Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Private banks: Going retail - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • May 23, 2001

    Private banks: Going retail

    The private banking sector has recorded an excellent financial performance during the year ended March '01. Interest income of the sector grew by 54% and operating profits witnessed a similar growth rate. We have included five major private sector banks - HDFC Bank, ICICI Bank, Global Trust Bank (GTB), UTI Bank and IDBI Bank in our sector study.

    (Rs m) FY00 FY01 Change
    Interest Income 31,353 48,278 54.0%
    Other Income 6,493 8,026 23.6%
    Interest Expenditure 22,739 35,175 54.7%
    Operating Profit (EBDIT) 8,614 13,104 52.1%
    Operating Profit Margin (%) 27.5% 27.1%  
    Other Expenditure 5,767 10,392 80.2%
    Profit before Tax 9,340 10,737 15.0%
    Provisions & contingencies 2,949 3,136 6.3%
    Tax 1,933 2,031 5.1%
    Profit after Tax/(Loss) 4,458 5,571 24.9%
    Net profit margin (%) 14.2% 11.5%  
    No. of Shares (eoy) 816.2 833.6  
    Diluted Earnings per share 21.4 26.7  
    P/E (at current price)   17.3  
    Price/Book value   2.8  

    However, the topline growth and operating margins were affected adversely during the fourth quarter of the year for most of the banks. This was mainly due to a slowdown in economic and industrial activity.

    The operating margins of the private sector banks which showed a sharp improvement until the second quarter of the year, witnessed a steep decline in the last two quarters of the year. The decline was on the back of higher interest cost. While the OPM of other private sector banks fell, ICICI Bank was the only one which showed a substantial rise in margins (over 1,000 basis points).

    Investments in infrastructure (ATMs and branch renovation), e-initiatives (such as back office automation apart from Internet banking) and rising employee costs resulted in over 80% growth in other expenses during the year. Cost to income ratio of the sector which stood at 38% in FY00 rose to 49% in FY01. Nevertheless, the initiatives taken by these banks will payoff in the long term by widening the distribution network and will bring more cross-selling opportunities.

    Due to increased investments in preference shares and bonds, the effective tax rate declined to 19% from 21% in the previous year. Also lower provision for depreciation in the value of investments as per RBI guidelines resulted in higher net profits.

    Private sector banking stocks witnessed volatile activity during the year, fueled by the news of mergers & acquisitions, over exposure to capital market activities and expectation of interest rate cuts. The sector currently gets a valuation of 17 times FY01 earnings. The price to book value ratio of 3 times reflects the depressed bottomline of most of the banks (due to high operating expenses and higher provisions) which is likely to improve in the next 2-3 years, once the distribution network is set. The future valuation of the sector depends on efficiently maintaining the high growth in revenues and generating higher returns from the amount invested in technology improvement.



    Equitymaster requests your view! Post a comment on "Private banks: Going retail". Click here!


    More Views on News

    SBI: Asset Quality and Slow Credit Remain Achilles' Heel (Quarterly Results Update - Detailed)

    Aug 22, 2017

    State Bank of India (SBI) continues to battle sliding asset quality and sluggish credit growth.

    IDFC Bank: Strong Trading Income Shields Credit Slowdown (Quarterly Results Update - Detailed)

    Aug 10, 2017

    IDFC Bank is taking steps to address contracting NIMs and successfully transition in to a retail bank.

    ICICI Bank: Loan Slippages Trending Downwards (Quarterly Results Update - Detailed)

    Aug 10, 2017

    Asset quality will be the key thing to watch out for going forward.

    Should You Take SBI Chief's Advice and Load up on SBI Shares? (The 5 Minute Wrapup)

    Jul 6, 2017

    Does the stock score on the value versus price equation?

    AU Small Finance Bank Ltd. (IPO)

    Jun 27, 2017

    Should one subscribe to the IPO of AU Small Finance Bank Ltd?

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 23, 2017 (Close)