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HDFC Bank & ICICI Bank – New kids on the block

May 27, 2000

Private sector banks in India are gearing up to provide one stop financial solutions to their customers with speed and quality being the guiding forces. The key drivers of their success has been the relentless pursuit of excellence through innovation, sound management practices and the rapid application of new technology to meet the ever growing competitive challenges in the sector. HDFC Bank and ICICI Bank are the two leading privates sector banks which have been successful in providing the technology enabled financial solutions to retail customers, corporates, small scale industries and agricultural sector for their banking requirement. HDFC Bank is the first Indian bank to launch a payment gateway solution for use in its B2C Internet transactions. Its technologically superior branch networks (115 automated branches) and high quality services backed by HDFC's reputation give it an advantage over other private sector banks.

ICICI Bank, promoted by India’s largest housing finance company ICICI, is the first in the Indian banking industry to start Internet banking. It is also the first Indian commercial bank to list on NYSE (New York Stock Exchange). The new ADR issue has enabled the bank to increase its capital adequacy ratio to 19.6% from 11.1% in FY1999. The bank’s Internet accounts increased exponentially to 110,000 from 4,000 in the previous year.

Comparative financial performance
Particulars HDFC Bank ICICI Bank
Interest income (Rs bn) 6.8 8.5
Growth 80.8% 56.8%
Net profit (Rs bn) 1.2 1.1
Growth 45.6% 66.2%
Operating profit margins 44.9% 21.8%
Net profit margins 17.7% 12.3%
CAR 12.2% 19.6%
NPAs 0.8% 1.1%
EPS (Rs) 5.9 5.4

Valuations
HDFC Bank enjoys comparatively higher valuation than ICICI Bank. One reason for the mismatch in valuation is the difference in their financial performance and asset quality. HDFC Bank enjoys comparatively higher profit margins and has lesser NPAs (Non Performing Assets) as compareed to ICICI Bank. The higher growth in sales and net profits of HDFC Bank is partly due to merger of Times Bank. Also the brand quality of HDFC group is reflected in HDFC Bank’s valuations. On the other hand ICICI Group’s valuations are comparatively low due to concerns pertaining to the higher level of NPAs. The group is aggressively trying to build its brand by reducing the level of low quality assets and by adopting the latest technology. ICICI Bank will be able to increase its profit margins with better technology, enabling it to control costs. ICICI Bank enjoys comparatively lower valuations, which are likely to be re-rated in time to come.

Comparative valuations
Particulars HDFC Bank ICICI Bank
Market Price (Rs) 229.3 212.1
Price/Book value 7.4 3.6
Market Cap (Rs bn) 55.8 41.7
Market Cap/Gross income 8.2 4.9


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