17-06-2014, 01:01 PM
COMPREHENSIVE STUDY OF “INDIAN BANKING SYSTEM
COMPREHENSIVE STUDY.doc (Size: 365 KB / Downloads: 29)
INTRODUCTION
In India, given the relatively underdeveloped capital market and with little internal resources, firms and economic entities depend, largely, on financial intermediaries to meet their fund requirements. In terms of supply of credit, financial intermediaries can broadly be categorized as institutional and non-institutional. The major institutional suppliers of credit in India are banks and non-bank financial institutions (that is, development financial institutions or DFIs), other financial institutions (FIs), and non-banking finance companies (NBFCs). The non-institutional or unorganized sources of credit include indigenous bankers and money-lenders. Information about the unorganized sector is limited and not readily available.
An important feature of the credit market is its term structure:
(a) Short-term credit
(b) Medium-term credit
© Long-term credit.
While banks and NBFCs predominantly cater for short-term needs, FIs provide mostly medium and long-term funds.
REVIEW OF LITERATURE
Sunday, 09.23.2007, 11:59pm (GMT-7)
NEW JERSEY: Indus American Bank has tied up with State Bank of India to offer money transfer services to India for its clients. Under the new money transfer service, which will provide expanded services to Indus American Bank customers can expect service at over 14,000 branch locations of State Bank of India within India, and at over 14,000 additional RTGS participating banks.
Funds remitted from Indus American Bank would reach recipients typically within 24 hours. As the largest bank in India, State Bank of India offers excellent exchange rates which are now available to Indus American Bank customers. India is one of the biggest destinations for foreign remittances.
OBJECTIVES OF THE STUDY
Today’s banking sector play a dominant role regarding investment decision. It basically tells about how these funds are effectively and efficiently utilized in order to maximize profits.
To study the growth and performance of banking company.
To find out what are the policies that we have to be adopted to increase the goodwill of the company.
To provide suggestions for better functioning of business.
To know about the various loan schemes of these two banking companies i.e. ICICI & SBI.
SIGNIFICANCE OF THE STUDY
To make a detailed study of various financial services provide by the different banks.
To analyze customers view point regarding their banks.
To study effective and most popular bank among the customers regarding its services.
To find out the rate of interest of banks and reaction of customers on it.
To make analysis on the economic benefits provided by various banks.
Suggest the investors whether to invest in shares of Banking Companies
CONCEPTUALIZATION
The last decade has seen many positive developments in the Indian banking sector. The policy makers, which comprise the Reserve Bank of India (RBI), Ministry of Finance and related government and financial sector regulatory entities, have made several notable efforts to improve regulation in the sector. The sector now compares favourably with banking sectors in the region on metrics like growth, profitability and non-performing assets (NPAs). A few banks have established an outstanding track record of innovation, growth and value creation. This is reflected in their market valuation. However, improved regulations, innovation, growth and value creation in the sector remain limited to a small part of it.
The cost of banking intermediation in India is higher and bank penetration is far lower than in other markets. India’s banking industry must strengthen itself significantly if it has to support the modern and vibrant economy which India aspires to be. While the onus for this change lies mainly with bank managements, an enabling policy and regulatory framework will also be critical to their success
FOCUS OF THE PROBLEM
The research report concentrates on macro and micro factors affecting Banking Industry, Evolution of Banking Industry and its current status. Various regulatory and reform processes also affect banking industry. The report also throws a light on them.
The report finally ends with valuation of major players in banking Industry and the major challenges faced by this industry.
LIMITATION OF THE STUDY
The scope of the study will be restricted to selected Banks.
Many of the respondents did not think hard enough while choosing the specific point. This could have led to a biased view and thus affected the analysis.
There may be other events during the Clean and Window Period which may distort the results
INDIAN ECONOMY-MACRO FACTORS AFFECTING INDIAN BANKING
Robust economic growth in FY07. GDP is increased by over 8% in FY07; Agriculture, industry and services to grow at 1.7%, 10.5% and 10.7% respectively
Rabi season experiences normal monsoon
IIP (Index of Industrial Production) growth dips in October 2006. The poor performance of the manufacturing sector, which forms 80% of the IIP index lead to a blip in its robust growth trend for the past 9 months. Both mining and electricity grew faster than last year at 4% and 9.7% Vs – 0.1% and 7.7% respectively
WPI (Wholesale Price Index) rose to 5.43% for the week ending December 16; higher inflation in primary commodities remains. The inflation in the coming weeks may remain high due to lower base effect.
CRR (Cash Reserve Ratio) hike of 50 bps to absorb Rs.135bn from the system. The CRR rate hike of 50bps came as a surprise but it reflects that RBI’s intention of controlling credit off-take and liquidity management by raising repo and reverse repo rate could not achieve the desired results due to which RBI used CRR rate hike – a new instrument to control liquidity
Exports growth back on track
INDIAN BANKING INDUSTRY
In India, given the relatively underdeveloped capital market and with little internal resources, firms and economic entities depend, largely, on financial intermediaries to meet their fund requirements. In terms of supply of credit, financial intermediaries can broadly be categorized as institutional and non-institutional. The major institutional suppliers of credit in India are banks and non-bank financial institutions (that is, development financial institutions or DFIs), other financial institutions (FIs), and non-banking finance companies (NBFCs). The non-institutional or unorganized sources of credit include indigenous bankers and money-lenders. Information about the unorganized sector is limited and not readily available.
Indian Banking Sector Experience
India inherited a weak financial system after Independence in 1947. At end-1947, there were 625 commercial banks in India, with an asset base of Rs. 11.51 billion. Commercial banks mobilized household savings through demand and term deposits, and disbursed credit primarily to large corporations. Following Independence, the development of rural India was given the highest priority. The commercial banks of the country including the IBI had till then confined their operations to the urban sector and were not equipped to respond to the emergent needs of economic regeneration of the rural areas. In order to serve the economy in general and the rural sector in particular, the All India Rural Credit Survey Committee recommended the creation of a state-partnered and state-sponsored bank by taking over the IBI, and integrating with it, the former state-owned or state-associate banks. Accordingly, an act was passed in Parliament in May 1955, and the State Bank of India (SBI) was constituted on July 1, 1955. More than a quarter of the resources of the Indian banking system thus passed under the direct control of the State. Subsequently in 1959
STRUCTURE OF THE BANKING SECTOR
The banking sector in India functions under the umbrella of the RBI—the regulatory, central bank. The Reserve Bank of India Act was passed in 1934 and the RBI was constituted in 1935 as the apex bank. The Banking Regulations Act was passed in 1949. This Act brought the RBI under government control. Under the Act, the RBI received wide-ranging powers in regards to establishment of new banks, mergers and amalgamations of banks, opening and closing of branches of banks, maintaining certain standards of banking business, inspection of banks, etc. The Act also vested licensing powers and the authority to conduct inspections with the RBI.
Banks in India can broadly be classified as regional rural banks or RRBs, scheduled commercial banks or SCBs, and co-operative banks. The scope of the report includes the SCBs only3
Credit Growth
The bank lending has expanded in a number of emerging market economies, especially in Asia and Latin America, in recent years. Bank credit to the private sector, in real terms, was rising at a rate between 10 and 40 per cent in a number of countries by 2005 (BIS, 2006). Several factors have contributed to the significant rise in bank lending in emerging economies such as strong growth, excess liquidity in banking systems reflecting easier global and domestic monetary conditions, and substantial bank restructuring.
The recent surge in bank lending has been associated with important changes on the asset side of banks balance sheet. First, credit to the business sector - historically the most important component of banks assets – has been weak, while the share of the household sector has increased sharply in several countries. Second, banks investments in Government securities increased sharply until 2004-05. As a result,
CONCLUSION
The project involves valuation of major Indian Banks including ICICI Bank, SBI and HDFC Bank. The methodology followed is Target Pricing, which including estimating growth rate by regression on historical sales to forecast next year sales, earning and Profit and Loss account. Then EPS is calculated which is multiplied to Historical P/E to forecast intrinsic value of share. All shares are undervalued and expected to give positive risk adjusted returns to investors. Since the intrinsic value is more than current market price for all the companies, the share can be recommended to conservative investors.