banking industry_cygnus 1 june 09

Industry Monitor Banking & Financial Services Vol.906

June 2009

CONTENTS INDUSTRY AT A GLANCE ........................................................ ........................................................................................ ............................................2 ............2 KEY DEVELOPMENTS ......................................................... ....................................................................................... .................................................3 ...................3 Marketing ........................................................... ........................................................................................... ............................................................. .....................................3 ........3 Finance ......................................................... ....................................................................................... .............................................................. ............................................3 ............3 Corporate ............................. ........................................................... .............................................................. ............................................................. .....................................4 ........4 Government Initiatives ............................. .......................................................... ........................................................... .................................................6 ...................6 INDUSTRY STATISTICS ........................................................ ...................................................................................... .................................................7 ...................7 SERVICE FOCUS............................. ............................................................ ............................................................. ..........................................................8 ............................8 Credit Card ........................................................ ........................................................................................ ............................................................. .....................................8 ........8 Overview .............................. .............................................................. ............................................................. ........................................................... .................................8 ...8 Global scenario ................................ .............................................................. ........................................................... .....................................................8 ........................8 Indian scenario .......................................................... ........................................................................................ ..........................................................8 ............................8 Outlook ......................................................... ......................................................................................... ............................................................. ...................................10 ......10 COMPANY SCAN.............................. ........................................................... ........................................................... ........................................................11 ..........................11 Bank of India Ltd .......................................................... ........................................................................................ ........................................................11 ..........................11 Products List .............................. ............................................................. ............................................................. ........................................................11 ..........................11 Performance Analysis ......................................................... ....................................................................................... ...............................................12 .................12 Common Size Comparison ............................................................ ......................................................................................... ...................................13 ......13 Cost Structure Analysis ............................. ........................................................... .............................................................. ..........................................13 ..........13 Stock Performance ......................................................... ...................................................................................... ...................................................14 ......................14 Outlook ......................................................... ......................................................................................... ............................................................. ...................................14 ......14 STOCK SCAN ............................. ............................................................. ............................................................. ........................................................... ...............................15 .15 UPCOMING EVENTS ........................................................ ..................................................................................... ...................................................17 ......................17

© Cygnus Business Consulting & Research Pvt. Ltd. 2009

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Industry Monitor – Banking & Financial Services

June 2009

INDUSTRY AT A GLANCE MARKETING ¾ US Bank expands presence in Orange County ¾ Union Bank offers home loan at 8%, India ¾ BoB on overseas expansion spree, to open 10 offices this year, India FINANCE ¾ Allied Bank suffers suffers 50% drop in income California California ¾ French bank Natixis posts massive first-quarter loss ¾ IndusInd Bank to raise Rs2.50bn, hire 700 this fiscal, India India ¾ Tata Motors taps LIC to raise Rs2.50bn, India CORPORATE satisfaction for fourth year in a row, Canada Canada ¾ TD Bank ranks highest in customer satisfaction ¾ Bank of America raises US$13bn in share sale, US ¾ UK panel blames bonus-driven pay practices for banking c risis ¾ German ‘bad bank’ scheme criticism rejected g eneration of multi-use payment cards & personal card, UAE ¾ Gulf banks prepare for next generation ¾ UAE urged to issue licences to Indian banks ¾ Japanese banks in expansion mode ¾ Agricultural bank raises raises US$7.3bn in bond sale, China ¾ Tata group re-enters housing finance, India India ¾ RBI imposes Rs0.1m penalty on CKP Co-op Bank, India ¾ SBI to push for mergers of associate banks, India ¾ Deutsche Postbank (India) cuts RBLR ¾ Fitch downgrades credit outlook of Axis Bank, India ¾ 2 PSU banks may dilute govt stake, India ¾ BoI implements core banking system in all branches, India ¾ ICICI Bank tweaks deposit rates; IDBI Bank slashes, India ¾ Dena bank targeting business of Rs1260bn in 3 years, India ¾ Axis Bank cuts benchmark lending lending rate by 0.5%, India GOVERNMENT INITIATIVES ¾ Obama bets on ‘toxic’ asset plan, US ¾ Opening up banking sector for foreign players deferred, India


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June 2009

KEY DEVELOPMENTS Marketing America US Bank expands presence in Orange County US Bank recently completed converting more than 170 former Downey Savings & Loan centres throughout California and Arizona, thereby increasing its presence in Orange County. The firm now offers twice as many branches in the Los Angeles and Orange County areas. US Bank acquired the banking operations of the Newport Beach-based firm in November of last year and now has nearly 560 branches and 890 ATMs in California. It's a 37% increase in offices in less than a year. Asia-pacific India: Union Bank offers home loan at 8% Union Bank of India recently launched its Special Housing Loan Scheme with a combination of fixed and floating rate of interest. During the tenure of the loan, 8% fixed rate of interest will be applicable for the first year. The floating rate will become applicable from the second year till the loan is fully repaid. Under the scheme, applicable only to new accounts, the bank will offer home loans for a maximum tenure of 20 years and the loan ceiling will be Rs5m. The scheme is open up to September 30, 2009. India: BoB on overseas expansion spree, to open 10 offices this year Undeterred by the global economic slowdown, Bank of Baroda (BoB), the bank with the largest overseas presence, recently announced that it is planning to open about 10 foreign branches in the current fiscal. Overseas expansion plan includes opening of a subsidiary in Malaysia, a branch at New Zealand, he added, a regulatory approvals are being sought.

Finance America California: Allied Bank suffers 50% drop in income Allied Banking Corp suffered a 50% drop in its earnings in the first quarter after recording higher expenses and losses from foreign exchange and securities trading. A consolidated income statement filed at the Philippine Stock Exchange showed the bank earned only P150.9m in the first three months of the year, half of the P302.64m notched in the same period last year. Europe France: French bank Natixis posts massive first-quarter loss Natixis known as the youngest bank in France has posted €1.8 billion first-quarter loss, triggered by its toxic assets. Natixis' performance in the first quarter is really frustrating, compared with a profit of €69m a year earlier. Its two main shareholders, Banque Populaire and Caisse d'Epargne, will give a capital injection totalling €3.5 billion in order to maintain a solid capital structure. The so-called toxic assets are blamed for the heavy loss. Natixis' assets of the toxic portfolio amounted to €33.7 billion in the first quarter, which makes the bank suffer a loss of €1.9 billion. Asia-pacific India: IndusInd Bank to raise Rs2.50bn, hire 700 this fiscal IndusInd Bank may raise Rs2.50 billion of tier 2 capital after July this year to fund its growth. The bank managing director & CEO Romesh Sobti announced that the bank would need this capital if its lending grows 25-30%. To support its growth, IndusInd Bank has also decided to hire 700 managers in the lower and middle management level. It may be recalled that it hired 2200 people last fiscal. It has a headcount of 2700 now.


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June 2009

India: Tata Motors taps LIC to raise Rs12.50bn Tata Motors recently raised Rs12.50 billion by selling non-convertible debentures (NCDs) to Life Insurance Corporation of India (LIC). The NCDs bear a coupon of 10%, and have a maturity of seven years. The debt is part of a larger money raising programme to refinance the bridge loan taken at the time of the Jaguar Land Rover acquisition.

Corporate America Canada: TD Bank, ranks highest in customer satisfaction for fourth year in a row TD Bank, America's Most Convenient Bank, Bank, is ranked highest in customer satisfaction satisfaction in the Mid- tlantic region according to the J.D. Power and Associates 2009 Retail Banking Customer Satisfaction Study(SM). This is the fourth year in a row TD Bank has ranked highest in customer satisfaction. US: Bank of America raises US$13bn in share sale Bank of America has raised roughly US$13 billion after selling 1.25 billion shares of common stock, according to people familiar with the situation. The sale is part of the bank's previously announced plan to sell common shares as it tries to come up with US$33.9 billion in equity to meet the US Government's stress test requirements. It sold a block of 825m shares at US$10, these people declared, which was below its closing price of US$11.25. It sold the other 425m shares previously, these people added. Europe UK panel blames bonus-driven pay practices for banking crisis At a time when the British economy continues to reel under recession, an expert panel has blamed "reckless" risk-taking stoked by bonus-driven executive compensation practices as the prime reason for the nation's banking crisis. The UK Treasury Committee report declared that the banking crisis has exposed serious flaws in remuneration pattern in the sector. German ‘bad bank’ scheme criticism rejected Germany’s financial regulator has rejected criticism of the country’s planned “bad bank” scheme and urged banks to take advantage of the chance to get rid of toxic assets before a possible wave of further hits to their capital. Jochen Sanio, president of BaFin, announced that there was a “concrete risk “that sudden downgrades to some bank assets would dramatically raise the amount of capital needed by banks. Africa & Middle Middle East UAE: Gulf banks prepare for next generation of multi-use payment cards & personal card International MasterCard Worldwide, as main sponsor for Cards Middle East this week in Dubai, was out in the market in force to continue the drive to implement chip (EMV) payment cards globally and to introduce a new more secure product for Internet banking and Internet (card not present) transactions. Some 35 to 40 bankers from around the region attended the MasterCard workshop on how to implement infrastructure to support chip card deployment. UAE urged to issue licences to Indian banks A top official from India's state bank has urged the UAE Central Bank to begin issuing licences to t o his country's banks. It is more than three decades since the Central Bank issued a full banking licence to any Indian bank, announced AJ Vidyasagar, CEO of State Bank of India (SBI) in the UAE. Currently, Bank of Baroda remains the only Indian full-licensed bank in the country. Asia-pacific Japan: Japanese Japanese banks in expansion expansion mode Japanese banks, which have recently observed some of the constraints on simultaneously providing banking and broking services revoked in their domestic market, have been swift to capitalise the opportunities offered by the global financial crisis to boost their investment banking skills. Mitsubishi


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June 2009

UFJ Financial Group, a major holder of Bank of Tokyo Mitsubishi UFJ, spent US$9 billion to acquire 20% stake in Morgan Stanley; on the other hand, Nomura got the Asian, Middle Eastern and European operations of Lehman Brothers. China: Agricultural bank raises US$7.3bn in bond sale Agricultural Bank of China raised RMB50 billion (US$7.3bn) in the nation’s biggest corporate bond sale to boost capital and help pave the way for an initial public offering. The largest lender to China’s 800m farmers increased the sale of subordinated bonds from a targeted RMB40 billion, Beijing-based Agricultural Bank declared declared in a statement posted on the official Chinabond Web site recently. India: Tata group re-enters housing finance The Tata group that exited the housing finance business about about six years ago is now making a second foray with the launch of Tata Capital Housing Finance Ltd. The HFC, a wholly-owned subsidiary of Tata Capital Ltd, has an authorised capital of Rs 1 billion and a paid-up capital of Rs100m, announced Praveen Kadle, Managing Director and CEO, Tata Capital. The company, which got approval from the National Housing Bank a month ago, will start with 30 branches in the first year and focus mainly on Tier-II and Tier-III cities. The disbursal disbursal target for the first year would be between Rs2.00 to 4.00 billion. billion. India: RBI imposes Rs0.1m penalty on CKP Co-op Bank The Reserve Bank of India has imposed a monetary penalty of Rs0.1m on The CKP Co-operative Bank, Mumbai, for violation of the apex bank's instructions/guidelines on Know Your Customers norms, a press release issued recently. The Reserve Bank had issued a show-cause to the bank, to which the bank submitted a written reply. India: SBI to push for mergers of associate banks After merging State Bank of Saurashtra, India's largest lender State Bank of India might soon start the process of integrating its remaining associates, beginning with two large ones State Bank of Patiala and State Bank of Hyderabad. According to the roadmap set by State Bank, all its associates will merge with the parent entity “as quickly as possible” to make SBI one of the top 25-30 banks in the world. India: Deutsche Postbank (India) cuts RBLR Deutsche Postbank Home Finance Ltd (DPHFL) has announced a 50 basis point reduction in its retail basic lending rate (RBLR). All existing floating rate customers will benefit from this move, according to a company release. This is the second rate cut in last four months by the German Deutsche Postbankowned housing finance company in India. India: Fitch downgrades credit outlook of Axis Bank Rating agency Fitch recently given Axis Bank's credit rating may be revised downward in future as its loans to corporates have expanded rapidly over the last two years amid economic slowdown. Fitch Ratings has recently affirmed Axis Bank Ltd's (ABL) National Long-term rating at 'AAA (ind)', and revised its Outlook to Negative from Stable. AAA is the highest credit rating. The negative outlook reflects the bank's greater vulnerability to the current challenging operating environment given the rapid growth of its corporate loan book over the last two years. India: 2 PSU banks may dilute govt stake As markets cheered a more stable and stronger UPA government, United Bank of India (UBI) and Punjab & Sindh Bank (P&S Bank) the last two unlisted public sector banks - are keeping a close tabs on benchmark equity indices as they plan to raise capital through government stake dilution. With equity indices showing signs of an upsurge, these banks are expecting to garner sizeable premium when they offload equity.


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June 2009

India: BoI implements core banking system in all branches Bank of India (BoI) recently announced that it has completed implementation of core banking solution (CBS) in all its 3023 branches. BoI opted for an outsourced model for the CBS implementation, the bank announced in a statement here. The project has been outsourced to Hewlett Packard India Sales for a 10year period. India: ICICI Bank tweaks deposit rates; IDBI Bank slashes While private sector lender ICICI Bank has both increased and decreased its deposit rates by 0.25% points on select maturities, government-owned IDBI Bank slashed its deposit rates by 50-100 bps points. ICICI Bank has cut its deposits rate by 25bps on fixed deposits (FDs) for 90 days to 4.5% per annum and for 91 days to 180 days to 5.5%. It also increased the rate by 25bps on FDs for 270 days to one year to 7%. The bank has also scrapped the shortest maturity period between 7 days and 14 days. Now the shortest period for FDs will be 15 days, where the interest rate will remain unchanged at 3.25% per annum. India: Dena bank targeting business of Rs1260bn in 3 years Public sector Dena Bank aims to touch Rs1260 billion of business in three years time and open 400 new branches by this period, a senior official announced. The bank's current year business target was Rs850 billion against last year's Rs720 billion, D L Rawal, the banks's Chairman and Managing Director, declared to press. Dena bank would be adding 100 new branches this year, including 10 branches in Chennai region and 3 in Kerala at Cheratlla, Muvattupuzha and Angamally. It has opened 4 Retail Asset branch and would be opening 8 more, including one at Chennai. There were also plans to open 3 corporate business branches one each in New Delhi, Kolkata and Chennai. India: Axis Bank cuts benchmark lending rate by 0.5% India's third largest private sector lender Axis Bank has reduced its benchmark prime leading rate (BPLR) by 0.5% recently. The bank's BPLR now stands reduced at 14.75%, a press release issued. The rate cut came a day after Reserve Bank Governor, D Subbarao said banks have scope to further lower their lending rates.

Government Initiatives America US: Obama bets on ‘toxic’ asset plan The long-awaited Obama administration’s plan to rid banks of their ‘toxic’ assets was announced recently. The gist is that a public-private partnership will be established to acquire loans and securities from banks through a ‘Legacy Loans Program’ and ‘Legacy Securities Program’. In the first, pools of loans will be auctioned to private investors who will be provided with financing from the Federal Deposit Insurance Corporation (FDIC) to acquire the loans. Both Government and the private sector will contribute to the initial capital. If and when the loans are recovered or sold off, the Government gets a share of the profits. Asia-Pacific India: Opening up banking banking sector for foreign players deferred The Reserve Bank of India has deferred the t he opening up of the banking sector for foreign players and decided to continue with the current policy and procedures governing the presence of foreign banks in India. In its Annual Policy Statement 2009-10, the RBI declared that, In view of the current global financial market turmoil, there are uncertainties surrounding the financial strength of banks around the world. Further, the regulatory and supervisory policies at national and international levels are under review.


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June 2009

INDUSTRY STATISTICS Overview of Scheduled Commercial Banks' Investments – India

(Rs Bn) Outstanding as on

SLR Securities

March 21, 2003 March 19, 2004 March 18, 2005 March 31 2006 March 30, 2007 March 28, 2008 March 27, 2009

Commercial Paper

5475.46 6775.88 7391.54 7174.54 7915.16 9717.15 11657.46

Shares

40.41 38.35 39.44 48.37 90.38 132.70 192.60

Bonds/ Debentures

92.30 90.06 122.19 131.70 184.28 267.08 282.93

Mutual Funds

812.84 829.18 859.13 777.21 746.60 858.65 882.11

375.21 449.18 443.01 396.13 383.29 44 447.66 761.89

Source: RBI RBI & Cygnus Research

15500

I n v e s t m e n t s Sc Sc en e n e r i o o f S ch ch e d u l ed e d C o m m e r c ia ia l B an an k s - I n d i a

11500 n B 7500 s R

March 28 2008 March 27 2009

3500

-500 s e i t R i L r S u c e S

l a i c r r e e m p a P m o C


s e r a h S

s e / r s u d t n n e o b B e D

l s a u d t n u u F M

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June 2009

SERVICE FOCUS Credit Card Overview A credit card is a system of payment named after the small plastic card issued to users of the system. In the case of credit cards, the issuer lends money to the consumer to be paid to the merchant. In contrast, a credit card allows the consumer to 'revolve' their balance, at the cost of having interest charged. Most credit cards are of the same shape and size, as specified by the ISO 7810 standard. The most common credit card size, known as ID-1, is 85.60 × 53.98mm. Most of the banks in India issue credit cards through partnerships with various foreign credit card issuers and banks to provide their customers wider acceptability. Major Credit Card Brands 9 UnionPay Global scenario The global financial crisis has shown a huge affect on the credit card 9 Visa 9 Master market, in China after five consecutive years of growth in the credit card market has now finally started its adjustment from second quarter of 9 American Express 9 Capital One 2008. China’s banks have stopped to issue credit cards due to the 9 Citi degradation of international credit market and that banks needed to 9 JCB control risks. As a result, the increase of issue of credit cards was down 9 First PREMIER more than 50% from a year ago. But the absolute number of credit cards still went beyond 150m in China in 2008 in spite of the slowdown of issue. In China credit card market UnionPay is occupying 64.6%, Visa 18.0%, MasterCard 15.2%, American Express 0.7% and JCB 1.6% by the end of year 2008. Globally Chase Platinum credit card is occupying first place in terms of market share by 24% and the credit outstanding stood at US$183.32 billion by the end of 2008. The second position is taken by Bank of America by maintaining its credit outstanding at US$166.32 billion, 3rd , 4 th and 5th positions has been taken by Citi (US$106.74bn), American Express (US$88.02bn) and Capital one (US$60.08bn) with there outstanding amounts respectively.

Gl o b a l Cr Cr e d i t c a r d M a r k e t s h a r e : 2 0 0 8

Indian scenario

Citi 14%

C apital apital one 8%

A.E 12%

Discover 7% Wells Fargo 5%

BOA 22%

HSBC 4%

Chase 24% USAA 2%

US Bank 2%

In past few years, credit card market has Source: Credit card. com; Cygnus Research Research shown remarkable developments. Banks had issued more than 27m credit cards at the end of FY08, but the number has dropped in current fiscal as the current liquidity crunch has made banks more cautious on their move regarding credit card issuance. Now the banks are reviewing their credit card limits in wake of the economic slowdown and credit crunch to reduce the possible risk of defaults to its existing and potential new customers. Some of the banks also stopped issuing credit cars.


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Low Interest Credit Cards Balance Transfer Cards Instant Approval Reward Credit Cards Cash Back Credit Cards Airline Credit Cards

June 2009

Type of Credit Cards Cards (Global) These give people a chance to pay more money towards principal each month, instead of writing checks that simply cover the interest on an account. A balance transfer credit card is one onto which you can transfer some of your debts and pay the sum off at a 0% interest rate for a set period of usually between six and 14 months. Instant approval credit cards work well for people that want to use their new line of credit without the usual 2-6 week waiting period It is a card that offers you a rebate, cash back or reward points that can be used to purchase goods and services in exchange for using their credit card This card rewards for using them with cash back incentives and rebate programs. Credit cards with cash rebates and incentives usually require a good to excellent credit rating for approval. An airline-sponsored credit card, good for airline tickets only. Also known as the Universal Air Travel Plan Card.

Source: credit card.com; Cygnus Research

The credit card business is facing a slowdown as rising defaults have prompted banks to tighten due-diligence procedures. The growth in new credit card accounts has been lower at 18% in 2007-08, compared to 33% in 2006-07. The total card base in the country currently stands at 26m in 2007-08. This is because earlier banks would extend loans to customers with a minimum annual income of Rs80,000, they have now increased this to a minimum of Rs0.12m. Banks are also asking for the PAN card and strictly following other ‘Know Your Customer’ procedures before giving credit cards. The interest rates on various segments in the retail asset portfolio have seen a steady rise and therefore, the outflow in terms of an EMI (equated monthly installments) has also gone up. The default rates on credit cards have moved up by almost 150-200 basis points this year to 11-12% in 200708, against 9-10% in 2006-07.

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Nu m b e r o f C r e d i t C a r d i n I n d i a Credit cards Growth rate

30

50 40 30

25

%

m

20

20 10 15

0

10

-10 2004-05 2004-05 2005-06 2005-06 2006-07 2006-07 2007-08 2007-08 2008-0 2008-09* 9*

C r e d i t Ca Ca r d O u t s t a n d i n g s i n I n d i a 25000 Non-Food Non-Food C redit C redit card our standing 15000

5000 n b s R

The latest data released by RBI suggest that the number of credit cards in India -5000 have declined by 2.2m. In April 2008, there 2005-06 2006-07 2007-08 were 28.3m credit cards and in December Source: RBI; Cygnus Research;* Research;* data up to Dec’08 Dec’08 2008 the number has fallen to 26.1m. In the year 2007-08 India’s non-food credit stood at Rs22030.38 billion of which credit card outstanding amount was Rs192.59 billion. The share of credit card outstanding amount in the total non-food credit in the year 2007-08 stood at 0.87%.


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June 2009

New Initiatives Newly some of the insurance companies are also showing interest in the issuing of credit card; recently one of the India biggest insurance companies ie LIC had made a JV with Karnataka-based bank for the launch of its white-labelled credit card. It is first targeting its existing policy holders, the LIC credit cards will be just like other credit cards and with some of the special value added services like payment of premiums for policy-holders. The types of credit cards cards offered by Indian Indian Banks are: Silver Cards - Silver credit cards come with advantages such as lower annual membership fees if there is any, and a lower threshold salary which banks use to evaluate e valuate your application in case you should apply. Gold and Platinum Cards - Gold and platinum credit cards are a status symbol for any credit card holder, bringing prestige since getting gold and platinum cards usually require that you have good credit rating and a higher income levels. Gold and platinum cards offer higher limit for cash advance withdrawals and sometimes sometimes can provide higher credit credit limits as compared to standard or or silver cards.

cards, which are associated with a particular particular firm like an Co-branded Credit Cards - They are credit cards, airlines or retail outlet. These cards can be used just like regular credit cards but they also offer benefits to users of the relevant product like frequent travel points and special discounts. Bank ICICI

HDFC HSBC City bank Axis ABN Amro

¾ ¾ ¾ ¾ ¾

Types of Card Platinum, Titanium, Kingfisher Airlines, Big bazaar Gold, HPCL Gold, Preferred, Picture, EMI, Classic, Affinity and Value for Money Cards Silver, Value Plus, Health Plus, Gold, Titanium, Woman's, Platinum Plus, Platinum Plus, World MasterCard and Corporate Platinum, Gold and Classic. Airline/Travel, Airline/Travel, Fuel/Auto, Shopping, Telecom, Entertainment, Special Interest and Dinners club Platinum, Gold Plus, Plus, Gold, Silver Plus, Plus, Silver and Secured Secured Freedom, Smart gold, Wellness, Wellness, Barista and Adlabs Adlabs

Advantages Disadvantages ¾ You may need to pay annual fee - undesirable Need not carry cash undesirable cost. So, it’s better to go for the credit card that Need not run to ATM in case you need money does not charge such a fee. urgently There is tendency to spend more especially if ¾ Sometimes you get cash back you are an impulsive buyer. You can buy tickets/shop online online easily ¾ You need to carry it safely. You can build your your credit rating

Outlook Indian consumers spend an average of Rs4,000 a month on their credit cards. It is only 1% of their total purchases. Although this figure is quite below the world average of 9%, yet banks and credit cards issuers fear high default rate in near future because of the global slowdown and high inflation in the country. In the year 2008-09 the credit losses were Rs3420 per active card per year compared to Rs3070 in the US and Rs1220 in Australia, although the purchasing power of Indian consumers was lower compared to the customers in these markets. Also, Indian customers use th eir cards less frequently and for lower amounts. The credit card is most popular mode of online payment making, in India 91% of net user ‘window shop’ online, 74% travel buyers have bought train tickets online and 34% air tickets. In the year 2008-09 credit card business is expected come down in its growth percentage from the last year growth.


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June 2009

COMPANY SCAN Bank of India Ltd Bank of India (BOI) was founded on September 7, 1906 by a group of eminent businessmen from Mumbai. The bank was under private ownership and control till July 1969 when it was nationalised along with 13 other banks. The bank first started up with one office in Mumbai with a paid-up capital of Rs5m and 50 employees, subsequently the bank made a rapid growth over the years and blossomed into a mighty institution with a strong national presence and sizable international operations. The bank has 3021 branches in India spread over all states/ union territories including 136 specialised branches. These branches are controlled through 48 Zonal Offices. The bank also has sizable presence abroad, with a network of 28 branches (including five representative offices) at key banking and financial centres viz. London, New York, Paris, Tokyo, Hong-Kong and Singapore. The international business accounts for around 17.82% of the bank's b ank's total business. In the year 2008, the bank had implemented Agriculture Debt Waiver and Debt Relief Scheme as per RBI guidelines. The Rs6.46 billion was waived under the scheme in 3,41,136 accounts for which preliminary claim was preferred with RBI. An amount of Rs.2.65 billion (41% of the 37 claim amount) has been reimbursed by the RBI in 2008. The claims c laims under waiver has since been verified and certified by Statutory Central Auditors. Mission: - To provide superior, proactive banking services to niche markets globally, while providing cost-effective, responsive services to others in its role as a development bank, and in so doing, meet the requirements of the stakeholders. Vision: - To become the bank of choice for corporates, medium businesses and upmarket retail customers and to provide cost effective developmental banking for small business, mass market and rural markets.

Products List Deposits 9 Saving 9 Current 9 Term 9 Tax Saving 9 NRI

Loans 9 Personal Loan 9 Agriculture Sector Sector 9 SME 9 Commercial Loans 9 Trade Finance 9 NRI Loans

NRI 9 Housing Loans to NRIs/PIOs 9 NRI Deposit Schemes 9 NRI -Yield Enhancing Scheme 9 Securities Transaction Tax 9 Foreign Currency Deposit Scheme 9 Ac Opening Form for NRI

Cards 9 Debit 9 Credit

Source: Company; Cygnus Research

KEY RATIOS 2007-08 73.58 Credit Deposit Ratio 7.02 Cash Deposit Ratio 28.64 Investment Deposit Ratio 2.65 NIM (Net Interest Income/Total Income/Total Funds) 12.95 Capital Adequacy Ratio 1.26 Net Profit/Total Funds 27.58 Return on Net Worth (%)

2006-07 70.29 5.98 31.46 2.71 11.58 0.88 21.25

2005-06 69.87 5.50 35.00 2.54 10.75 0.68 15.37

2004-05 67.05 5.41 37.16 2.49 11.52 0.38 8.36



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June 2009

Company’s Performance at a Glance (Rs m) 2008-09 163473.60 125392.50 33703.10 30518.60 13.21 18.40 108484.50 30939.70 30073.50

Operating Income Interest on Advance Income on Investment Other Incomes CAR NPM Interest Expenditure Operating Expenditure PAT

2007-08 123552.20 92751.20 26390.20 21169.30 12.95 16.26 81259.50 26449.90 20094.00

2006-07 91803.30 63975.30 24600.90 15629.50 11.58 12.23 57398.60 26084.30 11231.70

2005-06 70 70287.00 45729.80 21612.90 11843.80 10.75 9.98 43967.20 21151.40 7014.40

Source : BSE In dia; Cygnus Research; Research; CARCAR- Capital Adequacy Ratio

Performance Analysis

Operating Income Other Income PBIT Interest Expenses PBT Tax PAT

PERFORMANCE ANALYSIS OF BOI Quarterly Performance Financial Year Performance JFM09 JFM08 Var (%) 2008-09 2007-08 Var (%) 4493 44931. 1.00 00 3501 35016. 6.10 10 28.3 28.322 163, 163,47 473. 3.60 60 123, 123,55 552. 2.20 20 32.3 32.311 7853.70 6532.50 20.23 30518.60 21169.30 44.16 44678.00 34970.10 27.76 163052.50 118271.60 37.86 30597.50 22847.90 33.92 108484.50 81259.50 33.50 14080.50 12122.20 16.15 54568.00 37012.10 47.43 2130.50 1685.90 26.37 11570.80 6753.10 71.34 8103.70 7570.40 7.04 30073.50 20094.00 49.66

Source: Company ; Cygnus Research Research

Indian economy is mirrored by the financial sector of the country. Credit growth has slowed down in the banking industry, to 17.3% after staying in the range of 28-30% during most part of the OND08. Sudden dip in credit growth is on account of repayment of oil marketing companies, slowdown in industrial production, lower working capital requirement and delay in execution of capex plans. Credit growth somehow remained healthy in the past on account of desperate need for funds as other source of capital for corporate India such as ECB, and FCCB had totally dried up. 204000

Re t a i l C r e d i t - Ke y s e c t o r s

O p e r at at i n g I n c o m e

Agricultu re 14%

154000

Corpora te 49%

104000

54000

SME 22% Retail 15%

m s 4000 R

2005-0 2005-06 6

2006-0 2006-07 7

20072007-08 08

20082008-09 09

Source: Company site; Cygnus Research Research


12


June 2009

However, deposits are not growing at the required pace. Deposit growth is continuously hovering between 19-21% for JFM09 quarter as against 23-25% in corresponding quarter last year. Credit-Deposit ratio remains healthy at 72.3%. Major growth in deposits during the year has come through time deposits. Going forward with decreasing interest rate scenario, transition from time to demand deposit should take place. During 2008-09 BOI’s global business mix increased by 26.30% to Rs3344.40 billion. The domestic business mix increased by 26.77% to Rs580.37 billion and the foreign business increased by 24.16% to Rs115.99 billion. The banks deposits during 2008-09 increased by 26.46% to Rs396.96 in which domestic deposit contributed more than the foreign deposit. The domestic gross advance increased by 26.08% to Rs239.66 and the foreign advance increased by 25.52% to Rs59.73 against the previous year 2007-08. In 2008-09 the networth of the bank increased by 29.16% to Rs111.44 billion from Rs86.29 billion. Return on asset improved to 1.49% in March 2009 from 1.25% in March 2008. During JFM09, the banks operating profit increased by 16.17 % from Rs12.12 billion to Rs14.08 billion. The other incomes of the company have increased by 20.23% to Rs7.85 billion. Net profit increased by 7.40% from Rs7.57 billion to Rs8.10 billion. In the year 2008-09, the book value of the share has increased to Rs211.89 from Rs164.05 in the year ago.

Common Size Comparison BOI when compared with its peers State Bank of Common Size Comparison for 2008-09 India (SBI) and Punjab National Bank (PNB) BOI SBI PNB shows good operational performance than PNB 100 100 100 and more are less equal to SBI. In terms of Operating Income 17.13 17.76 14 operational expenses the bank is spending more Other Income 21.41 25.76 17.7 than PNB and less than SBI as the percentage of Operating Expenses 9.85 7.46 Expenses 8 interest incomes. In terms of interest on balance as Administrative Expenses the percentage of incomes BOI is performing Interest on Balance 3.15 2.45 1.05 more than SBI and PNB. BOI is paying interest Interest paid 65.77 65.23 61.2 amount more are less equal to SBI and more than PBT 29.96 26.78 28.08 PNB. In terms of PAT the bank is performing well Tax 5.47 7.58 8.74 than its peers due to its vast expansion plans and PAT 16.26 13.75 14.36 launching of new products. Source: Company; Cygnus Research

Cost Structure Analysis Cost Structure as Percentage of Operating Income 2008-09 2007-08 2006-07 Interest Expenses Operating Expenses Staff Expenses Other Operating Expenses Tax Charges

2005-06

66.36

65.77

62.52

62.55

18.93

21.41

-28.41

30.09

11.85

13.41

15.60

16.01

7.07

8.00

10.83

11.20

7.08

5.47

4.46

3.05


In 2008-09, interest expenses as percentage of operating incomes increased by 59.27bps against 2007-08. Operating expenses declined by 248.15bps and stood at Rs30.93 billion in 2008-09 against the previous year. Staff cost has also reduced by 155.99bps compared to the previous year 2007-08. The bank has shown tax efficiency, even though operating income has increased from 2004 to 2008. When all the expenses are compared, the interest expenses take the major part of cost structure (around 65.34% of the operating income). Other operating expenses include the cost occurred on making any short term investments by the bank, it has been declined by 92.16bps against 2007-08. The tax paid by the bank in the year 2008-09 has increased by 161.23bps as the percentage of operating incomes, against previous year. © Cygnus Business Consulting & Research Pvt. Ltd. 2009

13


June 2009

Stock Performance

90 The company’s stock price, which was Co s t St St r u c t u r e s 80 e 70 Rs295.00 at the end of May 2008, has l a 60 s 2007-08 fallen to Rs235.15 by April 2009, because f 50 o 40 2008-09 of market fluctuation and global 30 % 20 slowdown. The 52-week high share price a 10 s of the company recorded as Rs295.00 in 0 a -10 the month of May 2008, and the 52-week s low at Rs216.16 in the month of June e s e s e s e s s e r g n n s n s n s a e e e e 2008. The poor performance of the scrip p p p C h x p E x E x E x E x is due to the negative market sentiments. t f g g f T a e s t a t i n t i n S In the year 2008-09 the bank declared 80% e r a a t r r I n p e p e of its profits as the dividend i.e Rs8 per O O e r share. About major stock of share i.e. 65% t h O are in the hands of promoters, institutions hold 27% of the company’s shares and rest of the shares i.e. 8% is with the hands of public.

Re l a t i v e M a r k e t C a p Pe r f o r m a n c e

120 100

Sh a r e h o l d i n g P a t t e r n

80

Public 8%

60 40

Institutio ns 27%

BSE Sensex BSE Banking BOI

20 0

8 8 8 0 0 0 - - y n l u a u J M J

8 8 8 8 8 9 0 0 0 0 0 0 - - t - - - c n g t c v u p o e a e O N A S D J

9 0 b e F

9 9 0 0 r r a p M A

promoter s 65%

Source: BSE India; Cygnus Research Research

Outlook Interest rates have remained high for over a year and the ill effects have already been seen in the form of slowing IIP & GDP. There has been a sharp deterioration in the global financial environment, which has impacted domestic money, and forex markets with a marked increase in volatility and a sharp imbalance on market liquidity as reflected in the movements in overnight interest rates and the high recourse to the Liquidity Management Facility. BOI has strong presence in the well industrialised and growing western India. This region accounts for largest share (37%) of credit in the banking industry. BOI also has a strong international presence with international operations contributing to about 20% of the total business. It has plans to diversify its client base and embark on retail business as well. BOI has also made its intentions clear to grow inorganically with a view to increase its international presence. Till now the bank has shown good growth performance in terms of its Net Interest Incomes. In the year 2008-09 saving bank deposits increased by 14.27% to Rs379.44 billion against Rs332.07 in the pervious year. The aggregate deposits of the bank increased by 27.24% to Rs1581.21 billion in the year 2008-09. The bank is maintaining its PLR at 12.00% less than SBI and ICICI Bank. In the coming quarters the bank is expected to perform well and increase its market network globally.


14


June 2009

STOCK SCAN 140

Re l a t i v e M a r k e t Ca Ca p p e r f o r m a n c e

130

BSESensex BSE Bankex SBI ICICI

120 110 100 90

r r r r r r r r r r r r r r r y y y y y y y y y y y y y y p p p p p p p p p p p p p p p y a a a a a a a a a a a a a a a A M M M M M M M M M M M M M M - A - A - A - A - A - A - A - A - A - A - A - A - A - A - M - - - - - - - - - - - - - - 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 1 1 1 1 2 2 2 2 2 2 2 2 2 2 3 1 1 1 1 1 1

130

Re l a t i v e M a r k e t C a p p e r f o r m a n c e BSESensex

120

BSE Bankex CANARA

110

100

90

r r r r r r r r r r r r r r r y y y y y y y y y y y y y y p p p p p p p p p p p p p p p y a a a a a a a a a a a a a a a A A A A A A A A A A A A A A A M M M M M M M M M M M M M M M - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 1 1 1 1 2 2 2 2 2 2 2 2 2 2 3 1 1 1 1 1 1

Source: BSE India; Cygnus Research Research

SENSEX

BSE Banking

16 Apr – 25 Apr Sensex gained during this period under consideration due to strong cues in European markets.

This week the banking index followed Sensex and rose by 4.14% to 5591 points.

26 Apr – 02 May The Sensex posted sharp gains during this week aided by sustained buying support from foreign institutional investors (FIIs). The banking index did not make any movement during this week.


03 May – 09 May The Sensex posted sharp gains during this week aided by positive cues from the overseas markets.

10 May – 15 May The Sensex posted gains during this period due to rise in FIIs.

The sentiments of the market had not worked out for banking index and so declined by 2.06% to 6007 points.

In this week the banking index fallowed BSE Sensex and rose by 6.93% to 6375 points.

15


SBI

ICICI BANK

CANARA

The scrip moved with its index and rose by 3.65% to Rs1307.80. This was due to the good result shown by the company by year end 2009.

This week the scrip went against Sensex and declined by 0.35% to Rs1277.07.

The scrip rose by 1.43% to Rs432.50, during this week and followed its banking index.

Scrip continued the positive movement and rose by 2.09% to Rs477.75. This was due to good positive sentiment of the market. In this week the The scrip remained scrip rose by 2.24% flat in this week. and stood at Rs194.35 and followed its index.


June 2009

The scrip further declined by 3.00% to Rs1325.15 due to lack of bulk deals in the market.

Good positive sentiments of the market and good financial performance of the company had made the scrip rise by 4.09% to Rs1312.25.

This week the scrip Huge investment by declined by 1.60% to FIIs had brought big Rs520.60. movement in the scrip registering an increase of 9.74% to Rs574.45. The good results declared by the company made the scrip rise by 8.16% to Rs224.70.

This week the scrip continued the positive movement and increased by 5.90% to Rs228.95.

16


June 2009

UPCOMING EVENTS 1.

Event Date Venue Highlights

Contact Details 2.


Contact Details

3.


Contact Details

4.


Contact Details

Banks Insurance & Real Estate Jun 17-20, 2009 Beirut International Exhibition Exhibition & Leisure Centre, Beirut, Beyrouth Banks Insurance & Real Estate is the first exhibition to bring together banks, credit card companies, insurance companies, property developers and real estate brokers. Banks, insurance & real estate is a one-stop-shop for corporate Lebanon. Promofair S.A.L, Accaoui, Media Center II Building, P.O. Box 165972, Achrafieh, Beirut, Lebanon. Lebanon. Tel: +(961)-(1)-561600 6th AFE Conference Jul 02-04, 2009 Samos Island, Greece The AFE Conference has run annually for the past five years, and continuing the tradition will seek to address the many challenges and new directions on the field of financial economics. Providing keynote speakers, plenary sessions, workshops and forums, the conference aims at promoting research and provides an opportunity for intensive interdisciplinary interaction and debate between academics and practitioners with research interests in the field of finance, accounting and business management. Research and Training Institute of the East Aegean (INEAG). Kambos Vourlioton, 83100, Samos, Samos, Greece Tel: + 30 6976021240; Fax: + 30 2273094537 2273094537 Email: [email protected]; Web: www.ineag.gr The Global Business and Finance Research Jul 08-11, 2009 London Hilton on Park Lane, London The Global Business and Finance Research Conference, London (GBFR) brings together academicians and professionals from all areas of related business fields and related fields to interact with members inside and outside their own particular disciplines. The conference will provide opportunities for publishing researcher's paper as well as providing opportunities to view other's work. All the accepted papers will be published. Doctoral students are highly encouraged to submit papers to GBFR for competitive review. Dr. Turan Senguder. Executive Chair. 6051 North Ocean Dr., # 506, Hollywood, FL 33019, Fax: 954-449-6237 E-mail: E-mail: [email protected]; Web: www.jaabc.com Money Expo Aug 01-03, 2009 Pragati Maidan, Pragati Bhawan, New Delhi, India The Money Expo is characterised as pivotal event for tapping investment and finance opportunities of throughout the world. It is emerged out as a leading event which proves to offer complete insurance options in the marketplace. The event offers financial solutions and helps in providing networking opportunities across the globe. Media Expositions & Events. 112-A Sant Nagar, G. F., East of Kailash, New Delhi, India. Tel: +(91)-(11)-26236933; Fax: +(91)-(11)-41620861


17


5.


Contact Details 6.


Contact Details 7.


Contact Details 8.


Contact Details

June 2009

Softworld Accounting Accounting & Finance Oct 13-14, 2009 Olympia Exhibition Exhibition Centre, Hammersmith Road, Road, London, United Kingdom Kingdom Softworld Accounting & Finance enables to reach an extensive audience of prequalified online visitors, plus a significant incremental audience of live event attendees and non-attendees. It also boasts a dedicated marketing & PR campaign that many live events would envy and will also be marketed within its own live event marketing campaigns. V. N. U. Exhibitions Europe BV, 6, Jaarbeursplein, NL-3521 AL, Rv Utrecht, The Netherlands. Tel: +(31)-(30)-2952700; +(31)-(30)-2952700; Fax: +(31)-(30)-2952809 Defense Finance Oct 27-29, 2009 TBA, Washington, District of Columbia Columbia , United States Of America America Organised at Washington, District of Columbia, United States of America, the Defense Finance is recognised as one of the highly prioritised event for marine industry. Hosted by Worldwide Business Research, the event is aimed towards providing a potent platform for exhibiting various professionals for both domestic and international marine fraternity. It is a three-day event which is directed towards disseminating of information about marine industry. Worldwide Business Research. 535, Fifth Avenue, 8th, New York, United States Of America. Tel: +(1)-(888)-4826012; Fax: +(1)-(212)-8852798 European Banking & Insurance Fair (EBIF) Nov 17-19, 2009 Messe Frankfurt, Ludwig-Erhard-Anlage Ludwig-Erhard-Anlage 1, Frankfurt, Germany The European Banking & Insurance Fair (EBIF (EBIF 2009) is recognized as a trusted platform for the financial industrial sector. For 3 days, the EBIF 2009 is aimed towards providing a single most meeting point for various pioneers of the sector. Messe Frankfurt GmbH. Ludwig-Erhard-Anlage, 1, Frankfurt Am Main, Germany. Tel:+(49)-(69)-75750; Fax:+(49)-(69)-75756433 Corporate & Banking Systems Exhibition Nov 17-19, 2009 Brovarsky Ave. International Exhibition Centre, Kiev, Ukraine The anniversary international specialised exhibition for information technologies and equipment for banks, financial institutions and corporations corporate and banking systems. Moreover, it is a specialized exhibition of informational technologies and equipment for banks and financial institutions, also devoted to the problems of creation, application and exploitation of the up-to-date informational systems at enterprises, organizations and corporations. Premier Expo. 13-B, Pimonenko Street, Kyiv, Ukraine Tel:+(38)-(44)-4514160


18

banking industry_cygnus 1 june 09

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