A Study on Economic Value Addition With Reference to South Indian Bank Ltd.

Project Report Submitted in partial fulfilment of the requirements for the award of the degree of MASTER OF BUSINESS ADMINISTRATION By Neethu K.H ( CUAJMGT 023) Under the Supervision of Dr. M.A.Joseph Reader

DEPARTMENT OF COMMERCE AND MANAGEMENT STUDIES UNIVERSITY OF CALICUT

2009 -11

DEPARTMENT OF COMMERCE AND MANAGEMENT STUDIES UNIVERSITY OF CALICUT

CERTIFICATE This is to certify that this project entitled A Study on Economic Value Addition with reference to South Indian Bank submitted herewith is an authentic record of the project work done by Neethu K. H in partial fulfillment of the requirements for the award of degree of Master Of Business Administration from University of Calicut during the academic year 2010 - 2011.

Dr. M.A.Joseph Head of the Department Dept. of Commerce and Management Studies

Date: Place:

DEPARTMENT OF COMMERCE AND MANAGEMENT STUDIES UNIVERSITY OF CALICUT

CERTIFICATE This is to certify that this thesis entitled A Study on Economic Value Addition with reference to South Indian Bank submitted herewith is an authentic record of the project work done by Neethu K.H under my guidance in partial fulfillment of the requirements for the award of degree of Master Of Business Administration from University of Calicut during the academic year 2010 - 2011.

Dr. M.A.Joseph Professor (HOD) Dept. of Commerce and Management Studies

Date: Place:

DECLARATION
I Neethu K.H, hereby declare that the project entitled A Study on Economic Value Addition with reference to South Indian Bank have been carried out by me under the guidance and supervision of Dr. M.A.Joseph, Reader, Department of Commerce and Management Studies, University of Calicut as part of our curriculum. I also declare that this project has not been submitted by us fully or partially for the award of any degree, diploma title or recognition before.

NEETHU K.H 4TH SEM MBA DCMS

ACKNOWLEDGEMENTS
I am grateful to Almighty GOD for giving us the courage and strength to complete this project successfully. This study was carried out under the supervision and valuable guidance of Dr.M.A.Joseph, Reader and Dr.K.P.Rajendren, Department of Commerce and Management Studies, University of Calicut. I gratefully acknowledge the excellent and incessant help given by him to incite the work. I am thankful for his valuable guidance and enduring encouragement through out this study. I express my sense of gratitude to Department of Commerce and Management Studies, for providing with facilities to complete the work. I express my gratitude to Mr. Dr.V A Joseph Managing Director & CEO

South Indian Bank (P) Ltd Thrissur for the permission given to do my project work, and has always been a forth coming with a valuable support and timely help at all stages of this project.

NEETHU K.H 4TH SEM MBA DCMS

CONTENTS
CHAPTER NO: CHAPTER 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 CHAPTER 2 2.1 2.2 CHAPTER 3 3.1 3.2 CHAPTER 4 CONTENTS INRODUCTION Introduction Statement of the problem Objectives of the study Significance of the study Variables of the study Research methodology Limitations of the study Chapterisation A BRIEF PROFILE Industry Profile Company Profile A THEORETICAL FRAME WORK EVA Review of literature ECONOMIC VALUE ADDITION SOUTH INDIAN BANK 4.1.1 4.1.2 CHAPTER 4 Secondary data analysis Primary data analysis SUMMARY ,FINDINGS, SUGGESTIONS AND CONCLUSION 5.1 5.2 5.3 5.4 Summary Findings Suggestions And Recommendations Conclusion Bibliography Annexure 79 80 81 82 36 58 19 23 6 13 1 2 2 3 3 3 5 5 PAGE NO:

LIST OF TABLES
TABLE.NO: 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 4.18 4.19 4.20 4.21 4.22 4.23 4.24 4.25 4.26 4.27 4.28 4.29 TITLE Beta and RF of South Indian Bank Cost of capital of South Indian Bank Equity or Shareholders fund of South Indian Bank Net Profit After Tax of South Indian Bank PAGE NO: 37 38 39 39 40 41 42 43 43 44 45 46 47 47 48 49 50 51 51 52 53 54 55 55 56 57 59 60 61

EVA of South Indian Bank Beta and RF of Federal Bank Cost of capital of Federal Bank Equity or Shareholders fund of Federal Bank Net Profit After Tax of Federal Bank EVA of Federal Bank Beta and RF of HDFC Bank Cost of capital of HDFC Bank Equity or Shareholders fund of HDFC Bank Net Profit After Tax of HDFC Bank EVA of HDFC Bank Beta and RF of ICICI Bank Cost of capital of ICICI Bank Equity or Shareholders fund of ICICI Bank Net Profit After Tax of ICICI Bank EVA of ICICI Bank Beta and RF of State Bank of India Cost of capital of State Bank of India Equity or Shareholders fund of State Bank of India Net Profit After Tax of State Bank of India EVA of State Bank of India Comparative table Awareness about different stock valuation method Evaluation of Stock Perception about EVA and ROI

4.30 4.31 4.32 4.33 4.34 4.35 4.36 4.37 4.38 4.39 4.40 4.41 4.42 4.43 4.44 4.45 4.46

Stock valuation method Factors consider for investment Prompted factors and Rank Investment decision Perception about future performance Opinion about ROI Opinion about margin Creditworthiness of the bank Opinion about historical data Lending ratio of the bank Gender Education Occupation Age group Monthly salary Investment experience Investment horizon

62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78

LIST OF CHARTS
FIGURE.NO: 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 4.18 4.19 4.20 4.21 4.22 4.23 4.24 4.25 4.26 EVA of South Indian Bank EVA of Federal Bank EVA of HDFC Bank EVA of ICICI BANK EVA of State Bank of India Comparative EVA Awareness about different stock valuation method Evaluation of Stock Perception about EVA and ROI Stock valuation method Factors consider for investment Prompted factors and Rank Investment decision Perception about future performance Opinion about ROI Opinion about margin Creditworthiness of the bank Opinion about historical data Lending ratio of the bank Gender Education Occupation Age group Monthly salary Investment experience Investment horizon TITLE PAGE NO: 93 96 99 102 105 107 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78

INTRODUCTION

CHAPTER 1

1.1 INTRODUCTION
Indian Banking has seen many changes in the last decade like imposition of prudential standards, greater competition among banks, entry of new private banks, etc. This paradigm shift in the Indian banking sector can be seen in terms of two dimensions: One relates to operational aspect especially performance and risk-management system and the second dimension relates to structural and external environment or exogenous aspects. Is evaluating Indian banks performance a rather straight forward issue? The answer is no. One might say that like a corporate, even banks can be judged from the behavior of their stock prices. However, as bank stocks have not been very active on exchanges, barring few on few occasions, should we conclude that Indian banks have by and large failed to add values to their shareholders wealth. The answer is once again no. so a study like Economic Value Addition (EVA) is necessary for evaluating the performance of banks. Many Indian banks are discovering that the key to their long-term growth does not lie in products and services alone but in assets that can never be replicated, that is, their unique relationship with customers, employees, suppliers and distributors, investors and the communities they serve. Even though we dont know which bank has created shareholders value in each of the reporting periods since 2000-01 to 2010-11? In this study concentrated on comparison of four banks performance with South Indian Banks performance and an attempt has been made to know the investors perception towards EVA. It also tries to clarify the concept of EVA especially from the view point of reporting practices in the Indian Banking sector using statistical tools and appropriate suggestions were drawn. Investors are currently demanding shareholders value more strongly than ever world-wide. The present study is an attempt to understand EVA concept in its present status and to examine reporting practices in the Indian Corporate sector along with a view of the investors towards the concept.

1.2 STATEMENT OF PROBLEM

Consistent escalation in earnings and growth which is equal or above the industrial average is one of the most needed factors which is a concern for every banking business. Targeted business for a financial year is estimated based on the result of above said factor. This project studies banks profiles to demonstrate a direct correlation between the investment in stakeholder relationships and corporate performance. In the recent years due to recession it is found that there is a decrease in performance of the banks. And post recession the banks claim that they had recovered from this dilemma. And here the researcher looks into how far it is true to the expectation of the investors. Usually banks used EVA as performance measurement tool. EVA is an absolute measurement so it provides absolute valuation of stock also. It examine an appropriate way of evaluating banks performance and also see South Indian banks have been able to create (or destroy) shareholders wealth since 2000-01 to 2010-11.

1.3OBJECTIVES OF THE STUDY

Primary objectives To determine banks create or destroy shareholders wealth? To compare south Indian banks EVA with other banks. To evaluate banks performance. To study the investors perception about EVA.

Secondary objectives To valuation of cost of capital. To study the shareholders value (in terms of Economic Value Added) of south Indian banks during the last ten years. I.e. since 2000-01 to 2010-11. To study the determining factors which affects economic value creation?

1.4 SIGNIFICANCE OF THE STUDY

EVA provides a unique insight into value creation and it measures the performance of the bank as well as the performance of the managers. In order to help management understand their own economics and arrive at value creating investment decision that adequately satisfies sensitive factors and bankers must understand the concept and relevance of Economic Value Added (EVA). This study helps to understand cost of capital of the banks and its comparison is also possible.

1.5 VARIABLES OF THE STUDY

Margin Assets Leverage Operating cash flow Historical data

1.6 RESEARCH METHODOLOGY

Research design In this study descriptive design is used. Descriptive research is a research of fact finding. The major purpose of descriptive research is to describe the state of affairs as it exists at present. The main feature of this method is that research has no control over the variables. In descriptive research, cross sectional analysis is used here. Sources of data Two types of data are used in this research. They are:

Secondary source Secondary data collected from the websites of National Stock Exchange, South Indian Bank. Federal Bank, HDFC Bank, ICICI Bank and State Bank of India. References are also made to technical papers on the subject, Newspapers, Magazines, & financial journals. Primary source Investors are the primary source for data collection. Primary data is collected through structured questionnaire. Period of reference The study covers a period of ten years from 2000-01 to 2009-10. Sampling technique Random sampling method has been employed for selection of sample. Size of sample The interview was conducted among the investors of banks. Data analysis and tools used For analysis of data, mathematical tools have been used. Mathematical tools used are percentage. Graphical tools used are pie and bar diagrams. Period of the study The work for data collection started from 9 th April 2011 for a period of 45 days from the South Indian Bank.

1.7 LIMITATIONS OF THE STUDY

The duration of study was limited to a period of 45days so that an extensive and deep study

could not be possible. Data considered is only for past 10 year period. Market return is not stable and it shows negative value during 2001. This study tries to include complete business cycle but unavailability of data is major

limitation.

1.8 CHAPTERISATION
1) Introduction. This chapter introduces the project report to its readers. It includes introduction to study, statement of the problem, objectives of the study, variables of the study, research methodology, limitations of the study and chapterisation of report. 2) Industry profile and company profile This chapter provides industry profile and a brief profile of the company where the study is undertaken. 3) Theoretical Framework This chapter deals provides an overview of topic EVA and provides review of relevant literature on the research methodology and research studies related to EVA. 4) Economic Value Addition -SIB This chapter deals with analysis and interpretation of data. 5) Findings, Conclusions and Suggestions This chapter includes the major findings, its conclusions and the suggestions put forward by the researcher based on the study

A BRIEF PROFILE

CHAPTER 2

2.1 INDUSTRY PROFILE

History of banking The first banks were the merchants of ancient world that made loans to farmers and traders that carried goods between cities. The first records of such activity dates back to around 2000 BC in Assyria and Babylonia. Later in ancient Greece and during the Roman Empire lender based in temples would make loans but also added two important innovations that of accepted deposits and changing money. During this period there is similar evidence of the independent development of lending of money in ancient China and separately in ancient India. Banking in the modern sense of the word can be traced to medieval and early Renaissance Italy, to the rich cities in the north like Florence, Venice And Genoa. The Bardi and Peruzzi families dominated banking in 14th century Florence, establishing branches in many other parts of Europe. Perhaps the most famous Italian bank was the Medici bank, set up by Giovanni Medici in 1397. The development of banking spread through Europe and a number of important inovations took place in Amsterdam during during the Dutch republic in the 16th century and in London in the 17th century. During the 20th century developments in telecommunications and computing resulting in major changes to way banks operated and allowing them dramatically increase in size and geographic spread. The Late-2000s financial crisis saw significant number of bank failures, including some of the worlds largest banks and much debate about bank regulation.

Banking in India

Structure of the organised banking sector in India. Number of banks are in brackets. Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790; both are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the bank of bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India.

History Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a consequence of the economic crisis of 1848-49. TheAllahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank: A company that issues stock and requires shareholders to be held liable for the company's debt) It was not the first though. That honor belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Simla. When the American Civil War stopped the supply of cotton to Lancashire from the Confederate States, promoters opened banks to finance trading in Indian cotton. With large exposure to speculative ventures, most of the banks opened in India during that period failed. The depositors lost money and lost interest in keeping deposits with banks. Subsequently, banking in India remained the exclusive domain of Europeans for next several decades until the beginning of the 20th century. Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madrasand Puducherry, then a French colony, followed. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center. The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1895, which has survived to the present and is now one of the largest banks in India. Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial and other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities. The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian joint stock banks. All these banks operated in different segments of the economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign

trade. Indian joint stock banks were generally undercapitalised and lacked the experience and maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments." The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India. During the First World War (1914-1918) through the end of the Second World War (1939-1945), and two years thereafter until the independence of India were challenging for Indian banking. The years of the First World War were turbulent, and it took its toll with banks simply collapsing despite the Indian economy gaining indirect boost due to war-related economic activities. At least 94 banks in India failed between 1913 and 1918 as indicated in the following table: Number of banks Authorised capital Paid-up Capital that failed (Rs. Lakhs) 274 710 56 231 76 209 (Rs. Lakhs) 35 109 5 4 25 1

Years

1913 12 1914 42 1915 11 1916 13 1917 9 1918 7

Post-Independence The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing banking activities for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included: The Reserve Bank of India, India's central banking authority, was nationalized on January 1, 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b).[Reference www.rbi.org.in] In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India." The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors. Nationalisation Despite the provisions, control and regulations of Reserve Bank of India, banks in India except the State Bank of India or SBI, continued to be owned and operated by private persons. By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued about the nationalization of the banking industry. Indira Gandhi, then Prime Minister of India, expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The meeting received the paper with enthusiasm. Thereafter, her move was swift and sudden. The Government of India issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval on 9 August 1969.

A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the Government of India controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalized banks and resulted in the reduction of the number of nationalised banks from 20 to 19. After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy. Liberalisation In the early 1990s, the then Narasimha Rao government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation tech-savvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank andHDFC Bank. This move, along with the rapid growth in the economy of India, revitalized the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. The next stage for the Indian banking has been set up with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%,at present it has gone up to 74% with some restrictions. The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks.All this led to the retail boom in India. People not just demanded more from their banks but also received more. Currently (2007), banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the

government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true. With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&As, takeovers, and asset sales. In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them. In recent years critics have charged that the non-government owned banks are too aggressive in their loan recovery efforts in connection with housing, vehicle and personal loans. There are press reports that the banks' loan recovery efforts have driven defaulting borrowers to suicide.

2.2 COMPANY PROFILE

South Indian Bank Ltd (SIB)

Type

Private BSE & NSE

Industry

Banking Financial Insurance Capital markets Services

Founded

1929

Headquarters Thrissur, Kerala, India Key people Dr V.A. Joseph, Managing Director and Chief Executive Officer Products Loans, Savings, Investment

vehicles, Insurance etc. Website www.southindianbank.com

South Indian Bank Limited (SIB) (BSE: 532218, NSE: SOUTHBANK) is a private sector bank headquartered at Thrissur in Kerala, India. It is headed by Dr.V A Joseph, Managing Director & CEO of the bank. South Indian Bank has 580 branches and 3 extension counters spread across more than 26 states and union territories in India. It has set up 375 ATMs all over India. In the current year 2010-11, the bank is planning to add 60 more branches throughout India which aims in having presence in all the states of India. The current growth plan of the bank is to establish 750 branches, 750 ATMs and 75000 crores of business by the end of financial year 2013. The bank offers major services in various segments of accounts and deposits, loans, mutual funds, insurance, money transfers and other value added services. The Kerala Government had given permission to

SIB to accept commercial taxes. The bank has been appointed as the largest service provider (point of sale) for the New Pension Scheme (India) launched by the Government of India. Building Blocks One of the earliest banks in south India, "south Indian bank" came into being during the swadeshi movement. the establishment of the bank was the fulfillment of the dreams of a group of enterprising men who joined together at Thrissur, a major town (now known as the cultural capital of Kerala), in the erstwhile state of cochin to provide for the people a safe, efficient and service oriented repository of savings of the community on one hand and to free the business community from the clutches of greedy money lenders on the other by providing need based credit at reasonable rates of interest. Translating the vision of the founding fathers as its corporate mission, the bank has during its long sojourn been able to project itself as a vibrant, fast growing, service oriented and trend setting financial intermediary. Milestones The FIRST among the private sector banks in Kerala to become a scheduled bank in 1946 under the RBI Act. The FIRST bank in the private sector in India to open a Currency Chest on behalf of the RBI in April 1992. The FIRST private sector bank to open a NRI branch in November 1992. The FIRST bank in the private sector to start an Industrial Finance Branch in March 1993. The FIRST among the private sector banks in Kerala to open an "Overseas Branch" to cater exclusively to the export and import business in June 1993. The FIRST bank in Kerala to develop an in-house, a fully integrated branch automation software in addition to the in-house partial automation solution operational since 1992. The FIRST Kerala based bank to implement Core Banking System. The THIRD largest branch network among Private Sector banks, in India, with all its branches under Core banking System.

Future Perfect The South Indian Bank with a new logo and image, marches on. With branches all over India and a clientele across the world, the bank is considered one of the most pro active banks in India with a competent tech savvy team of professional at the core of services.

Vision To emerge as the most preferred bank in the country in terms of brand, values, principles with core competence in fostering customer aspirations, to build high quality assets leveraging on the strong and vibrant technology platform in pursuit of excellence and customer delight and to become a major contributor to the stable economic growth of the nation.

Mission To provide a secure, agile, dynamic and conducive banking environment to customers with commitment to values and unshaken confidence, deploying the best technology, standards, processes and procedures where customer convenience is of significant importance and to increase the stakeholders value. Awards and Accolades Best Bank in Asset Quality Award- Dun & Bradstreet. No. 1 in Asset Quality- Business Today Ranking of Banks. Best Performer in Asset Quality- Analyst 2008 Survey. Top NPA Manager- ASSOCHAM- ECO Pulse Survey. Best Old Private Sector Bank- Financial Express India's Best Banks 08-09. Best Asian Banking Website- Asian Banking & Finance Magazine, Singapore. Best private sector bank in India in the service quality segment-Outlook Money - CFore Survey Special award for excellence in Banking Technology from IDRBT (Institute for Development & Research in Banking Technology) the technical arm of the Reserve Bank of India as a national level recognition to the excellent contribution made in the area of Information Systems Security Policies and Procedures.

New corporate brand logo South Indian Bank unveiled the new corporate logo that demonstrates the major transformation the bank has undergone since its inception. Mammootty, the three-time Bharath award winning megastar, who is also the global Brand Ambassador of the bank, unveiled the new corporate brand logo.

Brand Ambassador The bank, as part of the global brand building exercise, has signed South Indian actor Padmashree Bharath Mammootty as its brand ambassador banking on the film star's `pan India appeal, clean image and popularity among the NRI community'. His tech savvy image goes handin-hand with the bank which has always been in the forefront of embracing technology. The initial contract between the bank and actor was for three years which was later extended for five more years. Currently SIB is the only bank in South India that has a brand ambassador. Through endorsing Mammootty as its global brand ambassador, SIB has received a huge boost especially in the Middle East. Tie-ups ING Life have a tie-up with SIB to collect insurance policy renewal payments for ING Life customers. SIB also has bancassurance arrangements with both Bajaj Allianz General Insurance Company Ltd for distribution of non-life insurance products and the Export Credit Guarantee Corporation of India for distribution of export risk cover. It has also tied up with ICICI Prudential AMC, Franklin Templeton, TATA Mutual Fund, Sundaram BNP Paribas, UTI Mutual Funds, Reliance Mutual Funds, HSBC Investments, HDFC Mutual Fund, Fidelity Fund Management Pvt Ltd , Principal Mutual Funds, Fortis Investments, Birla Sun Life Asset Management Company Ltd and DSP BlackRock Mutual Funds, all mutual fund houses, for distribution of their mutual fund products. In March, 2010, the bank signed an agreement with Sri Lanka'sHatton National Bank (HNB) for exchange of services and expertise between them. The MoU set out a framework between the two banks to enter into mutually beneficial arrangements to offer banking services to their respective customers. The tie-up was expected to foster trade-related cross border business like advising and confirming Letter of credit, negotiating and discounting of export-import bills and providing credit report of customers between the two countries. It would also enable the customers of HNB to utilise the services of Hadi Express Exchange, for which management support is provided by SIB. Financial results for the year 2009-10 Total Business: 39125 crores Revenues: 2144.18 crore Profit After Tax: Rs 233.76 crore (20% growth) Stock Market Capitalization: Rs 1,574.75 crore as on Feb 23, 2010.

The bank showed a consistent growth in its earnings and grew over 20% which is higher than the industry average. The bank targeted a business of 36000 crores for the financial year 2009-10, but the growth was so quick that it was achieved before time.Later the target was increased to 38000 crore and that also was exceeded before the quarter end. South Indian Bank is targeting a total business of 48000 crore for the FY 2010-11. Board of directors Amitabh Guha - Chairperson Dr.V.A Joseph - Managing Director & CEO Abraham Thariyan - Executive Director A S Narayanamoorthy - Director C J Jose - Director Paul Chalissery - Director N J Kurian - Director Davy K Manavalan - Director Jose Alapatt - Director Mathew L Chakola - Director

THEORETICAL FRAME WORK

CHAPTER 3

3.1 ECONOMIC VALUE ADDITION (EVA)

Adam Smith, one of the fathers of classical economic thought, observed that firms and resource suppliers, seeking to further their own self-interest and operating within the framework of a highly competitive market system, will promote the interest of the public, as though guided by an invisible hand. (Smith, 1776) The market mechanism of supply and demand communicates the wants of consumers to businesses and through businesses to resource suppliers. Competition forces business and resource suppliers to make appropriate responses. The impact of an increase in consumer demand for some product will raise that goods price. The resulting economic profits signal other producers that society wants more of the product. Competition simultaneously brings an expansion of output and a lower price. Profits cause resources to move from lower valued to higher valued uses. Prices and sales are dictated by the consumer. In the quest for higher profits, businesses will take resources out of areas with lower than normal returns and put them into areas in which there is an expectation of high profits. Profits allocate resources. The primary objective of any business is to create wealth for its owners. If nothing else the organization must provide a growth dividend to those who have invested expecting a value reward for their investment. As companies generate value and grow, society also benefits. The quest for value directs scarce resources to their most promising uses and most productive users. The more effectively resources are employed and managed, the more active economic growth and the rate of improvement in our standard of living as a society. Although there are exceptions to the rule relating to the value of economic wealth, most of the time there is a distinct harmony between creating increased share value of an organization and enhancing the quality of life of people in society. In most companies today the search for value is being challenged by a seriously out of date financial management system. Often, the wrong financial focus, cash strategies, operating goals, and valuation processes are emphasized. Managers are often rewarded for the wrong achievements and in many cases they are not rewarded for the efforts that lead to real value. Balance sheets are often just the result of accounting rules rather than the focus of value enhancement. These problems

beg for approaches to financial focus that are completely different from current approaches. New approaches must start nothing less than a revolution in thinking in the process of economic evaluation. One of the focuses that have proved to be incorrect in the valuation of economic worth is earnings per share (EPS). Earnings per share has long been the hallmark of executives that appear in meetings of the shareholders, as the measure of their accomplishments. This, along with return on equity has long been thought of as the way to attract Wall Street investment. There is nothing that points to EPS as anything more than a ratio that accounting has developed for management reporting. Many executives believe that the stock market wants earnings and that the future of the organizations stock depends on the current EPS, despite the fact that not one shred of convincing evidence to substantiate this claim has ever been produced. To satisfy Wall Streets desire for reported profits, executives feel compelled to create earnings through creative accounting. Accounting tactics that could be employed to save taxes and increase value are avoided in favour of tactics that increase profit. Capital acquisitions are often not undertaken because they do not meet a hypothetical profit return. R&D and market expanding investments get only lip service. Often increased earnings growth is sustained by overzealous monetary support of businesses that are long past their value peak. We must ask then, what truly determines increased value in stock prices. Over and over again the evidence points to the cash flow of the organization, adjusted for time and risk, that investors can expect to get back over the life of the business. Economic Value Added (EVA) is a measurement tool that provides a clear picture of whether a business is creating or destroying shareholder wealth. EVA measures the firms ability to earn more than the true cost of capital. EVA combines the concept of residual income with the idea that all capital has a cost, which means that it is a measure of the profit that remains after earning a required rate of return on capital. If a firms earnings exceed the true cost of ca pital it is creating wealth for its shareholders.

Definition of Economic Value Added A discussion on Economic Value Added has to begin with the origin of the concept. EVA is based on the work of Professors Franco Modigliani and Merton H. Miller. In October, 1961, these two finance professors published Dividend Policy, Growth and the Valuation of Shares, in the Journal of Business. The ideas of free cash flow and the evaluation of business on a cash basis were developed in this article. These ideas were extended into the concept of EVA by Bennett Stewart and Joel Stern of Stern, Stewart & Company. Economic Value Added is defined as net operating profit after taxes and after the cost of capital. (Tully, 1993) Capital includes cash, inventory, and receivables (working capital), plus equipment, computers and real estate. The cost of capital is the rate of return required by the shareholders and lenders to finance the operations of the business. When revenue exceeds the cost of doing business and the cost of capital, the firm creates wealth for the shareholders. EVA = Net Operating Profit Taxes Cost of Capital Calculating Net Operating Profit After Taxes (NPAT) NPAT is easy to calculate. From the income statement we take the operating income and subtract taxes. Operating income is sales less cost of sales and less selling, general and administrative expenses. The following example from XYZ Company illustrates the NOPAT calculation. Financial leverage, the capital asset pricing model and the cost of equity capital A stocks expected return, its dividend yield plus expected price appreciation, is related to risk. Risk averse investors must be compensated with higher expected returns for bearing risk. One source of risk is the financial risk incurred by shareholders in a firm which has debit in its capital structure. The objective of this note is to delineate a methodology for measuring the risk associated with financial leverage and estimating the impact on the cost of equity capital. Financial leverage and risk The presence of debit in a firms capital structure has an impact on the risk born by its shareholders. In the absence of debit, shareholders are subjected only to basic business or operating risk. The business risk is determined by factors such as the volatility of firms sales and level of

operating leverage. A compensation for incurring business risk, investors require a premium in excess of return the could earn a riskless security such as Treasury bill. Thus, in the absence of financial leverage expected return can be through of as the risk free rate + premium for business risk. The addition of debit to a firms capital structure increases the risk borne by its shareholders. One source of additional risk is the increased risk of financial distress. A second source is the effect of financial leverage on the volatility of the shareholders return. The fixed obligations associated with the debit amplify the variations in a firms operating cash flows. The result is a more volatile stream of shareholders return. For investors to hold the shares of the firms which debit in their capital structure there must be compensated for the additional risk generated by financial leverage. The additional risk premium associated with the presence of firms capital structure is the financial risk premium. Therefore, the expected return on a firm stock can be thought of as risk free rate + a premium for risk Expected return = risk free return + risk free premium The risk premium consists of a premium of business risk and premium for financial risk. Expected return = risk free rate + business risk premium + financial risk premium. The relation can be expressed in symbols Rs =Rf + BRP + FRP Thus the expected return on firms stock can be decomposed into three components these components are The return on risk less security Rf A premium reflecting a firms basic risk in the absence of financial leverage BRP A premium for the additional risk created by the existence of the firms capital structure FRP.

3.2 REVIEW OF LITERATURE

Economic value addition by Indian Banks: A study Indian Banking has seen many changes in the last decade like imposition of prudential standards, greater competition among banks, entry of new private banks, etc. This paradigm shift in the Indian banking sector can be seen in terms of two dimensions: One relates to operational aspect especially performance and risk-management system and the second dimension relates to structural and external environment or exogenous aspects. Is evaluating Indian banks performance a rather straight forward issue? The answer is no. One might say that like a corporate, even banks can be judged from the behavior of their stock prices. However, as bank stocks have not been very active on exchanges, barring few on few occasions, should we conclude that Indian banks have by and large failed to add values to their shareholders wealth. The answer is once again no as one needs to evaluate private and public sector banks in a more dynamic manner than just looking at their stock prices, non-performing assets (NPAs), C/D ratios and others. Some may also argue that the general slowdown in lending by banks and their eternal problem of recovery of non performing assets (NPAs) has led to the sufferings of Indian banks. The net NPA figure of scheduled commercial banks of over Rs. 32,468 crore represents 6.2 percent of advances aggregating Rs. 5,58,766 crores in 2001 and 2.5% of the total assets. Over Rs. 30,000 crore of NPAs are locked up in suit filed accounts. There will be very little that an ARF/ARC can do in recovering from suit filed accounts due to deficiencies in the legal system. Major corporate clients who are willful defaulters take shelter under protection of BIFR. Banks are fairly successful in recovering the overdue from non-corporate clients. The phenomenon of growing NPAs is not confined to public sector banks alone. The net NPA of old private sector banks stood at 7.3% of their advances, for new private sector banks it was 3.1% and for foreign banks operating in India it accounted for 1.9% in the year 2001 of their advances. Many Indian banks are discovering that the key to their long-term growth does not lie in products and services alone but in assets that can never be replicated, that is, their unique relationship with customers, employees, suppliers and distributors, investors and the communities they serve. One of the most fateful errors bankers usually commit relates to their belief that merely reducing NPAs and thereby maximizing profit would solve the problem of banking industry. Not only is this belief still held by most of the bankers in India - and therefore professionally

unacquainted by the changing profile of their shareholders and the capital market- it is held by virtually large number of myopic captains of the industry. That things are not going as well as they ought to be going for such banks could be due to economic recession, poor demand for credit, rising manpower costs, political uncertainty, inefficient ways of doing business. Or is it something else? Relevance of EVA for Indian Banks In order to help management understand their own economics and arrive at value creating investment decision that adequately satisfies the two sensitive factors mentioned earlier, bankers must understand the concept and relevance of Economic Value Added (EVA)., a period based measure of value creation. EVA provides a unique insight into value creation and links theory of finance with the competitive strategy framework as enumerated by Michael Porter. EVA is also a quantifiable driver of value creation for the stock markets. Large number of International banks (such as Citibank, Deutsche Bank, Barclays, ABN AMRO) use value based frameworks such as EVA to run their banking operations. Although EVA an a yardstick in India may be at an evolving stage, banks like HDFC Bank, ICICI Bank etc. have gradually started adapting such measure to cater to the increasingly discerning investor base. A banks management creates value when it takes decisions that provide benefits, in exc ess of costs. These benefits may come to banks in the near or distant future depending on the strategies involved in decision making process. The bankers of todays world therefore must be sensitive to two fundamental drivers that drive shareholders wealt h. First, there must be an unrelenting focus to ensure that funds mobilized by the banks (whether through depositors, equity or debt issues) generate returns in excess of the cost of capital (or can reasonably be expected to do so) with an eye toward returning non productive capital back to providers of the capital or shareholders. Second, bankers should constantly seek to invest in technology that increases their reach and also be open to strategic alliances, mergers & acquisitions and restructuring. In the same context it is worth considering that the capital mobilized by banks earn a satisfactory return. While it is true that substantial amount of value creation for a bank or corporate takes place from less than half of the capital employed, it proves that the entity can unlock huge amount of capital employed for adding to the value for the shareholders. The second point mentioned earlier, a necessary corollary to the first point, emphasizes on the importance of investing in value creating projects and strategies. It implies criticality of the fact that bankers must remain sensitive to all such balance sheet items that add value either through mergers or

acquisitions or simply through restructuring, re-capitalization or any other method such as sell-off of unproductive assets. Further, banks management must be able to differentiate between projects and strategies. While projects are generally viewed financially from NPV or IRR point of view, they may not really convey the fact that whether value is being added to the shareholders. For example, what distinguishes HDFC Bank, the new futuristic bank from other savvy banks is its position in the new e-economy. The anywhere-anytime bank is not averse of accepting the fact that customer is the king and the bank has to tailor its products as per his requirements even if the new product has a negative NPV as its alternative strategy of doing nothing may only destroy value for HDFC Bank. Having established a massive base of customers and holding extensive information about them, banks such as ICICI Bank and HDFC Bank have already made major head start. They are now all set to leverage these assets. As we all know the Internet has already started radically affecting fundamental structures of even Indian banks, not only in retail operations, but in many other areas including private banking. The bankers in the new millennium therefore must attempt to make investment in strategies and not merely remain confined to borrowing and lending. They should now play a role of financial service providers for increasing their shareholders value. Limitations of traditional method Most of the accounting based measures such as Price: Earnings, Book Value, Returns on Equity, Return on Net worth etc. fail to provide a clear understanding of the major variables that drive value, except to some extent Returns on Invested Capital. These methods are easily influenced by the smart and perhaps mischievous management through window dressings. They also do not incorporate risk or time value of money also and do not help investors understand the intricate process of value creation. In addition, these traditional measures use, for most part, historical data to measure current performance. Ideally, one would like to measure how current decisions will affect the firms future performance. Unlike accounting measures, Economic Value Added, raises the issue highlighted in the Nobel Prize work of Franco Modigliani and Merton Miller: just as debt holders of a bank expect a specific return, the shareholders of the bank, expect a certain rate of return for taking risk of investing in the bank. A banks present value should equal its invested capital plus the present value of future EVA and if the banks present value is lower, the stock is undervalued and vice versa. Value of a banks share is also said to equal the market value of assets and the sum of EVAs of all future

periods discounted back to the present. A bank once it reaches a period when it no longer earns a return on its incremental investments greater than its cost of capital, from this period onward no EVA is added or destroyed from new investments. While competitive forces are likely to drive returns to WACC for Indian banks, the emergence of indifference vary from bank to bank and is determined by several factors such as industry structure, a banks position in the industry, capital spending for strategic investments etc. Average Ratios of Banks in India (1996-97 to 2000-01) To spot emerging trends in a banks performance, the return on invested capital can be measured incrementally from one year to the next. This measure shows how much additional profits a company is able to generate for every additional rupee put into the business. This measure which equals NOPAT (t) - NOPAT (t-1) / (Invested Capital (t) - Invested Capital (t-1)) is analogous to first derivative in calculus. This method is likely to smooth out any time events present in the data. This measure assumes that all incremental value creation results from the new innovations undertaken during the year. With this caveat in mind, the results can highlight changes that are less visible in the annual data. As mentioned earlier an important difference between banks and others is the role of debt. For other firms debt is a part of the financing operations and interest expenses are excluded from Net Operating Profit After Taxes (NOPAT) so that returns are unlevered. A banks debt funding is effectively the raw material which is intermediated into higher yielding assets. Interest expense, on this view, is equivalent of the cost of goods sold. This has an important consequence. In our analysis NOPAT for each year was therefore arrived at after adding interest on RBI loans and other loans to Profit before Depreciation and Taxes less Cash Taxes. The component of cash taxes represented as if banks were debt free. In order to calculate cash taxes, tax shield on the interest paid on RBI loans and others were added back to Tax Provision and tax paid on other incomes were deducted from tax provision of the year. A tax rate of 30 percent per year was assumed for maintaining consistency over years in our analysis. The economic capital of a bank is defined as the shareholders funds plus reserves excluded from equity, such as loan losses or contingency reserve which in economic terms, function as capital. In this fund total long term borrowings of the bank are added to arrive at the Invested Capital (IC). In our analysis we have first attempted to critically evaluate banks performance in generating Return on Invested Capital (ROIC) over years, we have first taken four most critical

indicators viz. Return on Invested Capital (ROIC), Incremental ROIC, Return on Capital Employed (ROCE) and the Price Earnings performance through Price Earnings Ratio (PER). It can be seen in Table 1 that UTI bank and HDFC Bank enjoyed highest Return on Invested Capital (ROIC) in the industry ticking 50.1% and 52.8% for both 1996-97 and 1997-98 respectively followed by IndusInd Bank at 45.6% in 1996-97 and Bank of Madura at 34% in 199798. Lowest ROIC in the industry for the years 1996-97 and 1997-98 was shown by IDBI Bank at 2.7% and Bank of Rajasthan at () 41.6% respectively. For the year 1998-99 however, Times Bank clocked highest ROIC at 28.7% followed closely by State Bank of Bikaner & Jaipur at 26.1%. Lowest ROIC in the industry for the year was shown by Bank of Rajasthan. The incremental ROIC clearly shows the dominance of private sector banks in all the three years between 1997-98 to 1999-2000. All these three years were dominated by the HDFC Bank, IDBI Bank and UTI Bank in the years 1997-98, 1998-99 and 1999-2000 respectively. In our analysis Return on Capital Employed (ROCE) has shown a rather mixed performance of both emerging private banks and other scheduled banks. However in terms of percentage change in the ROCE over the previous year, once again we can notice the edge which private sector banks have over their counterparts in the public sector. Both ICICI bank and IDBI Bank showed exceptional change in their ROCE over the last year during 1998-99 and 1997-98. Analogously, HDFC Banks showed the best PER in all the four years that we studied. Its PER over years varied between 18 to 34. The other private banks that came after HDFC were ICICI Bank and IDBI Bank in the years 1997-98 and 1998-99 respectively. Value addition by banks While conducting the EVA analysis for banks, all 26 banks were ranked on the basis of EVA, % Change in EVA over last year, Market Capitalization (MC), Enterprise Value (EntV), % Change in EntV over last year, Market Value Added (MVA) and % Change in MVA over last year. The study shows that over 80% of the banks were unable to earn a return sufficient to meet their cost of capital. Further, as per Table 3, contrary to popular belief that only HDFC Bank and ICICI Bank have been able to add values, the study shows impressive performance in terms of EVA by banks such as State Bank of Bikaner & Jaipur, Jammu & Kashmir Bank, Timesbank, Global Trust Bank and Indusind Bank. UTI Bank however turned out be the real turnaround case as it added the greatest amount of EVA in terms of percentages over the year 1998-99. State Bank of India by virtue of being the largest bank managed to have largest amount of market capitalization and enterprise value followed by other emerging and powerful private banks such as HDFC Bank and

ICICI Bank. The reason why HDFC Bank continued to be liked by the stock operators has been purely due to the fact that this bank has been the leader in terms of MVA for the last three years followed by ICICI Bank. Economic value addition by Indian Banks - Summary Indian Banking has seen many changes in the last decade like imposition of prudential standards, greater competition among banks, entry of new private banks, etc. This paradigm shift in the Indian banking sector can be seen in terms of two dimensions: One relates to operational aspect especially performance and risk-management system and the second dimension relates to structural and external environment or exogenous aspects. Is evaluating Indian banks performance a rather straight forward issue? The answer is no. One might say that like a corporate, even banks can be judged from the behavior of their stock prices. However, as bank stocks have not been very active on exchanges, barring few on few occasions, should we conclude that Indian banks have by and large failed to add values to their shareholders wealth. The answer is once again no as one needs to evaluate private and public sector banks in a more dynamic manner than just looking at their stock prices, non-performing assets (NPAs), C/D ratios and others. Some may also argue that the general slowdown in lending by banks and their eternal problem of recovery of non performing assets (NPAs) has led to the sufferings of Indian banks. Many Indian banks are discovering that the key to their long-term growth does not lie in products and services alone but in assets that can never be replicated, that is, their unique relationship with customers, employees, suppliers and distributors, investors and the communities they serve. One of the most fateful errors bankers usually commit relates to their belief that merely reducing NPAs and thereby maximizing profit would solve the problem of banking industry. Not only is this belief still held by most of the bankers in India - and therefore 10 professionally unacquainted by the changing profile of their shareholders and the capital market- it is held by virtually large number of myopic captains of the industry. That things are not going as well as they ought to be going for such banks could be due to economic recession, poor demand for credit, rising manpower costs, political uncertainty, inefficient ways of doing business. Or is it something else? In order to help management understand their own economics and arrive at value creating investment decision that adequately satisfies the two sensitive factors mentioned earlier, bankers must understand the concept and relevance of Economic Value Added (EVA)., a period based measure of value creation. EVA provides a unique insight into value creation and links theory of

finance with the competitive strategy framework as enumerated by Michael Porter. EVA is also a quantifiable driver of value creation for the stock markets. Large number of International banks (such as Citibank, Deutsche Bank, Barclays, ABN AMRO) use value based frameworks such as EVA to run their banking operations. Although EVA an a yardstick in India may be at an evolving stage, banks like HDFC Bank, ICICI Bank etc. have gradually started adapting such measure to cater to the increasingly discerning investor base. A banks management creates value when it takes decisions that provide benefits, in excess of costs. These benefits may come to banks in the near or distant future depending on the strategies involved in decision making process. The bankers of todays world therefore must be sensitive to two fundamental drivers that drive shareholders wealth. First, there must be an unrelenting focus to ensure that funds mobilized by the banks (whether through depositors, equity or debt issues) generate returns in excess of the cost of capital (or can reasonably be expected to do so) with an eye toward returning non productive capital back to providers of the capital or shareholders. Second, bankers should constantly seek to invest in technology that increases their reach and also be open to strategic alliances, mergers & acquisitions and restructuring. In the same context it is worth considering that the capital mobilized by banks earns a satisfactory return. While it is true that substantial amount of value creation for a bank or corporate takes place from less than half of the capital employed, it proves that the entity can unlock huge amount of capital employed for adding to the value for the shareholders. The second point mentioned earlier, a necessary corollary to the first point, emphasizes on the importance of investing in value creating projects and strategies. It implies criticality of the fact that bankers must remain sensitive to all such balance sheet items that add value either through mergers or acquisitions or simply through restructuring, re-capitalization or any other method such as sell-off of unproductive assets. Further, banks management must be able to differentiate betwe en projects and strategies. While projects are generally viewed financially from NPV or IRR point of view, they may not really convey the fact that whether value is being added to the shareholders. For example, what distinguishes HDFC Bank, the new futuristic bank from other savvy banks is its position in the new e- economy. The anywhere-anytime bank is not averse of accepting the fact that customer is the king and the bank has to tailor its products as per his requirements even if the new product has a negative NPV as its alternative strategy of doing nothing may only destroy value for HDFC Bank. Having established a massive base of customers and holding extensive information about them, banks such as ICICI Bank and HDFC expected to do so) with an eye toward returning non productive capital back to providers of the capital or shareholders. Second,

bankers should constantly seek to invest in technology that increases their reach and also be open to strategic alliances, mergers & acquisitions and restructuring. Benefits of EVA System for Banks As banks become capital hungry to meet their growth expectations and simultaneously meeting the regulatory requirements in the Basel-II era, they would have to remain responsive to the expectations of the market on a risk adjusted basis to ensure continued supply of financial capital from the shareholders and human capital from the ultimate stakeholders. One of the fundamental limitations in the existing business growth strategies of Indian banks, especially public sector banks, is its virtual, if not complete, disconnect with riskiness. Profit rich but Risk poor strategies are doomed for failure in the long -run! Finalization of business targets should no longer remain a mundane volume-mix targeting exercise but should built-in inherent risk-return dimensions. Business strategies that ensure Risk & Return by Choice and not by Chance are key to ensure continuing success of banks in the emerging market. In order to align the performance of individual zones/regions/branches to the overall corporate expectations in terms of EVA, the vocabulary of risk management has to percolate down the hierarchy of banks to the individual unit level. New performance benchmarks in the form of EVA should naturally form the unifying cord/link in every bank. EVA can be an important tool that bankers can use to measure and improve the financial performance of their bank. Since EVA takes the interest of the banks shareholders into consideration, the use of EVA by bank management may lead to different decisions than if management relied solely on other measures. As mentioned earlier an important difference between banks and others is the role of debt. For other firms debt is a part of the financing operations and interest expenses are excluded from Net Operating Profit After Taxes (NOPAT) so that returns are unlevered. A banks debt funding is effectively the raw material which is intermediated into higher yielding assets. Interest expense, on this view, is equivalent of the cost of goods sold. This has an important consequence. In our analysis NOPAT for each year was therefore arrived at after adding interest on RBI loans and other loans to Profit before Depreciation and Taxes less Cash Taxes. The component of cash taxes represented as if banks were debt free. In order to calculate cash taxes, tax shield on the interest paid on RBI loans and others were added back to Tax Provision and tax paid on other incomes were

deducted from tax provision of the year. A tax rate of 30 percent per year was assumed for maintaining consistency over years in our analysis. The economic capital of a bank is defined as the shareholders funds plus reserves excluded from equity, such as loan losses or contingency reserve which in economic terms, function as capital. In this fund total long term borrowings of the bank are added to arrive at the Invested Capital (IC). In our analysis we have first attempted to critically evaluate banks performance in generating Return on Invested Capital (ROIC) over years, we have taken two most critical indicators viz. Return on Invested Capital (ROIC) and Incremental ROIC. Performance Measurement Investors measure overall performance of a bank as a whole to decide whether to invest in the bank or to continue with the bank or to exit from it. In order to achieve goal congruence, managers compensation is often linked with the performance of the responsibility centers and also with bank-performance. Therefore selection of the right measure is critical to the success of a bank. To measure performance of a bank we need a simple method for correctly measuring value created / enhanced by it in a given time frame. All the current metrics trade off between the precision in measuring the value and its cost of measurement. In other words, each method takes into consideration the degree of complexities in quantifying the underlying measure. The more complex is the process, the more is the level of subjectivity and cost in measuring the performance of the bank. There is a continuous endeavor to develop a single measure that captures the overall performance, yet it is easy to calculate. Each metric of performance claims its superiority over others. Performance of a bank is usually measured with reference to its past record and the performance of other banks with comparable risk profile. The various performance metrics currently in use are based on the returns on investment generated by the business entity. Therefore to reach a meaningful conclusion, returns generated by the bank in a particular year should be compared with returns generated by assets with similar risk profile (cross sectional analysis). Similarly return on investment for the current period should be compared with returns generated in past (time series analysis). A bank creates value only if it is able to generate return higher than its cost of capital. Cost of capital is the weighted average cost of equity and debt (WACC). The performance of a bank gets reflected on its valuation by the capital market. Market valuation reflects investors perception about the current performance of the bank and also their

expectation on its future performance. They build their expectations on the estimated growth of the bank in terms of return on capital. This results in an incongruence between current performance and the value of the bank. Even if the current performance is better in relative terms, poor growth prospects adversely affects the value of the bank. Therefore any metric of performance, to be effective, should be able to not only capture the current performance but also should be able to incorporate the direction and magnitude of future growth. Therefore the robustness of a measure is borne out by the degree of correlation the particular metric has with respect to the market valuation. Metrics of performance have a very important and critical role not only in evaluating the current performance of a bank but also in achieving high performance and growth in the future. Value creation and maximization depends on the alignment of the various conflicting interests of these stakeholders towards a common goal. This means maximization of the bank value without jeopardizing the interests of any of the stakeholders. Any metric, which measures the bank value without being biased towards any of the stakeholders or particular class of participants, can be hailed as the true metric of performance. However it is difficult, if not impossible, to develop such a metric. Most of the conventional performance measures directly relate to the current net income of a business entity with equity, total assets, net sales or similar surrogates of inputs or outputs. Examples of such measures are return on equity (ROE), return on assets (ROA) and operating profit margin. Each of these indices measure a different aspect of performance, ROE measures the performance from the perspective of the equity holders, ROA measures the asset productivity and operating profit margin reflects the margin realized by the bank at the market place. The net income figure in itself is dependent on the operational efficiency, financial leverage and the ability of the entity to formulate right strategy to earn adequate margin in the market place. It is important to note that none of these measures truly reflect the complete picture by themselves but have to be seen in conjunction with other metrics. These measures are also plagued by the bank level inconsistencies in the accounting figures as well as the inconsistencies in the valuation methods used by accountants in measuring assets, liabilities and income of the bank. Accounting valuation methods are in variance with the methods that are being used to value individual projects and banks. The value of an asset or a bank, which is a collection of assets, is computed by discounting future stream of cash flows. The net present value (NPV) is the surplus that the investment is expected to generate over the cost of capital. Measures of periodical performance of a bank, which is the collection of assets in place, should follow the same underlying principles. Economic value added (EVA) is a measure that captures the valuation principles.

ECONOMIC VALUE ADDITION SOUTH INDIAN BANK.

CHAPTER 4

4.1 ECONOMIC VALUE ADDITION SOUTH INDIAN BANK

This chapter deals with data analysis and interpretation part. It contains two sections, Section A deals secondary data analysis and Section B deals primary data analysis. In order to fulfill the primary objective which is about the study of investors perception of EVA primary data analysis is used and for getting the rest of the objectives secondary data analysis is used. Secondary data analysis deals with calculation of beta values, cost of capital and EVA of the following five banks: SIB, Federal bank, HDFC Bank, ICICI Bank and SBI. In addition to this the part also contains chat and inferences of the above mentioned terms. Beta calculation is calculated using slope function. For finding out this market return and stock return is used. Market return is found from bank nifty closing price data. And stock return from security wise data of each bank. Market return = Todays price - Yesterdays price Yesterdays price

100

Stock return

Todays price - Yesterdays price

100

Yesterdays price

Cost of capital is calculated using CAPM model using the formulae: Ke = Rf + Bi (Rm - Rf ) *RF It is founded from RBI site. It is the rate of 91 days Treasury bill. *Bi Beta value. *Rm It shows average of stock return. Here market return is very low during 2000 and 2001 so here average is taken as Rm. ie, 24.982516

EVA is calculated from net profit after tax deducted from the sum of cost of capital and equity or share holders fund. The formulae: EVA = NPAT (Ke * Equity or Shareholders Fund) In Section B primary data analysis deals with data collected through the survey using the questionnaires. They were classified and tabulated to several certain patterns. The data as tabulated are put into further analysis in this chapter and suitable inference are made for such analysis.

4.1.1 SECONDARY DATA ANALYSIS

Secondary data analysis is the part of data analysis and interpretation, this section deals with calculation of beta values, cost of capital and EVA of five reputed banks.

SOUTH INDIAN BANK

The main objective of the study is to determine banks create or destroy shareholders wealth and to compare south Indian banks EVA with other banks. To fulfill this objective the researcher has to calculate beta, cost of capital and EVA. a) Beta and RF The below table 4.1 contains the details of beta and RF for a period of ten years. Table 4.1 Beta and RF of South Indian Bank YEAR 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 BETA RF

0.5913307 8.7472 0.6357974 6.1326 0.6644909 5.8853 0.6887869 4.3672 0.7814542 5.3241 0.7755447 6.1081 0.7204081 7.977 0.7319782 7.2274 0.6673052 4.9538 0.6777941 4.3792

b) Calculation of Cost of capital The table 4.2 contains the steps regarding the calculations of cost of capital using CAPM model. Table 4.2 Cost of capital of South Indian Bank Year Rm - Rf Bi(Rm - Rf) Rf + Bi (Rm - Rf ) 18.34764 18.117327 18.575227 18.566759 20.686251 20.746054 20.227911 13.728336 14.03257 14.920156 Ke 0.18 0.18 0.19 0.19 0.21 0.21 0.2 0.14 0.14 0.15 %

2000 - 01 16.235316 9.6004405 2000 - 02 18.849916 11.984727 2000 - 03 19.097216 12.689927 2000 - 04 20.615316 14.199559 2000 - 05 19.658416 15.362151 2000 - 06 18.874416 14.637954 2000 - 07 17.005516 12.250911 2000 - 08 17.755116 12.996358 2000 - 09 20.028716 13.365265 2000 - 10 21.012816 14.242362

Here the cost of capital of south Indian bank lies between 14% - 21%. I4% is comparatively less. Any of the investors of south Indian bank doesnt expect this much less return. Here bank earns 14 -15% return at the time of recession.

c) Calculation of Equity or Shareholders fund. The table 4.3 contains the details of capital and reserves taken from balance sheet of SIB and calculates Equity or Shareholders fund. It is the sum of Capital and Reserves. Ke calculated from the above table 4.2. Table 4.3 Equity or Shareholders fund of South Indian Bank
Year 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 Capital 35.67 35.74 35.77 35.78 47.68 70.41 70.41 90.41 113.01 113 Reserves 182.85 238.86 285.22 359.11 407.58 570.45 653.56 1051.81 1172.59 1371 Equity 218.52 274.6 320.99 394.89 455.26 640.86 723.97 1142.22 1285.6 1484 Ke 18.34764 18.117327 18.575227 18.566759 20.686251 20.746054 20.227911 13.728336 14.03257 14.920156

d) Calculation of EVA The table 4.4 shows steps regarding EVA calculation, for this the researcher has to take NPAT. It is brought down from P&L account of SBI and EVA is calculated. Table 4.4 Calculation of EVA of South Indian Bank
Year 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 NPAT 41.5 62.41 72.33 84.33 8.7 50.9 104.12 151.62 194.75 233.76 Ke 0.18 0.18 0.19 0.19 0.21 0.21 0.2 0.14 0.14 0.15 Ke*Equity 39.3336 49.428 60.9881 75.0291 95.6046 134.5806 144.794 159.9108 179.984 222.6 EVA 2.1664 12.982 11.3419 9.3009 -86.9046 -83.6806 -40.674 -8.2908 14.766 11.16

e) EVA of South Indian Bank The table 4.5 shows the final result of EVA calculated from the above mentioned tables and its graphical representation is show in below fig4.1. Table 4.5 EVA of South Indian Bank
YEAR 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 EVA 2.1664 12.982 11.3419 9.3009 -86.9046 -83.6806 -40.674 -8.2908 14.766 11.16

Fig 4.1 EVA of South Indian Bank

EVA
20 0 -20 -40 -60 -80 -100 2000 - 2000 - 2000 - 2000 - 2000 - 2000 01 02 03 04 05 06 2000 - 07 2000 - 08 2000 09 2000 - 10

EVA

Inference: The chart indicates that south Indian bank shows both positive and negative EVA. Only at the time of middle of this decade south Indian banks EVA is not satisfactory. Every banking activity having operational risk and financial risk, but sometime additional risk is there. This additional risk is the reason for low EVA.

FEDERAL BANK
For this comparative study the researcher has to include Federal bank, it is one of the reputed bank. Here the researcher has to calculate Beta value, Cost of capital, Equity and EVA. These calculations as follows: a) Beta and RF The beta and RF values for a period of ten years is shown in below table 4.6 Table 4.6 Beta and RF of Federal Bank YEAR 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 BETA RF

0.0724742 8.7472 0.3574946 6.1326 0.4889231 5.8853 0.6386075 4.3672 0.7132819 5.3241 0.7215489 6.1081 0.7570591 7.977 0.7261086 7.2274 0.6810373 4.9538 0.6817162 4.3792

b) Calculation of Cost of capital CAPM model is used to calculate the cost of capital for a period of ten years in the below table 4.7 Table 4.7 Cost of capital of Federal Bank Year 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 Rm - Rf Bi(Rm - Rf) Rf + Bi (Rm - Rf ) 9.9238421 12.871343 15.22237 17.532296 19.346092 19.726913 20.85118 20.119542 18.594102 18.424813 Ke % 0.1 0.13 0.15 0.18 0.19 0.18 0.21 0.2 0.19 0.18

16.235316 1.1766421 18.849916 6.7387433 19.097216 9.3370697 20.615316 13.165096 19.658416 14.021992 18.874416 13.618813 17.005516 12.87418 17.755116 12.892142 20.028716 13.640302 20.603316 14.045613

Here federal bank attain 10% - 21% .10% is very as compared all other banks. One of the reasons for low cost of capital is the presence of additional risk. For every banking activity there is financial risk and operational risk, in addition with this there is a chance of additional risk. It reduces the cost of capital.

c) Calculation of Equity or Shareholders fund. The details of capital and reserves are taken form balance sheet of federal bank and calculation of cost of capital is shown in table 4.8. Table 4.8 Equity or Shareholders fund of Federal Bank
Year 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 Capital 21.72 21.72 21.72 21.76 65.6 85.6 85.6 171.03 171.03 171.03 Reserves 393.76 427.07 507.75 619.36 650.36 1157.3 1409.98 3748.3 4148.74 4513.55 Equity 415.48 448.79 529.47 641.12 715.96 1242.9 1495.58 3919.33 4319.77 4684.58 Ke 9.9238421 12.871343 15.22237 17.532296 19.346092 19.726913 20.85118 20.119542 18.594102 18.424813

d) Calculation of EVA The table 4.9 shows the details regarding the NPAT which is obtained from P&L account and calculated values of EVA is given here. Table 4.9 Net Profit After Tax of Federal Bank
Year 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 NPAT 61.01 82.01 105.01 136.31 90.09 225.21 292.73 368.05 500.49 464.55 Ke 0.1 0.13 0.15 0.18 0.19 0.18 0.21 0.2 0.19 0.18 Ke*Equity 41.548 58.3427 79.4205 115.4016 136.0324 223.722 314.0718 783.866 820.7563 843.2244 EVA 19.462 23.6673 25.5895 20.9084 -45.9424 1.488 -21.3418 -415.816 -320.2663 -378.6744

e) EVA of Federal Bank The table 4.10 shows the values of EVA and the below fig 4.2 chart is the graphical representation of EVA. Table 4.10 EVA of Federal Bank YEAR 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 EVA 19.462 23.6673 25.5895 20.9084 -45.9424 1.488 -21.3418 -415.816 -320.2663 -378.6744

Fig 4.2 EVA of Federal Bank

EVA
100 0 -100 -200 -300 -400 -500 2000 - 2000 - 2000 - 2000 - 2000 - 2000 - 2000 - 2000 - 2000 01 02 03 04 05 06 07 08 09 2000 - 10 EVA

Inference: The chart indicates that first four years there is constant result. After 2007federal banks results shows diminishing return. in 2005 bank shows negative return but bank suddenly rise its return to positive figure after that returns starts to diminishing.

HDFC BANK
The researcher has to select HDFC bank for this comparative study. Beta calculation, calculation of cost of capital, calculation of equity and EVA is shown as follows. a) Beta and RF The ten year data regarding the beta and RF values of HDFC bank is given in the below table 4.11. Table 4.11 Beta and RF of HDFC Bank YEAR 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 BETA 0.874549 RF 8.7472

0.7444116 6.1326 0.680585 5.8853

0.5976668 4.3672 0.6463653 5.3241 0.6485876 6.1081 0.6805212 7.977 0.7103303 7.2274 0.7593602 4.9538 0.7506745 4.3792

b) Calculation of Cost of capital The table 4.12 gives the steps regarding the cost of capital calculated using CAPM model. Table 4.12 Cost of capital of HDFC Bank Year 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 Rm - Rf Bi(Rm - Rf) Rf + Bi (Rm - Rf ) 22.945779 20.164696 18.882579 16.68829 18.030618 18.349812 19.549614 19.839396 20.162809 19.845584 Ke 0.23 0.2 0.19 0.17 0.18 0.18 0.2 0.2 0.2 0.2 %

16.235316 14.198579 18.849916 14.032096 19.097216 12.997279 20.615316 12.32109 19.658416 12.706518 18.874416 12.241712 17.005516 11.572614 17.755116 12.611996 20.028716 15.209009 20.603316 15.466384

Here HDFC banks cost of capital lies between 17% - 23% it is efficient rate of cost of capital. At time of recession period bank attain minimum rate i.e. 20%.

c) Calculation of Equity or Shareholders fund. The values of capital and reserves are taken from balance sheet and Ke calculation is done. Table 4.13 Equity or Shareholders fund of HDFC Bank Year Capital Reserves Equity 669.49 1660.91 1962.78 2407.09 4209.97 4986.39 6113.76 11142.8 913.09 1942.28 2244.83 2691.88 4519.85 5299.53 6433.15 Ke 22.945779 20.164696 18.882579 16.68829 18.030618 18.349812 19.549614

2000 - 01 243.6 2000 - 02 281.37 2000 - 03 282.05 2000 - 04 284.79 2000 - 05 309.88 2000 - 06 313.14 2000 - 07 319.39 2000 - 08 354.43 2000 - 09 425.38 2000 - 10 457.74 d) Calculation of EVA

11497.23 19.839396

14226.43 14651.81 20.162809 21064.75 21522.49 19.845584

The table 4.14 shows the values of NPAT which is taken from P&L account and EVA is shown in the table. Table 4.14 Net Profit After Tax of HDFC Bank
Year 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 NPAT 210.12 297.04 438.04 602.72 853.62 1115.94 1382.54 1590.18 2244.94 2948.7 Ke 0.23 0.2 0.19 0.17 0.18 0.18 0.2 0.2 0.2 0.2 Ke*Equity 210.0107 388.456 426.5177 457.6196 813.573 953.9154 1286.63 2299.446 2930.362 4304.498 EVA 0.1093 -91.416 11.5223 145.1004 40.047 162.0246 95.91 -709.266 -685.422 -1355.798

e) EVA of HDFC Bank The EVA values for a period of ten years is shown in the below table 4.15. Table 4.15 EVA of HDFC Bank
YEAR 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 EVA 0.1093 -91.416 11.5223 145.1004 40.047 162.0246 95.91 -709.266 -685.422 -1355.798

Fig 4.3 EVA of HDFC Bank

EVA
400 200 0 -200 -400 -600 -800 -1000 -1200 -1400 -1600

2000 - 2000 - 2000 - 2000 - 2000 01 02 03 04 05

2000 - 06

2000 - 07

2000 - 08

2000 - 09

2000 - 10 EVA

Inference: The chart indicates that a mixed result. Here bank gives positives EVA but after recession banks show negative EVA. At the time of recession period bank at tain efficient rate of cost of capital, but due to risk couldnt attain positive EVA.

ICICI BANK
The researcher has to select ICICI bank for this comparative study. Beta calculation, calculation of cost of capital, calculation of equity and EVA is shown as follows. a) Beta and RF The beta and RF values for a period of ten years of ICICI bank is shown in the below table 4.16. Table 4.16 Beta and RF of ICICI Bank YEAR 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 BETA 1.481167 RF 8.7472

1.3233853 6.1326 1.301228 5.8853

1.1051503 4.3672 0.9892796 5.3241 1.0015606 6.1081 1.0045507 7.977 1.0196148 7.2274 1.0993515 4.9538 1.1205382 4.3792

b) Calculation of Cost of capital The cost of capital which is calculated using CAPM model is shown in the below mentioned table 4.17. Table 4.17 Cost of capital of ICICI Bank Year 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 Rm Rf Bi(Rm - Rf) Rf + Bi (Rm - Rf ) 32.794413 31.078302 30.735132 27.150222 24.771769 25.011971 25.059903 25.330778 26.972399 27.466003 Ke 0.33 0.31 0.31 0.27 0.25 0.25 0.25 0.25 0.27 0.27 %

16.235316 24.047213 18.849916 24.945702 19.097216 24.849832 20.615316 22.783022 19.658416 19.447669 18.874416 18.903871 17.005516 17.082903 17.755116 18.103378 20.028716 22.018599 20.603316 23.086803

Here ICICI bank attains cost of capital of 25% - 33%. It is maximum rate of cost of capital even though bank cannot attain positive EVA in any year in this decade.

c) Calculation of Equity or Shareholders fund. Here in the below table 4.18 capital and reserves are taken from balance sheet and cost of capital calculated is given here. Table 4.18 Equity or Shareholders fund of ICICI Bank
Year 2000 01 2000 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 Capital 196.82 220.36 962.66 966.4 1086.75 1239.83 1249.34 1462.68 1463.29 1114.86 Reserves 1092.26 5635.54 6320.65 7394.16 11813.2 21316.16 23413.92 45357.53 48419.73 50503.48 Equity 1289.08 5855.9 7283.31 8360.56 12899.95 22555.99 24663.26 46820.21 49883.02 51618.34 Ke 32.794413 31.078302 30.735132 27.150222 24.771769 25.011971 25.059903 25.330778 26.972399 27.466003

d) Calculation of EVA NPAT is arrived from the P&L account and EVA values is shown in the below table 4.19. Table 4.19 Net Profit After Tax of ICICI Bank
Year 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 NPAT 171.57 267.45 1206.18 1637.11 2005.2 2540.07 3110.22 4157.73 3758.13 4024.98 Ke 0.33 0.31 0.31 0.27 0.25 0.25 0.25 0.25 0.27 0.27 Ke*Equity 425.3964 1815.329 2257.8261 2257.3512 3224.9875 5638.9975 6165.815 11705.053 13468.415 13936.952 EVA -253.8264 -1547.879 -1051.6461 -620.2412 -1219.7875 -3098.9275 -3055.595 -7547.3225 -9710.2854 -9911.9718

e) EVA of ICICI Bank Table 4.20 shows the values of EVA for the ten year period and the below chart shown its graphical representation. Table 4.20 EVA of ICICI Bank
YEAR 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 EVA -253.8264 -1547.879 -1051.6461 -620.2412 -1219.7875 -3098.9275 -3055.595 -7547.3225 -9710.2854 -9911.9718

Fig 4.4 EVA of ICICI BANK

EVA
0 -2000 -4000 -6000 -8000 -10000 -12000 EVA 2000 - 2000 - 2000 - 2000 - 2000 - 2000 - 2000 - 2000 - 2000 01 02 03 04 05 06 07 08 09 2000 - 10

Inference: The chart shows fluctuations in every year. There is no constant EVA. In the case of ICICI bank cost of capital is lies between 25% - 33%. 33% is comparatively high cost of capital even though EVA is shows diminishing line because of high risk.

STATE BANK OF INDIA

The researcher has to select Sate Bank of India for this comparative study. Beta calculation, calculation of cost of capital, calculation of equity and EVA is shown as follows. Beta and RF Here the details of beta and RF values for a period of ten years are given in below table 4.21. Table 4.21 Beta and RF of State Bank of India YEAR 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 BETA 1.076449 RF 8.7472

1.1675904 6.1326 1.1365155 5.8853 1.0662852 4.3672 1.0537993 5.3241 1.0467987 6.1081 1.0289915 7.977 1.0196913 7.2274 1.0017375 4.9538 1.0103096 4.3792

b) Calculation of Cost of capital The table 4.12 gives the steps regarding the cost of capital calculated using CAPM model. Table 4.22 Cost of capital of State Bank of India Year 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 Rm - Rf Bi(Rm - Rf) Rf + Bi (Rm - Rf ) 26.22369 28.14158 27.589582 26.349005 26.040124 25.865814 25.475531 25.332136 25.017315 25.194928 Ke 0.26 0.28 0.28 0.26 0.26 0.26 0.25 0.25 0.25 0.25 %

16.235316 17.47649 18.849916 22.00898 19.097216 21.704282 20.615316 21.981805 19.658416 20.716024 18.874416 19.757714 17.005516 17.498531 17.755116 18.104736 20.028716 20.063515 20.603316 20.815728

Here SBIs cost of capital lies between 25% -28% it means bank keep constant EVA. SBI also didnt attain positive EVA. Here the reason is high rate of risk that is an assumption.

c) Calculation of Equity or Shareholders fund. Capital and reserves are taken from a balance sheet of SBI and Ke is calculated in the below mentioned table 4.23. Table 4.23 Equity or Shareholders fund of State Bank of India
Year 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 Capital 526.3 526.3 526.3 526.3 526.3 526.3 526.3 631.47 634.88 634.88 Reserves 12,935.24 14698.08 16677.08 19704.98 23545.84 27117.79 30772.26 48401.19 57312.82 65314.32 Equity 13,461.54 15,224.38 17,203.38 20,231.28 24,072.14 27,644.09 31,298.56 49,032.66 57,947.70 65,949.20 Ke 26.22369 28.14158 27.589582 26.349005 26.040124 25.865814 25.475531 25.332136 25.017315 25.194928

d) Calculation of EVA NPAT is taken from P&L account and EVA for ten year period is given in below table 4.24. Table 4.24 Net Profit After Tax of State Bank of India
Year 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 NPAT 1604.25 2431.62 3105 4378.72 4304.52 4406.67 4541.31 6729.31 9121.23 9166.05 Ke 0.26 0.28 0.28 0.26 0.26 0.26 0.25 0.25 0.25 0.25 Ke*Equity 3500.0004 4262.8264 4816.9464 5260.1328 6258.7564 7187.4634 7824.64 12258.165 14486.925 16487.3 EVA -1895.7504 -1831.2064 -1711.9464 -881.4128 -1954.2364 -2780.7934 -3283.33 -5528.855 -5365.695 -7321.25

e) EVA of State Bank of India The EVA for the period of ten years is given in below table 4.25. And its graphical representation is also given below: Table 4.25 EVA of State Bank of India
YEAR 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10 EVA -1895.7504 -1831.2064 -1711.9464 -881.4128 -1954.2364 -2780.7934 -3283.33 -5528.855 -5365.695 -7321.25

Fig 4.5 EVA of State Bank of India

EVA
0 -1000 -2000 -3000 -4000 -5000 -6000 -7000 -8000 EVA 2000 - 2000 - 2000 - 2000 - 2000 - 2000 - 2000 01 02 03 04 05 06 07 2000 - 08 2000 - 09 2000 - 10

Inference: The chart indicates first 3 years shows constant increase for touch x-axis then it started to decrease in diminishing rate. It means banks return is not satisfactory. But banks cost of capital is lies between 25% -28%. So here the reason for negative is high risk.

COMPARATIVE EVA
The researcher has to take South Indian Bank, Federal bank, HDFC Bank, ICIC Bank and Sate Bank of India for the comparative study. Here the researcher has to compare South Indian Banks EVA with other four banks. Below table gives the details of comparative values of EVA of the five banks. And the below chart show the graphical representation of five banks EVA. Table 4.26 Comparative table

YEAR 2000 - 01 2000 - 02 2000 - 03 2000 - 04 2000 - 05 2000 - 06 2000 - 07 2000 - 08 2000 - 09 2000 - 10

FEDERAL HDFC 19.462 23.6673 25.5895 20.9084 -45.9424 1.488 -21.3418 -415.816 -320.266 -378.674 0.1093 -91.416 11.5223 145.1004 40.047 162.0246 95.91 -709.266 -685.422 -1355.8

ICICI -253.826 -1547.88 -1051.65 -620.241 -1219.79 -3098.93 -3055.6 -7547.32 -9710.29 -9911.97

SBI -1895.75 -1831.21 -1711.95 -881.413 -1954.24 -2780.79 -3283.33 -5528.86 -5365.7 -7321.25

SIB 2.1664 12.982 11.3419 9.3009 -86.9046 -83.6806 -40.674 -8.2908 14.766 11.16

Fig 4.6 Comparative EVA

2000

0
2000 - 2000 - 2000 - 2000 - 2000 - 2000 - 2000 - 2000 - 2000 01 02 03 04 05 06 07 08 - 09 2000 - 10

-2000

-4000

FEDERAL HDFC ICICI SBI

-6000

SIB

-8000

-10000

-12000

Inference: The chart indicates SBI and ICICI bank show continuous decrease during last ten years especially from 2005 to 2010. But HDFC bank , FERDERAL bank and SOUTH INDIAN BANK shows constant result. It means south Indian bank , hdfc bank and federal bank gives maximum returns to their investors as compared to icici bank and sbi. South Indian banks line is most close to x-axis.

4.1.2 PRIMARY DATA ANALYSIS

AWARENESS ABOUT DIFFERENT STOCK VALUATION METHOD The researcher has to measure the investors awareness about various stock valuation method and the response is shown in the table 4.27. For the easy interpretation here the researcher uses percentage analysis method also. Table 4.27 Awareness about different stock valuation method RESPONSE YES NO NO 24 6 PERCENTAGE 80 20

Fig. 4 .7 Awareness about different stock valuation method

Series1

24

YES

NO

Inference: The chart indicates that 80 % of the respondents were aware about any of the stock valuation method and the rest were not aware about stock valuation. i.e 20% of them are not serious about investment.

HOW OFTEN EVALUATION IS DONE The researcher has to tabulate the response of the investors how often they evaluate their stock once in a month. No of response and its percentage is show below the table 4.28. Table 4.28 Evaluation of Stock RESPONSE ONCE TWICE RALRY NEVER Fig 4. 8 Evaluation of stock NO 12 15 3 0 PERCENTAGE 40 50 10 0

Series1 15 12

3 0 ONCE TWICE RALRY NEVER

Inference: Most of the investors evaluate their stock twice in a month. 50% of the investors were evaluate their stock twice in a month. 40% of them evaluate once in a month . nobody is there never evaluate their stock. Above chart shows 20% of them were not aware about stock valuation method but those people also check earning per share.

PERCEPTION ABOUT EVA AND ROI Table 4.29 shows the response of the investors against perception about EVA and ROI. For evaluating perception the researcher take five point scales. Graphical representation of the table is shown in fig 4.9. Table 4.29 Perception about EVA and ROI RESPONSE Highly satisfied Satisfied Neutral Dissatisfied Highly dissatisfied Fig 4.9 Perception about EVA and ROI NO 0 11 16 3 0 PERCENTAGE 0 37 53 10 0

Series1 16

11

3 0 Highly satisfied Satisfied Neutral Dissatisfied 0 Highly dissatisfied

Inference: Here most of the responds ie 57% of them were on a neutral opinion, they didnt go for a comparison. 37% of them were on satisfied as ROI is superior measure than EVA for measuring the performance of the company. Only 10% of them believe that EVA is superior to ROI.

WHICH STOCK VALUATIOM METHOD WOULD YOU USED FOR DETERMINE THE INVESTMENT IN THE SPECIFIC SHARE? Usually the investors uses different methods for determine the investment in share, for understanding the familiarity of each method the researcher has to use percentage analysis. It show in table 4.30 Table 4.30 Stock valuation method RESPONSE Earnings per share Return on investment EVA Price earnings ratio Bond based DCF method Technical analyses Fundamental analyses Risk return analyses Fig 4.10 Stock valuation method NO 11 6 4 5 0 0 0 4 0 PERCENTAGE 37 20 13 17 0 0 0 13 0

13%

0%

Earnings per share Return on investment 37% EVA Price earnings ratio Bond based DCF method

0%
17%

13% 20%

Technincal analyses Fundamental analyses Risk return analyses

Inference: Here 37% of the investors were used earnings per share as stock valuation method. 20% of them used ROI as stock evaluation method only 13% of them used EVA. Reaming used other method like technical analyses fundamental analyses and all.

FACTORS CONSIDER FOR INVESTMENT The table 4.31 and the fig 4.11 shows what are factors which would consider by an investor before investment Table 4.31 Factors consider for investment RESPONSE Risk Return Past trends Economic factors Risk to reward ratio NO 6 15 0 6 3 PERCENTAGE 20 30 0 20 10

Fig 4.11 Factors consider for investment

Series1 15

6 3 0

Risk

Return

Past trends

Economic factors

Risk to reward ratio

Inference: Here chart indicates that 50% of the investors consider return and 20% investors consider risk and economic factors and 10% of them consider risk to reward ratio. Nobody consider past trends.

RANK THE FACTORS WHICH PROMPTED FOR INVESTMENT The table 4.32 shows the factors which prompted more an investor. All the respondents were marking their rank as per their wish. It graphical representation is shown in fig 4.12. Table 4.32 Prompted factors and Rank PARTICULARS High return Low risk Appreciated value Portfolio diversification N0 27 52 5 6 RANK 2 1 4 3

Fig 4.12 Prompted factors and Rank

Series1

52

27

High return

Low risk

Appreciated value

Portfolio diversification

Inference: Here low risk is the main factor which prompted the investors. Most of the responds were gave rank 1 for low risk. Rank 2 for high return third rank for portfolio diversification and fourth rank for appreciated value.

INVESTMENT DECISION Once investors make investment he makes prior evaluation before investing. Sometimes it may be his own analysis otherwise it will be an analysts opinion. The response against this investment decision is shown in below table 4.33. Table 4.33 Investment decision RESPONSE Own analysis Analyst opinion Fig 4.13 Investment decision NO 12 18 PERCENTAGE 40 60

Series1

18 12

Own analyses

Analyst opinion

Inference: Here 60% of the investors invest on share based on analyst opinion. The remaining investors invest on share based on their own analyses.

PERCEPTION ABOUT THE FUTURE PERFORMANCE OF STOCK The table 4.34 shows the response of investors against perception about the future performance of stock. Table 4.34 Perception about future performance RESPONSE Highly satisfied Satisfied Neutral Dissatisfied Highly dissatisfied NO 6 18 3 3 0 PERCENTAGE 20 60 10 10 0

Fig 4.14 Perception about future performance

Series1 18

6 3 3 0 Highly satisfied Satisfied Neutral Dissatisfied Highly dissatisfied

Inference: Here the chart indicated that 60% of the responds were satisfied with the future performance of the company. Investors evaluate future performance of the company with the help of analyst or they make their own analyses. 20% of the investors were highly satisfied. 10% of investors were on a opinion of neutral and remaining of an opinion of dissatisfied. There was no opinion of highly dissatisfied.

OPINION ABOUT RETURN ON INVESTMENT OF THE BANK The researcher has to take the response against the return on the investment and it shown in table 4.35 it fig is show in 4.15. Table 4.35 Opinion about ROI RESPONSE Highly satisfied Satisfied Neutral Dissatisfied Highly dissatisfied Fig4.15 Opinion about ROI NO 3 18 3 6 0 PERCENTAGE 10 60 10 20 0

Series1 18

6 3 3 0 Highly satisfied Satisfied Neutral Dissatisfied Highly dissatisfied

Inference: Here the chart indicates that 60% of the investors were satisfied with return on investment. 10% of the investors were highly satisfied with return 10% of investors were neutral opinion and remaining 20% on dissatisfied opinion.

OPINION ABOUT MARGIN The researcher has to measure the investors opinion about margin and the response is shown in the table 4.36. Fig 4.16 its graphical representation. Table 4.36 Opinion about margin RESPONSE Highly satisfied Satisfied Neutral Dissatisfied Highly dissatisfied Fig 4.16 Opinion about margin NO 6 9 6 9 0 PERCENTAGE 20 30 20 30 0

Series1 9 9

0 Highly satisfied Satisfied Neutral Dissatisfied Highly dissatisfied

Inference: Here the chart indicates that 30% of the investors were satisfied with margin on investment. 20% of the investors were highly satisfied with margin 20% of investors were neutral opinion and remaining 30% on dissatisfied opinion.

CREDITWORTHINESS OF THE BANK The researcher has to take the response against the creditworthiness of the bank and it shown in table 4.35 it fig is show in 4.15. Table 4.37 Creditworthiness of the bank RESPONSE Highly satisfied Satisfied Neutral Dissatisfied Highly dissatisfied NO 0 11 13 6 0 PERCENTAGE 0 37 43 20 0

Fig 4.17 Creditworthiness of the bank

Series1 13 11

0 Highly satisfied Satisfied Neutral Dissatisfied

0 Highly dissatisfied

Inference: Here the chart indicates that 37% of the investors were satisfied with creditworthiness of the bank. 20% of the investors were dissatisfied with margin 43% of investors were neutral opinion. And there is no highly satisfied opinion and highly dissatisfied opinion.

OPINION ABOUT PAST 5 YEARS HISTORICAL DATA The researcher has to measure the investors opinion about past 5 years historical data and the response is shown in the table 4.38. Table 4.38 Opinion about historical data RESPONSE Highly satisfied Satisfied Neutral Dissatisfied Highly dissatisfied Fig 4.18 Opinion about historical data NO 4 17 6 3 0 PERCENTAGE 13 57 20 10 0

Series1

17

6 4 3 0 Highly satisfied

Satisfied

Neutral

Dissatisfied

Highly dissatisfied

Inference: Here the chart indicates that 13 % of the investors were highly satisfied with the historical data. 57% of the investors were satisfied with the past 5 years historical data of the bank. 10% of the investors were dissatisfied with historical data 20% of investors were neutral opinion. There is no highly dissatisfied opinion.

LENDING RATIO OF THE BANK The researcher has to take the response against the margin on the investment and it shown in table 4.36 it fig is show in 4.16. Table 4.39 Lending ratio of the bank RESPONSE Highly satisfied Satisfied Neutral Dissatisfied Highly dissatisfied Fig 4. 19 Lending ratio of the bank NO 0 20 7 3 0 PERCENTAGE 0 67 23 10 0

Series1 20

7 3 0 Highly satisfied Satisfied Neutral Dissatisfied 0 Highly dissatisfied

Inference: Here the chart indicates that 67% of the investors were satisfied with lending ratio of the bank. 10% of the investors were dissatisfied with margin 23% of investors were neutral opinion. And there is no highly satisfied opinion and highly dissatisfied opinion.

GENDER WISE CLASSIFICATION The researcher has to tabulate the response of the investors in the table4.40 and its graphical representation is shown in fig 4.20. Table 4.40 Gender RESPONSE Male Female Fig 4.20 Gender NO 27 3 PERCENTAGE 90 10

Series1

27

Male

Female

Inference: The chart indicates that male investors comprise more than female employees ie., 90 % of the respondents were males and the rest were females.

EDUCATION WISE CLASSIFICATION The researcher has to take the response of the investors about their educational qualification and it is tabulated in table 4.41and its fig is shown in 4.21. Table 4.41 Education RESPONSE Below 10th Degree Post graduation Fig4.21 Education NO 3 19 8 PERCENTAGE 10 63 27

Series1

19

8 3

Below 10th

Degree

Post graduation

Inference: The chart indicates that most of the investors were highly educated only 10% of the investors were below 10th. 27% of them completed post graduates. Reaming of them were degree holders.

OCCUPATION WISE CLASSIFICATION The researcher has to tabulate the occupation wise classification of the investors in the table4.42 and its graphical representation is shown in fig 4.22 Table 4.42 Occupation RESPONSE Business Teacher Employee Doctor Lawyer House wife Others Fig 4.12 Occupation NO 12 0 6 0 0 3 9 PERCENTAGE 40 0 20 0 0 10 30

Series1 12 9 6 3 0 0 0

Inference: Here the chart indicates that 40% of the investors were business persons, 20% of the members were employees. 10% of them were house wife. 30% of them were doing other jobs. There was no participation of teachers, doctors and lawyers.

AGE WISE CLASSIFICATION The researcher has to tabulate the investors on the base of age and it shown in table4.43 and its graphical representation is shown in fig 4.23 Table 4.43 Age group RESPONSE Below 30 yrs 30 yrs 40 yrs 40yrs 50 yrs 50yrs above Fig 4.13 Age group NO 6 3 12 9 PERCENTAGE 20 10 40 30

30%

20% 10% Below 30 yrs 30 yrs 40 yrs 40yrs 50 yrs 40% 50yrs above

Inference: Nearly 20% of the investors were of the age group below 30 yrs which is the major age group was followed by 40-50, and 30% of the age group above50yrs. The youngest respondents who were of the age group below 30, constituted to 10%.

MONTHLY SALARY WISE CLASSIFICATION The researcher has to tabulate the monthly salary wise classification of the investors in the table4.44 and its graphical representation is shown in fig 4.24 Table 4.44 Monthly salary RESPONSE Below Rs 10000 Rs 10000-Rs 30000 Rs 30000- Rs 50000 Above 50000 Fig 4.14 Monthly salary NO 7 12 5 6 PERCENTAGE 23 40 17 20

20%

23% Below Rs 10000

17% 40%

Rs 10000-Rs 30000 Rs 30000- Rs 50000 Above 50000

Inference: 23% have an income below 10000, 40 % had an income between 10000 -30000, 17% had an income between 30000-50000, 20% had an income of 50000 and above.

INVESTMENT EXPERIENCE WISE CLASSIFICATION The researcher has to tabulate the response on the base of investment experience of the investors in the table4.45 and its graphical representation is shown in fig 4.25 Table 4.45 Investment experience RESPONSE Below 1 yrs 1 to 5 yrs 5 to 10 yrs Above 10 yrs Fig 4.15 Investment experience NO 5 15 6 4 PERCENTAGE 17 50 20 13

13% 20%

17% Below 1 yrs 1 to 5 yrs 5 to 10 yrs

50%

Above 10 yrs

Inference: 17% have an experience below 1yrs, 50 % had an experience between 1-5 yrs, 20% had an experience between 5 10 yrs, 13% had an experience of 10yrs and above.

INVESTMENT HORIZON WISE CLASSIFICATION The researcher has to tabulate the on the bases of favourable investment horizon of the investors in the table4.46 and its graphical representation is shown in fig 4.26. Table 4.46 Investment horizon RESPONSE Very short maturity 2 yrs - 4 yrs Very long maturity Fig 4.16 Investment horizon NO 14 12 4 PERCENTAGE 47 40 13

13% 47% Very short maturity 40% 2 yrs - 4 yrs Very long maturity

Inference: 47% of the investors prefer very short term investment horizon, 40% of them prefer 2 -4 yrs maturity investment horizon. And remaining prefer very long maturity.

SUMMARY, FINDINGS, SUGGESTIONS AND CONCLUSION

CHAPTER 5

5.1 SUMMARY
The study on Economic Value Addition contains 5 chapters. Introduction chapter, industry profile and company profile chapter, a theoretical frame work, Economic Value Addition SIB and summary, finding, suggestions and conclusion chapter. Introduction chapter introduces the project report to its readers. It includes introduction to study, statement of the problem, objectives of the study, significances of the study, variables of the study, research methodology, limitations of the study and chapterisation of report. Industry profile and company profile chapter provides industry profile and a brief profile of the company where the study is undertaken. Theoretical Framework this chapter deals provides an overview of topic EVA and provides review of relevant literature on the research methodology and research studies related to EVA. Economic Value Addition SIB This chapter deals with analysis and interpretation of secondary data and primary data. Summary, Findings, Suggestions and recommendations and Conclusions this chapter includes the summary of the project, major findings, its conclusions and the suggestions put forward by the researcher based on the study.

5.2 FINDINGS
From the study conducted I could reach to come across the following result: South Indian bank shows both positive and negative EVA. Only at the time of middle of this decade south Indian banks EVA is not satisfactory. South Indian banks cost of capital lies between 14% -21% When consider the whole business cycle federal banks EVA is not much satisfactory. Federal banks cost of capital lies between 10% -21% HDFC bank gives positives EVA but after recession banks show negative EVA. HDFC banks cost of capital lies between 17% -23% ICICI bank cost of capital is lies between 25% - 33%.33% is comparatively high cost of capital even though EVA is shows diminishing line because of high risk SBI having constant EVA for first 3 years and it touch x-axis then it started to decrease in diminishing rate. It means banks return is not satisfactory. State bank of Indias cost of capital is lies between 25% -28%. When consider the recession period most of the banks return is not much satisfactory. Every banking activity having operational risk and financial risk, but sometime additional risk is there. This additional risk is the reason for low EVA. SBI and ICICI bank show continuous decrease during last ten years especially from 2005 to 2010. HDFC bank , FERDERAL bank and SOUTH INDIAN BANK shows constant result. It means South Indian Bank, HDFC bank and Federal bank gives maximum returns to their investors as compared to ICICI bank and SBI. South Indian banks line is most close to x-axis. It is positive trend.

5.3 SUGGESTIONS AND RECOMMENDATIONS

South Indian bank Ltd has a strong culture of good interpersonal relationship and commitment. it is an organization where investors feel that the right changes are welcomed and integrated into the organization. Here I did a comparative study of EVA of 5 banks. I understand banks EVA are not fully satisfactory because of several reasons like less cost of capital recession and different risk. Every banking firm faces operational risk and financial risk. In addition with bank face additional risk also it is one of the major reasons for low EVA. Some of my suggestions are: Additional risk is the one of reason for low EVA. Investors are not bothered about the additional risk and all but they expect high return, if any other banks provide high rate EVA usually investors change their portfolio. Bank provides any additional facilities to their investors it will make a positive increase. Non monitory benefits make more investors. Non monitory benefits are other factors which motivates the investors. From this study I understand cost of capital lies between 10% - 33%. 10%cost of capital is very low. The study shows that over 80% of the banks were unable to earn a return sufficient to meet their cost of capital. To overcome this bank has become the leader in terms of MVA. EVA is promoted as a management tool that aligned the interests of management with shareholders, management could be rewarded for maximising EVA and, in turn, this would be to the benefit of shareholders in that it should also maximise MVA. Management should focus on improving the market premium over invested capital it will make high EVA When inflation rises depress the current price of historical assets and therefore improve accounting returns and high inflation tends to increase EVA.

5.4 CONCLUSION
Banking industry in India is undergoing a rapid metamorphosis. Their role of a traditional banker has been replaced with financial services provider for the clients. Most of the PSU and private sector banks in our country have already started looking at their portfolio of services offered and what they should do in the future for remaining competitive in the industry. The variables margin, assets, leverage, operating cash flow and historical data of south Indian bank is satisfied. This study concentrated on other four banks also. But all these banks margin, assets, leverage, operating cash flow and historical data are not fully satisfactory EVA is popular because it is a tool that incentivises management to do the best for shareholder and shareholders can use it to measure management performance and to value. The value of a business depends on investors expectations about the future profits of the enterprise.

BIBLIOGRAPHY

BIBLIOGRAPHY
Pandey I.M, Financial Management,Vikas Publishing Housing Ltd,New Delhi,2005 Bhattacharya, Essentials of Financial Accounting, Tata Mc Graw-Hill,New Delhi,2006 Khan M Y,Jain P K,Financial Management, Tata Mc Graw-Hill Publishing Co Ltd,New Delhi,2004 Arthur Andersen &Co., Accounting and Reporting Problems of the Accounting Profession, 5th ed. (Chicago Ill.: Arthur Andersen & Co., 1973), pp. 169 and 173-74 Benjamin Graham, david L. Dodd and Sidney Cottle, Secutity Analysis: Principles and Technique, 4th ed. (New York: MCGraw Hill, Inc., 1962), p 203 Kothari, C.R., Research Methodology, New Delhi, New Age International Publishers (P) Ltd.,2005 Wright, Financial Management, Tata Mc Graw-Hill Publishing Co Ltd, New Delhi,2002 Sharan Vyupatakesh Fundamentals of Financial Management, Pearson Education, New Delhi,2005 Bhat Sudhindra,Financial Management Principles & Practice,Exel Books, New Delhi,2007 Foerster R Stephen, Financial Management,W.W Norton & Company,NewYork,2003 R.Bhaskaran, Financial Management, Macmillan India Ltd,Mumbai 2005 http://www.scribd.com/doc/13317890/A-Project-on- Economic value addition by Indian Banks: http://www.southindianbank.com/ http://www.federal-bank.com http://www.hdfcbank.com http://www.statebankofindia.com http://www.nseindia.com/ http://www.icicibank.com/ http://www.rbi.org.in/