Table of Contents

Capital Adequacy Ratio (CAR).......................................................2

Quality of Assets...........................................................................4
Return on Equity...........................................................................6
Return on Assets...........................................................................7
Net Interest Margin.......................................................................8
Net Interest Spread.......................................................................9
Net Profit Margin.........................................................................10
Burden........................................................................................11
Other Income/Total Income.........................................................13

Capital Adequacy Ratio (CAR)

It is the measure of a bank's capital and expressed in percentage term. In
simple terms, this capital is set aside by banks to protect depositors. A lower
CAR means a bank is prone to the risk of going burst in case of any crisis.
However, a very high CAR means, the bank is not doing enough business.
It is calculated according to the Basel Accords.
CAR is made up of Tier 1 capital (Going-concern capital) and Tier 2 capital
(Gone-concern capital) divided by risk weighted assets. Tier 2 is
supplementary capital which consists of undisclosed reserves, general loss
reserves, hybrid debt capital instruments and subordinated debts. Tier 2
capital is considered less reliable than Tier 1.

SBI
ICICI
HDFC

2011
11.98
19.54
16.22

2012
13.86
18.52
16.52

2013
12.92
18.74
16.8

2014
12.96
17.7
16.07

2015
12.79
17.02
16.79

Capital Adequacy Ratio

25
20
15
10
5
0
40603

40969

41334
SBI

ICICI

41699

42064

HDFC

Analysis:

At March 31, 2015, Basel III guidelines require the Bank to maintain a
minimum CAR of 9.0%. CAR between 10 and 20 is considered good.
Indian Banks have a CAR well above the prescribed minimum of 9%.

This shows that banks are capital healthy and investor protection is
more.
Compared to HDFC and ICICI, SBI has more sub-standard assets
because more loans are given to low-income people resulting in lower
CAR. Private Banks have low NPAs compared to public sector banks
and due to higher CAR, they have been able to recover fast in times of
recession.
Over the years, with a rise in non-performing assets exerting pressure
on their profitability, Indian banks capital adequacy ratio has fallen.
This shows that banks are eyeing growth and have become slightly
more aggressive increasing their high risk capital.
We have observed from the data that the decrease in CAR is mainly
because of decrease in Tier 2 capital ratio. For example, in last 2 years
in case of SBI, Tier 2 ratio decreased from 2.98 to 2.69 while tier 1 ratio
increased from 9.98 to 10.10 resulting in overall decrease from 12.96
to 12.79. Similarly, in ICICI, Tier 2 ratio decreased from 4.92 to 4.24
while Tier 1 ratio remained the same at 12.78 resulting in overall
decrease from 17.7 to 17.02. In HDFC, Tier 2 ratio decreased from 4.3
to 3.13 while Tier 1 ratio increased from 11.77 to 13.66 resulting in an
overall increase from 16.07 to 16.79.
In March 2015, RBI issued amendments on capital adequacy which can
increase the risk weight of banks further reducing their CAR. For
example, in case of ICICI, the risk weight of 1111% applicable earlier
for certain exposures was revised to 1250%.

Quality of Assets
A Non-performing asset (NPA) is defined as a credit facility in respect of
which the interest and/or installment of Bond finance principal has remained
past due for a specified period of time. NPA is used by financial institutions
that refer to loans that are in jeopardy of default. Once the borrower has
failed to make interest or principle payments for 90 days the loan is
considered to be a non-performing asset
Gross NPA is the total number of assets which are in jeopardy of default.
Net NPA = Gross NPA (Provisions for Bad Debt)
SBI:
% of Total assets
Gross NPA
Net NPA
Provisions

2011
3.28
1.63
1.65

2012
4.44
1.82
2.62

2013
4.75
2.10
2.71

2014
4.95
2.57
2.38

2015
4.25
2.12
2.13

2011
1.05
0.20
0.85

2012
1.02
0.20
0.82

2013
0.97
0.20
0.77

2014
1.00
0.30
0.70

2015
0.90
0.20
0.70

2011
3.05
0.99
2.06

2012
3.12
1.09
2.03

2013
3.40
1.27
2.13

2014
3.78
1.61
2.17

2015
3.68
1.58
2.10

HDFC:
% of Total assets
Gross NPA
Net NPA
Provisions
ICICI:
% of Total assets
Gross NPA
Net NPA
Provisions

Gross NPA(% of total assets)

6
5
4
3
2
1
0

2010-11

2011-12

2012-13

2013-14

2014-15

Year
SBI

HDFC

ICICI

Analysis:

Low NPA of private sector banks such as HDFC and ICICI show that they
are better in performance and management of funds than public sector
banks
Compared to HDFC and ICICI, SBI have more sub-standard asset and
doubtful assets because more loans are given to low-income people
like farmers who default
SBI is less cautious while granting loans while HDFC and ICICI adopted
necessary measures to avoid any account becoming doubtful or substandard account
HDFC has lowest NPA because it sells large share of NPAs to Asset
Reconstruction Companies while ICICI does not. Thus HDFC has best
quality of assets.
Increment in NPA of ICICI and SBI was due to the slowdown in the
economy for the past few years.

Return on Equity
The amount of net income returned as a percentage of shareholders equity.
Return on equity measures a corporation's profitability by revealing how
much profit a company generates with the money shareholders have
invested.
Return on Equity = Net Income/Shareholder's Equity
Year/Bank
2011
2012
2013
2014
2015

HDFC
15.47
17.26
18.57
19.5
16.47

SBI
9.35
10.7
12.48
13.4
13.89

ICICI
11.34
13.94
14.26
9.2
10.2

Return on Equity
HDFC

ICICI

SBI

25
20
15
10
5
0
2011

2012

2013

2014

2015

Analysis:

Excluding ICICI, both HDFC and SBI experienced a downfall in the ROE
in the 2014-15 and 2013-15 fiscal years respectively.
As the profits of HDFC have been increasing steadily, so have their net
worth.
In case of SBI, net profits fell from Rs. 14105.32 Cr to Rs. 10891.51 Cr
in 2013-14. This reduction in profit margin explains the drastic fall of
ROE for the year. Furthermore the profits have soared only up-to
Rs.13101.89 Cr for the year 2014-15. Hence a small rise in that year.

Return on Assets
ROA gives an idea as to how efficient management is at using its assets to
generate earnings. It is calculated by dividing a company's
annual earnings by its total assets, ROA is displayed as a percentage.
Sometimes this is referred to as "return on investment".
ROA = Net Income/Total Assets
Year/Bank
2011
2012
2013
2014
2015

HDFC
1.57
1.68
1.82
1.9
1.89

SBI
0.73
0.91
0.97
0.65
0.68

ICICI
1.34
1.44
1.62
1.73
1.8

Return on Assests
HDFC

SBI

Column5

2
1.5
1
0.5
0
2011

2012

2013

2014

2015

Analysis:

SBI has the lowest ROA amongst the target group, its reason being the
reach of SBI in order to provide financial inclusion being a public bank.
This leads to issues arising out of inefficient use of resources.
The total assets of SBI are in the order of 20, 48,079.80 Cr, while that
of HDFC is 5, 90,503.07 Cr and 6,46,129.29 Cr for ICICI, nearly a
quarter in comparison to SBI. Hence the ROA of SBI is also lower due to
a higher base.

Net Interest Margin

A performance metric that examines how successful a
firm's investment decisions are compared to its debt situations.
Net Interest Margin = (Investment returns Investment Expenses)/Total
earning assets
Year/Bank
2011
2012
2013
2014
2015

HDFC
4.22
4
4.28
4.14
4.14

SBI
2.86
3.38
3.06
2.93
2.87

ICICI
2.34
2.44
2.74
2.91
3.07

Net Interest Margin

5
4
3

HDFC

SBI

ICICI

Column4

2
1
0
2011

2012

2013

2014

2015

Analysis:

Some of the factors affecting net interest margin can be capital

adequacy, credit risk, cost of holding reserves and operating costs.
Comparing these three banks on the amount of taxes paid, ICICI pays
the least, yet margin of HDFC is higher than that of ICICI. This could be
due to the inflated rate spread of HDFC in order to cover operating
costs.
ICICI commands the highest net interest margin signifying its healthy
returns from investments.

Net Interest Spread

Net interest spread refers to the difference in borrowing and lending rates of
financial institutions (such as banks) in nominal terms. It is considered
analogous to the gross margin of non-financial companies.
Year/Bank
2011
2012
2013
2014
2015

HDFC
8.25
8.24
8.78
8.01
8.01

SBI
6.12
6.87
5.95
5.76
6.26

ICICI
6.95
7.45
7.82
7.35
7.04

Interest Spread
HDFC

SBI

ICICI

10
8
6
4
2
0
2011

2012

2013

2014

2015

Analysis:

We can observe that HDFC has the largest average net interest spread.
This refers that it is effectively yielding the most interest rate on its
earning assets.
However the interest earnings of SBI is far greater than HDFC or ICICI
(3 times nearly), given the amount of investments it make.
Comparing similar sized banks ICICI and HDFC, the operating expenses
of HDFC is more than that of ICICI while the interest earned is less than
ICICI in year 2014-15. This could explain the inflated net rate spreads
on HDFC in order to cover costs.

Net Profit Margin

Profit margin is part of a category of profitability ratios calculated as net
income divided by revenue.
Net Profit Margin = Net Income/Total revenue
Year/Bank
2011
2012
2013
2014
2015

HDFC
16.18
15.88
16.04
17.28
21.07

SBI
9.05
10.99
11.78
7.98
8.59

ICICI
19.83
19.27
20.77
22.2
22.76

Net Profit Margin

HDFC

SBI

ICICI

25
20
15
10
5
0
2011

2012

2013

2014

2015

Analysis:

We can see the profit margins for ICICI are consistently higher than
HDFC and that of the SBI is the lowest.
For SBI again, the issue of efficient handling of resources is a big factor
due to its size of operations which drives down the profit margin.
Comparing ICICI and HDFC, the operating expenses of HDFC are
throughout more than that of the ICICI for almost comparable income
generated. This explains slightly lower margins for HDFC.
Also, cash flow of ICICI is more from investing activities and that of
HDFC is more from operational activities in the recent years.

Burden
Bank Efficiency Ratio/Burden = Non-Interest Expenses / Revenue
Costs include salaries, rent and other general and administrative expenses.
Interest expenses are usually excluded because they are investing decisions,
not operational decisions. Revenue includes interest income and fee income.
The bank efficiency ratio is a measure of a bank's ability to turn resources
into revenue. The lower the ratio, the better. An increase in the efficiency
ratio indicates either increasing costs or decreasing revenues.
Burden
SBI
ICICI
HDFC

2015
0.74
0.65
0.74

2014
0.74
0.63
0.73

2013
0.68
0.57
0.76

2012
0.76
0.57
0.76

2011
0.83
0.64
0.90

Burden
1.00
0.80
0.60
0.40
0.20
0.00
2015

2014

2013
SBI

ICICI

2012

2011

HDFC

Analysis:
2013: SBI saw a rise in total income owing to deposit growth that came from
a surge in advances to large corporates and mid corporate segment. Major
drivers in this segment have been Home Loans and Auto loans, owing to
various strategic and market oriented initiatives.

2014: Prolonged slowdown in general macroeconomic conditions impacted

business and profit of the industry. Due to higher provisioning requirement,
the growth in income did not translate into higher profits.
SBI made additional provision to cover expenses towards wage revision, one
time provision for pension due to change in mortality table and payment for
pension and gratuity. The three heads combined under the additional
provisioning accounted for 13.29% or `4,751 crores of the total operating
expenses for FY 2014.
2015: While the economy entered a new phase in 2015 with several policy
initiatives & positive trends in macroeconomic indicators, the corporate &
SME sectors continued to experience challenges given the prolonged
slowdown and gradual pace of recovery, resulting in continued additions to
non-performing and restructured loans for the banking sector.

Other Income/Total Income

Non-interest income primarily includes fee and commission, income from
treasury-related activities, dividend from subsidiaries and other income
including lease income.
Other
income
SBI
ICICI
HDFC

income/total 2015

2014

2013

2012

2011

12.9
19.87
15.66

11.98
19.1
16.14

11.82
17.24
16.35

11.87
18.28
16.12

16.28
20.38
17.87

Other Income/Total Income

25
20
15
10
5
0
2015

2014

2013
SBI

ICICI

2012

2011

HDFC

Analysis:

SBI saw an increase in other income by way of dividends from

Associate Banks/subsidiaries and joint ventures in India and abroad,
and through strategic sale of investments.
The non-interest income of ICICI Bank increased in 2014 and 2015. Fee
income increased primarily due to an increase in income from
transaction banking fees, third party referral fees and commercial
banking fees, offset, in part by a decrease in merchant foreign
exchange income and income on customer derivative transactions and
lending linked fees.
Profit from treasury-related activities increased due to higher gains on
government securities and other fixed income positions and realized
gains on equity and preference share investments, offset, in part, by
lower gains on security receipts.

HDFC recorded high revenues from foreign exchange and derivative

transactions distributed across large corporate, emerging corporate,
business banking and retail customer segments for both plain vanilla
foreign exchange products and derivatives.