Accounting For Managers

Financial Statement Analysis

Banking Industry

Lead Company: ICICI Bank Peer Companies: HDFC Bank, Axis Bank

Contents

I. II. III.

INDUSTRY REVIEW - INDIAN BANKING SECTOR ICICI BANK INTRODUCTION PART-1: FINANCIAL ANALYSIS Liquidity Solvency Profitability Market Valuation Balance Sheet Analysis Profit & Loss Analysis

IV.

PART-2: COMPARATIVE ANALYSIS AXIS & HDFC BANKS Liquidity Solvency Profitability Market Valuation

V.

CONCLUSION

I.

INDUSTRY ANALYSIS: BANKING SECTOR

Banking Sector: Structure

Banking Structure

Cooperatives

Scheduled Banks

Non banking Financial Institutions

Urban Co operatives

State Co operatives

Commercial Banks

Financial Institutions

NBFCs

Scheduled Commercial Banks Public Sector Banks

Regional Rural Banks

Local Banks

Foreign Banks

Private Sector Banks

Indian Banking Sector: Advantages Well-defined regulatory framework: The Reserve Bank of India (RBI) has well-formulated
regulations. Prudent regulatory policies have ensured that Indian Banks emerge unscathed from the global credit crisis. India is among the few countries to have implemented Basel II framework Good mix of public and private sector banks: This provides stability and growth to the economy. In addition, non-banking financial institutions, cooperative banks, primary agricultural societies etc., ar spread across the country to meet local needs. Innovation in service delivery: Several innovations have taken place to expand the reach of banking and to make the service delivery more convenient and affordable. These include the use of Bank Correspondent (BC) model and the advent of mobile banking. Rising Demand for Banking Services: With a steady increase in working population and disposable incomes, the demand for banking services is likely to remain buoyant. Between 2006 and 2026, the working population (25-60 years) is expected to increase from 675.8 million to 795.5 million.

Market analysis:
Globalization and liberalization of the Indian economy, and the interest of foreign banks to expand in India through the inorganic route, have fuelled growth of the banking industry.

The banking penetration calculated on the basis of total number of credit accounts to total population was 95.4 per thousand in 200809 1900 8.00% 1719

7.20% 1471.5 4.90% 1177.1 3.50% 758.3 627.1 516.7 412.5 491.7 581.3 956.3 2.70% 720.8 902.1 2.40%

1700
1500 1300 1100 900 700 500 300 2004 2005 2006 2007 2008 2009 NPAs(RHS) 2010 Total Business(LHS) Assets(LHS)

7.00%
6.00% 1255 1091.59 2.39% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00%

2.30%

There has been a gradual shift in business from public to private and foreign banks.
Market share by assets: 2002-03 Market share by assets: 2009-10

The banking system in India is dominated by scheduled commercial banks (SCBs) with a pan-India presence. As of March 2010, SCBs controlled most of the assets, with the rest being controlled by a large number of small cooperative credit institutions with a very limited geographic reach. Within SCBs, public sector banks accounted for 73.7 per cent of the assets and the rest was held by foreign banks and private sector banks.

Credit Growth
60% 50% 40% 30% 20% 10% 0% -10% 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 -7% 45% 33% 50% 44% 29% 25% 20% 11% 14% 8%

Growth in Retail Credit

Growth in Housing Finance

Credit demand from corporate organizations has helped maintain credit growth in recent years.

Deposit Growth
35% 30% 25% 20% 15% 10% 5% 0% 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Demand deposit Term deposit Saving Bank Deposit 7% 19% 16% 15% 25% 22% 15% 29% 25% 20% 16% 18% 27% 18% 13% 27%

21%

Growth in savings deposit is expected to increase with an increase in the amount per account and a steady increase in the number of savings accounts as banks reach out to new markets.

Key Trends Improved risk management practices: Net NPAs, as a percentage of advances, reduced to 1.1 per cent
in 2009-10 from nearly 8.1 percent in 1996.97. More emphasis on fee-based services: Banks have started laying more emphasis on fee-based services, such as distributing mutual funds and insurance policies, credit cards, wealth management and equity trading services. Development of newer modes of banking: India has now entered the era of online banking, ecommerce and m-commerce, which makes banking simple. Also, the use of ATMs and credit cards has increased significantly in the last few years. Product innovation: There has been a major change in the products offered by banks, from a few standard credit and deposit products to a number of customised offerings to suit the requirements of various categories of customers

Alliances with non-traditional players: Banks are now looking for acquisition targets among other categories of financial institutions, such as non-banking financial companies (NBFCs), development financial institutions (DFIs), brokerage firms, etc., to provide the entire gamut of financial service Improved information systems: Banks are aiming to have an improved credit infrastructure, with the formation of Credit Information Bureau (India) Limited (CIBIL). Other credit information bureaus are expected to further boost the credit infrastructure. Improving performance of PSU banks: Higher growth, improved productivity for branches, better customer profiles, implementation of technology and improved products, coupled with significant positive structural changes, have led to the improvement of PSUs on almost all financial and operational parameters. Increased scrutiny: Due to the global financial crisis, tighter regulations for non-banking entities are being implemented. Main focus of the regulations has been to provide a level playing field between bank-sponsored NBFCs and non-bank associated NBFCs besides other issues of regulatory convergence and regulatory arbitrage

II.

ICICI BANK: INTRODUCTION

History:
Established in 1994, ICICI Bank is today the second largest financial services company in India. In less than a decade, the bank has become a universal bank offering a well-diversified portfolio of financial services. It currently has assets of over USD 79 billion, and provides services through a network of about 950 branches, 3300 ATMs and a 3200-seat call center (as of 2007). ICICI bank was set up when the process of deregulation and liberalization had just begun in India, and the Reserve Bank of India had paved the way for private players in the banking sector, which at that time was dominated by state-owned and foreign banks. Serving a majority of the countrys populace, state-owned banks had a large branch network, with minimal or no automation and had little focus on service. Foreign banks, on the other hand, deployed high-end technology, had innovative product offerings, but had a very small branch network that serviced only corporates and individuals with high net-worth. Sensing an untapped opportunity, ICICI Bank decided to target Indias burgeoning middle class and corporate segment by offering a high level of customer service and efficiency that rivaled the foreign banks, on a much larger scale, at a lower cost.

III.

PART 1 FINANCIAL ANALYSIS

1. Financial Ratios: a) Gross NPA ratio:

Gross NPA ratio is a very important indicator for financial stability of a bank. It indicates the quality of assets of a bank. It is expressed as a percentage of total advances.

Gross NPA ratio (%)

5.40 5.20 5.00 4.80 4.60 4.40 4.20 4.00 5.31

4.55

4.67

Gross NPA ratio has shot up in FY10 due to both increase in the Gross NPAs and decrease in the advances as part of the going slow strategy of the ICICI bank after the slowdown.

FY09

FY10

FY11

b) Capital Adequacy Ratio:

This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. Its the measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted credit exposures. It is also known as "Capital to Risk Weighted Assets Ratio (CRAR)."

Two types of capital are measured: tier one capital, which can absorb losses without a bank being required to cease trading, and tier two capital, which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors.

Capital Adequacy Ratio

25 20 15 10

19.41
15.53

19.54

5
0 FY '09 FY '10 FY '11

CAR of ICICI has been increasing in the last three years, which indicate that bank is sufficiently capitalized and managed its risk quite well. As the ratio is way above stipulated 9%, the bank can expand its loan portfolio aggressively without worrying about CAR.

2. Operational and Performance Ratios: a) Deposits & Advances

The deposits in ICICI Bank fell by 7.48% in FY10 and advances fell by 17%. The fall in deposits was primarily due to rumours regarding ICICI Banks exposure to sub-prime assets in foreign market, which led to people shifting their deposits to other banks. The decline in advances can be attributed to the banks own policy of going slow on advances and concentrate on strengthening the balance sheet.

Advances (in bn)

2500 2300 2100 1900 1700 1812.06 2256.16 2183.11 2163.66

Deposits (in bn)

2700
2500 2300 2100 1900 1700 1500 1300 2444.31 2183.48 2020.17 2256.02

1500
1300 FY08 FY09 FY10 FY11

FY08

FY09

FY10

FY11

b) Net Interest Income(NII):

Net interest income is the difference between the interest earned from borrowers and interest paid to lenders. Net Interest Income = Interest Payments on Assets - Interest Payments on Liabilities Net interest income can be positive or negative. Net interest income should go up as the yield curve steepens (long-term rates rise faster than short-term rates) because the bank is able to pay depositors a relatively low rate, but it can charge its borrowers a higher rate.

Net Interest Income (in bn)

92 90 88 86 84 82 80 78 76 FY '09 FY '10 FY '11 83.67 11.2% %5 90.17

81.14

We can observe that the bank has witnessed growth of 11.2% in net interest income in FY11. ICICI Bank registered negative NII growth, as it aimed to stabilise and consolidate its balance sheet, by going slow on expansion in the year of economic slowdown.

c) Net Interest Margin(NIM):

It is a performance metric that examines how successful a firm's investment decisions are compared to its debt situations. A negative value denotes that the firm did not make an optimal decision, because interest expenses were greater than the amount of returns generated by investments.

Net Interest Margin (%)

3 2.5 2 1.5 1 0.5 2.4 2.5 2.6

Net Interest Margin has remained flat for ICICI Bank as it had been under pressure, partly due to low interest margins overseas.

0
FY '09 FY '10 FY '11

d) Non Interest Income to Total Income Ratio:

Non Interest / Total Income ratio measures the proportion of bank's total income that have been generated by non-interest related activities (eg fees and commission, trading gains, forex activities etc).
It is calculated as: (Total Income - Interest Income) / Total Income

The interpretation of this ratio is subject to some controversy. Some analysts view a high number as good, since it shows that the bank is not dependent on its lending activities to generate a profit. However others take the opposite view and view a high number as indicating that the bank is dependent on unstable revenues that are not predicatable for its profitability.

Non Interest Income to Total Income

0.500 0.480 0.460 0.440 0.420 0.400 0.380 FY '09 FY '10 FY '11 0.424 0.476 0.480

ICICI Banks non-interest income to total income ratio has declined in FY11, as compared to last year due to lower treasury gains and trading profits. The bank has aimed to further improve the ratio to lend greater stability to its profitability. The bank has diversified fee-based product portfolio for both retail and corporate clients.

e) CASA as a percent of Total deposits

The CASA (current and savings accounts) ratio is the ratio of deposits in the current and savings accounts of a bank to its total deposits.

A high CASA ratio indicates that a higher portion of the banks deposits come from current and savings accounts. This means that the bank is getting money at low cost, since no interest is paid on the current accounts and the interest paid on savings account is usually low.

CASA ratio
50 45 40 35 30 25 20 15 10 5 0 FY '09 FY '10 FY '11 28.7 41.7 45.1

ICICI Bank has maintained strong CASA ratio. It was low in FY09, primarily due to economic slowdown, leading to withdrawal of cash by corporate and retail customers. The banks CASA ratio increased to 41.7% as on March 31, 2010 from 28.7% on March 31, 2009. Improvement in CASA ratio can be attributed to the fact that the bank has significantly strengthened its deposit franchise and expanded its branches. ICICI bank had started gaining market share in savings account in FY2010.It has improved its market share of savings deposits.

f) Net NPAs to Advances Ratio:

The net NPA to loans (advances) ratio is used as a measure of the overall quality of the bank's loan book. An NPA are those assets for which interest is overdue for more than 90 days (or 3 months Higher ratio reflects rising bad quality of loans.

Net NPA to advances ratio

2.500 2.000 1.500 1.000 0.500 0.000 FY '09 FY '10 FY '11 1.137 2.116 2.153

ICICI Bank focused on decreasing the NPA to advance ratio as the NPAs had increased substantially during the financial crisis. ICICI had followed a back-to-basics strategy featuring a focus on better quality assets, far more prudent lending to retail and paring of unsecured loans. This led to a steep decline in NPA to advance ratio.

3. Profitability Ratios: a) Net Profit Ratio:

Net profit ratio is the ratio of net profit (after taxes) to net sales. The ratio is very useful as if the net profit is not sufficient, the firm shall not be able to achieve a satisfactory return on its investment.

This ratio also indicates the firm's capacity to face adverse economic conditions such as price competition, low demand, etc. Higher the ratio the better is the profitability

Net Profit Margin

20 15.91 15 12.17 9.74

10
5 0

ICICI Bank's consolidated net profit shot up 24.9 per cent for the FY10 on the back of a surge in corporate lending and a substantial reduction in provisions.

FY '09

FY '10

FY '11

b) Return on Equity
The amount of net income returned as percentage of shareholders equity. Return on equity measures a corporations profitability by revealing how much profit a company generates with the money shareholders have invested. Return on Equity = Net Income/Shareholder's Equity Net income is for the full fiscal year (before dividends paid to common stock holders but after dividends to preferred stock.) Shareholder's equity does not include preferred shares. It is also known as "return on net worth" (RONW).

Return on equity
12 10 8 6 4 2 0 FY '09 FY '10 FY '11 7.7 9.6 7.9

ICICI Banks asset base had declined in the period of global slowdown. Since the bank had to set aside money to provide for its bad assets, the return on equity was low for the FY09 and FY10. It increased in FY11 owing to the sustainable return on assets.

c) Return on Average Assets

An indicator used to assess the profitability of a firm's assets. This metric displays how efficiently a company is utilizing its assets.

Return on Average Assets

2% 1% 1% 1% 0% FY '09 FY '10 FY '11 1.10% 1.34%

ICICI banks asset quality has been stabilizing. With NPAs decling for the FY11 accompanied with the declin in NPA provisions driving an improvement in RoA to 1.4%.

4. Valuation Ratios: a) Earnings per share

The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability. Calculated as:

Earnings Per Share

50 40 30 20 10 0 FY '09 FY '10 FY '11 33.76 36.1 44.73

EPS of ICICI Bank has been increasing over the last three years, which is a positive indicator.

b) Price Earnings Ratio(P/E ratio)

P/E ratio is a valuation ratio of a company's current share price compared to its per-share earnings. P/E ratio for ICICI Bank is calculated taking into account FY11 earnings and share price of 31 August 2011.

P/E ratio = Market price of share/EPS = 18.93

P/E ratio for HDFC Bank is on a higher side for ICICI Bank indicating that the stock is highly valued in the market, and hence, is available at a premium.

5. Balance Sheet Analysis:

KEY POINTS: Equity share capital has recorded a steady increase over the last five years. In the period between March '09 and March '10, it rose by 3.3% to settle at Rs. 1151.82 crores. Prefrence Share capital remained at zero as was the case in the year ending March 2010.ICICI last issued preference shares worth Rs. 350 crores in FY '09. Reserves rose nearly 7% to end at Rs. 53938.82 crores as compared to Rs. 50503.48 crores in FY '10. The bank's net worth rose 6.7% to 55090 crores from 51618 crores in the previous year in FY '10. Deposits rose 11.7% to Rs. 225,602 Crores. Borrowings rose 16.2% to Rs. 109,554 Crores. Total debts rose 13.12% to Rs. 335,156 Crores. Secured Loans rose to 109,554 Crores, an increase of 16.23%. Unsecured Loans rose to 225,602 Crores, an increase of 11.7%. Total liabilities including some other liabilities stood at Rs. 406233.67 Crores, an increase of 11.78%.Out of this Total Current Liabilities (Current Liabilities + Provisions) accounted for Rs. 15,986.35 Crores.

ASSETS Cash & Balance with RBI sttood at 20906.97 Crores as compared to Rs.27,514.29 Crores, a decrease of 24%. Balance with Banks, Money at Call rose to 13,183.11 Crores from 11359.40 Crores, an increase of 16%. Total current assets rose from 239,294 Crores to 266,803 Crores, an increase of 11.5%. Net current assets, therefore stood at Rs. 250,817 Crores as compared to Rs. 223,793 Crores, an increase of 12.07%.

Misc. expenses were absent, consistent with the company's reports over the last four years.

OTHER HIGHLIGHTS Investments rose to Rs. 134,685 Crores from Rs. 120,892 Crores, an increase of 11.4%. ANALYSIS 1.) Cash and cash equivalents include cash in hand and balances with RBI and other banks, including money at call and short notice. Cash and cash equivalents decreased from ` 388.73 billion at March 31, 2010 to ` 340.90 billion at March 31, 2011. The decrease was primarily due to a decrease in balances with RBI from ` 241.73 billion at March 31, 2010 to ` 171.23 billion at March 31, 2011 due to higher than stipulated CRR balance maintained at March 31, 2010.

2.) Total investments increased by 11.4% from 1,208.93 billion at March 31, 2010 to 1,346.86 billion at March 31, 2011 (including ` 70.96 billion of Bank of Rajasthan at August 12, 2010), primarily due to an increase in investment in corporate bonds and debentures by 125.1 1 billion, RIDF and other related investments in lieu of shortfall in directed lending requirements by 49.70 billion (including ` 21.34 billion of Bank of Rajasthan at August 12, 2010) and investments in commercial paper and certificate of deposits by ` 31.21 billion. The investment in pass-through certificates decreased by 15.93 billion at March 31, 2011 compared to March 31, 2010. At March 31, 2011, the bank had an outstanding net investment of 28.31 billion in security receipts issued by asset reconstruction companies in relation to sale of non-performing assets compared to 33.94 billion at March 31, 2010. At March 31, 2011, ICICI had a gross portfolio of funded credit derivatives of 10.60 billion and non-funded credit derivatives of 28.17 billion, which includes 0.22 billion as protection bought by ICICI.

3.) Net advances increased by 19.4% from 1,812.06 billion at March 31, 2010 to 2,163.66 billion at March 31, 2011 primarily due to increase in domestic corporate loans, overseas corporate loans and loans taken over from Bank of Rajasthan amounting to 65.28 billion at August 12, 2010. Net retail advances increased by 5.8% from 790.62 billion at March 31, 2010 to 836.75 billion at March 31, 2011. In rupee terms, net advances of overseas branches (including offshore banking unit) increased by 22.1% from 451.37 billion at March 31, 2010 to 550.97 billion at March 31, 2011.

4.) Fixed assets increased by 47.7% from 32.13 billion at March 31, 2010 to 47.44 billion at March 31, 2011 (including 5.15 billion of Bank of Rajasthan at August 12, 2010) primarily due to part capitalisation of the Banks new building in Hyderabad and increase in the branch network and other offices. Other assets decreased by 14.9% from 192.15 billion at March 31, 2010 to 163.48 billion at March 31, 2011.

5.) Total liabilities (including capital and reserves) increased by 11.8% from ` 3,634.00 billion at

March 31, 2010 to 4,062.34 billion at March 31, 2011 (including ` 155.96 billion of Bank of Rajasthan at August 12, 2010), primarily due to an increase in deposits and borrowings. Deposits increased from ` 2,020.17 billion at March 31, 2010 to ` 2,256.02 billion at March 31, 2011.

6.) Equity share capital and reserves increased from ` 516.18 billion at March 31, 2010 to ` 550.91 billion at March 31,2011 (including statutory reserve of ` 2.00 billion taken over from Bank of Rajasthan at August 12, 2010) primarily due to allotment of shares to the shareholders of Bank of Rajasthan and annual accretion to reserves out of profit. Excess of paid-up value of equity shares issued over the fair value of the net assets acquired in the amalgamation and amalgamation expenses, amounting to ` 2.10 billion have been adjusted against the securities premium account.

7.) Deposits increased by 11.7% from ` 2,020.17 billion at March 31, 2010 to ` 2,256.02 billion at March 31, 2011 (including ` 134.83 billion of Bank of Rajasthan at August 12, 2010). Term deposits increased from ` 1,178.01 billionn at March 31, 2010 to ` 1,239.55 billion at March 31, 2011 (including ` 88.02 billion of Bank of Rajasthan at August 12, 2010), while savings deposits increased from ` 532.18 billion at March 31, 2010 to ` 668.69 billion at March 31, 2011 (including ` 34.48 billion of Bank of Rajasthan at August 12, 2010) and current deposits increased from ` 309.98 billion at March 31, 2010 to ` 347.78 billion at March 31, 2011 (including ` 12.32 billion of Bank of Rajasthan at August 12,2010). Total deposits at March 31, 2011 formed 67.4% of the funding (i.e. deposits and borrowings, otherthan preference share capital). During fiscal 2010 and fiscal 2011, ICICI focussed on our strategy of increasing the share of current and savings account deposits in total deposits and re-balancing our funding mix. The current and savings account deposits increased from ` 842.16 billion at March 31, 2010 to ` 1,016.47 billion at March 31, 2011 (including ` 46.80 billion of Bank of Rajasthan at August 12, 2010) and the ratio of current and savings account deposits to total deposits increased from 41.7% at March 31, 2010 to 45.1% at March 31, 2011.

8.) Borrowings increased by 16.2% from ` 942.64 billion at March 31, 2010 to ` 1,095.54 billion at March 31, 2011 primarily due to an increase in call and term borrowings and an increase in capital-eligible borrowings in the nature of sub-ordinated debt. The capital-eligible borrowings in the nature of sub-ordinated debt increased to ` 363.91 billion at March 31, 2011 compared to ` 329.67 billion at March 31, 2010. RBI issued guidelines, effective April 1, 2010, which require market repurchase transactions (previously accounted for as sale and repurchase) to be accounted for as borrowing and lending. The transactions with RBI under LAF which are accounted for as sale and purchase transactions.

6. Profit and Loss Statement Analysis

ICICI Bank- Profit and Loss Statement

Profit & Loss account Mar '11 12 mths Income Interest Earned Other Income Total Income Expenditure Interest expended Employee Cost Selling and Admin Expenses Depreciation Miscellaneous Expenses Preoperative Exp Capitalised Operating Expenses Provisions & Contingencies Total Expenses 25,974.05 7,108.91 33,082.96 16,957.15 2,816.93 3,785.13 562.44 3,809.93 0.00 8,594.16 2,380.27 27,931.58 Mar '11 12 mths Net Profit for the Year Extraordionary Items Profit brought forward Total Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs) Appropriations Transfer to Statutory Reserves Transfer to Other Reserves Proposed Dividend/Transfer to Govt Balance c/f to Balance Sheet Total 5,151.38 -2.17 3,464.38 8,613.59 0.00 1,612.58 202.28 44.73 140.00 478.31 1,780.29 0.26 1,814.86 5,018.18 8,613.59 25,706.93 7,292.43 32,999.36 17,592.57 1,925.79 6,056.48 619.50 2,780.03 0.00 10,221.99 1,159.81 28,974.37 Mar '10 12 mths 4,024.98 0.00 2,809.65 6,834.63 0.00 1,337.95 164.04 36.10 120.00 463.01 1,867.22 1.04 1,501.99 3,464.38 6,834.63 31,092.55 8,117.76 39,210.31 22,725.93 1,971.70 5,977.72 678.60 4,098.22 0.00 10,795.14 1,931.10 35,452.17 Mar '09 12 mths 3,758.13 -0.58 2,436.32 6,193.87 0.00 1,224.58 151.21 33.76 110.00 444.94 2,008.42 0.01 1,375.79 2,809.65 6,193.87 30,788.34 8,878.85 39,667.19 23,484.24 2,078.90 5,834.95 578.35 3,533.03 0.00 10,855.18 1,170.05 35,509.47 Mar '08 12 mths 4,157.73 0.00 998.27 5,156.00 0.00 1,227.70 149.67 37.37 110.00 417.64 1,342.31 0.01 1,377.37 2,436.32 5,156.01 22,994.29 6,962.95 29,957.24 16,358.50 1,616.75 4,900.67 544.78 3,426.32 0.00 8,849.86 1,638.66 26,847.02 Mar '07 12 mths 3,110.22 0.00 293.44 3,403.66 0.00 901.17 153.10 34.59 100.00 270.37 1,351.12 0.00 1,054.27 998.27 3,403.66 ------------------- in Rs. Cr. ------------------Mar '10 12 mths Mar '09 12 mths Mar '08 12 mths Mar '07 12 mths

As we can see from the P&L account, the net income has not been increasing gradually over the years. The net income increased by 32% from Rs. 29,957.24 Cr. as on Mar 07 to Rs. 39,667.19 Cr. as on Mar 08. However, there was a decrease in total income by 1.15% from March 08 to March 09 and further by 15.84% to Rs. 32999.36 in March 10. There was a 0.25% increase in net income from March 10 to March 11 when the net income was 33,082.96.

The major contribution of net income has come from operating income, figures of which have been28,457.13, 39,467.92, 38,250.39, 32,747.36 and 32,369.69 from March 07 to March 11 respectively. The fluctuations in Total expenses have also shown a similar trend as the net income and the toal expenses amounted to Rs. 27,931.58 Cr. in March 11.Net profit increased by 33.68% from Rs. 3,110.22 Cr. as on March 07 to Rs. 4,157.73 Cr. as on March 08, but decreased by 10% to Rs. 3,758.13 Cr. as on March 09. The net profit then increased by 7.1% to Rs. 4,024.98 Cr. on as on March 10 and by 27.99% to Rs. 5,151.38 Cr. as on March 11. The total profit as on March 11 amounted to Rs. 8,613.59 Cr. with a profit of Rs. 3,464.38 Cr. brought forward. The equity dividend has increased from 110% in March 09 to 120% in March 10 to 140% in March 11.

FINANCIAL HIGHLIGHTS The financial performance for fiscal 2011 is summarized in the following table: Rs. billion, except percentages Net interest income and other income Provisions & contingencies1 Profit before tax Profit after tax of the Bank 1. Excludes provision for taxes. Fiscal 2010 46.70 Fiscal 2011 % change 60.93 30.5% Fiscal 2010 Fiscal 2011 % change

155.92 43.87 53.45 40.25

156.65 22.87 67.61 51.51

0.5% (47.9)% 26.5% 28.0%

Rs. billion, except percentages Consolidated profit after tax Appropriations

The profit after tax of the Bank for fiscal 2011 is Rs. 51.51 billion after provisions and contingencies (excluding provision for taxes) of Rs. 22.87 billion and all expenses. The disposable profit is Rs. 86.15 billion, taking into account the balance of Rs. 34.64 billion brought forward from the previous year.Directors have recommended a dividend at the rate of Rs. 14 per equity share of face value Rs. 10 for the year and have appropriated the disposable profit as follows:

Rs. billion To Statutory Reserve, making in all Rs. 73.75 billion1

Fiscal 2010

Fiscal 2011

10.07

12.88

To Special Reserve created and maintained in terms of Section 36(1) (viii) of 3.00 the Income-tax Act, 1961, making in all Rs. 31.69 billion To Capital Reserve, making in all Rs. 21.46 billion To/(from) Investment Reserve, making in all Nil To General Reserve, making in all Rs. 49.80 billion Dividend for the year (proposed) - On equity shares @ Rs. 14 per share (@ Rs. 12 per share for fiscal 2010)2 On preference shares (Rs.)

5.25

4.44

0.83

1.16

(1.16)

0.01

--

13.38 35,000 1.64 34.64

16.15 35,000 2.02 50.18

- Corporate dividend tax Leaving balance to be carried forward to the next year3

1. Includes Rs. 2.00 billion on amalgamation of The Bank of Rajasthan Limited with ICICI Bank Limited. 2. Includes dividend for the prior year paid on shares issued after the balance sheet date and prior to the record date. 3. After taking into account transfer to Reserve Fund Rs. 0.4 million for fiscal 2011, making in all Rs. 11.3 million.

PERFORMANCE OF ICICI BANK

45,000.00 40,000.00 35,000.00 30,000.00 25,000.00 20,000.00 15,000.00 10,000.00 5,000.00 0.00 In Rs. Cr.

Total Income
Total Expenses Net Profit for the Year Total Profit

Mar '07

Mar '08

Mar '09

Mar '10

Mar '11

IV.

COMPARATIVE ANALYSIS

1. Operational and performance ratios a) Net Interest Margin(NIM)

NIM
5.00% 4.00% 3.00% 2.00% 1.00% 0.00% ICICI HDFC AXIS 2.60%

4.40%
3.65%

As soon as the effect of sublime crisis mitigated housing sector encounters a sudden improvement. HDFC as market leader in providing home loan wins the race and discloses an increase of 4.40percent.The another interesting fact was AXIS bank displays a decent presence of 3.65percent followed by ICICI 2.60percent.

b) Non-Interest Income to total income ratio

Non Interest Income to Total Income Ratio

0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 0.813

0.7658

0.424

HDFC ratio touching one explains its optimal utilization of liquidity. Although sales of HDFC is reasonably high than other two banks, but due to reimbursing the debentures at an attractive price enhances their maturity and they were able to pacify the volatility of market. On the other hand ICICI improves its position because of lowest defaults among all..

ICICI

HDFC

AXIS

c) CASA as a percentage of total deposits

CASA as a percent of total deposits

60.00% 50.00% 40.00% 45.10% 51% 41.10%

30.00% 20.00% 10.00% 0.00% ICICI HDFC

AXIS

Continuous increase in repo and reserve repo rate by RBI has forced all the banks to improve their CASA as a percentage of total deposit to reduce liquidity from the market. AXIS bank has shown a tremendous improvement in this with an increase of 8 percent from the last fiscal, whereas ICICI included a sheer change in their policy with an improvement of 2 percent from last fiscal.

2. PROFITABILITY RATIOS a) Net Profit Ratio

Net Profit Ratio

25 20 19.7 15 10 5 0 ICICI HDFC AXIS 15.91 17.12

Maintaining their position from last 5 years, this year also HDFC comes as a market leader in banking industry with a net profit ratio of 19.7. Although figures can be easily predicted as a victim of recession but the constant difference with the other bank from 5 years is accentuating their credibility among customer.

b) Return on Equity

ROE
25 20 20.13 15 10 9.6 16.7

5
0

Return on equity is an excellent measure of shareholder and customers trust .HDFC with their tight money policy and premium market segmentation created a blank pace reimbursement which increases their market value quiet significantly. On the other hand ICICI loses its share because of over involvement in agri-loan which can be counterproductive in high inflation time.

ICICI

HDFC

AXIS

c) Operating expenses to Net Income ratio

Operating expense to Net Income Ratio

60.00% 40.00% 20.00% 0.00% ICICI HDFC Axis 50.82% 29.48%

24.15%

ICICI has the highest operating expense indicating a high degree of inefficiency in its operations. However, it is primarily due to acquisition of Bank of Rajasthan and costs associated with the additional 4000 employees and synergies in the merged acquisition. The fact that operating expense to Net income ratio was only 17.66 % for the financial year 2010 further endorses the above argument.

3. FINANCIAL RATIOS a) Gross NPA Ratio

Gross NPA
5.00% 4.00% 3.00% 4.67%

2.00%
1.00% 0.00% ICICI HDFC AXIS 1.05% 1.01%

NPA is the key strength indicator of the bank and is used as a measure of overall quality of the banks loan book. Generally, higher Gross NPA indicates bad quality of loans because as the bank lends out strongly to the customers, the chances of them defaulting also rises. The graph shows that NPA ratio of HDFC and Axis Bank is well below the regulated levels. The high Gross NPA ratio of ICICI is indicative of its aggressive nature. However, the GNPA has reduced 5.23% in the FY10 which is in synchronization with the overall strategy of stabilizing the assets.

b) Capital adequacy ratio

Capital Adequacy Ratio

25.00% 20.00% 15.00% 10.00% 5.00% 0.00% ICICI HDFC AXIS 19.54%

16.30%
12.65%

That all the three banks have CAR well above the benchmark requirement of 9% stipulated by RBI indicates that the banks are well capitalized. Much higher value of ICICI bank is primarily due to raising of subordinated debt qualifying for Tier 2 capital amounting to 59790 mn.

4. VALUATION RATIOS a) Earnings per share(EPS)

EPS
100 80 60 40 20 0 ICICI HDFC AXIS 44.73 84.4 82.95

The earnings per share are much higher for HDFC and Axis Bank as compared to those of ICICI bank, which are almost half. However, a growth of 24% over the previous years EPS is a positive indicator for ICICI.

b) Price Earnings (P/E) Ratio

P/E
30 25 20 15 10 5 0 ICICI HDFC AXIS

The P/E ratio of HDFC is maximum indicating that its doing better than ICICI or Axis bank. However, this reflects that the share is over-valued. On the other hand, P/E ratio of ICICI is medium indicating that theres potential to grow. The stability of ICICI is indicated by the rebound in the loan growth, primarily driven by domestic corporate loans; and rise in operating profit after the continuous decline in preceding quarters. The low P/E ratio of Axis indicates that the share is undervalued and hence can be very profitable for the investor in the long run.

c) Dividend Payout ratio

Dividend Payout Ratio

35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 19.55% 19.78% 32.33%

ICICI has the highest Dividend Payout Ratio which indicates general maturity of the organization. However, here it can also be attributed to the lower EPS as compared to HDFC and Axis, while comparable Dividend per share.

ICICI

HDFC

Axis