equity research in banking sector

PROJECT ON
“ EQUITY RESEARCH IN BANKING SECTOR ”
UNDER THE GUIDANCE OF
Mr. subojeet sen gupta.

SUBMITTED BY
JAGRUTI GODAMBE
TRAINEE AT BIRLA SUN LIFE INSURANCE
2012-2013

IN FULFILMENT OF ONE MONTH WINTER
INTERNSHIP

WITH BIRLA SUN LIFE INSURANCE.

CERTIFICATE
This is to certify that the study presented by
JAGRUTI GODAMBE to Birla Sun Life Insurance in
completion of the one month winter internship in
finance under the title of Equity Research in
Banking sector has been done under my guidance.

Signature of the candidate

---------------------------
Jagruti Godambe

Signature of the Guide
Subojeet sen gupta.

ACKNOWLEDGEMENT
I take this opportunity to sincerely thanks and
express my gratitude to my project guide Mr.
Subojeet Sen Gupta for guiding me throughout my
entire project.
The experience and the knowledge acquired
during the internship have been invaluable and it
will help me a great deal in my future education
and career.
JAGRUTI GODAMBE

TABLE OF CONTENTS
S.NO. CONTENT Page
no.
1. Executive summery 6
2. Objective, scope,
limitations of the 7
project.

3. Introduction 8

4. Fundamental analysis 10

5. Technical analysis 12

6. Analysis of banking 15
sector

7. Analysis of banks 21
8. Recommendations 34
9. Conclusion 35

This project is about equity research in banking
sector. In this project the banking sector is
analyzed through financial and technical analysis.
This are the two tools used for analyzing the
banking sector. Then the four Indian banks are
analyzed with the description and details.

OBJECTIVE, SCOPE, ASSUMPTION AND
LIMITATIONS OF THE PROJECT

1. Objective:
The main objective of this project is to understand that
proper analysis of a company minimizes the risk of
losing money in stock market of any investor.
2. Scope:
The scope of the project is limited to understanding
the basics of fundamental analysis and technical
analysis and apply it to take a decision of investing in
banking sector.
3. Assumptions :
This project is prepared on the assumption that
most of the investment in stock market is done by the
brokers and not by the common man.
4. Limitations:
The project has been limited to investment analysis
of banking sector only.

INTRODUCTION
What is equity?
In accounting and finance, equity is the residual claim or
interest of the most junior class of investor in assets after
all liabilities are paid.
What is equity shares?
Equity share is the type of share which is hold by equity
shareholders. Equity shareholders are the owners of the
company. They are the real risk bearers. They may get
dividend or they may not get dividend. They enjoy
maximum voting rights.
What is equity investment?
Equity investment generally refers to the holding and
buying of shares on the stock market by individuals and
firms in anticipation of gains from dividend as the value
of stock rises.
How to invest in equity shares?
Investors can buy the equity shares from the primary and
secondary market. Purchase of shares from security
market is primary purchase. And purchase of shares from
(IPO) is purchase from secondary market.

Why should one invest in equity?
If the person invests in equity then it provides maximum
returns to the investor as compared to other avenues of
investment.
But while making an investment in equity, investor has to
study them carefully. And this can be done through
analyzing of equity.
Equity shares can be analyzed through:
1. Fundamental analysis
2. Technical analysis

Concept
Fundamental analysis is a method of evaluating a
security by attempting to measure its intrinsic value by
examining related economic, financial and other
qualitative and quantitative factors.
Fundamental analysts cover macroeconomic factors, like
overall economy and industry conditions and
management of companies. So, economy-industry-
company analysis is a part of fundamental analysis.
Goal of Fundamental Analysis
The end goal of fundamental analysis is to produce a
value that investors can compare with current market
price in hope of figuring what sort of position to take in
that particular stock/company.
So, if the security is underpriced, then go for ‘Buy’, and if
the security is overpriced then, ‘Sell’.

Concept of technical analysis:
Technical analysis is the process of analyzing a security’s
historical prices in an effort to determine probable future
prices. This is done by comparing current price action
with comparable historical price action to predict
reasonable outcome. It is a study of prices, with charts
being the primary tool.

Technical Analysis, as a tool for equity research, is now
fast catching up with the imagination of investors in
India. As a subject, Technical Analysis is the study of price
patterns and volumes using historical data for scripts,
currency or even a commodity.

Darashaw has been a pioneer in disseminating quality
Technical Research to Domestic & Foreign Institutional
Investors since 1997. The key features of our approach
have been

Primary use of Technical Research for taking long-
term Investment Decisions rather than for short-
term trading.
Coverage of Markets that extend beyond local
Indices & stocks and include Dow, NASDAQ and
Crude Oil.
An approach that has often proved itself to be
completely contrary to the General Market Outlook
of the Investment Fraternity.

THE INDIAN BANKING SECTOR
The Indian banking sector has seen unprecedented
growth along with remarkable improvement in its quality
of assets and efficiency since economic liberalization
began in the early 1990s.

From providing plain vanilla banking services, banks have
gradually transformed themselves into universal banks.
ATMs, Internet banking, mobile banking and social
banking have made "anytime anywhere banking" the
norm now.

In 2011/12, non-cash payments comprised 91 per cent
of total transactions in terms of value and 48 per cent in
terms of volume. Within noncash payments, too, the
share of payments through cherubs has come down from
85 per cent to nine per cent in value, and 83 per cent to
52 per cent in volume between 2005/06 and 2011/12.
NON-CASH PAYMENTS COMPRISED 91 PER CENT OF
VALUE AND 48 PER CENT OF VOLUME OF TOTAL
TRANSACTIONS
Banks have taken other measures to improve their
functioning, too. As a result, there were 20 Indian banks

in the UK-based Brand Finance's annual international
ranking of top 500 in 2010, as compared to only six in
2007, according to a report in a leading financial daily.

The growth is not restricted to the metropolitan or urban
areas. Financial inclusion has been at the forefront of
regulators and policy makers in India, a country where
approximately half of the population still does not have
access to banking services. There have been occasions
when banks have acted beyond their role of finance
providers.

For example, a financial daily reported that Aryavart
Gramin Bank, a regional rural bank sponsored by Bank of
India, tied up with Tata BP Solar to finance "Solar Home
Lighting System" for village homes in Uttar Pradesh. It
extended finance of around Rs 10,000 with Rs 3,000 as
margin money to be contributed by the beneficiary.

The equated monthly installment towards the repayment
of the loan amount was less than the amount the
villagers had to spend on kerosene requirements per
month. The bank's initiative resulted in 20,000 houses

getting solar power. It also meant an annual saving of
about 192 tanker loads of kerosene.

Recent development in banking sector
India's economic development and financial sector
liberalization have led to a transformation of the Indian
banking sector over the past two decades
Asset quality and profitability have improved significantly
and the system has become more commercially oriented.

Indian banks were not much impacted by the financial
crisis, helped by their relative isolation and some
counter-cyclical measures implemented by the Reserve
Bank of India in the mid-2000s, but asset quality
deterioration led to some proactive loan restructuring

Over the past year Indian banks have encountered more
headwinds as high inflation led to tightening monetary
policy, putting pressure on borrowers, especially in
weaker sectors.

Funding and liquidity are relatively strong features of the
Indian banking system as the Loans/Deposits ratio is
under 80% and the banks are required to hold large
amounts of Indian government bonds. Their access to

offshore funding is constrained by India's just investment
grade sovereign rating.

Capital is also adequate in aggregate but some banks,
including large Public Sector banks, are in need of core
capital
.

COMPANY PROFILE OF PUNJAB NATIONAL BANK.

Description Details
INDUSTRY Bank- public
HOUSE Government

BSE CODE 532461
NSE CODE
PNB | ISIN: INE160A01014

INCORPORATION YEAR 1895
E-MAIL hosd@pnb.co.in
CHAIRMAN KR KAMATH

EXECUTIVE DIRECTOR RAKESH SETHI

PROFILE OF UNION BANK OF INDIA
DESCRIPTION DETAILS
HOUSE Government
BSE CODE 532477


CHAIRMAN D. SARKAR

WEBSITE www.unionbankofindia.co.in

KOTAK MAHINDRA BANK
DESCRIPTION DETAILS

HOUSE GOVERNMENT

BSE CODE 500247

NSE kotakbank


CHAIRMAN MR. Uday Kotak

CHAIRMAN OF BOARD OF Dr. Shankar
DIRECTOR Acharya

WEBSITE www.kotak.com

Yes bank
DESCRIPTION DETAILS
INDUSTRY Bank- private

BSE CODE 532648


CHAIRMAN Dr. Rana Kapoor

WEBSITE www.yesbank.in

Profit & Loss account of ------------------- in Rs. Cr. -------------------
Punjab National Bank
Mar '12 Mar '11 Mar '10 Mar '09 Mar '08
12 mths 12 mths 12 mths 12 mths 12 mths
Income
Interest Earned 36,428.03 26,986.48 21,466.91 19,326.16 14,265.02
Other Income 4,202.60 3,612.58 3,565.31 2,919.69 1,997.56
Total Income 40,630.63 30,599.06 25,032.22 22,245.85 16,262.58
Expenditure
Interest expended 23,013.59 15,179.14 12,944.02 12,295.30 8,730.86
Employee Cost 4,723.48 4,461.10 3,121.14 2,924.38 2,461.54
Selling and Admin Expenses 3,353.59 2,813.45 1,701.46 1,406.42 884.19
Depreciation 292.26 255.85 222.83 191.06 170.23
Miscellaneous Expenses 4,363.51 3,456.02 3,137.42 2,337.80 1,966.98
Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.00
Operating Expenses 9,405.85 8,367.96 5,761.36 5,026.81 3,902.55
Provisions & Contingencies 3,326.99 2,618.46 2,421.49 1,832.85 1,580.39
Total Expenses 35,746.43 26,165.56 21,126.87 19,154.96 14,213.80
Net Profit for the Year 4,884.20 4,433.50 3,905.36 3,090.88 2,048.76
Extraordionary Items 7.88 0.00 0.00 0.00 0.00
Profit brought forward 0.00 0.00 7.64 0.00 15.52
Total 4,892.08 4,433.50 3,913.00 3,090.88 2,064.28
Preference Dividend 0.00 0.00 0.00 0.00 0.00
Equity Dividend 746.19 696.99 693.67 630.61 409.89
Corporate Dividend Tax 121.05 113.07 116.43 107.17 69.66
Per share data (annualised)
Earning Per Share (Rs) 144.00 139.94 123.86 98.03 64.98
Equity Dividend (%) 220.00 220.00 220.00 200.00 130.00
Book Value (Rs) 777.39 632.48 514.77 416.74 341.98
Appropriations
Transfer to Statutory Reserves 1,390.32 1,258.39 1,532.46 1,155.46 596.14
Transfer to Other Reserves 2,634.53 2,365.05 1,570.44 1,190.00 988.59
Proposed Dividend/Transfer to Govt 867.24 810.06 810.10 737.78 479.55
Balance c/f to Balance Sheet 0.00 0.00 0.00 7.64 0.00
Total 4,892.09 4,433.50 3,913.00 3,090.88 2,064.28

Balance Sheet of Punjab ------------------- in Rs. Cr. -------------------
National Bank
Capital and Liabilities:
Total Share Capital 339.18 316.81 315.30 315.30 315.30
Equity Share Capital 339.18 316.81 315.30 315.30 315.30
Share Application Money 0.00 0.00 0.00 0.00 0.00
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 26,028.37 19,720.99 15,915.63 12,824.59 10,467.35
Revaluation Reserves 1,449.53 1,470.76 1,491.99 1,513.74 1,535.70
Net Worth 27,817.08 21,508.56 17,722.92 14,653.63 12,318.35
Deposits 379,588.48 312,898.73 249,329.80 209,760.50 166,457.23
Borrowings 37,264.27 31,589.69 19,262.37 4,374.36 5,446.56
Total Debt 416,852.75 344,488.42 268,592.17 214,134.86 171,903.79
Other Liabilities & Provisions 13,524.18 12,328.27 10,317.69 18,130.13 14,798.23
Total Liabilities 458,194.01 378,325.25 296,632.78 246,918.62 199,020.37
Assets
Cash & Balances with RBI 18,492.90 23,776.90 18,327.58 17,058.25 15,258.15
Balance with Banks, Money at Call 10,335.14 5,914.32 5,145.99 4,354.89 3,572.57
Advances 293,774.76 242,106.67 186,601.21 154,702.99 119,501.57
Investments 122,629.47 95,162.35 77,724.47 63,385.18 53,991.71
Gross Block 5,265.08 4,981.60 4,215.21 3,930.36 3,699.64
Accumulated Depreciation 2,096.22 1,876.01 1,701.74 1,533.25 1,384.12
Net Block 3,168.86 3,105.59 2,513.47 2,397.11 2,315.52
Capital Work In Progress 0.00 0.00 0.00 0.00 0.00
Other Assets 9,792.88 8,259.42 6,320.07 5,020.20 4,380.84
Total Assets 458,194.01 378,325.25 296,632.79 246,918.62 199,020.36

Contingent Liabilities 173,768.84 101,465.73 68,124.47 79,270.65 80,606.88
Bills for collection 50,981.22 37,449.53 33,215.78 31,941.43 23,448.99
Book Value (Rs) 777.39 632.48 514.77 416.74 341.98

Balance Sheet of Union Bank ------------------- in Rs. Cr. -------------------
of India
Reserves 10,555.35 8,302.69 6,549.26 5,118.19 4,228.16
Revaluation Reserves 1,573.84 1,615.97 1,685.98 1,724.40 456.59
Net Worth 12,764.52 10,423.78 8,740.36 7,347.71 5,189.87
Deposits 202,461.29 170,039.74 138,702.83 103,858.65 85,180.22
Borrowings 13,315.97 9,215.31 3,884.90 4,760.49 4,215.53
Total Debt 215,777.26 179,255.05 142,587.73 108,619.14 89,395.75
Assets
Cash & Balances with RBI 17,610.45 12,468.24 8,992.05 9,454.74 5,917.57
Balance with Banks, Money at Call 2,487.99 3,308.45 6,992.88 643.10 2,508.87
Advances 150,986.08 119,315.30 96,534.23 74,348.29 62,386.43
Investments 58,399.14 54,403.53 42,996.96 33,822.63 27,981.77
Gross Block 3,598.41 3,396.98 3,220.65 2,937.45 1,487.21
Accumulated Depreciation 1,319.21 1,101.50 893.35 741.62 664.49
Net Block 2,279.20 2,295.48 2,327.30 2,195.83 822.72
Other Assets 4,208.00 3,360.89 3,124.23 3,604.10 3,058.24
Total Assets 235,984.44 195,161.85 160,975.51 124,073.26 102,677.88

Book Value (Rs) 211.31 174.37 139.66 111.33 93.71

Profit & Loss account of Union ------------------- in Rs. Cr. -------------------
Bank of India
Income
Interest Earned 16,452.62 13,302.68 11,889.38 9,447.30 7,382.18
Other Income 2,038.78 1,974.74 1,482.55 1,232.67 841.80
Total Income 18,491.40 15,277.42 13,371.93 10,679.97 8,223.98
Expenditure
Employee Cost 2,600.25 1,354.99 1,152.36 845.68 873.80
Selling and Admin Expenses 1,814.19 1,225.57 1,082.54 946.34 620.16
Depreciation 155.66 160.14 136.58 101.82 86.37
Miscellaneous Expenses 1,602.94 1,351.53 1,198.08 1,038.15 1,206.30
Operating Expenses 5,137.69 3,206.76 2,760.59 2,178.20 1,805.92
Provisions & Contingencies 1,035.35 885.47 808.97 753.79 980.71
Total Expenses 16,409.46 13,202.50 11,645.37 9,292.94 7,378.59
Net Profit for the Year 2,081.95 2,074.92 1,726.55 1,387.03 845.39
Profit brought forward 1.63 0.83 0.65 0.48 0.55
Total 2,083.58 2,075.75 1,727.20 1,387.51 845.94
Equity Dividend 419.47 277.81 252.56 202.05 176.79
Equity Dividend (%) 80.00 55.00 50.00 40.00 35.00
Book Value (Rs) 211.31 174.37 139.66 111.33 93.71
Appropriations
Transfer to Statutory Reserves 973.36 1,177.09 1,171.89 860.86 428.87
Transfer to Other Reserves 621.99 572.01 259.00 289.61 211.99
Balance c/f to Balance Sheet 0.16 1.63 0.83 0.65 0.48
Total 2,083.58 2,075.75 1,727.20 1,387.51 845.93

Profit & Loss account of Kotak ------------------- in Rs. Cr. -------------------
Mahindra Bank
Income
Interest Earned 6,180.24 4,303.56 3,255.62 3,065.14 2,535.36
Other Income 848.42 507.56 420.97 157.56 310.48
Total Income 7,028.66 4,811.12 3,676.59 3,222.70 2,845.84
Expenditure
Employee Cost 902.36 783.83 583.48 583.63 519.23
Selling and Admin Expenses 542.71 487.82 648.07 552.91 326.66
Depreciation 116.76 98.27 90.00 69.56 50.86
Miscellaneous Expenses 714.03 564.53 396.47 193.91 345.60
Operating Expenses 1,754.66 1,528.58 1,447.42 1,333.60 999.25
Provisions & Contingencies 521.20 405.87 270.60 66.41 243.10
Total Expenses 5,943.61 3,992.94 3,115.50 2,946.61 2,551.91
Net Profit for the Year 1,085.05 818.18 561.11 276.10 293.93
Profit brought forward 1,494.52 965.91 648.94 528.17 354.18
Total 2,579.57 1,784.09 1,212.06 804.27 648.11
Equity Dividend 44.49 36.88 29.66 25.96 25.87
Equity Dividend (%) 12.00 10.00 8.50 7.50 7.50
Book Value (Rs) 107.75 92.74 130.40 112.98 104.26
Appropriations
Transfer to Statutory Reserves 310.81 207.41 188.43 113.70 74.98
Transfer to Other Reserves 54.26 40.91 28.06 13.80 14.70
Balance c/f to Balance Sheet 2,162.79 1,494.52 965.91 648.94 528.17
Total 2,579.57 1,784.09 1,212.06 804.26 648.12

Balance Sheet of Kotak ------------------- in Rs. Cr. -------------------
Mahindra Bank
Reserves 7,610.41 6,464.95 4,191.78 3,559.86 3,249.04
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
Net Worth 7,980.75 6,833.39 4,539.92 3,905.53 3,593.71
Deposits 38,536.52 29,260.97 23,886.47 15,644.93 16,423.65
Borrowings 16,595.52 11,723.95 6,140.51 5,904.07 5,119.25
Total Debt 55,132.04 40,984.92 30,026.98 21,549.00 21,542.90
Assets
Cash & Balances with RBI 2,016.49 2,107.72 2,085.67 995.35 1,710.29
Balance with Banks, Money at Call 618.06 363.26 214.59 145.32 439.18
Advances 39,079.23 29,329.31 20,775.05 16,625.34 15,552.22
Investments 21,566.81 17,121.44 12,512.66 9,110.18 9,141.99
Gross Block 955.41 831.80 745.34 460.61 391.42
Accumulated Depreciation 505.45 406.20 317.69 247.25 181.17
Net Block 449.96 425.60 427.65 213.36 210.25
Other Assets 1,935.91 1,503.33 1,420.69 1,622.33 1,258.43
Total Assets 65,666.46 50,850.66 37,436.31 28,711.88 28,312.36

Bills for collection 6,166.00 4,470.06 3,063.64 1,188.17 826.55
Book Value (Rs) 107.75 92.74 130.40 112.98 104.26

Balance Sheet of Yes Bank ------------------- in Rs. Cr. -------------------

Reserves 4,323.65 3,446.93 2,749.88 1,327.24 1,023.13
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
Net Worth 4,676.64 3,794.08 3,089.55 1,624.22 1,318.92
Deposits 49,151.71 45,938.93 26,798.57 16,169.42 13,273.16
Borrowings 14,156.49 6,690.91 4,749.08 2,189.06 986.21
Total Debt 63,308.20 52,629.84 31,547.65 18,358.48 14,259.37
Assets
Cash & Balances with RBI 2,332.54 3,076.02 1,995.31 1,277.72 959.24
Balance with Banks, Money at Call 1,253.00 419.96 677.94 644.99 668.33
Advances 37,988.64 34,363.64 22,193.12 12,403.09 9,430.27
Investments 27,757.35 18,828.84 10,209.94 7,117.02 5,093.71
Gross Block 331.05 255.30 206.40 194.88 133.01
Accumulated Depreciation 161.98 125.78 92.32 64.15 35.73
Net Block 169.07 129.52 114.08 130.73 97.28
Other Assets 4,153.48 2,186.11 1,190.73 1,326.86 729.70
Total Assets 73,662.12 59,007.00 36,382.50 22,900.80 16,982.42

Book Value (Rs) 132.49 109.29 90.96 54.69 44.59

Profit & Loss account of Yes ------------------- in Rs. Cr. -------------------
Bank
Income
Interest Earned 6,307.36 4,041.75 2,369.71 2,003.32 1,310.83
Other Income 857.12 623.27 575.53 435.02 360.67
Total Income 7,164.48 4,665.02 2,945.24 2,438.34 1,671.50
Expenditure
Interest expended 4,691.72 2,794.82 1,581.76 1,492.14 974.11
Employee Cost 475.15 362.34 256.89 218.02 202.41
Selling and Admin Expenses 203.03 185.25 182.76 125.49 60.27
Depreciation 40.82 34.84 30.26 30.10 19.23
Miscellaneous Expenses 776.76 560.64 415.84 268.75 215.45
Operating Expenses 944.10 719.08 587.76 475.61 356.92
Provisions & Contingencies 551.66 423.99 297.99 166.75 140.44
Total Expenses 6,187.48 3,937.89 2,467.51 2,134.50 1,471.47
Net Profit for the Year 977.00 727.14 477.74 303.84 200.02
Extraordionary Items 0.04 -0.04 0.00 0.00 0.00
Profit brought forward 1,115.06 672.95 405.78 245.08 105.30
Total 2,092.10 1,400.05 883.52 548.92 305.32
Equity Dividend 141.20 86.79 50.95 0.00 0.00
Equity Dividend (%) 40.00 25.00 15.00 0.00 0.00
Book Value (Rs) 132.49 109.29 90.96 54.69 44.59
Appropriations
Transfer to Statutory Reserves 269.61 183.79 150.95 143.15 60.24
Transfer to Other Reserves -0.01 0.00 0.00 0.00 0.00
Balance c/f to Balance Sheet 1,658.39 1,115.06 672.95 405.78 245.08
Total 2,092.10 1,400.05 883.51 548.93 305.32

Recommendations for Indian
banking sector
1. The organizational structure of the banks
should be effective and efficient

2. The customer service should be efficient

3. Islamic banking should be adopted in India.

4. Banks in India should avoid excessive reliance
on technology.

5. Data of banks should be protected properly
otherwise hackers can gain access to the
sensitive data.

Conclusion
It could be concluded that there has been no
banking crisis at the same time, efficiency of
banking system as a whole, measured by declining
spread has improved. This is not say that they
have no challenges. There are emerging
challenges, which appear in the forms of
consolidation; recapitalization, prudential
regulation weak banks, and non-performing assets,
legal framework etc needs urgent attention. The
paper concludes that, from a regulatory
perspective, the recent developments in the
financial sector have led to an appreciation of the
limitations of the present segmental approach to
financial regulation and favors adopting a
consolidated supervisory approach to financial
regulation and supervision, irrespective of its
structural design.

Webliography
1. www. Moneycontrol.com
2. www.management paradise.com
3. www.zignals.com
4. www.money.rediff.com
5. www.kotak.com
6. www.yesbank.com
7. www.caclubindia.com
8. www.indianfoline.com
9. www.pnbindia.com

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