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To analyse the performance of HDFC bank we need to make it against the other banks in the
sector. So we have selected five important banks for the benchmarking exercise. These
banks are:
HDFC Bank
With 4.2% share of India's total non-food credit disbursements in FY12, HDFC Bank is
the second largest private sector bank in the country (after ICICI Bank) in terms of
asset size. The bank has tripled its share from 1.2% of total non-food credit in FY02
to 4.2% in FY12. Retail assets constituted 51.3% of advances in FY12. Its group
companies, HDFC Standard Life (insurance), HDFC AMC (mutual funds) and HDFC
Securities (equities) add scalability to the bank's offerings
Bank Of Baroda
Bank of Baroda (BoB) is among the top banks in the country with a 6.8% share of the
total non-food disbursals at the end of FY12. After a brand and operating overhaul,
the bank has seen accelerated growth, enabling it to position itself favourably
amongst peers. Adequate capital (CAR of 14.7% in FY12), high NPA coverage and
hedge against interest rate risks peg the bank amongst the frontrunners in the PSU
banking space.
Punjab National Bank
Punjab National Bank (PNB) is the third largest banking entity in the country with 7%
share of the total non-food credit disbursals at the end of FY12. Robust growth and
stellar margins has pegged the bank amongst the frontrunners in the PSU banking
space. This has helped it keep its neck above its peers.
Central Bank of India
It is one of the oldest and largest commercial banks in India. It is based in Mumbai.
The bank has 4600 branches and 4 extension counters across 27 Indian states and
three Union Territories. At present, Central Bank of India has overseas office at
Nairobi, Hong Kong and a joint venture with Bank of India, Bank of Baroda, and the
Zambian government. The Zambian government holds 40 per cent stake and each of
the banks has 20 per cent. Recently it has also opened a representative office at
Nairobi, Kenya. Central bank of India is one of 18 Public Sector banks in India to get
recapitalisation finance from the government over the next 24 months. As on 31
March 2011, the bank's reserves and surplus stood at 68688 million. Its total
business at the end of the last fiscal amounted to 2, 22,124 (approx.) million.
ICICI Bank
Despite being the second largest bank in the country after SBI in terms of asset size,
ICICI Bank lost its share of the banking sector's advances from 10.2% in FY07 to 8% in
FY12. At the end of March 2012, the bank had assets of over Rs 4.8 trillion and a
franchise of over 9,000 ATMs and 2,750 branches spread across the country. Retail
assets constituted 34% of advances in FY12 as against 65% in FY07. The bank is
focusing on loan origination in the large corporate, SME and agrie segments and on
non-fund based products and services. Besides the bank itself being the market
leader across retail loan portfolios, its subsidiaries ICICI Life Insurance, ICICI General
Insurance and ICICI AMC are leaders in their respective businesses
We will be accessing the critical meters of the banks against each other and also on the
aggregate industry level. This will give us the better picture of the sector.
Fig: 1.Employee and Branches:
Employees
250000
Branches
18000
16000
200000
14000
12000
150000
10000
8000
100000
6000
4000
50000
2000
0
0
SBI
BoB
PNB
CBI
SBI
HDFC ICICI
BoB
PNB
CBI
HDFC
ICICI
168.90
142.23
116.51
94.39
101.97
97.30
75.00
73.50
121.33
93.03
(Amount in ` million)
Series1
SBI
BoB
PNB
CBI
HDFC
ICICI
0.65
1.00
0.81
0.28
1.00
1.40
All
Grp Agg Grp Agg
Grp Agg Banks'
SBI and Nationali
New Pvt Aggregat
associate
sed
Sector
e2012s
Banks
13
0.60
0.65
1.18
1.83
BoB
PNB
CBI
HDFC
ICICI
87%
69%
79%
76%
81%
99%
Except ICICI other banks have acceptable ratio of Advances/ Deposits. It can be see that in
other nationalised banks the ratio is even lower than SBI. It means that they give relatively
more preference to investments. But then SBI has made adequate reserves and surplus
measures to deal with NPA and bad investments.
Comparitive Analysis
(Amount in ` million)
14000000
12000000
10000000
8000000
6000000
4000000
2000000
0
Capital and Reserves & Surplus
Deposits
SBI
BoB
PNB
CBI
HDFC
ICICI
988837
319694
326769
153129
362141
667060
2260383
2962470
2926136
12027396
4738833
3915601
Investments
3509273
1213937
1298962
726038
1116136
1713936
Advances
10456166
3281858
3087252
1719358
2397206
2902494
Fig: 4
Income Analysis:
Taking on the income of the banks, Fig: 5 & 6 represents the income analysis of the banks.
As the advances are high the interest income is also proportionately high. We find that PNB
despite having similar advances in comparison to BoB still manages to get higher interest
income.
Net interest margin which is a measure of the difference between the interest income
generated by banks or other financial institutions and the amount of interest paid out to
their lenders relative to the amount of their assets. It is similar to the gross margin of nonfinancial companies. From Fig 7 we can interpret it for the banks.
Interest income
1400000
1200000
1000000
800000
600000
400000
200000
0
SBI
BoB
PNB
CBI
HDFC
ICICI
Fig: 5
350000
300000
(Amount in ` million)
250000
200000
150000
100000
50000
0
SBI
BoB
PNB
CBI
HDFC
ICICI
Other income
160348
36306
42159
16673
68526
83457
Operating expenses
292844
59467
81651
42323
112361
90129
Fig: 6
4.28
3.17
3.06
2.28
2.30
2.70
3.30
2.98
2.39
2.79
Fig: 7
From the above figure we find that it is better than two of the nationalised banks BoB and
CBI. And even better than the aggregate benchmark for SBI Associates and Nationalised
banks.
8
7
5.63
6
5
5.04
3.83
6.67
6.11
4.46
6.41
5.92
3.93
3.36
6.39
6.39
5.775.57
5.50
4.55
3.76
6.12
4.21
3.76
3
2
1
0
Fig: 8
Return on Advances adjusted to Cost of Funds is calculated as follows:
(Return on Advances Cost of Funds)
Percentage
17.57
16.12
11.57
14.21
13.01
11.05
11.81
11.81
11.40
13.02
Fig: 9
Due to high staff employed and higher number of branches the wages are also high. In fact
it can be seen as that this ratio is forth highest among all the banks.
Important Ratios:
Return on Equity
25
20
15
10
5
0
Fig: 10
ROE is the he amount of net income returned as a percentage of shareholders equity.
Return on equity measures a corporation's profitability by revealing how much profit a
company generates with the money shareholders have invested. ROE is expressed as a
percentage and calculated as:
Return on Equity = Net Income/Shareholder's Equity
Here HDFC it is better than others in consideration. It is even better than the industry
average. IT means that the stock is giving better returns to the shareholders.
Return on Assets
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
Fig 11
ROA indicates how profitable a company is relative to its total assets. The return on assets
(ROA) ratio illustrates how well management is employing the company's total assets to
make a profit. The higher the return, the more efficient management is in utilizing its asset
base. The ROA ratio is calculated by comparing net income to average total assets, and is
expressed as a percentage. Here HDFC and ICICI bank are better in performance than all the
other banks.
CRAR
20
18
16
14
12
10
8
6
4
2
0
Fig:12
Capital adequacy ratio is the ratio which determines the bank's capacity to meet the time
liabilities and other risks such as credit risk, operational risk etc. In the simple formulation, a
bank's capital is the cushion for potential losses, and protects the bank's depositors and
other lenders. Banking regulators in most countries define and monitor CAR to protect
depositors. In this case it is comparable to the Nationalised banks but lower than private
sector banks due to their risk appetite.
Another related parameter is Net NPA which can be seen in the fig: 13.
Fig: 13.
Latest Trends and Analysis:
Over past few months, we have seen strong revival in foreign fund flows and buoyant
equity markets riding on the belief of green shoots emerging for pick up in industrial activity
bolstered by a strong pro-business government. However, asset quality improvement is
likely to take next one-two quarters. We believe private banks will fare well due to better
risk management practices, strong traction in liabilities (well set to capture growth phase)
and robust capital position. - Edelweiss
The important points highlighted are:
HDFC Bank
Loan growth to surpass industry, albeit slower than its historical record given muted
activity in the corporate segment.
Margins to remain stable to moving upwards given benefits of lower cost of funds.
Fee income to continue to grow below trend owing to challenges in the retail
segment and high base of last year on forex income.
Cost ratios to start inching up post several quarters of consolidation putting pressure
on PPOP growth.
Margins to remain largely under pressure due to focus on the low-yielding corporate
and mortgage segments though to be offset by better margins in the international
book
Domestic loan growth to be tepid in line with industry. However, global growth will
be aided by the overseas branches.
Focused efforts on cost efficiencies will continue, leading to improvement in cost-toincome ratio.
Bank of Baroda
Domestic loan growth will be slower than historical track record, reflecting muted
credit off-take. Loan growth to be still higher at ~17%, supported by overseas
branches and rupee depreciation.
Domestic margins to marginally come off owing to lower CD ratio and slower growth
in the high-yielding SME portfolio.
Asset quality performance to remain better than peers; however, slippages could
increase QoQ given slippages from the restructured asset book. Fresh restructuring
will start tapering off.
Domestic loan growth to be muted at 10% in line with industry. Global growth
estimates to be ~14%, driven by growth in overseas balance sheet supported by
rupee depreciation.
Deposit growth to track loan growth with CASA moving up ~9% and term deposit
clocking 14% growth.
After the drop in fresh restructuring in Q1, restructuring is expected to pick up in Q2.
Slippages will remain at elevated levels. However, intensified recovery efforts will
translate into better recovery performance.
ICICI Bank
Loan growth to exceed industry growth rates at ~14%, supported by higher growth in
retail at ~20%, which will offset slower traction seen in corporate segment.
Fee income to grow in line with balance sheet; though crystallisation of foreign
currency translation reserves could lend support.
Asset quality trend to be stable to improving in line with current guidance. However,
future guidance critical given the backdrop of coal block cancellation.