dessertation m.b.a

7/30/2019 Dessertation m.b.a

1/40

A Project Report

On

Equity shares Risk and Return Analysis

A Study of Selected Indian Banks

(In the partial fulfillment of the degree of Master of BusinessAdministration)

(2010-2012)

SUBMITTED TO: - SUBMITTED BY:-

Dr.B.S.Bodla MAHABIR SINGH

Prof. USM M.B.A.4th Semester

University School of Management ROLL NO-82

Kurukshetra University Exam.Roll No_________

UNIVERSITY SCHOOL OF MANAGEMENT

KURUKSHETRA UNIVERSITY, KURUKSHETRA


2/40

1

UNIVERSITY SCHOOL OF MANAGEMENT Ph. No. 01744-238565KURUKSHETRA UNIVERSITY KURUKSHETRA Ext. No. 2526, 2527

(ESTABLISHED BY THE STATE LEGISLATURE ACT XII OF 1956) e-mail:- [email protected]

(A GRADE, NACC ACCREDITED)

No USOM/11/_________

Dated: ________________

CERTIFICATE

This is to certify that Mahabir Singh student ofMBA (General) IV Semester, ExaminationRoll No ____________has worked under my supervision and guidance on the Research Project

titled Equity shares Risk and Return Analysis - A Study of Selected Indian Banks. The

project is completed in the partial fulfillment of the requirements for the degree ofMaster of

Business Administration. The matter used in the project is original and authentic to the best of

my knowledge. I recommend that the project is fit for evaluation.

I wish him success in all his future endeavors.

Dr. B. S. Bodla Mr.Rajit Verma

Professor Asst. Professor

USM, KUK USM, KUK


3/40

2

DECLARATION

I MAHABIR SINGH, Roll No.82, MBA (4th Semester) student of the University School of

Management, Kurukshetra University, Kurukshetra hereby declare that the Research Report

entitled Equity shares Risk and Return Analysis - A Study of Selected Indian Banksis

an original work and the same has not been submitted to any other Institute for the award of any

other degree.

Mahabir Singh


4/40

3

ACKNOWLEDGEMENT

The research report is an amalgamation of hard work and contribution of experience of eminent

personality. I am grateful for the inspiration of many thinkers and for the hand together sources

& roots of this wisdom. This research report has been made possible through the direct &

indirect co- operation of various people whom I wish to express my thanks and gratitudes.

First of all I would like to thank the supreme power, the Almighty GOD who is obviously the

one who has always directed me to work on the right path of my life at every step. With his grace

this project could become a reality.

Then I express my sincere gratitude and thanks to Dr. B.S. Bodla for their inspiration andhelpful attitude.

I am also deeply thankful to Mr. Rajit Verma for his guidance, regular counseling, keen

interest and constant encouragement. Without her guidance, this project would not have a

successful end.

I owe my sincerely thanks to all my faculty members and the associated staff for their support

given to me time to time. Also, I would like to thank all my friends and family members for their

support given to me time to time.

Finally, with blessings of my parents who are a source of strength and inspiration for me in this

endeavor.

Mahabir Singh


5/40

4

EXECUTIVE SUMMARY

Banks in India can be categorized into non-scheduled banks and scheduled banks. Scheduled

banks constitute of commercial banks and co-operative banks. The public sector banks which are

the foundation of the Indian banking system account for more than 78 percent of the totalbanking industry assets.

The regulators have directed to evaluate the performance of this period according to different

time periods. in the study the data is collected for the one year on the daily basis for analyzing

the statistical tools and also implementing the CAPM for evaluating the securities. The BSE

index is also taken to evaluate the market risk.

The risk free rate is taken as 9% because at that time period that rate was prevailing in the

market.

This report includes various banks as Allahabad Bank, Andhra Bank, UCO, IDBI, Corporation

Bank, Union Bank etc. The performance can be evaluated by using descriptive statistics tools,

beta, regression and CAPM on the securities of these Banks. The purpose of this report is to

evaluate the risk and return analysis of these with the help of CAPM and to see which one is

high rate of return also see that which security is more risky and need to revise the portfolio. It

primarily aims at learning the various factors that can help in evaluation process.

The first part of the report is about the Introduction to topic and profile of banks that has been

undertaken for the study. And in next coming pages the objective and justification of study will

come. The third part consists of Research Methodology which includes Sampling, Data

Collection, Statistical and Analytical tool, the Excel worksheet and the Limitations of the study

and Bibliography.


6/40

5

Content Page No.

1. Introduction to topic 6-21Risk 6

Return 7

Company Profile 8-21

2. Research Methodology 22-25Type of Research 23

Research Design 24

Objective of the Study 24

Scope of the Study 24

Limitation of the Study 25

3. Data Analysis and Intraptation 26- 35Beta 27-28

Standard Deviation 29

CAPM 30

CML 31

SML 32

Result of CAPM 33-35

4. Findings and conclusion 36-38Finding 37

Conclusion 38

5. Bibliography 39


7/40

6

Chapter 1

Introduction

To

Topic


8/40

7

Risk and Return Analysis

The dictionary meaning of the risk is the possibility of loss or injury.in risk the probable

outcome of all the possible events is listed. Risk consist of two components the systematic and

unsystematic.

The systematic risk is caused by the external factors to the entire company and also

uncontrollable by the company. The systematic risk effect the market as a whole. In the

unsystematic risk the factors are specific, unique and related to the particular industry. Risk

analysis is the process of defining and analyzing the dangers to individuals, businesses and

government agencies posed by potential natural and human-caused adverse events.

In the systematic risk the three things are included:-

1. Market Risk2. Interest Rate Risk3. Purchasing Power risk.

In the unsystematic risk mainly two things are included:-

1. Business Risk2. Financial Risk

The risk is mainly denoted as the Beta.

Beta describes the relationship between the stock return and market index return.

1. Beta = 1One percent changes in market index return because exactly one percent changes in stock

return. It indicates that the stock moves in tandem with the market.

2. Beta > 1Its shows that there is the high systematic risk


9/40

8

3. Beta < 1It shows that the low systematic risk.

Return

In finance rate of return (ROR), also known as return on investment (ROI), rate of profit or

sometimes just return, is the ratio of money gained or lost (whether realized or unrealized) on an

investment relative to the amount of money invested. The amount of money gained or lost may

be referred to as interest, profit/loss, gain/loss, or net income/loss. The money invested may be

referred to as the asset, capital, principal, or the cost basis of the investment. ROI is usually

expressed as a percentage.

With the help of the risk and return formulas analysis we calculate the risk and return of the

securities of different banks. Also implementing the CAPM ( Capital Assets Pricing Model) for

evaluating the efficient portfolio. I take out the result with the help of MS-EXCEL. In the

EXCEL using the formulas in spreadsheet.

We also use the CAPM to get the efficient portfolio of the securities. With the help of CAPM we

have the security which is giving the highest rate of return.


10/40

9

Industry /companies profile

Allahabad Bank

Allahabad Bank is one of the premier nationalized banks in India. It is also the oldest joint stock

bank of India. It was incorporated by a group of Europeans at Allahabad on April 24, 1865. It

was the time Indian economy had started shifting towards organized trade and business affairs.

After some years in 1920, the P&O Bank brought Allahabad Bank and its headquarters at

Kolkata. The Allahabad bank got an entirely new identity when it was nationalized in 1969 along

with 13 other banks in India. Since then the Allahabad Bank had a smooth journey towards

progress. Today it is one of the leading banks in India with a whooping business of over Rs.1,

00,000 crores.

Head Office

Allahabad Bank

2, N S Road

Kolkata700001

West Bengal

Website:www.allahabadbank.com

Andhra Bank

Andhra Bank is an Indian bank based in Hyderabad. The bank was established in the year 1923,

and its founder was Dr. Bhogaraju Pattabhi Sitaramayya, a well known freedom fighter. The

initial authorized capital of the bank was Rs. 10.00 lacs, while the paid up capital was Rs. 1.00

lac at the time of its registration.

Head Office

Andhra Bank, 5-9-11,

Saifabad, Hyderabad City,

Andhra Pradesh - 500 004

Website:http://www.andhrabank.in.
http://www.allahabadbank.com/http://www.allahabadbank.com/http://www.allahabadbank.com/http://www.andhrabank.in/http://www.andhrabank.in/http://www.andhrabank.in/http://www.andhrabank.in/http://www.allahabadbank.com/


11/40

10

Bank of Baroda

Bank of Baroda is one of the most prominent banks in India, having its total assets as Rs.

1,43,146 Crores as on 31st of March 2007. The bank was founded by Maharaja Sayajirao

Gaekwad III (also known as Shrimant Gopalrao Gaekwad), the then Maharaja of Baroda on 20th

of July 1908 with a paid capital of Rs. 10 Lacs. From its introduction in a small building of

Baroda, the bank has come a long way to achieve its current position as one of the most

important banks in India. On 19th of July 1969, Bank of Baroda was nationalized by the

Government of India along with 13 other commercial banks.

Head Office

Bank of Baroda

Suraj Plaza-1, Sayaji Ganj,

Baroda-390005

Bank Of Baroda

Baroda Corporate Centre,

Plot No - C-26, G - Block, Bandra - Kurla Complex, Bandra (East),

Mumbai-400051

Website:www.bankofbaroda.com.

Bank of India

Bank of India was founded on September 7, 1906 by a group of eminent businessmen from

Mumbai. In July 1969 Bank of India was nationalized along with 13 other banks.

Beginning with a paid-up capital of Rs.50 lakh and 50 employees, the Bank has made a rapid

growth over the years. It has evolved into a mighty institution with a strong national presence

and sizable international operations. In business volume, Bank of India occupies a premier

position among the nationalized banks.

Presently, Bank of India has 2609 branches in India spread over all states/ union territoriesincluding 93 specialized branches. These branches are controlled through 48 Zonal Offices.

Bank of India has several firsts to its credit. The Bank has been the first among the nationalised

banks to establish a fully computerised branch and ATM facility at the Mahalaxmi Branch at

Mumbai way back in 1989. It pioneered the introduction of the Health Code System in 1982, for

evaluating/ rating its credit portfolio. Bank of India was the first Indian Bank to open a branch
http://www.bankofbaroda.com/http://www.bankofbaroda.com/http://www.bankofbaroda.com/http://www.bankofbaroda.com/


12/40

11

outside the country, at London, in 1946, and also the first to open a branch in Europe, Paris in

1974. The Bank has sizable presence abroad, with a network of 23 branches (including three

representative office ) at key banking and financial centres viz. London, New York, Paris,

Tokyo, Hong-Kong, and Singapore

Bank of Maharashtra

Bank of Maharashtra is an Indian bank based in the city of Pune. The bank was established in the

year 1935 with an initial authorized capital worth Rs. 10.00 Lacs, although it became operational

in the early phase of the next year. The bank got nationalized by the Government of India in the

year 1969. With a total number of 1421 branches located all over India as of April 2009, the

bank claims to have the largest number of branches within the state of Maharashtra, among all

the Public Sector banks.

Commonly known as a common man's bank, Bank of Maharashtra adopts a philosophy of

"Technology with personal touch", and follows its motto stating "One Family, One Bank, Bankof Maharashtra".

Head Office

Bank of Maharashtra

Lokmangal, 1501, Shivajinagar, Pune (Maharashtra) - 411 005

Website:www.bankofmaharashtra.in

Canara BankCanara Bank is one of the most prominent commercial banks of India. The bank was established

in the year 1906 at Mangalore, Karnataka by a well-known personality Mr. Ammembal Subba

Rao Pai. Initially, it was founded with the name Canara Bank Hindu Permanent Fund, but later

on the name was changed to Canara Bank Limited.

Mr. Ammembal Subba Rao Pai had envisioned the bank to not only offer financial services but

also fulfill social causes such as removal of superstitions and ignorance, promotion of habit of

saving, providing assistance to the people in need and develop a sense of humanity among the

people.

Website:http://www.canarabank.com
http://www.bankofmaharashtra.in/http://www.bankofmaharashtra.in/http://www.bankofmaharashtra.in/http://www.canarabank.com/http://www.canarabank.com/http://www.canarabank.com/http://www.canarabank.com/http://www.bankofmaharashtra.in/


13/40

12

Central Bank of India

Central Bank of India is one of the oldest commercial banks of India, and reportedly is the first

truly Indian bank which was totally owned and established by Indian without any foreign help.

Sir Sorabji Pockhanawala was the founder of the bank, who had always dreamt of establishing athoroughly Indian bank, who was so happy and excited about the project that he reportedly

termed the Central Bank of India as property of the nation and the countrys asset. The first

Chairman of the bank was Sir Pherozesha Mehta, a yet another Indian enthusiast. In the year

1969 the bank was nationalized by the Government of India.

Head Office

Central Bank of India

Chander Mukhi, Narman Point

Mumbai400 021

Website:http://www.centralbankofindia.co.in

Corporation Bank

Corporation Bank is an Indian bank based in Mangalore, Karnataka. The bank was founded in

the year 1906 at a town named Udupi in Karnataka with an investment of just Rs. 5000. A group

of enthusiasts including Khan Bahadur Haji Abdulla Haji Kasim Saheb Bahadur were the

founders of the bank. Interestingly, Udupi was not much far from Mangalore, and the banking

needs of the people were being solely controlled by some local rich individuals. Hence, to find a

way out of the existing monopoly of the money lenders, Corporation Bank was established with

the initial name The Canara Banking Corporation (Udupi) Ltd.

Head Office

Corporation Bank

Mangaladevi Temple Road

Pandeshwar

MANGALORE 575 001

Karnataka, India

Website:http://www.corpbank.com
http://www.centralbankofindia.co.in/http://www.centralbankofindia.co.in/http://www.centralbankofindia.co.in/http://www.corpbank.com/http://www.corpbank.com/http://www.corpbank.com/http://www.corpbank.com/http://www.centralbankofindia.co.in/


14/40

13

Dena Bank

Dena Bank is an Indian commercial bank based in Mumbai. The bank was founded by the

Devkaran Nanjee family on the 26th of May, 1938. At the time of establishment, its name was

Devkaran Nanjee Banking Company Ltd. Further, the banking company was incorporated as a

Public Ltd. Company in December 1939, changing its name to Dena Bank Ltd. The bank was

nationalized by the Government of India along with 13 other commercial banks in the year 1969.

Head Office

Dena Bank,

Dena Corporate Centre

C-10, G Block,

Bandra-Kurla Complex

Bandra [E].

Mumbai- 400 051

Website:http://www.denabank.com

IDBI

The Industrial Development Bank of India Limited, now more popularly known as IDBI Bank,

was established as a wholly-owned subsidiary of Reserve Bank of India. The foundation of the

bank was laid down under an Act of Parliament, in July 1964. The main aim behind the setting

up of IDBI was to provide credit and other facilities for the Indian industry, which was still in the

initial stages of growth and development. In February 1976, the ownership of IDBI was

transferred to Government of India.

After the transfer of its ownership, IDBI became the main institution, through which the

institutes engaged in financing, promoting and developing industry were to be coordinated. In

January 1992, IDBI accessed domestic retail debt market for the first time, with innovative Deep

Discount Bonds, and registered path-breaking success. The following year, it set up the IDBI

Capital Market Services Ltd., as its wholly-owned subsidiary, to offer a broad range of financial

services, including Bond Trading, Equity Broking, Client Asset Management and Depository

Services.
http://www.denabank.com/http://www.denabank.com/http://www.denabank.com/http://www.denabank.com/


15/40

14

In September 1994, in response to RBI's policy of opening up domestic banking sector to private

participation, IDBI set up IDBI Bank Ltd., in association with SIDBI. In July 1995, public issue

of the bank was taken out, after which the Government's shareholding came down (though it still

retains majority of the shareholding in the bank). In September 2003, IDBI took over Tata Home

Finance Ltd, renamed IDBI Home finance Limited, thus diversifying its business domain and

entering the arena of retail finance sector.

The year 2005 witnessed the merger of IDBI Bank with the Industrial Development Bank of

India Ltd. The new entity continued to its development finance role, while providing an array of

wholesale and retail banking products (and does so till date). The following year, IDBI Bank

acquired United Western Bank (which, at that time, had 230 branches spread over 47 districts, in

9 states). In the financial year of 2008, IDBI Bank had a net income of Rs 9415.9 crores and total

assets of Rs 120,601 crores.

Today, IDBI Bank is counted amongst the leading public sector banks of India, apart from

claiming the distinction of being the 4th largest bank, in overall ratings. It is presently regarded

as the tenth largest development bank in the world, mainly in terms of reach. This is because of

its wide network of 509 branches, 900 ATMs and 319 centers. Apart from being involved in

banking services, IDBI has set up institutions like The National Stock Exchange of India (NSE),

The National Securities Depository Services Ltd. (NSDL) and the Stock Holding Corporation of

India (SHCIL).

Head Office

IDBI Tower,

WTC Complex,

Cuffe Parade,

Colaba,

Mumbai - 400005

Website:www.idbi.com
http://www.idbi.com/http://www.idbi.com/http://www.idbi.com/http://www.idbi.com/


16/40

15

Indian Bank

Indian Bank is one of the indigenous banks of India that emerged as a result of the Swadeshi

Movement during the British Raj. The bank was established on 15th of August, 1907. One of the

prime figures associated with the establishment of the bank was V. Krishnaswamy Iyer, a lawyer

from Madras (Now Chennai). The bank soon spread its wings outside India too, and opened its

branch in Colombo, Sri Lanka in the year 1932 and Rangoon, Burma in 1940. The bank was

further nationalized by the Government of India in the year 1969.

Head Office

Indian Bank,

PB No.1384, 66, Rajaji Salai, Chennai 600 001, Tamil Nadu

Website:http://www.indianbank.in

Oriental Bank of Commerce

Established on 19th Feb' 1943 in Lahore, Oriental Bank of Commerce (OBC) is one of the public

sector banks in India. Its modest beginning is creditable to its founder Late Rai Bahadur Lala

Sohan Lal, the first Chairman of the OBC. Within four years of coming into existence, thecountry partitioned, the Bank shifted its Registered Office from Lahore to Amritsar. The Oriental

Bank of Commerce was nationalized on 15th April 1980, and paved its way to count amongst the

strongest banks in India.

OBC has a network of 530 branches and 505 ATM's spread throughout India, out of which 490

branches offer centralized banking solutions. With High Capital Adequacy Ratio, Oriental Bank

of Commerce is known be a consistent profit-making bank. It offers various services and

products, like current/ savings account, general loans, educational loans, agricultural loans, etc,for the benefit of customers. For its effective services, the National Institute of Bank

Management (NIBM) rated OBC Bank as "Customer Friendly" Bank.
http://www.indianbank.in/http://www.indianbank.in/http://www.indianbank.in/http://www.indianbank.in/


17/40

16

Head Office

Oriental Bank of Commerce

Harsha Bhawan, E- Block

Connaught Place

New Delhi - 110001

URL:www.obcindia.com

Punjab & Sind Bank

Punjab & Sind Bank, established in 1908, is headquartered at New Delhi. Having more than 800branches across the country, the bank has around 10,000 employees dedicated to the banking

services and customer care. The bank offers usual banking services along with innovative

banking methods including Internet and phone banking, international banking, merchant

banking, hire, purchase, leasing and credit cards.

Head Quarter Address

Punjab & Sind Bank

21, Rajendra Place

New Delhi - 110008

Email: [email protected]

Website:http://www.psbindia.com/

Punjab National Bank

Punjab National Bank (PNB) is the second largest government-owned commercial bank in India.

Having more than 3.5 crore customer, Punjab National Bank has one of the largest branch

networks in India. The bank's assets for financial year 2007 were about US$60 billion.

Ranked among top 50 companies by the leading financial daily, Economic Times.
http://www.obcindia.com/http://www.obcindia.com/http://www.obcindia.com/http://www.psbindia.com/http://www.psbindia.com/http://www.psbindia.com/http://www.psbindia.com/http://www.obcindia.com/


18/40

17

Ranked as 323rd biggest bank in the world by Bankers Almanac (January 2006), London. Earned 9th place among India's Most Trusted top 50 service brands in Economic Times-

A.C Nielson Survey.

Included in the top 1000 banks in the world according to The Banker, London. Golden Peacock Award for Excellence in Corporate Governance - 2005 by Institute of

Directors.

FICCI's Rural Development Award for Excellence in Rural Development2005Head Office

Punjab National Bank.

7, Bhikhaiji Cama Place,

New Delhi - 110066

Phone: 91-11-2371 6185

Fax: 91-11-26196176

Website:www.pnbindia.com

Syndicate Bank

Established in the year 1925, Syndicate Bank had its first office in the coastal region of

Karnataka, Udupi. It was then named as 'Canara Industrial & Banking Syndicate Ltd'. The bank

was initiated by a trio - Sri Upendra Ananth Pai, a businessman, Sri Vaman Kudva, an engineer

and Dr.T M A Pai, a physician, with a capital of Rs. 8000. During that time, the crisis in the

handloom industry crippled the local weavers completely. The main aim of Syndicate Bank was

to provide financial assistance to them, by mobilizing small savings from the community.

Three years later, in 1928, the bank came up with Pigmy Deposit Scheme, in which it collected

as little as 2 annas per day, at the doorsteps of the depositors through its agents. The scheme

existing till date, earns the bank a sum of Rs. 2 crore daily. In the same year, Syndicate bank

opened its first branch at Brahmavar in Dakshina Kannada District. It became a member of the

Clearing House for the first time at Bombay, in 1937. Almost a decade later, Syndicate Bank
http://www.pnbindia.com/http://www.pnbindia.com/http://www.pnbindia.com/http://www.pnbindia.com/


19/40

18

opened 29 branches opened in a single day in rural areas. Its 100th branch opened at Ilkal in

Karnataka in 1957.

Head Office

SyndicateBank

Head Office

Post Box No.1

Manipal - 576104

(Udupi Dist) Karnataka

UCO Bank

UCO Bank is a commercial bank established in 1943. The idea to establish the bank was first

conceived by G.D. Birla, the famous industrialist, after the historic 'Quit India Movement' in

1942. The idea was culminated on the 6th of January 1943, when The United Commercial Bank

Ltd. was born with its Registered and Head Office at Kolkata. A commercial bank and a

Government of India Undertaking, it comprises of government representatives as well as

renowned professionals like accountants, management experts, economists, businessmen, and soon, in its Board of Directors. United Commercial Bank has stretched out to of all segments of the

economy - be it agriculture, industry, trade and commerce, services or infrastructure.

Along with 13 other major commercial banks of India, United Commercial Bank was

nationalized on 19th July, 1969, by the Government of India. Thereafter the Bank expanded

rapidly. To keep pace with the developing scenario and expansion of business, the Bank

undertook an exercise in organizational restructuring in the year 1972. Under the act of Indian

Parliament, in 1985, its name changed from United Commercial Bank to the present name, UCO

Bank. As of 2005, the bank has 2000 Service Units spread all over India. A distinctive feature of

UCO bank is its introduction of 'NO HOLIDAY' branches. These bank branches work on all the

365 days of a year. With the age of global banking, UCO bank has also changed to be adept with


20/40

19

the newest technology, boasting of specialized computerized branches in both India and

overseas.

Head Office

10 B.T.M Sarani

Kolkata - 700001

Website:www.ucobank.com

Union Bank of India

Union Bank of India was inaugurated by the Father of the Nation, Mahatama Gandhi, on

November 11, 1919. Started as a limited company in Mumbai, it was one of the few Financial

Commercial banks in India. Until 1947, UBI had only 4 branches - 3 in Mumbai and 1 in

Saurashtra, all concentrated in key trade centres. Catering to all the sectors of the society, be it

agriculture, industry, trade and commerce, services or infrastructure, the bank has also played a

major role in rendering services to the financial needs of every section. Apart from this, the bank

also extended financial support to educational, housing and trade sector.

Union Bank of India undertook the task of establishment of village knowledge centers and self-

employment training centers. It was in 1975, that the Union Bank of India was nationalized. It

was, then, that it merged with the Belgaum Bank, a private sector bank. Another merger was on

cards in 1985, this time with the Miraj State Bank. Union Bank is a Public Sector Unit with

55.43% Share Capital held by the Government of India. The Bank came out with its Initial

Public Offer (IPO) in August 20, 2002 and Follow on Public Offer in February 2006. Presently

44.57 % of Share Capital is presently held by institutions, individuals and others

Website:www.unionbankofindia.co.in
http://www.ucobank.com/http://www.ucobank.com/http://www.ucobank.com/http://www.unionbankofindia.co.in/http://www.unionbankofindia.co.in/http://www.unionbankofindia.co.in/http://www.unionbankofindia.co.in/http://www.ucobank.com/


21/40

20

United Bank of India

Originally established as United Bank of India Ltd., the bank was a result of merger of four

Bengali banks - Comilla Banking Corporation Ltd., Bengal Central Bank Ltd., Comilla Union

Bank Ltd. and Hooghly Bank Ltd. in 1950. Almost two decade later, in 1969, United Bank of

India was one among the major banks that were nationalized. Thereafter, the bank expanded in a

major way, covering all the states of India. It also was an active participant in the growth and

developmental activities, mainly in the rural and semi-urban regions.

Acknowledging the efforts made by United Bank of India, it was honored as a Lead Bank in

several districts of India. Presently, it the Lead Bank in 30 districts in the States of West Bengal,

Assam, Manipur and Tripura. The Bank also holds the position of being the Convener of the

State Level Bankers' Committees (SLBC) for the States of West Bengal and Tripura. The bank is

known to spread its banking services especially in the Eastern and North-Eastern parts of India.

United Bank of India supported the 4 Regional Rural Banks (RRB) at West Bengal, Assam,

Manipur and Tripura.

Thanks to United Bank of India, even places with little or no reach such as the Sunderbans in

West Bengal, today, have an access to banking services. UBI had established two floating mobile

branches on motor launches. These moved from one island to another on different days of the

week, providing people with all the facilities. However, the floating branches paved way to the

full-fledged bank branches at these centers. The largest lender to the tea industry, UBI is also

recognized as the 'Tea Bank', for its longstanding involvement with the financing of tea gardens.

Head Office

United Bank Of India

11, Hemanta Basu Sarani

Kolkata - 700 001

West Bengal

Website: www.unitedbankofindia.com


22/40

21

Vijaya Bank

Vijaya Bank was flagged off on 23rd October 1931. Late Shri A.B.Shetty, along with other

enterprising farmers in Mangalore, Karnataka, founded the bank to inculcate banking habits in

the farming community of Dakshina Kannada district in Karnataka State. In 1958, it was

promoted and became a scheduled bank. From 1963 to 68, the Vijaya bank grew both in terms of

size and stature - 9 small banks had merged with it, thus contributing to its growth and

advancement. On April 15, 1980, the bank was nationalized. Vijaya Bank boasts of being one of

the few banks which has undertaken the principal membership of VISA International and

MasterCard International. Vijay Bank has been constantly focusing on technological

upgradation. As on October 2005, all the 913 branches have been computerized, covering 97%

of the bank's total business.

Head Office

Vijaya Bank

41/2, Head Office Building

Trinity Circle, Mahatma Gandhi Road

Bangalore G.P.O.

Bangalore - 560001

Phone: 080-25550693, 25584385

Website: http://www.vijayabank.com/


23/40

22

Chapter 2

ResearchMethodology


24/40

23

Type of Research

Research is the systematic investigation into existing or new knowledge.It is used to establish or

confirm facts, reaffirm the results of previous work, solve new or existing problems, support

theorems, or develop new theories. A research project may also be an expansion on past work in

the field. In order to test the validity of instruments, procedures, or experiments, research may

replicate elements of prior projects, or the project as a whole. The primary purposes of basic

research (as opposed to applied research) are documentation, discovery, interpretation, or the

research and development of methods and systems for the advancement of human knowledge.

Approaches to research depend on epistemologies, which vary considerably both within and

between humanities and sciences.

Steps in conducting research

Research is often conducted using the hourglass model structure of research. The hourglass

model starts with a broad spectrum for research, focusing in on the required information through

the methodology of the project (like the neck of the hourglass), then expands the research in the

form of discussion and results. The major steps in conducting research are:

Identification of research problem Specifying the purpose of research Determine specific research questions or hypotheses Data collection Analyzing and interpreting the data Reporting and evaluating research

The steps generally represent the overall process.


25/40

24

Research Design

There are two main approaches to a research problem:

Quantitative Research

Qualitative ResearchHere my research is of Quantitative (Descriptive).

Statement of the Problem

In the recent years the financial system especially the banks have undergone numerous changes

in the form of reforms, regulations & norms. With the help of CAPM we evaluate the

performance evaluation of banks is an addition to this. The study is conducted to analyze the

maximum and minimum return of shares of different Banks with this model.

Objectives of Study

To analyze risk and return of public sector banks to get the desired results by usingCAPM as a tool of measuring performance.

To identify the best performing bank in terms of risk-return trade-off. To identify the under-price and over-price situations in the various banking shares.

Scope of the Study

This study will be helpful in analyzing the risk and return analysis of banking sector

which play a vital role in analyzing the financial performance of the banking industry. On

the basis of this study investors can also revise their portfolio so that they can diversify

their risks.

Type of research: Descriptive

Sample Size:


26/40

25

The sample size is eleven banks which are public sector banks. The study environment was

the Banking industry.

Data Source:

Primary Data: Primary data was collected from the company profile. Secondary Data: Secondary data on the subject was collected from Capitaline database

website.

Sampling Technique:

Convenience sampling: Convenience sampling was done for the selection of the banks.

Data Analysis:

I have collected the data from 20-03-2011 to 21-03-2012 on daily basis. All the data has been

analyzed in MS-EXCEL. Descriptive statistics, standard deviation, beta, regression and CAPM

model has been has been applied on the whole data to get results.

Limitation of the Study

1) The study was limited to eleven banks.2) Time and resource constrains.

3) The method discussed pertains only to banks though it can be used for performance

evaluation of other financial institutions.

4) The study was completely done on the basis of risk and return calculated from the last one

year stock data.


27/40

26

Chapter 3Data Analysis

and

Interpretation


28/40

27

Beta

In finance, the Beta () of a stock or portfolio is a number describing the volatility of an asset in

relation to the volatility of the benchmark that said asset is being compared to. This benchmark is

generally the overall financial market and is often estimated via the use of representative indices,

such as the S&P 500.

An asset has a Beta of zero if its returns change independently of changes in the market's returns.

A positive beta means that the asset's returns generally follow the market's returns, in the sense

that they both tend to be above their respective averages together, or both tend to be below their

respective averages together. A negative beta means that the asset's returns generally move

opposite the market's returns: one will tend to be above its average when the other is below its

average.

It measures the part of the asset's statistical variance that cannot be removed by the

diversification provided by the portfolio of many risky assets, because of the correlation of its

returns with the returns of the other assets that are in the portfolio. Beta can be estimated for

individual companies using regression analysis against a stock market index.

The formula for the beta of an asset within a portfolio is

Where ra measures the rate of return of the asset, rp measures the rate of return of the portfolio,

and cov(ra,rp) is the covariance between the rates of return. The portfolio of interest in the CAPM

formulation is the market portfolio that contains all risky assets, and so the rp terms in the

formula are replaced by rm, the rate of return of the market.

Beta is also referred to as financial elasticity or correlated relative volatility, and can be referred

to as a measure of the sensitivity of the asset's returns to market returns, its non-diversifiable

risk, its systematic risk, or market risk. On an individual asset level, measuring beta can give

clues to volatility and liquidity in the marketplace. In fund management, measuring beta is

thought to separate a manager's skill from his or her willingness to take risk. The beta coefficient


29/40

28

was born out of linear regression analysis. It is linked to a regression analysis of the returns of a

portfolio (such as a stock index) (x-axis) in a specific period versus the returns of an individual

asset (y-axis) in a specific year.

Formula for calculating in Excel:

=Slope(known_ys,known_xs)

Where is known ys is dependent variable and known xs is independent variable.


30/40

29

Standard Deviation

In finance, standard deviation is applied to the annual rate of return of an investment to measure

the investment's volatility. Standard deviation is also known as historical volatility and is used by

investors as a gauge for the amount of expected volatility. Standard deviation is a representation

of the risk associated with a given security (stocks, bonds, property, etc.), or the risk of a

portfolio of securities. Risk is an important factor in determining how to efficiently manage a

portfolio of investments because it determines the variation in returns on the asset and/or

portfolio and gives investors a mathematical basis for investment decisions. The overall concept

of risk is that as it increases, the expected return on the asset will increase as a result of the risk

premium earned - in other words, investors should expect a higher return on an investment when

said investment carries a higher level of risk.

For example, you have a choice between two stocks: Stock A historically returns 5% with a

standard deviation of 10%, while Stock B returns 6% and carries a standard deviation of 20%.

On the basis of risk and return, an investor may decide that Stock A is the better choice, because

the additional percentage point of return (an additional 20% in dollar terms) generated by Stock

B is not worth double the degree of risk associated with Stock A. Stock B is likely to fall short of

the initial investment more often than Stock A under the same circumstances, and will return

only one percentage point more on average. In this example, Stock A has the potential to earn

10% more than the expected return, but is equally likely to earn 10% less than the expected

return.

Calculating the average return (or arithmetic mean) of a security over a given number of periods

will generate an expected return on the asset. For each period, subtracting the expected return

from the actual return results in the variance. Square the variance in each period to find the effect

of the result on the overall risk of the asset. The larger the variance in a period, the greater risk

the security carries. Taking the average of the squared variances results in the measurement ofoverall units of risk associated with the asset. Finding the square root of this variance will result

in the standard deviation of the investment tool in question. Use this measurement, combined

with the average return on the security, as a basis for comparing securities.


31/40

30

CAPM

Markowitz, William Sharpe, John Linter and Jan Mossin provided the basic structure of the

CAPM model. It is a model of linear general equilibrium return. In the CAPM theory, the

requires rate of an asset is having a linear relationship with assets beta value i.e. undiversifiable

or systematic risk.

Assumptions

1. An Individual seller or buyer cannot affect the price of a stock. This assumption is thebasic assumption of the perfectly competitive market.

2. Investors make their decision only on the basis of the expected returns, standard deviationand covariance.

3. Investors are assumed to have homogenous expectation during the decision makingperiod.

4. The investor can lend or borrow any amount of fund at the riskless rate of interest. Theriskless rate of interest offered for the treasury bills or Government securities.

5. Assets are infinitely divisible.6. There is no transaction cost.7. There is no personal income tax.

The Concept

According to CAPM, all investor hold only the market portfolio and riskless securities. The

market portfolio is a portfolio comprised of all stock in the market. Each asset is held in

proportion to its market value to the total value of all risky assets. For example if the Allahabad

bank share represents 20% of all risky assets, then the market portfolio of the individual investor

can contain 20% of Allahabad bank share. At this stage the investor has the ability to borrow or

lend any amount of money at the riskless rate of interest.


32/40

31

Capital market Line

Capital market line (CML) is the tangent line drawn from the point of the risk-free asset to the

feasible region for risky assets. The tangency point M represents the market portfolio, so named

since all rational investors (minimum variance criterion) should hold their risky assets in the

same proportions as their weights in the market portfolio.

The risk return relationship of an efficient portfolio is measured by the capital market line. But it

does not show the risk return tradeoff for other portfolios and individual securities.

E(r) = portfolio expected rate of return

Rm = expected return of market portfolio

Rf= risk free rate

M = standard deviation of market portfolio

The CML results from the combination of the market portfolio and the risk-free asset (the point

L). All points along the CML have superior risk-return profiles to any portfolio on the efficient

frontier, with the exception of the Market Portfolio, the point on the efficient frontier to which


33/40

32

the CML is the tangent. From a CML perspective, this portfolio is composed entirely of the risky

asset, the market, and has no holding of the risk free asset, i.e., money is neither invested in, nor

borrowed from the money market account.

Addition of leverage (the point R) creates levered portfolios that are also on the CML.

Security Market Line

Security market line (SML) is the graphical representation of the Capital asset pricing model. It

displays the expected rate of return of an individual security as a function of systematic, non-

diversifiable risk (its beta).

The Y-intercept of the SML is equal to the risk-free interest rate. The slope of the SML is equal

to the market risk premium and reflects the risk return trade off at a given time:

When used in portfolio management, the SML represents the investment's opportunity cost

(investing in a combination of the market portfolio and the risk-free asset). All the correctly

priced securities are plotted on the SML. The assets above the line are undervalued because for a

given amount of risk (beta), they yield a higher return. The assets below the line are overvalued

because for a given amount of risk, they yield a lower return.

There is a question about what the SML looks like when beta is negative. A rational investor will

accept these assets even though they yield sub-risk-free returns, because they will provide

"recession insurance" as part of a well-diversified portfolio. Therefore, the SML continues in a

straight line whether beta is positive or negative.


34/40

33

Data analysis and results

The various results with CAPM

Here,

Rf= Risk free rate

= Risk of the security

Rm = return of the market

Allahabad Bank

=9+1.22*(4.98-9)

=4.096

Andhra Bank

=9+1.01*(4.98-9)

=4.94

Bank of Baroda

=9+0.88*(4.98-9)

=5.46

Bank of India

=9+1.14*(4.98-9)

=4.42

Bank of Maharashtra

=9+0.8*(4.98-9)

=5.78

Canara bank

=9+1.06*(4.98-9)

=4.74

Central bank of India

=9+1.16*(4.98-9)

=4.34


35/40

34

Corporation bank

=9+0.72*(4.98-9)

=6.11

Dena Bank

=9+1.39*(4.98-9)

=3.41

IDBI

=9+1.3*(4.98-9)

=3.77

Indian Bank

=9+0.94*(4.98-9)

=5.22

Oriental Bank

=9+1.07*(4.98-9)

=4.7

Pun.& Sind Bank

=9+0.71*(4.98-9)

=6.15

PNB

=9+0.93*(4.98-9)

=5.26

Syndicate Bank

=9+0.24*(4.98-9)

=8.04

Uco Bank

=9+0.3*(4.98-9)

=7.79

Union Bank of India

=9+0.23*(4.98-9)


36/40

35

=8.08

United Bank of India

=9+0.27*(4.98-9)

=7.91

Vijaya Bank

=9+0.36*(4.98-9)

=7.55


37/40

36

Chapter 4

Finding

and

Conclusion


38/40

37

Finding

In the above data analysis and Interpretation we find the various result like Descriptive Statistics

Beta, Regression, Standard Deviation and CAPM. Through the all above results we find out that

which bank is having the highest rate of return and which one is having the highest risk, lowestrisk and analyzing the CAPM model for finding the efficient portfolio of the banks.

Beta(Systematic Risk)

In the beta analysis of the last one year banks sock data we find that the ALLAHABAD BANK

is having the highest rate of Beta 1.2265

The finding comes that the ALLAHABAD BANK having the highest rate of Risk. As well as the

UCO BANK having the lowest rate of Risk this is 0.30467. So the UCO Bank is having the low

risky portfolio.

CAPM

The CAPM is a model of evaluating the portfolio which shows that which portfolio is efficient

for investing in the security. After applying the CAPM model we find out that the UNIONE

BANK OF INDIA is having highest value of CAPM which is 8.08.

Which means that the security of UNIONE bank is performing best against the market index

which is 4.981? And the DENA BANK is having 3.41 against the market index which is 4.981.

Which means that security of Dena Bank is not performing well than the market index? Which

shows that shares of Dena bank is not giving the returns properly so this is not a good security to

invest in portfolio.

By this we also come to know that the security of Dena Bank is overpriced. Because in the

coming future this security is going under the price decrease. So this security is not good for

investment purpose.


39/40

38

Conclusion

By analyzing the above statement the security which is having low risk and higher return is more

attractive for the investors point of view. By using CAPM model an investor can analysis the

over price and underprice situations. By which an investor get to know the right time to purchase

the security and to sell the security.

So in the above CAPM analysis we come to know that the UNIONE Bank having the highest

rate of CAPM than we should invest in the securities of Union Bank. Also there is the low rate of

CAPM of DENA Bank in this situation we need to revise the portfolio of the particular security.

So the results comes that we should purchase or invest in the security of Union Bank because at

these particular time of period this security is giving the high rate of return.


40/40

Bibliography

Books

Kothari, C.R., Research Methodology: Methods and Techniques, Wishwa Publication, Delhi

P.Pandian, Security Anlysis and Portfolio Management, Vikas publications,delhi

Websites Visited

http://www.capitaline.com

http://www.rbi.com http://www.moneycontrol.com http://www.wikipedia.com http://www.investopedia.com
http://www.capitaline.com/http://www.capitaline.com/http://www.rbi.com/http://www.rbi.com/http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.wikipedia.com/http://www.wikipedia.com/http://www.investopedia.com/http://www.investopedia.com/http://www.investopedia.com/http://www.wikipedia.com/http://www.moneycontrol.com/http://www.rbi.com/http://www.capitaline.com/

dessertation m.b.a

Documents