Comparing Asset Quality : HDFC v/s Kotak Mahindra Bank v/s ICICI Bank v/s Axis Bank
In this article, we will do NPA comparison of major private banks – HDFC Bank v/s Kotak Mahindra Bank v/s ICICI Bank v/s Axis Bank. Lets do a comparative analysis of the asset quality of these banks.
NPA Comparison of Major Private Banks
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.
- Substandard Assets : Assets which has remained NPA for a period less than or equal to 12 months.
- Doubtful Assets : An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.
- 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.”
Comparative Analysis of Asset Quality : HDFC 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 % with a flat growth QoQ and YoY owing to the retail loan book.
- Gross NPA of Kotak Mahindra Bank is indicating QoQ as well as YoY, indicating a slight deterioration in its asset quality.
- Gross NPA of ICICI Bank as well as Axis Bank are in much higher range 6-8% and 5-6% 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 improved with decline in Gross NPA from 7.75% to 5.95% on account of recoveries from Essar Steel account.
- 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.
- In case of Retail oriented Banks, HDFC Bank and Kotak Mahindra Bank Net NPA % is rising slightly QoQ and YoY.
- However, in case of Corporate Banks, like ICICI Bank and Axis Bank, Net NPA % has declined considerably on account of declining Gross NPAs and rising support from provisions made against bad loans.
3. Provision Coverage Ratio (PCR)
- 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 has decent PCR above 65% throughout the last one year. However, PCR in Q3 FY20 has decreased considerably to 66.7% from 69.7% which is not a good sign. Kotak Mahindra Bank is also demonstrating the same flat declining trend.
- However, in case of Corporate Banks like ICICI Bank and Axis Bank, PCR has improved considerably, which is a positive sign.