Technology is playing a dominant role in the success of the new private sector banks. HDFC Bank is one of the new private sector banks, which is registering excellent financial performance year over year.
In the past one-year due to adoption of the latest technology, the private sector banks have been able to reduce their cost of operations. This has resulted in improvement in operating profit margins of most of the private sector banks. The table indicates among the private sector banks only HDFC Bank’s net profit margins have declined. However the bank continues to enjoy the highest profit margins among the new banks.
Comparative key ratios
Global Trust Bank
Operating profit margins
Net profit margins
Return on Assets
HDFC Bank has been able to improve its operating profit margins due to drop in the cost of funds from 11.9% in the previous year to 10.2% in the current year. Out of the total loan portfolio of bank current and saving account deposits accounts for 15% and the rest is accounted by time deposits. Falling interest rates in FY00 also helped the bank in reducing its borrowing cost. The bank’s technology initiatives will further contribute in increasing its profit margins.
Transaction costs are expected to fall with banks opting for Internet banking. As per some estimates if over the counter transaction costs Re 1, an ATM transaction costs 50 paise, phone banking is still cheaper at 35 paise, a debit card transaction cost just 20 paise and Internet banking would be the cheapest at 10 paise a transaction. HDFC Bank has already received 80,000 applications for Internet banking and the number of people transacting on the net is picking up. The bank has also leveraged its customer base to cross-sell various banking products, which has helped the bank to push up its revenues. For example if a customer opens a savings account with the bank, he will be offered demat account, loans against shares, personal loans, housing loans and various other products.
At the current market price of Rs 277, HDFC Bank is trading at a P/E ratio of 47 times and Price/Book value ratio of 9 times its FY00 earnings. The bank’s high growth rate is one of the reasons for its premier valuations.
HDFC Bank declared the results for the third quarter of financial year ending March 2017 (3QFY17). The bank has reported 18% YoY and 15% YoY growth in net interest income and net profits respectively in 3QFY17.
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: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407