Definitions of banking
- 1. definitions of banking<br />A bank is a financial institution licensed by a government. Its primary activity is to lend money. Many other financial activities were allowed over time. For example banks are important players in financial markets and offer financial services such as investment funds.<br />Banking can also be defined as engaging in the business of keeping money for savings and checking accounts or for exchange or for issuing loans and credit.<br />Transacting business with a bank; depositing or withdrawing funds or requesting a loan.<br />Bank - a supply or stock held in reserve for future use (especially in emergencies)<br />MEANING OF BANKING<br />An organization, usually a corporation, chartered by a state or federal government, which does most or all of the following: receives demand deposits and time deposits, honors instruments drawn on them, and pays interest on them; discounts notes, makes loans, and invests in securities; collects checks, drafts, and notes; certifies depositor's checks; and issues drafts and cashier's checks.<br />AXIS BANK – MANAGEMENT GROWTH <br /> <br />Over the past 10 years Axis Bank has reflected a stupendous growth It is the third largest private sector bank in the country after ICICI bank and HDFC bank with a network of 594 branches with 2500 ATM centers. This network should cross 700 branches and 3000 ATM centers by Fy 08. Most of the new branches are likely to be set up in Tier – II and Tier- III cities, which would help increase its presence in the unbanked areas.<br /> <br />C.M.PRs 825Market capRs 28,825 croresAdjusted Book Value Fy 08Rs 234Adjusted Book Value Fy 09Rs 270Price to B.V (Fy 093.05 timesEPS Fy 08Rs 30EPS FY09Rs 45PE Fy 0827.5 timesPE Fy0918.33 timesNet Interest Margin Fy093.2%CASA Fy 0845%RoA (Fy 09)1.2%RoE (Fy 09)16.67%(affected by recent equity dilution)Capital Adequacy ratio (Sept 2007)17.59%CAGR Fy 08- to Fy 1135%-40% CAGR<br /> <br /> <br />While Banks are commoditized businesses the clutch of new generation private sector banks are getting out of that commodity trap and investing in businesses and resources that generate a stream of fee based income: <br /> <br />Most of these private sector banks are a great proxy on insurance and AMC as they derive a significant part of their fee income from distributing these products without necessarily taking on the risks for the same. <br /> <br />Fee based income is RoE and EPS accretive, does not require capex and creates a annuity income stream from one year of effort. For example if a Bank locks in a customer with a ULIP plan for 30 years then the effort for year 1 will generate revenues for the Bank for the next 29 years so incremental growth in terms of adding new customers each year would be tremendous.<br /> <br />Consistent growth: Over the past 31 quarters the bank has grown its net profit in excess of 30% y-o-y in 29 out of those 31 quarters. Even in the two quarters that it did not grow its net profit it was more of a case of extraordinary expense write off because of valuing G-Sec on mark to market basis.<br /> <br />The important tools in evaluation of banking companies are RoA, NPA, CASA and NIM while CASA and NIM are the drivers it is actually the RoA that sets the pace in terms of market cap expansion and is one of the best efficiency indicators of capital usage.<br /> <br />Recently Axis Bank has raised capital and retired high cost debt thereby increasing its Net interest margin to 3.2% from 2.9% in the same quarter last year. The management expects to maintain NIM at around 3.2% in the quarters to come. In the last quarter CASA grew to 45.4%, an increase of 540 bps YoY. Axis compares very favorably with HDFC bank on all efficiency parameters. Though HDFC Bank is still ahead to Axis in terms of CASA, NIM, and RoA the recent trend in the results of Axis Bank indicates that within the next 12-18 months Axis should get closer to HDFC bank in terms of efficiency parameters. <br /> <br />Wider Business Model vs. HDFC bank: A few factors that favor such a efficiency hike in Axis bank to HDFC bank are:<br /> <br /> While HDFC bank is retail focused Axis bank derives 24% of its business from retail clients and the bank intends to slowly increase its thrust into that segment. <br /> <br /> Axis Bank recently applied to SEBI for setting up an AMC. Now HDFC Bank cannot set up an AMC because its parent HDFC already has one so there is a conflict of interest here. Tomorrow Axis could get into anything within the financial services space whether it is brokerage or Insurance but HDFC bank is handicapped by its parent (for conflict of interest) in terms of such an extension.<br /> <br />Declining NPA’s, Increasing fee incomes, Robust CASA growth with expanding RoA’s are the drivers that could catapult Axis Bank closer to the level of HDFC bank’s valuation.<br /> <br />Robust fee Income growth The past few years (2002-07) has seen the company grow its fee income at a stupendous CAGR of 51 %. As the fee income grows at a higher rate to the interest income the proportion of fee income in the overall revenues is increasing at a brisk pace. This will create adequate trigger for a PE re-rating in the times to come. <br /> <br />Axis Bank has already entered the insurance distribution business with MetLife as its partner. Other businesses like asset management, investment banking, Private Equity and wealth management will help the bank to maintain its growth in fee based Income growth.<br /> <br />The Bank sells Mutual Funds, Insurance, On-Line Broking, Portfolio Management Services (Non-discretionary) and Gold Coins to retail customers as part of its fee income initiative.<br /> <br />Excellent Asset Quality: The asset quality of the bank has shown a remarkable improvement Gross NPAs as a proportion of gross customer assets declined to 0.95% in Q2FY08 as compared to 1.22% in Q2FY07. Similarly, net NPAs as a proportion of net customer assets also declined to 0.55% in Q2FY08 as compared 0.74% in Q2FY07.<br /> <br />Wealth Management forays: The Bank also intends to enter the wealth management business in a big way and has set up a US $ 500 million offshore infrastructure fund, with a $50 million proprietary seed investment. The Bank will leverage its Corporate and SME loan book to create investment opportunities for the infrastructure fund.<br /> <br />Direct Sales Channel: Presently Retail Assets constitute 24% of the Bank’s total advances, and the Bank continues to grow this field slowly. Generally Direct selling Agents (DSA’s) form a large part of the distribution costs in selling retail loans. To overcome this cost centre Axis bank has set up a subsidiary (UBL Sales Ltd). This subsidiary would minimize cost and focus on better distribution of products and services as well as maintain the quality of clients so acquired.<br /> <br />To increase its thrust in the Retail loan space Axis has set up 70 Asset Centers(RACs) <br /> Issued over 300,000 Credit Cards since its launch in August last year. <br /> 3rd largest debit card base (64 lacs) in the country <br /> 1st Indian Bank to launch Travel Currency Cards in multiple currencies -US$, Euro, GBP, AUD and CAD<br /> 1st Indian Bank to launch Remittance Card and Meal Card<br /> Installed base of over 54,000 EDCs and growing<br /> Cards business a significant contributor to Retail Fees<br /> <br />Debt Syndication: Axis is a dominant player in Placement and Syndication of debt issues and was ranked 4th by Bloomberg in the Underwriters League Table for the Indian Domestic Bonds for the first six months of calendar year 2007. Along with this the Project Advisory Services mandates have shown a secular increase.<br /> <br />Float: The Bank Gets a big float of free cash in its initiative from collecting taxes on behalf of seven State Governments and Union Territories. It is the designated bank for collection & payments for Central Government Ministries - Railways, Urban Development and Housing & Urban Poverty Alleviation and is also a banker to the e-Governance initiatives of 5 State Governments. <br /> <br />Being bankers to such organizations helps the bank in getting free cash float which in turn reduces the cost of funds and boasts the Net interest margin. In fact HDFC Bank derives a big amount of its float from being a banker to the NSE.<br /> <br />Cash management services also increase the float and with 2592 clients CMS is becoming a big origin for float and high CASA base.<br /> <br />International Forays: Axis bank has already set up branches in <ST1:COUNTRY-REGIoN>Singapore</ST1:COUNTRY-REGIoN> and Dubai with a representative office in Shanghai and Hong Kong. It intends to be an international Bank with a Pan Asian presence. These foreign branches will help it focus on offshore corporate and capital markets businesses.<br /> <br />The Bank has tied up with Banque Privee Edmond de Rothschild Europe which will enable Axis bank to offer investment opportunities in global financial products for overseas Indians. It will offer the joint product through its international branches. Customer relationships are being handled by Axis Bank, while Banque Privee Edmond provides expertise for global wealth management. The total asset under overseas operations was US$ 1.24 billion as at end September’07.<br /> <br />The Takeover Trigger: Sometime back HSBC had taken a 15% stake in Axis Bank and was subsequently directed by RBI to bring that stake down to fewer than 5%. Along with HSBC, Citigroup also has a stake near the threshold 5% limit indicating that as the RBI opens the banking sector for liberalization in 2009 these banks could see a flurry of activity. That would act more then just an icing on the cake and could result in a serious PE Re-rating.We discussed this possibility in the thread \" Which private Bank will foreigners buy?\" <br /> <br />Recommendation: While Axis bank has provided an annualized return of over 49% (without including dividends), since the Bank’s IPO in September 1998 and investors could peg down their return estimates Axis does remain one of the best bets to play the Indian Financial services industry. Personally I have a significant position here which I had disclosed and recommended on this thread. I do find it attractive over HDFC Bank in terms of valuation with regard to growth, efficiency and asset quality. <br /> <br />Maybe the change in name from to Axis Bank from UTI Bank should indicate to the general investing community that Axis is not a PSU Bank and deserves a better valuation then to what it is getting.<br />SWOT ANALYSIS<br />STRENGTH<br />●Good brand name of the organisation all over India<br />●Expertise in the field of banking<br />●Flexible products<br />●Strong communication network all over the country<br />●Sound financial resources of the organisation<br />WEAKNESS<br />●Less awareness regarding investors<br />●Cannot trap rural market<br />●Yet to build strong distribution network<br />OPPORTUNITIES<br />●Untapped rural market<br />●lack of competitive product to suit clients investment objective<br />THREATS<br />●The numbers of players are increasing which further increases the competition<br />●Customer’s mindsets are still rigid and they still prefer traditional pattern of banking and investments.<br />