Quantitative Analysis of Top 5 Private Banks

9 min read
In this blog, we will go through the quantitative analysis on certain parameters of Top 5 Private Bank stocks based on their Market Capitalization. So, let’s get started!

Introduction:

Private Sector Banks are those banks that are controlled and managed by Private Entity, unlike Public Sector Banks which are controlled by Government. Both the banks are regulated by the Central Authority of India i.e., Reserve Bank of India (RBI). Currently, there are 21 Private Sector Banks in India.

In the current situation, around 35% of the market share of the banks in India are owned by the Private Sector, and a major portion i.e., 65% of market share is owned by the Public Sector, but it seems that this scenario will turn in favor of Private Sector in the coming years.

Please note that we have done this analysis with the only purpose of screening good companies. Analysis done is completely on a quantitative basis. No suggestions are being made to directly go and invest in the top-scoring companies of this analysis. We suggest that one should perform a qualitative analysis of top-scoring companies in this analysis and take investment decisions based on risk profile.

Top 5 Private Bank Quantitative Analysis

Companies selected for Analysis:

We have selected the following 5 Private Banks companies for our Quantitative Analysis.
The procedure of Analysis and its Interpretation
  • These 5 Private Banks are analyzed on the following 19 various quantitative parameters and ranked and scored accordingly.
  • The Evaluation of performance is done based on the results of March 2021.
  • For example, the company with a higher PE ratio is provided a lower rank, hence has scored lesser points. Similarly, if a company has higher RoE, it has a higher rank and has scored higher points.
  • Here, 1 means that the company has scored the lowest points and 3 means the company has scored the highest points.
  • In the end, we have added all the points together and companies are ranked accordingly.
Market Capitalization of 5 FMCG Stocks:

Parameters of Quantitative Analysis:

1) PE Ratio:
  • PE Ratio generally means how much investors need to pay for each rupee of profit earned.
  • In this segment, ICICI Bank has the lowest PE Ratio of 22.68, and hence this bank is awarded full points and first rank.
  • Next to ICICI Bank, comes HDFC Bank with a PE Ratio of 24.30, and IndusInd Bank with a PE ratio of 24.59. Both these banks are ranked and scored accordingly.
  • Kotak Mahindra Bank with the highest PE Ratio of 35.19 has scored only 1 point and ranked the last.
Top-5 Private Banks- PE Ratio

Top-5 Private Banks- PE Ratio
2) P/B Ratio:
  • P/B ratio or Price-to-Book Ratio is an important valuation ratio that evaluates whether a company’s stock is overvalued or undervalued by comparing the price of all outstanding ratios with the net assets of the company.
  • It can be calculated by the following formula: Current Market Price of a Stock/ Book Value per share.
  • Companies with lower P/B ratios are considered better and vice versa.
  • In this case, IndusInd Bank grabs the first position with a PB ratio of 1.86. After IndusInd, the lowest PB ratio is of Axis Bank of 2.22 and hence given 2nd rank and 4 points.
  • Here also, Kotak Mahindra is awarded the last position for possessing the highest PE ratio of 4.46 among all other mentioned banks.
Top-5 Private Banks- PB Ratio
Top-5 Private Banks- PB Ratio
3) Return on Equity (RoE):
  • Return on Equity (RoE) is another most common ratio used in fundamental analysis. We can calculate RoE by the following formula: Net Income/ Total Shareholder’s equity (Equity share capital + Reserves/Surplus).
  • Here also, the company with higher RoE is considered to be strong and vice versa.
  • HDFC Bank is providing the highest return on equity of 16.5% and hence is rewarded with first position and full points as well.
  • IndusInd Bank has the second-highest RoE of 14.8% after HDFC Bank.
  • In this scenario, Axis Bank has performed the worst and is having an ROE of 2.4%, thereby ranked and scored accordingly.
Top-5 Private Bank- Return on Equity (ROE)
Top-5 Private Bank- Return on Equity (ROE)
4) Return on Asset (RoA):
  • RoA simply indicated how well the company can generate profits from its assets.
  • The formula for calculating RoA: Net Income + Total Assets
  • In the case of Banking & NBFC Institutions, Loans are the assets of these institutions and hence profit generated via interests, etc. by banks & NBFC are referred to as Return on Asset.
  • Like RoE, the higher the RoA of a company, the stronger its positions and vice versa.
  • Yet again, HDFC Bank outperforms all other banks by maintaining an RoA of 2% and grabs the first position as well.
  • The second-best RoA among the top-5 private sector banks is Kotak Mahindra Bank of 1.70%.
  • The last Position and lowest points among all the banks are awarded to IndusInd Bank for maintaining an RoA of just 1.09%.
Top-5 Private Banks- Return on Assets (ROA)
Top-5 Private Banks- Return on Assets (ROA)
5) Sales & Net Profit Growth 5 Years CAGR:
  • In terms of Sales Growth, IndusInd Bank has registered the highest sales growth based on 5 years CAGR of 19.6% and hence given full points and first position.
  • While HDFC Bank with 14.9% and Kotak Mahindra Bank with 10.4% sales growth on 5 years CAGR basis have obtained 2nd and 3rd position respectively.
  • Coming next to Profit Growth based on 5 years CAGR basis, then Kotak Mahindra Bank has delivered the maximum profit of 27.2% among all others and hence received full points and the first rank as well.
  • HDFC Bank manages to safeguard the second position here also with Profit Growth based on 5 years CAGR of 20.4%. ICICI Bank with a profit growth of 10.7% receives 3 points and 3rd position as well.
  • Axis Bank with negative profit growth of -4.3% got the least marks and last position as well.
Top-5 Private Banks- Sales & Net Profit Growth 5 Years CAGR
Top-5 Private Banks- Sales & Net Profit Growth 5 Years CAGR
6) Sales & Net Profit Growth 3 Years CAGR:
  • In the context of Sales Growth of Top-5 Private Banks based on 3 years CAGR, IndusInd Bank has grabbed the first position with 18.8% sales growth.
  • Next to IndusInd bank are HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank with Sales growth of 14.6%, 12.9%, 11.6%, and 10.8% respectively.
  • Talking about the profit growth of Top-5 Private Banks based on 3 years CAGR, IndusInd Bank has performed negatively despite being the leader in sales growth. It has registered Profit Growth of -7.7% in last 3 Years and hence ranked last.
  • Here, the profit growth of Axis Bank is magnificent. It has recorded profit growth of stellar 187.9% in the last 3 years on a CAGR basis. This happened due to the following reasons:

i) Dampened PAT in FY18 due to Net Loss of Rs.2,189 Cr in Q4 FY18 on a steep rise in provisioning at Rs.7,180 Cr up 155% QoQ

ii) Strong Erosion in Asset Quality in Q4 FY18 vs Q3 FY18 :

iii) Gross NPA was at 6.77% from 5.28% in Q3 FY18

  • In the same period, ICICI has reported a profit growth of 33.7% and obtained a second position.
Top-5 Private Banks- Sales & Net Profit Growth 3 Years CAGR
Top-5 Private Banks- Sales & Net Profit Growth 3 Years CAGR
7) Consistency Sales and Net Profit Growth- 5 Years & 3 Years
  • In the sales and net profit growth based on 5 Years and 3 Years CAGR, HDFC Bank is the most consistent player and hence is given 5 points and first position. Sales growth and Profit Growth based on 5 years CAGR of HDFC Bank was 14.9% and 20.4% respectively. Whereas Sales Growth and Profit Growth based on 3 years CAGR, it as recorded growth of 14.6% and 21.2%.
  • The Last position in this parameter is obtained by IndusInd Bank wherein it has reported Sales and Net Profit Growth based on 5 years CAGR of 19.6% and 4.4% respectively. While in the case of 3 years CAGR, Sales Growth was 18.8% and Net Profit was in the negative territory of -7.7%.
Top-5 Private Banks- Consistency in Sales and Net Profit Growth- 5 years and 3 years
Top-5 Private Banks- Consistency in Sales and Net Profit Growth- 5 years and 3 years
8) Net Interest Income as a % of Operating Income
  • It reflects the earning of the bank from its core operations. Net Interest Income refers to the difference between the Interest Earned and Interest Expenditure.
  • The more the Net Interest Income for a bank, the better it is for a bank and vice versa.
  • ICICI Bank with the highest Net Interest Income as a % of Operating Income of 71.6% has been awarded 5 points and first rank.
  • HDFC Bank with 70.8% NII as a % of Operating Income receives the second position.
  • The lowest marks and last position is scored by Axis Bank with 61.8% NII as a % of Operating Income.
Top-5 Private Banks- Net Interest Income as a % of Operating Income
Top-5 Private Banks- Net Interest Income as a % of Operating Income
9) Retail Loan Book %:
  • Higher Retail Loan Book % of the bank shows how much the bank is Retail Oriented.
  • ICICI Bank is in the number one position with the highest retail loan book of 70.3% among all other players.
  • After ICICI Bank, Kotak Mahindra Bank and IndusInd Bank have the highest share of the retail loan in their loan book of 63.1% and 27% respectively, and hence they are ranked and scored accordingly.
  • HDFC Bank has the lowest retail loan of 47% and hence is ranked last and given only 1 point.
Top-5 Private Banks- Retail Loan Book %
Top-5 Private Banks- Retail Loan Book %
10) CASA Ratio:
  • The bank should maintain a high level of CASA ratio for determining decent profitability.
  • With the highest CASA Ratio of 60.4% among all other players on the list, Kotak Mahindra Bank wins the first position and here and takes away 5 points.
  • IndusInd Bank has the lowest CASA Ratio of 41.7% and hence ranked the lowest.
The Top-5 Private Sector Banks- CASA Ratio
The Top-5 Private Sector Banks- CASA Ratio
11) Gross NPA & Net NPA:
  • ICICI Bank is having the highest Gross NPA of 4.96% among all other concerned players in the list and hence receives fifth rank and one point only.
  • HDFC Bank has the lowest Gross NPA among all of only 1.32% and hence given full points.
  • In terms of Net NPA, Kotak Mahindra has the highest Net NPA of 1.21% and hence received 1 point and fifth position.
  • While HDFC Bank with the lowest Net NPA of 0.40% tops the list.
Top-5 Private Banks- Gross NPA & Net NPA
Top-5 Private Banks- Gross NPA & Net NPA
12) Provision Coverage Ratio (PCR):
  • ICICI Bank has made the highest provision of 77.7% in these 5 banks and therefore given 5 points and first rank.
  • IndusInd Bank (75%), Axis Bank (72%), and HDFC Bank (69.8%) are ranked second, third, and fourth respectively.
  • Whereas Kotak Mahindra Bank has the lowest Provision Coverage Ratio of 64.6% and hence given 1 point and fifth rank.
  • Also, there is a steep fall in Provision Coverage Ratio in these banks in the March Quarter as compare to the Q3FY21.
Top-5 Private Sector Banks- Provision Coverage Ratio

Top-5 Private Sector Banks- Provision Coverage Ratio
13) Net Interest Margin:
  • In this context, Kotak Mahindra Bank overperforms other banks and tops the list with the highest Net Interest Margin of 4.39% among these banks.
  • Axis Bank has the lowest Net Interest Margin of 3.56% and hence receives only one point and last rank.
Top-5 Private Sector Banks- Net Interest Margin (%)
Top-5 Private Sector Banks- Net Interest Margin (%)
14) Cost to Income Ratio:
  • Overall, Cost to Income can be considered as a performance ratio that presents the cost incurred for generating income.
  • The lower the Cost to Income ratio, the better it is and vice versa.
  • HDFC Bank has reported the lowest Cost to Income Ratio of 37.2% and hence ranked first.
  • Axis Bank has the highest Cost to Income Ratio of 43.8% and therefore ranked and scored accordingly.
Top-5 Private Sector Banks- Cost to Income Ratio
Top-5 Private Sector Banks- Cost to Income Ratio
15) Capital Adequacy Ratio:
  • Ideally, the Capital Adequacy Ratio of the bank should be a big number.
  • Here, Kotak Mahindra Bank outscores others by reporting the highest Capital Adequacy Ratio of 22.3% among all others and grabs the first position as well as full points.
  • Axis Bank with a Capital Adequacy Ratio of 19.1% is given second rank and 4 points.
  • IndusInd Bank has the lowest Capital Adequacy Ratio of 17.4% and hence marked and ranked accordingly.
Top-5 Private Sector Banks- Capital Adequacy Ratio
Top-5 Private Sector Banks- Capital Adequacy Ratio
16) Liquidity Coverage Ratio:
  • LCR is the proportion of High-Quality Liquid Assets (HQLA) set aside to meet short-term obligations over the next 30 calendar days
  • LCR can be calculated as = Bank’s High-Quality Liquid Assets / Total Net Cash outflow of the bank, over a 30-day stress period)
  • Financial Institutions with Liquidity Coverage Ration of more than 100% are considered to be safe and comfortable.
  • The higher the Liquidity Coverage Ratio, the better it is and vice versa.
  • With the highest LCR of 178, Kotak Mahindra Bank wins the first position, while Axis Bank has the lowest LCR and hence ranks the last.
Top-5 Private Sector Banks- Liquidity Coverage Ratio
Top-5 Private Sector Banks- Liquidity Coverage Ratio
17) Franchise- Number of Branches:
  • HDFC Bank has the largest network of branches of 5,608 branches in India as of March 2021 and hence tops the list with full points.
  • Next to HDFC Bank is ICICI Bank with 5,266 branches, 4 points, and a second position given.
  • The third and fourth position is acquired by Axis Bank and IndusInd Bank with 4,594 branches and 2,015 branches respectively.
  • Kotak Mahindra Bank has the lowest network of a branch of only 1,604, hence ranked last.
Top-5 Private Sector Banks- Franchise- Number of Branches
Top-5 Private Sector Banks- Franchise- Number of Branches
18) Final Score:
  • Considering the above quantitative analysis on certain parameters, HDFC Bank comes up as a clear winner among its peers with the highest 70 points.
  • ICICI Bank is in the second position with 61 points, and with 59 points IndusInd Bank obtains the third position.
  • Kotak Mahindra Bank scored 55 points and ranks fourth among its peers. Higher Valuations and Low Branches affected the ranking of this bank.
  • Axis Bank with 42 points is at the bottom of the list.
Top-5 Private Sector Banks- Final Score

Top-5 Private Sector Banks- Final Score

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.