NPA Comparison of Major Private Banks

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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.

Comparing Asset Quality : HDFC v/s Kotak Mahindra Bank v/s ICICI Bank v/s Axis Bank

Introduction

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.

Detailed Stock Analysis by Invest Yadnya
Detailed Stock Analysis by Invest Yadnya

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.
    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.”

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.

1 thought on “NPA Comparison of Major Private Banks

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