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Banking stocks have taken a beating on account of poor asset quality and tepid credit growth during the last few months. Based on their exposure to toxic assets, public sector banks have felt the brunt of the attack with private sector players remaining largely sheltered. However, the March 2015 quarter numbers show that the problem of bad assets has percolated down to some of the aggressive private sector banks.
As in the case of software sector, where analysts compare numbers of Infosys and TCS, in the banking space there is generally a comparison between the two private sector giants -- HDFC Bank and ICICI Bank. Among the two, HDFC Bank has been an all-time favourite among analysts. The March 2015 quarter numbers goes on to strengthen their case.
Market reflects this bias both in valuation as well as in price movement. On a historic basis, HDFC Bank trades at a price to book ratio of 4.07, while ICICI Bank trades at 2.38 times. During the current weakness in markets, HDFC Bank has slipped by 5% cent while ICICI Bank has fallen by nearly 10%.
For the March 2015 quarter, HDFC Bank posted a 20.6% YoY net profit growth to Rs 2,806.9 crore while its overall loan growth was 21%, with retail growth now matching corporate growth. Auto segment posted over 20% growth with the commercial vehicle segment posting an 8% growth as compared to a contraction in first half.
Thanks to a pick-up in retail credit growth pre-provisioning operating profit growth is above 20%, first time in the last 10 quarters. CASA grew by 19.6% taking their contribution to 44% of the overall deposits. Importantly the bank has been able to shelter itself from the deterioration in asset quality.
Gross NPAs was down on a QoQ basis to 0.9% as compared to 1.0% in the previous quarter and its restructured book was flat. HDFC Bank said that they have sold 80% of their Rs 550 crore exposure in a stressed account to Asset Reconstruction Companies (ARCs). The bank received Rs 250 crore of cash on account of the sale and had a loss of Rs 200 crore on it which they have fully provided through their floating provisions. The bank does not expect similar write-downs in future. HDFC Bank has made excess provisions of Rs 1,500 crore to provide additional comfort.
Now let’s have a look at ICICI Bank’s numbers. The bank posted a 10% growth in net profit to Rs 2,922 crore with CASA accounting for 45.5% of the deposit and growing by 15%. Apart from slower profit and low cost deposit growth ICICI Bank has taken a hit on its asset quality. The bank reported fresh restructuring of Rs 1,247 crore while 25% of its restructured assets have turned NPAs.
Gross NPA of ICICI Bank has deteriorated further increasing from 3.03% to 3.78% while Net NPA has increased from 1.86% to 1.92% on a YoY basis. Unlike HDFC Bank, ICICI Bank has not sold any NPAs to ARCs.
Commenting on HDFC Bank’s results Citi Research says that the bank is well ahead of its private peers and is all set to step on the accelerator. The report adds that HDFC Bank is growing in most segments by 20% advises not to be surprised if the banks grows by 25% by end of FY16. Nomura also expects quality of earning and market share gains for HDFC Bank.
Clearly, ICICI Bank has a lot of catching up to do on all parameters.
