PROJECT ON

CORPORATE FINANCE

INDEX

1. Introduction of ICICI Bank & HDFC Bank 2. Stock Holder analysis 3. Corporate governance 4. Dividend Policy 5. Cost of Capital 6. Capital Structure analysis 7. Working Capital

Introduction
ICICI Bank is India's second-largest bank with total assets of Rs. 3,634.00 billion (US$ 81 billion) at March 31, 2010 and profit after tax Rs. 40.25 billion (US$ 896 million) for the year ended March 31, 2010. The Bank has a network of 2,528 branches and about 5,808 ATMs in India, and has a presence in 19 countries, including India. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and asset management. The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).

STOCK HOLDER ANALYSIS

OWNERHSIP
Promoters & Promoters group Indian Foreigner Public Institution FII DII Non Institution Bodies Corporate Total

HDFC BANK
10,86,43,220 10,86,43,220

%of Holding
21.39% 21.39% 70.53% 37.11% 26.87% 10.23% 33.42% 8.08% 100

ICICI BANK
1,15,21,29,42 1 73,69,57,212 44,50,38,848 29,19,18,364 41,51,72,209 4,61,91,202 1198320623

%of Holding
96.15% 61.5% 37.13% 24.36% 34.64% 3.85% 100

35,81,27,916 18,84,26,371 13,64,52,749 5,19,73,622 16,97,01,545 4,09,35,968 50,77,07,104

100 90 80 70 60 50 40 30 20 10 0

P oters& rom P otersg rom roup P ublic C orpora B ies te od

IC I HDF IC C B ank B ank

Dividend Policy
ICICI bank pays dividend to its stock holder. It follows generous dividend policy. Last five year data reveals that bank has consistently provided dividend with increasing growth rate. This is good indication for stock holders that their confidence towards investment may increased. For year 2010 dividend paid per share was 120%. The estimated growth rate is 9.5% per year from the past records.
Year 2010 2009 2008 2007 2006 2005 Month Apr Apr Apr Apr Apr May Dividend (%) 120 110 110 100 85 85

Details of dividend declared by the Bank: 2010-2011 2009-2010 2008-2009 2007-2008 2006-2007 2005 2006 2004 2005 2003 2004 2002 2003 2001 2002 2000 2001 165% 120% 100% 85% 70% 55% 45% 35% 30% 25% 20%

CAPITAL STRUCTURE

Capital Structure (HDFC Bank) Period Instrument From 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 To 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share

Authorized Issued Capital Capital (Rs. cr) (Rs. cr) 550 465.23 550 457.74 550 425.38 550 354.43 450 319.39 450 313.14 450 309.88 450 284.79 450 282.05 450 281.37

-PAIDUPShares (nos) 465225684 457743272 425384109 354432920 319389608 313142408 309875308 284791713 282045713 281374613 Face Value 10 10 10 10 10 10 10 10 10 10 Capital 465.23 457.74 425.38 354.43 319.39 313.14 309.88 284.79 282.05 281.37

Capital Structure (ICICI Bank) Period Instrument Authorized Capital From To (Rs. cr) 2010 2011 Equity Share 1275 2009 2010 Equity Share 1275 2008 2009 Equity Share 1275 2007 2008 Equity Share 1275 2006 2007 Equity Share 1000 2005 2006 Equity Share 1000 2004 2005 Equity Share 1550 2003 2004 Equity Share 1550 2001 2002 Equity Share 300 2000 2001 Equity Share 300

Issued -PAIDUPCapital (Rs. cr) Shares (nos) Face Value 1151.77 1151772372 10 1114.85 1114845314 10 1113.25 1113250642 10 1112.69 1112687495 10 899.27 899266672 10 889.82 889823901 10 616.39 616391905 10 613.02 613021301 10 220.36 220358680 10 196.82 196818880 10

Capital 1151.77 1114.85 1113.25 1112.69 899.27 889.82 616.39 613.02 220.36 196.82

Cost of Capital

In fiscal year 2010, the main component of capital of ICICI bank are equity and Debts. Which ultimately build up capital of ICICI Bank for sustaining their business in this growing banking sector. Cost of equity can be calculated as follows Re= Rf + B(Rm-Rf) Re= cost of equity Rm= Rate of market return. Rf= Risk free return rate. B= beta Here Rf= 7.68% This is rate of return for investments in government banks or FDs.(refer ICICI annual report 2010) Rm = 12.7% (NSE market growth rate yearly) B= 1.41 (Calculated value) Re= 7.68% + 1.41(12.7- 7.68) = 13.64% Cost of Equity= 13.64% Cost of Debt can be calculated as follows: In case of ICICI bank Debt is perpetual so we can used following formula Rd= Interest paid / Total Debt Rd= 175,925,704,000/942,635,686,000 = 18.66% Cost of debt = 18.66%

Capital Structure and Firm Value

ICICI bank has cost of equity and debt are 13.64% and 18.66% respectively. The total capital structure can be calculated as follows: Ra= Rd(D/D+E)(1-T) + Re (E/E+D) Where Ra= Overall cost of Captial Ra= 18.66(.9883)(.73)+ 13.64(.1167) = 15.05% This indicates that In 2010 ICICI can give almost 15.05% benefits to its capital providers. This is good indication to its capital providers as they will get significant return on their investments. If company changes its ratio to 80:20 -60:40 then they can optimize the cost of capital and have balance capital structure.

Working Capital Requirement

A company has two kinds of assets namely fixed assets such as property and machinery and current assets. The current assets of a company are those which will be used up within a single fiscal year. Current liabilities are those which have to be settled in cash within the current fiscal year.. Working capital is the difference between the current assets and the current liability. The mathematical formula for this is: Working Capital = Current Assets Current Liabilities 29,997.23-15,501.18= 14,496.05 (Rs. Crore) The Maximum permissible Bank finance (MPBF) value for ICICI bank as per Tondon Committee will be: 75% of Working Capital i.e 10872.03 (Rs. Crore)

COST OF EQUITY HDFC Bank

Cost of equity capital Risk free rate Beta Market Premium Cost of equity

2010 0.046 0.169593 0.05 5.45%

2009 0.034 0.098704 0.05 3.89%

Cost of Debenture
Cost of Debt is 0 because HDFC does not issued debenture and it only issued equity shares.

Since cost of debt is 0 therefore weighted average cost of capital is equal to cost of equity. WACC 2010 5.45% 2009 3.89%

Corporate Governance

ICICI Bank The Bank is committed to upholding the highest standards of Corporate
Governance in its operations. The Banks policies and practices are not only in line with the statutory requirement but also reflect its commitment to operate in the best interest of its stakeholders. The responsibility for maintaining high standards of governance lies with the Banks Board of Directors and various Committees of the Board, which are empowered to monitor implementation of the best Corporate Governance practices including making of necessary disclosures within the framework of legal and regulatory provisions and banking conventions. Remuneration Policy Remuneration and perquisites of the Chairman & Managing Director and Deputy Managing Directors, who are appointed by Government of India, are fixed by Government of India. Other Independent Directors Were paid only the sitting fees for each Board / Committee Meeting attended by them @ `5,000/- per meeting (for Board, Executive Committee and Audit Committee Meetings) and `2,500/- per meeting (for other Committee Meetings of the Board). Risk Management Committee of the Board The Risk Management Committee of the Bank consisted of five members as on March 31, 2011, viz., Shri H.L. Zutshi, as Chairman and Shri B.P. Singh, DMD, Shri R.P. Singh, Govt. Director, Shri Analjit Singh, and Smt. Lila Firoz Poonawalla, Directors as its members. The Committee assesses various risks associated with the business of the Bank, their mitigation and also addresses the issues relating to asset liability mismatch. Number of Meetings During the period April 1, 2010 March 31, 2011, three meetings of the Risk Management Committee were held on June 30, 2010, January 25, 2011 and March 17, 2011. Code of Conduct and Ethics The Board of Directors of the Bank has adopted a Code of Conduct and Ethics for Directors, Officers and Employees of the Bank. In compliance of the requirement of revised Clause 49 of the Listing Agreement, a declaration signed In accordance with the requirements of SEBI (Prohibition of Insider Trading) Regulations 1992, the Bank has instituted a comprehensive code of conduct for Prevention of Insider Trading.

HDFC Bank The Bank believes in adopting and adhering to the best recognized
corporate governance practices and continuously benchmarking itself against each such practice. The Bank understands and respects its fiduciary role and responsibility to shareholders and strives hard to meet their expectations. The Bank believes that best board practices, transparent disclosures and shareholder empowerment are necessary for creating shareholder value. REMUNERATION OF MANAGING DIRECTOR & EXECUTIVE DIRECTORS The remuneration of the Managing Director and the Executive Directors has been approved by the RBI and the shareholders. Stock options granted as above to the Directors were granted under Employee Stock Option Scheme (ESOP) XVI of the Bank and have been approved by the Reserve Bank of India. The said options have not been vested in them during the year.

Risk Policy and Monitoring Committee The Committee has been formed as per the guidelinesof Reserve Bank of India on the Asset Liability Management / Risk Management Systems. The Committee develops Banks credit and market risk policies and procedures, verifies adherence to various risk parameters and prudential limits for treasury operations and reviews its risk monitoring system. The Committee also ensures that the Banks credit exposure to any one group or industry does not exceed the internally set limits and that the risk is prudentially diversified. The Committee which was called the Risk Monitoring Committee earlier has been renamed as the Risk Policy and Monitoring Committee during the year.

REFERANCES

http://money.rediff.com/companies/icici-bank-ltd/14030056/balancesheet http://www.icicibank.com/ economictimes.indiatimes.com www.moneycontrol.com/.../icicis-fpo-to-see-good-attentiondspml_286675.html