Comparative Analysis Of HDFC and ICICI Banks Submitted to: Prof. Sandhya Prakash
Submitted by: Sharma Mohit Jitendrakumar Jitendrakumar PG20102197
Contents
1) Company profile of HDFC BANK & ICICI BANK 2) Corporate Governance of HDFC BANK & ICICI BANK 3) Share Holding Pattern of HDFC BANK & ICICI BANK 4) Dividend Policy of HDFC BANK & ICICI BANK 5) Cost of Capital Analysis of HDFC BANK & ICICI BANK 6) Cost of Equity of Analysis of HDFC BANK & ICICI BANK 7) WACC Analysis of HDFC BANK & ICICI BANK
Company Profile
Company Profile of HDFC Bank The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995. HDFC Bank’s mission is to be a World-Class Indian Bank. The objective is to build sound customer franchises across distinct businesses so as to be the preferred provider of banking services for target retail and wholesale customer segments, and to achieve healthy growth in profitability, consistent with the ba nk’s risk appetite. The bank is committed to maintain the highest level of ethical standards, professional integrity, corporate governance and regulatory compliance. HDFC Bank ’s business philosophy is based on four core values – Operational Excellence, Customer Focus, Product Leadership and People.
Company Profile of ICICI Bank ICICI Bank Limited (the Bank) is a banking company. The Bank, together with its subsidiaries, joint ventures and associates, is a diversified financial services group providing a range of banking and financial services, including commercial banking, retail banking, project and corporate finance, working capital finance, insurance, venture capital and private equity, investment banking, broking and treasury products and services. It operates under four segments: retail banking, wholesale banking, treasury and other banking. Retail Banking includes exposures, which satisfy the four criteria of orientation, product, granularity and low value of individual exposures for retail exposures. Wholesale Banking includes all advances to trusts, partnership firms, companies and statutory bodies, which are not included under Retail Banking. Treasury includes the entire investment portfolio of the Bank. Other Banking includes hire purchase and leasing operations and other items.
Corporate Governance Corporate governance of HDFC Bank HDFC Bank recognizes the importance of good corporate governance, which is generally accepted as a key factor in attaining fairness for all stakeholders and achieving organizational efficiency. This Corporate Governance Policy, therefore, is established to provide a direction and framework for managing and monitoring the bank in accordance with the principles of good corporate governance.
Corporate governance rating The bank was amongst the first four companies, which subjected itself to a Corporate Governance and Value Creation (GVC) rating by the rating agency, The Credit Rating Information Services of India Limited (CRISIL). The rating provides an independent assessment of an entity's current performance and an expectation on its "balanced value creation and corporate governance practices" in future. The bank has been assigned a 'CRISIL GVC Level 1' rating for the second consecutive year, which indicates that the bank's capability with respect to wealth creation for all its stakeholders while adopting sound corporate governance practices is the highest. Management Details
Chairperson - C M Vasudev MD - Aditya Puri Directors - A N Roy, Aditya Puri, Anami N Roy, Arvind Pande, Ashim Samanta, Bobby Parikh, C M Vasudev, Chander Mohan Vasudev, Gautam Divan, Harish Engineer, Jagdish Capoor, Keki Mistry, Pandit Palande, Paresh Sukthankar, Partho Datta, Renu Karnad, Sanjay Dongre, Shailendra Bhandari
Business Operation
Bank - Private
Code of Governance policy The Bank believes in adopting and adhering to the best recognised corporate governance practices and continuously benchmarking itself against each such practice. The Bank understands and respects its fiduciary role and responsibility to shareholders and strives hard to meet their expectations. The Bank believes that best board practices, transparent disclosures and shareholder empowerment are necessary for creating shareholder value.
The Bank has infused the philosophy of corporate governance into all its activities. The philosophy on corporate governance is an important tool for shareholder protection and maximization of their long term values. The cardinal principles such as independence, accountability, responsibility, transparency, fair and timely disclosures, credibility, etc. serve as the means for implementing the philosophy of corporate governance in letter and spirit.
Committees HDFC has the following committees: 1. 2. 3. 4. 5. 6. 7. 8. 9.
Audit & Compliance Committee Risk Monitoring Committee Compensation Committee Credit Approval Committee Investor Grievance Committee Premises Committee Customer Service Committee Nomination Committee Fraud Monitoring Committee
Corporate Governance of ICICI Bank Company s philosophy on code of governance ’
Our corporate governance policies recognize the accountability of the Board and the importance of its decisions to all our constituents, including customers, investors, employees and the regulatory authorities, and to demonstrate that the shareholders are the cause of and ultimate beneficiaries of our economic activities. The functions of the Board and the executive management are well-defined and are distinct from one another. We have taken a series of steps including the setting up of sub-committees of the Board to oversee the functions of executive management. These sub-committees of the Board which mainly consists of non-executive directors, meet regularly to discharge their objectives.
Board of Directors Board consists of eight members, and is responsible for the management of our business. The Board’s role, functions, responsibility and accountability are clearly defined. In addition to its primary role of monitoring corporate performance, the functions of the Board include: • approving corporate philosophy and mission; • participating in the formulation of strategic and business plans; • reviewing and approving financial plans and budgets; • monitoring corporate performance against strategic and business plans, including overseeing operations; • ensuring ethical behavior and compliance with laws and regulations; • reviewing and approving borrowing limits; • formulating exposure limits; • K eeping shareholders informed regarding plans, strategies and performance
Committees 1. 2. 3. 4. 5. 6. 7. 8. 9.
Audit Committee, Board Governance Remuneration & Nomination Committee Corporate Social Responsibility Committee Credit Committee Customer Service Committee Fraud Monitoring Committee Risk Committee, Share Transfer & Shareholders Inve stors’ Grievance Committee Committee of Executive Directors.
Share Holding Patterns
Share Holding Pattern of HDFC Face value No. Of Shares
% Holding
30/06/2011 10 No. Of % Shares Holding
31/03/2011 31/12/2010 10 10 No. Of Shares % Holding
Promoter's holding
Indian Promoters
108643220
23.28
108643220
23.35
108643220
23.4
Sub total
108643220
23.28
108643220
23.35
108643220
23.4
Non promoter's holding Institutional investors
Banks Fin. Inst. and Insurance FII's
31603211 136452749
6.77 29.23
32254112 132723097
6.93 28.53
32472263 136392436
6.99 29.37
Sub total
188417871
40.37 186744925 Other investors
40.14
186822609
40.23
Private Corporate Bodies NRI's/OCB's/Foreign Others GDR/ADR Govt
40935968
8.77
40552046
8.72
39500903
8.51
5024569 81131395 8500
1.08 17.38 -
5669312 81142391 -
1.22 17.44 -
5690568 81128819 -
1.23 17.47 -
Sub total General public
127097123 42609613
27.23 9.13
127360240 42473790
27.38 9.13
126316781 42543842
27.2 9.16
Grand total
466767827
100
465222175
100
464326452
100
Share Holding Pattern of HDFC BANK General public
Indian Promoters 24%
GDR/ADR 18%
Banks Fin. Inst. and Insurance 7%
NRI's/OCB's/Foreign Others 1% Private Corporate Bodies 9%
FII's 31%
Share Holding Pattern of HDFC Bank includes that co. has distributed their 23.28% of shares to their Promoters and rest distributed among Non-Promoters which shows that their 40.37% of shares are distributed to their Institutional investors and rest 27.23% of shares are distributed to their other investors.
Share Holding Pattern of ICICI Bank PARTICULARS
HOLDINGS
Deutsche Bank Trust Company Americas (Depositary for ADS holders)
26.99
FIIs, NRIs, Foreign Banks, Foreign Companies, OCBs and Foreign Nationals
39.48
Insurance Companies
16.64
Bodies Corporate
4.02
Banks & Financial Institutions
0.08
Mutual Funds
7.32
Individuals
5.47
Total
100.00
SHARE HOLDING PATTERN OF ICICI BANK
5.47 0.08 4.02
7.32 26.99
Deutsche Bank Trust Company holders) FIIs, NRIs, Foreign Banks,
16.64
Ins. CO. 39.48
Share holding pattern of ICICI Bank includes that the company has invested their 26.99% of shares in Deutsche Bank and 39.48% in FIIs, NRIs and in Foreign Banks and the co. has also invested their share in Insurance Co. which is ICICI Prudential as their subsidiary co. with 16.64% even in Mutual funds co. have 7.32% of shares and Individuals have 5.37% of share.
Capital Structure Analysis Capital structure of HDFC Bank
From Year
To Year
2010
2011
2009
2010
2008
2009
2007
2008
2006
2007
2005
2006
2004
2005
2003
2004
2002
2003
2001
2002
2000
2001
1999
2000
1995
1999
Class Of Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share
Authorized Capital
Issued Capital
Paid Up Shares (Nos)
Paid Up Face Value
Paid Up Capital
550
465.23
465225684
10
465.23
550
457.74
457743272
10
457.74
550
425.38
425384109
10
425.38
550
354.43
354432920
10
354.43
450
319.39
319389608
10
319.39
450
313.14
313142408
10
313.14
450
309.88
309875308
10
309.88
450
284.79
284791713
10
284.79
450
282.05
282045713
10
282.05
450
281.37
281374613
10
281.37
300
243.6
243596261
10
243.6
300
243.28
243278261
10
243.28
300
200
200000000
10
200
Capital Structure Pattern of ICICI Bank Period
From
Instrument
To
2010
2011
2009
2010
2008
2009
2007
2008
2006
2007
2005
2006
2004
2005
2003
2004
2001
2002
2000
2001
1999
2000
1997
1999
1995
1997
1994
1995
Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share
Authorized Capital (Rs. cr)
Issued Capital (Rs. cr)
1275
-PAIDUPShares (nos)
Face Value
Capital
1151.77
1151772372
10
1151.77
1275
1114.85
1114845314
10
1114.85
1275
1113.25
1113250642
10
1113.25
1275
1112.69
1112687495
10
1112.69
1000
899.27
899266672
10
899.27
1000
889.82
889823901
10
889.82
1550
616.39
616391905
10
616.39
1550
613.02
613021301
10
613.02
300
220.36
220358680
10
220.36
300
196.82
196818880
10
196.82
300
196.82
196818880
10
196.82
300
165
165000700
10
165
300
150
150000700
10
150
300
150
700
10
0
A strong capital base is the number one issue to consider before investing in a lender. Almost all the private banks managed to raise adequate funds in 2010 and thus maintain Capital Adequacy ratios in FY10 well above the mandatory nine percent stipulated by RBI. None of the banks seem to be very highly leveraged either, with SBI being on the higher side. However the NPA (Non-Performing Assets) levels tell a story as well. ICICI Bank stands out with the poorest record on NPAs, and given the overall deteriorating credit quality scenario (due to the slowing economy), should give investors cause for concern. On the flip side, Yes Bank in particular, Axis Bank, and HDFC Bank are managing NPA levels nicely.
Dividend Policy Analysis Dividend Policy of HDFC Bank Bank has had a consistent dividend policy that balances the dual objectives of appropriately rewarding shareholders through dividends and retaining capital, in order to maintain a healthy capital adequacy ratio to support future growth. It has had a consistent track record of moderate but steady increases in dividend declarations over its history with the dividend payout ratio ranging between 20% and 25%. Consistent with this policy, and in recognition of the overall performance during this financial year, the Bank has declared a dividend of Rs. 16.50 per share for the financial year ended March 31, 2011, as against Rs. 12 per share for the year ended March 31, 2010. This dividend shall be subject to tax on dividend to be paid by the Bank.
Year
Month
Dividend (%)
2011 2010 2009 2008 2007 2006 2005
Apr Apr Apr Apr Apr Apr Apr
165 120 100 85 70 55 45
Dividend Policy of ICICI Bank
Announcement Date
28-04-11 26-04-10 27-04-09 28-04-08 30-04-07 29-04-06
Effective Date
2/6/2011 10/6/2010 11/6/2009 10/7/2008 14-06-07 6/7/2006
Dividend Type
Dividend (%)
Final Final Final Final Final Final
140 120 110 110 100 85
Remarks
AGM AGM AGM
For the year ending March 2011, ICICI Bank has declared an equity dividend of 140.00% amounting to Rs 14 per share. At the current share price of Rs 864.05 this results in a dividend yield of 1.62%. The company has a good dividend track report and has consistently declared dividends for the last 5 years.
Dividend Policy Dividend Yield: We generally measure the dividends paid by a firm using one of two measures. The first is Dividend Yield, which relates the dividend paid to the price of the stock. Dividend Yield= Annual Dividends per share/ price per share The second widely used measure is Dividend Payout Ratio, which relates dividend paid to the earning of the firm Dividend payout ratio= Dividends/ Earnings (EBIT(1-t))
Cost of Capital Analysis Cost of Capital of Debt for HDFC Bank.
=
∗ (1− )
X100
Amount as per the Balance sheet March ’11( Rs.in billions Annual Interest rate PBT Tax PAT Total Debt ( Unsecured loan ) Tax rate =
93.8508 58.14 18.9286 39.2722 2085.85
18.92 * 100
( Here Tax=18.92 and PBT=58.14 )
58.14 Tax rate=
32.54
So in percentage tax rate will be 0.3254% There for,
=
∗ (1 − )
100
Here Annual Interest =93.85, Tax rate = 0.3254, Total debt= 2085.85 =
93.85 ∗ (1 − 0.3254) 2085.85
=
93.85 ∗ 0.6746 2085.85
=
63.31 2085.85
100
100
= 0.0303100
= 3.03%
100
Cost of Capital of Debt for ICICI Bank
=
∗ (1− )
X100
Amount as per the Balance sheet March ’11(Rs. in billions) Annual Interest rate ( as per B/S 2011) PBT Tax PAT Total Debt ( Unsecured loan ) Tax rate =
169.57 67.19 16.09 51.10 2256.02
16.09 * 100
( Here Tax=16.09and PBT=67.19 )
67.19 Tax rate=
23.947
So in percentage tax rate will be 0.2394% There for,
=
∗ (1 − )
100
Here Annual Interest =169.57, Tax rate = 0.3148, Total debt= 2256.02 =
169.57 ∗ (1 − 0.2394)
=
2256.02 169.57 ∗ 0.7605 2256.02 =
128.95 2256.02
100
100
= 0.0571100
= 5.71%
100
Cost of Capital of Equity
Cost of Capital of Equity for HDFC Bank
= + ( – ) Here: Rf= Risk free rate of return
β= Beta value of bank Rm= Market rate Rf= Risk free rate of return. As per the Market Rf= 8%, Beta for HDFC=1.01and Rm =9% There for, Ke= 8%+1.01( 9%-8%) Ke= 8+1.01(1)
Ke = 9.01% Cost of Capital of Equity for ICICI Bank
= + ( – ) Here: Rf= Risk free rate of return = Beta value of bank Rm= Market rate Rf= Risk free rate of return.
As per the Market Rf= 8%, Beta for ICICI=1.33and Rm =9% There for,
Ke= 8%+1.33( 9%-8%)
Ke= 8+1.33(1)
Ke = 9.33% Return on Equity (RoE) and Return on Assets (RoA) These metrics are the de-factor standards for gauging bank profitability. Generally investors should look for mid- to high-teen returns on equity. It is easy to boost a bank's earnings in the short term by under-provisioning or leveraging up the balance sheet, which can be unduly risky over the long term. For this reason, it is good to see a high level of return on assets as well. For banks, a top RoA is in the 1.2 to 1.4 percent range There are only three levers for boosting ROE: Net Margin, Asset Turnover and Financial Leverage. Again, among all the private banks, ICICI Bank has the poorest record.
Weighted Average Cost of Capital Analysis WACC for HDFC Bank Amount as per Balance sheet March ’11 Particulars Equity Debt Total
Capital value 465.23 208586.01 209051.04
Market Share 9.01% 3.03%
=
=
(Rs. In crore)
6362.03 209051.04
Total 41.87 6320.15 6362.03
100
100
WACC = 3.04%
WACC for ICICI Bank Amount as per Balance sheet March ’11 Particulars Equity Debt Total
Capital value 1151.82 225602.11 226753.93
=
= WACC = 5.72%
(Rs .in crores.) Market Share 9.33% 5.71%
12989.34 226753.93
100
100
Total 107.46 12881.88 12989.34
Weighted Average Cost of Capital (WACC) According to the findings of both banks WACC this is clear that HDFC bank is the best player in market in private bank than ICICI bank because the WACC of HDFC bank is 3.04% where as the WACC of ICICI bank is 5.71% so it is conclude that HDFC plays a vital role in saving their cost in market.
Comparative Analysis: The Banking sector in India - even private banks - has seen some compelling valuations of late. Like me, if you are looking to identify the best pockets of value, (and looking at say HDFC Bank or ICICI Bank, both of which trade publicly in the U.S.), additional perspective can be gained from a quick peer comparison against the most important metrics for analyzing bank stocks. Let's see how the private banks peer comparison throws up the best and the worst managed in India.
Overall verdict: There might be some big concerns on derivatives exposures and other contingent liabilities that are not reflected in this snapshot. However, if you are to choose between the two U.S.-listed Indian banks, ICICI Bank and HDFC Bank, HDFC Bank is the clear winner. It has grown at a similar 40% plus five-year CAGR to ICICI bank, maintaining high RoE. In fact, it has the best RoA record, at 1.42%, among all Indian banks. Its NIM record is unmatched, and to its credit, it has proven conservative in managing and provisioning for NPAs.
Thank You
