diff icici & hdfc

8/3/2019 Diff ICICI & HDFC

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Even their offices reflect their attitudes. ICICI Bank's headquarters in suburban

Mumbai is a huge, imposing edifice in glass and granite. HDFC Bank's office in

central Mumbai is comparatively smaller and more sedately furnished.

The two banks have carried forward their style statement in their approach to

business. ICICI Bank thinks big, is all for growth and hungry for market share.

HDFC Bank is more conservative and cautious, grows at a measured pace, without

taking any undue risks.

ICICI Bank's assets Rs. 4,062.34 billion (US$ 91 billion) at March 31, 2011 and profit after tax Rs. 51.51 billion (US$ 1,155

million) for the year ended March 31, 2011. The Bank has a network of 2,553 branches and 7,440 ATMs in India. In

comparison, the tally for HDFC Bank is Rs 18,000 crore (Rs 180 billion). ICICI Bank

also leads HDFC Bank in almost every segment they are present in. But that's just

the current update.

The DNA of the strategy

ICICI Bank began its retail banking venture in mid-1999. By January 2000, it had

moved on to introducing home loans, car loans, personal loans and credit cards.

Realising the need for a bigger retail deposit base, the bank started building a

branch and an ATM network. The acquisition of Bank of Madura in March 2001

added 263 branches, many of them in cities where ICICI Bank did not have a

presence.

The merger of the erstwhile financial institution ICICI Limited with the bank in

April 2002, gave it a ready-made corporate clientele. The flip side was that ICICI

Bank had Rs 10,000 crore (Rs 100 billion) of restructured assets for which it had to

make provisions.


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On the other hand, HDFC Bank kick started its operations in 1995 with a focus on

corporate banking, targeting the top-end of the market. Reminisces Paresh

Sukthankar, head, credit and market risk, HDFC Bank, "Although the asset yields

may have been lower, we were able to cross-sell products so that the overall

returns were better. We may have grown slower than our peers, but the risks

were lower."

HDFC Bank ventured into retail lending in 1998, a year before ICICI Bank. But in

products like credit cards, it was slow to get off the mark. For instance, its credit

cards were launched only two years ago.

By then ICICI Bank had been present in the credit card business for nearly three

years. Says Sukthankar, "We believe that a sales cycle is not completed till the

asset comes back to us. So we were not aggressive in those products where we

perceived the risks were higher."

However, HDFC Bank was handicapped because it could not sell home loans

(because its parent HDFC was in the business), though it has been originating

them in the past one-and-a-half years. For ICICI Bank, home loans are 46 per cent

of its retail assets.

A banking consultant observes that ICICI Bank is far more aggressive. Though ICICI

executives do not admit it, industry sources observe that ICICI's pricing has been

far more competitive, which probably brought it more customers.

According to some industry experts, growth for ICICI Bank may have come at the

cost of quality. ICICI Bank denies this.

Says Kalpana Morparia [ Images ], deputy managing director, ICICI Bank, "If your

screening is not tight, it will show up in the very first year of the loan. Our


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provisioning is very strict, so any defaults would show up in the non-performing

loans (NPLs). Our home loan NPLs are just 0.25 per cent, while for car loans they

are 0.45 per cent."

Calling the customer

Both players targeted the same customer -- the upper-middle class. The

marketing channels used by both, including direct sales agents (DSAs), were the

same.

Yet, there was a difference. While ICICI settled for nothing less than film star

Amitabh Bachchan [ Images ] as an ambassador, HDFC Bank chose to rely on the

trusted lineage of its housing finance parent, Housing Development Finance

Corporation [ Get Quote ] (HDFC).

Says Sukthankar, "While HDFC was no doubt a great brand, it was a single-product

brand. Hence, it was a challenge to make it work with other products."

In the past two years, the bank has spent less than Rs 100 crore (Rs 1 billion) on

advertising and publicity (In comparison, ICICI has spent Rs 185 crore).

HDFC Bank says that its spends have always focused on other channels such as

direct sales and phone banking rather than mainstream advertising. Explains

Neeraj Swaroop, country head, retail banking, "It made sense to get the direct

communication right rather than focus on the masses. Meeting the customer

face-to-face is important."

Is the brand visible enough? Swaroop acknowledges that the ICICI brand does

have greater visibility, though he says that HDFC Bank is well-known even in

smaller towns.


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However, he does admit the need to push the brand and HDFC Bank will unveil a

new campaign next month. True to its style, however, the spend on publicity this

year will be upped by just 25-30 per cent.

Better pick-up

The numbers tell the story. ICICI Bank's retail deposits are nudging Rs 60,000

crore (Rs 600 billion) and in FY05, it grew its deposits by 47 per cent compared

with the industry deposit growth of 14 per cent.

HDFC Bank's retail deposits are about Rs 23,000 crore (Rs 230 billion). Even in

home loans, ICICI Bank commands 30 per cent of the market, having eaten into

housing finance pioneer, HDFC's share.

Says Morparia, "The convenience proposition together with the geographical

reach has paid off. We rolled out ATMs far ahead of the others and were able to

cross-sell our products."

Even in the number of customers ICICI Bank leads by a distance (See table: Share

of the wallet). Nearly 14 million customers bank with ICICI Bank, while the

number for HDFC Bank is less than half (6.4 million).

ICICI Bank has issued 3 million credit cards -- that is more than twice the number

of HDFC Bank's credit card users. However, industry observers point out that ICICI

Bank's effective users for credit cards may not be high.

Nonetheless, they concede that even with a discounted customer base, the

numbers will still be strong. Even in businesses like online trading where the risks

are relatively low, ICICI Bank commands a two-thirds marketshare.


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Says Morparia, "We are the largest distributors of mutual fund products and RBI

Bonds."

'Tell all' street

The stock market has always valued HDFC Bank at a huge premium -- at the

current price of Rs 585, HDFC Bank is valued at 3.5 times price to forward book

(valuation based on estimated book value in FY 06 of Rs 165).

The multiple for ICICI Bank that quotes at Rs 415, is just 2.1 (estimated book value

Rs 194). The reason: the impeccable quality of HDFC Bank's balance sheet.

With NPLs of less than 0.2 per cent, compared with 2 per cent for ICICI Bank, its

books are definitely in far better shape.

HDFC Bank's operations are also more profitable -- its net interest margin at 3.2

per cent is way higher than that of ICICI Bank's 2.4 per cent. Also, it is able to

access deposits at a lower cost. On an average, it pays an interest of 3.2 per cent

while ICICI Bank shells out 4.5 per cent.

Says Morparia, "We understand why the market gives a lower valuation. It's

because we have more NPLs and we have assets like Dabhol on our books. We

had a legacy of high NPLs of 5 per cent."

Given its legacy, ICICI Bank has not done a bad job. Its net interest margin in FY05

at 2.4 per cent was an improvement from the 1.9 per cent that it posted in FY04.

Moreover, net NPLs at 2 per cent in FY05 were down from 2.9 per cent in the

previous year. ICICI Bank's cost of deposits, too, has come down by 90 basis points

to 4.5 per cent. Says an analyst, "Things are changing. In the past the markets


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rewarded you for profitability. Now they will reward you for both growth and

profitability."

Poised for take off

Does sheer size tilt the balance in favour of ICICI Bank? Observes a consultant,

"When you opt for a high growth strategy, it's not necessary that you're always

doing the smart thing. Scale has to be built with profitability otherwise it is not a

sustainable advantage."

Sukthankar says, "While size and growth are important, success is also measured

by other attributes such as margins and asset quality. Size beyond a point

becomes less important."

He adds, "If you are not in the top three, it becomes difficult to get visibility or

economies of scale. We have grown fast enough and reached a threshold level at

which we have economies of scale."

However, consultants believe that HDFC Bank could have leveraged its parent's

customers far more effectively to cross-sell products and grow faster.

Says a banking consultant, "While HDFC Bank has about two years to get ready for

the future, ICICI Bank probably has three years." Should HDFC Bank and its parent

be merged, it could catapult them to a new league.

But round one of the banking sweepstakes has clearly gone to ICICI Bank.

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HDFC and ICICI are two names that stand apart among others when we talk of

private sector banks in India. Both are fairly successful banks giving stiff


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competition to government banks. The reason of their success lies in the fact that

both have introduced a greater efficiency of services and also host of new services

that were demanded by consumers.

DFCBank Ltd.

HDFC was among the first private sector banks set up in India after RBI allowed

their establishment in 1994. It was promoted by Housing Development

Corporation of India, and is still known as HDFC Bank. It was founded by Bibu

Verghese and its headquarters are in Mumbai. As of 2010, its operating incomes

were $958 million and profit stood at $658 million. Times Bank Limited, and

Centurion Bank of Punjab have merged with HDFC Bank since then, increasing the

assets of the Bank. Today HDFC has a Pan Indian presence with over 1700

branches and over 5000 ATMs.

ICICI Bank

ICICI is the largest private sector bank and 2nd largest bank overall in India. It was

formerly known as Industrial Credit and Investment Corporation of India. The

bank has its presence all over India and even abroad (Present in 18 countries)

with more than 2000 branches and over 5000 ATMs. It provides a host of banking

services to both corporate and retail customers apart from being fairly successful

in lifeinsurance (ICICI Prudential), venture capital (ICICI Direct) and asset

management. It is the largest home loan provider in the country. ICICI ranks

number one in providing credit cards in India. ICICI has a strong presence overseas

and has offices in 19 countries. ICICI has been notorious in employing goons for

recovering its loans from defaulters and has been pulled by different courts and

consumer forums in this regard.


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As far as differences between the two banks are concerned, both are equally

popular employing cutting edge technologies though ICICI seems to be ahead in

aggressive branding having Amitabh Bachchan as its brand ambassador.

Difference between HDFC and ICICI

HDFC has a niche market while ICICI is all over the place.

HDFC has an unmatched growth record at 30% while ICICI has

had swings on this front.

On a price to adj book basis ICICI trades at 2 times while HDFC

trades at 4.5 times.

ICICI has a lower PE ratio than HDFC. PE ratio of HDFC is at 19,

that of ICICI stands at 11%.

Reach of ICICI bank and ATMs is much more than HDFC.

There is a huge difference in raising of equity in the two banks.

ICICI Netbanking is far superior than that of HDFC.

HDFC has low NPAs at 0.2% of advances while ICICI has NPAs

at 2.7% of advances.

diff icici & hdfc

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