A detailed comparison of Top 5 Private Banks on 19 different quantitative parameters based on Q2 FY22 results is discussed here. HDFC Bank vs ICICI Bank vs Kotak Mahindra bank vs Axis Bank vs IndusInd Bank
Private Sector Banks are those banks that are controlled and managed by Private entities, unlike Public Sector Banks which are controlled by Government. Both the banks are regulated by the Central Authority of India i.e., the Reserve Bank of India (RBI). Currently, there are 21 Private Sector Banks in India.
In the current situation, around 35% of the market share of the banks in India are owned by the Private Sector, and a major portion i.e., 65% of market share is owned by the Public Sector, but it seems that this scenario will turn in favor of Private Sector in the coming years.
Please note that we have done this analysis with the only purpose of screening good companies. Analysis done is completely on a quantitative basis. No suggestions are being made to directly go and invest in the top-scoring companies of this analysis. We suggest that one should perform a qualitative analysis of top-scoring companies in this analysis and take investment decisions based on risk profile.
Top 5 Private Bank Quantitative Analysis
Companies selected for Analysis:
We have selected the following 5 Private Banks companies for our Quantitative Analysis.
The procedure of Analysis and its Interpretation
- These 5 Private Banks are analyzed on the following 19 various quantitative parameters and ranked and scored accordingly.
- The Evaluation of performance is done based on the results of September 2021.
- For example, the company with a higher PE ratio is provided a lower rank, hence has scored lesser points. Similarly, if a company has higher RoE, it has a higher rank and has scored higher points.
- Here, 1 means that the company has scored the lowest points and 3 means the company has scored the highest points.
- In the end, we have added all the points together and companies are ranked accordingly.
Market Capitalization of 5 Private Bank Stocks:
This market capitalization of Top 5 Private Banks is as of 8th November 2021
- HDFC Bank- Rs. 8.86 Lakh Cr.
- ICICI Bank- Rs. 5.41 Lakh Cr.
- Kotak Mahindra Bank- Rs. 4.20 Lakh Cr.
- Axis Bank- Rs. 2.30 Lakh Cr.
- IndusInd Bank- Rs. 82,173 Cr.
Parameters of Quantitative Analysis:
1) PE Ratio:
Top-5 Private Banks- PE Ratio
- PE Ratio generally means how much investors need to pay for each rupee of profit earned.
- In this segment, IndusInd Bank has the lowest PE Ratio of 21.53, and hence this bank is awarded full points and first rank.
- Next to IndusInd Bank, comes Axis Bank with a PE Ratio of 25.34, and HDFC Bank with a PE ratio of 26.45. Both these banks are ranked and scored accordingly.
- Kotak Mahindra Bank with the highest PE Ratio of 58.30 has scored only 1 point and ranked the last.
2) P/B Ratio:
Top-5 Private Banks- PB Ratio
- P/B ratio or Price-to-Book Ratio is an important valuation ratio that evaluates whether a company’s stock is overvalued or undervalued by comparing the price of all outstanding ratios with the net assets of the company.
- It can be calculated by the following formula: Current Market Price of a Stock/ Book Value per share.
- Companies with lower P/B ratios are considered better and vice versa.
- In this case, IndusInd Bank grabs the first position with a PB ratio of 1.83. After IndusInd, the lowest PB ratio is of Axis Bank of 2.10 and hence given 2nd rank and 4 points.
- Here also, Kotak Mahindra is awarded the last position for possessing the highest PB ratio of 4.72 among all other mentioned banks.
3) Return on Equity (RoE):
Top-5 Private Bank- Return on Equity (ROE)
- Return on Equity (RoE) is another most common ratio used in fundamental analysis. We can calculate RoE by the following formula: Net Income/ Total Shareholder’s equity (Equity share capital + Reserves/Surplus).
- RoE signifies how well the company generates the return on shareholders’ investment.
- Here also, the company with higher RoE is considered to be strong and vice versa.
- HDFC Bank is providing the highest return on equity of 15.8% and hence is rewarded with first position and full points as well.
- ICICI Bank has the second-highest RoE of 13.9% after HDFC Bank.
- In this scenario, IndusInd Bank has performed the worst and is having an ROE of 8.8%, thereby have done ranking and scoring accordingly.
4) Return on Asset (RoA):
Top-5 Private Banks- Return on Assets (ROA)
- RoA simply indicated how well the company can generate profits from its assets.
- The formula for calculating RoA: Net Income + Total Assets
- In the case of Banking & NBFC Institutions, Loans are the assets of these institutions and hence profit generated via interests, etc. by banks & NBFC are referred to as Return on Asset.
- Like RoE, the higher the RoA of a company, the stronger its positions and vice versa.
- Here, Kotak Mahindra Bank outperforms all other banks by maintaining an RoA of 2.10% and grabs the first position as well.
- The second-best RoA among the top-5 private sector banks is HDFC Bank of 1.90%.
- The last Position and lowest points among all the banks are awarded to Axis Bank for maintaining an RoA of just 1.19%.
5) Sales & Net Profit Growth 5 Years CAGR:
Top-5 Private Banks- Sales & Net Profit Growth 5 Years CAGR
- In terms of Sales Growth, IndusInd Bank has registered the highest sales growth based on 5 years CAGR of 24.3% and hence given full points and first position.
- While Kotak Mahindra Bank with 22.6% and HDFC Bank with 14.9% sales growth on 5 years CAGR basis have obtained 2nd and 3rd position respectively.
- Coming next to Profit Growth based on 5 years CAGR basis, then Kotak Mahindra Bank has delivered the maximum profit of 26.1% among all others and hence received full points and the first rank as well.
- HDFC Bank manages to safeguard the second position here also with Profit Growth based on 5 years CAGR of 20.4%. IndusInd Bank with profit growth of 19.8% receives 3 points and 3rd position as well.
- Axis Bank with negative profit growth of -4.3% got the least marks and last position as well.
6) Sales & Net Profit Growth 3 Years CAGR:
Top-5 Private Banks- Sales & Net Profit Growth 3 Years CAGR
- In the context of Sales Growth of Top-5 Private Banks based on 3 years CAGR, IndusInd Bank has grabbed the first position with 26% sales growth.
- Next to IndusInd bank are Kotak Mahindra Bank, HDFC Bank, ICICI Bank, and AxisBank with Sales growth of 15%, 14.6%, 12.9%, and 11.6% respectively.
- Talking about the profit growth of Top-5 Private Banks based on 3 years CAGR, IndusInd Bank has registered the lowest Profit Growth of 15.5% in the last 3 Years and hence ranked last.
- Here, the profit growth of Axis Bank is magnificent. It has recorded profit growth of stellar 187.9% in the last 3 years on a CAGR basis. This happened due to the following reasons:
i) Dampened PAT in FY18 due to Net Loss of Rs.2,189 Cr in Q4 FY18 on a steep rise in provisioning at Rs.7,180 Cr up 155% QoQ
ii) Strong Erosion in Asset Quality in Q4 FY18 vs Q3 FY18 :
iii) Gross NPA was at 6.77% from 5.28% in Q3 FY18
- In the same period, ICICI has reported a profit growth of 33.7% and obtained a second position.
7) Net Interest Income as a % of Operating Income:
Top-5 Private Banks- Net Interest Income as a % of Operating Income
- It reflects the earning of the bank from its core operations. Net Interest Income refers to the difference between the Interest Earned and Interest Expenditure.
- The more the Net Interest Income for a bank, the better it is for a bank and vice versa.
- ICICI Bank with the highest Net Interest Income as a % of Operating Income of 72.7% has been awarded 5 points and first rank.
- HDFC Bank with 70.5% NII as a % of Operating Income receives the second position.
- The lowest marks and last position is scored by IndusInd Bank with 66.6% NII as a % of Operating Income.
8) Retail Loan Book %:
Top-5 Private Banks- Retail Loan Book %
- Higher Retail Loan Book % of the bank shows how much the bank is Retail Oriented.
- ICICI Bank is in the number one position with the highest retail loan book of 66% among all other players.
- After ICICI Bank, Kotak Mahindra Bank and Axis Bank have the highest share of the retail loan in their loan book of 63.2% and 55% respectively, and hence they are ranked and scored accordingly.
- HDFC Bank has the lowest retail loan of 40% and hence is ranked last and given only 1 point.
9) CASA Ratio:
The Top-5 Private Sector Banks- CASA Ratio
- The bank should maintain a high level of CASA ratio for determining decent profitability.
- With the highest CASA Ratio of 60.6% among all other players on the list, Kotak Mahindra Bank wins the first position and here and takes away 5 points.
- IndusInd Bank and Axis Bank both have has the lowest CASA Ratio of 42% and hence ranked the lowest.
10) Gross NPA & Net NPA:
Top-5 Private Banks- Gross NPA & Net NPA
- ICICI Bank is having the highest Gross NPA of 4.82% among all other concerned players in the list and hence receives fifth rank and one point only.
- HDFC Bank has the lowest Gross NPA among all of only 1.35% and hence given full points.
- In terms of Net NPA, Axis Bank has the highest Net NPA of 1.08% and hence received 1 point and fifth position.
- While HDFC Bank with the lowest Net NPA of 0.40% tops the list.
11) Provision Coverage Ratio (PCR):
Top-5 Private Sector Banks- Provision Coverage Ratio
- ICICI Bank has made the highest provision of 80.1% in these 5 banks and therefore given 5 points and first rank.
- HDFC Bank (74%), IndusInd Bank (72%), and Axis Bank (70%) are ranked second, third, and fourth respectively.
- Whereas Kotak Mahindra Bank has the lowest Provision Coverage Ratio of 67% and hence given 1 point and fifth rank.
12) Net Interest Margin:
Top-5 Private Sector Banks- Net Interest Margin (%)
- In this context, Kotak Mahindra Bank overperforms other banks and tops the list with the highest Net Interest Margin of 4.45% among these banks.
- Axis Bank has the lowest Net Interest Margin of 3.39% and hence receives only one point and last rank.
13) Cost to Income Ratio:
Top-5 Private Sector Banks- Cost to Income Ratio
- Overall, Cost to Income can be considered as a performance ratio that presents the cost incurred for generating income.
- The lower the Cost to Income ratio, the better it is and vice versa.
- HDFC Bank has reported the lowest Cost to Income Ratio of 37% and hence ranked first.
- Axis Bank has the highest Cost to Income Ratio of 49.3% and therefore ranked and scored accordingly.
14) Capital Adequacy Ratio:
Top-5 Private Sector Banks- Capital Adequacy Ratio
- Ideally, the Capital Adequacy Ratio of the bank should be a big number.
- Here, Kotak Mahindra Bank outscores others by reporting the highest Capital Adequacy Ratio of 23.1% among all others and grabs the first position as well as full points.
- ICICI Bank with a Capital Adequacy Ratio of 19.5% is given second rank and 4 points.
- IndusInd Bank has the lowest Capital Adequacy Ratio of 17.4% and is hence marked and ranked accordingly.
15) Liquidity Coverage Ratio:
Top-5 Private Sector Banks- Liquidity Coverage Ratio
- LCR is the proportion of High-Quality Liquid Assets (HQLA) set aside to meet short-term obligations over the next 30 calendar days
- LCR can be calculated as = Bank’s High-Quality Liquid Assets / Total Net Cash outflow of the bank, over a 30-day stress period)
- Financial Institutions with Liquidity Coverage Ration of more than 100% are considered to be safe and comfortable.
- The higher the Liquidity Coverage Ratio, the better it is and vice versa.
- With the highest LCR of 153%, Kotak Mahindra Bank wins the first position, while Axis Bank has the lowest LCR and hence ranks the last.
- Kotak Bank is the most conservative bank. As it has HQLA worth 1.53 times the Total Net Cash Outflows over the next 30-days stress period
- HDFC & Kotak Banks’ LCR declined QoQ due to strategized growth-oriented approach
16) Franchise- Number of Branches:
Top-5 Private Sector Banks- Franchise- Number of Branches
- HDFC Bank has the largest network of branches of 5,686 branches in India as of September 2021 and hence tops the list with full points.
- Next to HDFC Bank is ICICI Bank with 5,277 branches, 4 points, and a second position given.
- The third and fourth positions are acquired by Axis Bank and IndusInd Bank with 4,679 branches and 2,015 branches respectively.
- Kotak Mahindra Bank has the lowest network of a branch of only 1,622, hence ranked last.
17) Final Score: