Non Performing Assets or NPA is one of the current hot topics in India. This is the synopsis for a project that I have undertaken. The objectives of project are to:
1) To determine the depth of NPA’s in ICICI, SBI and HDFC banks
2) To figure out the implications of NPA’s in the three banks
The full project will be uploaded soon.
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PROBLEM STATEMENT
With each passing year, the amount of the Non Performing Assets in our country has been
increasing. This is very unfortunate for the Indian economy as these bad assets means that
income can not be generated from which in turn hampers the overall growth.
Through this project we look forward to determining the existing NPA’s in three of India’s
leading banks namely ICICI, HFD and SBI bank. Alongside we also aim to find out what
implications these NPA’s have with regards to the economy.
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3. ICICI BANK
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.
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.
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3.1 Company Overview
ICICI bank is an Indian multinational bank and financial services company headquartered
in Mumbai, Maharashtra, India, with its registered office in Vadodara. In 2017, it is the third
largest bank in India in terms of assets and fourth in term of market capitalisation. It offers a
wide range of banking products and financial services for corporate and retail
customers through a variety of delivery channels and specialised subsidiaries in the areas
of investment banking, life, non-life insurance, venture capital and asset management. The
bank has a vast network of 4,850 branches and 14,404 ATMs in India, and has a presence in
17 countries including India.
The bank has subsidiaries in the United Kingdom and Canada; branches in United
States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar, Oman, Dubai International Finance
Centre, China and South Africa; and representative offices in United Arab
Emirates, Bangladesh, Malaysia and Indonesia. The company's UK subsidiary has also
established branches in Belgium and Germany.
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.
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3.2 Investors
HOLDER’S NAME % SHARE HOLDING
LIFE INSURANCE CORPORATION OF
INDIA LIMITED
12.47
DODGE AND COX INTERNATIONAL
STOCK FUND
8.61
HDFC Large Cap Fund 5.61
ICICI Prudential Mutual Fund 3.18
SBI Mutual Fund 2.97
3.3 SWOT Analysis
STRENGTHS
• CICI is the second largest bank in terms of total assets and market share
• Total assets of ICICI is Rs. 4062.34 Billion and recorded a maximum profit after tax of
Rs. 51.51 billion and located in 19 countries
• One of the major strength of ICICI bank according to financial analysts is its strong and
transparent balance sheet
• ICICI bank has first mover advantage in many of the banking and financial services.
ICICI bank is the first bank in India to introduce complete mobile banking solutions
and jewellery card
• The bank has PAN India presence of around 2,567 branches and 8003 ATM’s
• ICICI bank has the longest working hours and additional services offering at ATM’s
which attracts customers
• Marketing and advertising strategies of ICICI have good reach compared to other banks
in India
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WEAKNESS
• Customer support of ICICI section is not performing well in terms of resolving
complaints
• There are lot of consumer complaints filed against ICICI
• The ICICI bank has the most stringent policies in terms of recovering the debts and
loans, and credit payments. They employ third party agency to handle recovery
management
• There are also complaints of customer assault and abuse while recovering and the credit
payment reminders are sent even before the deadlines which annoys the customers
• The bank service charges are comparatively higher
OPPORRUNITUES
• Banking sector is expected to grow at a rate of 17% in the next three years
• The concept of saving in banks and investing in financial products is increasing in rural
areas as more than 62% percentage of India’s population is still in rural areas.
• Within next four years ICICI bank is planning to open 1500 new branches
• Small and non performing banks can be acquired by ICICI because of its financial
strength
• ICICI bank is expected to have 20% credit growth in the coming years.
• ICICI bank has the minimum amount of non-performing assets
THREATS
• RBI allowed foreign banks to invest up to 74% in Indian banking
• Government sector banks are in urge of modernizing the capacities to ensure the
customers switching to new age banks are minimized
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• HDFC is the major competitor for ICICI, and other upcoming banks
like AXIS, HSBC impose a major threat
• In rural areas the micro financing groups hold a major share
• Though customer acquisition is high on one side, the unsatisfied customers are
increasing and make them to switch to other banks
4. HDFC BANK
The HDFC Bank was incorporated on August 1994 by the name of 'HDFC Bank Limited', with
its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled
Commercial Bank in January 1995. The Housing Development Finance Corporation (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.
The promoter of the company HDFC was incepted in 1977 is India's premier housing finance
company and enjoys an impeccable track record in India as well as in international markets.
HDFC has developed significant expertise in retail mortgage loans to different market
segments and also has a large corporate client base for its housing related credit facilities.
On May 23, 2008, the amalgamation of Centurion Bank of Punjab with HDFC Bank was
formally approved by Reserve Bank of India to complete the statutory and regulatory approval
process.
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In a milestone transaction in the Indian banking industry, Times Bank Limited (another new
private sector bank promoted by Bennett, Coleman & Co. / Times Group) was merged with
HDFC Bank Ltd., effective February 26, 2000. This was the first merger of two private banks
in the New Generation Private Sector Banks.
4.1 Company Overview
HDFC Bank is headquartered in Mumbai. As of March 31, 2015, the Bank’s
distribution network was at 4,014 branches in 2,464 cities. All branches are linked on
an online real-time basis. Customers across India are also serviced through multiple
delivery channels such as Phone Banking, Net Banking, Mobile Banking and SMS
based banking.
Mrs. Shyamala Gopinath holds a Master’s Degree in Commerce and is a CAIIB. Mrs. Gopinath
has 39 years of experience in financial sector policy formulation in different capacities at RBI.
As Deputy Governor of RBI for seven years and member of the Board. Mrs. Gopinath had been
guiding and influencing the national policies in the diverse areas of financial sector regulation
and supervision, development and regulation of financial markets, capital account
management, management of government borrowings, forex reserves management and
payment and settlement system.
The Managing Director, Mr. Aditya Puri, has been a professional banker for over 25 years and
before joining HDFC Bank in 1994 was heading Citibank's operations in Malaysia.
The Bank's Board of Directors is composed of eminent individuals with a wealth of experience
in public policy, administration, industry and commercial banking. Senior executives
representing HDFC are also on the Board.
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HDFC Bank is India’s largest private sector lender by assets. It is the largest bank in India by
market capitalization as of February 2016. It was ranked 69th in 2016 Brand Z Top 100 Most
Valuable Global Brands.
4.2 Investors
HOLDER’S NAME % SHARE HOLDING
Foreign Institutions 33.44
HDFC Promoters 20.86
Global Depository Receipt 18.16
N Banks Mutual Funds 9.49
General Public 9.1
4.3 SWOT Analysis
STRENGTHS
• HDFC bank is located in 1,174 cities in India and has more than 800 locations to serve
customers through Telephone banking
• The bank’s ATM card is compatible with all domestic and international Visa/Master
card, Visa Electron/ Maestro, Plus/ and American Express. This is one reason for
HDFC cards to be the most preferred card for shopping and online transactions
• HDFC bank has the high degree of customer satisfaction when compared to other
private banks
• The attrition rate in HDFC is low and it is one of the best places to work in private
banking sector
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• HDFC has lots of awards and recognition, it has received ‘Best Bank’ award from
various financial rating institutions like Dun and Bradstreet, Financial express,
Euromoney awards for excellence, Finance Asia country awards etc
• HDFC has good financial advisors in terms of guiding customers towards right
investments
WEAKNESS
• HDFC bank doesn’t have strong presence in Rural areas, where as ICICI bank its direct
competitor is expanding in rural market
• HDFC cannot enjoy first mover advantage in rural areas. Rural people are hard core
loyal in terms of banking services.
• HDFC lacks in aggressive marketing strategies like ICICI
• The bank focuses mostly on high end clients
• Some of the bank’s product categories lack in performance and doesn’t have reach in
the market
• The share prices of HDFC are often fluctuating causing uncertainty for the investors
OPPORTUNITIES
• HDFC bank has better asset quality parameters over government banks, hence the profit
growth is likely to increase
• The companies in large and SME are growing at very fast pace. HDFC has good
reputation in terms of maintaining corporate salary accounts
• HDFC bank has improved it’s bad debts portfolio and the recovery of bad debts are
high when compared to government banks
• HDFC has very good opportunities in abroad
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• Greater scope for acquisitions and strategic alliances due to strong financial position
THREATS
• HDFC’s nonperforming assets (NPA) increased from 0.18 % to 0.20%. Though it is a
slight variation it’s not a good sign for the financial health of the bank
• The non-banking financial companies and new age banks are increasing in India
• The HDFC is not able to expand its market share as ICICI imposes major threat
• The government banks are trying to modernize to compete with private banks
• RBI has opened up to 74% for foreign banks to invest in Indian market
5. SBI BANK
The roots of the State Bank of India lie in the first decade of the 19th century, when the Bank
of Calcutta, later renamed the Bank of Bengal, was established on 2 June 1806. The Bank of
Bengal was one of three Presidency banks, the other two being the Bank of
Bombay (incorporated on 15 April 1840) and the Bank of Madras (incorporated on 1 July
1843). All three Presidency banks were [ as joint stock companies and were the result of royal
charters. These three banks received the exclusive right to issue paper currency till 1861 when,
with the Paper Currency Act, the right was taken over by the Government of India. The
Presidency banks amalgamated on 27 January 1921, and the re-organised banking entity took
as its name Imperial Bank of India. The Imperial Bank of India remained a joint stock company
but without Government participation.
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Pursuant to the provisions of the State Bank of India Act of 1955, the Reserve Bank of India,
which is India's central bank, acquired a controlling interest in the Imperial Bank of India. On
1 July 1955, the imperial Bank of India became the State Bank of India. In 2008, the
Government of India acquired the Reserve Bank of India's stake in SBI so as to remove any
conflict of interest because the RBI is the country's banking regulatory authority.
5.1 Company Overview
The State Bank of India, the country’s oldest bank and a premier in terms of balance sheet size,
number of branches, market capitalization and profits is today going through a momentous
phase of change and transformation – the two hundred year old public sector behemoth is today
stirring out of its public sector legacy and moving with an agility to give the private and foreign
banks a run for their money.
The bank is entering into many new businesses with strategic tie ups – Pension Funds, General
Insurance, Custodial Services, Private Equity, Mobile Banking, Point of Sale Merchant
Acquisition, Advisory Services, structured products etc – each one of these initiatives having
a huge potential for growth.
The bank is forging ahead with cutting edge technology and innovative new banking models,
to expand its rural banking base, looking at the vast untapped potential in the hinterland and
proposes to cover 100,000 villages in the next two years. At the end March, 2011, the total
number of branches was 13,542 while the number of ATMs stood at 20,084 across the country.
It is also focusing at the top end of the market, on whole sale banking capabilities to provide
India’s growing mid / large corporate with a complete array of products and services. It is
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consolidating its global treasury operations and entering into structured products and derivative
instruments. Today, the bank is the largest provider of infrastructure debt and the largest
arranger of external commercial borrowings in the country. It is the only Indian bank to feature
in the Fortune 500 list.
5.2 Investors
HOLDER’S NAME % SHARE HOLDING
Government of India 61.23
Global Depository Receipt 11.17
Banks and Insurance Companies 10.00
Mutual Funds 8.29
5.3 SWOT Analysis
STRENGTHS
• The bank around 198 offices in 37 countries; 301 correspondents in 72 countries,
278,000 employees, 420 million customers, and around 24,000 branches and 59,000
ATMs making it the owner of one of the largest banking networks in the world.
• The bank is one of the oldest in the region and has been having a steady inflow of
customers from all income brackets. They have also had good relationships with
stakeholders which have created a goodwill amongst customers.
• Being one of the most popular nationalized banks, the bank has a lot of special
privileges including a special act for itself.
• The State Bank of India has a wide variety of services like investment banking, online
banking, stockbroking, rural banking and loans amongst others.
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• The bank has a very strong image amongst customers, visibility and there have been
numerous instances of strong word of mouth advertising about the bank.
WEAKNESS
• Earlier when banking was not privatized SBI had undoubted leadership. But with the
privatization of banking, there has been a surge in the competition which has resulted
in a drop in market share.
• State Bank of India has been facing a problem of being unable to resolve bad debts
which have resulted from the non-repayment of loans.
• After the merger with five of its associate banks, SBI has become the largest banker in
India and the network in huge with branches even in remote locations. This huge size
can create serious challenges in management.
• There have been issues in loan repayment, bad loan, non-performing assets and loan
restructuring especially in the case of the associate banks.
• Due to many salary accounts and government accounts with SBI, the branches are
overpopulated creating too much dissatisfaction and frustration for users. Thus
customer service is known to be bad from SBI.
OPPORTUNITIES
• The banking industry in India was restructured by the government helping the sector to
cope up with the challenges of the new financial environment.
• There is a steady growth of per capita income in India which in turn indicates a growing
economy. These signals are positive for the growth of the banking business.
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• The society has undergone a change in the structure of double income households with
high disposable income. This has created a resultant change which is an increase in
borrowing capacity of the customer.
• Banks have become more relevant with digitization and demonetization and this will
see an increase in the number of bank accounts as well as for credit card usage.
THREATS
• Bad Loans and Non-performing assets: India has a history of bad loans and amounts to
a total of Rs 10 lakh crores. Non-performing assets in India are estimated at 10.2% by
March 2018, from 9.6% in March 2017 in comparison to the statistics last year
September 2016, gross NPAs were at 9.2%.
• Cyber threats: There has been a lot of issues lately on information theft and security.
These cyber threats from a headache for the banks which can affect the image of the
bank if not managed well.
OBJECTIVES
Following are the objectives of the project that is to be performed:
1) To determine the depth of NPA’s in the three banks
2) To figure out the implications of NPA’s in the three banks
