HDFC VS ICICI BANK

Banking
Performance overview
7/21/2018
 1.Brand Value

Ans-ICICI Bank is India's largest private sector bank and has huge distribution network of 4867
branches and 14367 ATMs across India. Thus it tops among private banks. Recently there has been
negative perception about the bank, which happened to be because of Videocon case. In which CEO
had not adhered to provisions relating to "Code of Conduct" of the bank and legal and regulatory
provisions relating to "conflict of interest" over a period of time, as also alleging quid pro quo in the
course of her work in dealing with certain customers/borrowers of the Bank."

HDFC Bank has been ranked India’s Most Valuable Brand in 2017 BrandZ survey Top 50 Most
Valuable Indian Brands This year, HDFC Bank’s brand value has grown to $ 17.9 billion from $ 14.4
billion last year. The bank’s brand value has almost doubled from $ 9.4 billion in 2014 to $ 17.9
billion in 2017.

2.Cost of Funds –
International
rating
Moody's HDFC ICICI
FC - Long Term Baa3 Baa3
FC - Short Term P3 P3
S&P
FC - Long Term BBB- BBB-
FC - Short Term A-3 A-3
Domestic Rating
CARE
Rupee - Long Term CARE AAA CARE AAA
Rupee - Fixed Deposits CARE AAA CARE AAA
Rupee - Short Term CARE A1+ CARE A1+
CRISIL Longterm CRISIL AAA CRISIL AAA

Cost of fund structure of both banks are similar which is mainly due to their creditworthiness
rating.
For both ICICI and HDFC

Tenor MCLR
Overnight 8.05
1 month 8.05
3 month 8.1
6 month 8.25

MCLR= Marginal cost of fund based lending rate.

For saving A/c interest rates-3.5% for end of day account balance of below ₹50 Lacs
4% for end of day account balance of ₹ 50 Lacs & above.
3.Analyst view on the bank’s future and share price

Relative performance of 5 years CAGR of total income of HDFC and ICICI are 18% and 11%
respectively. Whereas bottom line of both these companies have been 20% and 4% respectively.
This analysis was based on 2017. Recently ICICI PAT has been declined by 32% yoy. There has been
huge decline in stock prices of ICICI bank due to recent negative publicity formed by Videocon case.
ICICI has topped the list of NPA rise by 514% jump to 54063.Thus mostly there will be a sell
recommendation for ICICI.

HDFC has declared results on 21/07/2018 which showed 18% yoy profit. It recorded a profit of 4600
crore. Current NPA rise has been less compared to peers. Thus we recommend buy for HDFC.

Long term horizon for both banks will be positive as ICICI has government support and huge
customer base.Though current scenario with the rising NPA’s leads ICICI in a risky proposition. We
need to see the impact of externalities on there operation. HDFC has been consistently doing well
over the years proves positive for investors.

HDFC Bank has the highest NIM among all the banks in the world. This is due to strong asset quality
and low cost of capital and higher interest rates on loans. ICICI has a decent NIM compared to other
banks. Both the banks enjoy a stronger NIM compared to Public sector banks.
Later if we compare ROE, we again get a picture, why HDFC is better than ICICI Bank which is 23.42%
compare to 10.03%.(2017)

4.ICICI bank(2017)
 Overall loan has grown by 22.4%
 Share of retail loan has increased to 54%
 It posted an healthy growth for advance i.e 15% CAGR
 ICICI’s PAT has declined to 32% yoy 1650 crore.
 HDFC bank (2017)
Overall loan growth of HDFC has been 18%
HDFC has grown it retail book by 27% CAGR
HDFC PAT has increased by 18%

This leads us to a conclusion that even in adverse circumstances HDFC has created a pillow for
themselves to survive.
 5. How are NPA levels? How is it addressed?
Banking sector is poised with high NPAs, continued high level of provisioning and scams which
has impacted the profitability of the sector. As a result, we expect another year of weak
profitability for the fiscal year 2019. The gross NPAs have touched 10.50% for public sector
banks and raising concerns about the asset quality of these banks. The bank recapitalisation plan
by Government of India, where the Government has approved recap bonds of Rs.80,000 crores
for public sector banks, is expected to push the credit growth in the country to 15% (as per the
IBEF Report 2018). The Insolvency and Bankruptcy code, along with National Company Law
Tribunal (NCLT) timely processes, will help to reduce the NPAs and further strengthen the
banking sector in the long term.
Bank usually in order to remove NPA from there balance sheet sell their sub standard loans and
NPA to Asset reconstruction companies. They pay a margin of 15% which is mandated by RBI iin
2015. And rest issue securities receipts to the bank.
Asset reconstruction companies are usually formed because they are specialized in that
particular operation. Whereas banks core business is deposit and lending. In future Bank might
plan to take loan cautiously and timely sell NPA’s by better margin.

6. Quality of Credit Portfolio

HDFC ICICI
Agriculture & Allied activities 13% 6%
Advances to industries 27% 40%
eligible
Services 32% 22%
Personal loans 28% 31%

Advances to loan include infrastructure. Here we can comment that India’s infrastructure sector
has been underperforming due to delay in construction. This can be seen by Delhi-Mumbai
Industrial Corridor or Mumbai International Airport. Past cases involving DLF and many other has
proved that, if %loan to infra sector is high, then recovery might turn difficult in future. Further
recent news of bad performance of infrastructure has further triggered this sector. Thus by
looking at % advance to industries of ICICI makes us believe that loan recovery might be
cumbersome in future.
Personal loan structure is moderately similar. HDFC focuses more on agriculture. Recent decision
to raise MSP of khareef crop turned positive for agriculture. This also might have positively
impacted on HDFC.
 HDFC ICICI
O/S Gross
Priority certificate advance NPA NPA% O/S advance Gross NPA NPA%
Agriculture & Allied activities 63,186.16 1,279.98 2.03 2,92,270.10 9,202.60 3.15
Advances to industries
eligible 26,209.92 480.78 1.83 1,49,124.40 4,900.50 3.29
Services 52,361.67 678.46 1.30 1,36,508.00 2,662.80 1.95
Personal loans 22,350.27 14.43 0.06 3,59,514.10 4,271.80 1.19

No Priority certificate
Agriculture & Allied activities 6,905.78 74.89 1.08
Advances to industries
eligible 1,27,366.08 1,243.07 0.98 16,39,731.60 1,68,177.60 10.26
Services 1,27,937.51 1,037.87 0.81 8,72,035.50 62,393.30 7.15
Personal loans 1,32,249.25 1,016.40 0.77 10,52,641.90 10,603.80 1.01

ICICI has a major scale compared to HDFC. NPA as a percentage has been more throughout for
ICICI. Thus there has been deterioration in quality of loan.

7. Credit Rating of the Bank and comments –

International
rating
Moody's HDFC ICICI
FC - Long Term Baa3 Baa3
FC - Short Term P3 P3
S&P
FC - Long Term BBB- BBB-
FC - Short Term A-3 A-3
Domestic Rating
CARE
Rupee - Long Term CARE AAA CARE AAA
Rupee - Fixed Deposits CARE AAA CARE AAA
Rupee - Short Term CARE A1+ CARE A1+
CRISIL Longterm CRISIL AAA CRISIL AAA
Recently both banks credit rating has been reduced. Indian banks credit worthiness has been highly
correlated with governments strength. The extent to which their businesses depend on the domestic
macroeconomic and financial environment; the degree of reliance on market-based funding; and
their direct or indirect exposures to domestic sovereign debt, compared with their capital bases.

While forex reserve is continuing to fall from $734.5 million to $405.07 million. Both these banks
have low degree of cross border diversification. These banks can be insulated with government debt
crisis. Both these bank have significant exposure to government securities which is 226 percent of
tier 1 at HDFC Bank and 143 percent of tier 1 at ICICI

8. Adverse report by RBI on behaviour of bank in terms of regulatory requirement and

corporate governance –

The major case known to all, which is highlighted by everyone these days is Videocon loan. Stock
markets regulator Securities and Exchange Board of India (SebI) issued a notice to ICICI Bank, and its
managing director and CEO Chanda Kochhar in connection with the Rs. 3,250-crore Videocon loan
case.This was because of ICICI bank has been not adhering to stock market disclosure requirements.
Media reports had claimed in March that Chanda Kochhar had approved a loan in 2012 to Venugopal
Dhoot's Videocon Group in return for a favour received by NuPower Renewables, an entity in which
Mr. Deepak Kochha (Chanda kochar’s husband) has alleged economic interests.

RBI has repeated probed against ICICI RBI began its probe into at least 26 of the 31 loan accounts
named in the whistleblower’s complaints initially, including Anil Printers Ltd, Karuturi. Overseas Ltd,
Venkatesh Logistics Ltd and Orchid Hotels Pune Pvt. Ltd. However, following ICICI Bank’s response to
its queries regarding the loan given to Anil Printers, RBI on 11 April decided to expand its probe to 55
of ICICI Bank’s borrowers

9. Performance of Overseas bank –HDFC is located at 3 locations outside India. These are at
Bahrain, Hong Kong and Dubai International Finance Centre (DIFC) in Dubai. DIFC is focused
towards high networth individuals.The combined balance sheet size of overseas branches
was around US $ 4 billion. Total income of overseas branch constituted 1.2% of the Banks
total income.

ICICI bank has active international operations. It has Canada and the United Kingdom; branches in
Bahrain, China, Dubai International Finance Centre, Hong Kong, Qatar, Singapore, South Africa, Sri
Lanka, and the United States; and representative offices in Bangladesh, Indonesia, Malaysia and the
United Arab Emirates. Banks wholly owned subsidiary ICICI Bank UK plc has seven branches in United
kingdom, thus there are some adverse effect faced by ICICI due to Brexit.

There has been an decline in overseas loan by 20%.As well as there rating in international business
has been low due to same reason.

10. Performance of Business per branch, profit per branch –

HDFC bank-There has been 18.3% improvement in performance per branch(PPB). Previous years PPB
was 30.85 million which rose to a substantial level of 36.5 million.
 11. Comments on Management quality and quality controls –

HDFC has won most valuable company in the world. This has been due to Mr.Aditya Puri’s constant
efforts. With constant better performance as well as having renouned titles like CNN-IBN Indian of
the Year in Business and banker of the year award has made us believe that HDFC has a great
leader.Thus we herenby conclude that HDFC has good management quality controls.

On the other hand when we see ICICI bank’s deteriorating image. We are left undecided about the
future of ICICI. This also is evident by the employee turnover which fell by 4400 in the current fiscal
year. This also makes there existing employees work beyond there limit. Thus we hereby comment
that ICICI needs to work on there management quality for better future.

https://www.firstpost.com/business/moodys-revises-ratings-of-icici-axis-and-hdfc-bank-
308329.html