Project Proposal - PGP 2015 - 2017 - Section A Group 4

Topic
Analysis of Non-fund based business for public and private sector banks in India
Team Members
Roll Number
1511031
1511048
1511060
1511064
1511065

Name
Mehta Naiya Atul
Sachin Pratik Xalxo
Syed Ahmer Rizvi
Utkarsh
Vaishnavi S

Email ID
naiya.mehta15@iimb.ernet.in
sachin.xalxo15@iimb.ernet.in
syed.rizvi15@iimb.ernet.in
utkarsh.15@iimb.ernet.in
vaishnavi.s15@iimb.ernet.in

Objectives of the study

Banking services in India can be classified in two groups:
1. Asset/ Fund Based Services: Major part of income comes from fund based activities. At the same
time, it involves a large share of expenditure also in the form of interest and brokerage. Various
services listed are:
a. Underwriting shares, debentures, bonds etc.
b. Equipment leasing
c. Hire purchase
d. Bill discounting
e. Venture capital
f. Housing finance
g. Factoring
2. Non-Fund/ Fee Based Services: Fee based services involve lesser risk due to non-involvement of
capital. However banking expertise is required to offer such fee based businesses. Various services
listed are:
a. Corporate advisory services
b. Bank guarantees
c. Merchant banking
d. Issue management
e. Loan syndication
f. Credit rating
g. Stock broking
h. M & A, Capital restructuring

The major objectives of our study are:

Evaluate performance of public and private sector banks in non-fund based business using data from
financial statements.
Identify the factors which impact the success of non-fund business.
Provide a growth trend for the non-fund business.

Relevance of the study

The non-fund based business of the Indian banks has shown a declining trend over the years post economic
liberalization due to depressed capital market conditions and subdued activity in primary market 1. Still with
the non-fund based banking services requiring minimal investment from the banks and adding to banking
sector revenue without stressing the NPA (Non-performing asset) ratio, they increasingly are forming a
major part of the net profit figure.

Non-fund based business

Net interest income 2014-2015 (in Cr)
Other income 2014 - 2015(in Cr)

SBI
55015
22576

HDFC
22395
8996

ICICI
49000
12176

PNB
46315
5890

BoB
42963
4401

Table 1: Other income in comparison to net interest income2

The current study is aimed at:

Identifying co-relationship between performance in non-fund based business and overall profitability
of banks
Recommending measures for public sector banks to replicate the growth of top private sector
performers.

Study Methodology
Focus on 3 Public sector banks (PNB, SBI, BoB) and 2 private sector banks (ICICI and HDFC) and
figure out the percentage of income provided by the non-fund business.
Compare profitability (ROA and OPR) and efficiency (Net interest margin, Operating cost ratio,
Staff expenditure ratio) of these banks for last 5 years.
Compare other income w.r.t total interest income and total interest expended for these banks over
last 5 years and identify top 2 performers in non-fund based businesses amongst these banks.
Focus on key non-fund based services provided by top two performers and contrast them with other
players in terms of charges/fees.
Identify factors for excelling in non-fund based services for some banks.
Recommend action plan for public sector banks to improve their non-fund based business over next
5 years.
Checklist
We confirm that:

The companies to be studied in this project are listed in the BSE and/or the NSE.
We have the complete annual reports of the companies for at least five recent years
The companies are in the same industry sector, reasonably defined.
They should be broadly comparable in terms of size.

1 Analysis of non-fund based financial services: Some insights from India (Dr Gursharan Singh Kamath)
2

Annual Reports Corporate Home NSE Indiahttp://www.nseindia.com/corporates/corporateHome.html