Research on banking sector by witty advisory

Banking Sector (Published on 5th June 2012) By

Witty Advisory Outshining Vista

Introduction Key Points Important Definitions Revised Banking Rates Ratio Analysis Terms More Parameters Outlook on Various Banks Statement Overall Outlook on a banking sector Long Term Prospects About Witty Advisory

6/5/2012 BANKING SECTOR OUTLOOK 2

The global financial system is still far away from a full recovery on account of a slowdown in the US economy as well as the Euro debt crisis. However, the Indian banking sector has been relatively well shielded by the central bank and has managed to sail through most of the crisis with relative ease. But, with the economic buoyancy the world over showing signs of cooling off, the investment cycle has been wavering in the country.


Retail lending (especially mortgage financing) that formed a significant portion of the portfolio for most banks in the last two years lost some weightage on the banks’ portfolios due to their risk weightage. However, on the liabilities side, with better penetration in the semi urban and rural areas, banks garnered a higher proportion of low cost deposits thereby economizing on the cost of funds. However, the RBI recently deregulated the savings account deposit rate. However only a few smaller private sector banks have increased their rates while the others have maintained status quo.


Supply Liquidity is controlled by the Reserve Bank of India (RBI). Demand India is a growing economy and demand for credit is high though it could be cyclical. Barriers to entry Licensing requirement, investment in technology and branch network, capital requirements. Bargaining power of suppliers High during periods of tight liquidity. Trade unions in public sector banks can be anti reforms. Depositors may invest elsewhere if interest rates fall.


Bargaining power of customers For good creditworthy

borrowers bargaining power is high due to the

availability of large number of banks.

Competition High- There are public sector banks,

private sector and foreign banks along with non banking

finance companies competing in similar business

segments. Plus the RBI is planning to issue a few new banking licenses.


Bank Rate- This is the rate at which RBI lends money to other banks (or financial institutions).

Cash Reserve Ratio- Banks in India are required to hold a certain proportion of their deposits in the form of cash. However, actually Banks don’t hold these as cash with themselves, but deposit such case with Reserve Bank of India (RBI) .

Statutory Liquidity Ratio (SLR)- This term is used by bankers and indicates the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities with themselves.


Repo Rate under LAF- It is the rate at which the RBI lends

shot-term money to the banks against securities.

Reverse Repo Rate under LAF-It is the rate at which banks

park their short-term excess liquidity with the RBI.

Marginal Standing Facility (MSF)-Under this scheme,

Banks will be able to borrow up to 1% of their respective Net

Demand and Time Liabilities". The rate of interest on the

amount accessed from this facility will be 100 basis points

(i.e. 1%) above the Repo rate. This scheme is likely to

reduce volatility in the overnight rates and improve monetary

transmission.


Bank Rate

9.00% Cash Reserve Ratio (CRR)

4.75% Statutory Liquidity Ratio (SLR)

24% Repo Rate under LAF

8.00% Reverse Repo Rate under LAF

7.00% Marginal Standing Facility

9.00%


Earnings Per Share(EPS)- 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.

Formula- Net Income-Dividend/Average

outstanding charges


Price-to-Earnings ratio(P/E) -In stock

trading, it is the measure of the price paid

for a share relative to the annual net

income or profit earned by the firm per

share.

Formula-Market Ratio Per Share/Earnings

Per Share


Price/Cash flow ratio (also called price-

to-cash flow ratio or P/C)- It is a ratio

used to compare a company's market

value to its cash flow.

Formula- Market Capital/Cash Flow


Book Value- In accounting,It is the value

of an asset according to its balance sheet

account balance. For assets, the value is

based on the original cost of the asset

less any depreciation, amortization or

Impairment costs made against the asset.


The Price-to-Book ratio(P/B ratio)- It is a

financial ratio used to compare a

company's book value to its current market price.

Formula- (1)-Market Cap/Book Value

(2)-CMP/Book Value Pr Share


Dividend-They are the payments made by

a corporation to its shareholder members.

It is the portion of corporate profits paid

out to stockholders.

It is generally calculated in terms of

percentage.


Dividend Yield- It is the company's total

annual dividend payments divided by its

market capitalization, or the dividend per

share, divided by the price per share.

It is often expressed as a percentage.


Results- Quarterly Half yearly Annual Statements- Balance Sheet P & L Cash Flow


Shareholding Promoter's holding Institutional investors Private Corporate Bodies NRI's/OCB's/Foreign Others

Government NPA (Non Performing Assets)


EPS- 114.42 P/E- 18.49 P/C- 16.38 BOOK VALUE (Rs.)- 968.97 PRICE/BOOK- 2.18 DIV (%)- 300.00 DIV YIELD (%)- 1.42 NPA- 4.44%


Average

Average

Average

Outstanding

Outstanding

Good

Average

Poor

Profit Margin- Quarterly(Q4)- Increased Half yearly- Increased

Annual- Decreased Promoter’s Holding remains the same. FII’s have increased. Other Investors have increased. Total Debt increased from last year.


Dividend has increased from last year. Profit Before Tax has increased. Unsecured loans have increased. Depreciation has increased. Operating Profit has increased. NPA has decreased sharply.


Short Term- Out Performer Long Term- Overweight


EPS- 52.18 P/E- 15.50 P/C- 15.09 BOOK VALUE (Rs.)- 477.88 PRICE/BOOK- 1.80 DIV (%)- 140.00 DIV YIELD (%)- 1.63 NPA (%)- 0.73


Poor

Average

Average

Good

Outstanding

Good

Average

Better

Profit Margin- Quarterly- Increased

Half yearly- Increased Annual- Increased

FII’s have increased. Other Investors have increased. Total Debt increased from last year.


Dividend has increased from last year. Profit Before Tax has increased. Unsecured loans have increased. Depreciation has decreased. Operating Profit has increased. NPA has come down from 0.84% to 0.73%.


Short Term- Out performer Long Term- Out performer


EPS- 96.44 P/E- 11.62 P/C- 10.83 BOOK VALUE (Rs.)- 459.86 PRICE/BOOK- 2.44 DIV (%)- 140.00% DIV YIELD (%)- 1.25% NPA (%)- )- 0.3%


Average

Average

Average

Good

Outstanding

Good

Average

Poor


Half yearly- Decreased Annual- Decreased

FII’s have increased. Other Investors have Decreased. Total Debt increased from last year.


Dividend has decreased from last year. Profit After Tax has increased. Unsecured loans have increased. Depreciation has increased. Operating Profit has increased. NPA has increased.


Short Term- Under performer Long Term- Neutral


EPS- 20.15 P/E- 4.58 P/C- 4.39 BOOK VALUE (Rs.)- 99.29 PRICE/BOOK- 0.93 DIV (%)- 22.00% DIV YIELD (%)- 2.38% NPA (%)- 1.15%


Average

Outstanding

Outstanding

Outstanding

Outstanding

Good

Good

Better


Half yearly- Decreased Annual- Increased

FII’s investment remain same. Other Investors have Increased. Total Debt Decreased from last year.


Dividend has decreased from last year. Profit After Tax has increased. Unsecured loans have increased. Depreciation has increased. Operating Profit has increased. NPA has come down.




EPS- 41.56 P/E- 10.00 P/C- 9.29 BOOK VALUE (Rs.)- 298.34 PRICE/BOOK- 1.39 DIV (%)- 85.00 DIV YIELD (%)- 2.05 NPA (%)- 0.81%


Average

Average

Average

Good

Outstanding

Good

Good

Better



FII’s investment has increased. Other Investors have Increased. Total Debt has increased from last year.


Dividend has increased from last year. Profit After Tax has increased. Unsecured loans have increased. Depreciation has increased. Operating Profit has decreased. NPA has come down.


Short Term- Out performer Long Term- Neutral




Average

Good

Good

Good

Outstanding

Good

Good

Better



FII’s investment has increased. Other Investors have Decreased. Total Debt has decreased from last year.


Dividend has increased from last year. Profit After Tax has increased. Unsecured loans have increased. Depreciation has decreased. Operating Profit has increased. NPA has come down.






Average

Average

Average

Outstanding

Outstanding

Poor

Good

Poor


Half yearly- Increased Annual- Increased

FII’s investment has decreased. Other Investors have Decreased. Total Debt has decreased from last year.


Dividend has decreased from last year. Profit After Tax has increased. Unsecured loans have increased. Depreciation has increased. Operating Profit has increased. NPA has increased.






Average

Average

Average

Outstanding

Outstanding

Good

Average

Better



FII’s investment has decreased. Other Investors have Decreased. Total Debt has increased from last year.


Dividend has Increased from last year. Profit After Tax has increased. Unsecured loans have increased. Depreciation has increased. Operating Profit has increased. NPA has decreased from 1.78% to 1.47%.




EPS- 22.02 P/E- 24.67 P/C- 24.67 BOOK VALUE (Rs.)- 108.17 PRICE/BOOK- 5.02 DIV (%)- 215.00 DIV YIELD (%)- 0.61 NPA (%)-0.2%


Poor

Poor

Poor

Average

Average

Good

Poor

Better

Profit Margin- Quarterly- Decreased

Half yearly- Increased Annual- Decreased

FII’s investment has decreased sharply. Other Investors have increased. Total Debt has increased from last year.


Dividend has Increased from last year. Profit After Tax has increased. Unsecured loans have increased. Depreciation has increased. Operating Profit has increased. NPA has decreased.


Short Term- Under performer Long Term- Under performer




Poor

Poor

Poor

Average

Good

Average

Poor

Better


Half yearly- Increased Annual- Decreased

FII’s investment has increased. Other Investors have increased. Total Debt has decreased from last year.




Short Term- Neutral Long Term- Neutral


EPS- 27.62 P/E- 12.69 P/C- 12.69 BOOK VALUE (Rs.)- 107.46 PRICE/BOOK- 3.26 DIV (%)- 40.00 DIV YIELD (%)- 0.71 NPA (%)- 0.47


Poor

Poor

Poor

Good

Outstanding

Average

Poor

Better

Profit Margin- Quarterly (Q4)- Increased Half yearly- Decreased

Annual- Decreased FII’s investment has increased. Other Investors have decreased. Total Debt has increased from last year.


Dividend has Increased from last year. Profit After Tax has increased. Unsecured loans have increased. Depreciation has increased. Operating Profit has increased. NPA has remained the same.


Short Term- Out performer Long Term- Underweight




Poor

Average

Average

Outstanding

Outstanding

Good

Good

Better

Profit Margin- Quarterly - Decreased


FII’s investment has Decreased. Other Investors have increased. Total Debt has decreased from last year.


Dividend has Increased from last year. Profit After Tax has increased. Unsecured loans have increased. Depreciation has decreased. Operating Profit has decreased. NPA has decreased.




EPS- 137.42 P/E- 6.16 P/C- 5.84 BOOK VALUE (Rs.)- 591.43 PRICE/BOOK- 1.43 DIV (%)- 220.00 DIV YIELD (%)- 2.60 NPA (%)-1.51


Good

Good

Good

Outstanding

Outstanding

Good

Good

Poor

Profit Margin- Quarterly - Decreased Half yearly- Decreased

Annual- Decreased FII’s investment has Decreased. Other Investors have decreased. Total Debt has increased from last year.


Dividend has Increased from last year. Profit After Tax has increased. Unsecured loans have increased. Depreciation has increased. Operating Profit has increased. NPA has increased.


Short Term- Neutral Long Term- Out performer




Good

Good

Good

Outstanding

Outstanding

Good

Good

Better

Profit Margin- Quarterly - increased

Half yearly- Decreased Annual- increased

FII’s investment remains the same. Other Investors have remained the same. Total Debt has decreased from last year.








Average

Good

Good

Outstanding

Outstanding

Good

Excellent

Better

Profit Margin- Quarterly(Q4) – Decreased

Half yearly- Decreased Annual- increased

FII’s investment increased. Other Investors have increased. Total Debt has decreased from last year.








Average

Good

Good

Excellent

Outstanding

Good

Good

Better

Profit Margin- Quarterly – increased Half yearly- increased

Annual- Decreased FII’s investment decreased. Other Investors have decreased. Total Debt has decreased from last year.


Dividend has Increased from last year. Profit After Tax has decreased. Unsecured loans have increased. Depreciation has decreased. Operating Profit has decreased. NPA has decreased.






Poor

Poor

Poor

Excellent

Outstanding

Average

Good

Better


Annual- Decreased FII’s investment increased. Other Investors have decreased. Total Debt has decreased from last year.


Dividend has remained the same. Profit After Tax has decreased. Unsecured loans have increased. Depreciation has decreased. Operating Profit has decreased. NPA has decreased.


Short Term- Neutral Long Term- Under performer


EPS- 11.99 P/E- 7.31 P/C- 6.59 BOOK VALUE (Rs)- 104.68 PRICE/BOOK- 0.84 DIV (%)- 50.00 DIV YIELD (%)- 5.70 NPA (%)- 1.33%


Average

Average

Average

Excellent

Outstanding

Good

Outstanding

Better

Profit Margin- Quarterly – Decreased Half yearly- Decreased

Annual- increased FII’s investment decreased. Other Investors have decreased. Total Debt has increased from last year.


Dividend has increased. Profit After Tax has increased. Unsecured loans have increased. Depreciation has decreased. Operating Profit has increased. NPA has decreased.






Average

Average

Good

Outstanding

Outstanding

Good

Excellent

Better


Annual- increased FII’s investment decreased. Other Investors have decreased. Total Debt has increased from last year.


Dividend has increased. Profit After Tax has increased. Unsecured loans have increased. Depreciation has decreased. Operating Profit has increased. NPA has increased from last quarter.






Average

Good

Good

Excellent

Outstanding

Good

Good

Poor

Profit Margin- Quarterly – increased


FII’s investment increased. Other Investors have decreased. Total Debt has increased from last year.


Dividend has increased. Profit After Tax has increased. Unsecured loans have increased. Depreciation has decreased. Operating Profit has increased. NPA has increased from last quarter.






Average

Good

Good

Outstanding

Outstanding

Good

Good

Poor

Profit Margin- Quarterly – increased


FII’s investment increased. Other Investors have decreased. Total Debt has decreased from last year.


Dividend has increased. Profit After Tax has decreased. Unsecured loans have increased. Depreciation has increased. Operating Profit has increased. NPA has increased from last quarter.






Average

Good

Good

Good

Outstanding

Good

Good

Better


Annual- Decreased FII’s investment Decreased. Other Investors have remained the same. Total Debt has decreased from last year.


Dividend has increased. Profit After Tax has decreased. Unsecured loans have increased. Depreciation has increased. Operating Profit has increased. NPA has decreased.






Average

Good

Good

Good

Outstanding

Good

Good

Better


Annual- increased FII’s investment increased. Other Investors have decreased. Total Debt has decreased from last year.


Dividend has increased. Profit After Tax has increased. Unsecured loans have increased. Depreciation has decreased. Operating Profit has increased. NPA has decreased.






Average

Poor

Poor

Good

Outstanding

Average

Good

Poor

Profit Margin- Quarterly – decreased Half yearly- decreased

Annual- decreased FII’s investment increased. Other Investors have decreased. Total Debt has decreased from last year.


Dividend has increased. Profit After Tax has increased. Unsecured loans have increased. Depreciation has increased. Operating Profit has increased. NPA has increased from last quarter.






Poor

Poor

Poor

Good

Good

Blank

Blank

Better


Annual- increased FII’s investment increased. Other Investors have increased. Total Debt has increased from last year.


Dividend has increased. Profit After Tax has increased. Unsecured loans have increased. Depreciation has decreased. Operating Profit has decreased. NPA has decreased.


Short Term- Neutral Long Term- Neutral




Poor

Poor

Poor

Good

Good

Good

Good

Better


Annual- decreased FII’s investment increased. Other Investors have increased. Total Debt has decreased.


Dividend has increased. Profit After Tax has increased. Unsecured loans have increased. Depreciation has increased. Operating Profit has decreased. NPA has increased.






Poor

Poor

Poor

Average

Average

Average

Poor

Better


Annual- increased FII’s investment increased. Other Investors have decreased. Total Debt has decreased from last year.


Dividend is poor. Profit After Tax has increased. Unsecured loans have increased. Depreciation has increased. Operating Profit has increased. NPA has decreased.




EPS- 6.87 P/E- 6.77 P/C- 6.87 BOOK VALUE (Rs)-24.67 PRICE/BOOK- 1.88 DIV (%)- 85.00 DIV YIELD (%)- 1.83 NPA (%)- 0.44%

Average

Average

Average

Good

Outstanding

Good

Average

Better



Annual- decreased FII’s investment increased. Other Investors have increased. Total Debt has increased from last year.


Dividend is good. Profit After Tax has increased. Unsecured loans have increased. Depreciation has increased. Operating Profit has increased. NPA has come down.


Short Term- Neutral Long Term- Overweight


The banking sector is under a tremendous pressure due to bad Non Performing Assets(NPA’s).

The Inflation is another big factor which is pulling the banking sector down.

The government is in a fix between controlling the inflation and increasing the industrial output because recent IIP nos. showed a great downfall of industrial growth.

The rating agencies downgrading the banks are creating further negativity in the market.

.


The global cues are affecting the Indian market in a big way.

The strengthening of Dollar against Rupee is making the Indian economy fall and deviating the fiscal deficit target as proposed by FM.

THE GAAR problems have postponed for an year, now it will be implemented in FY14 which is a good news for the banking sector as now FII’s would start entering into the market more often than not.


Although the banking sector is burning with pressure but still the RBI is making a clear effort of increasing the cash flow in the market as recently it has surprised the market by reducing the Repo and Reverse Repo rate by 50 bps.

The IIP nos. have forced the government to take this very step despite of huge Inflation rate.

The inflation nos. have shown some improvement recently so that would definitely encourage RBI to reduce rates further especially CRR.


Our outlook is positive for banking sector in the long run.

We expect further cuts in the rates by RBI. Expect some new policies to be implemented

by the government which would enhance the cash flow in the country.

Banks are improving with their NPA nos. which is a good sign for the sector.


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Economy & Finance

Research on banking sector by witty advisory