SBI vs. ICICI Bank: Which is the Better Bank? - Views on News from Equitymaster

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SBI vs. ICICI Bank: Which is the Better Bank?

Dec 31, 2010

Comparison of behemoths in any sector brings with it the risk of overlooking some competitive advantages. For instance, take a look at the biggest banking entities in India. Comparing SBI with ICICI Bank could be at the risk of ignoring their inherent traits. SBI being the government's de-facto banker has the upper hand in collecting taxes or public investments (PPF). ICICI Bank on the other hand makes the best use of its private (largely foreign) ownership and international presence. But having said that, each of the entities have been the biggest beneficiaries of India's economic growth. Nevertheless, they chose separate ways to cash in on the same.

The Fight for Market Share

Source: Equitymaster

SBI has had more than a century's presence in India's banking sector. This can be one an important reason for the lion's share that SBI has in the sector. But given the scale of fragmentation in Indian banking, credit must be given to SBI's ability to retain the share. Broadly, over the last decade, SBI has commanded double the share of the second largest player in the sector. ICICI Bank on the other hand, has been the pioneer of retail banking in India. Building on its rapid growth in the space, the private sector behemoth acquired the highest share of retail assets by FY07. But the economic crisis that unfolded thereafter forced it to sacrifice market share for quality of assets.

Know More: Which way are the markets & the mutual fund industry headed?

Margins: Then and Now

Source: Equitymaster

The difference in the business models of SBI and ICICI Bank is evident from the pattern of their respective net interest margins (NIMs). SBI has maintained NIMs in excess of 2.6% over the past decade. On the contrary, that of ICICI has crossed 2.5% just once in the past 8 years. What this means is that the former has concentrated on high margin business. Or rather on sustained margins despite larger volume of lending. ICICI on the other hand resorted to low margin lending to grow balance sheet size. As also failed to accumulate a large low cost deposit base like SBI. Nevertheless, the gap in margins has narrowed in FY10. This was equally due to the fallout of SBI's affinity to teaser loans. As also ICICI Bank's focus on low cost deposits (CASA). Ability to re-price loans has also had an impact on the margins.

Recognition of Quality

*ICICI Bank's net NPAs shot up in FY03 due to merger with ICICI Ltd.

Neither SBI nor ICICI Bank has a stellar record when it comes to asset quality. Their smaller PSU and private sector peers have beaten them hands down in retention of asset quality. Nevertheless between the two, SBI has been more cautions in terms of quality of lending. Most of SBI's asset slippages have been due to government induced lending to priority sectors. Or they have borne the brunt of restructured assets. ICICI Bank's on the other hand has been bad primarily due to its voluntary effort to lend for poor quality of assets. Having said that, over the past two years, ICICI Bank has stepped up both its focus on quality as well as its provisioning efforts.

Returns to Shareholders

Source: Equitymaster

SBI wins hands down when it comes to the returns that the banks have generated for shareholders. Both higher market share and better margins have played a role in this. But more importantly, SBI has never resorted to investments in high risk speculative instruments. And instead focused on its strengths of large franchise and low cost deposit base. ICICI Bank's frequent equity dilution has also impacted its return on equity.

Which is the Better Bank?

As we said earlier, SBI's government backing makes it the more 'safer' entity. ICICI Bank by itself does not have the reputation of good quality assets. But it is certainly striving to achieve the same. Both in terms of margins and returns, SBI has had an edge and will continue to have it in the medium term. Having said that investors must carefully weigh the future prospects of both the entities vis-a-vis their respective valuations before taking their pick.

Latest Update on SBI and ICICI Bank

In the years since this piece was posted, both SBI and ICICI Bank have grown multifold in terms of business and financials.

SBI's share price hasn't seen much improvement and has grown at a -4% Compound Annual Growth Rate (CAGR) over the past ten years. ICICI Bank's share price on the other hand has grown at a CAGR of 6.9% over the same period.

SBI is the oldest and largest commercial bank in India. Having straddled across scores of economic cycles, SBI is a seasoned player in every sort of crisis. And apart from its role as the government's de facto banker, SBI has taken measures to bridge gap with private sector banks.

The government-controlled bank operates one of the world's largest branch network, with more than 13,500 branch offices throughout India.

Average return on equity (ROE) for the bank stands at 8.3% over the past 10 years.

It now stands at a market cap of about Rs 1,820,620 million.

You can see SBI company fact sheet here.

On the other hand, ICICI Bank is one of the leading private sector banks in India. The bank's consolidated total assets stood at Rs 13.77 trillion at March 31, 2020. The private lender currently has a network of 5,324 branches and 15,688 ATMs across India. ICICI Bank is the first Indian Bank to list on New York Stock Exchange.

Average return on equity (ROE) for the private lender stands at 12.1% over the past 10 years.

It stands at a market cap of about Rs 2,592,140 million.

You can see the ICICI Bank company fact sheet here.

How the Valuations Changed Over the Years?

For the purpose of our analysis we compare the average P/E, P/BV and EV/EBITDA multiples as on March 2020 financials.

Valuation Ratios EV/EBITDA P/E P/BV
SBI 6.8x 8.9x 0.8x
ICICI Bank 12.6x 22x 1.8x
Data Source: Ace Equity

Keep a track of the latest valuations for both the companies here and here respectively.

You can see a comparison between both the companies' latest financials here.

Do check out the current share price of SBI and share price of ICICI Bank.

You can also see the latest share price of banks here.

Equitymaster requests your view! Post a comment on "SBI vs. ICICI Bank: Which is the Better Bank?". Click here!

15 Responses to "SBI vs. ICICI Bank: Which is the Better Bank?"


Jan 4, 2011

I am a ICICI bank customer since 1996. I have SB, Current, FDs, Bonds, Demat, Online Trading, Housing Loan, Credit Card, Online Transaction/Account Operations etc.Never I had ATM fault! Only once I had a cheque related problem and a staff from clearing office visited my house and apologized for the mistake took immediate corrective action. It all depends how we operate/manage our accounts/relationship.

Like (3)


Jan 4, 2011

A very apt and objective comparison. I would also like to point out some of the following points:
1. SBI has more than 16000 ATMs. So when one wants to withdraw money in TIER-II/III cities or rural centres, one invariably turns to SBI ATM. also, with RBI allowing certain minimum number of transactions by customers from other bank's ATM for free, SBI is loosing out to exploit this big opportunity. Never came acroos anybody making a hue and cry over this.
2. True 'SBI being the government's de-facto banker has the upper hand in collecting taxes or public investments (PPF)' but it is also forced to operate in the remotest corner of the country. Has anybody ever seen an ICICI bank in jungles of Jharkhand or hills of Arunachal. Also, higher priority sector lending is the price SBI pays for the government support.
3. SBI being governed by government guidelines is not able to pay higher salaries to its employees, thus loosing out on attracting the best of talent in Banking industry.
The playing field is never level, every body has to play in the skewed environment.

Like (3)

ramgopal bagla

Jan 3, 2011

I rely much on SBI. I have always found that services of ICICI as poor and irritating. In case of ICICI-insurance it presents a negative picture.

Like (3)


Jan 3, 2011

I am in favour of ICICI Because number of times I failed to draw money from my own account in SBI ATM.But I Could draw from ICICI ATM quoting SBH account number.WHY? It is due to poor service of SBI/SBH ATM'S.

Like (3)

Mandar Vaze

Jan 3, 2011

As expected, Equitymaster has criticised ICICI Bank. In general Equitymaster is independent, but when it comes to ICICI Bank, no matter what, it is a bad boy for them! And what's the conclusion? - Investors have to watch.... So what is Equitymaster's value add on for this article?

Like (3)
Equitymaster requests your view! Post a comment on "SBI vs. ICICI Bank: Which is the Better Bank?". Click here!

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