Vanshika Kajaria

Professor Mark Deane

Banking & Insurance

10th November 2022

Comparative Analysis of Ratios that measure Bank Performance & Financial Standing

The country's largest lender, State Bank of India (SBI) (SBI.NS), expects credit growth to
remain in the double digits while increasing efforts to acquire more deposits, in which it sees
expansion in line with the sector. The bank reported a 74% increase in quarterly net profit,
owing to increased loan growth and improved asset quality. In June-September, net profit
reached a new high of 132.64 billion Indian rupees ($1.62 billion).

Axis Bank, India's fifth largest bank by market capitalization, reported a net profit of Rs
5,329.8 crore for the period July-September. The quarterly net profit increased by more than
70% compared to the same period last year — the highest growth in 25 quarters, enhanced by
an overall strong performance.

Citigroup Inc. reported a net income of $3.5 billion, or $1.63 per diluted share, for the third
quarter of 2022 on revenues of $18.5 billion. In the third quarter of 2021, net income was $4.6
billion, or $2.15 per diluted share, on revenues of $17.4 billion. Revenues increased 6% over
the previous year. Excluding the effects of divestitures, revenues fell 1%, as higher net interest
income was more offset by lower non-interest revenue. Higher net interest income was driven
by the impact of higher interest rates across businesses, as well as strong loan growth in
Personal Banking and Wealth Management, on this basis (PBWM).

Equitas Small Finance Bank reported a 6% increase in net profit for the March quarter to Rs
120 crore from Rs 113 crore the previous year, despite higher provisions even as asset quality
improved. The bank has made an additional provision for standard assets of Rs 26 crore,
bringing the total provision to Rs 123 crore, up from Rs 97 crore previously.

On a standalone basis, HDFC Bank earned a net profit of 10,055.2 crore for the quarter ending
March 2022 (Q4FY22), up 22.8% year on year. In the March quarter of last year, the bank
made a net profit of 8,186.51 crore, while the bottom line in the third quarter of FY22 was
10,342.20 crore. Profitability was pushed by good interest income, lower provisions, and asset
quality improvement. Other incomes also increased significantly, further boosting the
performance.

The credit-to-deposit (CTD) is a measure of a bank's liquidity that is calculated by dividing

the total loans disbursed by the total deposits received. It implies what percentage of a bank's
core funds are used for lending, which is the primary function of a bank. The CTD ratio is used
to assess a bank's liquidity and financial health. If it is too low, banks could not be generating
as much as they must and may not be fully mobilising their resources. If the ratio is too high,
banks may not have sufficient liquidity to cover any unexpected fund requirements, resulting
in an asset-liability mismatch. This ratio helps in measuring the asset liability spread of a bank.

From the graph below, we can analyse that small finance bank (Equitas Small Finance) has a
good credit-deposit ratio of over 100 since the past 3 years. Both the private banks also keep a
good ratio and they have a strong demand for credit in the environment. The foreign bank has
a low credit-deposit ratio of around 40 which signifies a poor credit growth as compared to
deposit growth.

Credit-Deposit Ratio
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
State Bank of Axis Bank CITI Bank Equitas Small HDFC Bank
India Finance Bank
Limited

2021 2020 2019

The Net Interest Margin is the difference between interest income and interest paid out to
lenders. It is a profitability ratio that is industry-specific for financial institutions such as banks
that give out interest-earning assets. A higher NIM would increase the lender's profitability. A
negative NIM demonstrates that the lender was not able to make good use of its assets, as
investment returns failed to offset interest expenses. As a result, NIM is an important indicator
of a lender's financial stability.

From the graph, we can see that all 5 banks are earning profits. The net interest margin is
positive for all the banks suggesting the same. The net interest margin depends on various
factors hence we cannot simply say which bank is earning more profits; however, we can see
that Equitas Small finance bank is more flexible to a changing rate environment. If we rank the
banks on the basis of NIM, Equitas Small finance is doing fairly well, followed by CITI Bank,
HDFC Bank, Axis Bank and then State bank of India.

Ratio of Net Interest Income to Total Assets

(Net Interest Margin)
9
8
7
6
5
4
3
2
1
0
State Bank of Axis Bank CITI Bank Equitas Small HDFC Bank
India Finance Bank
Limited

2021 2020 2019

The Capital Adequacy ratio (CAR), also known as the capital to risk-weighted assets ratio,
assesses a bank's financial strength through the use of its capital and assets. Its purpose is to
protect bank deposits and promote the global efficiency and stability of financial systems. The
capital adequacy ratio is determined by dividing a bank's capital by its risk-weighted assets.
This ratio tells us about the capital strength of the bank. Capital adequacy ratios help to assure
the effectiveness and stability of a nation's banking system by lowering the risk of banks going
bankrupt.
From the graph below, we can see that all 5 banks have a fair same capital adequacy ratio with
a little up and down. All the banks have an ideal capital adequacy ratio of more than 10%. It
indicates that the bank is better prepared to deal with unforeseen events because adequate
capital is available. This shows us that these banks have good financial stability and efficiency
and a strong capital.
 Capital Adequacy Ratio
30
25
20
15
10
5
0
State Bank of Axis Bank CITI Bank Equitas Small HDFC Bank
India Finance Bank
Limited

2021 2020 2019

The Net NPA ratio simply means the bank's current NPAs divided by the number of loans
provided. The rise in the NNPA ratio has a negative impact on the banks' operational and
performance capabilities. As accounts become NPAs, banks run out of funds, causing loan
interest rates to rise. Furthermore, a higher NNPA ratio harms the bank's overall public image,
and the bank loses public trust. An increase in a bank's net NPA ratio results in massive revenue
losses. A bank’s NPA is considered manageable if it is under 3%.
From the graph below, we can see that for all the banks the ratio is under 3%. No bank would
like to have NPA but due to unavoidable circumstances they do not really have an option.
HDFC bank, which is a private bank, has the lowest NPA Ratio while the public bank, State
Bank of India, has the highest ratio. This shows that private and foreign banks have low debts
compared to public and small finance banks.

Ratio of Net NPA to Net Advances

3.5
3
2.5
2
1.5
1
0.5
0
State Bank of Axis Bank CITI Bank Equitas Small HDFC Bank
India Finance Bank
Limited

2021 2020 2019

The CASA ratio indicates how much of a bank's total deposit is made up of current and savings
account deposits. A higher CASA ratio indicates that a larger portion of the bank's deposits
have come from current and savings deposits, which are generally less expensive sources of
funds. Many banks do not pay interest on current account deposits, and money held in savings
accounts earns only 3.5% interest. As a result, the higher the CASA ratio, the higher the net
interest margin, which means the bank's operating efficiency.
From the graph below, we can see that the foreign bank has the highest ratio whereas the small
finance bank has the lowest CASA ratio. Private and Public banks have fairly the same CASA
Ratio

Ratio of Demand & Savings Bank Deposits

to Total Deposits
70
60
50
40
30
20
10
0
State Bank of Axis Bank CITI Bank Equitas Small HDFC Bank
India Finance Bank
Limited

2021 2020

Ratio of secured advances to total advances = (Advances secured by tangible assets +

Advances covered by bank or Govt. guarantees) / Advances

From the graph below, we can see that the ratio is almost same for all the banks between 70-
80%. The foreign bank has the lowest ratio among the 5 of them.

Ratio of Secured Advances to Total Advances

100
80
60
40
20
0
State Bank of Axis Bank CITI Bank Equitas Small HDFC Bank
India Finance Bank
Limited

2021 2020 2019

Return on equity (ROE) is a ratio that tells investors how well a company manages the money
that its shareholders have contributed to it. In other words, return on equity assesses a
company's profitability in relation to its stockholders' equity. The higher the ROE, the more
effective management is at generating income and growth from equity financing. Return on
Equity (ROE) measures overall profitability for the firm's owners and investors by using net
income as the numerator. Stockholders are at the bottom of a firm's capital structure's pecking
order, and the income returned to them is a good measurement that represents excess profits
after paying required obligations and investing money in the business.

From the graph below, we can see that the foreign bank has the highest return on equity. CITI
Bank has the ideal ROE ratio between 15-20%. HDFC bank’s ROE for the past 3 years has
been stable. ROE has been almost nil for the year 2019 for State Bank of India.

Return on Equity
25

20

15

10

0
State Bank of India Axis Bank CITI Bank Equitas Small Finance HDFC Bank
2021 2020 2019 Bank Limited

Ranking the banks from best to worst on the basis of ROE for the year 2021 :

1. HDFC Bank
2. CITI Bank
3. Equitas Small Finance Bank Limited
4. State Bank of India
5. Axis Bank

Banks can improve their efficiency-

It is critical to recognise that long-term efficiency is impossible to achieve in the absence of a

corporate culture that encourages and values it. This necessitates top management's visible
commitment to balancing value and cost, reducing unnecessary expenditures, and
 implementing metrics and responsibility that encourage personal attention to improved
efficiency and profitability. Finally, organisational success and increased bank profitability
necessitate more than efficiency. An effective bank must be able to provide value and service
to customers at a competitive price while maintaining costs that generate an acceptable return.
Banks can increase their CASA ratio by offering higher interest rates on deposits, which will
attract more deposits, but they will also have to pay higher interest rates to depositors.
Improving corporate governance will help to improve the performance of the bank.

Ratio of Ratio of Ratio of net

Ratio of
demand & secured interest income Capital
Credit-Deposit Return on net NPA
Bank/Ratio savings bank advances to to total assets Adequacy
Ratio Equity to net
deposits to total (Net Interest Ratio
advances
total deposits advances Margin)
2021
State Bank of India 45.4 66.54 75.8 2.61 8.4 13.74 1.5
Axis Bank 44.92 88.18 73.27 3.06 7.06 19.12 1.06
CITI Bank 59.64 41.31 33.39 4.08 14.94 16.22 0.65
Equitas Small Finance
Bank Limited 34.25 102.78 81.06 8.17 12.51 24.18 1.58
HDFC Bank 46.12 84.85 70.73 3.96 16.61 18.79 0.4

Ratio of Ratio of Ratio of net

Ratio of
demand & secured interest income Capital
Credit-Deposit Return on net NPA
Bank/Ratio savings bank advances to to total assets Adequacy
Ratio Equity to net
deposits to total (Net Interest Ratio
advances
total deposits advances Margin)
2020
State Bank of India 44.23 71.73 75.95 2.57 6.4 13.06 2.23
Axis Bank 41.2 89.27 72.54 2.94 2.15 17.53 1.62
CITI Bank 55.82 42.13 41.11 4.22 19.41 15.61 0.56
Equitas Small Finance
Bank Limited 20.47 127.25 75.76 8.53 9.75 23.61 1.67
HDFC Bank 42.23 86.6 70.59 4.05 16.4 18.52 0.36
 Ratio of Ratio of Ratio of net
Ratio of
demand & secured interest income Capital
Credit-Deposit Return on net NPA
Bank/Ratio savings bank advances to to total assets Adequacy
Ratio Equity to net
deposits to total (Net Interest Ratio
advances
total deposits advances Margin)
2019
State Bank of India 44.57 75.08 76.08 2.48 0.39 12.72 3.01
Axis Bank 44.38 90.21 72.13 2.91 7.19 15.84 2.2
CITI Bank 60.32 48.17 37.23 4.46 17.94 16.49 0.51
Equitas Small Finance
Bank Limited 25.25 128.74 70.67 7.92 9.8 22.44 1.44
HDFC Bank 42.38 88.76 73.03 4.18 16.5 17.11 0.39