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)


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


Poor
 EPS- 52.18
 P/E- 15.50 Average
 BOOK VALUE (Rs.)- 477.88 Good
 DIV (%)- 140.00 Good
 NPA (%)- 0.73
Better


 Profit Margin-
Quarterly- Increased
Annual- Increased


 Profit Before Tax has increased.
 Depreciation has decreased.
 NPA has come down from 0.84% to 0.73%.


Short Term-
Out performer

Long Term-
Out performer


Average
 EPS- 96.44
 DIV (%)- 140.00% Good
 DIV YIELD (%)- 1.25%
Average
 NPA (%)- )- 0.3%
Poor


 Profit Margin-
Half yearly- Decreased
Annual- Decreased
 Other Investors have Decreased.


 Dividend has decreased from last year.
 Profit After Tax has increased.
 NPA has increased.


Short Term-
Under performer

Long Term-
Neutral


Average
 EPS- 20.15
 P/E- 4.58 Outstanding
 P/C- 4.39 Outstanding
 DIV (%)- 22.00% Good
 DIV YIELD (%)- 2.38%
Good
 NPA (%)- 1.15%
Better


 Profit Margin-
Annual- Increased
 FII’s investment remain same.
 Other Investors have Increased.
 Total Debt Decreased from last year.


 NPA has come down.


Short Term-
Out performer

Long Term-
Out performer


 EPS- 41.56 Average
 DIV (%)- 85.00 Good
 DIV YIELD (%)- 2.05 Good
 NPA (%)- 0.81%
Better


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


 Operating Profit has decreased.


Short Term-
Out performer

Long Term-
Neutral


 P/E- 5.77 Good
 P/C- 5.52 Good
 DIV (%)- 110.00 Good
 DIV YIELD (%)- 2.52
Good
 NPA (%)- 1.73%
Better


 Profit Margin-
Annual- Increased
 Total Debt has decreased from last year.


Short Term-
Out performer

Long Term-
Out performer


 DIV (%)- 15.00 Poor
 NPA (%)- 2.1% Poor


 Profit Margin-
Annual- Increased
 FII’s investment has decreased.


Short Term-
Out performer

Long Term-
Neutral


Average
 EPS- 38.61
 DIV (%)- 70.00 Good
 NPA (%)- 1.47% Better


 Profit Margin-
Annual- Increased
 FII’s investment has decreased.


 Dividend has Increased from last year.
 NPA has decreased from 1.78% to 1.47%.


Short Term-
Out performer

Long Term-
Neutral


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


 Profit Margin-
Quarterly- Decreased
Annual- Decreased
 FII’s investment has decreased sharply.


 NPA has decreased.


Short Term-
Under performer

Long Term-
Under performer


 EPS- 17.15 Poor
 P/E- 19.07 Poor
 P/C- 19.07 Poor
 BOOK VALUE (Rs.)- 81.59 Average
 PRICE/BOOK- 4.01 Good
 DIV (%)- 22.00 Average
 DIV YIELD (%)- 0.61
Poor
 NPA (%)-0.29%
Better


 Profit Margin-
Annual- Decreased


Short Term-
Neutral

Long Term-
Neutral


 EPS- 27.62 Poor
 P/E- 12.69 Poor
 P/C- 12.69 Poor
 DIV YIELD (%)- 0.71
Poor
 NPA (%)- 0.47
Better


 Profit Margin-
Quarterly (Q4)- Increased
Annual- Decreased
 Other Investors have decreased.


 NPA has remained the same.


Short Term-
Out performer

Long Term-
Underweight


Poor
 EPS- 29.27
 DIV (%)- 80.00 Good
 NPA (%)-1.70% Better


 Profit Margin-
Quarterly - Decreased
Annual- Decreased
 FII’s investment has Decreased.


Short Term-
Under performer

Long Term-
Neutral


 EPS- 137.42 Good
 P/E- 6.16 Good
 P/C- 5.84 Good
 DIV (%)- 220.00 Good
 NPA (%)-1.51 Poor


 Profit Margin-
Quarterly - Decreased
Annual- Decreased
 FII’s investment has Decreased.


Short Term-
Neutral

Long Term-
Out performer


 EPS- 115.99 Good
 P/E- 6.62 Good
 P/C- 6.27 Good
 PRICE/BOOK- 1.44
Outstanding
 DIV (%)- 165.00
Good
 DIV YIELD (%)- 2.15
 NPA (%)-0.51% Good
Better


 Profit Margin-
Quarterly - increased
Annual- increased
 FII’s investment remains the same.
 Other Investors have remained the same.


Short Term-
Out performer

Long Term-
Out performer


Average
 EPS- 41.48
 P/E- 5.54 Good
 P/C- 5.15 Good
 DIV (%)- 104.00 Good
 DIV YIELD (%)- 4.53 Excellent
 NPA (%)- 2.1%
Better


 Profit Margin-
Quarterly(Q4) – Decreased
Annual- increased
 FII’s investment increased.


Short Term-
Neutral

Long Term-
Out performer


 P/E- 4.87 Good
 P/C- 4.69 Good
 BOOK VALUE (Rs.)- 153.33 Excellent
 DIV (%)- 60.00
Good
 DIV YIELD (%)- 3.58
Good
 NPA (%)- 1.77%
Better


 Profit Margin-
Quarterly – increased
Half yearly- increased
Annual- Decreased
 FII’s investment decreased.


 Profit After Tax has decreased.


Short Term-
Neutral

Long Term-
Out performer


Poor
 EPS- 7.25
 P/E- 7.53 Poor
 P/C- 6.50 Poor
 BOOK VALUE (Rs.)- 51.68 Excellent
 NPA (%)- 2.2% Better


 Profit Margin-
Annual- Decreased


 Dividend has remained the same.


Short Term-
Neutral

Long Term-
Under performer


 BOOK VALUE (Rs)- 104.68 Excellent
 DIV (%)- 50.00 Good
 DIV YIELD (%)- 5.70
Outstanding
 NPA (%)- 1.33%
Better


 Profit Margin-
Quarterly – Decreased
Annual- increased


 Dividend has increased.


Short Term-
Under performer

Long Term-
Neutral


Average
 EPS- 23.55
 P/C- 4.68 Good
 BOOK VALUE (Rs)- 116.02 Outstanding
 DIV (%)- 55.00 Good
 DIV YIELD (%)- 4.62 Excellent
 NPA (%)- 1.48%
Better


 Profit Margin-
Annual- increased


 NPA has increased from last quarter.


Short Term-
Under performer

Long Term-
Neutral


 P/E- 5.20 Good
 P/C- 5.00 Good
 BOOK VALUE (Rs)- 184.44 Excellent
 DIV (%)- 75.00 Good
 DIV YIELD (%)- 3.37
Good
 NPA (%)- 2.4%
Poor


 Profit Margin-
Annual- Decreased


Short Term-
Neutral

Long Term-
Out performer


 P/E- 4.75 Good
 P/C- 4.42 Good
 BOOK VALUE (Rs)- 77.97 Outstanding
 DIV (%)- 30.00
Good
 DIV YIELD (%)- 3.88
Good
 NPA (%)- 3.49%
Poor


 Profit Margin-
Annual- Decreased


Short Term-
Neutral

Long Term-
Out performer


 P/E- 3.86 Good
 P/C- 3.63 Good
 BOOK VALUE (Rs)- 154.33 Good
 DIV (%)- 20.00 Good
 DIV YIELD (%)- 2.80
Good
 NPA (%)- 0.63%
Better


 Profit Margin-
Annual- Decreased
 FII’s investment Decreased.
 Other Investors have remained the same.


Short Term-
Under performer

Long Term-
Neutral


 P/E- 4.83 Good
 P/C- 4.57 Good
 DIV (%)- 37.00 Good
 DIV YIELD (%)- 3.58
Good
 NPA (%)- 1.1%
Better


 Profit Margin-
Annual- increased


Short Term-
Neutral

Long Term-
Out performer


 P/E- 8.98 Poor
 P/C- 7.78 Poor
 NPA (%)- 1.37% Poor


 Profit Margin-
Quarterly – decreased
Half yearly- decreased
Annual- decreased


Short Term-
Under performer

Long Term-
Neutral


 EPS- 2.29 Poor
 P/E- 18.25 Poor
 P/C- 18.25 Poor
 PRICE/BOOK- 1.53 Good
 DIV (%)- 0.00 Blank
 DIV YIELD (%)- 0.00
Blank
 NPA (%)- 0.57%
Better


 Profit Margin-
Annual- increased


Short Term-
Neutral

Long Term-
Neutral


 EPS- 3.19 Poor
 P/E- 7.26 Poor
 P/C- 6.83
Poor
 BOOK VALUE (Rs)- 14.96
Good
 PRICE/BOOK- 1.55
Good
 DIV (%)- 50.00
 NPA (%)- 0.25% Good
Better


 Profit Margin-
Annual- decreased
 Total Debt has decreased.


Short Term-
Neutral

Long Term-
Under performer


 EPS- 14.65 Poor
 P/E- 37.01 Poor
 P/C- 35.39 Poor
 BOOK VALUE (Rs)- 92.27 Average
 PRICE/BOOK- 5.88 Average
 DIV (%)- 10.00
Average
 DIV YIELD (%)- 0.09
Poor
 NPA (%)- 0.72%
Better


 Profit Margin-
Annual- increased


 Dividend is poor.


Short Term-
Neutral

Long Term-
Under performer


 BOOK VALUE (Rs)-24.67 Good
 DIV (%)- 85.00 Good
 NPA (%)- 0.44% Better


 Profit Margin-
Annual- decreased


 Dividend is good.


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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