The objective of the report is to showcases the major economic event and its effect on the share price level relative to the movement of BSE Sensex on State Bank of India (Public) and its two close competitors namely, Punjab National Bank (Public) and Bank of Baroda (Public).
The report majorly focuses in the analyses of the event which took place in the month of February ‘2016 which led to the major drop in BSE Sensex/Share Price level of main company which is State Bank of India and its two close competitors on the basis of their respective different share price level and the common relative index. It also includes the overall fluctuation in the Share price/ BSE Sensex from AUG’15-FEB’16 and displays it with the help of line graphs of the respectively chosen banks.
The cause and the result of the event on the price level of shares/Sensex have been represented in the report with the help of line graphs which have been derived out of the actual figures available at websites like BSE India, Yahoo Finance and others.
Through our report we wish to convey the cause and effect relationship between an economic event that took place in the country and the followed result of its effect on the share prices of top three banks currently operating in the Indian economy.
The bank was established on 1st July, 1995. It is presently headed by Mrs. Arundati Bhattacharya (Chairperson) and has its headquarters situated in Mumbai, Maharashtra. It is considered as one of the most trusted banks operating in India. It is currently the largest Indian banking and Services Company with the highest assets of INR 20, 48,080 Cr. (Mar’15) in comparison to the other banks]. It also has the widest network in the country with 15,570 branches (Dec’14), including 191 foreign offices spread across 36 countries worldwide. The bank also had the highest revenue of around 2.753 trillion INR in the year ending Mar’2015.
It is the only bank operating in India which has its own separate act of regulations popularly known as “State Bank of India Act, 1995”. State Bank of India is also the first public sector bank which moved to “Core Banking Solutions” (CBS). It is a technology which helped the bank reduce time and increased efficiency by merging both “Communication” and “Information” technology together.
SBI, PNB, BOB are among the top 10 public sector banks within the country in terms of their market capitalisation which is one of the most important parameter. The Q3 data given above makes it clear that the State Bank of India with INR 1, 43,067 Cr. is the leading one as it has the highest market capitalisation among the other two banks with INR 18,173 Cr. and INR 30,093 Cr. respectively. Also, SBI has the highest equity share capital in comparison to the other two banks. The next parameter chosen for comparison purpose is that of Net Profit/ (Loss) in Q3. The competitors are far from SBI which leads in the parameter with INR 1,115.34 Cr. in comparison to that of PNB with INR 51.01 Cr. and BOB with a huge loss of 3,342.04 Cr. The earnings per share for SBI were also higher than its competitors as it was at 1.43 Cr. whereas PNB had 0.26 Cr. and BOB had14.50 Cr.
The three banks mentioned above have been taken for analysing purpose as they are among the top ten public sector banks which are currently operating in the country and therefore
The graph above helps to showcase the average performance of both the parameters in every month and evaluate the necessary outcomes. And, among them the major one is that of February 2016 where an immense drop in the BSE SENSEX and SHARE CLOSE PRICE was seen. The drop in the share prices and the BSE Sensex had started in the end of Q3 i.e. December 2015 as all the banks inclusive of SBI started declaring their losses and NPA’s on the guidelines of the RBI. The graph shows that the decrement continued till February 2016 and caused a highest fall in the prices of SBI in the chosen period.
The graph helps to showcase the average performance of both the parameters in every month and among them is the major event that took place in the month of FEB’16 which led to the highest fall in the BSE SENSEX and SHARE CLOSE PRICE as showcased in the graph above. The cause and the effect on the share prices of PNB were similar to that of SBI as both the public sector banks had followed the same guidelines by RBI. In the end of Q3, PNB declared huge losses which were caused due to its bad and non performing assets which further more became the sole reason its fall in its share prices. The following graph helps to showcase the average performance of both the parameters in every month and to evaluate the necessary outcomes. The graph of Bank of Baroda also shows a similar drop in the month of February 2016 in the BSE SENSEX and its SHARE CLOSE PRICE in comparison to that of SBI and PNB. The graph clearly depicts the downgrading effect caused due the announcement of bad and non performing assets in the end of Q3.The similar downfall from Dec’15 to Feb’16 serve as a proof of
• The results of Q3 proved to be a bad one for all the Public Sector Banks(PSB) due to the Asset Quality review(AQR ) done by the Reserve Bank of India. It forced the banks to recognize weak and the non-performing assets and to further create provisions for them.
• The declaration of NPA’s by the Banks lead to distress selling in the equity market which resulted into sharp drop in the net profits for the banks inclusive of State Bank of India.
• Before the “Union Budget of 2016” the public sector banks were expecting important announcements by the government which would help the banks to recover from the impact of NPA’s, AQR and slow down in the manufacturing sector. And, these reasons led to an increment of 2.94% at Rs. 160.85 in trading of SBI.
• On 11th February 2016, SBI which is the top lender by assets reported a fall in the Net Profit by 61.67% at Rs.1, 115 Cr as compared to last year’s Rs.2, 910.06 Cr. for Q3. Gross NPA’s rose by 1% from the last quarter which resulted into the fall in the share prices of SBI by 2.26% to Rs.155.35.
• On 16th February 2016, an announcement by SBI’s Chairman Mrs. Arundhati Bhattacharya was made which clearly stated that bad loans of the banks were expected to upsurge in the coming quarter which may hit the profitability of the banks. The statement soon resulted into a sudden downfall in the shares of SBI by a massive 6.46%.
• On February 19th 2016, an increment of 3% in the shares of SBI was seen after it was announced that the bank was to raise Rs.3000 Cr. from bonds to fund the growth of the ongoing business.
• Post the “Union Budget of 2016” banks were trading higher on the hopes that the Reserve Bank of India may go for a cut of 50 basis points in FY 2015-2016 and higher retail credit off take due to the Budget announcements on an additional Rs 50,000 deduction on home loan interest. even though the biggest gainers of this were mainly private sector banks , SBI was also trading higher by 1.98 percent.
• The gross Non-Performing Assets (NPAs) rose to 8.47% at the end of Q3 as against 6.36% at the end of Q2. Net NPA stood at 5.86% at the end of December as against 3.99% seen during September end for Punjab National Bank.
• The bank prompted 4% decrease in share in the Q3 result.
• PNB showed almost similar effects in comparison to SBI as both resulted into decreases share in their respective prices.
• The bank on Feb’9 2016 raised RS. 1,000 Cr on private arrangement at yearly coupon of 8.23% to save itself from sinking into losses.
• And, on 15th Nov’2016 the government asked them the bank to recapitalize as it was the only solution out which the bank followed by replacing their debt and NPA’s with the help of their equity. The process was long but proved to be useful as it helped the bank to bring it prices back to normal.