Chapter 1

INTRODUCTION OF THE STUDY

1.1 PROFILE OF THE COMPANY
ICICI

Bank (Industrial

an Indian multinational banking

Cr

and
and

Investment
financial

Corporation
services company

of

India)

is

headquartered

in Mumbai, Maharashtra, India, with its registered office in Vadodara. In 2014, it was the second
largest bank in India in terms of assets and third in term of market capitalisation. It offers a wide
range of banking products and financial services for corporate and retail customers through a
variety of delivery channels and specialised subsidiaries in the areas of investment
banking, life, non-life insurance, venture capital and asset management. The bank has a network
of 4,183 branchesand 13,498 ATMs in India, and has a presence in 17 countries including India.
ICICI Bank is one of the Big Four banks of India, along with State Bank of India, Bank of
Baroda and Punjab National Bank The bank has subsidiaries in the United Kingdom and Canada;
branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar, Oman, Dubai
International Finance Centre, China[8] and South Africa and representative offices in United Arab
Emirates, Bangladesh, Malaysia and Indonesia. The company's UK subsidiary has also
established branches in Belgium and Germany.

1.2 History

ICICI Bank was established by the Industrial Cr and Investment Corporation of India
(ICICI) , an Indian financial institution, as a wholly owned subsidiary in 1994. The parent
company was formed in 1955 as a joint-venture of the World Bank, India's public-sector banks
and public-sector insurance companies to provide project financing to Indian industry.The bank
was founded as the Industrial Cr and Investment Corporation of India Bank, before it changed its
name to the abbreviated ICICI Bank. The parent company was later merged with the bank.
ICICI Bank launched internet banking operations in 1998.ICICI's shareholding in ICICI Bank
was reduced to 46 percent, through a public offering of shares in India in 1998, followed by an
equity offering in the form of American Depositary Receipts on the NYSE in 2000.ICICI Bank
acquired the Bank of Madura Limited in an all-stock deal in 2001 and sold additional stakes to
institutional investors during 2001-02.
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.
In 1999, ICICI become the first Indian company and the first bank or financial institution from
non-Japan Asia to be listed on the NYSE. In 2000, ICICI Bank became the first Indian bank to
list on the New York Stock Exchange with its five million American depository shares issue
generating a demand book 13 times the offer size.

In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI
and two of its wholly owned retail finance subsidiaries, ICICI Personal Financial Services
Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by
shareholders of ICICI and ICICI Bank in January 2002, by the High Court of Gujarat at
Ahmedabad in March 2002 and by the High Court of Judicature at Mumbai and the Reserve
Bank of India in April 2002.
In 2008, following the 2008 financial crisis, customers rushed to ICICI ATMs and branches in
some locations due to rumours of adverse financial position of ICICI Bank. The Reserve Bank of
India issued a clarification on the financial strength of ICICI Bank to dispel the rumours.
Acquisitions

1996: SCICI Ltd. A diversified financial institution with headquarters in Mumbai

1997: ITC Classic Finance. incorporated in 1986, ITC Classic was a non-bank financial
firm that engaged in hire, purchase, and leasing operations. At the time of being acquired,

ITC Classic had eight offices, 26 outlets, and 700 brokers.

1998: Anagram(ENAGRAM) Finance. Anagram had built up a network of some 50
branches in Gujarat, Rajasthan, and Maharashtra that were primarily engaged in retail

financing of cars and trucks. It also had some 250,000 depositors.

2001: Bank of Madurai
2002: The Darjeeling and Shimla branches of Grindlays Bank
2005: Investitsionno-Krny Bank (IKB), a Russian bank
2007: Sangli Bank. Sangli Bank was a private sector unlisted bank, founded in 1916, and
30% owned by the Bahte family. Its headquarters were in Sangli in Maharashtra, and it had
198 branches. It had 158 in Maharashtra and 31 in Karnataka, and others in Gujarat, Andhra
Pradesh, Tamil Nadu, Goa, and Delhi. Its branches were relatively evenly split between
metropolitan areas and rural or semi-urban areas.

2010: The Bank of Rajasthan (BOOR) was acquired by the ICICI Bank in 2010

for 30 billion. RBI was critical of BOR's promoters not reducing their holdings in the
company. BOR has since been merged with ICICI Bank.

1.3 GENERAL DETAIL OF THE COMPANY

Type

Public

Traded as

BSE: 532174
NYSE: IBN
BSE SENSEX Constituent
CNX Nifty Constituent

Industry

Banking, Financial services

Founded

1994

Headquarters

Mumbai, Maharashtra, India[1]

Area served

Worldwide

Key people

Mr. M. K. Sharma (Chairman)

Mrs.Chanda Kochhar (MD & CEO)

Products

Credit cards, Consumer banking, corporate banking,finance and insurance,investment

banking, mortgage loans, private banking, wealth management, Personal Loan, Payment
Solutions.

Revenue
Operating

US$9.8 billion (2015)[2]

US$3.2 billion (2015)[2]

income
Profit
Total assets
Total equity
Number of

US$1.8 billion (2015)[2]

US$103.4 billion (2015)[2]
US$12.9 billion (2015)[2]
67,857 (2015)[3]

employees
Website

www.icicibank.com

1.4 VISION OF THE COMPANY

"To be the leading provider of financial services in India and a major global bank." The mission
statement of ICICI Bank consists of several points, but the first is to become the first choice
among customers by providing world-class services.

1.5 Mission Of The Company

We will promote inclusive growth india through focussed iniatives in the identified areas
including primary health care elementary education skilled development and sustainable
livelihoods and financial inclusion

Core Values
Customer Centricity
Ethics
Transparency
Teamwork
Ownership

1.6 Organizational Structure of Icici bank

Figure 1.2 Organizational structures of ICICI securities

The organizational structure of icici securites comprises of chief operating officer, chief risk
officer, chief financial officer, board secretariats and various heads and managers to accomplish
the goals and objectives of the bank.

1.7 SWOT Analysis of ICICI Bank

(i) Strengths are:
a) Wide distribution Network
ICICI has more than 27000 ATM and ICICI group i.e. including associate banks has about
45,000 ATM whereas total no. of ATM as on October are 104500. As on June 2012,ICICI has
14127 branches and ICICI group i.e. including ICICI associates banks 21,500 branches as on
March 2012 where total no. of bank branches in India are 90732 . ICICI has become the first
bank to install an ATM at Drass in the Jammu & Kashmir Kargil region.
b) Market leader
ICICI has 20% market share in deposits and loans among Indian commercial banks. ICICI
controls 22.35% in business as on RBI. ICICI life stood at the no. 1 position with a market share
of 19.8% in private insurance business as of May 2011.

c) Government owned:
Government owns 60% stake in ICICI , this gives ICICI an edge over private banks in terms of
customer security. They are automatically immune from failure because they have access to
Central Government support.
d) ICICI has the first mover advantage in commercial banking service:
ICICI has started its operation in very early stage. It acquire customer when there was very less
competition or no competition.
e) Brand Name:
Icici bank has earned a reputation in the market over the period of time.

(ii) Weaknesses are:

a) Private Banks came with a great advantage from day one as they had core banking unlike
ICICI or public sector bank. Whereas ICICI had to transform their system into core banking for
this new skilled man power will be required.
b) ICICI has the highest Non-Performing Asset or NPA in the Industry. ICICI s NPA constitute
one third of gross NPA of all listed banks put together.
c) In spite of modernization bank still carries the perception of traditional bank to new age
customer.
d) ICICI has the largest no. of employee in the industry (more than 2lakh).Bank spends huge
portion of income on employee wages & salaries. Their wages accounted for 18.86% of the
banks total expenses. While the industry average was 14.83% during 2009-2010.
e) Customer service has to improve a lot in order to be in race with other major players

(iii) Opportunities are:

a) Since the bank is yet to modernize few of its banking operations, there is a better scope of
using advanced technologies and software to improve.
b) ICICI attracts most talented pool of graduates in the industry, for 2013 PO exams 17
Insurance lakh student appeared. So chances are high that they will offer better customer service
in innovative way.
c) Recently Government allowed insurance company to use banks distribution channel, because
of its vast distribution ICICI can attract most of the insurance company and service will not free
of cost so new way of revenue generation.

d) Good inflow from overseas operation: ICICI has 150 offices in 32 countries which contribute
14-15% in net profit.
e) Merger with five banks namely State bank of Hyderabad, state bank of Patiala, State bank of
Bikaner as Jaipur , state bank of Travancore and state bank of Mysore are in approval stage.
Merger will result in expansion of market share to defend its no. one position. As SBP posted
87% growth in profit SBBJs profit groth is 311% while SBT & SBH 30% nd 18% respectively.
Moreover 5 associates banks has 6% market share in loans & deposits etc.

(iv)Threats are:
a) Deregulation of Saving Bank Rate
As RBI had deregulated saving bank rate because of these private sector bank has increased
saving bank rate, so customer will be more attracted towards private bank.

b) External factor
High fuel price, power prices etc. are also hurting ICICI , since the banks lend to all segments,
this will effect ICICI . The point is, in context with huge lending to kingfisher where ICICI was
the biggest lender.
c) Increased Competition from Private bank
Customer prefer to switch to private banks and financial service providers for loans and
mortgages, as ICICI involves strict verification procedure and take long time for processing. The
scenario is opposite in case of private bank, private bank has better management and faster
processing times than ICICI . Their DSAs have strict sales target every month and hence move
faster to improve their performance. ICICI employees are not bothered about this.

d) Employee Strike
In 2006 April there was a 7 days strike costs huge loss for ICICI . (Rs. 55000 crore loss in MP,
Chattisgarh) strike was because of pension hike. During that time the government of U.P has
transferred its account to Allahabad bank, while Government of Maharastra was also in the
process to do so.
e) Venturing into Rural and Semi-Urban sector
Private bank has started venturing into rural and semi urban sector which used to be the bastion
of the ICICI and other PSU banks.
According to RBI data, in 2012 no. of ICICI branches increased by 4.9% whereas total no. of
bank branches increases by 6.6% in rural area. In case semi-urban, ICICI branches increased by
3.44% whereas total no. branches increased by 11.11%.

1.9 Objective $ scope of the Study

The objective of the study is as follows:
1. To know the relationship between the risk and return of icici securities
2. To know about the stock market
3. 1.7 Methodology
4. 1.71 Methodology used for Data Collection
5. Secondary data is data collected by someone other than the user. Secondary data is
collected through Journals, Articles, Research Papers, Interaction and feedback of
customers, Newspaper and magazines, Internet.
6.
7. 1.74 Methodology used for data analysis
8. The study is based on secondary data which is one type of quantitative date that has
already been collected by someone else for a different purpose. Journals, Magazines,
Balance sheet Internet and other relevant manuals/publications will be used as secondary
sources for past 10 years i.e from 2006-2015 for data collection. I choose ICICI bank
among all banks because ICICI is the largest and one of the oldest commercial bank in
India, in existence for more than 200 years. ICICI has the largest branch and ATM
network across every corner of the India. Descriptive research is going to be done.
Correlation and Regression techniques proposed to be used for the data analysis.
Correlation refers to any of a broad class of statistical relationships involving
dependence, though in common usage it most often refers to the extent to which two
variables have a linear relationship with each other. Regression Analysis is a statistical
process for estimating the relationships among variables. It includes many techniques for
modelling and analyzing several variables, when the focus is on the relationship between
a dependent variable and one or more independent variables .

1.9 Hypothesis
9. H01: There is no Relationship Between Value of Firm and Profitability of the firm for
State Bank Of India .
10. Ha1: There is a significant Relationship Between Value of Firm and Profitability of the
firm for State Bank Of India .

CHAPTER 2
LITERATURE REVIEW
Chapter Overview
Review of literature provides information to the researchers regarding the previous work done in
their area of research and thereby helps them in identifying the theoretical framework and
methodological issues relevant to the study. It provides the researchers a proper direction to carry
out their research work and enables them to arrive at meaningful results.
2.1 Literature review
Prof. (Dr). Velnampy T. & Niresh J. Aloy in their study titled "The Relationship between
Capital Structure & Profitability" This study was conducted in the year 2012. Capital structure
decision is the vital one since the profitability of an enterprise is directly affected by such
decision. The successful selection and use of capital is one of the key elements of the firms
financial strategy The purpose of this study is to investigate the relationship between capital
structure and profitability of ten listed Srilankan banks over the past 8 year period from 2002 to

2009.The data has been analyzed by using descriptive statistics and correlation analysis to find
out the association between the variables. Results of the analysis show that there is a negative
association between capital structure and profitability except the association between debt to
equity and return on equity. Further the results suggest that 89% of total assets in the banking
sector of Sri Lanka are represented by debt, confirming the fact that banks are highly geared
institutions. The outcomes of the study may guide banks, loan-creditors and policy planners to
formulate better policy decisions as far as the capital structure is concerned.

Mohamad Nor Edi Azar Binti & Mohamad Noriza Binti Saad in their study titled
" The Effect to Firm Value and Profitability Performance in Malaysia " This study was conducted in
the year 2012. Firm's cost of capital is determined in the capital markets and is closely related to the
degree of risk associated with new investments, existing assets, and the firm's capital structure. It is
an overall return that a corporation must earn on its accessible assets and business operations in
order to augment or preserve the value of its current stock. Thus a careful approximation of a firm's
specific financing and weighted-average cost of capital (WACC) is essential for a good financial
management. Thus study highlights the effect of cost of capital towards firms value and
profitability for a sample of 415 listed companies in main market Bursa Malaysia for 6 years basis
from 2005 to 2010. The result of the study shows significant relationships exist between cost of
capital with firm value and profitability.
Yegon Charles, Cheruiyot Joseph, Dr. Sang J., Dr. Cheruiyot P.K. in their study titled "The
Effects of Capital Structure on Firms Profitability" This study was conducted in the year 2014.
Capital structure is considered important corporate financial management context and is mainly
related to the establishment of an ideal debt policy. The determination of a companys capital

structure constitutes a difficult decision, one that involves several and antagonistic factors, such
as risk and profitability. This paper empirically investigates the relationship between capital
structure and the firms profitability of banking industry in Kenya, by using panel data extracted
from the financial statements of the companies listed on the Nairobi Stock Exchange from year
2004-2012. It is found that a significant positive relationship exists between the short term debt
and profitability and statistically significant negative relationship between long term debt and
profitability. The results are partially consistent with the previous studies as the negative
relationship between long term debt and the firm performance tends to sport the dominant
pecking order theory. The association of short term debt and the financial performance in
contrast attests the static trade-off theory. Total debt as a whole has no association with the firms
performance because of the inherited different characteristics of short term debt and long term
debt.
Scott James W., Arias Jos Carlos in their study titled " Banking Profitability Determinants "
This study was conducted in the year 2011. The studies on the determinants of banks
performance in the United States in recent years have shown some mixed results, with some
researchers finding that little cost saving can be achieved by increasing the size of the banking
firm and others report significant scale economies for banks whose asset size extends well into
the billion range such as those investigated herein. In fact, it would be reasonable to conclude
that the determinants of profitability can be discerned at a given point in time as they relate to
a specific set of factors, but there is much more involved in the analysis than a straight-forward
modeling approach can address. In conclusion, analyzing profitability in the financial services
sector requires constructing a comprehensive picture of a wide range of relevant performance

metrics. This analysis also requires a significant amount of judiciousness and recognition of their
limitations when interpreting them.

Velnampy, T & Nimalathasan, B in their study titled " Firm Size on Profitability: A
Comparative Study of Bank of Ceylon and Commercial Bank of Ceylon Ltd in Srilanka"
This study was conducted in the year 2010. The banking organizations, today, is moving towards
the goal of integrated financial services because of the strong competition and quick changes of
technology. The main objective of the study is to find out the effects of the Firm Size on
Profitability of Bank of Ceylon and Commercial Bank of Ceylon Ltd. Sub objectives are:
To identify the profitability of bank of Ceylon and Commercial Bank of Ceylon Ltd over the 10
years during 1997 -2006.
Accordingly the banking sector is considered to be an important source of financing for most
businesses. This study is initiated to effect of the firm size on profitability of virtually all the
branches of Bank of Ceylon (BOC) and Commercial Bank of Ceylon Ltd (CBC) with 10 years
accounting period: 1997-2006.Correlation analysis shows that, there is a positive relationship
between Firm size and Profitability in Commercial Bank of Ceylon Ltd, but there is no
relationship between firm size and profitability in Bank of Ceylon.
Li-Ju Chen (Taiwan), Shun-Yu Chen (Taiwan) in their study titled "

The influence of

profitability on firm value with capital structure as the mediator and firm size and industry as
moderators" This study was conducted in the year 2011. The influences of profitability and
leverage on firm value have long been critical with regard to financial decision making .The
greater the profitability of a firm, the more assignable profit there is, and the higher is the value
of the company. Profitability thus has a significantly positive influence on firm value. This study

focused on the relationships between these three variables. Based on the data of 647 listed
companies in Taiwan for the years 2005- 2009, this research investigated whether leverage is a
mediating variable for profitability and corporate performance. In addition, with the aid of two
regressions, this work examined if the moderating variables are TYPE and SIZE, as well as the
relationships among the three variables, as mentioned above. The results confirmed that
profitability has a positive effect on firm value, and a negative effect on the leverage, while the
leverage has a negative effect on the value, and profitability has a significant mediating effect.
When investors consider the influence of profitability on firm value, they cannot ignore the
leverages negative effect on the firm value, because a high level of debt may cancel the positive
effect of profitability on firm value. Since leverage generally has a markedly negative influence
on firm value, leverage becomes the mediator variable in the influence of profitability on firm
value. In addition, two moderator variables exist in the research industry type and firm size. It is
noted that when industry type the acts as a moderator variable, it interferes with the relationship
between profitability and leverage.
Dr. Adhikari Kingshuk, Barman Nitashree, Kashyap Pinkumoni) in their study titled
"Profitability of State Bank of India: An Analysis" This study was conducted in the year
2014.The main emphasis of the present paper is to assess the profitability performance of State
Bank of India for the period of seven years i.e. from 2006-07 to 2012-13. The study has
considered five parameters for measuring the performance such as operating profit as a
percentage to working funds, return on assets, return on equity, return on investment, Earning per
share. The result of t test proves that there is a significant difference between the components of
income and single factor ANOVA also finds that there are significant differences across the
components of expenditure. Moreover, the t test shows that there is not a significant difference

between the trend of income and expenditure thereby indicating approximately equal marginal
performance between the two.

DR.GURUSWAMY

D.

in

their

study

titled

"ANALYSIS

OF

PROFITABILITY

PERFORMNCE OF SBI AND ITS ASSOCIATES" This study was conducted in the year 2012.
The profitability performance of SBI and its associates has become a fascinating topic for
conversation, comment and debate. There is growing evidence of concern by the authorities on
the declining profitability of the banking system due to unsecured loans and advances. The RBI
pressures on banks profitability and suggest various methods to reduce the unsecured loans and
advances, with changes in the social and economic objective of Indian commercial banks
particularly of SBI and its associates. This paper is primarily based on secondary data. In order to
derive the open handed results from the information collected through secondary data, various
statistical tools like mean, S.D, variance, CAGR, and ANOVA have been accomplished. The
scope of the paper is confined to all the banks of SBI group for a data period from 1996-97 to
2007-08.

OSBORNE MATTHEW , FUERTES ANA-MARIA and MILNE ALISTAIR in their study

titled "Capital and profitability in banking: Evidence from US banks " This study was conducted
in the year 2010. This paper examines the effect of capital ratios on bank profitability over
economic cycles using data from the US banking sector spanning several economic cycles from
the late 1970s to the recent financial crisis of 2008-10. This relationship is likely to be timevarying and heterogeneous across banks, depending on banks actual capital ratios and how these
relate to their optimal capital ratios, and we employ an empirical framework which allows

substantial heterogeneity across banks and over timeBanks with a surplus of capital relative to
target exhibit a strongly negative relationship between capital and profitability, both in stressed
and non-stressed conditions, implying that reducing capital may be the optimal strategy for these
banks. We conclude with policy implications, namely that counter-cyclical variations in capital
requirements envisaged under Basel III will need to be large in order to achieve macro prudential
aims of smoothing credit cycles.
Abubakar Ahmadu in their study titled "RELATIONSHIP BETWEEN FINANCIAL
LEVERAGE AND FINANCIAL PERFORMANCE OF DEPOSIT

MONEY BANKS IN

NIGERIA" This study was conducted in the year 2013. The general objective of this study is to
investigate the relationship between financial leverage and financial performance of deposit
money banks in Nigeria, with specific reference to how debt equity ratio and debt ratio
affect return on equity of deposit money banks in Nigeria. This study selects 11 deposit money
banks from Tier 1, Tier 2 and Tier 3 classification of banks using convenience sampling
technique for the period 2005-2013. This study adopted both descriptive and correlation
analysis in describing the data set and in investigating the relationship between financial
leverage and financial performance. The study recommends among others that an appropriate
debt-equity mix should be adopted by banks if they must improve their financial
performance, survive and remain competitive.
Yhlas Sovbetov in their study titled "RELATIONSHIP BETWEEN CAPITALSTRUCTURE &
PROFITABILITY- Evidence from UK banking industry over the period of 2007-2012 " This
study was conducted in the year 2013.In recent years, the capital structure and profitability was
analyzed

by

too

many

researchers

in

academic

level.

The

differential

point

of banking industry with other financial industries is minimum capital requirement that is 8% of

equity capital Therefore this capital hold is mandatory for them by law. This research is aiming
to analyze the relationship between capital structure of theUK banks and its profitability. In the
chapter two, the theories of capital structure, as well as the Basel directives and camel ratios
were covered. Hereafter, in chapter five, the top six banks of UK, and all related data of these
banks over the period of 2007-2012 were gathered and sorted out. Afterwards, these data were
penetrated through the correlation analysis to find out the relationship between input variables.
At 1% significance level, it was observed that the gearing has astrong and negative impact on
profitability, so on market value of equity.
The Relationship between Capital Structure and Profitability in Commercial Banks: Evidence f
MohammadReza Asgari , Sareh Pahlavan , Mostafa Pahlavan in their study titled "The
Relationship between Capital Structure and Profitability in Commercial Banks: Evidence from
Iran" This study was conducted in the year 2015. This study aims to investigate the relationship
between the profitability and the capital structure of banks. The statistical population of this
research consists of all public and private banks for a decade from 2003 to 2012. Using the
screening method, the sample is comprised of 18 public and private banks. In this study, return
on assets, return on equity, and committed net interest margin are selected as dependent variables
and debt-to-equity ratio and debt-to-assets ratio are considered as independent variables. This
research exploits compilation and panel (board) data with random and fixed effects and data
analysis results at the 95% confidence level shows that Debt-to-equity and debt-to-assets have a
direct and significant relationship (p<0.05) with return on equity and return on assets. Moreover,
results indicate that there is no significant relationship between debt-to-equity and debt-to-assets
ratios and the committed net interest margin of the banks. R

Dr Ramachandran Azhagaiah , Dr Candasamy Gavoury in their study titled "The Impact of

Capital Structure on Profitability with Special Reference to it Industry in India"" This study was
conducted in the year 2010. " Firms can use either debt or equity capital to finance their assets.
The best choice is a mix of debt and equity. The study tries to establish the hypothesized
relationship as to how far the cs affects the business revenue of firms and what the
interrelationship is between cs and Profitability. This study is carried out after categorizing the
selected firms into three categories based on two attributes, viz. business revenue and asset size.
First, firms are grouped into low, medium and high based on business revenue. Second, firms are
classified into small, medium and large based on asset size to establish the hypothesized
relationship that cs has signify- cant impact on Profitability of Information Technology (it) firms
in India. For the study, a sample of 102 it firms was chosen by the Multistage Sampling
Technique. The data for a period of 8 years ranging from 19992000 to 20062007 have been
collected and considered for analysis. Regression Analysis, in addition to descriptive statistics
such as Mean, Standard Deviation, and Ratios has been used. The study proves that there has
been a strong one-to-one relationship between cs variables and Profitability variables, Return on
Assets (roa) and Return on Capital Employed (roce) and the cs has significant influence on
Profitability, and increase in use of debt fund in cs tends to minimize the net profit of the it firms
listed in Bombay Stock Exchange in India. .""""""""""""""Banks: Evidence from Iran