FINANCIAL ANALYSIS: BANKING

SECTOR

Objectives
The objective of the project is to analyze three players in the banking industry in India,
namely:
1. HDFC bank : A large cap bank, with highest growth rate for last few years
2. Axis Bank: It is showing a steady growth for the last few years
3. Yes Bank : A smaller bank, newest in the industry but growing rapidly
These would be gauged to take decisions on the following fronts:
1. Short Term Investment
2. Short Term Lending
3. Long Term Investment
4. Long Term Lending
5. Strategic Decision

Ratios Used
Short Term Investment
Risk
Beta

Return
P/BV
PAT Growth

Long Term Investment

Short Term Lending

Efficiency

Performance

NII Growth

Return on Equity P/B Ratio

NIM

EPS

Gross NPA %

Dividend Yield

Cost/ Income
Ratio

Risk

Cash/Deposit Ratio
Funding Volatility Ratio

Strategic Decision
CAR
NPA

Long Term Lending

Need of Funds

Use of Funds

Risk

Growth in Gross Block

Return on Assets

Gross NPA %

Loan Growth

Credit/Deposit Ratio

Deposit Growth

CAR

CASA Ratio

Short Term Lending

Banks mainly need short term funds to fulfill regulatory requirements. These include the
following:
Cash Reserve Ratio: Banks are required to keep a certain percentage of their net
demand and time liabilities in the form of cash in a current account with RBI. This ratio
is 4% currently. Of this, 95% has to be maintained on a daily basis, and complete 4% to
be reported fortnightly.
Statutory Liquidity Ratio: Banks are required to keep a part of their total deposits as
invested in approved securities, predominantly central government securities. Currently
the ratio is 22%.
Liquidity Coverage Ratio: Banks are required to hold an amount of highly-liquid
assets, equal to or greater than their net cash outflow over a 30 day period. This was
proposed under Basel III to be at least 100%. RBI intends to introduce LCR in a phased
manner starting with a minimum requirement of 60% from January 1, 2015 and
reaching minimum 100% on January 1, 2019.

Short Term Lending

Common terms in Money Market and inter-bank lending:
Call Money Market Notice Money Market Term Money Market
Repo: A repurchase agreement between bank and RBI. In a way, collateralized
lending by RBI to banks
Bank Rate: Also referred as the discount rate, it is the rate of interest which a central
bank charges on the loans and advances that it extends to commercial banks and
other financial intermediaries. Currently it is 9%.
T-Bills: Issued by RBI on behalf of GoI. At present three types of treasury bills are
issued through auctions - 91 day, 182 day and 364 day treasury bills.
CD: Issued by banks and DFIs for short term funds for 3 months to 1 year period.
CP: Issued by listed companies for working capital needs for 7 days to 1 year period
MIBOR: Mumbai Inter Bank Offered Rate. Inspired from LIBOR, not used much
currently.

Short Term Lending

Cash to Deposit Ratio:
All the three banks have seen
decrease in Cash/Deposit ratio over
years. Though there is slight increase
in ratio for last two years.
HDFC has the highest ratio and hence
may not be needing short term debt
and on the other hand Yes bank has
relatively smaller ratio and hence more
likely to look for short term debt.

Cash to deposit
ratio

2011

2012

2013

2014

2015

HDFC bank

10.79

8.81

5.46

6.02

6.46

Axis bank

7.07

6.01

5.39

5.97

6.11

Yes bank

6.97

5.69

4.88

5.58

5.92

Short Term Lending

Funding Volatility Ratio:
Calculated as:
Liquid assets / current and savings
deposits
Axis bank is increasing its FVR and
hence getting less stable over the
time.
Yes Bank has reduced its ratio
drastically as it expanded.
HDFC has lowest FVR, but has
reduced it over the years.

FVR

2011

2012

2013

2014

2015

HDFC bank

0.27

0.175

0.194

0.24

0.183

Axis bank

0.275

0.152

0.182

0.223

0.25

Yes bank

0.736

0.485

0.32

0.36

0.359

Long Term Lending

Return on Assets:
Return on Assets is increasing steadily
in case of HDFC Bank, which makes it
the best option for long term lending.
Axis bank and Yes Bank have shown
less growth in return on assets and thus
should not be preferred for lending
funds.

Return on Assets

2011

2012

2013

2014

2015

HDFC bank

1.4

1.5

1.7

1.7

1.8

Axis bank

1.4

1.5

1.5

1.6

1.6

Yes bank

1.2

1.3

1.3

1.5

1.5

Long Term Lending

Credit/ Deposit Ratio:
Credit/ Deposit Ratio of Axis Bank has
improved, while there is less increase in
HDFC as compared to Axis bank
Axis needs long term funds to finance
the credit it is currently giving and thus
should be preferred in lending money.
Yes Bank has a jump in C/D ratio but
still is not utilizing its funds.

Credit to deposit
ratio

2011

2012

2013

2014

2015

HDFC bank

76.02

76.02

80.14

81.79

81.71

Axis bank

74.65

74.65

77.58

80.03

84.71

Yes bank

77.75

77.75

73.2

72.71

79.33

Long Term Lending

Balance sheet size:
We can get to know the increase in
deposits and advances indirectly by
increase in balance sheet size
HDFC has shown very high growth and
might need bigger infrastructure for
such big operations and hence in need
of long term debt.

Total Assets
HDFC bank
Axis bank
Yes bank

2011

2012

2013

2014

2015

2,77,352. 3,37,909. 4,00,331. 4,91,599. 5,90,503.

61
49
90
50
07
2,42,713. 2,85,627. 3,40,560. 3,83,244. 4,61,932.
37
79
66
87
39
1,09,015. 1,36,170.
59,006.99 73,662.12 99,104.13
80
42

Long Term Lending

Capital Adequacy Ratio:
CAR of all banks is sufficiently high.
This means it has enough capital to
absorb unexpected losses in recovery
of assets to a greater extent than
others.

CAR

2011

2012

2013

2014

2015

HDFC bank

16.22%

16.52%

16.80%

16.07%

16.79%

Axis bank

12.65%

13.66%

17.00%

16.07%

15.09%

Yes bank

16.50%

17.90%

18.30%

14.40%

15.60%

Long Term Lending

Gross NPAs:
Gross NPAs as a percentage of
advances of Axis are relatively high at
1.34%. Also, there is steady increase in
GNPA over years.
HDFC has a stable GNPA of around 1%.
Yes Bank is very good is this
parameter, having just 0.41 % as
GNPAs.

GNPA ratio

2011

2012

2013

2014

2015

HDFC bank

1.05

1.02

0.97

0.9

Axis bank

1.01

0.94

1.06

1.22

1.34

Yes bank

0.23

0.22

0.2

0.31

0.41

Long Term Lending

Comparing the ROA and C/D ratio shows Axis bank is an attractive

destination for long term lending. Its CAR is also sufficient due to
which it has very less dilution risk. It has shown slower growth than
HDFC in BS sheet size for past some years and would be looking to
speed it up, for which it require long term capital. This makes it an
attractive entity for parking long term funds.
Yes Bank may also be considered for lending, as it has shown very
rapid growth in its profits as well as gross block in the past five
years. It also has a sufficient CAR percentage and very low NPAs as
compared to the other players.

Short Term Investment

Risk Factor Beta: Yes Bank,

having the smallest market

capitalization, has the highest beta
factor, indicating highest risk.
P/E Ratio: HDFC has the highest
P/B ratio, indicating over valuation.
PAT: HDFC Bank is growing at the
fastest pace in terms of Profit after
Tax. Axis bank stays behind but
has also done well.

Beta

Present

HDFC bank

0.694

Axis bank

1.31

Yes bank

1.51

P/BV

2011

2012

2013

2014

2015

HDFC bank

4.3

4.08

4.1

4.13

4.13

Axis bank

3.03

2.08

1.84

8.98

2.97

Yes bank

2.84

2.77

2.65

2.09

2.92

2012

2013

PAT

2011

HDFC bank

3,92,64,009

Axis bank
Yes bank

2014

2015

5,16,70,90 6,72,62,84 8,47,83,76 10,21,59,1

7
8
1
89
4,24,22,05 5,17,94,32 6,21,76,66 7,35,78,22
3,38,84,906
4
9
6
3
1,30,06,80 1,61,77,80 2,00,53,61
72,71,378 97,69,984
7
2
4

Short Term Investment

Yes Bank has the good speed of growth in

terms PAT and has a lower P/B ratio also, but

also has the highest risk. An investor with a
high risk appetite should go for this stock.
Axis Bank is the least risky share, with low
Beta and steady growth in share prices as well
as profits. Investors interested in low risk and
assured returns should opt for this investment.
HDFC shall be avoided as it highest P/BV and
hence seems overpriced at the moment.

Long Term Investment

P/BV:
HDFC has the highest P/B ratio,
indicating over valuation.
Axis has seen increase in P/BV in the
2014.But now in sync with previous
numbers.
Yes bank has relatively low
P/BV.

P/BV

2011

2012

2013

2014

2015

HDFC bank

4.3

4.08

4.1

4.13

4.13

Axis bank

3.03

2.08

1.84

8.98

2.97

Yes bank

2.84

2.77

2.65

2.09

2.92

Long Term Investment

NII Growth:
There is decrease in NII growth in 2011,
this might be due to high interest rates
by RBI.
Yes Bank has shown increase in NII at
an increasing rate. It achieved this
mainly by increasing its CASA and thus
reducing the cost of funds.

NII
HDFC
bank

2011
2012
2013
2014
2015
10,54,31,28 12,29,67,73 15,81,11,21 18,48,26,33 22,39,56,69
3
7
5
7
2
11,95,16,33 14,22,41,38
Axis bank 6,56,29,828 8,01,77,450 9,66,62,633
4
2
Yes bank 1,24,69,299 1,61,56,369 2,21,87,899 2,71,62,603 3,48,78,372

Growth

2012

2013

2014

2015

HDFC bank

16.63%

28.58%

16.90%

21.17%

Axis bank

22.17%

20.56%

23.64%

19.01%

Yes bank

29.57%

37.33%

22.42%

28.41%

Long Term Investment

NIM:
Steady NIM for HDFC and Axis
but HDFC has a highest of all.
Yes Bank was growing its NIM
slowly till the last year and took
a leap only in the FY 2014-15

NIM

2011

2012

2013

2014

2015

HDFC
bank

4.2

4.2

4.5

4.4

4.4

Axis bank

3.65

3.59

3.53

3.81

3.92

Yes bank

2.9

2.8

2.9

2.9

3.2

Long Term Investment

Cost Income Ratio:
Cost to Income Ratio of Axis Bank has been
steady for last three years.
HDFCs C/I reduced tremendously. But still is
higher than other banks and shows lesser
efficiency.
Yes Bank has increased its cost more than its
income during the period. This is because of its
expansion plans that are expected to reap
benefits in the years to come. But this ratio
should not increase further, as it will impact its
profitability.

Cost
Income
ratio
HDFC
bank
Axis bank
Yes bank

2011

2012

2013

2014

2015

27.43

24.74

25.25

23.18

23.2

22.69
13.83

20.66
12.45

19.45
13.43

19.81
14.41

20.07
16.15

Long Term Investment

Gross NPAs:
Gross NPAs as a percentage of
advances of Axis are relatively
high at 1.34%. Also, there is
steady increase in GNPA over
years.
HDFC has a stable GNPA of
around 1%.
Yes Bank is very good is this
parameter, having just 0.41 % as
GNPAs.

GNPA
ratio
HDFC
bank

2011

2012

2013

2014

2015

1.05

1.02

0.97

0.9

Axis bank

1.01

0.94

1.06

1.22

1.34

Yes bank

0.23

0.22

0.2

0.31

0.41

Long Term Investment

EPS:
Axis bank and HDFC bank have
reduced their face values over the
time, hence we need to factor in
the change.
FV of Axis Bank and HDFC is now
Rs. 2 and Yes bank is Rs. 10.
Yes bank has the highest growth
in EPS and has more than
doubled in last five years.

EPS

2011

2012

2013

2014

2015

HDFC
bank

81.72

21.32

27.33

34.18

39.13

Axis bank

80.21

100.03

107.59

25.78

30.12

Yes bank

20.53

27.03

35.29

43.5

46.17

Long Term Investment

Dividend Yield:
HDFC has shown a tremendous
growth in dividend yield and has
400% yield in 2015.
Axis Bank has relatively less
growth but has also fared well.
With the small scales of yes bank,
it has shown maximum growth by
almost quadrupling in 2015 form
2011.

Dividend
yield (%)
HDFC
bank
Axis bank
Yes bank

2011

2012

2013

2014

2015

165

215

275

342.5

400

140

160

180

200

230

25

40

60

80

90

Long Term Investment

ROE:
Yes Bank has highest ROE, which is
consistently increasing over years. It has
less equity and more borrowed funds as
compared to other banks.
ICICI too has an increasing ROE, but
substantially lower than Yes Bank. This
is to support its expansion plans.
BOB had highest and an impressive
ROE of 20.2% back in 2010. But the
ROE has decreased substantially,
because it has retained more earnings
for expansion, which has given it a
relatively lower return.

ROE (%)
HDFC
bank
Axis
bank
Yes bank

2011

2012

2013

2014

2015

16.74

18.69

20.34

21.28

19.37

19.34

20.29

18.53

17.43

17.75

21.13

23.07

24.81

25.02

21.33

Long Term Investment

Axis bank is a good option for long-term investment with steady returns. Interest

Margin and C/I Ratio indicating efficiency are impressive. However, low ROE is a
concern but that can be due to expansion. Also, NPAs are relatively higher then
HDFC that are increasing over time.
HDFC bank has high P/BV and it seems to be overvalued at the moment. C/I has
decreased over time but is still higher than other banks. But the growth till now
has been exemplary. At this moment, investor can wait for correction in price and
then invest as it has a diversified portfolio and can give good returns.
Yes Bank is showing very fast growth, with high ROE and NIM and very low
NPAs. The bank has large expansion plans too. Also, P/BV shows undervaluation
of the stock. This makes it a good choice for a person with high risk appetite.

Strategic Decision
CAR
HDFC
bank
Axis bank

2011

2012

2013

2014

2015

2011

2012

2013

2014

2015

52.69%

48.40%

47.43%

44.81%

44.03%

15.09%

CASA
HDFC
bank
Axis bank

16.22%

16.52%

16.80%

16.07%

16.79%

12.65%

13.66%

17.00%

16.07%

41.10%

41.54%

44.38%

45.01%

44.78%

Yes bank

16.50%

17.90%

18.30%

14.40%

15.60%

Yes bank

10.34%

15.04%

18.95%

22.03%

23.12%

HDFC Bank
HDFC has a wide network of branches in the country, it has 4,014 branches all over

India, in addition to 11,766ATMs.

With a huge presence in urban areas, it should increase its penetration in rural and
semi urban areas.
Bank should also focus on expansion in foreign countries. There is not much
revenue generated outside India
High CASA Ratio should be maintained in the future as well, also NPAs are not very
high as compared to the competitors. This gives a positive signal to expand more.
Has diversified its portfolio with almost doubling its exposure in agriculture from Rs.
271,383 million to Rs. 419,802 million. It should also try to expand more on
consumer loans as they are considered to show less NPA.

Axis Bank
With increase in CASA we can see some improvement in NIM as low cost

funds are increasing.

Asset quality improvement will be a major concern, with rising Gross NPA over
the years.
Has 9% exposure to infrastructure and this might be helpful in future because
of push towards infrastructure by govt.
Should expand in rural areas because currently just have 22% of its network in
rural areas.

Yes Bank
Has strong presence in northern and western India; should focus on

increasing presence in eastern and southern parts by raising long term

funds. May even look at acquisitions.
Raised funds of $500 million (Rs. 2942 crore) last year through QIP,
raising the CRAR to above 18%, enough to fund 30% growth for more
than 2 years.
CASA is just 22 per cent. Should focus on retail banking more to reduce
the cost of funds. This will help increasing profitability.

THANK
YOU