GROUP 7

Ram Sandeep Peddada (P41100)

Ruchi Sharma (P41103)
Sayeed Ahmad (P41109)
Anamika Singh (P41137)
Vishnu (P41248)

Valuation of Banks
CBRM Project

Submitted to: Prof. Rakesh Arrawatia

 2

TABLE OF CONTENTS
Acknowledgement _____________________________________________________ 3
INTRODUCTION ________________________________________________ 5
FINANCIAL RATIOS ____________________________________________________________ 6
Provisioning Coverage Ratio ________________________________________________________ 6
Capital Adequacy Ratio ____________________________________________________________ 6
CASA Ratio ____________________________________________________________________ 6
Credit-Deposit Ratio ______________________________________________________________ 6
Financial Leverage Ratio ___________________________________________________________ 6
OTHER KEY COMPONENTS ______________________________________________________ 7
Net Interest Margin _______________________________________________________________ 7
Return on Assets _________________________________________________________________ 7
Return on Equity _________________________________________________________________ 7

BANKS CONSIDERED FOR VALUATION ________________________________ 8

HDFC Bank ____________________________________________________________________ 8
HDFC Bank Analysis _____________________________________________________________ 8
ICICI Bank_____________________________________________________________________ 16
ICICI Bank Analysis _____________________________________________________________ 16
Yes Bank ______________________________________________________________________ 21
Yes Bank Analysis _______________________________________________________________ 21

COMPARATIVE ANALYSIS OF 3 BANKS_____________________________ 31

Comparision of HDFC, ICICI & YES Bank ___________________________________________ 31

Conclusion __________________________________________________________ 37
References __________________________________________________________ 38
 3

ACKNOWLEDGEMENT
This work would not have been completed without the support, dedication, motivation, and efforts of
many people. We would like to express our gratitude to all those who helped us in achieving our goal.
We were merely learners in this endeavor.

We would like to take the opportunity to thank and express our deep sense of gratitude to Professor
Rakesh Arrawatia for his constant guidance at all stages of our study, his advices, constructive
suggestions, positive and supportive attitude and continuous encouragement, without which it would
have not been possible to complete the project

Finally, we would like to thanks every individual who directly or indirectly helped us to develop an
insight into this project and how we can help to improve it.
4
 5

INTRODUCTION
The analytical process of evaluating the present (or predicted) worth of an asset or a firm is known as
valuation. Thus, valuation of banks is a unique activity as banks are strictly and heavily regulated more
so than corporations. Banks, in particular, are usually obliged to maintain regulatory capital adequacy
ratios based on their book value of equity. More importantly, the accounting treatment of banks and their
operations might differ significantly from that of non-financial corporations. As a result, for financial
businesses, book values are frequently more meaningful indicators of worth than for non-financial
enterprises.

Accounting procedures are critical in bank valuations for following reason.

• Banks' assets are generally in the form of financial instruments with clearly-defined cash flows
(loans, bonds, and other securities, as well as derivatives). The bulk of bank assets (loans,
investments, and other assets) are reported at amortized cost. The book values are thus, much
closer to market values in case of banks.
• It is normal for bank assets to be exposed to credit and other risks that might indicate the
possibility for substantial, perhaps sudden losses, with loss provisions being made to report
projected credit losses as an allowance, lowering the value of the loan portfolio and reported
earnings.

Combining book- and market-based valuation measures might therefore give important information for
banks and other financial businesses. Changing economic conditions are thus likely to have a
substantial impact on banking ratios, primarily through their impact on intangibles on both the asset
and liability sides of the balance sheet.

For this purpose, we have analyzed three private banks to generated

their value via comparison of their ratios and other key components
required for valuation.
 6

FINANCIAL RATIOS

Provisioning Coverage Ratio

• A Provisioning Coverage Ratio or PCR is the percentage of funds set aside by a bank to cover bad
loan losses. A high PCR might help banks protect themselves against losses if NPAs begin to increase
rapidly.

• Provision Coverage Ratio = Total provisions / Gross NPAs.

Capital Adequacy Ratio

• The capital adequacy ratio (CAR) expresses a bank's available capital in comparison to its credit
exposures. Banking regulators enforce the CAR to guarantee that banks do not take on excessive
leverage and go insolvent.
• A high CAR implies that the bank has sufficient capital to deal with unexpected losses.
• CAR = (Tier I Capital + Tier II Capital)/Risk Weighted Assets

CASA (Current Account Savings Account) Ratio

• The CASA Ratio, is the ratio of deposits in current and savings accounts to total bank deposits.
• Low CD ratio means poor credit growth as compared to deposit growth and vice versa.

Credit-Deposit (CD) Ratio

• The CD ratio, denotes the value of loans given as a share of deposits held in a bank thus, assessing a
bank’s liquidity.
• A high CD ratio means strong demand for credit in an environment of relatively slower deposit
growth whereas, low CD ratio indicates relatively poor credit growth compared with deposit growth.
• CD Ratio = Total Loans / Total Deposits

Financial Leverage Ratio

• Financial Leverage Ratio indicates financial metrics to analyze a company's ability to fulfill its
financial obligations. Equity multiplier as a leverage ratio act as a risk indicator that measures the
portion of a company's assets that is financed by stockholder's equity rather than by debt.
• Equity Multiplier = Total Assets/Total Equity
 7

OTHER KEY COMPONENTS

Net Interest Margin (NIM)

• Net interest margin compares the net interest revenue generated from credit products such as loans
and mortgages to the outgoing interest paid to holders of savings accounts and certificates of deposit
(CDs). It supports investments in bank’s via its interest income versus their interest expenses.
• It’s a profitability indicator that predicts whether a bank will thrive in the long run. A positive NIM
suggests that an entity operates profitably, while negative one implies investment inefficiency.

Return on Assets

• Return on assets (ROA) is an indicator of the profitability of a firm relative to its total assets.
• It gives an idea of a firms’ efficiency in using its assets to generate earnings.
• ROA = Net Income / Total Assets

Return on Equity

• Return on equity (ROE) is an indicator firm's financial performance, given as: Net Income /
Shareholders' Equity.
• It gives an idea of a firms’ efficiency in generating profits and is considered satisfactory depending
upon industry standards.
 8

BANKS CONSIDERED FOR VALUATION

HDFC
The Housing Development Finance Corporation Limited, or HDFC, was one of the first financial
institutions in India to acquire Reserve Bank of India (RBI) "in principle" clearance to open a private
sector bank. This was done in 1994 as part of the RBI's strategy of liberalising the Indian banking system.

HDFC Bank was founded in August 1994 under the name HDFC Bank Limited and has its
headquarters in Mumbai, India. In January 1995, the bank began operations as a Scheduled
Commercial Bank.

The Bank had a nationwide distribution network of 5,653 branches and 16,291 ATMs in 2,917
cities/towns as of March 31, 2021.

HDFC Bank Analysis

Provisions and Contingencies

Provisions and Contingencies

350000
297796.688
300000
245985.239
250000
202547.3
200000
164749.045
150000 120689.285

100000

50000

0
2016-17 2017-18 2018-19 2019-20 2020-21

Figure: Provisions and contingencies

• 2020-21
Provisions and contingencies (excluding provision for taxes) increased by Rs. 245985.23 million in
FY 2019-20 to Rs. 297796.68 million in FY 2020-21 mainly due to increment in provision for non-
 9

performing investments, provision for non-performing advances and provision of standard assets as
compared to provisions made in FY20.

•
2019-20
Provisions and contingencies (excluding provision for taxes) increased by Rs. 20,254.73
million in FY 2018-19 to Rs. 245985.23 million in FY 2019-20 mainly due to increment in
provision for non-performing investments, provision for non-performing advances and provision of
standard assets as compared to provisions made in FY19.

• 2018-19

Provisions and contingencies (excluding provision for taxes) increased by Rs. 164749.045 million in FY
2017-18 to Rs. 20,254.73 million in FY 2018-19 mainly due to increment in provision for non-
performing investments, provision for non-performing advances and provision of standard assets as
compared to provisions made in FY18.

• 2017-18

Provisions and contingencies (excluding provision for taxes) increased by Rs. 120689.285 million of
provisions for non-performing investments, provision for non-performing advances and provision of
standard assets as compared to provisions made in FY17.

• 2016-17

Provisions and contingencies (excluding provision for taxes) increased by Rs. 96,544,349 million in FY
2015-16 to Rs. 120689.285 million in FY 2016-17 mainly due to increment in provision for non-
performing investments, provision for non-performing advances and provision of standard assets as
compared to provisions made in FY16.

NPA Ratios
 10

NPA Ratios
14000

12000 11615.77
11224.16
10000
8606.97
8000

6000 5885.66 5558.77

4000
3214.52
2601.02
2000 2051.76 1843.99
0 121.59
2016-17 2017-18 2018-19 2019-20 2020-21

Gross NPA value Net NPA value

Figure: NPA Ratios

Gross NPA

2020-21 1.32

2019-20 1.26

2018-19 1.36

2017-18 1.3

2016-17 1.05

0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6

Figure: Gross NPA

• 2020-21
Gross Non-Performing Assets (GNPA) were at 1.32 percent of Gross Advances, as against 1.26 percent
the preceding year.

• 2019-20
Gross Non-Performing Assets (GNPA) were at 1.26 percent of Gross Advances, as against 1.36 per cent
in the preceding year. Net NPA ratio stood at 0.36 per cent as against 0.39 percent in the previous year.
• 2018-19
 11

Gross Non-Performing Assets (GNPA) were at 1.36 per cent of Gross Advances, as against 1.30 per cent
the preceding year

• 2017-18
Gross Non-Performing Assets (GNPA) were at 1.3 per cent of Gross Advances, as against 1.05 per cent
the preceding year

• 2016-17
Gross Non-Performing Assets (GNPA) were at 1.05 per cent of Gross Advances and (0.06%) in non-
priority sector.

Net NPA

2020-21 0.4

2019-20 0.36

2018-19 0.39

2017-18 0.4

2016-17 0.3

0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45

Figure: Net NPA

• 2021-20
Net NPA ratio stood at 0.40 per cent as against 0.36 per cent in the previous year.

• 2019-20
Net NPA ratio stood at 0.36 per cent as against 0.39 per cent in the previous year.
In accordance with the RBI guidelines related to the COVID-19 Regulatory Package announced on
March 27, 2020 and April 17, your Bank granted a moratorium of three months on the payment of all
instalments and/or interest, as applicable, falling due between March 1, 2020 and May 31, 2020 to all
eligible borrowers classified as Standard, even if overdue, as on February 29, 2020. For all such accounts
where the moratorium is granted, the asset classification shall remain unchanged during the moratorium
 12

period. The Bank has made provisions above the RBI prescribed requirements against the potential
impact of the coronavirus pandemic (based on the information available at this point in time).

• 2018-19
Net NPA ratio stood at 0.4 per cent for both the years.
Profit Before Tax grew by 20.6 per cent to 32,199.6 crore. After providing for Income Tax of 11,121.5
crore, Net Profit increased by 20.5 percent to 21,078.1 crore from 17,486.8 crore. The Return on Average
Net Worth was 16 percent while the Basic Earnings per share was 78.6, up from 67.8.

• 2017-18
Net NPA ratio stood at 0.40 per cent as against 0.3 per cent in the previous year.

• 2016-17
Net NPA ratio stood at 0.30 percent.

CASA Ratio

CASA ratio
49
48 48
47
46 46.1
45
44
43.5
43
42.4 42.2
42
41
40
39
2016-17 2017-18 2018-19 2019-20 2020-21

Figure: CASA Ratio

• 2021-20
CASA Deposits accounted for 46.1 per cent of Total deposits. Advances stood at ` 1,132,837 crore an
increase of 14.0 per cent. Domestic Loan Portfolio of ` 1,111,510 crore grew by 14.1 per cent over March
31, 2020.
 13

• 2019-20
CASA Deposits accounted for 42.2 per cent of Total Deposits. Advances stood at ` 993,703 crore, an
increase of 21.3 per cent. Domestic loan portfolio of ` 974,161 crore grew by 21.4 per cent over March
31, 2019. Your Bank had a share of approximately 8.2 per cent in Total Domestic Deposits and 9.3 per
cent in Total Domestic Advances.

• 2018-19
CASA Deposits accounted for 42.4 per cent of Total Deposits. Advances stood at 819,401 crores,
representing an increase of 24.5 per cent. The Bank’s domestic loan portfolio of 802,329 crore grew by
24.6 per cent over March 31, 2018. The Bank had a share of approximately 7.2 per cent in Total Domestic
Deposits and 8.2 per cent in Total Domestic Advances.

• 2017-18
CASA Deposits accounted for 43.5 per cent of Total Deposits. Advances stood at 6,58,333 crores, an
increase of 18.7 per cent. The Bank’s domestic loan portfolio of ` 6,43,794 crore grew by 19.5 per cent
over March 31, 2017.

• 2016-17
At 3,34,487 crore it represents an increase of 7.9 per cent. CASA Deposits accounted for 48 per cent of
the Total Deposits as against 43 per cent earlier. Advances stood at 5,54,568 crores, an increase of 19.4
per cent. This was after considering repayments during the year of about US $2 billion of overseas loans
linked to FCNR deposits. The Bank’s domestic loan portfolio of 5,38,642 crore grew by 23.7 per cent
over March 31, 2016.

Capital Adequacy Ratio

 14

Capital Adequacy Ratio

250000

200000 198587.36

171414.44
150000 147022.76

100000 106004.9

81829.3

50000

11302.66 12535.47 12434.88 12843.41 13958.94

0 14.6 14.8 17.11 18.5 22.17
2016-17 2017-18 2018-19 2019-20 2020-21

Tier-I Capital Tier-II Capital Capital Adequecy ratio

Figure: Capital Adequacy Ratio

• 2021-20
The Bank’s capital to risk-weighted assets ratio (‘Capital Adequacy Ratio’) as at March 31, 2021 is
calculated in accordance with the RBI guidelines on Basel III capital regulations (‘Basel III’).
As per Basel III norms, HDFC BANK had a capital adequacy ratio of 22.17% as at the end of March 31,
2020. As per Basel-III, Tier-I capital ratio was 17.56% and the Tier-II capital ratio was 1.23% as at
March 31, 2020

• 2019-20
As on March 31, 2020, HDFC Bank’s total CAR, calculated as per Basel III capital regulations, stood at
18.5 per cent, well above the regulatory minimum requirement of 11.075 per cent including a Capital
Conservation Buffer of 1.875 per cent and an additional requirement of 0.20 per cent on account of the
Bank being identified as a Domestically Systemic Important Bank. Tier I Capital was at 17.2 per cent as
of March 31, 2020.

• 2018-19
As on March 31, 2019 your Bank’s total CAR, calculated in line with Basel III capital regulations, stood
at 17.1 per cent well above the regulatory minimum of 11.025 per cent including the Capital
 15

Conservation Buffer of 1.875 per cent. Of this, Tier I CAR was 15.8 per cent. The effect of the proposed
dividend has been taken into account in computing these ratios.

• 2017-18
As on March 31, 2018 your Bank’s total CAR, calculated in line with Basel III capital regulations, stood
at 14.8 per cent, well above the regulatory minimum of 10.875 per cent including the Capital
Conservation Buffer of 1.875 per cent. Of this, Tier I CAR was 13.2 per cent. The effect of the proposed
dividend has been taken into account in computing these ratios.

• 2016-17
HDFC Bank’s total Capital Adequacy Ratio (CAR) calculated in line with Basel III capital regulations
stood at 14.6 per cent as on March 31, 2017, well above the regulatory minimum of 10.25 per cent
including Capital Conservation Buffer of 1.25 per cent. Of this, Tier I CAR was 12.8 per cent. The effect
of the proposed dividend has been taken into account in computing these ratios.

Provisioning Coverage Ratio

Provisioning Coverage ratio

70.00
58.82
60.00

50.00

40.00
27.99
30.00 25.64
23.53 21.92
20.00

10.00

0.00
2016-17 2017-18 2018-19 2019-20 2020-21

Figure: Provisioning Coverage Ratio

 16

ICICI
ICICI Bank Limited is a financial services bank headquartered in Mumbai, Maharashtra. Through a
number of delivery channels and specialized subsidiaries, it provides a comprehensive range of banking
products and financial services to corporate and retail customers in the fields of investment banking, life,
non-life insurance, venture capital, and asset management. The bank has a presence in 17 countries and
has 5,275 branches and 15,589 ATMs across India.

ICICI Bank Analysis

Provisions and Contingencies

Provisions and contingencies

3,500,000.00 3,224,728.42
3,090,762.11 3,173,378.33
3,000,000.00
2,539,556.59
2,500,000.00

2,000,000.00 1,694,807.48

1,500,000.00

1,000,000.00

500,000.00

0.00
2016-17 2017-18 2018-19 2019-20 2020-21

Figure: Provisions & Contingencies

Provisions and contingencies (excluding provision for tax) increased by 15.4% in 2021 primarily due to
an increase in provision on non-performing and other assets and Covid-19 related provision, offset, in
part, by decrease in provision on investments. Provision on non-performing and other assets increased
fiscal 2021 primarily due to change in provisioning policy on non-performing assets to make it more
conservative and higher additions to NPAs in retail loans, offset, in part, by lower ageing provision on
loans classified as NPAs in earlier years.

Provisions and contingencies increased by 30.4% in 2017. This increase was primarily due to an increase
in provisions on non-performing assets. The Indian corporate sector has experienced several challenges
following a phase of significant expansion in investment in the infrastructure and industrial during fiscal
2010 and 2011. These challenges included delays in project implementation, issues in access to raw
 17

materials, low demand and global commodity price cycles. As a result, there has been a substantial
increase in the level of additions to non-performing loans, including slippages from restructured loans,
into non-performing status during fiscal 2016 and fiscal 2017 for the banking sector and the Bank

Provision for advances in fiscal 2018 remained elevated as compared to fiscal 2017 primarily due to high
additions to NPAs in the corporate and small and medium enterprises loan portfolio, provision on certain
cases referred to NCLT under the provisions of IBC and provisions on loan classified as NPAs in earlier
years.

NPA Ratios
o Gross NPA Value

Gross NPA value

60,000.00
50,000.00
40,000.00
30,000.00
20,000.00
10,000.00
0.00
2016-17 2017-18 2018-19 2019-20 2020-21
ICICI Bank

Figure: Gross NPA Value

o Net NPA Value

Net NPA value

30,000.00
25,000.00
20,000.00
15,000.00
10,000.00
5,000.00
0.00
2016-17 2017-18 2018-19 2019-20 2020-21
ICICI Bank

Figure: Net NPA Value

 18

NPA ratio
5.00%

4.00%

3.00%

2.00%

1.00%

0.00%
2016-17 2017-18 2018-19 2019-20 2020-21

Gross NPA Net NPA

Figure: NPA Ratio

Non-performing assets (NPA) of scheduled commercial banks declined during the first 6 months of fiscal
2021, with gross NPA ratio at 7.5% and net NPA ratio at 2.1% at September 30, 2020 compared to a
gross NPA ratio of 8.5% and net NPA ratio of 3.0% at March 31, 2020. However, the level of NPAs at
September 2020 did not reflect the actual stress in the banking sector due to the moratorium and standstill
in asset classification permitted by RBI as part of measures related to the Covid-19 pandemic.

Capital Adequacy Ratio

Capital Adequacy ratio

0.25

0.19
0.20 0.18 0.18
0.17 0.17
0.16 0.16
0.15 0.15
0.14
0.15

0.10

0.05 0.03 0.03

0.02
0.01 0.01

0.00
2016-17 2017-18 2018-19 2019-20 2020-21

Tier-I Capital Tier-II Capital Capital Adequacy ratio

Figure: Capital Adequacy Ratio

 19

Over the five years, has remained somewhat constant for ICICI bank indicating its readiness to deal with
unexpected losses. Highest CAR values for 2020-21 can be attributed as the effect Covid-19 pandemic
along with ensuing lockdown and its effect on banking industry.

CASA Ratio

CASA ratio
0.54
0.52
0.52
0.50
0.50 0.49

0.48
0.46
0.46 0.45

0.44

0.42

0.40
2016-17 2017-18 2018-19 2019-20 2020-21

Figure: CASA Ratio

Over the period of 5 years, CASA ratio for HDFC has declined somewhat which indicates insufficient
funds with the banks at low cost resulting in decline in profits. For 2020 and 2021 the values are lowest
of 5 years which could be owed to Covid-19 pandemic induced lockdown marking a halt in retail
banking activities. Thus, the bank may have to rely on more costly sources of funding.
 20

Provision Coverage Ratio

Provisioning Coverage ratio
90.00
75.70 77.70
80.00 70.60
70.00
60.00
47.70
50.00
40.20
40.00
30.00
20.00
10.00
0.00
2016-17 2017-18 2018-19 2019-20 2020-21

Figure: Provisioning Coverage Ratio

Provisioning Coverage Ratio for ICICI bank has increased significantly between 2019 to 2020 period
due to an increase in provision on non-performing and other assets and Covid-19 related provision,
offset, in part, by decrease in provision on investments. Higher PCR indicates measures are being taken
by the bank to protect itself from losses as a result of NPA increase.

Return on Assets and Equity

Return on Assets & Equity
140.00

120.00

100.00

80.00

60.00

40.00

20.00

0.00
2016-17 2017-18 2018-19 2019-20 2020-21

Return on Assets Return on Equity

Figure: Return on Assets and Equity

 21

YES BANK
YES BANK has been recognized by prestigious media houses and global advisory firms as one of the
Top and Fastest Growing Banks in various Indian Banking League Tables, and has received several
national and international honors for our various businesses, including Corporate Investment Banking,
Treasury, Transaction Banking, and Sustainability at YES BANK.

YES BANK is a high-quality, customer-focused, and service-oriented financial institution. YES BANK
has evolved into a 'Full Service Commercial Bank,' delivering a comprehensive variety of products,
services, and technology-driven digital offerings to corporate, MSME, and retail customers since its
foundation in 2004. YES BANK's Investment banking, Merchant banking, and Brokerage activities are
handled by YES SECURITIES, and its Mutual Fund business is handled by YES Asset Management
(India) Limited, all of which are wholly owned subsidiaries of the Bank. It is headquartered in Mumbai
and has a presence in all 28 Indian states and nine Union Territories, as well as an IBU in GIFT City and
a Representative Office in Abu Dhabi.

YES Bank Analysis

Provisions and Contingencies

Figure: Provisions and contingencies

• 2020-21
Provisions and contingencies (excluding provision for taxes) decreased by 70.4% from Rs. 327,584.34
million in FY 2019-20 to Rs. 97,123.81 million in FY 2020-21 mainly due to reduction in provision for
 22

non-performing investments and provision for non-performing advances as compared to provisions

made in FY20.

• 2019-20
Provisions and contingencies (excluding provision for taxes) increased by 467.0% from Rs. 57,775.60
million in FY 2018-19 to Rs. 327,584.34 million in FY 2019-20. The Bank decided, on a prudent basis,
to enhance its Provision Coverage Ratio on its NPA loans over and above the RBI loan level provisioning
requirements. As a result, the Bank recognized additional provisions of Rs. 154,220 million for the year.

Provisions and contingencies (including provision for tax) Provisions and contingencies increased by
342.0% from Rs. 64,146.28 million to Rs. 2,83,505.45 million. The key components of provisions are
Provisions for NPAs of Rs. 2,78,060.36 million (FY 2018-19: Rs. 25,669.54 million), provision for
taxation of Rs. (44,078.89) million (FY 2018-19 Rs. 6,370.68 million), and release in provision for
Standard Assets Rs. (19,410.78) million (FY 2018-19: Rs. 22,514.06 million) and Provision on
investments of Rs. 64,819.07 million (FY 2018-19: Rs. 6,824.89 million). The increase in provision is
primarily due to higher NPA provision. From FY 2020, the Bank has considered slippages in NPAs post
the period end till the date of the financial results, while determining NPAs and related provisioning
requirements and enhanced its Provision Coverage Ratio on its NPA loans over and above the RBI loan
level provisioning requirements.

• 2018-19
Provisions and contingencies (excluding provision for taxes) increased by Rs. 42,237.56 from Rs.
15,538.04 million in FY 2017-18 to Rs. 57,775.60 million in FY 2018-19.

• 2017-18
Provisions and contingencies (excluding provision for taxes) increased from Rs. 7,934.05 million in FY
2016-2017 to Rs. 15,538.04 million in FY 2017-18.

• 2016-17
Provisions and contingencies (including tax) increased by 42.2% from Rs. 17,630.52 millions in FY
2015-16 to Rs. 25,074.27 millions in FY 2016-17.

NPA Ratios
 23

Figure: NPA Ratios

Figure: Gross NPA

2020-2021
In terms of the RBI circular no. DBR.BP.BC.No.32/21.04.018/2018-19 dated April 1, 2019 banks are
required to disclose the divergences in asset classification and provisioning consequent to RBI’s annual
supervisory process in their notes to accounts to the financial statements, wherever either or both of the
following conditions are satisfied: (a) the additional provisioning for NPAs assessed by RBI exceeds 10
percent of the reported profit before provisions and contingencies for the reference period and (b) the
additional Gross NPAs identified by RBI exceed 15 percent of the published incremental Gross NPAs
for the reference period. Based on the above, no disclosure on divergence in asset classification and
provisioning for NPAs is required with respect to RBI’s annual supervisory process for FY 2019-20.

i. Gross NPAs as on March 31, 2019 as reported by the Bank Rs. 78,825.59 million
ii. Gross NPAs as on March 31, 2019 as assessed by RBI Rs. 111,595.59 million
 24

iii. Divergence in Gross NPAs (2-1) Rs. 32,770.00 million

Percentage of Gross NPAs to Gross Advances in that sector is highest in Agriculture and Allied activities
(11.45%) and lowest in textile (1.64%) in priority sector and highest was construction (70.47%) and
lowest was in personal loans (2.01%) in non-priority sector.

2019-20
The Bank successfully raised Rs. 1,930 crores via a Qualified Institutions Placement (QIP) issue in
August, 2019, up to 10% dilution, as approved by shareholders. In many ways, this can be described as
a year of headwinds, wherein the Bank reported a net loss of Rs. 16,418.02 crore with Gross NPAs at
16.80%, impacted by higher recognition of NPAs from concentrated exposures to stressed corporate
groups.

i. Gross NPAs as on March 31, 2019 as reported by the Bank Rs. 78,825.59 million
ii. Gross NPAs as on March 31, 2019 as assessed by RBI Rs. 111,595.59 million
iii. Divergence in Gross NPAs (2-1) Rs. 32,770.00 million

Percentage of Gross NPAs to Gross Advances in that sector is highest in Agriculture and Allied activities
(5.87%) and lowest in gems & jewellery (0.12%) in priority sector and highest was Construction
(68.73%) and lowest was in Tourism, Hotel and Restaurants (0.00%) in non-priority sector.

2018-19
Percentage of Gross NPAs to Gross Advances in that sector is highest in Agriculture and Allied activities
(1.70%) and lowest in gems & jewelery (0.02%) in priority sector and highest was construction (5.31%)
and lowest was in Tourism, Hotel and restaurants (0.08%) in non-priority sector.

2017-18
i. Gross NPAs as on March 31, 2017 as reported by the Bank Rs. 20,185.57 million
ii. Gross NPAs as on March 31, 2017 as assessed by RBI Rs. 83,737.57 million
iii. Divergence in Gross NPAs (2-1) Rs. 63,551.99 million

Percentage of Gross NPAs to Gross Advances in that sector is highest in personal loans(1.98%) and
lowest in others(0.08%) in priority sector and highest was Electricity (generation-transmission and
distribution) (4.06%) and lowest was in Agriculture and Allied activities(0.00%) in non-priority sector.
 25

2016-17
1. Gross NPAs as on March 31, 2016 as reported by the Bank Rs. 7,489.81 million
2. Gross NPAs as on March 31, 2016 as assessed by RBI Rs. 49,256.81 million
3. Divergence in Gross NPAs (2-1) Rs. 41,767.00 million

Percentage of Gross NPAs to Gross Advances in that sector is highest in Agriculture and Allied activities
(3.69%) and lowest in others (0.02%) in priority sector and highest was industry(2.28%) and lowest was
in personal loans(0.06%) in non-priority sector.

Figure: Net NPA

2019-20
i. Net NPAs as on March 31, 2019 as reported by the Bank Rs. 44,848.49 million
ii. Net NPAs as on March 31, 2019 as assessed by RBI Rs. 67,838.49 million
iii. Divergence in Net NPAs Rs. 22,990.00 million

2016-17
i. Net NPAs as on March 31, 2017 as reported by the Bank Rs. 10,722.68 million
ii. Net NPAs as on March 31, 2017 as assessed by RBI Rs. 58,916.24 million
iii. Divergence in Net NPAs Rs. 48,193.56 million

Tier-I Capital and Tier- II Capital

2020-2021
During the year, the Bank has raised capital via FPO of Rs. 150,000 million. During the previous year,
the Bank had raised capital via QIP of Rs. 19,304.64 million and under Reconstruction scheme Rs.
100,000 million. With the above capital raise, Capital Adequacy Ratio of the Bank significantly
 26

improved to 17.5% as at March 31, 2021 as compared to 8.5% as at March 31, 2020 and a minimum
requirement of 10.875%. CET-1 ratio comfortably stood at 11.2%, Tier I Capital Ratio at 11.3% and
Tier II Capital Ratio was 6.2% as at March 31, 2021.

2019-20
Tier I ratio of the Bank was below the regulatory minimum requirements and hence as per RBI
guidelines, the Tier II ratio of 6.37% is restricted to 2%.

As per Basel III norms, YES BANK had a capital adequacy ratio of 8.5% as at the end of March 31,
2020. As per Basel-III, Tier-I capital ratio was 6.5% and the Tier-II capital ratio was 2.0% as at March
31, 2020. Tier I ratio of the Bank was below the regulatory minimum requirements and hence as per RBI
guidelines, the Tier II ratio of 6.37% is restricted to 2%. During the year, the Bank has raised capital via
QIP of Rs. 19,305 million, by way of Reconstruction scheme Rs. 1,00,000 million.

Details of Audit Qualification:

The Bank has breached CET 1 ratio and the tier 1 capital ratio as at March 31, 2020. CET 1 ratio stood
at 6.3%.and Tier 1 ratio stood at 6.5 % as compared to the minimum requirements of 7.375% and 8.875%
respectively.

Response:
The Bank’s Capital Adequacy Ratio as at March 31, 2020 was lower than the minimum regulatory
requirement primarily due to lower than envisaged capital raise in FY 2019- 20 and higher NPA
provision. The Bank had decided, on a prudent basis, to enhance its Provision Coverage Ratio on its
NPA loans over and above the RBI loan level provisioning requirements. With the proposed capital
infusion in FY 2020-21, internal accretion of capital, expected recoveries of NPA and with selective
disbursement of loans to preserve RWA, the Bank expects CET ratio to be comfortably above the
minimum regulatory requirement.

2018-19
As per Basel III norms, YES BANK had a capital adequacy ratio of 16.5% as at the end of March 31,
2019. As per Basel-III, Tier I capital ratio was 11.3% and the Tier II capital ratio was 5.2% as at March
31, 2019. During the year the Bank has raised Non-convertible Redeemable Unsecured Basel III
compliant Tier II Bonds of Rs. 30,420 million.
 27

2017-18
As per Basel III norms, the Bank had a capital adequacy ratio of 18.4% as at the end of March 31, 2018.
As per Basel III, Tier I capital ratio was 13.2% and the Tier II capital ratio was 5.2% as at March 31,
2018. The Bank has raised Rs. 70,000 million non-convertible, redeemable, Basel III Compliant Tier II
bonds and Rs. 54,150 million Basel III compliant Additional Tier I bond which helped in strengthening
the capital adequacy of the Bank.

2016-17
As per Basel III norms, your Bank had a capital adequacy ratio of 17.0% as at the end of March 31,
2017. As per Basel-III, Tier-I capital ratio was 13.3% and the Tier-II capital ratio was 3.7% as at March
31, 2017. The bank had raised Rs. 49,066.50 millions through QIP and Rs. 30,000.00 million of Basel
III compliant AT-1 bonds which helped in strengthening the capital adequacy of the bank.

Bank successfully issued 32,711,000 Equity shares by way of Qualified Institutions Placement at a price
of Rs. 1,500.00 per equity share aggregating to Rs. 49,066.50 millions (approx. USD 750 millions)
resulting in dilution of 7.2% on the expanded capital base.

Bank raised Rs. 30,000 million of Basel III Compliant Additional Tier-1 (‘AT1’) Bonds through private
placement. The Bonds were listed on the BSE Limited and its proceeds qualify for Basel III Tier-I
Capital. The Bonds have been rated as CARE AA (Stable Outlook) by Credit Analysis and Research
Limited (‘CARE’), ICRA AA (Hyb), Stable by ICRA Limited (‘ICRA’) and IND AA (Stable Outlook)
by India Ratings & Research - A Fitch Group Company (‘India Ratings’).

CASA Ratio
 28

Figure: CASA Ratio

2020-2021
In line with the strategic objectives set out at the start of FY21, the Bank has been able to demonstrate
significant progress across all parameters: Growth of deposit franchise by 55% to approximately INR
1.63 lakh crore with CASA ratio at 26%

2018-19
The Bank has a CASA ratio of 33.1%. The Bank is continuing to invest in physical (Branches and Human
Capital) as well as digital infrastructure and is adopting a Liabilities led approach to aggressively grow
and granularize its Liability franchise.

2017-18
The Bank has continued to deliver on all key parameters with robust growth such as loan book increment
of 53.9%, improved asset quality, improved net income, increase in net interest margins and improved
liability franchise with a CASA ratio of 36.5%. This helped the Bank generate strong shareholder returns
with basic and diluted EPS increasing to Rs. 18.43 and Rs. 18.06 respectively, taking the book value up
to Rs. 111.8.

2016-17
The Bank has continued to deliver on all key parameters with robust growth in net income, stable net
interest margins, improving liability franchise with a CASA ratio of 36.3% (an improvement of 8.2%
over March 31, 2016) and stable asset quality (excluding one-off items, expected to be recovered in the
 29

near term). This helped the Bank to generate strong shareholder returns with basic and diluted EPS
increasing to Rs. 78.89 and Rs. 76.77 respectively, taking the book value up to Rs. 483.1.

Low Liquidity which was once a weakness for your Bank is now a key Strength as CASA Ratio has
grown with a CAGR of 42.2% to 36.3% as on March 31, 2017. This is a result of increase in national
presence and investment in Technology resulting in development of new Digital Channels, well
established brands, expanding franchise and technology innovations.

Capital Adequacy ratio

Figure: Capital Adequacy Ratio

Provisioning coverage ratio

 30

Figure: Provisioning Coverage Ratio

 31

COMPARATIVE ANALYSIS OF 3 BANKS

GROSS NPA
14%
12%
10%

GROSS NPA 8%
6%
4%
2%
0%
2016-17 2017-18 2018-19 2019-20 2020-21
HDFC Bank 1.05% 1.30% 1.36% 1.26% 1.32%
ICICI Bank 4.28% 4.74% 3.69% 2.96% 2.60%
Yes Bank 0.94% 0.84% 2.07% 12.75% 10.46%

Figure: Gross NPA

• Gross NPA:
The Gross NPA for Yes Bank was less then HDFC Bank and ICICI Bank till 2018-19, but after that
period the Gross NPA has significantly risen, implies that the Yes Bank’s asset quality was turned into
a very poor shape. The Gross NPA for HDFC Bank has been almost constant throughout the period, i.e.,
the Bank has been maintaining the assets quality constantly. The Gross NPA for ICICI Bank has been
decreasing which implies that the bank is constantly trying to improve the quality of the assets. In
comparison, HDFC has been performing comparatively better from the rest banks in terms of
maintaining the quality of the assets i.e., Gross NPA ratio.

Net NPA
5%

4%
NET NPA

3%

2%

1%

0%
2016-17 2017-18 2018-19 2019-20 2020-21
HDFC Bank 0.30% 0.40% 0.39% 0.36% 0.40%
ICICI Bank 2.56% 2.47% 1.09% 0.72% 0.58%
Yes Bank 0.50% 0.42% 1.18% 3.34% 3.59%

Figure: Net NPA

 32

• Net NPA:
The Net NPA for Yes Bank was less then HDFC Bank and ICICI Bank till 2018-19, but after that period
the Net NPA has significantly risen, implies that the Yes Bank’s asset quality, which has been not
reported in the Balance sheet was turned into a very poor shape. The Net NPA for HDFC Bank has been
almost constant throughout the period, i.e., the Bank has been maintaining the assets quality constantly.
The Net NPA for ICICI Bank has been decreasing which implies that the bank is constantly trying to
improve the quality of the assets. In comparison, HDFC has been performing comparatively better from
the rest banks in terms of maintaining the quality of the assets, which have not been provided in the
balance sheet i.e., Net NPA ratio.

Provision Coverage Ratio

90
Provision Coverage Ratio

80
70
60
50
40
30
20
10
0
2016-17 2017-18 2018-19 2019-20 2020-21
HDFC Bank 58.82 27.99 23.53 21.92 25.64
ICICI Bank 40.20 47.70 70.60 75.70 77.70
Yes Bank 64.80 50.02 43.10 73.80 79.00

Figure: Provision Coverage Ratio

• Provision Coverage Ratio:
Provisioning coverage ratio is the money that the bank has to provide for from their own funds –most
probably from profit for the amount of bad assets. The Provisioning Coverage Ratio differs with asset
quality. Lower the asset quality, higher will be the provisioning coverage ratio. As we can see from the
graph, the PCR for HDFC bank is the lowest among the three banks over the years meaning that the bad
assets in their portfolio is lower than ICICI and Yes bank. The PCR for Yes bank is the highest and is
continuously increasing over the years meaning that the amount of bad assets is increasing in their
portfolio over the years.
 33

Capital Adequacy Ratio

25

20

15

10

0
2016-17 2017-18 2018-19 2019-20 2020-21
HDFC Bank 14.60 14.80 17.11 18.50 18.79
ICICI Bank 17.00 18.00 17.00 16.00 19.12
Yes Bank 17.00 18.40 16.50 8.50 17.50

Figure: Capital Adequacy ratio

Capital Adequacy Ratio (CAR):
Capital Adequacy ratio (CAR) is a measure of a bank’s ability to meet its obligations. HDFC Bank’s
capital adequacy ratio has been increasing throughout the period. ICICI Bank’s capital adequacy ratio
has been constant throughout the period. HDFC Bank’s capital adequacy ratio has been decreased
significantly during 2019-20 but has been picked up in the next financial year i.e., 2020-21. A high CAR
means the bank can absorb losses without diluting capital. All the banks have been trying to increase the
CAR constantly during the period.

CASA Ratio
60

50

40

30

20

10

0
2016-17 2017-18 2018-19 2019-20 2020-21
HDFC Bank 48.00 43.50 42.40 42.20 46.10
ICICI Bank 50.30 51.60 49.10 45.10 46.20
Yes Bank 36.30 36.50 33.10 26.60 26.10

Figure: CASA ratio

• CASA Ratio:
Current account and Savings account (CASA) is the portion of the of current and savings account deposit
in the total deposits of the bank. In comparison, Yes Bank has the lowest CASA ratio and ICICI Bank
 34

has the highest CASA ratio among the above-mentioned banks. A low CASA ratio means the bank relies
heavily on costlier wholesale funding, which can hurt its margins and high CASA ratio means the bank
is getting the deposits at a cheaper rate which can help the banks increase in the margins.

Net Interest Margin

4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2016-17 2017-18 2018-19 2019-20 2020-21
HDFC Bank 3.94 3.88 3.97 3.79 3.85
ICICI Bank 2.81 2.61 2.80 3.02 3.16
Yes Bank 2.69 2.47 2.57 2.63 2.71

Figure: Net Interest Margin

• Net Interest Margin (NIM):
Net Interest Margin is the difference between interest earned by a bank on loans and the interest it pays
on deposits. From the above figure, HDFC Bank has the highest NIM compared to the other two banks
which have similar NIM. NIM will be high for banks with higher low-cost deposits, i.e., CASA ratio or
high lending rates. Yes Bank has low NIM and high NPA, which is a bad combination in the commercial
bank industry.

Return on Assets
0.03
0.02
0.01
0
-0.01
-0.02
-0.03
-0.04
-0.05
-0.06
-0.07
2016-17 2017-18 2018-19 2019-20 2020-21
HDFC Bank 1.70% 1.67% 1.72% 1.72% 1.76%
ICICI Bank 1.20% 0.90% 0.50% 0.90% 1.40%
Yes Bank 1.55% 1.35% 0.45% -6.37% -1.27%

Figure: Return on Assets

 35

• Return on Assets (RoA):

Return on Assets shows how profitable a bank’s assets are in generating revenue. A lower RoA means
that bank is not able to utilize assets efficiently. HDFC and ICICI Bank has been maintaining the RoA
constantly throughout the period, whereas Yes Bank RoA has been dropped to negative in the year 2019-
20. Negative RoA implies the bank’s assets are yielding negative return.

Financial Leverage Ratio

16
14
12
10
8
6
4
2
0
2016-17 2017-18 2018-19 2019-20 2020-21
HDFC Bank 9.70 10.10 8.40 9.00 8.60
ICICI Bank 9.40 10.20 10.80 11.20 10.00
Yes Bank 9.96 12.35 14.41 13.44 9.73

Figure: Financial Leverage ratio

• Financial Leverage ratio:
Financial leverage ratios, sometimes called equity or debt ratios, measure the value of equity in a
company by analyzing its overall debt picture. These ratios either compare debt or equity to assets as
well as shares outstanding to measure the true value of the equity in a business. From the above figure,
Yes Bank has the highest financial leverage ratio compared to the other two banks which implies that
Yes Bank is bringing in more debt from the market to the equity as compared to other two banks. This
shows show how much of an organization's capital comes from debt — a solid indication of whether a
business can make good on its financial obligations.
 36

Return on Equity
40

20

-20

-40

-60

-80

-100
2016-17 2017-18 2018-19 2019-20 2020-21
HDFC Bank 18.30 18.40 17.00 16.50 16.50
ICICI Bank 10.30 7.20 3.80 8.10 13.10
Yes Bank 15.15 16.43 6.35 -75.74 -10.52

Figure: Return on equity

• Return on Equity (RoE):
Return on equity (ROE) is a measure of a company's financial performance, calculated by dividing net
income by shareholders' equity. ROE is considered a gauge of a corporation's profitability and how
efficient it is in generating profits. HDFC and ICICI Bank has been maintaining the RoE constantly
throughout the period, whereas Yes Bank RoE has been dropped to negative in the year 2019-20.
Negative RoE implies the bank is not able to to generate the profits and transfer to the shareholders.
 37

CONCLUSION
As per the above analysis, HDFC Bank fits optimally on all the parameters essential for the
valuation of a bank optimally. And thus, can be said to be the best bank among all three
private bank players in the Indian banking scenario as evaluated on the basis of ten valuation
ratios of banks (as mentioned above).
 38

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assets/docs/investor/annual-reports/2017/annual-report-fy2017.pdf)
• ICICI Bank. (2018). Annual Report 2018. (https://www.icicibank.com/managed-
assets/docs/investor/annual-reports/2018/annual-report-fy2018.pdf)
• ICICI Bank. (2019). Annual Report 2019. (https://www.icicibank.com/annual-report-
microsite/index.html)
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(https://www.yesbank.in/pdf/annualreport_2016-17_pdf)
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(https://www.yesbank.in/pdf/annualreport_2017_18_pdf)
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(https://www.yesbank.in/pdf/annualreport_2018_19_pdf)
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(https://www.yesbank.in/pdf/annual_report_2019_2020_pdf)
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(https://www.yesbank.in/pdf/annual_report_2020_2021_pdf)
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(https://www.hdfcbank.com/content/bbp/repositories/723fb80a-2dde-42a3-9793-
7ae1be57c87f/?path=/Footer/About%20U…