Are SBI, HDFC Bank, ICICI Bank really passing on rate cuts benefit to borrowers?

Riken Mehta
moneycontrol.com

Since April last year, the Reserve Bank of India has cut the benchmark repo rate by 125 basis points (1.25 percent), the cash reserve ratio by 75 basis points and the statutory liquidity ratio by 100 basis points.

Repo is the rate at which banks borrow overnight money from the RBI, cash reserve ratio is the percentage of deposits that banks have to mandatory park with RBI, and SLR is the portion of deposits that banks have to mandatory invest in government bonds.

Despite the easing of interest rates by RBI, the weighted average lending rates of banks have declined by less than 0.5 percent, according to RBI data.

Banks have said they are not in a position to reduce lending rates because of tight liquidity in the system.

Also, to reduce lending rates, they should be in a position to cut deposit rates as well, which they may not be able to do at a time when the growth in deposits has been slow. 

The chart shows the trend in base rates of SBI, ICICI Bank and HDFC Bank over the last one year, compared to that in the repo rate and cash reserve ratio. Click here for chart

Q2FY13 Results: How ICICI, Axis and HDFC Bank numbers stack up

Riken Mehta & Saikat Das
Moneycontrol.com

As expected, India’s top three private sector lenders continued to be in favour with investors post second quarter earnings. Even as fear of bad loans looming large, these lenders managed to retain their asset quality and recorded better-than-expected non-performing assets.

Both Axis Bank  and ICICI Bank  have made provisions for their exposure in debt-ridden Deccan Chronicle wherein they loaned around Rs 400 crore and Rs 500 crore respectively. Going forward, the lenders ruled out any major pressure on credit quality. However, HDFC Bank  remained insulated from such big loan restructuring cases and maintained its momentum in growing net profit over 30% for so many quarters with good asset quality. It gives mostly short term working capital loans to corporate clients unlike the other two banks, which participate in extending long term project loans too.

For loan book growth, all banks have surpassed the projected industry credit growth of 16% by wide margin even in the so-called slack season (April-September).

Particulars	ICICI Bank	Axis Bank	HDFC Bank
NII Growth
YoY	34.5%	15.9%	26.7%
QoQ	5.6%	6.7%	7.1%
PAT Growth
YoY	30.1%	22.1%	30.1%
QoQ	7.8%	-2.6%	10.1%
Loan Book Growth
YoY	17.6%	22.9%	22.9%
QoQ	2.5%	0.6%	8.6%
Deposit Growth
YoY	14.80%	21.2%	18.7%
QoQ	5.10%	5.8%	6.4%
Net Interest Margins	3.00%	3.46%	4.20%
Gross NPA	3.54%	1.10%	0.91%
YoY	UNCH	Up 2 bps	Down 9 bps
QoQ	Down 60 bps	Up 4 bps	Down 6 bps
Net NPA	0.78%	0.30%	0.20%
YoY	Down 15 bps	Down 1 bp	UNCH
QoQ	Up 7 bps	Up 2 bps	UNCH
Provisions QoQ	9.01%	96.80%	-39.90%
CASA	40.70%	40.50%	45.90%
Capital Adequacy Ratio	18.28%	13.00%	17.00%

Chart of the day: ICICI Bank Vs HDFC Bank price performance over the years

Moneycontrol Bureau

Between May 2003 when the stock market began rising, and January 2008 when it peaked, ICICI Bank shares outperformed those of arch rival HDFC Bank by a wide margin. However, since January 2008 till now, the trend has reversed and the HDFC Bank stock has been consistently ahead of ICICI Bank on the returns curve. In terms of loan book size, ICICI Bank is still number one at Rs 2.54 lakh crore compared to HDFC Bank’s Rs 1.95 lakh crore. But HDFC Bank scores over ICICI Bank in terms of asset quality, which largely explains the outperformance of the stock.

HDFC Bank’s restructured loans—the process wherein terms of repayment are altered to accommodate a borrower facing financial difficulty—comprise around 0.5% of the loan book compared to ICICI Bank’s nearly 2%. Also, HDFC Bank’s net NPAs are about 0.2% of the loan book, compared to ICICI Bank’s 0.6%.

ICICI Bank’s fourth quarter financial performance was better than analyst estimates, and there was noticeable improvement in its gross and net NPA ratios. Can the stock narrow the gap in performance with its rival anytime soon?

Chart 1: % Change in price performance over the years. Time frame: 1st Jan 2003 to 14th Jan 2008

Chart 2: Time Frame: 14th Jan 2008 to 30th April 2012