5 Point Comparison of Major Private Banks in India

5 Point Comparison : HDFC Bank vs Kotak Mahindra Bank vs ICICI Bank vs Axis Bank

Introduction

In this 5 Point Comparison of Major Private Banks, we have compared HDFC Bank vs Kotak Mahindra Bank vs ICICI Bank vs Axis Bank based on 5 parameters – Gross NPA, Net NPA, Provision Coverage Ratio, COVID Provisions and Moratorium Book as % of Loan Book in Q4 FY20.

5 Point Comparison of Major Private Banks – HDFC Bank vs Kotak Mahindra Bank vs ICICI Bank vs Axis Bank

Lets do a comparative analysis of major private banks based on the following 5 parameters :

What is Non Performing Assets (NPA)?

• A Non Performing Asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.
• Banks are required to classify NPAs further into Substandard, Doubtful and Loss assets.
  1. Substandard Assets : Assets which has remained NPA for a period less than or equal to 12 months.
  2. Doubtful Assets : An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.
  3. Loss Assets : As per RBI, “Loss Asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.”

5 Point Comparative Analysis : HDFC Bank v/s Kotak Mahindra Bank v/s ICICI Bank v/s Axis Bank

1. Gross NPA

• According to the Gross NPA trend of HDFC Bank, Kotak Mahindra Bank, ICICI Bank and Axis Bank, HDFC Bank is having the lowest Gross NPA at 1.26% with an improvement in the asset quality QoQ (1.42%) as well as YoY (1.36) owing to the retail loan book.
• Gross NPA of Kotak Mahindra Bank is improved QoQ from 2.46% in Q3 FY20 to 2.25% in Q4 FY20. While it has increased YoY from 2.14% in Q4 FY19, indicating a slight deterioration in its asset quality.
• Gross NPA of ICICI Bank as well as Axis Bank are in much higher range 5-7% and 4-6% respectively. These higher Gross NPA numbers are mainly because of their corporate loan book. The default risk comes hand in hand with the higher percentage of corporate loans than retail loans.
• Asset quality of ICICI Bank is improving consistently with a decline in Gross NPA to 5.53% in Q4 FY20 from 6.70% in Q4 FY19 and 5.95% in Q3 FY20 (recoveries from Essar Steel account in Q3 FY20)
• Axis Bank has also shown a consistent improvement in its asset quality QoQ as well as YoY. Gross NPA declined to 4.86% in Q4 FY20 from 5.26% in Q4 FY19 and 5.00% in Q3 FY20.
• Thus, HDFC Bank is with the best quality portfolio (both Retail and Wholesale) in the industry, demonstrating its healthy asset quality.

2. Net NPA

• The trend of Net NPAs of these banks is almost similar to that of Gross NPAs. Net NPA numbers are calculated by deducting provisioning towards the bad loans from Gross NPA.
• On account of the increased provisioning towards the bad loans, the Net NPA numbers of all the banks have declined QoQ as well as YoY. It is a very positive sign. As a result of which the bank’s asset quality is improving consistently.
• Among all major private banks, HDFC Bank is having the least Net NPA numbers at 0.36% in Q4 FY20. It indicates the thorough risk assessment of the wholesale book performed by the bank internally which has served well the bank over the years.
• While, the Net NPA of Kotak Mahindra Bank is comparatively higher than that of HDFC Bank due to lower provisioning made against bad loans. Bank’s Net NPA is at 0.71% in Q4 FY20, which indicates Asset quality is improved QoQ (0.89%) as well as YoY (0.75%).
• On the other hand, in case of Corporate Banks, like ICICI Bank and Axis Bank, Net NPA % are in much higher range like Gross NPA trend.
• in Q4 FY20, the Net NPA of both ICICI Bank and Axis Bank has declined considerably QoQ as well as YoY on account of declining Gross NPAs and rising support from provisions made against bad loans. In Q4 FY20, the decline is more significant for Axis Bank than ICICI bank.

3. Provision Coverage Ratio (PCR)

• The Provision Coverage Ratio (PCR) is the ratio of provisioning to gross non-performing assets.
• The provision coverage ratio gives an indication of the provision made against bad loans from the profit generated. It indicates the extent of funds a bank has kept aside to cover loan losses.
• Higher the PCR, lower is the unexposed part of the bad debts. A higher ratio means the bank can withstand future losses better, including unexpected losses beyond the loan loss provision.
• HDFC bank, Kotak Mahindra bank, Axis bank has shown a decent growth QoQ as well as YoY in their Provision coverage ratio in Q4 FY20. It is a positive sign.
• In case of ICICI Bank, though the provision coverage ratio % is higher than the rest 3 bank, its QoQ growth is flat. It may add more concerns towards its Corporate loan book amid current COVID-related slowdown.

4. COVID-Related Provisions

• For Q4 FY20 performance analysis of these major private banks, the parameter – COVID-Related provisions has played a significant role in the overall profitability of the banks.
• On March 27, 2020, RBI has announced a 3-months Loan Moratorium up to May 31, 2020. And this Moratorium period is further extended 3 months up to August 31, 2020 in RBI’s recent press conference on May 20.
• Thus, all the banks made COVID-Related provisions, in addition to the RBI mandated provisions, based on their assessment of the potential impact of COVID-19. However, the relative quantum these COVID provisions made by different banks varied vastly.
• The above graphs shows :
  • The amount of COVID-Related provisioning made by the banks from their Pre-provisioning Operating Profits (PPOP)
    • In spite of having the highest Operating Profit of Rs.12,959 Cr amongst major private banks, HDFC bank has made relatively lower COVID provisions. This is mainly due to its Retail Loan Book.
  • COVID Provisions as a % of Operating Profit
    • If we refer the second graph, we get a clear idea of the COVID provisions made by these banks as a % their respective operating profits.
    • Thus, HDFC Bank is having the lowest COVID provision % of its operating profit (12%) due to lower COVID provisions on account of its Retail loan book (in Rs. Cr) and higher Operating profit.
    • Whereas, Axis Bank has the highest COVID Provisions as a % of its Operating profit. It is mainly on account of its Corporate Loan book, due to which bank has made COVID-related provisions almost 51% of its Operating profit.
    • The COVID Provisions as a % of Operating Profit for Kotak Mahindra Bank and ICICI Bank are 24% and 37% respectively.

5. Loans under Moratorium % by Value

The Loans under Moratorium % by value of these banks are shown in above table.

1. HDFC Bank
   • Moratorium usage in standard retail assets has been surprisingly low in single-digits.
2. Kotak Mahindra Bank
   • Moratorium in the retail segment is much higher (in value terms) than wholesale segment.
3. ICICI Bank
   • Retail segments saw a higher proportion of customers availing of the moratorium.
   • A higher proportion of Rural, Commercial Vehicle and 2-wheeler customers opted for the moratorium.
4. Axis Bank
   • In case of retail customers, individuals across income bands and geographies having sufficient a/c balances (equivalent to 2-3 times EMI) opted for the moratorium to maintain sufficient liquidity amidst uncertainty.
   • Bank has granted moratoriums to wholesale customers on a case by case basis.
     1. For Wholesale and SME customers : Moratorium was on an opt-in basis and
     2. For Retail customers : Moratorium was on opt-out basis