Capstone Project 2021-2023

Phase 3 Report
Sem III
Performance Evaluation of Selected Banking Stocks Listed on
BSE During Pre & Post Covid-19 Crisis

Submitted by: Janhavi hatekar

Name of Faculty Prof.Shweta Roy Name of Janhavi Hatekar

Guide: the
Student:

Designation: Fellowship Research Roll No.: 20730021148

Associate- Manager
Finance Program: PGDM (finance)

Batch: F1 (Warren Buffet)

Semester: III

Institute for Technology and Management

Plot No. 25 / 26, Institutional
Area, Sector – 4, Kharghar, Navi
Mumbai
 CERTIFICATE FROM THE FACULTY GUIDE

This is to certify that the Project Work titled Performance Evaluation of Selected
Banking Stocks Listed on BSE During Pre & Post Covid-19 Crisis is a bonafide
work carried out by Ms. Janhavi Devendra Hatekar Roll No. 20730021148 a
student of PGDM program 2021 – 2023 of the Institute for Technology &
Management, Kharghar Navi Mumbai under my supervision & guidance.

Signature of Guide :

Name of Guide : Prof.Shweta Roy

Designation : Fellowship Research Associate- Manager Finance

Date:

Place: Kharghar, Navi Mumbai

 ACKNOWLEDGEMENT

Execution of a project of this nature is impossible without active support from

the faculty guide and professors of the Institute. I would like to express my
sincere gratitude to my guide

Prof Shweta Roy for her active guidance throughout the last three semesters
of the project duration. I would specially thank my family and colleagues for
their support. Also, I would like to thank all the people who participated in the
survey for data collection, without which the completion of the project would
never have been possible.

I also extend my sincere thanks to all those who directly and indirectly helped
me to complete the project.

Last but not the least, I would thank Almighty God for giving me the strength
and wisdom to undertake this project and successfully complete it.

Name of the Student. Janhavi Hatekar

Signature of the Student

 Abstract

Investing in the stock market has always been regarded as risky. Market
sentiment is a factor that influences stock prices. The purpose of this study is to
assess the performance of selected banking stocks based on risk and excess
return generated by them during the study period. The study also determines
the effect of certain financial variables on sample banking stocks during the time
crisis of Covid’19. Economic variables such as the BSE Sensex, rate of exchange,
variation in FII (Foreign Institutional Investors), and coupon rate of Government
Sector (G-Sec) were analyzed in conjunction with the analysis of banking stocks.
The regression and correlation tests are used to determine the significance of
variables using SPSS. Following the BSE’s performance provides insight into the
future modifications throughout the price levels of bank shares. Following a
sharp decline in the market, private sector bank stock prices are correct, but not
public sector bank stock prices. Throughout the first part of the research, there
is a direct relationship between the BSE, Sensex, and the selected stocks, but
only a weak correlation with FII, G-Sec coupon rate, and the exchange rate.
Along the second part of the research, the relationship between stock prices
and economic variables varies widely between banks.
 Front Cover Page I
Certificate from the Faculty Guide II
Acknowledgement III
Abstract IV
Table of Contents V

Chapter 1 Introduction 1-24

1.1General overview of the sector

1.2 Sectoral growth last few years – Industry

Trend

1.3 Govt Policies/Regulation of the Sector

1.4 Contribution to GDP

1.5 Overview of the Company

1.6 current stock price of top 5 bank

1.7 SWOT Analysis

1.8 Problem on hand

1.9 Importance of the problem

1.10 Cause & effect relationship of variables in

the study
1.11 Scope of the study
Chapter 2 24-28
Literature Review
2.1 Collection of relevant literature and quote the
source of each material
 2.2 Research gap identification

2.3Objective of the study

2.4 Hypothesis
Chapter 3 29-30
Research Methodology
3.1 Research Design
3.2 Data Source
3.3Sample size
Chapter 4 Data Analysis and Interpretation 30-43
Chapter 5 Conclusion and Recommendation 44-45
Chapter 6 Reference 46-47
1.INTRODUCTION

1.1General overview of the sector

The banking sector is the lifeline of any modern economy. It is one of the
important financial pillars of the financial sector, which plays a vital role in
the functioning of an economy.It is very important for economic develope of
a country that its financing requirements of trade, industry and agriculture
are met with higher degree of commitment and responsibility. Thus, the
development of a country is integrally linked with the development of
banking. In a modern economy, banks are to be considered not as dealers in
money but as the leaders of development. They play an important role in the
mobilization of deposits and disbursement of credit to various sectors of the
economy. The banking system reflects the economic health of the country.
The strength of an economy depends on the strength and efficiency of the
financial system, which in turn depends on a sound and solvent banking
system. A sound banking system efficiently mobilized savings in productive
sectors and a solvent banking system ensures that the bank is capable of
meeting its obligation to the depositors. In India, banks are playing a crucial
role in socio-economic progress of the country after independence. The
banking sector is dominant in India as it accounts for more than half the
assets of the financial sector. Indian banks have been going through a
fascinating phase through rapid changes brought about by financial sector
reforms, which are being implemented in a phased manner. The current
process of transformation should be viewed as an opportunity to convert
Indian banking into a sound, strong and vibrant system capable of playing
its role efficiently and effectively on their own without imposing any burden
on government. After the liberalization of the Indian economy, the
Government has announced a number of reform measures on the basis of
the recommendation of the Narasimhan Committee to make the banking
sector economically viable and competitively strong. 2 The current global
crisis that hit every country raised various issue regarding efficiency and
solvency of banking system in front of policy makers. Now, crisis has been
almost over, Government of India (GOI) and Reserve Bank of India (RBI) are
trying to draw some lessons. RBI is making necessary changes in his policy
to ensure price stability in the economy. The main objective of these change
is to increase the efficiency of banking system as a whole as well as of
individual institutions. So, it is necessary to measure the efficiency of Indian
Banks so that corrective steps can be taken to improve the health of banking
system.

1.2 Sectoral growth last few years – Industry Trend

In the recent year, the banking Industry has been undergoing rapid changes
which is reflecting in banking reforms. Telecommunication and Information
technology are the most significant areas which have changed rapidly. It has
accelerated the broadcasting of financial information which lowering the
costs of many financial activities. In the last few years banking sector has
introduce new products: Credit Cards, ATM, Tele-Banking, Electronic Fund
Transfer (EFT), Internet Banking, Mobile Banking etc. These new products
increase the efficiency of banks by reducing transactions cost. Some of the
important areas which developed recently are discussing here.

1.3 Govt Policies/Regulation of the Sector:

The banking system in India is regulated by the Reserve Bank of India (RBI),
through the provisions of the Banking Regulation Act, 1949. Some important
aspects of the regulations that govern banking in this country, as well a RBI
circulars that relate to banking in India, will be explored below Exposure limits
Lending to a single borrower is limited to 15% of the bank’s capital
funds and tier 2 capital), which may be extended to 20% in the case of
Infrastructure projects. For group borrowers, lending is limited to 30% of the
bank’s capital funds, with an option to extend it to 40% for infrastructure
projects. The lending limits can be extended by a further 5% with the approval
of the bank's board of directors. Lending includes both fund-based and non-
fund-based exposure.

Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)

Banks in India are required to keep a minimum of 4% of their net demand and
time liabilities (NDTL) in the form of cash with the RBI. These currently earn no
interest. The CRR needs to be maintained on a fortnightly basis, while the
daily maintenance needs to be at least 95% of the required reserves. In case
of default on daily maintenance, the penalty is 3% above the bank rate applied
on the number of days of default multiplied by the amount by which the
amount falls short of the prescribed level.

Over and above the CRR, a minimum of 22% and a maximum of 40% of NDTL,
which is known as the SLR, needs to be maintained in the form of gold, cash or
certain approved securities. The excess SLR holdings can be used to borrow
under the Marginal Standing Facility (MSF) on an overnight basis from the RBI.
The interest charged under MSF is higher than the repo rate by 100 bps, and
the amount that can be borrowed is limited to 2% of NDTL. (To learn more
about how interest rates are determined, particularly in the U.S., consider
reading more about who determines interest rates.)

Provisioning
Non-performing assets (NPA) are classified under 3 categories:
substandard, doubtful and loss. An asset becomes non-performing if there
have been no interest or principal payments for more than 90 days in the
case of a term loan. Substandard assets are those assets with NPA status for
less than 12 months, at the end of which they are categorized as doubtful
assets. A loss asset is one for which the bank or auditor expects
no repayment or recovery and is generally written off the books.

For substandard assets, it is required that a provision of 15% of the

outstanding loan amount for secured loans and 25% of the outstanding loan
amount for unsecured loans be made. For doubtful assets, provisioning for
the secured part of the loan varies from 25% of the outstanding loan for
NPAs that have been in existence for less than one year, to 40% for NPAs in
existence between one and three years, to 100% for NPA’s with a duration
of more than three years, while for the unsecured part it is 100%.

Provisioning is also required on standard assets. Provisioning for

agriculture and small and medium enterprises is 0.25% and for commercial
real estate it is 1% (0.75% for housing), while it is 0.4% for the remaining
sectors. Provisioning for standard assets cannot be deducted from gross
NPA’s to arrive at net NPA’s. Additional provisioning over and above the
standard provisioning is required for loans given to companies that have
unhedged foreign exchange exposure.

Priority sector lending

The priority sector broadly consists of micro and small enterprises, and
initiatives related to agriculture, education, housing and lending to low-
earning or less privileged groups (classified as "weaker sections"). The
lending target of 40% of adjusted net bank credit (ANBC) (outstanding bank
credit minus certain bills and non-SLR bonds) – or the credit equivalent
amount of off-balance-sheet exposure (sum of current credit exposure +
potential future credit exposure that is calculated using a credit conversion
factor), whichever is higher – has been set for domestic commercial
banks and foreign banks with greater than 20 branches, while a target of
32% exists for foreign banks with less than 20 branches.

The amount that is disbursed as loans to the agriculture sector should

either be the credit equivalent of off-balance-sheet exposure, or 18% of
ANBC – whichever of the two figures is higher. Of the amount that is loaned
to micro-enterprises and small businesses, 40% should be advanced to
those enterprises with equipment that has a maximum value of 200,000
rupees, and plant and machinery valued at a maximum of half a million
rupees, while 20% of the total amount lent is to be advanced to micro-
enterprises with plant and machinery ranging in value from just above
500,000 rupees to a maximum of a million rupees and equipment with a
value above 200,000 rupees but not more than 250,000 rupees.

The total value of loans given to weaker sections should either be 10% of
ANBC or the credit equivalent amount of off-balance sheet exposure,
whichever is higher. Weaker sections include specific castes and tribes that
have been assigned that categorization, including small farmers. There are
no specific targets for foreign banks with less than 20 branches.

The private banks in India until now have been reluctant to directly lend to
farmers and other weaker sections. One of the main reasons is the
disproportionately higher amount of NPA’s from priority sector loans, with
some estimates indicating it to be 60% of the total NPAs. They achieve their
targets by buying out loans and securitized portfolios from other non-
banking finance corporations (NBFC) and investing in the Rural
Infrastructure Development Fund (RIDF) to meet their quota.

New bank license norms

The new guidelines state that the groups applying for a license should have
a successful track record of at least 10 years and the bank should be
operated through a non-operative financial holding company (NOFHC)
wholly owned by the promoters. The minimum paid-up voting equity
capital has to be five billion rupees, with the NOFHC holding at least 40% of
it and gradually bringing it down to 15% over 12 years. The shares have to
be listed within three years of the start of the bank’s operations.

The foreign shareholding is limited to 49% for the first five years of its
operation, after which RBI approval would be needed to increase the stake
to a maximum of 74%. The board of the bank should have a majority of
independent directors and it would have to comply with the priority sector
lending targets discussed earlier. The NOFHC and the bank are prohibited
from holding any securities issued by the promoter group and the bank is
prohibited from holding any financial securities held by the NOFHC. The
new regulations also stipulate that 25% of the branches should be opened
in previously unbanked rural areas.

Willful defaulters:
A willful default takes place when a loan isn’t repaid even though resources
are available, or if the money lent is used for purposes other than the
designated purpose, or if a property secured for a loan is sold off without
the bank's knowledge or approval. In case a company within a group
defaults and the other group companies that have given guarantees fail to
honour their guarantees, the entire group can be termed as a willful
defaulter.

Willful defaulters (including the directors) have no access to funding, and

criminal proceedings may be initiated against them. The RBI recently
changed the regulations to include non-group companies under the willful
defaulter tag as well if they fail to honour a guarantee given to another
company outside the group.

The way a country regulates its financial and banking sectors is in some
senses a snapshot of its priorities, its goals, and the type of financial
landscape and society it would like to engineer. In the case of India, the
regulations passed by its reserve bank give us a glimpse into its approaches
to financial governance and shows the degree to which it prioritizes
stability within its banking sector, as well as economic inclusiveness.

Though the regulatory structure of India's banking system seems a bit

conservative, this has to be seen in the context of the relatively under-
banked nature of the country. The excessive capital requirements that have
been set are required to build up trust in the banking sector while the
priority lending targets are needed to provide financial inclusion to those to
whom the banking sector would not generally lend given the high level of
NPA’s and small transaction sizes.
Since the private banks, in reality, do not directly lend to the priority sectors,
the public banks have been left with that burden. A case could also be made
for adjusting how the priority sector is defined, in light of the high priority
given to agriculture, even though its share of GDP has been going down.
(For related reading, see "The Increasing Importance of the Reserve Bank
of India")

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1.4 Contribution to GDP

The Indian banking system consists of 12 public sector banks, 22 private

sector banks, 46 foreign banks, 56 regional rural banks, 1485 urban
cooperative banks and 96,000 rural cooperative banks in addition to
cooperative credit institutions As of September 2021, the total number of
ATMs in India reached 213,145.

In FY18-FY21, bank assets across sectors increased. Total assets across the
banking sector (including public and private sector banks) increased to US$
2.48 trillion in FY21.

In FY21, total assets in the public and private banking sectors were US$
1,602.65 billion and US$ 878.56 billion, respectively.
During FY16-FY21, bank credit increased at a CAGR of 0.29%. As of FY21,
total credit extended surged to US$ 1,487.60 billion. During FY16-FY21,
deposits grew at a CAGR of 12.38% and reached US$ 2.06 trillion by FY21.

According to the RBI, bank credit stood at Rs. 110.46 trillion (US$ 1.47
trillion) and credit to non-food industries stood at Rs. 109.82 trillion
(US$ 1.46 trillion) as of September 24, 2021.

1.5 Overview of the Company (top 5 banks only)

 State Bank of India: State Bank of India (SBI) is an

Indian multinational public sector bank and financial services statutory
body headquartered in Mumbai, Maharashtra. SBI is the 43rd largest
bank in the world and ranked 221st in the Fortune Global 500 list of
the world's biggest corporations of 2020, being the only Indian bank
on the list.[6] It is a public sector bank and the largest bank in India
with a 23% market share by assets and a 25% share of the total loan
and deposits market.[7] It is also the fifth largest employer in India with
nearly 250,000 employees.

 Bank of Baroda: Bank of Baroda (BOB or BoB) is an Indian

nationalized banking and financial services company headquartered
in Vadodara. It is the fourth largest nationalised bank in India, with 132
million customers, a total business of US$218 billion, and a global
presence of 100 overseas offices. Based on 2019 data, it is ranked 1145
on Forbes Global 2000 list.[4][5]The Maharaja of Baroda, Sayajirao
Gaekwad III, founded the bank on 20 July 1908 in the Princely
State of Baroda, in Gujarat.[6] The government of India nationalized the
bank, along with 13 other major commercial banks of India on 19 July
1969 and designated as a profit-making public sector undertaking
(PSU).
 HDFC Bank: HDFC Life Insurance Company Ltd. (d/b/a HDFC
Life)[4] is a long-term life insurance provider with its headquarters
in Mumbai, offering individual and group insurance services and
incorporated on 14 August 2000.[5][6]
The company is a joint venture between Housing Development Finance
Corporation Ltd (HDFC), one of India's leading housing finance
institutions and Abrdn, a global investment company.[5] As on 31 March
2020, the promoters; HDFC Ltd. and Standard Life (Mauritius Holdings)
2006 Ltd. hold a 51.69% and 34.75% stake in HDFC Life
respectively.[5] The remaining equity is held by public shareholders. [5]

 ICICI Bank: ICICI Bank Limited is an Indian multinational bank

and financial services company headquartered in Vadodara. It offers a
wide range of banking products and financial services for corporate
and retail customers through a variety of delivery channels and
specialized subsidiaries in the areas of investment banking, life,non-life
insurance, venture c apital and asset management.
The bank has a network of 5,275 branches and 15,589 ATMs across
India and has a presence in 17 countries. [9] The bank has subsidiaries
in the United Kingdom and Canada; branches in United
States, Singapore, Bahrain, Hong Kong, Qatar, Oman, Dubai
International Finance Centre, China [10] and South Africa;[11] as well as
representative offices in United Arab
Emirates, Bangladesh, Malaysia and Indonesia. The company's UK
subsidiary has also established branches in Belgium and Germany. [12]

 Axis Bank: Axis Bank Limited, formerly known as UTI Bank (1993–
2007), is an Indian banking and financial services company
headquartered in Mumbai, Maharashtra.[7] It sells financial services to
large and mid-size companies, SMEs and retail businesses.
  As of 30 June 2016, 30.81% shares are owned by the promoters and the
promoter group (United India Insurance Company Limited, Oriental
Insurance Company Limited, National Insurance Company LimitedNew
India Assurance Company Ltd, GIC, LIC and UTI). The remaining
69.19% shares are owned by mutual funds, FIIs, banks, insurance
companies, corporate bodies and individual investors.
1.6 current stock price of top 5 bank

Market
Company % 52 wk. 52 wk.
Last Price Cap
Name Chg. High Low
(Rs. cr)

SBI 516.10 0.19 549.05 321.15 460,599.20

HDFC Bank 1,515.10 -0.12 1,724.30 1,292.00 840,204.91

ICICI Bank 754.35 0.71 859.70 531.00 524,180.57

Kotak
1,785.05 1.05 2,252.45 1,627.25 354,272.05
Mahindra

Axis Bank 794.90 0.36 866.60 626.40 244,022.37

1.7 SWOT Analysis

SWOT Analysis of Banking industry focuses on strength, weakness,

opportunities and threats. Strength and weakness are the internal factors
opportunities and threats are external factors.

SWOT Analysis is a validated framework that helps to evaluate business

performance of Banking Industry
Strength in the SWOT Analysis of Banking Industry:

Below are the main strengths of the banking sector.

 Banking Industry is the Oldest Industry: Due to Technological

advancement Industries are changing their structure. Banking has
also changed its structure and system. Banking Industry has proved
to be one of the wide spread and widely acknowledged industry. It
has also supported the human race. Banking has adapted and
updated itself to suit the new needs. Banks today play a critical and
indispensable role in society, from inculcating the habit of savings to
helping people with financial instruments.

 Financial Stability of Nation: In ensuring a nation’s economic growth

and financial stability, the banking industry plays a vital role. By
fostering prosperity, banks contribute to the economy. They assist
the masses to maintain their resources and become important
contributors to both the national and international economy.

 Supplier of Financial Instruments: Banks have a wide range of financial

instruments for their customers. Fixed Deposits, Stocks, bonds,
insurance and savings accounts are some of the varied products sold by
banks. Furthermore, to provide online banking solutions, banks have
also embraced and incorporated digital technologies.

 Good Employment Source and Helps in GDP growth: There is a

widespread consensus that perhaps the improvement of the financial
system leads to economic growth. Financial development establishes
encouraging conditions for growth by either supply-led (financial
development stimulates growth) or demand-driven growth. It is this
industry that works constantly to ensure financial stability,
encourage foreign trade, promote jobs and reduce poverty around
the world.
  Financial Assistance: whether natural calamity or man-made
calamity banks alleviate the after-effects of disaster by offering
financial assistance to victims to rise up and lead a peaceful life
again.

 Diversified services: the banking sector provides insurance, loan and

investment services from Current and Saving Accounts.

 Connecting People: With the advent of a modern century,

technological innovation Banks have made life simpler for a common
man. People can transact in many places on a real-time basis.

 Changing from the position of simple savings & credit facilitator:

today’s top bank priorities include regulatory enforcement
improving asset quality, enhancing customer focus, concentrating on
digital convergence, and addressing competition from non-banks.
Banks are now investing in business and technology to improve their
business models.

Weakness in the SWOT Analysis of Banking Industry

 Global Economics Susceptibility: Due to Exchange Rate changes and

changes in world economy banking Industry is affected. It is also
seen that slight shifts in the exchange rates of currencies or the
spending and saving patterns of the citizens of one major nation
can directly impact the entire banking industry.

 Non-Performing Assets: The major weakness of the banking sector is

NPAs (Non-Performing Assets). Typically, NPAs denote loans that
are not recoverable. This leads to financial losses for the bank,
inevitably. For the banking sector and the economy as a whole, NPAs
can have a debilitating impact. Developing countries like India face
instances of high NPAs that have dealt a significant blow to the
nation’s banking industry.
  Lack of coverage in rural areas: It has been observed that the
banking industry focuses more on urban areas in most countries,
while rural regions are ignored. In the banking sector, this is a
considerable weakness. Villages are now home to a significant
majority of the world’s population. In developed countries, this is
more. Banks are working in main stream don’t want to concentrate
on mainstreams. Banks must try to capture Rural Markets

Opportunities in the SWOT Analysis of Banking Industry –

 Advancements in Technology: The banking industry has always

based on technology. This is evident that digital services provided by

banks today are totally based on technology. However, banks should
continue to adopt the latest technological advances. To draw future
generations, they should focus on putting out newer goods and
services.

 Opportunities for rural growth: One of the banking industry’s weak

points is its limited presence in rural areas. But this vulnerability can
actually be turned into an opportunity. Banks will increase their
customer base considerably by expanding into villages and
providing their services to the rural population.

 Societal Evolution: Both economically and culturally, human society

is changing. The needs and demands of customers with increasing
income levels are bound to change in this complex landscape. It is
necessary for banks to adapt to this changing society. The sector will
solidify its position in the future by offering better services.

 Rising in the private banking sector: the banking industry around

the world is highly regulated by Public sector banks and their
respective central banks. With the emergence of private sector
banks, this sector is experiencing structural and functional shifts,
primarily due to the adaptation of new technology and intensified
competition, thereby benefiting end-customers.
Threats in the SWOT Analysis of Banking Industry –

 Lack of Cyber Defence Proper: The current banking industry relies

entirely on the cyber-world. Whether it is data storage, monetary
transactions or personal information, everything is stored digitally.
This makes the banking sector a primary target for hackers who are
seeking to benefit financially by leveraging flaws in the banks digital
infrastructure. Unless banks take effective cybersecurity steps to
safeguard their records, they will face a significant cyberspace
threat.

 Competition Stiff: Worldwide, banks face stiff competition. Not only

from other banks, but also from institutions like Non-Banking
Financial Companies that sell a range of financial products that are
not available to all banks. This has contributed to a change of the
consumer base from banks to NBFCs, which are more embraced by
the new skilled breed.

 Global Uncertainty in Economics: The world is going through

difficult economic times at present. The international banking sector
has all been affected by trade wars, protectionist policies, and
economic downturns. If the world’s economic conditions do not
change, banks will face a bleak future.

 Recession: This is one of the biggest challenges to the nation’s

financial system. The traumatic shock of economic crises and the
collapse of a number of companies will impact the banks and vice
versa.

 System stability: the failure of certain poor banks has also

undermined the stability of the system.

 Government Regulations can directly affect the Banking Sector of a

country.
1.8 Problem on hand

For a variety of reasons. Today’s fall is purely sentiment-led, because of the

developments at RBL Bank. But the bigger trigger is the heavy selling of
bank shares by foreign institutional investors (FIIs). Remember, foreign
funds have overweight positions in large banks, and so when they start
dumping shares, other investors take fright.

PSU Banks are always a trading bet with the exception of SBI. Leave SBI and
most if not, all PSU Banks would have destroyed your wealth over a larger
period of time. But PSU Banks can be a great trading bet if you can time your
entry and exit well. Private Banks on the other hand have a combination of
Goldmines and landmines. I think the distinction between Banks is no
longer PSU or private banks. It’s now between those doing well and
adapting well to changes and those who have asset quality issues or not
adapting well.

Analysts said that one probable reason behind this could be the optimistic
management commentary post financial results of these banks. While
managements have indicated probable impact of covid-19 on their books,
the severity is expected to be lower than last year. Their optimism is based
on the fact that the lockdowns announced to contain the second wave are
not as stringent as the nationwide restrictions in 2020.

1.9 Importance of the problem

Covid’19, the globally spread pandemic, has struck the country when India's
economy has already slowed to its lowest level in a decade. Economic
activity has ceased. As the economy's backbone, the banking sector stepped
forward to lend a helping hand to a few sectors. The RBI cut 'repo rates' to
promote liquidity and money circulation in the economy. Additionally, the
central bank announced loan repayment relief. Investing in the stock market
has always been regarded as risky. Stocks do not guarantee a higher return
at all times. Stock prices fluctuate due to the market's production and
consumption of shares. Negative sentiments may result in an unexpected
price fluctuation in the event of an unforeseen circumstance. Narayan et al.
(2014) evaluated the components of stock prices for main Indian banks
using panel data modelling techniques and they discovered a link between
investment activity, interest rates, currency exchange rates, and bank stock
prices. According to their research, a rise in interest rates decreases in bank
stock values, whilst economic growth and currency depreciation result in a
price increase.

1.10 Cause & effect relationship of variables in the study

Tripathi and Ghosh (2012) examined the impact of interest rates on banking
stock returns in India and discovered a weak negative correlation between
interest rates and bank stock returns. J. Loomba (2012) developed a strong,
meaningful correlation between share prices and FII activity in the Indian
economy. The findings of various research studies on banking stock piqued
the researcher's interest in the relationship between banking shares and
macroeconomics factors during times of crisis, as very little research was
available on the period immediately following the government's declaration
of lockdown due to Covid’19. 2. Literature Review Investors' behavior is
frequently disturbed by disasters, which can eventually affect their stock

1.11 Scope of the study

Market Capitalization is the value of a public company in the stock market.

It is based on the current share price and the total number of outstanding
shares of a company. It is the total market of a company’s outstanding
shares of stock. It is calculated by multiplying the total number of a
company’s outstanding shares by the current market price of one share.
Let’s assume that a company has 1 million shares to sell and the market
price

of a share is Rs 100. Then, the Market Capitalization of the company will be

1,000,000 (shares) Rs100 = Rs 100,000,000. Market Capitalization plays an
important role in determining the size of a company. It gives an investor an
insight to the future prospects of the company and whether or not they
should invest. It also lets us know how much an investor is willing to pay
for the shares of the company.
2.LITRETURE REVIEW

2.1 Collection of relevant literature and quote the source of each

material

Investors' behavior is frequently disturbed by disasters, which can

eventually affect their stock selection decisions. Fama et al. (1969)
conducted an innovative event study that demonstrating that stock price
volatility is associated with different events. The existing literature
concentrated primarily on natural catastrophes, terror acts, political
behavior, and financial crises, focusing on the role between catastrophes
and stock prices. Kalra, Henderson, and Raines examined the Soviet nuclear
plant disaster.

According to Nikkinen et al. (2008), the "911" incident had a major impact
on future stock prices, which then improved. Al-Rjoub (2011) and Al Rjoub
and Azzam (2009) examined the Mexican tequila crisis of 1994, the financial
crisis of 1997–1998, the Iraq war of 2004, the financial crisis of 2005, and
the global financial crisis of 2008–2009. (2012), these authors examined if
these periods affect the Jordan Stock Exchange's stock compensation
behavior. Schwert. (2011) examined how US stock prices fluctuated and
during the financial crisis. Lanfear, Lioui and Siebert (2018) discovered that
catastrophes affecting consumer growth can affect the stock market. Yin, Lu,
and Pan (2020) investigated the effects of the Sino-US trade war on the
Chinese Stock markets and discovered that terrible experiences have a
longer-lasting effect on prices than positive ones.

Covid’19 has a significant and enduring negative effect on the world

economy. 2020 (Iyke). Narayan and Phan investigate the impact of Covid’19
upon on share market as well as the responses of countries (2020), there
are narrow studies on the role of Covid’19 on share prices in the published
studies, and there are few studies on the role of financial factors on bank
shares during government announced lockdown immediately following that
period.

Qin et al. (2020) examined the pandemic's impact on oil markets. Ali, Alam,
and Rizvi (2020) examined the impact of COVID-19 on a variety of financial
instruments and made comparisons between China and other countries. In
this context, we examined the various changes in the banking sector's stock
prices during the pandemic period. Sunil Rashinker (2014) conducted a risk
analysis of nationalized banking stocks. The results of this work established
that few bank stock prices increased during unfavorable market conditions
that raised the question of whether market conditions always have the same
effect on company stock prices.

Shaini Naveen and T. Mallikarjun Appa (2016) discovered that all banks
have favorable beta value and that the stock prices of a few banks move in
the opposite direction of the market. According to a recent study by P.
Naveen and K. Neeraja (2018) among the banks studied, HDFC bank
achieved the greatest returns and the lowest risk. Patjoshi, P. (2016)
examined the risk-return of the Indian Banking sector over 15 years and
discovered a significant positive correlation between the Sensex and
banking stocks, except ICICI bank returns. Singh and Makkar (2014) used
the GARCH model to evaluate the relation between crisis and share prices in
the Indian banks. Their study found a substantial negative relationship
between the price of banking stocks and their volatility during the crisis.

Further research by J Cave, K Chaudhuri, and SC Kumbhakar (2020)

discovered a negative correlation between financial development and
economic growth. However, the stock market had a positive effect on
economic growth up to a point, after which the effect shifted to the negative
and this effect raised further queries in the researcher's mind about the
validity of the same findings and during the current Covid’19 economic crise
2.2 Research gap identification

India is one of the emerging economies in the world, this paper shows the
nature of volatility between the pre and post-Covid-19- period. Few studies
have been conducted to focus the comparative study on this connection. In
this study, I have attempted to compare the volatility of the returns of NSE-
Nifty between these two above-mentioned sub-periods

2.3 Research questions

What is the pre and post covid capitalization?

What are the pre and post covid return?

What are the pre and post covid transition?

What are the pre and post covid share price of stock in BSE?

What are the pre and post covid volatility?

2.4 Objective of the study

This research paper aims to achieve the following objectives:

• To analyse and assess the risk and return of selected five banks listed on
the Bombay Stock Exchange.

• To Study the volatility of the selected banking and examine the effect of
fluctuations of monetary factors on banking stocks pre-covid’19 and post-
covid’19

2.5 Hypothesis

Based on the above objectives we have framed the following hypothesis for
this study: a. H01: There is no difference in the average closing stock prices
during pre and post covid periods. b. H02: There is no difference in the
average daily return during pre and post covid periods. c. H03: There is no
difference in the average daily transaction during pre and post covid
periods. d. H04: There is no difference in the average delivery percentage
during pre and post covid periods. e. H05: There is no difference in the
average volatility during the pre and post covid periods. This preprint
research paper has not been peer reviewed. Such hypotheses are tested the
banking sector
3.Research Methodology

For this empirical study, we have selected five sectors like, Pharmaceuticals,
Automobiles, Industrial goods, Banking and Finance, and Consumer goods,
and from which a total of 50 widely traded BSE listed large Cap companies
are selected for this study purpose. The returns of the stock index are
calculated based on the logarithmic transformation of the daily closingfront
share price. we calculate the daily return of the share price data taking the
log of the first difference of daily Average Index Value, Rt = Log (Pt / Pt-1),
Where Pt is the closing share price at time t and Pt-1 is the corresponding
value at time t-1. Volatility has been measured based on the standard
deviation of the daily returns. Sample Period: The sample covers daily
observation of Nifty of two-time frames. Sub Period 1: Pre-Covid-19 era
(from September 2019 to March 2020) and Sub Period 2: Post-Covid-19 era
(from April 2020 to August 2021)

3.2 Data Source

The entire data has been collected from BSE website

3.3 Sample size

Top 5 banks of India:

1.State Bank of India

2. HDFC Bank

3.Axix Bank

4.ICICI Bank

5.Kotak Bank
4.Data Analysis and Interpretation5

4.1 This section calculates the standard deviation of share prices

from the mean. It illustrates the price dispersion around the average
price over the period. The table below shows the deviation value.

Table 1: Showing the Mean Deviation of Selected Stock Prices Before &
After Pandemic

Name of the Mean Mean

Bank Deviation Deviation

Before After
Covid’19 Covid’19

HDFC 0.0 0.0

Bank 26 4

State Bank of 0.0 0.0

India 42 31

Kotak 0.0 0.0

Mahindra 29 44

ICICI Bank 0.0 0.0

31 52

Axis Bank 0.0 0.0

33 59

HDFC Bank has the lowest stock price deviation during the first half
of the cycle, and SBI bank has the highest during the second half of
the period. In contrast, SBI and Axis bank has the highest during
the first and second halves of the period, respectively.
4.2 Abnormal Returns & Beta Value
This section examines the uncertainty of the shares of selected banks
about the BSE index throughout the two years data collection period.
Additionally, it evaluates the volatility in returns during this period to
determine if the price has rectified itself following its low in March
2020. The table below details the beta and volatility in returns of each
bank.
Table 2: Showing the Abnormal Returns and Beta Value of Selected
Five Stocks

HDFC Bank Beta 0.78 1.3

Abnormal - 1.90
Return 2.17 %
%

State Bank of Beta 0.98 1.05

India
Abnormal 1.03 -
Return 0.97
%

Kotak Mahindra Beta 0.88 1.27

Bank
Abnormal - 1.70
Return 1.25 %
%

ICICI Bank Beta 1.05 1.67

Abnormal - 3.81
Return 0.64 %
%

Beta 1.09 1.59

 Axis Abnormal 0.66 3.60
Bank Return % %

Interpretation: By examining the beta, it is clear that the beta

analysis of a chosen stock price demonstrates that bank stocks are
pretty unstable during a crisis. This instability in stock price is due
to the crisis's effect on the economy, which has a direct impact on
the banking services industry and thus on profitability. For SBI, the
abnormal returns are positive during the pre-lockdown period
because the actual return exceeds the expected return. Still, it
becomes negative as stock prices fall below the expected level. For
Kotak Mahindra Bank, HDFC Bank, ICICI Bank, and AXIS Bank, the
abnormal return was negative in the pre-period due to actual
negative returns due to falling prices. The post-period positive
abnormal return shows that the data has recovered from the
previous fall. The most significant clarification is shown in the price
levels of ICICI and AXIS banks, which has risen by more than 3%.

4.3Correlation Analysis

The section examines the relationship between certain bank stocks

and economic variables. This enables us to determine whether the
movement in stock prices corresponds to the direction of the
underlying variables, such as the BSE Sensex, exchange rate, FII
movement, and G-Sec rate. The table below illustrates the co-relation
coefficient's values before and following the lockdown.
Table 3: Showing Correlation Between Selected Stocks Prices
and Various Economic Variables Pre-Lockdown
 Bank BSE Exchange FII G-Sec
Rate Moveme Coupon
Sens
nt
ex Rate

HDFC Bank 0.97 -0.87 0.65 0.24

State Bank of 0.95 -0.91 0.68 0.28

India

Kotak 0.94 -0.77 0.59 0.3

Mahindra
Bank

ICICI Bank 0.97 -0.85 0.66 0.17

Axis Bank 0.01 -0.87 0.66 0.19

Interpretation: The relationship between the BSE and bank stocks

demonstrates that the correlation coefficients for all banks are
greater than 0.9, indicating a very strong correlation. A related
trend was observed in the relationship between the Sensex and
bank stocks, which are inextricably linked. Throughout the period,
there is a significant negative relationship between bank shares and
the rate of exchange. This relationship demonstrates during an
emergency, the stock price and the exchange rate move in the
opposite direction. The FII and bank stock movements have a
moderate correlation. (0.5 to 0.7) It indicates that changes in FII
activity cause changes in stock prices, but the magnitude is
moderate. The correlation between the G-Sec level and bank stocks
is less than 0.3, indicating a very weak relationship. Shifts within G-
Sec rates may have a less dramatic effect on stock prices.
Table 4: Showing Correlation Between Selected Stocks
Prices and Various Economic Variables Post-Lockdown

Bank BS Sense Excha FII G-Sec

E x nge Moveme Coupon
nt
Rate Rate

HDFC Bank 0.8 0.87 -0.12 0.36 -0.37

3

State Bank of - -1.8 0.22 -0.14 0.12

India 1.3

Kotak 0.1 0.21 -0.39 0.13 0.14

Mahindra 4
Bank

ICICI Bank 0.6 0.7 -0.03 0.2 -0.33

6

Axis Bank 0.7 0.73 -0.23 0.16 -0.53

2

Interpretation: When BSE and bank stocks are compared, HDFC

bank and AXIS bank have a strong correlation, while ICICI bank has
a moderate correlation. Kotak Mahindra Bank has a weak
correlation. SBI bank has a negative correlation, indicating that no
correction in the market occurred during the post period. This
relationship is also evident in the abnormal return analysis, which
shows that some banks show favourable volatility in the post-
period, while SBI has a lower impact. On returns. The Sensex
follows the same trend as the Nifty, with SBI having a negative
correlation, Kotak Mahindra bank having a weak correlation, and
HDFC, ICICI, and AXIS bank having a positive correlation. When
 bank stocks exhibit a post-period correlation with the exchange
rate, there is a negative correlation found between Kotak Mahindra
Bank and HDFC Bank and a slight decrease in correlation between
the remaining three banks. Apart from SBI, where a negative
relationship can be observed, FII movement during the post-period
has a low correlation with bank stocks. The G- Sec coupon rate has
a low relationship with SBI and Kotak Mahindra Bank in the post-
period. The graph given below portrays the above-explained
relationship.

Pre & Post Covid'19 Relationship

0,8

0,6
AXIS
0,4 ICICI
HDFC

0,2 KOTAK MAHINDRA

BEFORE
AFTER SBI
COVID 2020
COVID 2019

SBI KOTAK MAHINDRA HDFC ICICI AXIS

4.5Regression Analysis

This section determines whether the impact on macroeconomic

variables chosen have an effect on the bank stocks chosen. Daily bank
stock prices were tracked for the chosen period of 2019 and 2020 then
regressed against the rates of selected factors during that period to
determine the impact.
Table 5: Showing the Regression Values of Selected Stocks
Returns with BSE Sensex Returns
 Bank Pre- Post
Covid’19 Covid’19

HDFC Bank 0.07 0.00

State Bank of 0.32 0.00

India

Kotak 0.56 0.00

Mahindra
Bank

ICICI Bank 0.32 0.00

Axis Bank 0.31 0.02

 Regression Values of Selected Stocks with BSE Sensex
0,6

0,5

0,4

0,3

0,2
HDFC SBI Kotak Mahindra ICICI Axis

Before Covid'19 After Covid'19

Interpretation: Except for Axis bank, the value of bank stocks is

greater than the critical value during the pre-pandemic period. As a
result, the null hypothesis is acceptable. Thus, except for Axis bank,
the changes in the Sensex have had little impact on the stock
exchange rates of banks during this period. The value of all bank
shares would be lower than the critical threshold in the post-covid
period. As a result, the null hypothesis is rejected. As such, it
demonstrates that changes in the Sensex affect the prices of bank
stocks. H0: The exchange rate has no discernible effect on the
chosen bank stocks.

Table 6: Showing the Regression Values of Selected Stocks

Returns with Exchange Rate Motion

Bank Pre- Post

Covid’19 Covid’19

HDFC Bank 0.229 0.00

State Bank of 0.003 0.00

India
 Kotak 0.612 0.412
Mahindra
Bank

ICICI Bank 0.976 0.00

Axis Bank 0.16 0.02

REGRESSION VALUES OF SELECTED STOCKS WITH

EXCHANGE RATE MOTIONS

Pre-covid'19 Post-covid'19
0,976
0,612
0,412
0,229 0,16 0,02
0 0,003 0 0

HDFC SBI Kotak ICICI Axis

Mahindra

Interpretation: Exchange rate fluctuations have big effect on SBI's

stock prices, as the attributes would be less than 0.05. However, for
the remaining four banks, the null hypothesis is accepted,
indicating no effect of the exchange rate change on bank stocks in
the pre-period. Changes in the exchange rate have impacted the
stock prices of Kotak Mahindra Bank following the pandemic, as
the values are greater than 0.05. However, for the remaining four
banks, the rejection of the null hypothesis, indicating that the
exchange rate change did not affect bank stocks in the post-period.
Therefore, the null hypothesis (H0: There is no discernible effect of
FII mobility on the chosen bank shares) has been rejected here for
four banks except Kotak Mahindra Bank.
Table 7: Showing Correlation Between Selected Stocks
Prices and Various Economic Variables Post-Lockdown

Bank BS Sense Excha FII G-Sec

E x nge Moveme Coupon
nt
Rate Rate

HDFC Bank 0.8 0.87 -0.12 0.36 -0.37

3

State Bank of - -1.8 0.22 -0.14 0.12

India 1.3

Kotak 0.1 0.21 -0.39 0.13 0.14

Mahindra 4
Bank

ICICI Bank 0.6 0.7 -0.03 0.2 -0.33

6

Axis Bank 0.7 0.73 -0.23 0.16 -0.53

2

Interpretation: When BSE and bank stocks are compared, HDFC

bank and AXIS bank have a strong correlation, while ICICI bank has
a moderate correlation. Kotak Mahindra Bank has a weak
correlation. SBI bank has a negative correlation, indicating that no
correction in the market occurred during the post period. This
relationship is also evident in the abnormal return analysis, which
shows that some banks show favourable volatility in the post-
period, while SBI has a lower impact. On returns. The Sensex
follows the same trend as the Nifty, with SBI having a negative
correlation, Kotak Mahindra bank having a weak correlation, and
HDFC, ICICI, and AXIS bank having a positive correlation. When
bank stocks exhibit a post-period correlation with the exchange
rate, there is a negative correlation found between Kotak Mahindra
Bank and HDFC Bank and a slight decrease in correlation between
the remaining three banks. Apart from SBI, where a negative
relationship can be observed, FII movement during the post-period
has a low correlation with bank stocks. The G- Sec coupon rate has
a low relationship with SBI and Kotak Mahindra Bank in the post-
period. The graph given below portrays the above-explained
relationship.

Pre & Post Covid'19 Relationship

0,8

0,6
AXIS
0,4 ICICI
HDFC

0,2 KOTAK MAHINDRA

BEFORE
AFTER SBI
COVID 2020
COVID 2019

SBI KOTAK MAHINDRA HDFC ICICI AXIS

This section determines whether the impact on macroeconomic

variables chosen have an effect on the bank stocks chosen. Daily
bank stock prices were tracked for the chosen period of 2019 and
2020 then regressed against the rates of selected factors during that
period to determine the impact.

Table 8: Showing the Regression Values of Selected Stocks

Returns with BSE Sensex Returns
 Bank Pre- Post
Covid’19 Covid’19

HDFC Bank 0.07 0.00

State Bank of 0.32 0.00

India

Kotak 0.56 0.00

Mahindra
Bank

ICICI Bank 0.32 0.00

Axis Bank 0.31 0.02

Table 9: Showing the Regression Values of Selected Stocks

Returns with FII Movement

Bank Pre- Post

Covid’19 Covid’19

HDFC Bank 0.394 0.53

State Bank of 0.521 0.07

India

Kotak 0.195 0.514

Mahindra
Bank

ICICI Bank 0.784 0.24

Axis Bank 0.684 0.12

Interpretation: When each bank stock is regressed against the FII
mobility factor for the pre-and post-period, the value exceeds the
critical value of 0.05 at a 5% significance level. As a result, there is
no discernible effect of alterations in FII activity on the chosen
bank shares. 5th Hypothesis Ho Changes in the G-Sec rate have no
discernible effect on the chosen bank shares.

Table 8: Showing the Regression Values of Selected Stocks with

G-Sec Coupon Rate

Bank Pre- Post

Covid’19 Covid’19

HDFC Bank 0.683 0.04

State Bank of 0.049 0.06

India

Kotak 0.001 0.419

Mahindra
Bank

ICICI Bank 0.002 0.103

Axis Bank 0.003 0.77

 Regression Values of Selected Stocks with G-Sec Coupon Rate

AXIS BANK

ICICI

KOTAK MAHINDRA

SBI
0 0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8

Post covid'19 Pre-covid'19

Interpretation: SBI and HDFC banks have a pre-period value

greater than 0.05. As a result, the null hypothesis has been adopted.
Thus, during this period, changes in FII mobility have had little
effect on stock prices, whereas they have impacted the share prices
of the other three banks (less than 0.05). During the post-crisis
period, the value of HDFC bank p 0.05 demonstrates that the G-Sec
rate affects HDFC stock prices. However, there is no such effect on
the remaining four bank stoc
5.Conclusion and Recommendations:
When each bank stock is regressed against the Economic factors
during the pre-and post-pandemic period, the value is below 0.05 at
a 5% level of significance, indicating that the said factors have
significant impact on the selected bank stocks prices movements.
Exchange rates also have a significant effect on SBI's stock price (p =
0.05). However, private banks demonstrate that the exchange rate
had no effect on stock prices in the pre-pandemic period. Changes in
exchange rates have had no discernible effect on the share prices of
Kotak Mahindra Bank in the post-pandemic period (p>05). In
contrast, other banks demonstrate the impact of exchange rate
changes on bank stocks in the post-pandemic period. When the
value for each bank stock is regressed against the FII motion as
during pre-pandemic and post-pandemic periods, the result is
(p>0.05) at the 5% level of significance, indicating that changes in FII
movement have had no significant effect mostly on chosen bank
stocks. SBI and HDFC have a pre-pandemic value of p>.05). Changes
in the FII movement have had little effect on stock prices but have
affected the share prices of the other three banks, as the value found
is less than 0.05. The fact that the value of HDFC stock is lower than
the critical value demonstrates that the G-Sec rate affects the price
of HDFC stock. However, there is no such effect on the remaining
four bank stocks. During a crisis, bank stocks experience extreme
volatility, that is even greater than the market's volatility. During the
first half of the study, before the crisis, there is a high correlation
between the BSE Sensex and chosen share prices and a moderate,
weak, and negative correlation with FII activity, the G-Sec rate, and
the exchange rate, respectively. During the second quarter of the
study, as stock prices improved, it was not clear whether all banks
followed a similar pattern. The relationship between stock prices and
economic variables varies significantly between banks. Changes in
the BSE over the two-year study period have a massive effect on the
chosen share prices, whereas alterations in the FII mobility have no
impact on stock prices. The Sensex continues to exert a significant
influence within second half of the years examined. Exchange rates
and the G-Sec rate have affected the stocks of selected banks. During
a crisis, investors become fearful, and the resulting uncertainty
results in stock market volatility. The understanding of the banking
sector's stock performance during a catastrophe can aid in prudent
investment planning. It is clear from the above discussion that even a
crisis results in increased volatility in banking stock prices relative to
the SENSEX. Still, prices also correctly follow a steep fall
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