Annual Report Computed • The earning per share and dividend paid out per share have shown steady rise. Represents strong earning potential and has a good image in the market.
Thank You • Presented By:Group 4 • Roll NoName • 71 Ajay Garg • 50 Arun Thakur • 23 AshishShrivastava • 137 Goldi • 37 GunjanAgarwal • 175 PoojaShugani • 113 RuchirMasand • 22 YashAhuja