Analysis of Dividend Policy of Indian Banking Sector

Banking Industry: An Overview

y The Indian banking market has been growing at a rapid rate, with

assets expected to reach US$1 trillion by 2010

y Major Factor: Burgeoning Middle Class (Aprox 400million) y Major Challenge: Competition from Foreign Banks set to

come in 2009 & Recession

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Banks selected for study:

Public Sector Banks
y State Bank of India y Punjab National Bank y Corporation Bank

Private Sector Banks:

y ICICI y HDFC

Time-Period of study: 2004-2008

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State Bank of India: An Overview

y State Bank of India was constituted through an Act of Parliament on

8th May, 1955

y It is the largest commercial bank in India in terms of profits, assets,

deposits, branches and employees

y It handles a significant part of the day-to-day banking business of both

central government and state governments

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SBI
2004 Earnings Per Share (Rs) Dividend Per Share Dividend Payout (%) Dividend Yield (%) Earning Yield (%) 2005 2006 2007 2008

83.20

81.79

83.69

86.06

106.39

11.00 17.74 1.92

12.50 17.46 2.01

14.00 19.06 1.53

14.00 18.98 1.49

21.50 22.64 1.34

14.55

13.19

9.16

9.18

6.65

Price
P/E

571.49

619.85

913.37

936.82

1598.85
15.38

8.84

8.21

11.84

11.83

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Earnings Per Share & Dividend Per Share

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Dividend Yield & Earnings Yield

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Key Findings
SBI seemed to be following a policy of Constant Dividend Payout. Payouts have

been within a range of about 6% for the last 8 years In 2007-08 the bank has experienced a significant growth in both EPS and DPS The market price of the share has also grown manifolds. Fall in the Earning and Dividend Yield is a result of higher proportionate increase in the Market price as compared to EPS and Dividends Current Scenario:
The current market price is around Rs. 1150 with P/E being 10.88 times as on

31st Jan 2009 It experienced a slight improvement in the share price with 2% service tax reduction announced last week The Indian government on 24th February 2009 introduced a bill in Parliament which enabled it to increase the capital base of State Bank of India's subsidiaries Should be an attractive option for investment purposes
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ICICI: An Overview
y It is India's largest private sector bank in market capitalization and

second largest overall in terms of assets

y As on 31st Dec 2008 its total assets stood at US$ 77 billion and profit

after tax at Rs. 30.14 billion for the year

y ICICI Bank has got its equity shares listed on the stock exchanges

at Kolkata andVadodara, Mumbai and the National Stock Exchange of India Limited, and its ADRs on the New York Stock Exchange(NYSE).

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ICICI
2004 Earnings Per Share (Rs) Dividend Per Share Dividend Payout (%) Dividend Yield (%) EarningYield (%) P/E Price 26.71 2005 27.22 2006 28.55 2007 34.59 2008 37.37

7.5

8.5

8.5

10

11

37.49

36.05

34.08

33.89

33.12

2.53

2.16

1.44

1.17

1.42

9.02 11.64 295.90

6.92 15.12 393.00

4.84 21.54 589.25

4.05 25.95 853.10

4.85 21.38 770.10

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Earnings Per Share & Dividend Per Share

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Dividend Yield & Earnings Yield

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Key Findings
It follows a constant payout pattern. The payout ratio has reduced, but

the fall is not significant enough to consider it as a lowering of dividend payout by the bank Although not very huge in numbers, both EPS and DPS have shown a consistent increase. Larger than proportionate increase of market price as compared to both earnings and dividend has resulted in falling Yield ratios Market price rose very aggressively from the year 2003 to 2007 but since than share prices have taken a plunge
Current Scenario ICICI seems to be one of the major losers in the present scenario with its share price coming as low as Rs. 416.30 and P/E ratio being 11.27. One of the reasons being fall in the value of stocks held by ICICI bank in US companies
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Punjab National Bank: An Overview

y Punjab National Bank is northern India based third largest PSU

bank in India
y It has strong correspondent banking relationships with more than

217 international banks of the world

y From 2003 it shifted its focus on increasing its presence in the

international markets by opening branches and representative offices in Dubai, Kabul, Shanghai.
y It was involved in two major expansions in the year 2006 and

2008 with opening of PNBIL in the UK and a branch in Honk Kong

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PNB
2004 Earnings Per Share (Rs) Dividend Per Share Dividend Payout (%) Dividend Yield (%) Earning Yield (%) P/E Price 41.79 4.00 10.79 1.19 12.51 2005 44.72 3.00 14.01 0.76 11.37 2006 45.65 6.00 14.98 1.27 9.68 10.52 471.20 2007 48.84 10.0 30.71 2.12 10.35 8.94 471.65 2008 64.98 10.00 23.40 1.92 12.78 8.09 508.15

8.10 333.90

9.98 393.30

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Earnings Per Share & Dividend Per Share

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Dividend Yield & Earnings Yield

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Key Findings
y The bank has shown a steady increase in EPS and DPS and the same has

been followed by its Payout policies and market price of its share y Although PNB comes in the category of matured banks, still it is conservative when it comes to payments of dividends y Major reasons being the Expansion Plans that have been taken up and also that are in the pipeline y The bank aims to increase its global presence by opening up offices in about other 10 countries in the next 5 years Current scenario The current price of the share has come down to around Rs. 400 with P/E ratio being 6.16 times In Feb. 2009 the bank has raised Rs.1000 cr. via bond issue PNB is currently one of the best options for investment purposes
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Corporation Bank
y Founded in 1906, Corporation Bank is one of Indias leading

public sector banks

y 57% of the share capital is held by government and about 37% is

held by various public and financial institutions

y It holds a distinction of being on the list of 200 companies world

over outside the US having a turnover under a billion US$ (Forbes 2003)
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Corporation Bank
2004 Earnings Per Share (Rs) Dividend Per Share Dividend Payout (%) Dividend Yield (%) Earning Yield (%) P/E Price 34.38 2005 27.15 2006 30.00 2007 35.97 2008 49.46

6.0 19.25 2.14

6.5 26.33 1.87

7.0 25.75 1.83

9.0 27.85 3.12

10.50 23.97 3.71

12.27 8.15 280.20

7.79 12.83 348.45

7.86 12.72 381.70

12.45 8.03 288.90

17.47 5.72 283.05

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Earnings Per Share & Dividend Per Share

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Dividend Yield & Earnings Yield

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Key Findings
As a result of falling market price of its share both earning and

dividend yield have increased Dividend Payout has not shown much variability with payout ranging between 20% to 23% Both EPS and DPS have shown consistent growth over the last 4 years
Present Scenario: Banks P/E ratio and share prices have gone down to 3.54 and Rs. 181.50 respectively as on Jan 2009 The board of Corporation Bank declared an interim dividend at the rate of Rs 4.50 per share on 26th Feb. 2009 It has also opened two international offices in Hong Kong and Dubai in the current financial year
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HDFC: An Overview
y Incorporated in 1994, HDFC commenced its operations as a

scheduled commercial bank in Jan 1995

y It is India's premier housing finance company and enjoys an

impeccable track record in India as well as in international markets.

y With huge experience in the financial markets, a strong market

reputation, large shareholder base and unique consumer franchise, HDFC is a world class Indian bank.
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HDFC Bank
2004 Earnings Per Share (Rs) Dividend Per Share Dividend Payout (%) Dividend Yield (%) EarningYield (%) Price P/E 2005 2006 2007 2008
21.16 27.55 35.64 43.29 44.87

3.50

4.50

5.50

7.00

8.50

22.15 0.93

23.99 0.83

22.55 0.71

22.91 0.74

22.16 0.64

5.59

5.06

4.61

4.56

3.40

378.35 21.69

544.25 26.12

773.50 28.61

949.40 27.48

1319.95 30.40

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Earnings Per Share & Dividend Per Share

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Dividend Yield & Earnings Yield

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Key Findings
y Both EPS & DPS , have grown consistently over the past 10 yrs. y The company is following a highly stable dividend payout pattern with payout

being in the range of 20 to 24 % in the last 8 years y Should be considered as one of the best bets for investment in current crisis situation y Share price has shown a staggering growth rate of around 70% in the past 5 years Current Scenario: The Banks P/E ratio as on 31st Jan 2009 was 24.74 with share price being Rs. 924.60 On 16th Feb. 2009 they issued 31912 equity shares to the employees of the bank in the form of ESOS which is continuation with 1,12,200 that were issued in September 2008
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Summary: Dividend Payout Ratio

SBI
2004 2005 2006 2007 2008 17.74 17.46 19.06 18.98 22.64

ICICI
37.49 36.05 34.08 33.89 33.12

PNB
10.79 14.01 14.98 30.71 23.4

Corporation Bank HDFC

19.25 26.33 25.75 27.85 23.97 22.15 23.99 22.55 22.91 22.16

Questions?

Thank You