Camel Ratio

Analysis
A Comparative Study of 3 Banks

Saurabh Thadani
102

10FN-

Srikanth Konduri
109

10FN-

Tushar Gupta
115

10FN-

Vikram R
118

10FN-

Table of Contents
Introduction................................................................................................................ 3
Axis Bank.................................................................................................................... 3
HDFC Bank................................................................................................................. 4
Punjab National Bank................................................................................................. 5
Ratio Analysis............................................................................................................. 6
Capital to Risk Weighted Assets Ratio.....................................................................6
Tier 1 Capital Ratio.................................................................................................. 6
Return on Assets..................................................................................................... 7
Return on Equity...................................................................................................... 8
Interest Income to Total Assets Ratio......................................................................8
Net Interest Income to Total Assets Ratio................................................................9
Interest Expense Ratio.......................................................................................... 10
Net NPAs to Net Advances..................................................................................... 11
Liquid Assets to Total Assets.................................................................................11
Lending to Sensitive Sectors................................................................................. 12
Business per Employee......................................................................................... 13
Profit per Employee............................................................................................... 14
Comparative Snapshot............................................................................................. 14
Conclusion................................................................................................................ 15

Introduction
The acronym "CAMELS" refers to the six components of a bank's condition that are
assessed.
1.
2.
3.
4.
5.
6.

Capital adequacy
Asset quality
Management
Earnings
Liquidity
Sensitivity to market risk

Ratings are assigned for each component in addition to the overall rating of a
bank's financial condition. The ratings are assigned on a scale from 1 to 5. Banks
with ratings of 1 or 2 are considered to present few, if any, supervisory concerns,
while banks with ratings of 3, 4, or 5 present moderate to extreme degrees of
supervisory concern. The following three banks from the Indian banking industry
were chosen for the Camels Ratio analysis.

Axis Bank
HDFC Bank
Punjab National Bank

Axis Bank
Axis Bank was the first of the new private banks to have begun operations in 1994,
after the Government of India allowed new private banks to be established. The
Bank was promoted jointly by the Administrator of the specified undertaking of the
Unit Trust of India (UTI - I), Life Insurance Corporation of India (LIC) and General
Insurance Corporation of India (GIC) and other four PSU insurance companies, i.e.
National Insurance Company Ltd., The New India Assurance Company Ltd., The
Oriental Insurance Company Ltd. and United India Insurance Company Ltd.
The Bank as on 30th June, 2011 is capitalized to the extent of Rs. 411.88 crore with
the public holding (other than promoters and GDRs) at 52.87%.
The Bank's Registered Office is at Ahmedabad and its Central Office is located at
Mumbai. The Bank has a very wide network of more than 1281 branches (including
169 Service Branches/CPCs as on 31st March, 2011). The Bank has a network of
over 6270 ATMs (as on 31st March, 2011) providing 24 hours a day banking
convenience to its customers. This is one of the largest ATM networks in the country.

The Bank has strengths in both retail and corporate banking and is committed to
adopting the best industry practices internationally in order to achieve excellence.

AXIS BANKS VISION 2015:

To be the preferred financial solutions provider excelling in customer delivery

through insight, empowered employees and smart use of technology

CORE VALUES:

Customer Centricity

Ethics

Transparency

Teamwork

Ownership

HDFC Bank
The Housing Development Finance Corporation Limited (HDFC) was amongst the
first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set
up a bank in the private sector, as part of the RBI's liberalization of the Indian
Banking Industry in 1994. The bank was incorporated in August 1994 in the name of
'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank
commenced operations as a Scheduled Commercial Bank in January 1995.
The Banks mission is to be a World Class Indian Bank, benchmarking itself against
international standards and best practices in terms of product offerings, technology,
service levels, risk management and audit and compliance. The objective is to
continue building sound customer franchises across distinct businesses so as to be
a preferred provider of banking services for its target retail and wholesale customer
segments, and to achieve a healthy growth in profitability, consistent with the
Banks risk appetite. HDFC Bank is committed to do this while ensuring the highest
levels of ethical standards, professional integrity, corporate governance and
regulatory compliance.

THE BANKS BUSINESS STRATEGY EMPHASIZES THE FOLLOWING:

 Develop innovative products and services that attract its targeted customers and
address inefficiencies in the Indian financial sector;
Increase its market share in Indias expanding banking and financial services
industry by following a disciplined growth strategy focusing on balancing quality
and volume growth while delivering high quality customer service;
Leverage its technology platform and open scale-able systems to deliver more
products to more customers and to control operating costs;
Maintain high standards for asset quality through disciplined credit risk
management;
Continue to develop products and services that reduce its cost of funds; and
Focus on healthy earnings growth with low volatility.

Punjab National Bank

The Bank opened for business on 12 April, 1895 in Lahore, Pakistan. The first branch
outside Lahore was opened in Rawalpindi in 1900. The Bank made slow, but steady
progress in the first decade of its existence. The five years from 1941 to 1946 were
ones of unprecedented growth. From a modest base of 71, the number of branches
increased to 278. Deposits grew from Rs. 10 crore to Rs. 62 crore. On March 31,
1947, the Bank officials decided to leave Lahore and transfer the registered office of
the Bank to Delhi and permission for transfer was obtained from the Lahore High
Court on June 20, 1947.
In 1951, the Bank took over the assets and liabilities of Bharat Bank Ltd. and
became the second largest bank in the private sector. In 1962, it amalgamated the
Indo-Commercial Bank with it. From its dwindled deposits of Rs. 43 crore in 1949 it
rose to cross the Rs. 355 crore mark by the July 1969. Its number of offices had
increased to 569 and advances from Rs. 19 crore in 1949 to Rs. 243 crore by July
1969 when it was nationalized.
Since its humble beginning in 1895 with the distinction of being the first Swadeshi
Bank to have been started with Indian capital, PNB has achieved significant growth
in business which at the end of March 2011 amounted to Rs 5,55,005 crore. PNB is
ranked as the 2nd largest bank in the country after SBI in terms of branch network,
business and many other parameters.
With over 60 million satisfied customers and more than 5100 offices including 5
overseas branches, PNB has continued to retain its leadership position amongst the
nationalized banks. The bank enjoys strong fundamentals, large franchise value and
good brand image.

VISION:
"To be a Leading Global Bank with Pan India footprints and become a household
brand in the Indo-Gangetic Plains providing entire range of financial products and
services under one roof"
MISSION:
"Banking for the unbanked"

Ratio Analysis
Capital to Risk Weighted Assets Ratio
The ratio is defined by
CRAR

Tier I Capital + Tier II Capital

100

Risk Weighted Assets

Ratio
Capital Adequacy
Ratio

Axis Bank
2010-11 2009-10
12.65%
15.80%

HDFC
2010-11 2009-10
16.22%
17.44%

PNB
2010-11 2009-10
12.42%
14.16%

Capital Adequacy Ratio

20.00%
Capital Adequacy Ratio

15.00%
10.00%
5.00%
0.00%
Axis

HDFC

PNB

The Banks have sufficient capital adequacy are well placed to handle any pressure
on solvency in case of a financial downturn. Among the 3 banks, HDFC has a
substantially higher ratio. It can be observed that the ratio has decreased for all the
3 banks in the current financial year. The drop is somewhat significant for Axis
Bank.

Tier 1 Capital Ratio

CRAR gives the capital adequacy of a bank by taking into consideration both tier 1
capital and tier 2 capital. Tier 1 capital ratio gives the capital adequacy of a bank by
only considering the tier 1 capital of a bank.

Ratio
Tier 1 Capital Ratio

Axis Bank
2010-11 2009-10
9.41%
11.18%

HDFC
2010-11 2009-10
12.23% 13.26%

PNB
2010-11 2009-10
8.44%
9.11%

Tier 1 Capital Ratio

14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%

Tier 1 Capital Ratio

Axis

HDFC

PNB

It can be observed that HDFC has a higher capital adequacy even in this case. PNB
has the least Tier 1 CAR.

Return on Assets
Return on Assets is an indicator of how profitable a company is relative to its total assets. ROA gives an
idea as to how efficient management is at using its assets to generate earnings. It is given by the formula

Ratio
Return on Assets

Axis Bank
2010-11 2009-10
1.40%
1.39%

HDFC
2010-11 2009-10
1.42%
1.32%

PNB
2010-11 2009-10
1.32%
1.17%

Return on Assets
1.45%
1.40%

Return on Assets

1.35%
1.30%
1.25%
Axis

HDFC

PNB

All the 3 banks more or less utilize the assets to the same extent. Though PNB was
lagging behind in asset utilization in 2010, now it is almost on par with the other 2
banks.

Return on Equity
The 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

Ratio
Return on Equity

Axis Bank
2010-11 2009-10
17.32% 17.61%

HDFC
2010-11 2009-10
17.01% 16.68%

PNB
2010-11 2009-10
21.84% 22.57%

Return on Equity
25.00%
20.00%
Return on Equity

15.00%
10.00%
5.00%
0.00%
Axis

HDFC

PNB

PNB has generated the highest returns for the shareholders. The return on equity generated by PNB is
substantially higher than the returns of other 2 banks.

Interest Income to Total Assets Ratio

This ratio depicts the asset utilization. The assets of the banks consist of the loans
and advances and the investments portfolio. The interest income is the income
which is earned on these assets.
Interest Income to Total Assets =

Interest Income

Total Assets

Ratio
Interest Income/TA

Axis Bank
2010-11 2009-10
6.24%
6.44%

HDFC
2010-11 2009-10
7.12%
7.07%

PNB
2010-11 2009-10
7.13%
7.22%

Interest Income/TA
7.50%
7.00%

Interest Income/TA

6.50%
6.00%
5.50%
Axis

HDFC

PNB

The ratios of all the 3 banks are in the same range. Axis Banks values are
marginally lower compared to the other 2 banks

Net Interest Income to Total Assets Ratio

This ratio signifies the percentage of net interest income earned on total assets
.This ratio is significant as net interest income is the largest source of income for the
banks in India.
Net Interest Income/TA

Interest income Interest Expense

Total Assets

Ratio
NII/TA

Axis Bank
2010-11 2009-10
2.70%
2.77%

HDFC
2010-11 2009-10
3.57%
3.73%

PNB
2010-11 2009-10
3.12%
2.86%

NII/TA
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%

NII/TA

Axis

HDFC

PNB

HDFC bank has a significantly higher ratio. Axis bank is not utilizing the assets to generate the net
interest income as efficiently as the other two peers.

Interest Expense Ratio

The ratio of interest expense to income would reflect the efficiency of raising
resources and their deployment.
Interest Expense Ratio

Interest Expense
Interest Income

Ratio
Interest Expense
Ratio

Axis Bank
2010-11 2009-10
56.69%
57%

HDFC
2010-11 2009-10
47.54% 49.47%

PNB
2010-11 2009-10
56.25% 50.42%

Interest Expense Ratio

60.00%
55.00%

Interest Expense Ratio

50.00%
45.00%
40.00%
Axis

HDFC

PNB

Even this ratio suggests that HDFC is deploying the resources efficiently as it has
the least Interest Expense Ratio.

Net NPAs to Net Advances

The level of NPAs is recognized as a critical indicator for assessing banks' credit risk,
asset quality and efficiency in allocation of resources to productive sectors.
Net NPAs to Net Advances

Net NPAs
Net Advances

Ratio
Net NPA/Net
Advances

Axis Bank
2010-11 2009-10
0.29
0.40

HDFC
2010-11 2009-10
0.19
0.31

PNB
2010-11 2009-10
0.85
0.53

Net NPA/Net Advances

1
0.8

Net NPA/Net
Advances

0.6
0.4
0.2
0
Axis

HDFC

PNB

PNB has a high ratio of NPAs as compared to net advances. This undermines the
credit risk of the bank. HDFC has the best ratio among the 3 banks.

Liquid Assets to Total Assets

This ratio gives tells us about the companys ability to meet short term liquidity
requirements.

Liquid Assets

Total Assets

Ratio
Liquid Assets/Total
Assets

Axis Bank
2010-11 2009-10
8.82%
8.42%

HDFC
2010-11 2009-10
10.7%
13.46%

PNB
2010-11 2009-10
7.85%
7.91%

Liquid Assets/Total Assets

12.00%
10.00%

Liquid Assets/Total
Assets

8.00%
6.00%
4.00%
2.00%
0.00%
Axis

HDFC

PNB

HDFC has a better liquidity position compared to its peers. However the liquidity
position has seen a substantial downfall in the recent year.

Lending to Sensitive Sectors

The sectors considered as sensitive are Capital Market Sector, Real Estate Sector
and Commodities Sector. The lesser the exposure to these sector the better it is for
the banks.
=

Total Lending to the 3 Sectors

Total Advances

Ratio
Lending to Sensitive
Sectors

Axis Bank
2010-11
30.15%

HDFC
2010-11
22.57%

PNB
2010-11
19.00%

Lending to Sensitive Sectors

35.00%
30.00%
Lending to Sensitive
Sectors

25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
Axis

HDFC

PNB

Axis Bank has a huge exposure to sensitive sectors. HDFC and PNB are relatively
much better compared to Axis. The exposure to sensitive sectors is under control for
all three banks.

Business per Employee

This ratio signifies the employee productivity.
BPE

Advances + Deposits
Number of employees

Ratio
BPE
In crores

Axis Bank
2010-11 2009-10
13.66
11.11

HDFC
2010-11 2009-10
6.53
5.9

PNB
2010-11 2009-10
10.18
8.08

Business Per Employee

15
Business Per Employee

10
5
0
Axis

HDFC

PNB

Employee productivity is the highest in Axis Bank. HDFC banks lags behind the
other 2 banks substantially in this factor.

Profit per Employee

It is an indicator of the efficiency of employees of a bank .

PPE

Net Income
Number of Employees

Ratio
PPE
In Crores

Axis Bank
2010-11 2009-10
0.14
0.12

HDFC
2010-11 2009-10
0.07
0.06

PNB
2010-11 2009-10
0.08
0.07

Profit Per Employee

0.14
0.12
0.1

Profit Per Employee

0.08
0.06
0.04
0.02
0
Axis

HDFC

PNB

Efficiency of employees of HDFC and PNB is very similar. Axis bank has more
efficient employees compared to its peers

Comparative Snapshot
The following table gives a relative snapshot of the three banks under
consideration. A rank of 1 indicates the best value amongst the three and 3
indicates the worst. HDFC fares well across maximum number of factors.

Ratio
Capital Adequacy Ratio
Tier 1 Capital Ratio
Return on Assets
Return on Equity
Interest Income/TA
NII/TA
Interest Expense Ratio
Net NPAs/Net Advances
Liquid Assets/TA
Sensitive Sector Lending
Business Per Employee
Profit Per Employee

Axis
2
2
2
2
3
3
3
2
2
3
1
1

HDFC
1
1
1
3
2
1
1
1
1
2
3
3

PNB
3
3
3
1
1
2
2
3
3
1
2
2

Conclusion
The 3 banks considered for the analysis are financially sound and the risk
associated with them is very minimal. HDFC bank has proved to be better compared
to Axis Bank and Punjab National Bank on most of the parameters considered. But
Axis Bank utilizes its employees in a far more efficient manner compared to HDFC.