Financial Performance of ICICI Bank and SBI bank: A Comparative Analysis Pooja Sharma 1, Hemlata 2 1,2 Assistant Professor, Dept of MBA, E-max Group of Institutions Ambala Abstract The banking sector mirrors the larger economy its linkages to all sectors make it a proxy for what is happening in the economy as a whole. Efficient functioning of banking sector is required for the growth of overall economy. Banking plays a silent, yet crucial role in our day-to-day lives. The banks work as financial intermediaries, pooling savings and channelizing them into investment, helps in economic development of a country. The banking system of India is featured by a large network of bank branches, serving much kind of financial needs of the people. ICICI Bank has a network of 3350 branches and 10486 ATM s in India, and has a presence in 19 countries. ICICI bank is one of the Big Four banks of India, along with State Bank of India, Punjab National Bank and Canara The State Bank of India, popularly known as SBI is one of the leading banks in India. The State Bank Group, with over 16,000 branches provides a wide range of banking products through its vast network of branches in India and overseas, including products aimed at Non-Resident Indians (NRIs). Headquarter of SBI is at Mumbai. SBI has 14 Local Head Offices and 57 Zonal Offices that are located at important cities throughout the country. In the present study, an attempt has been made to evaluate and compare the financial performance of SBI and ICICI Bank by comparing various ratios like Return on Equity, Cash Deposit Ratio and Credit Deposit Ratio. The data is taken from financial reports of both the banks for last five years ranging from 2008-09 to 2013-13. The results depicts that ICICI bank is performing better than SBI bank as it is able to generate more loans from its deposits to the customers. Keywords ICICI Bank, SBI Bank, Financial Performance I. INTRODUCTION The banking sector mirrors the larger economy its linkages to all sectors make it a proxy for what is happening in the economy as a whole. Efficient functioning of banking sector is required for the growth of overall economy. Banking plays a silent, yet crucial role in our day-to-day lives. The banks work as financial intermediaries, pooling savings and channelizing them into investment, helps in economic development of a country. A banking system also referred as a system provided by the bank which offers cash management services for customers, reporting the transactions of their accounts and portfolios, throughout the day. The banking system in India should not only be hassle free but it should be able to meet the new challenges posed by the technology and any other external factors. For the past three decades, India s banking system has several outstanding achievements to its credit. The banks are the main participants of the financial system in India. The banking sector offers several facilities and opportunities to their customers. All the banks safeguard the money and valuables and provide loans, credit, and payments services, such as checking accounts, money orders, and cashier s cheques. The banks also offer investment and insurance products. As a variety of models for cooperation and integration among finance industries have emerged, some of the traditional distinctions between banks, insurance companies, and securities firms have diminished. In spite of these changes, banks continue to maintain and perform their primary role- accepting deposits and lending funds from these deposits. The efficient working of banking system leads to survival of any country. The banking system of India is featured by a large network of bank branches, serving many kinds of financial needs of the people. II. ICICI BANK PROFILE: ICICI Bank is an Indian multinational bank and financial services company headquartered in Mumbai. Based on 2013 information, it is second largest bank in India by assets and third largest by market capitalisation. It offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries in the areas of investment banking, life and non life insurance, venture capital and asset management. The Bank has a network of 3,350 branches and 10,486 ATM s in India, and has a presence in 19 countries. ICICI Bank is one of the Big Four banks of India, along with State Bank of India, Punjab National Bank and Canara ICICI Bank was established by the Industrial Credit and Investment Corporation of India, an Indian financial institution, as a wholly owned subsidiary in 1954. The parent company was formed in 1955 as a joint venture of the World Bank, India s public sector banks and public sector insurance companies to provide project financing to India industry. The bank was initially known as Industrial Credit and Investment Corporation of India Bank, before it s changed its name to the abbreviated ICICI The parent company was later merged with the bank. ICICI Bank launched internet banking operations in 1998. In 2000, ICICI Bank became the first Indian bank to list on the New York Stock Exchange with its five million American depository shares issue generating a demand book 13 times the offer size. III. SBI BANK PROFILE: The State Bank of India, popularly known as SBI is one of the leading banks in India. The State Bank Group, with over 16,000 branches provides a wide range of banking products 2014 IJRAEM All Rights Reserved 20
through its vast network of branches in India and overseas, including products aimed at Non-Resident Indians (NRIs). Headquarter of SBI is at Mumbai. SBI has 14 Local Head Offices and 57 Zonal Offices that are located at important cities throughout the country. It also has around 130 branches out of the country. The State Bank of India was constituted on 1st July 1955, pursuant to the State Bank of India Act, 1955 (the "SBI Act") for the purpose of creating a state-partnered and state-sponsored bank integrating the former Imperial Bank of India. In 1959, the State Bank of India (Subsidiary Banks) Act was passed, enabling the Bank to take over eight former state associated banks as its subsidiaries. IV. OBJECTIVE OF THE STUDY To compare the financial performance of SBI and ICICI V. RESEARCH METHODOLOGY Financial analysis is mainly done to compare the growth, profitability and financial soundness of the respective bank by diagnosing the information contained in the financial statements. Financial analysis is done to identify the financial strengths and weaknesses of the two banks by properly establishing relationship between the items of Balance Sheet and Profit & Loss Account. It helps in better understanding of banks financial position, growth and performance by analyzing the financial statements with various tools and evaluating the relationship between various elements of financial statements. Sample Size In the present study, an attempt has been made to evaluate and compare the financial performance of SBI and ICICI Data collection The study is based on secondary data that has been collected from annual reports of the respective banks. The study covers the period of 5 years i.e. from year 2008-09 to year 2012-13. Data analysis Ratio Analysis was applied to analyze and compare the trends in banking business and financial performance. Various ratios used are: 1. Credit Deposit Ratio 2. Operating Expenses / Total Funds 3. Net Profit / Total funds 4. Cash Deposit Ratio 5. Return On Equity CREDIT DEPOSIT RATIO: - Credit-Deposit Ratio is the proportion of loan-assets created by a bank from the deposits received. Credits are the loans and advances granted by the bank. In other words it is the amount lent by the bank to a person or an organization which is recovered later on. Interest is charged from the borrower. Deposit is the amount accepted by bank from the savers and interest if paid to them. Table 1.1 2008-09 74.97 95.93 2009-10 75.96 95.04 2010-11 79.9 92.97 2011-12 82.14 97.71 2012-13 85.17 99.25 Fig 1.1 Table 1.1 depicts that over the course of five financial periods of study the Credit Deposit Ration in ICICI was higher (99.25%) than in SBI (85.17%) in 2012-13. In both SBI and ICICI the credit deposit ratio was highest in 2012-13. This shows that ICICI bank has created more loan assets from its deposits as compared to SBI. OPERATING FUNDS TO TOTAL FUNDS: A measure of what it costs an investment company to operate funds. An expense ratio is determined through an annual calculation, where funds operating expenses are divided by the average dollar value of its assets under management. Marketing expenses are taken out of funds assets and lower the return to a fund s investors. Table 1.2 2014 IJRAEM All Rights Reserved 21
2008-09 1.86 1.94 2009-10 2.01 1.58 2010-11 2.02 1.72 2011-12 2.03 1.75 2012-13 2.02 1.76 Fig 1.3 The table reveals that the ratio of net profits to total funds of ICICI was varied from 0.96 per cent to 1.62 percent. It increased to1.62 percent from 0.96 percent in 2008-09. But the net profit in case of SBI has decreased to 0.73 percent in 2010-11 from 1.08 percent in 2008-09; it further increases to 0.97 percent in 2012-13. However, the net profit margin was higher in ICICI (1.62%) as compared to SBI (0.97%) during the period of study. Thus, the ICICI has shown comparatively lower operational expenses than SBI. Fig 1.2 The table 1.2 reveals that the ratio of operating funds to total funds of ICICI was varied from 1.94 per cent to 1.76percent. It was at 1.58 percent in 2009-10, lowest among five years again it increased to1.72 percent in 2010-11. But the operating funds ratio in case of SBI has increased over the five years. It was at its lowest in 2008-09(1.86%), after that it has shown almost increment in operating funds. NET PROFIT TO TOTAL FUNDS: A ratio that measures a company s ability to generate profits from its funds. The ratio is considered an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid. Table 1.3 2008-09 1.08 0.96 2009-10 0.91 1.08 2010-11 0.73 1.34 2011-12 0.91 1.44 2012-13 0.97 1.62 CASH DEPOSIT RATIO: The amount of money a bank should have available as a percentage of the total amount of money its customers have paid into the bank. This amount is calculated so that customers can be sure that they will be able to take their money out of the bank if they want to. Table 1.4 2008-09 8.37 10.14 2009-10 7.56 10.72 2010-11 8.96 11.32 2011-12 7.51 8.6 2012-13 5.34 7.21 2014 IJRAEM All Rights Reserved 22
Fig 1.4 The table 1.4 depicts that the Cash Deposit Ratio in ICICI and SBI was highest in 2010-11. In both SBI & ICICI the cash deposit ratio has decreased in period 2011-13. It is an indicator to customers whether they will be able to get back their cash whenever required or not. RETURN ON EQUITY: The ability of the firm's management to realize an adequate return on the capital invested by the owners of the firm. Tendency is to look increasingly to this ratio as a final criterion of profitability. Table 1.5 2008-09 17.05 7.83 2009-10 14.8 7.96 2010-11 12.62 9.65 2011-12 15.72 11.2 2012-13 15.43 13.1 Fig 1.5 The table 1.5 depicts that return on equity in SBI bank has decreased to 12.62% in year 2010-11 from 17.05% in 2008-09 while in ICICI bank ROE has continuously increased in last five years ranges from 7.83% to 13.1%. In SBI bank ROE shows a growth sign in the years 2011-13 but its slower in comparison to ICICI bank s ROE. Hence it depicts that ICICI bank has been successful in generating returns on the shareholders capital more than SBI bank. VI. FINDINGS AND CONCLUSIONS Results reveal that over the course of five financial periods of the study the Credit Deposit Ratio in ICICI was higher (99.25%) than in SBI (85.17%) in 2012-13. This shows that ICICI Bank has created more loan assets from its deposits as compared to SBI. It is also revealed that the ratio of operating funds to the total funds of ICICI was varied from 1.94 percent to 1.76 percent. It was 1.58 percent in 2009-10; lowest among five years again it increased to 1.72 percent in 2010-11. But the operating funds ratio in case of SBI has increased over the five years. It was at its lowest in 2008-09 (1.86%), after that it has shown almost increment in operating funds. The ratio of net profits to total funds of ICICI was varied from 0.96 percent to 1.62 percent. It increased to 1.62 percent from 0.96 percent in 2008-09. But the net profit in case of SBI has decreased to 0.73 percent in 2010-11 from 1.08 percent in 2008-09; it further increases to 0.97 percent in 2012-13. However, the net profit margin was higher in ICICI (1.62%) as compared to SBI (0.97%) during the period of study. Thus, the ICICI has shown comparatively lower operational expenses than SBI. The Cash Deposit Ratio in ICICI and SBI was highest in 2010-11. In both SBI & ICICI the cash deposit ratio has decreased in period 2011-13. Return on Equity in SBI bank has decreased to 12.62% in year 2010-11 from 17.05% in 2008-09 while in ICICI bank ROE has continuously increased in last five years ranges from 7.83% to 13.1%. In SBI bank ROE shows a growth sign in the years 2011-13 but it s slower in comparison to ICICI bank s ROE. Hence it depicts that ICICI bank has been successful in generating returns on the shareholders capital more than SBI bank. Hence, on the basis of the above study or analysis ICICI bank is performing well in comparison to SBI. VII. LIMITATIONS OF THE STUDY Due to constraints of time and resources, the study is likely to suffer from certain limitations. Some of these are mentioned here under so that the findings of the study may be understood in a proper prospective. The limitations of the study are: The study is based on the secondary data and the limitation of using secondary data may affect the results. The secondary data was taken from the annual reports of SBI and ICICI It may be possible that the data shown in the annual reports may be window dressed which does not show the actual position of banks. 2014 IJRAEM All Rights Reserved 23
REFERENCES:- [1]. Development Research Group Study, No. 22, Department of Economic Analysis and Policy, Reserve Bank of India, Mumbai September 20, 2000. [2]. Financial year report of ICICI Bank 2008-09 to 2012-13. [3]. Financial year report of SBI 2008-09 to 2012-13. [4]. Gaylord A Freeman, The Problem of Adequate bank Capital, quoted by Howard D. Crosse in his book on Management Policies for Commercial Banks, pp. 158. [5]. http://www.capitaline.com/user/framepage.asp?id= 1 (Sept, 2013) [6]. http://www.moneycontrol.com/stocks/company_inf o/print_main.php (Sept, 2013) [7]. ICICI Bank bulletin publication 2013 [8]. Maheshwari&Maheshwari, Banking Law and Practices, Himalaya Publishing Pvt Ltd, Allahabad, pp.152. [9]. RBI statistical table relating to banks 2012-13 [10]. SBI bulletin publication 2013. 2014 IJRAEM All Rights Reserved 24