analysis of banking industry (india)

Financial Analysis of Banking Sector : HDFC & ICICI BANK

1Risha Bagchi,16PGDM-BHU040


Objectives :

To study about ICICI and HDFC Bank and related aspects like its products & services, history, organisational structure and subsidiary companies.

To analyse the financial statements i.e. P&L account and Balance sheet of both the companies

To learn about P&L account, Balance sheet and different types of Assets and Liabilities To portray the financial position of ICICI & HDFC with the help of balance sheet, and P&L. To evaluate the financial soundness of both the companies.

Historic Pricing of ICICI

(Source : Moneycontrol)

Timeline for events :-

1. 2011-12 : Singapore government's investment arm Temasek Holdings' unit Allamanda Investments on Wednesday sold shares worth USD 300 million (about Rs 1,500 crore) in India's largest private sector lender ICICI Bank.

2. 2012-13 : Top private sector lenders ICICI Bank(ICBK.NS), HDFC Bank(HDBK.NS) and Axis Bank(AXBK.NS) said they were investigating allegations of widespread money laundering practices at their branches.

3. 2013-14 : Net NPA increased ICICI announced that its board had approved the splitting of each equity share into

five. This was the first time ICICI Bank has gone for a share split4. From then on, NPA has gradually increased, and in Mar’ 2016, Net Profit was worst in 11

years. 5. 2015-16 : ICICI issued $500 million dollar bonds in the International market


http://www.business-standard.com/search?type=news&q=Icici+Bank


Historic Pricing of HDFC

Timeline for events :

1. 2011-12 : Citigroup sold its stake in HDFC after huge tax gain2. 2012-13 :

Top private sector lenders ICICI Bank(ICBK.NS), HDFC Bank(HDBK.NS) and Axis Bank(AXBK.NS) said they were investigating allegations of widespread money laundering practices at their branches

Fined by RBI for violating KYC norms3. 2013-14 : HDFC & HDFC Bank merger led to rise in the prices of shares4. 2014-15 : Payzapp was launched, and they raised INR 90,000 crore from NCDs5. 2015-16 : HDFC Standard Life Insurance raised IPO

Non-performing assets’ comparison

Net NPA Mar' 16 Mar' 15 Mar' 14 Mar' 13 Mar' 12

HDFC 0.28 0.2 0.3 0.2 0.2

ICICI 2.98 1.61 0.97 0.77 0.73

The trends of HDFC has been fairly constant in the last 5 years.

• Whereas, in case of ICICI, it has been increasing year by year. The ICICI officials said : sharp downturn in commodity cycle & gradual nature of domestic economic recovery are to blame.



RATIO ANALYSIS :

Mar' 12 Mar' 13 Mar' 14 Mar' 15 Mar' 160.03

0.13

0.23

0.33

0

0.5

1

1.5

2

2.5

3

Current Ratio & Return on Assets

ICICI HDFC ROA - ICICI ROA - HDFC

Current Ratio

The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations. To gauge this ability, the current ratio considers the current total assets of a company (both liquid and illiquid) relative to that company's current total liabilities. If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting its short-term obligations. If the current ratio is too high, then the company may not be efficiently using its current assets or its short-term financing facilities.

But being financial organisations, they’re supposed to have a current ratio of less than 1.

HDFC has maintained its Current Ratio between 0.23 to 0.38 which is healthy for a bank.

But ICICI has miserable levels of Current Ratio which proves that it will not be able to meet its short term obligations.

Return on Assets

Return on assets (ROA) is a financial ratio that shows the percentage of profit a company earns in relation to its overall resources. It is commonly defined as net income divided by total assets. 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.

The need for investment in current and non-current assets varies greatly among companies. Capital-intensive businesses (with a large investment in fixed assets) are going to be more asset heavy than technology or service businesses.

In the case of capital-intensive businesses, which have to carry a relatively large asset base, will calculate their ROA based on a large number in the denominator of this ratio.

In case banks, they strive to maintain a ROA ratio of 1.5% or above.



In this case, HDFC has been maintaining an ROA of above 2% since the last 5 years, but ICICI has had a fluctuating ROA ranging between 1.3 to 1.5. This shows that HDFC is in a better position in terms of getting return from assets invested, and investors are getting their returns.

Profit after & before Tax

March' 12 March' 13 March' 14 March' 15 March'160

5000

10000

15000

20000

-20%-10%0%10%20%30%40%

0%

29%18% 14%

-17%

PBT PATMoving average (PAT) Percentage Change

ICICI

March' 12 March' 13 March' 14 March' 15 March' 160

2000400060008000

1000012000

0%

5%

10%

15%

20%

0%

18%

12%10%

18%

HDFC

PBT PAT Percentage Change

Profit After Tax has decreased by 17% for ICICI, which records the worst Net Profit performance in the past 11 years.

HDFC on the other hand, has had a gradual increase in its profits, and the shareholders have recognized it.

Conclusion

By conducting the above comparative analysis, it is proven that HDFC is in a more financially stable and sound position, basing upon its Current Ratio, ROA, and Historic Price Movements.


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