Comparative Analysis between SBI, ICICI and HDFC Banks.

INTRODUCTION Sound banking system is an important indicator of an economically strong nation. The Indian banking system has played a vital role in the growth and development of the economy. The banking industry like many other financial service industries is facing a rapidly changing market, new technologies, economic uncertainties, fierce competition and more demanding customers and the changing climate has presented an unprecedented set of challenges. The Indian Banking industry, which is governed by the Banking Regulation Act of India, 1949 can be broadly classified into two major categories, nonscheduled banks and scheduled banks. Scheduled banks comprise commercial banks and the co-operative banks. In terms of ownership, commercial banks can be further grouped into nationalized banks, the State Bank of India and its group banks, regional rural banks and private sector banks. HISTORY Banking in India has its origin as early as the Vedic period. It is believed that the transition from money lending to banking must have occurred even before Manu, the great Hindu jurist, who devoted a section of his work to deposits and advances and laid down rules relating to rates of interest. During the Mogul period, the indigenous bankers played a crucial role in lending money and financing foreign trade and commerce. During the days of the East India Company, it was the turn of the agency houses to carry on the banking business. The General Bank of India was the first Joint Stock Bank to be established in 1786. The others, which followed the suit, were the Bank of Hindustan and the Bengal Bank. The Bank of Hindustan is reported to have continued till 1906, while the other two failed in the meantime. In the first half of the 19th century, the East India Company established three banks: the Bank of Bengal in 1809, the Bank of Bombay in 1840, and the Bank of Madras in 1843. These three banks were amalgamated in 1920 and a new bank, i.e., the Imperial Bank of India was established on January 27, 1921. With the passing of the State Bank of India Act in 1955, the undertaking of the Imperial Bank of India was taken over by the newly constituted State Bank of India. The Reserve Bank, which is the Central Bank, was created in 1935 by passing the Reserve Bank of India Act, 1934. In the wake of the Swadeshi Movement, a number of banks with Indian management were established in the country, namely, Punjab National Bank Ltd., Bank of India Ltd., Canara Bank Ltd., Indian Bank Ltd., the Bank of

Baroda Ltd., and the Central Bank of India Ltd. On July 19, 1969, 14 major banks of the country were nationalized and on April 15, 1980, six more commercial private sector banks were also taken over by the government. The banks operating in the present commercial banking system in India may be distinguished into Public sector banks, Private sector banks, Co-operative banking sector, and Development banks. In the changed environment, the Government of India and the Reserve Bank of India on the basis of the recommendations of the Narasimham Committee to improve the working of banks in line with the international banking practices have undertaken a series of reformative steps. The changes that have come about are greater degree of operational autonomy, deregulation of interest rate system and free pricing of products, consolidation and restructuring of weak public sector banks, freedom to open new branches, improved credit delivery mechanism, legal reforms to expedite recovery of bank dues, etc. The first phase of financial reforms resulted in the nationalization of 14 major banks in 1969 and resulted in a shift from Class banking to Mass banking. This in turn resulted in a significant growth in the geographical coverage of banks. Every bank had to earmark a minimum percentage of their loan portfolio to sectors identified as priority sectors After the second phase of financial sector reforms and liberalization of the sector in the early nineties, the Public Sector Banks (PSB) s found it extremely difficult to compete with the new private sector banks and the foreign banks. The industry is currently in a transition phase. On the one hand, the PSBs, which are the mainstay of the Indian Banking system are in the process of shedding their flab in terms of excessive manpower, excessive non Performing Assets (Npas) and excessive governmental equity, while on the other hand the private sector banks are consolidating themselves through mergers and acquisitions. Private sector Banks have pioneered internet banking, phone banking, anywhere banking, mobile banking, debit cards, Automatic Teller Machines (ATMs) and combined various other services and integrated them into the mainstream banking arena, while the PSBs are still grappling with disgruntled employees in the aftermath of successful VRS schemes. Also, following Indias commitment to the W To agreement in respect of the services sector, foreign banks, including both new and the existing ones, have been permitted to open up to 12 branches a year with effect from 1998-99 as against the earlier stipulation of 8 branches. Indian economy opened its doors to MNCs, the Indian banking sector has been witnessing bizarre changes in terms of new products and services and stiff competition as well. The sorts of IPOs that have been taking place in banking sector are amazing .As at end-March 2002, there were 296

Commercial banks operating in India. This included 27 Public Sector Banks (PSBs), 31 Private, 42 Foreign and 196 Regional Rural Banks. Also, there were 67 scheduled co-operative banks consisting of 51 scheduled urban cooperative banks and 16 scheduled state co-operative banks. The average capital adequacy ratio for the scheduled commercial banks, which was around two per cent in 1997, had increased to 13.08 per cent as on March 31, 2008. The improvement in the capital adequacy ratio has come about despite significant growth in the aggregate asset of the banking system. In regard to the asset quality also, the gross NPAs of the scheduled commercial banks, which were as high as 15.7 per cent at end-March 1997, declined significantly to 2.4 per cent as at end-March 2008. The reform measures have also resulted in an improvement in the profitability of banks. The Return on Assets (RoA) of scheduled commercial banks increased from 0.4 per cent in the year 1991-92 to 0.99 percent in 2007-08. The growth in the Indian Banking Industry has been more qualitative than quantitative and it is expected to remain the same in the coming years. Based on the projections made in the "India Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the report forecasts that the pace of expansion in the balance-sheets of banks is likely to decelerate. The total assets of all scheduled commercial banks by end-March 2010 are estimated at Rs 40, 90,000 crores. That will comprise about 65 per cent of GDP at current market prices as compared to 67 per cent in 2002-03. Bank assets are expected to grow at an annual composite rate of 13.4 per cent during the rest of the decade as against the growth rate of 16.7 per cent that existed between 1994-95 and 2002-03. It is expected that there will be large additions to the capital base and reserves on the liability side. The Indian Banking Industry can be categorized into non-scheduled banks and scheduled banks. Scheduled banks constitute of commercial banks and co-operative banks. There are about 67,000 branches of Scheduled banks spread across India. As far as the present scenario is concerned the Banking Industry in India is going through a transitional phase. The Public Sector Banks (PSBs), which are the base of the Banking sector in India account for more than 78 per cent of the total banking industry assets. Unfortunately they are burdened with excessive Non Performing assets (NPAs), massive manpower and lack of modern technology. On the other hand the Private Sector Banks are making tremendous progress. They are leaders in Internet banking, mobile banking, phone banking, ATMs. As far as foreign banks are concerned they are likely to succeed in the Indian Banking Industry.

PROFILE OF SBI, ICICI AND HDFC BANK State Bank of India State Bank of India (SBI) is the largest bank in India. It is measured by the number of branch offices and employees as the largest bank in the world. Established in 1806 as Bank of Bengal, it remains the oldest commercial bank in the Indian Subcontinent and also the most successful one providing various domestic, international and NRI products and services, through its network of 13,908 branches, including 4,731 associate banks' branches in India and overseas. It also provides financial services, such as life insurance, merchant banking, mutual funds, credit card, factoring, security trading and primary dealership in the money market. The bank was nationalized in 1955 with the Reserve Bank of India having a 60 percent stake. It has laid emphasis on reducing the huge manpower through Golden handshake schemes and computerizing its operations. It also has non-banking subsidiaries and joint ventures, such as SBI Capital Markets Ltd., SBI DFHI Ltd., SBI Funds Management Pvt Ltd., SBI Factors & Commercial Services Pvt Ltd. and SBI Life Insurance Company Ltd. Effective from April 20, 2005, it acquired a 51 percent stake in Indian Ocean International Bank Ltd. During the period ended 31st December 2008, the Bank has made aggregate investments of Rs. 807 crore in its subsidiaries / associates for the purpose of funding their business growth. During the quarter, the Bank has approved a further infusion of capital of Rs. 125 crores in Global Trade Finance Limited and Rs. 66 crores in SBI Cards & Payments Services Ltd to meet the CRAR requirements. Of this, Rs. 36 crores has been infused in SBI Cards & Payments Services Ltd. During the period, SBI has established a custodial services company namely SBI Custodial Services Pvt. Ltd., a wholly owned subsidiary with a capital of Rs. 13.76 crore. A joint venture agreement has been entered with Societe Generale, France, with the bank having 65% stake. RBI has approved the said joint venture and the bank is awaiting approval from SEBI. The paid up capital of this joint venture is envisaged at Rs. 80 crores. The countrys largest commercial bank, State Bank of India has announced that the bank plans to merge all the associate banks with itself by March 2009. The move comes at a time when SBI is gearing up for a rights issue which, at an estimated Rs 17,000 crore, is one of the biggest mop ups from the domestic capital markets. The bank is looking to consolidate its position as a global giant with its balance sheet expected to grow manifold. SBI had earlier this month approved merger of State Bank of Saurashtra with itself. Mr. O P Bhatt, Chairman, SBI said, Once we get the cabinet nod for merger

of State Bank of Hyderabad (SBH), it will set the ball rolling for the merger of the other associate banks. The issue of consolidation of associate banks was taken up only by the boards of SBI and SBH. The boards of other banks have not been sounded about the merger plans. SBI has 100% stake in three associate banks SBH, SBP and SBS while in others its equity holding ranges from 75% to 98%. The associate banks are State Bank of Patiala, State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Travancore, State Bank of Indore, State Bank of Saurashtra and State Bank of Mysore. The associate banks have together posted a year-on-year growth of 16.85 per cent in net profit at the end of September 2007. Once the proposed mergers are completed, SBIs asset size will become more than double of ICICI Bank. The private sector banking major ICICI Bank is currently the closest competitor to SBI. The Bank presently holds market cap worth Rs. 1, 26,206 crore, PE Ratio of 22.56. The stock is fairly priced with an EPS of 106.32 and BV of 594.69. The firm had showed a net profit of Rs 1611 crore for the quarter ended September 2007 as against Rs. 1184 crore in same quarter of last year. ICICI BANK ICICI Bank (Industrial Credit and Investment Corporation of India) is India's second-largest bank with total assets of Rs. 3,744.10 billion (US$ 77 billion) at December 31,2008 and profit after tax Rs. 30.14 billion for the nine months ended December 31, 2008. The Bank has a network of 1,416 branches and about 4,644 ATMs in India and presence in 18 countries. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management. The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. ICICI Bank is the largest issuer of credit cards in India. It was the first bank to offer a wide network of ATMs. History ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on

the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. In the 1990s, ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services group offering a wide variety of products and services, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE. After consideration of various corporate structuring alternatives in the context of the emerging competitive scenario in the Indian banking industry, and the move towards universal banking, the managements of ICICI and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic alternative for both entities, and would create the optimal legal structure for the ICICI group's universal banking strategy. The merger would enhance value for ICICI shareholders through the merged entity's access to low-cost deposits, greater opportunities for earning fee-based income and the ability to participate in the payments system and provide transaction-banking services. The merger would enhance value for ICICI Bank shareholders through a large capital base and scale of operations, seamless access to ICICI's strong corporate relationships built up over five decades, entry into new business segments, higher market share in various business segments, particularly fee-based services, and access to the vast talent pool of ICICI and its subsidiaries. In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI and two of its wholly owned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by shareholders of ICICI and ICICI Bank in January 2002, by the High Court of Gujarat at Ahmedabad in March 2002, and by the High Court of Judicature at Mumbai and the Reserve Bank of India in April 2002. Consequent to the merger, the ICICI group's financing and banking operations, both wholesale and retail, have been integrated in a single entity. HDFC BANK With a view to provide an institutional mechanism for sharing of information on borrowers/ potential borrowers by banks and Financial Institutions, the Credit Information Bureau (India) Ltd. (Cibil) was set up in August 2000. The

Bureau provides a framework for collecting, processing and sharing credit information on borrowers of credit institutions. SBI and Hdfc are the promoters of the Cibil. HDFC bank (Housing Development Finance Corporation) was incorporated in august 1994,and currently has an nationwide network of 1412 branches and 28909 ATMs in 528 Indian towns and cities. The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995. HDFC Bank's mission is to be a World-Class Indian Bank. The objective is to build sound customer franchises across distinct businesses so as to be the preferred provider of banking services for target retail and wholesale customer segments, and to achieve healthy growth in profitability, consistent with the bank's risk appetite HDFC Bank's business philosophy is based on four core values - Operational Excellence, Customer Focus, Product Leadership and People.. The authorized capital of HDFC Bank is Rs550 crore (Rs5.5 billion). The paid-up capital is Rs424.6 crore (Rs.4.2 billion). The HDFC Group holds 19.4% of the bank's equity and about 17.6% of the equity is held by the ADS Depository (in respect of the bank's American Depository Shares (ADS) Issue). Roughly 28% of the equity is held by Foreign Institutional Investors (FIIs) and the bank has about 570,000 shareholders. In the year ended September the first including the merger with Centurion bank of Punjab, its balance sheet size has increased to Rs.1, 72,000 crore as a 40% jump over the previous year and net revenue touched Rs.2500 crore a 50% increase over the previous year. The banks profit-after-tax has grown at a CAGR of 33 per cent from 2003-04 to 2007-08, driven by net interest income growth at 43 per cent and other income growth of 47 per cent. The net interest margin improved from 3.7 per cent in FY-06 to 4.3 per cent in FY-08, rating it the best even among private peers, while the gross NPA/advances was maintained at 1.2-1.3 per cent. The contribution of retail loans to the mix rose to 58 per cent in FY-08 from 46 per cent in FY-05. For FY-08, the net revenue improved by 50 per cent mainly due to the profits on investments and other income. Operating expenses have increased by 50 per cent year-on-year with increase in employee costs and branch expansion; marketing costs and other operating expenses have also risen because of the growth in credit-card and retail businesses. Low-cost deposits (CASA)/total deposits stood at 54.5 per cent in FY-08. As HDFC Banks bond portfolio has a larger proportion in the held-to-maturity category (81 per cent in March 2008), the bank appears to have booked lower losses in the bond

portfolio. Strong management systems to monitor credit, market and operational risks are also a plus.

LITERATURE REVIEW In his article, Joh Literature review is a study involving a collection of literatures in the selected area of research in which the researcher has limited experience, and critical examination and comparison of them to have better understanding. It also helps the researchers to update with the past data, data sources and results and identify the gap for further research, if any. Thus, the reviews in the present study consist of the ones discussed below, and they reveal there are very scant studies in India emphasizing fundamental analysis of the banking sector. Colnan (1994), senior Research from SHAN Stockbroking's Research Department, provides some brief pointers on what information to look for and how to make sense of what is available. Mark P Bauman (1996) conducted a study, namely, "A Review of Fundamental Analysis Research in Accounting". This paper has outlined the development of a fundamental valuation model and reviewed related empirical work. First, an accounting-based expression for firm's equity value has been developed into a rich theoretical framework. The study verified its descriptive validity regarding the mapping of accounting numbers into stock prices. This paper identified three major issues associated with practical implementation of the model: the prediction of future profitability, the length of appropriate forecast horizon, and the determination of the appropriate discount rate. Godse (1996) examined the application of new model CAMEL, i.e., "Capital Adequacy, Assets Quality, Management, Earning Quality, Liquidity, Systems and Control", for evaluating the performance of banks. Jim Berg (1999) conducted a study"Fundamental Analysis Using Internet". This paper examined that fundamental analysis looks at the fundamental issues that drive the value of a particular company. These issues include its financial position, its industry sector, and the current economic environment. The objective was to identify companies that may be considered undervalued in the market with a view to investing when the time is right. In this article, Jim Berg outlined more about what Fundamental analysis is and how it could be used.

To measure customer satisfaction with different aspects of service quality, Parasuraman, Valerie Zeithaml and Berry developed a survey research instrument called SERVQUAL. It is based on the premise that the customers can evaluate a firm's service quality by comparing their perceptions of its service with their own expectations. SERVQUAL is seen as a measurement tool that can be applied across broad spectrum of service industries. In its basic form, the scale contains 21 perception items and a series of expectation items, reflecting the five dimensions of service quality. Ruchi trehan and Niti soni (2003) attempts to analyze the operating efficiency and its relationship with profitability, in the public sector banking industry in India. The analysis of the relationship between the group status and technical efficiency shows that 1) the banks affiliated to the SBI group are more efficient than nationalized banks and 2) the difference in the efficiency levels of these two groups is statistically significant. P Janaki Ramadu & S.Durga Rao (2006) attempts to analyze the profitability of the three major banks in India: SBI, ICICI, and HDFC. The variables taken for the study are Operating Profit Margin (OPM), Net Profit Margin (NPM), Return on Equity (RoE), Earnings per Share (EPS), Price Earnings Ratio (PER), Dividends per Share (DPS), and Dividends Payout Ratio (DPR) Nalini Prava Tripathi(2006) attempts to analyze the factors that are essential in influencing the investment decision of the customers of the public sector banks. For this purpose, Factor Analysis, which is the most appropriate multivariate technique, has been used to identify the groups of determinants. Factor analysis identifies common dimensions of factors from the observed variables that link together the seemingly unrelated variables and provides insight into the underlying structure of the data. Secondly, this study also suggests some measures to formulate marketing strategies to lure customers towards banks. OBJECTIVE The objective of the study is to do comparative analysis of SBI, ICICI and HDFC bank. METHODOLOGY The present study adopts analytical and descriptive research design. The data of the sample companies (for a period of four years from 2008 to 2005) have been collected from the annual reports, published by the companies and the websites of the companies. A finite sample size of three banks listed on the National Stock Exchange (NSE) has been selected for the purpose of the study. They are the State Bank of India (SBI), the Industrial Credit and

Investment Corporation of India (ICICI) and the Housing Development Finance Corporation Ltd. (HDFC) It is based on the descriptive study. The variables used in the analysis of the data are Operating Profit Margin (OPM), Net Profit Margin (NPM), Return on Equity (RoE), Earnings per Share (EPS), Price Earnings Ratio (PER), Dividends per Share (DPS) , Dividends Payout Ratio (DPR) and etc The idea behind this type of detailed corporate analysis is to gain an understanding of the general corporate health and prospects for future growth of the bank. FINANCIAL ANALYSIS Financial Analysis refers to the process of determining financial strengths and weakness of the firm by establishing strategic relationship between the items of the balance sheet, profit & loss account and other operative data. Financial statements analysis is an attempt to determine the significance & meaning of the financial statement data so that forecast may be made of the future earnings, ability to pay interest and profitability of firm. Financial statement analysis is employed for a variety of reasons. Outside investors are seeking information as to the long run viability of a business and its prospects for providing an adequate return in consideration of the risks being taken. Creditors desire to know whether a potential borrower or customer can service loans being made. Internal analysts and management utilize financial statement analysis, as a means to monitor the outcome of policy decisions, predict future performance targets, develop investment strategies, and assess capital needs. Ratio means the relationship between two mathematical figures or numbers. Ratio analysis means, the relationship between the two relevant items in the financial statement to get the meaningful conclusions about the business. Financial ratio analysis is the calculation and comparison of ratios, which are derived from the information in a company's financial statements. The level and historical trends of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment. It is an attempt to present the information of the financial statements in simplified, systematized and summarized form. It measures the profitability, efficiency and financial soundness of the business. Ratio analysis is therefore, a toll to present the figures of financial statements in simple, concise and intelligible form. Interpretation means to put the meaning of a statement into simple terms for the benefit to the user or drawing conclusions to serve as a basis for decision and action. The benefit of ratio analysis depends on a great deal upon the correct interpretation.

(1) RETURN ON EQUITY (ROE) Return on Equity is seen as a measure of how well a company used reinvested earnings to generate additional earnings. This is computed using the following formula and expressed in percentage terms:

YEAR 2008 2007 2006 2005 AVEARGE

SBI 17.82 14.24 15.47 18.10 16.41

RETURN ON EQUITY (%) ICICI HDFC 8.95 16.05 12.79 19.40 11.44 17.47 15.97 20.44 12.29 18.34

Among all the three banks, HDFC could make the highest RoE of 20.44% in 2005, followed by SBI (18.10%) in 2005 and ICICI (15.97%) in 2005. The average RoE of SBI and HDFC were (16.41% and 18.34% respectively) while that of ICICI was a bit lower (12.29%). Thus, SBI and HDFC were more efficient in generating additional earnings by using invested earnings than ICICI.

(2) EARNINGS PER SHARE (EPS) Earnings per Share is the measure of company's ability to generate after tax profits per share held by the investors. This ratio is computed with the help of the following formula and expressed in rupee terms:

YEAR

SBI

EPS (in Rupees) ICICI

HDFC

2008 2007 2006 2005 AVERAGE

126.62 86.10 83.73 81.79 96.24

39.39 34.84 32.5 27.6 33.58

46.22 36.29 27.92 22.92 33.34

From the above table, the EPS of SBI, ICICI and HDFC showed an increasing trend from year to year during the study period. The average EPS of SBI is greater than that of ICICI and HDFC during the entire study period. However, EPS of SBI was substantially higher than that of ICICI and HDFC in every year during the study period. On an average SBI generated EPS of Rs. 96.24 followed by ICICI (Rs. 33.58) and HDFC (Rs. 33.34). Thus, the analysis reveals that SBI was the most efficient bank in terms of generating earnings per share. (3) PRICE EARNINGS (P/E) RATIO The Price Earnings ratio highlights the connection between the price and recent company's performance. This ratio moves either side only when price and profits get disconnected. This ratio is calculated using the following equation and expressed in terms of times:

YEAR 2008 2007 2006 2005 AVERAGE

SBI 12.49 10.62 10.53 10.11 10.94

P/E RATIO ICICI 19.22 23.26 27.12 13.48 20.77

HDFC 28.80 26.29 27.74 25.03 26.96

It reveal that only HDFC to achieved the highest price earnings ratio in every year during the study period, followed by ICICI; SBI alone registered the lowest ratio. Even the four year average price earnings ratio of HDFC was significantly higher (26.96 times) than that of ICICI (20.77 times) and SBI (10.94times). Thus, it is inferred that there was more responsiveness

between the earnings capacity and the share price in case of HDFC than that of ICICI and SBI, and it reveals that HDFC did better in share market when compared to other two banks. However, there was a declining trend in price earnings position of HDFC. (4) DIVIDEND PER SHARE (DPS) Though Dividends per Share is similar to Earnings per share, DPS shows how much the shareholders were actually paid by way of dividends. The DPS found out by the following formula and expressed in rupee terms:

YEAR 2008 2007 2006 2005 AVERAGE

SBI 21.49 13.99 13.99 12.50 15.49

DPS (in Rupees) ICICI 11.00 10.00 8.50 8.50 9.5

HDFC 8.50 7.00 5.50 4.50 6.37

It reveals that DPS position of all the banks increased from year to year during the period under review. On an average, SBI paid out more dividends (Rs.15.49) than that of ICICI and HDFC, which paid Rs. 9.5 and Rs. 6.37, respectively. Even the trend in DPS position reveals that there was continuously increasing trend in case of SBI when compared to that of ICICI and HDFC. Thus, it is concluded that it was SBI, which was more efficient in terms of dividends payment to the shareholders. (5) DIVIDENDS PAYOUT RATIO (DPR) The Dividends Payout Ratio (DPR) is a model for cash flow measurement used by the investor to determine if a company is generating a sufficient level of cash flow to assure a continued stream of dividends to them. It is also a measurement of the amount of current net income paid out in dividends rather than retained by the business. This ratio is computed by the following formula and expressed in percentage terms:

YEAR 2008 2007 2006 2005 AVERAGE

SBI 16.97 16.25 16.71 15.28 16.30

DIVIDEND PAYOUT RATIO (in %) ICICI HDFC 27.92 18.39 28.70 19.28 26.15 19.69 30.79 19.63 28.39 19.24

An insight into the data reveals that there was a mixed trend in the distribution of payout ratio of sample companies during the study period. Contrary to the DPS position, on an average, ICICI paid out 28.39% of its earnings as the dividends to the shareholders, whereas HDFC paid out 19.24% and SBI paid out only 16.30%, the lowest. Thus, ICICI was more efficient in generating more cash inflows to the shareholders by paying the highest ratio of earnings as the dividends than HDFC and SBI, which paid relatively a lower percentage. (6) NET PROFIT MARGIN (NPM) Net Profit Margin indicates how much a company is able to earn after all direct and indirect expenses to every rupee of revenue. This ratio is calculated using the following formula and expressed in percentage terms:

YEAR 2008 2007 2006 2005 AVERAGE

NET PROFIT MARGIN (in %) SBI ICICI 11.79 10.49 10.04 10.75 10.68 13.53 11.21 15.6 10.93 12.59

HDFC 21.17 22.89 25.43 29.69 24.79

The above data reveal that it was HDFC, which has outperformed ICICI and SBI in terms of Net Profit Margin. However, the data also reveal there was stagnation in the NPM position of HDFC whereas SBI and ICICI could increase the net profit from year to year during the study period. On an aggregate basis, mean NPM of HDFC was 24.79, the highest, followed by ICICI (12.59%) and SBI (10.93%), the lowest among three sample companies. Thus, it found that it was HDFC to be the most efficient company in controlling indirect expenses when compared to SBI and ICICI.

(7) OPERATING PROFIT MARGIN (OPM) Operating Profit Margin indicates how effective a company is at controlling the costs and expenses associated with their normal business operations. This ratio is found out using the following formulae and expressed in percentage terms:

YAER 2008 2007 2006 2005 AVERAGE

OPERATING PROFIT MARGIN (%) SBI ICICI 18.22 20.10 16.79 20.31 14.47 24.99 16.99 23.04 16.62 22.11

HDFC 50.13 51.43 50.6 51.57 50.93

HDFC sustained the highest operating profit margin in every year during the study period followed by ICICI, which has registered a reasonably higher margin during the period under review. SBI, though being the largest bank in terms of operations and networking ,could not beat HDFC and ICICI. On an aggregate basis, HDFC was highly successful in controlling the expenses by registering an average OPM of 50.93%, followed by ICICI and SBI, which could make average OPM of 22.11% and 16.62%, respectively. (8) RETURN ON ASSETS (ROA) It is used to measure the profitability of the bank in terms of assets employed in the bank. It is also an yardstick of measuring managerial efficiency in rel the utilization of assets. (Net profit after tax but before interest*100)/total assets Net profit after tax but before interest is nothing but operating profit RETURN ON ASSETS ( in %) SBI ICICI 1.01 1.12 0.84 1.09 0.89 1.30 0.99 1.48 0.93 1.25

YEAR 2008 2007 2006 2005 AVERAGE

HDFC 1.32 1.33 1.38 1.47 1.37

A higher return on total assets is an indicator of high profitability and a good overall efficiency. Reversely a low return on total assets indicates low profitability on assets employed and poor managerial efficiency. The ROA of HDFC bank is better than the ICICI and SBI. In 2008 HDFC ROA is 1.32% followed by ICICI (1.12%), SBI (1.01%) (9) PROFIT PER EMPLOYEE Profit per employee indicates the staff productivity in a bank. Net profit / no. of employees

YEAR 2008 2007 2006 2005

SBI (rs, 000) 372.57 236.81 216.76 207.50

ICICI (in million) 1.0 0.9 1 1.1

HDFC (in lac) 4.97 6.13 7.39 8.80

(10) BUSINESS PER EMPLOYEE BUSINESS PER EMPLOYEE SBI(RS,000) ICICI (In million) 45600 100.8 35700 102.7 29923 90.5 24308 88.0

YEAR 2008 2007 2006 2005

HDFC (in lac) 506 607 758 806

(11) CAPITAL ADEQUACY RATIO (CAR) CAR (in %) ICICI 14.92 11.69 13.35 11.78 12.94

YAER 2008 2007 2006 2005 AVERAGE

SBI 13.47 12.34 11.88 12.45 12.54

HDFC 13.60 13.08 11.41 12.16 12.56

CAR= Total capital/Risk weighted assets Higher the ratio better is sustenance of the bank. However, beyond a point means opportunities forgone. The average CRAR is better in HDFC bank than

ICICI and SBI bank. The CRAR ratio goes on increasing in all the three banks from year 2005 to 2008, which shows a good indication. RESULTS

On the basis of return on equity it is analyzed that HDFC bank reinvested their earnings much better than SBI and ICICI banks to get the additional profits. So in ROE, HDFC is best. On the basis of earning per share it is analyzed that SBI is the most efficient bank in terms of generating earnings. After it there are ICICI and HDFC banks with a little difference of 0.24 in their average EPS. From dividend per share it is analyzed that all the three banks shows an increasing trend from 2005 to 2008. But the performance of SBI is better than ICICI and HDFC banks as its average DPS is 15.49 with ICICI is 9.5 and HDFC is 6.37 From dividend payout ratio it is analyzed that ICICI pays out the more dividend than HDFC and SBI banks. On the net profit margin basis it is seen that after all direct and indirect expenses HDFC earns more from its revenue and after it there is ICICI bank and SBI in the last From operating profit margin it is analyzed that HDFC controls its cost better than ICICI and SBI banks. On the basis of capital adequacy ratio it is analyzed that there is an increasing trend in all the three banks but the average CAR of ICICI bank is better than HDFC and SBI. On the basis of return on assets it is analyzed that HDFCs profitability and overall efficiency is better than ICICI and SBI banks. Thus from the entire ratio analysis it is concluded that performance of HDFC is best in return on assets, operating profit margin, net profit margin, and return on equity. Whereas performance of SBI is best in earning per share and dividend per share and of ICICI is best in dividend pay out ratio and capital adequacy ratio.

CONCLUSION Banks are the most common institutions and media for transfer of funds and investments. The banking business is becoming more and more complex as a result of liberalization and globalization. The present study is an attempt to examine and compare the performance of the three largest banks of India SBI, a Public Sector Banks, ICICI and HDFC a Private Sector banks. The analysis is based on the ratio analysis. The various ratios which is used in study are Operating Profit Margin (OPM), Net Profit Margin (NPM), Return on Equity (RoE), Earnings per Share (EPS), Price Earnings Ratio (PER), Dividends per Share (DPS) , Dividends Payout Ratio (DPR) and etc The brief study of all the three banks is done and it is found that SBI is the largest bank in India whereas ICICI is second largest bank and than the HDFC. Although SBI is largest in terms of its network and business but in case of various ratios it is lagging behind the HDFC the reason for this may be of its number of branches and it is a public sector bank.

Profit & Loss Account of HDFC Bank

Mar '11

Mar '10

Mar '09

Mar '08

Mar '07

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 9,385.08 2,836.04 2,510.82 497.41 5,205.97 0 8,045.36 3,004.88 20,435.32 Mar '11 19,928.21 4,433.51 24,361.72

12 mths

12 mths

12 mths

12 mths

16,172.90 3,810.62 19,983.52 7,786.30 2,289.18 3,395.83 394.39 3,169.12 0 7,703.41 1,545.11 17,034.82 Mar '10

16,332.26 3,470.63 19,802.89 8,911.10 2,238.20 2,851.26 359.91 3,197.49 0 7,290.66 1,356.20 17,557.96 Mar '09

10,115.00 2,205.38 12,320.38 4,887.12 1,301.35 974.79 271.72 3,295.22 0 3,935.28 1,907.80 10,730.20 Mar '08

6,889.02 1,510.24 8,399.26 3,179.45 776.86 727.53 219.6 2,113.28 0 2,590.66 1,246.61 7,016.72 Mar '07

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 997.52 392.64 892.15 6,174.24 8,456.55 84.4 165 545.53 3,926.40 -2.65 4,532.79 8,456.54 0 767.62 124.53

12 mths 2,948.70 -0.93 3,455.57 6,403.34 0 549.29 91.23 64.42 120 470.19 935.15 294.87 640.52 4,532.79 6,403.33

12 mths 2,244.94 -0.59 2,574.63 4,818.98 0 425.38 72.29 52.77 100 344.44 641.25 224.5 497.67 3,455.57 4,818.99

12 mths 1,590.18 -0.06 1,932.03 3,522.15 0 301.27 51.2 44.87 85 324.38 436.05 159.02 352.47 2,574.61 3,522.15

12 mths 1,382.54 -0.35 1,455.02 2,837.21 0 223.57 38 43.29 70 201.42 288.38 114.14 261.57 1,932.03 2,596.12