20968435 state bank of india project financing (1)

7/28/2019 20968435 State Bank of India Project Financing (1)

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STATE BANK OF INDIA

Project Financing.

FINANCE ll PROJECT

COMPANY- STATE BANK OF INDIA

Submitted to:- Submitted by:-

Mrs.Chhavi Mehta Tarun Banga-39

Bhanu Kapoor-09

Lavan Tokas -14

Poorvi Chaturvedi-

Shivangi Bhargavi-30

Bhawan Usha and Lakshmi Mittal Institute of

Management 1


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STATE BANK OF INDIA

Project Financing.

Industrial Profile

HISTORY OF BANKING IN INDIA

Without a sound and effective banking system in India it cannot have a healthy economy.

The banking system of India should not only be hassle free but it should be able to meet new

challenges posed by the technology and any other external and internal factors.

For the past three decades Indias banking system has several outstanding achievements to

its credit. The most striking is its extensive reach. It is no longer confined to only

metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to

the remote corners of the country. This is one of the main reasons for Indias growth. The

governments regular policy for Indian bank since 1969 has paid rich dividends with the

nationalization of 14 major private banks of India.

The first bank in India, though conservative, was established in 1786. From 1786 till today,

the journey of Indian Banking System can be segregated into three distinct phases. They are

as mentioned below:

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 the advent of Indian.

Financial & Banking Sector Reforms after 1991.

Phase I

The General Bank of India was set up in the year 1786. Next came 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 European shareholders.

In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab

National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913,

Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank

of Mysore were set up. Reserve Bank of India came in 1935.

During the first phase the growth was very slow and banks also experienced periodic

failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To

streamline the functioning and activities of 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 1949 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 System.


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During those days public has lesser confidence in the banks. As an aftermath deposit

mobilisation was slow. Abreast 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 nationalised Imperial Bank of India with extensive banking facilities on a large scale

specially 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 government all over

the country.

Seven banks forming subsidiary of State Bank of India was nationalised in 1960 on 19 th July

1969, major process of nationalisation was carried out. It was the effort of the then Prime

Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country were

nationalized.Second phase of nationalisation 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:

1. 1949: Enactment of Banking Regulation Act.

2. 1955: Nationalisation of State Bank of India.


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3. 1959: Nationalisation of SBI subsidiaries.

4. 1961: Insurance cover extended to deposits.

5. 1969: Nationalisation of 14 major banks.

6. 1971: Creation of credit guarantee corporation.

7. 1975: Creation of regional rural banks.

8. 1980: Nationalisation of seven banks with deposits over 200 crores.

After the nationalization of banks, the branches of the public sector bank India raised to

approximately 800% in deposits and advances took a huge jump by 11000%. Banking in the

sunshine of Government ownership gave the public implicit faith and immense confidence

about the sustainability of these institutions.

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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The financial system of India has shown a great deal of resilience. It is sheltered from any

crisis triggered by any external macroeconomics shock as other East Asian Countries

suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high, the

capital account is not yet fully convertible, and banks and their customers have limited

foreign exchange exposure.

Banking in India originated in the first decade of 18th century with The General Bank Of

India coming into existence in 1786. This was followed by Bank of Hindustan. Both these

banks are now defunct. The oldest bank in existence in India is the State Bank Of India being

established as The Bank Of Calcutta in Calcutta in June 1806. Couple of Decades later,

foreign Banks like HSBC and Credit Lyonnais Started their Calcutta operations in 1850s. At

that point of time, Calcutta was the most active trading port, mainly due to the trade of British

Empire and due to which banking actively took roots there and prospered. The first fully

Indian owned bank was the Allahabad Bank set up in 1865.

By 1900, the market expanded with the establishment of banks like Punjab National Bank in

1895 in Lahore; Bank of India in 1906 in Mumbai-both of which were founded under private

ownership. Indian Banking Sector was formally regulated by Reserve Bank Of India from

1935. After Indias independence in 1947, the Reserve Bank was nationalised and given

broader powers.


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SBI Group

The Bank of Bengal, which later became the State Bank of India. State Bank of India with its

seven associate banks commands the largest banking resources in India.

Nationalization

The next significant milestone in Indian Banking happened in late 1960s when the then Indira

Gandhi government nationalized on 19th July 1949, 14 major commercial Indian banks

followed by nationalisation of 6 more commercial Indian banks in 1980.

The stated reason for the nationalisation was more control of credit delivery. After this, until

1990s, the nationalized banks grew at a leisurely pace of around 4% also called as the Hindu

growth of the Indian economy.

After the amalgamation of New Bank of India with Punjab National Bank, currently there are

19 nationalized banks in India.

Liberalization-


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In the early 1990s the then Narasimha rao government embarked a policy of liberalization

and gave licences to a small number of private banks, which came to be known as New

generation tech-savvy banks, which included banks like ICICI and HDFC. This move along

with the rapid growth of the economy of India, kick started the banking sector in India, which

has seen rapid growth with strong contribution from all the sectors of banks, namely

Government banks, Private Banks and Foreign banks. However there had been a few hiccups

for these new banks with many either being taken over like Global Trust Bank while others

like Centurion Bank have found the going tough.

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 49%

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.

CURRENT SCENARIO

Currently (2007), overall, banking in India is considered as fairly mature in terms of

supply, product range and reach-even though reach in rural India still remains a challenge for


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the private sector and foreign banks. Even in terms of quality of assets and capital adequacy,

Indian banks are considered to have clean, strong and transparent balance sheets-as compared

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-without any stated 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. M&As, takeovers, asset sales

and much more action (as it is unraveling in China) will happen on this front in India.

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.

Currently, India has 88 scheduled commercial banks (SCBs) - 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. They have a combined network of over 53,000 branches and 17,000 ATMs.

According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75


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percent of total assets of the banking industry, with the private and foreign banks holding

18.2% and 6.5% respectively.

Structure of Indian Banking

Reserve Bank of India is the regulating body for the Indian Banking Industry. It is a mixture

of Public sector, Private sector, Co-operative banks and foreign banks. The private sector

banks are further spilt into old banks and new banks.

Scheduled Banks


Management 10

Reserve Bank of India

Scheduled Commercial

Banks

Scheduled Co-operative

Banks


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Bank Overview

STATE BANK OF INDIA

Not only many financial institution in the world today can claim the antiquity and majesty of

the State Bank Of India founded nearly two centuries ago with primarily intent of imparting

stability to the money market, the bank from its inception mobilized funds for supporting

both the public credit of the companies governments in the three presidencies of British India

and the private credit of the European and India merchants from about 1860s when the Indian


Management 11

ublic Sector

anks

Private Sector

Banks

Foreign

Banks

Regional

Rural Banks

ationalized

anks

SBI & its

Associates

Old private sector

Banks

New private sector

Banks

Scheduled Urban

cooperative

Scheduled State co-

operative Banks


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economy book a significant leap forward under the impulse of quickened world

communications and ingenious method of industrial and agricultural production the Bank

became intimately in valued in the financing of practically and mining activity of the Sub-

Continent Although large European and Indian merchants and manufacturers were

undoubtedly thee principal beneficiaries, the small man never ignored loans as low as Rs.100

were disbursed in agricultural districts against glad ornaments. Added to these the bank till

the creation of the Reserve Bank in 1935 carried out numerous Central Banking functions.

Adaptation world and the needs of the hour has been one of the strengths of the Bank, In the

post depression exe. For instance when business opportunities become extremely restricted,

rules laid down in the book of instructions were relined to ensure that good business did not

go post. Yet seldom did the bank contravenes its value as depart from sound banking

principles to retain as expand its business. An innovative array of office, unknown to the

world then, was devised in the form of branches, sub branches, treasury pay office, pay

office, sub pay office and out students to exploit the opportunities of an expanding economy.

New business strategy was also evaded way back in 1937 to render the best banking service

through prompt and courteous attention to customers.

A highly efficient and experienced management functioning in a well defined organizational

structure did not take long to place the bank an executed pedestal in the areas of business,

profitability, internal discipline and above all credibility A impeccable financial status

consistent maintenance of the lofty traditions if banking an observation of a high standard of

integrity in its operations helped the bank gain a pre- eminent status. No wonders the


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administration for the bank was universal as key functionaries of India successive finance

minister of independent India Resource Bank of governors and representatives of chamber of

commercial showered economics on it.

Modern day management techniques were also very much evident in the good old days years

before corporate governance had become a puzzled the banks bound functioned with a high

degree of responsibility and concerns for the shareholders. An unbroken records of profits

and a fairly high rate of profit and fairly high rate of dividend all through ensured

satisfaction, prudential management and asset liability management not only protected the

interests of the Bank but also ensured that the obligations to customers were not met.

The traditions of the past continued to be upheld even to this day as the State Bank years

itself to meet the emerging challenges of the millennium.

ABOUT LOGO


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STATE BANK OF INDIA

Project Financing.

THE PLACE TO SHARE THE NEWS ...

SHARE THE VIEWS

Togetherness is the theme of this corporate loge of SBI where the world of banking services

meet the ever changing customers needs and establishes a link that is like a circle, it indicates

complete services towards customers. The logo also denotes a bank that it has prepared to do

anything to go to any lengths, for customers.

The blue pointer represent the philosophy of the bank that is always looking for the growth

and newer, more challenging, more promising direction. The key hole indicates safety and

security.

MISSION STATEMENT:

To retain the Banks position as premiere Indian Financial Service Group, with world class

standards and significant global committed to excellence in customer, shareholder and

employee satisfaction and to play a leading role in expanding and diversifying financial

service sectors while containing emphasis on its development banking rule.

VISION STATEMENT:


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STATE BANK OF INDIA

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Premier Indian Financial Service Group with prospective world-class Standards of

efficiency and professionalism and institutional values

Retain its position in the country as pioneers in Development banking.

Maximize the shareholders value through high-sustained earnings per Share.

An institution with cultural mutual care and commitment, satisfying and

Good work environment and continues learning opportunities.

VALUES

Excellence in customer service

Profit orientation

Belonging commitment to Bank

Fairness in all dealings and relations

Risk taking and innovative

Team playing

Learning and renewal

Integrity


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Transparency and Discipline in policies and systems.

Organization Structure

G. M G.M G. M G.M G.M

(Operations) (C&B) (F&S) (I) & CVO (P&D)

Zonal off Functional Heads

Regional officers


Management 16

MANAGING DIRECTOR

CHIEF GENERAL MANAGER


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Project Financing.

Calculation on Cost of Capital

1. Cost of Equity

On the basis CAPM method


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CAPM

Risk free rate (Rf) 0.06

Market return(Rm) 0.16

Market Risk Premium (Rm - Rf) 0.1

Beta 1.28

Ke 18.80

Therefore , ke is 18.80%

On the basis of Dividend Growth Model

Calculation of Growth

By Arithmetic Mean & Geometric Mean method

March07 106.23 -1.25% 98.75%

March08 145.9 37.34% 137.34%

March09 181.82 24.62% 124.62%

March10 189.23 4.08% 104.08%

March 11 183.48 -3.04% 96.96%

March12 213.38 16.30% 116.30%

Average

arithmetic 13.01%

geometric 12.09%

Announcement

date

Ex-date Dividend

Rate

Rs.per share g(DPS) (1+DPS)


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Project Financing.

% Rs.

19-May-06 19-Jun-06 140 14

12-May-07 13-Jun-07 140 14 0.00% 100.00%

2-May-08 29-May-08 215 21.5 53.57% 153.57%

2-May-09 10-Jun-09 290 29 34.88% 134.88%

25-Jun-10 5-Feb-10 100 30 3.45% 103.45%

17-May-11 20-May-11 300 30 0.00% 100.00%

Average

Arithmetic 18.38%

Geometric 16.47%

From the retention and return on equity


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Analysis

From all the above analysis we need to find out the proper growth out of all which we havecalculated and at the end we come to know that the growth provided by the earning per

share(EPS) is more appropriate as compare to all other because in the company EPS is

generally constant and provide us proper growth as compare to dividend per share(DPS)

which may change time to time as because it depends on the profit earned by the company.

Calculation of cost of capital


Management 20

Consolidated

EPS

Rs.per

share

PAT NETWORTH RETENTION

RATIO(%)

ROE(%)

( R )

GROWTH(%)

RS. RS. RS. RS.(b) (pat-preff

share)/nw

b*r

Mar-

06

107.57 14 86.99

Mar-

07

106.23 14 45413.1

0

312985.50 86.82 14.51 12.60

Mar-

08

145.9 21.5 67291.2

0

490326.60 85.26 13.72 11.70

Mar-

09

181.82 29 91212.3

0

579477.00 84.05 15.74 13.23

Mar-10

189.23 30 91660.50

659492.00 84.15 13.90 11.70

Mar-

11

183.48 30 82345.2

0

649860.40 83.65 12.72 10.64

Average= 11.97%


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Cost of equity ( ke )

Cost of reserves (kr)

Cost of equity and

reserve

D 30

Po 2170.05

F 0.1

G 12.00%

Po*(1-f) 1953.045

Ke 13.54%

Kr 13.38%

Analysis

In the above table we calculated the cost of equity and cost of reserve capital of the

company .we take the assumption that the flotation cost is 10% which we have used to

calculate the cost of equity share capital and we have take the market price of the SBI share

for the same .we also added the growth which we have analyse above and considered

appropriate for it.

For the calculation of cost of reserve we didnt include flotation growth.

Cost of borrowings

Interest 632303.7

Borrowings 1270055.7

Deposit 10436473.6

Tax(t) 35%

Tax(i-t) 0.65

Kb 3.51%

AnalysisFor the calculation of cost of borrowings we have no information about the particular intrest

for the debt so we take the deposits also into consideration to find out the intrest provided for

the borrowings.The which we got is quite satisfactory and minimize the total cost of capital.


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Calculation of WACC

On the basis of Book Value

Sources Amount Proportion After tax cost Weighted cost

Share capital 839512.00 0.285318366 0.1354 0.038632107

Borrowings 1270055.70 0.43164388 0.0351 0.0151507

Reserves 832801.60 0.28307755 0.1338 0.0387870452

2942369.30 0.091653258

On the basis of Market Value

Share outstanding 684.03

Market price as on 25th march 2058.25

Sources Amount Proportion Costs Weighted cost

Sharecapital 1407904.748 0.525737693 0.1354 0.071184884

Borrowings 1270055.7 0.4742262307 0.0351 0.016646607

2677960.45 0.087831491

Analysis

In above 2 tables we have find out weighted average cost of capital on the basis of book value

in table 1 and on the basis of market value in table 2. For the the value of share capital at

market value we multiply the share outstanding as on 25th march 2013 and the market price of

shares on the same date. From the above data we can comprehend that company is more

dependent on borrowings as compare to share capital which is quiet obvious for the banking

sector.They also have less cost of debt so it is benefited for their growth.


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20968435 state bank of india project financing (1)

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