The results for the 4 Major Private Banks have been out and thereby we will do a comparative analysis of these banks based on Key Ratios and Asset Quality as of Q1FY22. So, Let’s Begin:
1) Key Ratios- Comparative Analysis:
Under this heading, we will discuss 5 types of Ratios namely Net Interest Margin (NIM), Cost to Income Ratio, Capital Adequacy Ratio, CASA Ratio, and Retail Loan Book % Share.
i) Net Interest Margin:
- Net Interest Margin (NIM) is the difference between the interest earned by the bank and the interest expenses of the bank relative to its interest-earning assets like cash.
- As of Q1FY22, the Kotak Mahindra Bank records the highest Net Interest Margin rate of 4.60% followed by HDFC Bank- 4.10%, ICICI Bank- 3.89%, and Axis Bank- 3.46%.
- The High Net Interest Margin of Kotak Mahindra Bank is on account of the high CASA Book of the bank.
ii) Cost to Income Ratio:
- The Cost to Income ratio of the bank is the important financial efficiency ratio used while analyzing the bank to gauge its operational efficiency.
- The less the Cost to Income ratio of a bank, the better it is considered.
- In this context, HDFC Bank outperforms other banks with the Lowest Cost to Income Ratio of 35% in Q1FY22. The same was 37.2% and 35% in Q4FY21 and Q1FY21 respectively.
- Next to HDFC Bank are ICICI Bank, Axis Bank, and Kotak Mahindra Bank with Cost to Income Ratio of 41.2%, 43.4%, and 43.5% respectively.
- ICICI Bank has registered a significant rise in its Cost to Income Ratio from 37.5% in Q1FY21 to 41.2% in Q1FY22.
iii) Capital Adequacy Ratio (CAR):
- The Capital Adequacy Ratio also termed as Capital to Risk-Weighted Assets Ratio measures the financial strength of a bank as of its capital and assets. This ratio ensures the safety of the depositor’s money and provided a sound efficiency system to the financials of the bank.
- Higher the Capital Adequacy Ratio (CAR), more the conservative approach of the bank.
- Here, Kotak Mahindra Bank is the most conservative and is having a Capital Adequacy Ratio (CAR) of 2.37% as of 30th June 2021.
- The Capital Adequacy Ratio (CAR) of the bank is increasing over the period from 21.2% in Q1FY21 to 22.3% in Q4FY21, and 23.7% in Q1FY22 ensuring greater safety to depositor’s money.
- After Kotak Bank, ICICI Bank has the highest Capital Adequacy Ratio (CAR) of 19.3%. This bank is also on the path of Kotak Bank in terms of increasing this ratio. The Capital Adequacy Ratio (CAR) of the bank was 16% and 19.1% in Q1FY21 and Q4FY21 respectively.
- The Capital Adequacy Ratio of HDFC Bank and Axis Bank are 19.1% and 19% respectively.
iv) CASA Ratio:
- CASA ratio of a bank is the ratio of deposits in current and saving accounts to total deposits.
- Among these 4 Major Private Banks, Kotak Mahindra Bank has the highest CASA ratio of 60.2% in Q1FY22 which was 56.7% in the same quarter of the previous financial year.
- Here again, ICICI Bank books the second spot on the queue with a CASA ratio of 45.9% as of 30th June 2021 showing a strong improvement from 41% as of 30th June 2020.
- After ICICI Bank, the highest CASA Ratio are of HDFC Bank and Axis Bank of 45.5% and 43% respectively.
v) Retail Loan Book (%):
- In the case of Retail Loan Book (%), ICICI Bank outscores other concerned banks with 70.8% of Retail Loan Book.
- Next to ICICI Banks are Kotak Mahindra Bank- 63.3%, Axis Bank- 53.8%, and HDFC Bank- 47%.
- Here, HDFC Bank looks to be shifting towards Corporate Banks as its Retail Loan Book % has decreased from 48% in Q1FY21 to 47% in Q1FY22.
- On the contrary, the Retail Loan Book % share of Kotak Mahindra Bank has increased by 2.3% in a year.
2) Asset Quality- Comparative Analysis:
Under this section, we will do a comparative analysis of the Asset Quality of these 4 Major Private Banks based on its Gross NPA, Net NPA, and Provision Coverage Ratio
i) Gross NPA (%):
- Here, HDFC Bank records the lowest Gross NPA % of only 1.47% as of Q1FY22 against 3.56% of Kotak Mahindra Bank, 3.85% of Axis Bank, and 5.15% of ICICI Bank.
- All these banks have registered growth in Gross NPAs in the first quarter of FY22 as compare to the first quarter of FY21.
ii) Net NPA (%):
- In the case of Net NPA also, the HDFC Bank reports the lowest figure of 0.48% in Q1FY22.
- While Kotak Bank has the highest Net NPA% among these banks of 1.28%.
- The Net NPA% of the other 2 banks are Axis Bank- 1.20% and ICICI Bank- 1.16%.
iii) Provision Coverage Ratio (PCR):
- With the highest Provision Coverage Ratio of 78.2%, ICICI Bank reserves its first position in the comparisons among the Top-4 Major Private Banks.
- Kotak Mahindra Bank records the lowest Provision Coverage Ratio of 64.8% among these 4 banks.
- As per the above discussion, Kotak Mahindra Bank and HDFC Bank lead with the joint highest 3 tick marks on the concerned parameter.
- Whereas ICICI with 2 green tick marks on Retail Loan Book % Share and Provision Coverage Ratio follows HDFC Bank and Kotak Mahindra Bank.
- Axis Bank here performs the weakest.