Capital Structure: Comparative Study of CANARA and

ICICI Bank
Abstract
The Capital Structure of a company is made up of debt and equity securities that comprise a
firms financing of its assets. Today business organizations use a range of alternatives for
collecting the funds. Small and Big organizations used the way of collecting funds according
to their paying capacity, degree of risk, size of capital, working system of the business etc. so,
here in this project

report analyse the capital structure of two banks according to its

convenience. Capital Structure is the Ratio of long-term sources of finance in the total capital
of the firm includes 'Proprietor's Funds' and 'Borrowed Funds'(Proprietors Funds include
equity capital, preference capital, reserves and surpluses retained earnings and Borrowed
Funds include long-term debts such as loans from financial institutions, debentures etc. In
this project, has taken two banks viz. ICICI and CANARA for making comparison of their
debt and equity. By using, the technique of average and percentage. The project has made the
conclusion about the collection of funds of these banks. Lastly, some suggestions have given
which the banks can follow. Hence, the research may contribute in providing a new way to
the banks for capital structure decision.

Keywords: Equity; Debts; Cost of Capital; Cost of Debts

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1. INTRODUCTION

The term 'Capital Structure' refers to the proportion between the various long-term sources
of finance in the total capital of the firm includes 'Proprietor's Funds' and 'Borrowed
Funds'(Proprietors Funds include equity capital, preference capital, reserves and surpluses
retained earnings and Borrowed Funds include long-term debts such as loans from financial
institutions, debentures etc. On the other hand, equity share capital is the most costlier source
of finance (as return expected by equity shareholders is greater, than the interest on
debentures and the dividend on preference shares) but these are least risky (as there is no
fixed commitment to pay dividend and the return of equity capital). Preference share capital
lies between debentures and equity. Capital in terms of risk and cost. While choosing the
source of finance a financial manager makes an attempt to ensure that risk as well as cost of
capital also minimum for this purpose he has to answer the following questions:
1. How much amount should be raised through issue of equity?
2. How much amount should be raised through issue of preference share capital?
3. How much amount should be raised through debentures and other long-term debts?
4. What should be the proportions of equity and debt in the capital structure?
5. How much financial leverage should employ?

The primary factors that influence a company's capital-structure decision are:

1. Business risk:
Excluding debt, business risk is the basic risk of the company's operations. The greater the
business risk, the lower the optimal debt ratio.
2. Company's Tax Exposure
Debt payments are tax deductible. As such, if a company's tax rate is high, using debt as a
means of financing a project is attractive because the tax deductibility of the debt payments
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protects some income from taxes.
3. Financial Flexibility:
This is essentially the firm's ability to raise capital in bad times. It should come as no surprise
that companies typically have no problem raising capital when sales are growing and
earnings are strong. However, given a company's strong cash flow in the good times, raising
capital is not as hard. Companies should make an effort to be prudent when raising capital in
the good times, not stretching its capabilities too far. The lower a company's debt level, the
more financial flexibility a company has.
4. Management Style:
Management styles range from aggressive too conservative. The more conservative a
management's approach is, the less inclined it is to use debt to increase profits. An aggressive
management may try to grow the firm quickly, using significant amounts of debt to ramp up
the growth of the company's EPS.
5. Growth Rate:
Firms that are in the growth stage of their cycle typically finance that growth through debt,
borrowing money to grow faster. The conflict that arises with this method is that the revenues
of growth firms are typically unstable and unproven. As such, a high debt load is usually not
appropriate.
6. Market Conditions:
Market conditions can have a significant impact on a company's capital structure condition.
Suppose a firm needs to borrow funds for a new plant. If the market is struggling, meaning
investors are limiting companies' access to capital because of market concerns, the interest
rate to borrow may be higher than a company would want to pay. In that situation, it may be
prudent for a company to wait until market conditions return to a more normal state before
the company tries to access funds for the plant.

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2. RESERCH DESIGN:
2.1 Research Problem
The study is to find the different determinant of capital structure in the banking industry as it
affects the whole form of the organization. So it is very important to have a clear idea about
these factors and cost of different sources in the banking industry. So the problem in the study
is to find out effective determinant of capital structure.
2.2. Title of the Study
Capital Structure: Comparative Study of CANARA and ICICI Bank
2.3. Research Design
The research design used is descriptive between capital structure and cost of capital of ICICI
and CANARA. The study is descriptive because already a wide literature is present on this
topic.
2.4. Need and Significance of the Project
Capital structure decision is one of the strategic decisions taken by the financial management.
Considerable attention is required to decide the mix up of various sources of finance. A
judicious and right capital structure decision reduces the cost of capital and increase the value
of a firm while a wrong decision can adversely affect the value of the firm. As discussed
earlier, various sources of finance differ in terms of risk and cost. Hence, there is utmost need
of designing an appropriate capital structure. Capital structure decisions are of great
significance due to the following reasons:

Capital structure determines the risk assumed by the firm.

Capital structure determines the cost of capital of the firm.
It affects the flexibility and liquidity of the firm.
It affects the control of owners on the firm.

2.5. Objectives of the Study

1. To conduct comparative study regarding to capital structure of CANARA and ICICI bank
2. To find out the cost of different financial sources of project financing.
3. To know the portion of debt and equity in capital structure.
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4. To find out the overall cost of capital of CANARA & ICICI Bank

2.6. Scope of the study

The area of the Study is two banks CANARA and ICICI to make a comparison between the
Capital Structure. In fact, the research design is the conceptual structure within which
research conducted. It constitutes the blue print for the collection, measurement and analysis.
This report is of Explanatory & analytical in nature. In explanatory & analytical research we
have sufficient data on the concept and research material. Because many researcher have
been done the work on the concept.
2.7. Methods of collecting data
Since the report required studying the theoretical as well as practical aspects of Project
Finance, the books have provided in the theoretical aspects of the study. To get the latest
information, Internet was also used as a medium at various stages. The data for the project
report has been collected from the secondary sources.
2.8. Period of the study
The period for the present study covers three years from 2013 to 2015
2.9. Review of literature
William Sharpe (1963) used a better Var. measure in his Ph.D. thesis. Although the measure is
different from Markowitzs diagonal covariance matrix, it helped Sharpe to propose capital
asset pricing model (CAPM). There were innovations in 1970s and 1980s in the financial
markets as well as in every field of human life. The effect of these innovations was the rising
of leverage. As this was the case, firms had a tendency to find new ways to manage risk. This
in turn leads new measures of risk
Kalish (III) and Gilbert (1973) studied the impact of size and organizational form of the
commercial bank on its efficiency. Cost and output of the banks were collected for this
purpose. They used 898 commercial banks that look part in the .Federal Reserve's Functional
Cost Analysis Program in 1968. Banks were categorized into unit banks, branch banks and
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holding company subsidiaries on the basis of their organizational form and the amount of
assets they had. The minimum average cost (AC) al which bank of lie same size and
organizational form can operate is called as technical efficiency of the bank while the excess
AC of the bank over minimum AC represents the operational inefficiency of the bank.
Aly (1990) analysed technical, scale and locative efficiencies in U.S. banking by using non
parametric frontier approach on a sample of 3.22 independent banks. According to them,
major contributor to the low score of overall efficiency was technical inefficiency in the
banking units as compared to al locative inefficiency.
Berger (1993) stated that rapid changes in financial service industries make it important to
determine the efficiency of financial institutions. Banks play an important role in the financial
markets of the developing countries and it is very important to evaluate whether banks
operate efficiently or not. There are many research studies that try to look into the efficiency
of banks operating within a country and across the countries. These studies can be
differentiated on the basis of used methodologies, considered variables, type and number of
banks included in the sample.

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3. INDUSTRY PROFILE
Bank: A bank is a financial intermediary that creates credit by lending money to a borrower, thereby
creating a corresponding deposit on the banks balance sheet. Lending activities can be
performed either directly or indirectly through capital markets. Due to their importance in the
financial system and influence on national economies, banks are highly regulated in most
countries. Most nations have institutionalised a system known as fractional reserve banking
under which banks hold liquid assets equal to only a portion of their current liabilities .In
addition to minimum capital requirements based on an international set of capital standards,
known as the Basel accords.
In simple words, we can say that bank is a financial institution that undertakes the banking
activity i.e. it accepts deposits and then lends money to earn certain profit.
Banking
In simple words, banking can be defined as the business activity of accepting and
safeguarding money owned by other individuals and entities, and then lending out this money
in order to earn a profit. However, with the passage of time, the activities covered by banking
business have widened and now various other services are also offered by banks. The banking
services these days include issuance of debt and credit cards, providing safe custody of
valuable items, lockers, ATM services and online transfer of funds, internet banking, Telebanking, personalized banking across the globe.
It is well said that banking plays a silent, yet crucial part in our day to day lives; the banks
perform financial intermediation by pooling savings and channelizing them into investments
though maturity and risk transformations, thereby keeping the economys growth engine
revving.

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Bank Industry Profile:

In the present scenario service sector plays an important role in the country. Among service
sector banking industry is one. Banking is one of the classical economic functions and plays a
vital role in economic development. India has a well-developed banking system. Most of the
banks in India were founded by Indian entrepreneurs and visionaries in the pre-independence
era to provide financial assistance to traders, agriculturists and budding Indian industries.
Indian banks have played a significant role in the development of Indian economy by
inculcating the habit of saving in Indians and by lending finance to Indian Industry. Indian
Banks can be broadly classified in to Nationalized Banks, Private Banks and Foreign Banks.
Currently, India has 88 scheduled commercial banks 28 public sector banks (that is with the
Government of India holding a stake), 29 private banks (these do not have government stake;
they may be publicly listed and traded on stock exchanges) and 31 foreign banks. The
commercial banking structure in India consists of scheduled commercial banks and
unscheduled Commercial Banks and unscheduled Banks. Schedule Commercial Banks
Constituted those banks. Which have been included in the second schedule of Reserve Bank
of India (RBI) Act 1934 RBI includes only those banks in the schedule which satisfy the
criteria laid down vide section 42(6)(a) of the Act. The governments policy for Indian bank
since 1969 has paid rich dividends with the nationalization of 14 major private banks of
India. Not long ago, an accountholder had to wait for hours at the bank counters for getting a
draft or for withdrawing his own money. Today he has a choice. Gone are days when the most
efficient banks transferred money from one branch to other in two days. Now money
transaction to any corner of the country within a few minutes is possible by the advent of
technology.
The milestones of Indian banking industry are:
The first bank in India, though conservative was established in 1786. From1786 till today the
journey of Indian Banking system can be segregated into three distinct phase.
They are as mentioned bellow.

Early phase from 1786 to 1969 of Indian Banks

Nationalization of Indian Banks and up to 1991 prior to Indian Banking
sector reforms.
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New phase of Indian Banking system with advent of Indian Financial and Banking sector
reforms after 1991.
Phase 1
The General Bank of India was set up in the year 1786. Next was come Bank of Hindustan
and Bengal Bank. The East India Company established Bank of Bengal (1809). Bank of
Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency
Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was
established which started as private shareholders banks mostly Europeans Shareholders. In
1865 Allahabad Bank was established and first time exclusively Indians, Punjab national
Bank Ltd, was set up in 1894 with headquarters at Lahore. Between1906 and 1913, Bank of
India central, Bank of India, Bank of Borada, CANARA Bank, Indian Bank of Mysore were
set up. Reserve Bank of India came in 1935.During the first phase the growth was very slow
and bank also experienced periodic failures between 1913 and 1948. There were
approximately 1100 Banks, mostly small to streamline the functioning and activities of
commercial Banks. The Government of India came up with the banking companies Act, 1949
which was later changed to Banking Regulation Act 2949 as per amending Act of 1965 (Act
No.23 of 1965).Reserve Bank of India was vested with extensive powers for the supervision
of banking in India as the Central Banking Authority. During those days public has lesser
confidence in the Banks. As aftermath deposit mobilization was slow. A breast of it the
savings bank facility provided by the postal department was comparatively safer. Moreover,
funds were largely given to traders.
Phase II
Government took major steps in this Indian Banking Sector Reform after independence. In
1955, it nationalized Imperial Bank of India with extensive banking facilities on a large scale
especially in rural and semi-urban areas. It formed State Bank of India to act as the principal
agent of RBI and to handle banking transactions of the Union and State Governments all over
the country. Seven banks forming subsidiary of State Bank of India was nationalized in 1960
on 19th July, 1969, major process of nationalization was carried out. It was the effort of the
then Prime Minister of India, Mrs Indira Gandhi. 14 major commercial banks in the country
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were nationalized. Second phase of nationalization Indian Banking Sector Reform was
carried out in 1980 with seven more banks. This step brought 80% of the banking segment in
India under Government ownership.
The following are the steps taken by the Government of India to Regulate Banking
Institutions in the Country:
1949: Enactment of Banking Regulation Act.
1955: Nationalization of State Bank of India.
1959: Nationalization of SBI subsidiaries.
1961: Insurance cover extended to deposits.
1969: Nationalization of 14 major banks.
1971: Creation of credit guarantee corporation.
1975: Creation of regional rural banks.
1980: Nationalization of seven banks with deposits over 200 crore.
After the nationalization of banks, the branches of the public sector bank India rose to
approximately 800% in deposits and advances took a huge jump by 11,000%.
Phase III
This phase has introduced many more products and facilities in the banking sector in its
reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up
by his name which worked for the liberalization of banking practices. The country is flooded
with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service
to customers. Phone banking and net banking is introduced. The entire system became more
convenient and swift. Time is given more importance than money.

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4. Profile of ICICI Bank

ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and
representatives of Indian industry. The principal objective was to create a development
financial institution for providing medium-term and long-term project financing to Indian
businesses. In the 1990s, ICICI transformed its business from a development financial
institution offering only project finance to a diversified financial services group offering a
wide variety of products and services, both directly and through a number of subsidiaries and
affiliates like ICICI Bank
ICICI Bank is Indias largest private sector multinational banking and financial services
company with total assets of RS 646129 billion (us$ 103 billion) at march 31,2015 and Profit
after tax Rs 111.75 billion (us $ 1788 million) for the year ended march 31, 2015 ICICI has a
network of 4070 branches and 13.474 ATMS across India. Through a wide range of banking
products and financial services in the areas of investment banking non- life insurance, venture
capital and asset management for corporate and retail customers.

Profile of ICICI bank ltd

Type

Public

Traded: bse :

532174

NYSE

IBN

CNX Sifty constituent

Industry

Banking, Financial services

Founded

1994

Headquarters:

Mumbai, Maharashtra, India

Are served

world wide

Key people

Mr. M.k. Sharma (Chairman)

Mrs.chanda kochhar (MD& CED)

Products:

Credit cards, consumer banking, corporate banking, finance and

insurance, investment banking, mortgage loans, private banking,
mortgage loans, private banking, wealth management, personal loan,
payment solutions.
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Revenue

Rs 90216 crore (US$13billion)

(2015)

Profit

Rs 12942 Crore (US$1.9 billion)

(2015)

Total assets

Rs 826079 crore (US$120 billion) (2015)

Number of
Employees

67,857 (2015)

Website

www.icicibank.com

Objectives of ICICI Bank:ICICI Bank's Green initiative is to make healthy environment in the organisation i.e.; to
create intrapersonal skills among the customer and understanding between employees of the
organisation.
Broad objectives of the ICICI are:
1. To assist in the creation, expansion and modernisation of private concerns;
2. To encourage the participation of internal and external capital in the private concerns;
3. To encourage private ownership of industrial investment.
4. Not giving NOC after settlement of loans
5. Tussle with the collection agent R .R Groups, Dasnagar, Howrah is going on and the
bank is harassing the customers
ICICI Bank Products
Extra home loans: Countrys first Mortgage Guarantee backed loans - ICICI Bank Extra
Home Loans for retail customers aspiring to purchase their first homes in the affordable
housing segment were introduced in August 2015. This allows a borrower to enhance the loan
amount by up to 20% and also provides the option to extend the repayment period up to 67
years of age. This initiative is in association with India Mortgage Guarantee Corporation
(IMGC). IMGC is a joint venture between National Housing Bank (NHB), an RBI subsidiary
which regulates Home Finance Companies in India; NYSE-listed Gen worth Financial Inc., a
Fortune 500 company; International Finance Corporation (IFC) and Asian Development Bank
(ADB)

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Smart Vault: The bank launched fully automated state-of-the-art lockers, Smart Vault which
is available 24x7, including weekends and post banking hours in August 2015. The Smart
Vault uses robotic technology to access the lockers from the safe vault and enables customers
to conveniently access their lockers at any time of their preference, in total privacy, without
any Intervention of the branch staff, in the comfort of a secure lounge where the locker
automatically comes up to the customer.
Saral Loans : In August 2015, ICICI Bank introduced Saral-Rural Housing Loan.
Applicants from rural areas including women borrowers as well as seekers from weaker
sections can now avail home loans at the ICICI Bank Base Rate (I-Base) which is currently
at 9.70%. An eligible borrower can take up to Rs.15 lac under the ICICI Bank Saral-Rural
Housing Loan
ICICI Bank Unifare Bangalore Metro Card:
ICICI Bank and Bangalore Metro Rail Corporation Limited (BMRCL) in April 2015
announced the launch of the ICICI Bank Unifare Bangalore Metro Card. This card offers
the commuters dual benefits of an ICICI Bank credit or debit card and BMRCLs smart card,
called Namma Metro Smart Card. This is a cobranded card in association with MasterCard.
'Touch n Remit' facility for NRIs in Kingdom of Bahrain In March 2015, ICICI Bank tied up
with SADAD Electronic Payments WLL to offer remittance service for NRIs based in
Bahrain, enabling them to transfer monies instantly to India from the latters kiosks spread
across the Kingdom of Bahrain. This facility has been named as Touch n Remit.

ICICI Bank Ltd launches 'Video Banking' for NRI

In February 2015, ICICI Bank announced the launch of 'Video Banking' for all its NRI (Non
Resident Indian) customers. Using this service, the customers can now connect with a
customer care representative over a video call, round-the-clock, on all days from anywhere
using their smart phone.
Pockets by ICICI Bank
In February 2015, ICICI Bank Re-Launched POCKETS now is working as a "Digital wallet"
for everyone (Android OS users only). The Wallet be can be opened by anyone and can
conduct transactions like recharge, shopping, transfer money using the virtual visa card which

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ICICI Bank Pay on Twitter
ICICI Bank in January, 2015 launched banking services on Twitter, christened as 'ICICI Bank
Pay'. This service in India enables ICICI Bank customers to transfer money to anyone in the
country who has a Twitter account, check account balance, view last three transactions and
recharge prepaid mobile in a completely secure manner
Contactless Credit and Debit Cards ICICI Bank in January, 2015 announced the launch of the
countrys first Contactless debit and credit cards, enabling its customers to make electronic
payments by just waving the cards near the merchant terminal in lieu of dipping or swiping
them. These cards are based on the Near Field Communication (NFC) technology, which
provides customers the improved convenience of speed as these cards require significantly
less time than traditional cards to complete a transaction along with enhanced security as they
remain in control of the customer.
My Savings Rewards
ICICI Bank has rolled-out the programme 'My Savings Rewards' from 1 September 2012,
where reward points are offered to individual domestic customers for a variety of transactions
done through the savings bank account. Reward points are offered automatically to customers
for activating Internet banking, shopping online/ paying utility bills with Internet banking and
auto-debit from savings account towards equated monthly instalments for home/ auto/
personal loan/ recurring deposit. Customers are required to maintain a monthly average
balance of 15,000 or more. The Indian bank will require 5.5% interest on short term loans
and long term bonds and mortgages loans up to $2 million up to 20years to pay back annual
interest of 5.5% short term loans from 3 months up to 3years at 5.5% .credit interest is
reduced to 10% annually.

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Profile of CANARA bank

Back ground and Inception of the Company:CANARA BANK was founded in 1906 by Sri, AmmembalSubbaRaoPai. The bank was
initially named as CANARA Bank Hindu Permanent Fund. It blossomed in to a limited
company in 1910 and was renamed as CANARA Bank Ltd, in 1969 the bank was
nationalized and thereafter came to be known as CANARA Bank. Today CANARA Bank is
one of the premier Banks in the country with a network of 2,578 branches spread all over the
country. The Bank has many distinctions to its name. It was the first Bank to be conferred
FICCI award for contribution to rural development CANARA Bank was the first among
Banks to launch networked ATMs and obtain ISO certification. CANARA Bank has covered
a niche for itself in providing IT based services with 100%computerization of the branches
.The Bank provides a wide array of services, such as Networked ATMs Anywhere banking,
Tele Banking, remote access terminals, internet and mobile Banking, debit card etc. For the
year 2004-05 CANARA Bank clocked the highest net profit (Rs1110 core) among
nationalized Banks, with significant improvement in capital adequacy ratio (12.78%) and
asset quality (net NPA ration of 1.88%). Mysore CANARA Bank Regional Office (CBROM)
was upgraded from Regional Office on April1998. The functions of Circle Office have been
laid down by the Bank. However, on account of changing times, a review of these functions
has been made, rather than replicating existing ones. Sections at Regional Offices will look
for policy support from Head Office. All operational and administrative work relation to their
functions shall be handled by the respective sections within the policy parameters set out by
Head Office. Mysore CANARA Bank Regional Office has a network of 111 level Branches
scattered over 4 districts. Which Mysore, Mandy, C.H nagar, Hassan. In addition to these 5
currencies chest are functioning in all four districts catered to the cash requirements of these
branches. CANARA Bank groups principal activities are to provide a full range of Bank
inland other financial services through 2,578 Branch Offices in India and Abroad.
The service includes accepting deposits, commercial and institutional credit, treasury,
investment, risk management and other related financial services. It operates through two
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segments. Banking operations consist of corporate Banking. Retail Banking, personal and
commercial Banking, Cash management services, Deposits and other allied services.
Treasury operations consist of dealing in SLR and Non-SLR securities and Money Market
operation.

Vision, Mission and Quality Policy

"A good bank is not only the financial heart of the community, but also one with an
obligation of helping in every possible manner to improve the economic conditions of the
common people"
- A. Subba Rao Pai.
Corporate vision:
To emerge as a world class Bank with best Practices in realms of asset portfolio, Customer
orientation, product innovation, Profitability and enhanced value to stake holders.
Corporate mission:

Augmenting low cost Deposits

Threat on Retail lending
Toning up Asset Quality
Assent on cost control
Product innovation and marketing
Customer Centric focus
Leveraging IT for comprehensive MIS
Maximizing stake Holders Value.

Corporate Objectives:

Efficiency
Profitability and Productivity
Organizational Effectiveness.
Customer Centric

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Data analysis:
Capital Structure of CANARA and ICICI Bank:
Capital Structure is a combination of debt and equity. The optimal Capital
Structure which maximizes the value and minimizes the cost of capital.

Table no1.1 Capital Structure of CANARA and ICICI Bank

o

Bank
Year source

CANARA
Equity

Debt

2013
4430
202833.73
4612.59
273097.25
e: 2014
2015
4751.97
257628.20
Annual reports of CANARA and ICICI Bank

ICICI
Equity

Debt

11536.36
11550.44
11596.60

1453414.95
1547590.53
1724173.49

4.2. Comparison of Equity Capital

The funds for a business can rise by selling stock or by retaining earnings. Equity capital is
owners capital and most costly source of finance but least risky then the preference and debt
source of finance.

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12000
10000
8000
canara
6000

icici

4000
2000
0
1

Chart no 4.1 comparison of equity capital

Interpretation:
It is clear from the study that equity used by ICICI is more than CANARA. The equity used
by ICICI and CANARA at increasing rate. Equity capital is owners capital it means a good
indicator for health of an organization.
4.3 Comparison of Debt

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Debt are least costly source of finance because the rate of interest is lower than the rate of
dividend and interest paid on debenture is deducted from the profit while calculating the taxes
but these are most risky
1800000
1600000
1400000
1200000
1000000
800000

canara

icici

600000
400000
200000
0
1

Chart no 4.2 Comparison of Debt

Interpretation
It is clear from the study that debt used by ICICI is more than CANARA. The debt used by
ICICI at increasing rate. And debt used by CANARA increased in 2014. For last year it is
decreasing.

4.4. Debt Equity Ratio:

It is a ratio of borrowed capital to the owned capital. This ratio measures the relative
claims of outsiders against the firms assets.

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Debt-Equity Ratio = Debt Equity
Year

Debt

Equity

Debt Equity ratio

2013

202833.73

4430

= 45.78

2014

273097.25

4612.59

= 59.20

2015

257628.20

4751.97

= 54.21

Average = (45.78+59.20+54.21) / 3 =53.06

ICICI BANK
Year

Debt

Equity

Debt equity ratio

2013

1453414.95

11536.36

= 125.98

2014

1547590.53

11550.44

= 133.98

2015

1724173.49

11596.60

= 148.68

Average = (125.98+133.98+148.58)/3 =136.18

4.5 Comparisons of Debt equity ratios of ICICI and CANARA
Table no 4.2 Debt Equity Ratios
Bank
Year

CANARA
Debt Equity Ratio

ICICI
Debt equity ratio

2013
2014
2015
average

45.78
59.2
54.21
53.06

125.98
133.98
148.67
136.18

Source: Annual reports of ICICI and CANARA bank

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160
140
120
100

CANARA Debt Equity

Ratio

80

ICICI Debt equity ratio

60
40
20
0
1

Chart no 4.3 debt equity ratios of CANARA and ICICI bank

1

2013

2014

2015

Interpretation:
It is clear from the graph that the debt equity ratio of ICICI is more than CANARA. If the
debt equity Ratio is more than it shows rather risky financial position from the long term
point of view.as it indicate that more and more fund invested in the business provided by the
long term lenders. The high debt equity ratio is a dangerous signal for the long term landers.
4.6 Cost of Capital
Cost of capital is the minimum required rate of earning or the cut off rate of Capital
expenditures.
Formulae:
Ke= DPS MP100
DPS = Dividend per share
MP = Market Price

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ICICI Bank
Kd = I NP100
I = Interest
NP = Net Proceed
Cost of Debt of ICICI BANK
2013 Kd= 261989.43 202833.73 100 = 129.16
2014 kd = 306055.34 273097.25 100 =112.06
2015 kd = 341331.23 1724173.49 100 = 19.79
Cost of Debt of CANARA Bank
2013 Kd= 262091.84 1547590.53 100 = 16.93
2014 kd = 277025.88 1453414.95 100 = 19.06
2015 kd = 300515.291724173.50 100 = 17.42
Cost of Equity of ICICI Bank
Ke = DPS market price 100
Year
2013

Ke = 20.00209 100 =9.56

2014

Ke = 23.00 248 100 =9.27

2015

Ke = 5.00 315 100 = 1.5

CANARA Bank
2013

Ke = 13.00 384.45 100 = 3.38

2014

Ke = 11.00 269.3

2015

Ke = 10.50 367.94 100=2.85

100=4.08

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ICICI Bank

4.6 Comparison of Cost of Capital

Cost of capital is minimum rate of return that firm must earn on the equity financed position
of an investment project in order to leave unchanged the market price of the share.
Table no 4.3 Cost of capital
Bank

CANARA

ICICI

year source Cost of equity cost of debt Cost of equity cost of debt
2013
3.38
16.93
9.56
129.16
2014
4.08
19.06
9.27
112.06
2015
2.85
17.42
7.9
19.79

Source: annual reports of ICICI and CANARA Bank

10
9
8
7
6

CANARA Cost of equity

ICICI Cost of equity

4
3
2
1
0
1

Chart no 4.4 Comparison of cost of equity

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ICICI Bank

Interpretation
It is clear from the study that Cost of equity of ICICI is more than CANARA. On the basis of
study it is clear that cost of debt of CANARA is more than ICICI and cost of equity of ICICI
is more than CANARA and cost of debt and cost of equity is decreasing in CANARA and
cost of debt and cost of equity is also decreasing in ICICI.
4.7 Cost of Debt:
The firm borrows the fund from the financial institute or public for a specific period of time
at a specific rate of interest.
140
120
100
80

CANARA cost of
debt

60

ICICI cost of debt

40
20
0
1

Chart no 4.5 Comparison of cost of debt

Interpretation
From the above table, it is clear that cost of debt of ICICI is more than CANARA.

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4.8 Overall Cost of Capital of ICICI BANK

Table no 4.4 Overall Cost of Capital of ICICI bank
Year

Source

Book value

weight

2013 Equity
4430
Debt
202833.73
Total
207263.73
2014 Equity
4612.59
Debt
273097.25
Total
277709.84
2015 Equity
4751.97
Debt
257628.2
Total
262380.17
Source: Annual report of ICICI bank

Cost % age

0.02137
0.9786

9.56
129.16

0.0166
0.9833

9.27
112.06

0.01811
0.9818

7.9
19.79

Weighted
Average cost
0.2043
126.39
126.59
0.1538
110.18
110.34
0.143
19.42
19.56

4.9 Overall Cost of Capital of CANARA Bank

YEAR

Source

2013 Equity
Debt
Total
2014 Equity
Debt
Total
2015 Equity
Debt
Total

Book value

weight

11536.36
145341.95
155568751.3
11550.44
1547590.53
1559140.97
11596.6
1724173.49
1735770.09

cost % age

0.007353
0.9264

3.38
16.93

0.007408
0.9925

4.08
19.06

0.00668
0.9933

2.85
17.42

Table no 4.5 Overall Cost of Capital of CANARA Bank

Source: Annual report of CANARA Bank
Page 25

weighted Average
cost
0.0248
15.68
15.7
0.0302
18.91
18.94
0.019
17.3
17.31

Capital Structure: Comparative Study of CANARA and

ICICI Bank

140
120
100
80

CANARA overall cost

of capital

60

ICICI overall cost

capital

40
20
0
1

Chart no 4.5 Overall Cost of Capital of CANARA BANK

Interpretation
It is clear from the study that overall cost of capital of ICICI is decreasing per year, cost of
capital is decreasing per year and overall cost of capital of CANARA is less than ICICI.

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ICICI Bank

Findings and Conclusions:

The cost of capital of ICICI is decreasing per year and cost of capital of CANARA is
increasing.
On the basis of study conclude that ICICI is better than CANARA because it continue to
focus decreasing the cost of capital as compared to CANARA

ICICI have the better capital structure than CANARA.

Cost of debt of ICICI is more than CANARA.
Cost of equity of ICICI is more than CANARA.
Cost of equity of ICICI & CANARA is decreasing per year.
Cost of debt of ICICI is decreasing & CANARA is increasing
Overall cost of capital of ICICI is decreasing per year.
Overall cost of capital of CANARA is increasing per year.

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Capital Structure: Comparative Study of CANARA and

ICICI Bank

Recommendation: Private bank should improve their capital structure.

Public sector bank should try to reduce their overall cost of capital
Determinant of capital structure should be considered while forming capital structure.
Bank should have liquidity in their capital structure
Timely review of their capital structure is necessary in banking industry
Timely review of their cost of capital of different sources (debt, equity) is necessary in
banking industry

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BIBLIOGRAPHY
1. Prasanna Chandra, A. Financial Management Theory and practice.Tata McGrw-Hill
publication.
2. Annual reports of CANARA Bank.
3. Annual reports of ICICI Bank.
Websites:
www.canarabank.com
www.icicibank.com
www.moneycontrol.com
www.yourarticlelibrary.com
Investopedia http : //www.investopedia.com.

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