Research Project Report

                                  ON

        INTRA COMPANY ANALYSIS OF  

                          ICICI BANK

Submitted in partial fulfillment of the requirement for the award  

                                       of the degree of                                            

               MASTER OF BUSINESS ADMINISTRATION

                                          (2008-2010)

    Under the guidance of                                                   Submitted By:

               (Dronacharya Institute of Management & Technology)

                                     (Affiliated to Kurukshetra University, Kurukshetra)

                                     INDEX

ACKNOWLEDGEMENT

PREFACE

DECLARATION

EXECUTIVE SUMMARY

HISTORY OF ICICI BANK

TIME LINE HISTORY OF ICICI BANK

RESEARCH METHODOLOGY

FINANCIAL ASPECTS OF ICICI BANK

        Profit & loss Account

        Balance Sheet

        Capital Structure

        Quarterly Result

        Half Yearly Result

        Annually Result 

RATIO ANALYSIS

       Introduction        

       Meaning of Ratio Analysis

       Objectives of Ratio Analysis

       Forms of Ratio Analysis

       Steps in Ratio Analysis

       Types of Comparison

        Pre-requisites to Ratio Analysis

       Classification of Ratio Analysis

                Based on Financial Statements 

                  Based on Function

               Based on User

       Liquidity Ratios    

              Current Ratio

                 Liquid Ratio

                 Absolute Ratio

                 Working capital                      

       Investment /Shareholder

                Earning per Share

                Dividend per Share

                Dividend Payout Ratio

       Gearing

             Capital Gearing Ratio    

       Profitability            

             Gross Profit Ratio

               Net Profit Ratio

             Return on Capital Employed 

       Financial

             Debtors Turnover Ratio (DTO)

                Solvency Ratios

                Debt Equity Ratio

                Interest Coverage Ratio (ICR)

                Reserves to Total Funds

                Market Based Return

       Importance of Ratio Analysis

       Advantages & Disadvantages of Ratio Analysis

       Purpose of Ratio Analysis

DUPONT ANALYSIS

INTRA COMPANY ANALYSIS

STRATEGIC ANALYSIS

SERVICE GAP ANALYSIS

RECOMMENDATIONS

SUGGESTION TO OTHER FINANCIAL INSTITUTIONS

BIBLOGRAPHY

ACKNOWLEDGEMENT

It gives great pleasure in presenting my project work on “INTRA COMPANY ANALYSIS OF ICICI BANK”. I am the students of Dronacharya Institute of Management & Technology, Kurukshetra successfully completed my project and would like to thank Lect. ………………………. for his timely encouragement, guidance and support.

PREFACE

The primary objective of this report is to provide the readers the insight into the success of ICICI BANK.

I hope that the report has made the text interesting and lucid. In writing this report, I have benefited immensely by referring to many publications and articles.

Any suggestions to improve this report in contents or in style are always welcome and will be appreciated and acknowledged.

DECLARATION

I hereby declare that all the information that has been collected, analyzed and documented for the project is authentic possession.

I would like to categorically mention that the work here has neither been purchased nor acquired by any other unfair means. However, for the purpose of the project, information already compiled in many sources has been utilized.

                                 EXECUTIVE SUMMARY

         ICICI Bank is a leading Indian private sector commercial bank offering a variety of products and services. It was incorporated in India in 1994. In 2002, ICICI, a non-bank financial institution, and two of its subsidiaries, ICICI Personal Financial Services and ICICI Capital Services, were amalgamated with ICICI Bank. As of March 31, 2007 ICICI Bank is the largest private sector bank in India and the second largest bank in India, in terms of assets. May 10, 2007, ICICI Bank has the largest market capitalization among all banks in India.

         ICICI Banks commercial banking operations span the corporate and the retail sector. It offers a suite of products and services for both its corporate and retail customers. ICICI Bank offers a range of retail credit and deposit products and services to retail customers. The implementation of its retail strategy and the growth in the commercial banking operations for retail customers has had a significant impact on its business and operations in recent years. At year-end fiscal 2007, retail finance represented 63.8% of its total loans and advances compared to 62.9% at year-end fiscal 2006 and 60.9% at year-end fiscal 2005. ICICI Bank has approximately 24.0 million retail customer accounts. Its corporate customers include India’s leading companies as well as growth-oriented small and middle market businesses, and the products and services offered to them include loan and deposit products and fee and commission-based products and services.

         At year-end fiscal 2007 its principal network consisted of 710 branches, 45 extension counters and 3,271 automated teller machines, or ATMs, across several Indian states. Pursuant to the amalgamation of Sangli Bank with ICICI Bank, its network of branches and extension counters increased by 198. ICICI Bank offers its customers a choice of delivery channels, and they use technology to differentiate there products and services from those of its competitors. ICICI Bank remains focused on changes in customer needs and technological advances to remain at the forefront of electronic banking in India, and seek to deliver high quality and effective services.

                           HISTORY OF ICICI BANK

         ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and Indian industry representatives. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. Until the late 1980s, ICICI primarily focused its activities on project finance, providing long-term funds to a variety of industrial projects. With the liberalization of the financial sector in India in the 1990s, ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services provider that, along with its subsidiaries and other group companies, offered a wide variety of products and services.

        ICICI Bank was incorporated in 1994 as a part of the ICICI group. ICICI Bank’s initial equity capital was contributed 75.0% by ICICI and 25.0% by SCICI Limited, a diversified finance and shipping finance lender of which ICICI owned 19.9% at December 1996. Pursuant to the merger of SCICI into ICICI, ICICI Bank became a wholly-owned subsidiary of ICICI. Effective March 10, 2001, ICICI Bank acquired Bank of Madura, an old private sector bank, in an all-stock merger.

        Conversion into a bank offered ICICI the ability to accept low-cost demand deposits and offer a wider range of products and services, and greater opportunities for earning non-fund based income in the form of banking fees and commissions. ICICI Bank also considered various strategic alternatives in the context of the emerging competitive scenario in the Indian banking industry. ICICI Bank identified a large capital base and size and scale of operations as key success factors in the Indian banking industry.

        At the time of the merger, both ICICI Bank and ICICI were publicly listed in India and on the New York Stock Exchange. The amalgamation was approved by each of the boards of directors of ICICI, ICICI Personal Financial Services, ICICI Capital Services and ICICI Bank at their respective board meetings held on October 25, 2001. The amalgamation was approved by ICICI Bank’s and ICICI’s shareholders at their extraordinary general meetings held on January 25, 2002 and January 30, 2002, respectively..

            TIME LINE HISTORY OF ICICI BANK

            RESEARCH METHODOLOGY                                                                

MEANING of RESEARCH:

       Research in common parlance refers to a search for knowledge. Research is defined as a scientific and systematic search for pertinent information on specific topic. Infect,

Research is an art of scientific investigation. Research is thus an original contribution to existing stock of knowledge making for its advancement. It is pursuit of truth with help of study, observation, comparison and experiment.

      The advanced Learner’s Dictionary of Current English lays down the meaning of research as “a careful investigation or inquiry especially through search for new facts in any branch of knowledge.”

      In short, the search of knowledge through objective and systematic method of finding solution to a problem is research. The systematic approach concerning generalization and formulation of theory is also research. As such the term ‘research’ refers to the systematic method consisting of enunciating the problem, formulating a hypothesis, collecting the facts or data, analyzing the facts and reaching certain conclusions either in form of solutions towards the concerned problem or in certain generalizations for some theoretical formulation.

      Research Methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done scientifically. In it we study the various steps that are generally adopted by a researcher in studying his research problem along with logic behind them. It is necessary for the researcher to know not only the research methods but also the methodology. Research Methodology includes:

Research Problem

Research Design

Sampling Design

Collection of Data

Research Problem:   There are two types of research problems, i.e. those that relate to state of nature and those, which relate to relationship between variables. At the very outset the researcher must single out the problem he wants to study i.e. he must decide the general area of interest or aspect of a subject matter that he would like to inquire into. Essentially two steps are involved in formulating the research problem i.e. understanding the problem thoroughly, and rephrasing the same into meaningful terms from an analytical point of view.

Research Design:  A research design is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure. Infect, the research design is the conceptual structure with in which research is conducted; it constitutes the blue print for the collection, measurement and analysis of data.

TYPES of RESEARCH DESIGN:

• Exploratory Research Design: Exploratory research studies are also termed as formulate research studies. The main purpose of such studies is that of formulating a problem for more precise investigation. The major emphasis in such studies is on the discovery of ideas and insights.

• Descriptive Research Studies: Descriptive research studies are those which describing the characteristics of a particular individual or group.

• Diagnostic Research Studies: Diagnostic research studies determine the frequency with which something occurs or its association with something else.

• Experimental Research Studies: In this study researcher tests the hypothesis of casual relationship between variables. Such studies require procedures that will not only reduce bias and increase reliability, but will permit drawing inferences about causality.

RESEARCH DESIGN – PROJECT

       Research design includes descriptive and diagnostic study of framework.

Sampling Design:  All the items under consideration in any field of inquiry constitute a ‘universe’ or ‘population’. A complete enumeration of all items in the ‘population’ is known as census inquiry. We select only a few items from the universe for our study purpose. The items so selected constitute what is technically called a sample.

DATA COLLECTION METHOD

      The task of data collection begins after a research problem has been defined and research design plan chalked out. Data is collected by methods:

1. Primary Data: 

        The primary data are those, which are collected afresh and for the first time, and thus happen to be original in character.

           Primary data is the data, which is collected through observation or direct        communication with the respondent in one form or another.  These are several methods for primary data collection like Observation Method, Interview Method, through schedules, through questionnaires and so on.

    Methods:

• Observation Method: the observation is the most commonly used method especially in studies relating to behavior sciences. In this way we observe for things around us, but this sort of information is not scientific observation.
• Observation becomes a scientific tool and the method of data collection for the researcher, when it serves a formulated research purpose is systematically planned and recorded and is subjected to checks and controls on validity and reliability.
• Interview Method: the interview method of collecting data involves presentation of oral-verbal stimuli and reply in terms of oral-verbal responses personal interview method requires a person known as the interviewer asking questions generally in the face to face contact to other person or persons. This sort of interview may be in the foam of direct personal investigation or it may be indirect oral investigation.
• Questionnaire Method: this method of data collection is quite popular, particularly in case of big enquiries. It is being adopted by private individuals, research works, private and public organizations and even by governments. In this case a questionnaire is sent to persons concerned with request to answer the number of questions printed in a definite order on a form or set of forms.

• Schedules: this method of data collection is very much like the collection of data through questionnaire, with little difference which lies in the fact the schedules are being filled by the enumerators who are specially appointed for the purpose. The enumerators along with schedules go to respondents, put to them the questions listed and record the replies in the space meant for the same in Performa.

2. Secondary Data: 

      These methods are those, which have been passed through the statistical process.

• Study of secondary data that includes:

1) Magazines

      2) Journal

      3) Portails

      4) Documents.

      5) Books

ANALYSIS OF DATA:

        Data, after collection, has to be analyzed in accordance will the outline laid for the time of developing the research plan. The term analysis refers to the computation of certain measures along with searching for patterns of relationship that exist among data groups. Data presented in raw state appear unrecognized and complex. Statistical processors are used this complex data into some significant understandable form.

      FINANCIAL ASPECTS OF ICICI BANK

                      Profit & Loss Account

                              Balance Sheet

Capital Structure

Quarterly Results in Details

 Half Yearly Results in Details

Annual Results in Details

   Share Holding

                     RATIO ANALYSIS

INTRODUCTION:

           Fundamental Analysis has a very broad scope. One aspect looks at the general (qualitative) factors of a company. The other side considers tangible and measurable factors (quantitative). This means crunching and analyzing numbers from the financial statements. If used in conjunction with other methods, quantitative analysis can produce excellent results.

          Ratio analysis isn't just comparing different numbers from the balance sheet, income statement, and cash flow statement. It's comparing the number against previous years, other companies, the industry, or even the economy in general. Ratios look at the relationships between individual values and relate them to how a company has performed in the past, and might perform in the future.

MEANING OF RATIO:

A ratio is one figure express in terms of another figure. It is a mathematical yardstick that measures the relationship two figures, which are related to each other and mutually interdependent. Ratio is express by dividing one figure by the other related figure. Thus a ratio is an expression relating one number to another. It is simply the quotient of two numbers. It can be expressed as a fraction or as a decimal or as a pure ratio or in absolute figures as “ so many times”. As accounting ratio is an expression relating two figures or accounts or two sets of account heads or group contain in the financial statements.

MEANING OF RATIO ANALYSIS:

Ratio analysis is the method or process by which the relationship of items or group of items in the financial statement are computed, determined and presented.

Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial health and profitability of business enterprises. Ratio analysis can be used both in trend and static analysis. There are several ratios at the disposal of an annalist but their group of ratio he would prefer depends on the purpose and the objective of analysis.

This technique is called cross-sectional analysis. Cross-sectional analysis compares financial ratios of several companies from the same industry. Ratio analysis can provide valuable information about a company's financial health. A financial ratio measures a company's performance in a specific area. For example, you could use a ratio of a company's debt to its equity to measure a company's leverage. By comparing the leverage ratios of two companies, you can determine which company uses greater debt in the conduct of its business. A company whose leverage ratio is higher than a competitor's has more debt per equity.

OBJECTIVE OF RATIOS:

Ratio is work out to analyze the following aspects of business organization-

1. Solvency-

1. Long term
2. Short term
3. Immediate

2. Stability
3. Profitability
4. Operational efficiency
5. Credit standing
6. Structural analysis
7. Effective utilization of resources
8. Leverage or external financing

FORMS OF RATIO:

        Since a ratio is a mathematical relationship between to or more variables / accounting figures, such relationship can be expressed in different ways as follows –

A] As a pure ratio:

        For example the equity share capital of a company is Rs. 20,00,000 & the preference share capital is Rs. 5,00,000, the ratio of equity share capital to preference share capital is 20,00,000: 5,00,000 or simply 4:1.

B] As a rate of times:

         In the above case the equity share capital may also be described as 4 times that of preference share capital. Similarly, the cash sales of a firm are

Rs. 12,00,000 & credit sales are Rs. 30,00,000. so the ratio of credit sales to cash sales can be described as 2.5 [30,00,000/12,00,000]  or simply by saying that the credit sales are 2.5 times that of cash sales.

C] As a percentage:

        In such a case, one item may be expressed as a percentage of some other item. For example, net sales of the firm are Rs.50,00,000 & the amount of the gross profit is Rs. 10,00,000, then the gross profit may be described as 20% of sales [ 10,00,000/50,00,000]

STEPS IN RATIO ANALYSIS;

    The ratio analysis requires two steps as follows:

    1] Calculation of ratio

    2] Comparing the ratio with some predetermined standards. The standard ratio may be the past ratio of the same firm or industry’s average ratio or a projected ratio or the ratio of the most successful firm in the industry. In interpreting the ratio of a particular firm, the analyst cannot reach any fruitful conclusion unless the calculated ratio is compared with some predetermined standard. The importance of a correct standard is oblivious as the conclusion is going to be based on the standard itself.

TYPES OF COMPARISONS:

The ratio can be compared in three different ways –

1] Cross Section Analysis:

         One of the way of comparing the ratio or ratios of the firm is to compare them with the ratio or ratios of some other selected firm in the same industry at the same point of time. So it involves the comparison of two or more firm’s financial ratio at the same point of time. The cross section analysis helps the analyst to find out as to how a particular firm has performed in relation to its competitors. The firms performance may be compared with the performance of the leader in the industry in order to uncover the major operational inefficiencies. The cross section analysis is easy to be undertaken as most of the data required for this may be available in financial statement of the firm.

2] Time Series Analysis:

        The analysis is called Time series analysis when the performance of a firm is evaluated over a period of time. By comparing the present performance of a firm with the performance of the same firm over the last few years, an assessment can be made about the trend in progress of the firm, about the direction of progress of the firm. Time series analysis helps to the firm to assess whether the firm is approaching the long-term goals or not. The Time series analysis looks for (1) important trends in financial performance (2) shift in trend over the years (3) significant deviation if any from the other set of data.

3] Combined Analysis:

            If the cross section & time analysis, both are combined together to study the behavior & pattern of ratio, then meaningful & comprehensive evaluation of the performance of the firm can definitely be made. A trend of ratio of a firm compared with the trend of the ratio of the standard firm can give good results. For example, the ratio of operating expenses to net sales for firm may be higher than the industry average however, over the years it has been declining for the firm, whereas the industry average has not shown any significant changes.

The combined analysis as depicted in the above diagram, which clearly shows that the ratio of the firm is above the industry average, but it is decreasing over the years & is approaching the industry average.

PRE-REQUISITIES TO RATIO ANALYSIS:

        In order to use the ratio analysis as device to make purposeful conclusions, there are certain pre-requisites, which must be taken care of. It may be noted that these prerequisites are not conditions for calculations for meaningful conclusions. The accounting figures are inactive in them & can be used for any ratio but meaningful & correct interpretation & conclusion can be arrived at only if the following points are well considered.

The dates of different financial statements from where data is taken must be same.

If possible, only audited financial statements should be considered, otherwise there must be sufficient evidence that the data is correct.

Accounting policies followed by different firms must be same in case of cross section analysis otherwise the results of the ratio analysis would be distorted.

One ratio may not throw light on any performance of the firm. Therefore, a group of ratios must be preferred. This will be conductive to counter checks.

Last but not least, the analyst must find out that the two figures being used to calculate a ratio must be related to each other, otherwise there is no purpose of calculating a ratio.

CLASSIFICATION OF RATIO

CLASSIFICATION OF RATIO

BASED ON FINANCIAL                           BASED ON FUNCTION                                                BASED ON USER

STATEMENT

1] BALANCE SHEET                                   1] LIQUIDITY RATIO                            1] RATIOS FOR SHORT TERM

     RATIO                                                     2] LEVERAGE RATIO                                     CREDITORS                      

2] REVENUE            3] ACTIVITY RATIO                                                    

    STATEMENT           4] PROFITABILITY RATIO                    2] RATIO FOR SHAREHOLDER

    RATIO                                                                        

3] COMPOSITE                                           5] COVERAGE RATIO                        3] RATIOS FOR MANAGEMENT

    RATIO                                                                      

                                                                                                                                    4] RATIO FOR LONG TERM                

          CREDITORS

a)   BASED ON FINANCIAL STATEMENT

        Accounting ratios express the relationship between figures taken from financial statements. Figures may be taken from Balance Sheet , P& P A/C, or both. One-way of classification of ratios is based upon the sources from which are taken. It include Balance sheet ratio, Revenue ratio and Composite ratio.

1] Balance Sheet Ratio:

        If the ratios are based on the figures of balance sheet, they are called Balance Sheet Ratios. E.g. ratio of current assets to current liabilities or ratio of debt to equity. While calculating these ratios, there is no need to refer to the Revenue statement. These ratios study the relationship between the assets & the liabilities, of the concern. These ratio help to judge the liquidity, solvency & capital structure of the concern. Balance sheet ratios are Current ratio, Liquid ratio, and Proprietory ratio, Capital gearing ratio, Debt equity ratio, and Stock working capital ratio.

2] Revenue Ratio:

        Ratio based on the figures from the revenue statement is called revenue statement ratios. These ratio study the relationship between the profitability & the sales of the concern. Revenue ratios are Gross profit ratio, Operating ratio, Expense ratio, Net profit ratio, Net operating profit ratio, Stock turnover ratio.

3] Composite Ratio:

        These ratios indicate the relationship between two items, of which one is found in the balance sheet & other in revenue statement.

    There are to types of composite ratios-

1. Some composite ratios study the relationship between the profits & the investments of the concern. E.g. return on capital employed, return on proprietors fund, return on equity capital etc.
2. Other composite ratios e.g. debtors turnover ratios, creditors turnover ratios, dividend payout ratios, & debt service ratios.

b)   BASED ON FUNCTION

Accounting ratios can also be classified according to their functions in to liquidity ratios, leverage ratios, activity ratios, profitability ratios & turnover ratios.

1] Liquidity Ratios:

        It shows the relationship between the current assets & current liabilities of the concern e.g. liquid ratios & current ratios.

2] Leverage Ratios:

        It shows the relationship between proprietors funds &  debts used in financing the assets of the concern e.g. capital gearing ratios, debt equity ratios, & Proprietory ratios.

3] Activity Ratios:

        It shows relationship between the sales & the assets. It is also known as Turnover ratios & productivity ratios e.g. stock turnover ratios, debtors turnover ratios.

4] Profitability Ratios:

It shows the relationship between profits & sales e.g. operating ratios, gross profit ratios, operating net profit ratios, expenses ratios

It shows the relationship between profit & investment e.g. return on investment, return on equity capital.

5] Coverage Ratios:

        It shows the relationship between the profit on the one hand & the claims of the outsiders to be paid out of such profit e.g. dividend payout ratios & debt service ratios.

c)   BASED ON USER

1] Ratios for short-term creditors:

        Current ratios, liquid ratios, stock working capital ratios

2] Ratios for the shareholders:

        Return on proprietors fund, return on equity capital

3] Ratios for management:

        Return on capital employed, turnover ratios, operating ratios, expenses ratios

4] Ratios for long-term creditors:

        Debt equity ratios, return on capital employed, proprietor ratios.

1)   LIQUIDITY RATIOS -

Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year) obligations. The ratios, which indic``ate the liquidity of a company, are Current ratio, Quick/Acid-Test ratio, and Cash ratio. The Liquidity ratios give a basic ability of a company to meet its short term liabilities. They also give a picture of how the company has financed its short term assets. There are various ratios within these which provide information about a company’s fundamentals.These ratios are discussed below

Current Ratio:

This ratio compares the current assests with the current liabilities. It is also known as ‘working capital ratio’ or ‘ solvency ratio’. It is expressed in the form of pure ratio

                                                       Current assets

                Current ratio =

                                                   Current liabilities

Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liabilities exceed current assets, then the company may have problems meeting its short-term obligations. As a general rule, a current ratio of 2:1 or greater is normally sufficient to meet near-term operating needs. A current ratio that is too high can suggest that a company is hoarding assets instead of using them to grow the business -- not the worst thing in the world, but potentially something that could impact long-term returns.

 The current ratio is calculated as:

                         Current Ratio = Current Assets / Current Liabilities

The current ratio in case of ICICI BANK can bee seen here:

Liquid Ratio:

The quick ratio is simply current assets minus inventories divided by current liabilities. By taking inventories out of the equation, you can check and see if a company has sufficient liquid assets to meet short-term operating needs. There is a possibility of window dressing in case of the current ratio. The current assets comprise of the cash, inventories and the sundry debtors.

The Liquid ratio is calculated as:

            Liquid Ratio = (Current Assets – Inventory)/Current Liabilities

The liquid ratio for the 5 years has been given below:

Absolute Cash Ratio:

The above ratio’s still leave a possibility of window dressing using the debtors to the company. The ACR ensures that we get the exact cash present with the company to cover for its current liabilities.

The Absolute cash ratio is calculated as:

   Absolute cash ratio = (Current Assets – Inventory – Debtors)/Current Liabilities

The ACR for the 5 years has been listed below:

Working capital:

The working capital is given by:

                                            Working capital = CA – CL

This gives a clear picture of how the assets have been financed by the company. If this is a positive value, it indicates that the assets have been partly financed by current liabilities and partly by Long term debt. If this value is negative, then parts of the fixed assets have been financed by the current liabilities. Working capital is basically an expression of how much in liquid assets the company currently has to build its business, fund its growth, and produce shareholder value. If a company has positive working capital, then it is in good shape, with plenty of cash on hand to pay for everything it might need to buy. If a company has negative working capital, then its current liabilities are actually greater than their current assets, so the company lacks the ability to spend with the same aggressive nature as a working capital positive peer. All other things being equal, a company with positive working capital will always out perform a company with negative working capital.

2)   INVESTMENT /SHAREHOLDER -

Earnings Per Share:

EPS is the net profit of loss to the share holders for each share. It is used in valuation of a company and to measure its performance. PAT is used in the calculation of EPS because it is gives the amount available to the shareholders once the taxes are paid. It is calculated by taking the weighted average of the shares outstanding.

EPS = Profit after Tax / No. of shares

Dividend Per Share:

 Dividend per share represents the amount of dividend each shareholder will receive for every share they own. DPS is calculated taking the interim and final dividend paid. It is different from EPS as it indicates the amount paid to shareholders as compared to the amount available.  

DPS= Total Dividend paid / No. of shares

Dividend Payout Ratio:

Dividend Pay-out Ratio shows the relationship between the dividend paid to equity shareholders out of the profit available to the equity shareholders.

                                     Dividend per share

        Dividend Pay out ratio =                                                      * 100

                                                               Earning per share

D/P ratio shows the percentage share of net profits after taxes and after preference dividend has been paid to the preference equity holders.

3)   GEARING -

Capital Gearing Ratio:

Gearing means the process of increasing the equity shareholders return through the use of debt. Equity shareholders earn more when the rate of the return on total capital is more than the rate of interest on debts. This is also known as leverage or trading on equity. The Capital-gearing ratio shows the relationship between two types of capital viz: - equity capital & preference capital & long term borrowings. It is expressed as a pure ratio.

                                            Preference capital+ secured loan

Capital Gearing Ratio =

                                             Equity capital & reserve & surplus

Capital gearing ratio indicates the proportion of debt & equity in the financing of assets of a concern.

4)   PROFITABILITY –

These ratios help measure the profitability of a firm. A firm, which generates a substantial amount of profits per rupee of sales, can comfortably meet its operating expenses and provide more returns to its shareholders. The relationship between profit and sales is measured by profitability ratios. There are two types of profitability ratios: Gross Profit Margin and Net Profit Margin.

Gross Profit Ratio:

This ratio measures the relationship between gross profit and sales. It is defined as the excess of the net sales over cost of goods sold or excess of revenue over cost. This ratio shows the profit that remains after the manufacturing costs have been met. It measures the efficiency of production as well as pricing. This ratio helps to judge how efficient the concern is I managing its production, purchase, selling & inventory, how good its control is over the direct cost, how productive the concern , how much amount is left to meet other expenses & earn net profit.

  Gross profit

        Gross Profit Ratio      =                                     * 100

                                                                  Net sales

Net Profit Ratio:

Net Profit ratio indicates the relationship between the net profit & the sales it is usually expressed in the form of a percentage.

                                                                     NPAT

                     Net profit ratio   =                                           * 100

                                                                    Net sales

Return on Capital Employed:

The profitability of the firm can also be analyzed from the point of view of the total funds employed in the firm. The term fund employed or the capital employed refers to the total long-term source of funds. It means that the capital employed comprises of shareholder funds plus long-term debts. Alternatively it can also be defined as fixed assets plus net working capital.

Capital employed refers to the long-term funds invested by the creditors and the owners of a firm. It is the sum of long-term liabilities and owner's equity. ROCE indicates the efficiency with which the long-term funds of a firm are utilized. This ratio can be used to determine the profitability and efficiency of a company. It indicates how well the company has utilized its capital employed. A higher ratio indicates better returns for the company. In order to avoid reduction in shareholder’s earnings, the rate of borrowing must be lower that ROCE.

                                                                                   NPAT

Return on capital employed =                                                                                  *100

                                                                  Capital employed

5)   FINANCIAL –

These ratios determine how quickly certain current assets can be converted into cash. They are also called efficiency ratios or asset utilization ratios as they measure the efficiency of a firm in managing assets. These ratios are based on the relationship between the level of activity represented by sales or cost of goods sold and levels of investment in various assets. The important turnover ratios are debtors turnover ratio, average collection period, inventory/stock turnover ratio, fixed assets turnover ratio, and total assets turnover ratio. These are described below:

Debtors Turnover Ratio (DTO):

DTO is calculated by dividing the net credit sales by average debtors outstanding during the year. It measures the liquidity of a firm's debts. Net credit sales are the gross credit sales minus returns, if any, from customers. Average debtors are the average of debtors at the beginning and at the end of the year. This ratio shows how rapidly debts are collected. The higher the DTO, the better it is for the organization.

                                                          Credit sales

Debtors Turnover Ratio =

                                          Average debtors

Inventory or Stock Turnover Ratio (ITR):

ITR refers to the number of times the inventory is sold and replaced during the accounting period.

Formula:

                                                                 COGS

      Stock Turnover Ratio =

                                                           Average stock

ITR reflects the efficiency of inventory management. The higher the ratio, the more efficient is the management of inventories, and vice versa. However, a high inventory turnover may also result from a low level of inventory, which may lead to frequent stock outs and loss of sales and customer goodwill. For calculating ITR, the average of inventories at the beginning and the end of the year is taken. In general, averages may be used when a flow figure (in this case, cost of goods sold) is related to a stock figure (inventories).

Solvency Ratios:

Solvency ratios are an indicator of the ability of a company to meet its long term   debt obligations. The lower the solvency ratio, the more likely the company will default. Some of the ratios used to test for solvency are:

Debt-Equity Ratio:

It is defined as the ratio between debt and equity. It indicates the proportion of debt and equity used to finance the assets. A higher DER indicates that the assets are financed more by debt as compared to equity.

Debt-Equity ratio= Debt / Ratio

The debt equity ratios of the ICICI BANK are as follows:

Table 10: Debt Equity Ratio

Interest Coverage Ratio (ICR):

It is defined as the ratio between Profit Before Interest and Tax (PBIT) and interest This ratio can be used to determine the ease of a company to pay the interest on its outstanding debts.

                 ICR = PBIT / Interest

The ICR’s of the ICICI BANK are:

Table 11: Interest Coverage Ratios

Debt to Total Funds:

It gives an indication of the leverage and potential risk of the company in terms of debt-load. A higher debt ratio indicates that the company is financed more by debts as compared to capital.

Debt to total funds= Debt / Total Funds

The debt to total funds ratio of the ICICI BANK are as follows:

Reserves to Total Funds:

The reserves to total fund ratio indicates the proportion of reserves used to finance assets. A higher ratio indicates that the reserves form a larger part of the overall funds.

Reserves to total funds= Reserves/ Total funds

The ratios of the BHEL Company are as follows:

Proprietors Ratio:

Proprietary ratio is a test of financial & credit strength of the business. It relates shareholders fund to total assets. This ratio determines the long term or ultimate solvency of the company.

In other words, Proprietary ratio determines as to what extent the owner’s interest & expectations are fulfilled from the total investment made in the business operation.

Proprietary ratio compares the proprietor fund with total liabilities. It is usually expressed in the form of percentage. Total assets also know it as net worth.

                                       Proprietary fund

Proprietary ratio    =                                                          

                                                Total fund

Creditors Turnover Ratio:

It is same as debtors turnover ratio. It shows the speed at which payments are made to the supplier for purchase made from them. It is a relation between net credit purchase and average creditors

                                                                      Net credit purchase                

                  Credit Turnover Ratio =                            

                                                                       Average creditors                    

Market Based Returns:

PE Ratio:

This value is of most importance to shareholders of the company. It is the most common ratio used to value the company. This is a clear indicator of how much value can be extracted from the company’s share and gives shareholders an estimate of the returns that the share of this company can provide in return to their investment

        Price to Earnings ratio = Market Price / (Earnings per share)

        Earnings per share = PAT / No. of Shares issued.

Low PE stocks indicate that the price of the stock represents a smaller multiple of the earnings for the previous year. The stock holders generally value the price of a stock as a multiple of the earnings per share, by expecting the company to do well and hence increase value in turn increase the share value of the company equity shares. –Although low PE stocks do indicate a possibility of growth, in today’s world they have to be looked at closely.

                  Price to Earnings ratio = Market Price / (Earnings per share)

Market Capitalization to Net worth (Price to Book Ratio):

This ratio is used to compare the market value of the share to the Book value of the company equity share. It is calculated as:

Price to Book ratio = Stock Price * No. of shares issued/ Net worth

              = Stock Price / Book value    

A low PB ratio could be interpreted in 2 ways. It could mean that the company share is undervalued and has scope of appreciation and hence providing returns over time. It could also mean that there is something wrong with the company fundamentally as book value is the value of all the tangible assets and liabilities.

IMPORTANCE OF RATIO ANALYSIS -

As a tool of financial management, ratios are of crucial significance. The importance of ratio analysis lies in the fact that it presents facts on a comparative basis & enables the drawing of interference regarding the performance of a firm. Ratio analysis is relevant in assessing the performance of a firm in respect of the following aspects:

1] Liquidity position,

2] Long-term solvency,

3] Operating efficiency,

4] Overall profitability,

5] Inter firm comparison

6] Trend analysis.

1]   Liquidity Position:

        With the help of Ratio analysis conclusion can be drawn regarding the liquidity position of a firm. The liquidity position of a firm would be satisfactory if it is able to meet its current obligation when they become due. A firm can be said to have the ability to meet its short-term liabilities if it has sufficient liquid funds to pay the interest on its short maturing debt usually within a year as well as to repay the principal. This ability is reflected in the liquidity ratio of a firm. The liquidity ratio are particularly useful in credit analysis by bank & other suppliers of short term loans.

2]   Long Term Solvency:

           Ratio analysis is equally useful for assessing the long-term financial viability of a firm. This respect of the financial position of a borrower is of concern to the long-term creditors, security analyst & the present & potential owners of a business. The long-term solvency is measured by the leverage/ capital structure & profitability ratio Ratio analysis s that focus on earning power & operating efficiency.

Ratio analysis reveals the strength & weaknesses of a firm in this respect. The leverage ratios, for instance, will indicate whether a firm has a reasonable proportion of various sources of finance or if it is heavily loaded with debt in which case its solvency is exposed to serious strain.

3]   Operating Efficiency:

        Yet another dimension of the useful of the ratio analysis, relevant from the viewpoint of management, is that it throws light on the degree of efficiency in management & utilization of its assets. The various activity ratios measures this kind of operational efficiency. In fact, the solvency of a firm is, in the ultimate analysis, dependent upon the sales revenues generated by the use of its assets- total as well as its components.

4]   Overall Profitability:

        Unlike the outsides parties, which are interested in one aspect of the financial position of a firm, the management is constantly concerned about overall profitability of the enterprise. That is, they are concerned about the ability of the firm to meets its short term as well as long term obligations to its creditors, to ensure a reasonable return to its owners & secure optimum utilization of the assets of the firm. This is possible if an integrated view is taken & all the ratios are considered together.

5]    Inter – Firm Comparison:

        Ratio analysis not only throws light on the financial position of firm but also serves as a stepping-stone to remedial measures. This is made possible due to inter firm comparison & comparison with the industry averages. A single figure of a particular ratio is meaningless unless it is related to some standard or norm. one of the popular techniques is to compare the ratios of a firm with the industry average. It should be reasonably expected that the performance of a firm should be in broad conformity with that of the industry to which it belongs. An inter firm comparison would demonstrate the firms position vice-versa its competitors. If the results are at variance either with the industry average or with the those of the competitors, the firm can seek to identify the probable reasons & in light, take remedial measures.

6]    Trend Analysis:

        Finally, ratio analysis enables a firm to take the time dimension into account. In other words, whether the financial position of a firm is improving or deteriorating over the years.  This is made possible by the use of trend analysis. The significance of the trend analysis of ratio lies in the fact that the analysts can know the direction of movement, that is, whether the movement is favorable or unfavorable. For example, the ratio may be low as compared to the norm but the trend may be upward. On the other hand, though the present level may be satisfactory but the trend may be a declining one.

ADVANTAGES OF RATIO ANALYSIS –

           Financial ratios are essentially concerned with the identification of significant accounting data relationships, which give the decision-maker insights into the financial performance of a company. The advantages of ratio analysis can be summarized as follows:

Ratios facilitate conducting trend analysis, which is important for decision making and forecasting.

Ratio analysis helps in the assessment of the liquidity, operating efficiency, profitability and solvency of a firm.

Ratio analysis provides a basis for both intra-firm as well as inter-firm comparisons.

The comparison of actual ratios with base year ratios or standard ratios helps the management analyze the financial performance of the firm.

DISADVANTAGES OF RATIO ANALYSIS –

Ratio analysis has its limitations. These limitations are described below:

1]   Information Problems:

         Ratios require quantitative information for analysis but it is not decisive about analytical output.

         The figures in a set of accounts are likely to be at least several months out of date, and so might not give a proper indication of the company’s current financial position.

2]   Comparison of Performance over Time;

        When comparing performance over time, there is need to consider the changes in price. The movement in performance should be in line with the changes in price.

        When comparing performance over time, there is need to consider the changes in technology. The movement in performance should be in line with the changes in technology.

3]   Inter-firm Comparison:

        Companies may have different capital structures and to make comparison of performance when one is all equity financed and another is a geared company it may not be a good analysis.

        Selective application of government incentives to various companies may also distort intercompany comparison. comparing the performance of two enterprises may be misleading.

      Inter-firm comparison may not be useful unless the firms compared are of the same size and age, and employ similar production methods and accounting practices.

Even within a company, comparisons can be distorted by changes in the price level.

Ratios provide only quantitative information, not qualitative information.

PURPOSE OF RATIO ANLYSIS -

1] To identify aspects of a businesses performance to aid decision making

2] Quantitative process – may need to be supplemented by qualitative

     Factors to get a complete picture.

3] 5 main areas:-

Liquidity – the ability of the firm to pay its way.

Investment/shareholders – information to enable decisions to be made on the extent of the risk and the earning potential of a business investment.

Gearing – information on the relationship between the exposure of the business to loans as opposed to share capital.

Profitability – how effective the firm is at generating profits given sales and or its capital assets.

Financial – the rate at which the company sells its stock and the efficiency with which it uses its assets.

                          DUPONT ANALYSIS

DuPont analysis provides the framework to understand the drivers of ROI. In DuPont analysis, an effort is made to decompose ROI and go to the root cause of  ROI. To enable this, the DuPont model integrates the elements of Income statement and the balance sheet. This method is a very simple method which provides a clear understanding of how the company generates its return. This analysis provides an insight into the importance of asset turnover as well as sales to overall return. We can undertake the DuPont analysis by taking any variation of ROI, viz ROTA, ROCE, or RONW. For our analysis, we are

taking ROCE.

ROCE = Profit Margin *Asset Turnover * Asset to Capital Employed

• Profit Margin = PBIT/Sales
• Asset Turnover = Sales /Total Asset
• Asset to Capital Employed = Total Asset/Capital

                  INTRA COMPANY ANALYSIS

RONW (Return on Net worth):

This ratio shows the money available for the equity shareholders and Return on Net Worth (stockholders funds) is a valuable financial ratio for evaluating a company's efficiency and the quality of its management. It is a basic ratio that tells a stockholder what he is getting out of his investment in the company.

ROCE:

This ratio can be used to determine the profitability and efficiency of a company. It indicates how well the company has utilized its capital employed. A higher ratio indicates better returns for the company. In order to avoid reduction in shareholder’s earnings, the rate of borrowing must be lower that ROCE.

ROCE= Profit before Income and Tax / Capital Employed

Earnings per Share:

EPS is the net profit of loss to the share holders for each share. It is used in valuation of a company and to measure its performance. PAT is used in the calculation of EPS because it is gives the amount available to the shareholders once the taxes are paid. It is calculated by taking the weighted average of the shares outstanding.

EPS = Profit after Tax / No. of shares

Dividend per share:

 Dividend per share represents the amount of dividend each shareholder will receive for every share they own. DPS is calculated taking the interim and final dividend paid. It is different from EPS as it indicates the amount paid to shareholders as compared to the amount available.  

DPS= Total Dividend paid / No. of shares

STRATEGIC ANALYSIS

TOWS MATRIX

DETAILED ANALYSIS -

1.  Strength - Opportunity Analysis:

Strength:  It is well know that ICICI Bank has the largest Authorised Capital Base in the Banking System in India i.e. having a total capacity to raise Rs. 19,000,000,000 (Non – Premium Value)

Opportunity: Seeing the present financial & economic development of Indian Economy and also the tremendous growth of the Indian companies including the acquisition spree followed by them, it clearly states the expanding market for finance requirements and also the growth in surplus disposal income of Indian citizens has given a huge rise in savings deposits – from the above point it is clear that there is a huge market expansion possible in banking sector in India.  

Strategy: From the analysis of Strength & Opportunity the simple and straight possible strategy for ICICI Bank could be - to penetrate into the rural sector of India for expanding its market share as well as leading all other Pvt. Banks from a great gap.

2.  Strength - Threat Analysis:

Strength: ICICI Bank is not only known for large capital but also for having a low operations cost though having huge number of branches and services provided.

Threat: After showing a significant growth overall, India is able to attract many international financial & banking institutes, which are known for their state of art working and keeping low operation costs.

Strategy: To ensure that ICICI Bank keeps going on with low operation cost & have continuous business it should simply promote itself well & provide quality service so as to ensure customer loyalty, therefore guaranteeing continuous business.  

3.  Weakness - Opportunity Analysis:

Weakness: It is well known that workforce responsiveness in banking sector is very low in Indian banking sector, though ICICI Bank has better responsible staff but it still lacks behind its counterparts like HSBC, HDFC, CITI BANK, YES BANK etc.

Opportunity: In the present world, India is preferred one of the best places for out - sourcing of business process works and many more.

Strategy: As international companies are reaping huge benefits after out-sourcing there customer care & BPO’s, this same strategy should be implemented by ICICI Bank so as to have proper customer service without hindering customer expectations.

     4.  Weakness - Threat Analysis.

Weakness: Though having a international presence, ICICI Bank has not been able to keep up the international standards in providing customer service as well as banking works.

Threat: In recent times, India has witnessed entry of many international banks like CITI Bank, YES Bank etc which posses an external entrant threat to ICICI Bank – as this Banks are known for their art of working and maintain high standards of customer service.

Strategy: After having new entrants threat, ICICI Bank should come up with more additional benefits to its customer or may be even reduce some fees for any additional works of customers.

SERVICE GAP ANALYSIS

DETAILED ANALYSIS -

GAP 1:    No Strong R & D for finding hidden needs of customers.

          Though ICICI Bank has been investing in R&D, but the investments are not that high as well as the R&D of ICICI Bank is not strongly equipped so as to analysis the deep hidden needs of customers as well as employees.

GAP 2:     Not able to provide the desired services due to regulations.

        Though knowing some of the desired services of customers or having some innovative schemes all this schemes are not implemented by ICICI Bank, as all banks in India are under the regulation of Reserve Bank of India.         

GAP 3:     Improper Implementation by Employees.

        Many schemes are launched by ICICI Bank to ensure old customer loyalty as well as new customer base after compiling with RBI approval; still these schemes are not implemented properly by the bank staff and mostly agents of banks because of less understanding of schemes or because of no faith in them.

GAP 4:   Problems faced by customers are spread rapidly, affecting the new customer decision.

        It is well noted in India that mouth to mouth publicity is the fastest way of publicity whether it is positive or negative, under such situations any problem or inconvenience faced by any customer of ICICI Bank spreads like rapid fire and effects the decision of old as well as new customer directly & indirectly.

GAP 5:    Services as promised by the agents are not delivered either on time or not at all provided.

        In order to get better pay, the agents of ICICI Bank usually give false promises to there customers regarding the quality of service or new schemes so as to lure them. In such cases the final loser is not just the customers but the ICICI Group as whole as it effects all there businesses.

RECOMMENDATIONS

1. A Major Revamp of its Customer Care:

A complete over hauling of its customer care department is required so as to reduce complaints of customer in turn which may affect its working.

2. Penetration into Rural Market with E – Commerce Facility:

Though it is one of the strategies of ICICI Bank to enter deeply into rural sector, but this step has to be taken up seriously and as soon as possible so as to tap the market the rural market easily and these services should be well equipped with E – Commerce features mainly like Tele – banking and ATM’s etc.

3. Introduction of Smart Cards for New as well as Old Credit Card Holders: 

ICICI Bank should come up with the concept of smart cards were the data regarding all the accounts & credit cards details of a individual customer is placed in a single cards hence reducing the burden of carrying all credit cards & other necessary items required for banking transaction.

4. Concentrate on Building Brand Image:

ICICI Bank is very well known institution for investing purposes and as well as for its practices involving anti – social elements; therein affecting its name and Brand value of its self and also ICICI group as a whole.

5. Formulation of a Win - Win Situation to Reduce Non Performing Assets:

It has become a necessity for ICICI Bank to reduce its NPA’s which have risen tremendously after the merger with ICICI Limited.

6. Completely Separation of other alike Businesses like Insurance, Mutual Funds etc:

It is usually seen the ICICI Bank branches are over crowded with ICICI staff though they don’t belong to that branch or does not even belong to the ICICI Bank, they usually are the agents of its other businesses like Insurance, Mutual funds etc – this annoys the customer and creates a bad impression.

7. Major re-look at Working of their Agents:

The easiest way to reach to customers is through agents; and the agents of ICICI Bank are highly skilled in this field but they do it at the cost of customer’s innocence. There are many incidences where in the information provided by the agents is false. Its time for ICICI Bank to look into the matter and rework on its agents policies.

8. Reduction of Penalty Fees & Special Service Fees:

The penalties & special service imposed by ICICI Bank is very high as compared to public sector banks; this some times adds a negative perspective to ICICI Bank.

SUGGESTION TO OTHER FINANCIAL INSTITUTIONS

AND PVT. BANKS

1.  Better flexibility in schemes should be provided as done by ICICI Bank to lure mass customer base.

2. Better banking hours is need of the hour of Indian banking customer and in this race ICICI Bank has moved a step ahead; to ensure not to lose out all financial institutions and banks should extend there bank working hours.

3. Concentration on small working groups rather than just corporate for business – this suggestion is basically for Pvt. Banks operational in India, as they focus more on corporate rather then huge base of small traders, self employed and other small & medium business.

4. Go for packaged schemes for accounts – many banks in India are not providing package schemes for customers except few Banks like ICICI bank, CITI Bank etc in some cases. The availability of packaged schemes can become turning points for there business growth.

BIBLOGRAPHY

www.icicibank.com

www.google.co.in

News Papers

Magazines

Red herring prospectus of ICICI Bank 2009