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Page 1: Hdfc and Icici Bank Final Report

Comparative AnalysisOf

HDFC and ICICI Banks

Submitted to:

Prof. Sandhya Prakash

Submitted by:

Sharma Mohit Jitendrakumar

PG20102197

Page 2: Hdfc and Icici Bank Final Report

Contents

1) Company profile of HDFC BANK & ICICI BANK2) Corporate Governance of HDFC BANK & ICICI BANK3) Share Holding Pattern of HDFC BANK & ICICI BANK4) Dividend Policy of HDFC BANK & ICICI BANK5) Cost of Capital Analysis of HDFC BANK & ICICI BANK6) Cost of Equity of Analysis of HDFC BANK & ICICI BANK7) WACC Analysis of HDFC BANK & ICICI BANK

Page 3: Hdfc and Icici Bank Final Report

Co mpa ny P ro file

Co mpa ny Pro fil e of HDFC Ban k

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 bank’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.

Co mpa ny Pro fil e of I CI CI Ba nk

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 includesexposures, 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.

Page 4: Hdfc and Icici Bank Final Report

C o rp o r a te G ov e r n a nce

Co rpo ra te gov erna nce o f HDF C Ba nk

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 DetailsChairperson - C M VasudevMD - 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 policyThe Bank believes in adopting and adhering to the best recognised corporate governancepractices 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 andshareholder 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.

Page 5: Hdfc and Icici Bank Final Report

Committees

HDFC has the following committees:

1. Audit & Compliance Committee2. Risk Monitoring Committee3. Compensation Committee4. Credit Approval Committee5. Investor Grievance Committee6. Premises Committee7. Customer Service Committee8. Nomination Committee9. Fraud Monitoring Committee

Co rpo ra te Gov er na nce o f ICI CI B a nk

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 DirectorsBoard consists of eight members, and is responsible for the management of our business. TheBoard’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 overseeingoperations;• ensuring ethical behavior and compliance with laws and regulations;• reviewing and approving borrowing limits;• formulating exposure limits;• Keeping shareholders informed regarding plans, strategies and performance

Page 6: Hdfc and Icici Bank Final Report

Committees

1. Audit Committee,2. Board Governance3. Remuneration & Nomination Committee4. Corporate Social Responsibility Committee5. Credit Committee6. Customer Service Committee7. Fraud Monitoring Committee8. Risk Committee, Share Transfer & Shareholders Investors’ Grievance Committee9. Committee of Executive Directors.

Page 7: Hdfc and Icici Bank Final Report

S h are Ho l di n g Pat t e r ns

Share Holding Pattern of HDFC30/06/2011 31/03/2011 31/12/2010

Face value 10 10 10No. OfShares % Holding

No. OfShares

%Holding

No. OfShares % Holding

Promoter's holdingIndian Promoters 108643220 23.28 108643220 23.35 108643220 23.4Sub total 108643220 23.28 108643220 23.35 108643220 23.4

Non promoter's holdingInstitutional investors

Banks Fin. Inst. andInsurance 31603211 6.77 32254112 6.93 32472263 6.99FII's 136452749 29.23 132723097 28.53 136392436 29.37Sub total 188417871 40.37 186744925 40.14 186822609 40.23

Other investorsPrivate CorporateBodies 40935968 8.77 40552046 8.72 39500903 8.51NRI's/OCB's/ForeignOthers 5024569 1.08 5669312 1.22 5690568 1.23GDR/ADR 81131395 17.38 81142391 17.44 81128819 17.47Govt 8500 - - - - -Sub total 127097123 27.23 127360240 27.38 126316781 27.2General public 42609613 9.13 42473790 9.13 42543842 9.16Grand total 466767827 100 465222175 100 464326452 100

Page 8: Hdfc and Icici Bank Final Report

Share Holding Pattern of HDFC BANKGeneral public

NRI's/OCB's/ForeignOthers

1%

GDR/ADR18%

IndianPromoters

24%

Banks Fin. Inst. andInsurance

7%

Private CorporateBodies

9%FII's31%

Share Holding Pattern of HDFC Bank includes that co. has distributed their23.28% of shares to their Promoters and rest distributed among Non-Promoters which shows that their 40.37% of shares are distributed to their Institutionalinvestors and rest 27.23% of shares are distributed to their other investors.

Sh a re H o lding P a t t ern of ICICI B a nk

PARTICULARS HOLDINGSDeutsche Bank Trust Company Americas (Depositary forADS holders)

26.99

FIIs, NRIs, Foreign Banks, Foreign Companies, OCBs and Foreign Nationals

39.48

Insurance Companies 16.64Bodies Corporate 4.02Banks & Financial Institutions 0.08Mutual Funds 7.32

Individuals 5.47Total 100.00

Page 9: Hdfc and Icici Bank Final Report

5.47

0.08

SHARE HOLDING PATTERN OF ICICI BANK

Deutsche Bank4.02 7.32

26.99Trust Company holders)FIIs, NRIs, Foreign

16.64 Banks,

39.48Ins. CO.

Share holding pattern of ICICI Bank includes that the company has invested their26.99% of shares in Deutsche Bank and 39.48% in FIIs, NRIs and in ForeignBanks 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. have7.32% of shares and Individuals have 5.37% of share.

Page 10: Hdfc and Icici Bank Final Report

C a pital St r uctu r e An a l y sis

C a p i t a l s tr u cture o f H DF C Ba n k

FromYear

ToYear

Class OfShare

AuthorizedCapital

IssuedCapital

Paid UpShares (Nos)

Paid Up FaceValue

Paid UpCapital

2010 2011EquityShare 550 465.23 465225684 10 465.23

2009 2010EquityShare 550 457.74 457743272 10 457.74

2008 2009EquityShare 550 425.38 425384109 10 425.38

2007 2008EquityShare 550 354.43 354432920 10 354.43

2006 2007EquityShare 450 319.39 319389608 10 319.39

2005 2006EquityShare 450 313.14 313142408 10 313.14

2004 2005EquityShare 450 309.88 309875308 10 309.88

2003 2004EquityShare 450 284.79 284791713 10 284.79

2002 2003EquityShare 450 282.05 282045713 10 282.05

2001 2002EquityShare 450 281.37 281374613 10 281.37

2000 2001EquityShare 300 243.6 243596261 10 243.6

1999 2000EquityShare 300 243.28 243278261 10 243.28

1995 1999EquityShare 300 200 200000000 10 200

Page 11: Hdfc and Icici Bank Final Report

Ca pi ta l Struc ture Patt e rn of ICICI Ba n k

Period Instrument AuthorizedCapital

IssuedCapital

- P A I D U P -

From To (Rs. cr) (Rs. cr) Shares(nos)

FaceValue

Capital

2010 2011EquityShare 1275 1151.77 1151772372 10 1151.77

2009 2010EquityShare 1275 1114.85 1114845314 10 1114.85

2008 2009EquityShare 1275 1113.25 1113250642 10 1113.25

2007 2008EquityShare 1275 1112.69 1112687495 10 1112.69

2006 2007EquityShare 1000 899.27 899266672 10 899.27

2005 2006EquityShare 1000 889.82 889823901 10 889.82

2004 2005EquityShare 1550 616.39 616391905 10 616.39

2003 2004EquityShare 1550 613.02 613021301 10 613.02

2001 2002EquityShare 300 220.36 220358680 10 220.36

2000 2001EquityShare 300 196.82 196818880 10 196.82

1999 2000EquityShare 300 196.82 196818880 10 196.82

1997 1999EquityShare 300 165 165000700 10 165

1995 1997EquityShare 300 150 150000700 10 150

1994 1995EquityShare 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.

Page 12: Hdfc and Icici Bank Final Report

Di v idend Policy Anal y sis

Di vi dend Poli cy o f HDFC Ban k

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 endedMarch 31, 2010. This dividend shall be subject to tax on dividend to be paid by the Bank.

Year Month Dividend (%)2011 Apr 1652010 Apr 1202009 Apr 1002008 Apr 852007 Apr 702006 Apr 552005 Apr 45

D i v i dend Pol i cy o f I C I C I Bank

Announcement Date Effective Date Dividend Type Dividend (%) Remarks

28-04-11 2/6/2011 Final 140 -26-04-10 10/6/2010 Final 120 -27-04-09 11/6/2009 Final 110 -28-04-08 10/7/2008 Final 110 AGM30-04-07 14-06-07 Final 100 AGM29-04-06 6/7/2006 Final 85 AGM

Page 13: Hdfc and Icici Bank Final Report

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))

Page 14: Hdfc and Icici Bank Final Report

C o st of C a p i tal A n a l y sis

𝒌 = Cost of Capital of Debt for HDFC Bank.

𝐴 𝐼 𝑒 𝑒 ∗ ( 1− 𝑥 𝑒 )𝑇 𝑒

Amount as per the Balance sheet March’11( Rs.in billions

Annual Interest rate 93.8508PBT 58.14Tax 18.9286PAT 39.2722Total Debt ( Unsecured loan ) 2085.85

Tax rate = 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,

𝒌 = 𝐴 𝐼𝑒𝑒∗ (1 − 𝑥 𝑒)𝑇 𝑒 𝑋100Here Annual Interest =93.85, Tax rate = 0.3254, Total debt= 2085.85

𝒌 = 93.85 ∗ (1 − 0.3254)2085.8593.85 ∗ 0.6746

𝑥100

𝒌 =𝒌 =

2085.8563.312085.85

𝑥100𝑥100

Page 15: Hdfc and Icici Bank Final Report

C o st of C a p i tal A n a l y sis 𝒌 = 0.0303𝑥100𝒌 = 3.03%

Page 16: Hdfc and Icici Bank Final Report

𝒌 = Cost of Capital of Debt for ICICI Bank

𝐴 𝐼 𝑒 𝑒 ∗ ( 1− 𝑥 𝑒 )𝑇 𝑒

Amount as per the Balance sheet March’11(Rs. in billions)

Annual Interest rate ( as per B/S 2011) 169.57PBT 67.19Tax 16.09PAT 51.10Total Debt ( Unsecured loan ) 2256.02

Tax rate = 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,

𝒌 = 𝐴 𝐼𝑒𝑒∗ (1 − 𝑥 𝑒)𝑇 𝑒 𝑋100Here Annual Interest =169.57, Tax rate = 0.3148, Total debt= 2256.02

𝒌 = 169.57 ∗ (1 − 0.2394)2256.02169.57 ∗ 0.7605

𝑥100

𝒌 =𝒌 =

2256.02128.952256.02

𝑥100𝑥100

Page 17: Hdfc and Icici Bank Final Report

𝒌 = 0.0571𝑥100𝒌 = 5.71%

Page 18: Hdfc and Icici Bank Final Report

C o st of Cap i tal o f Equity

Cos t o f Ca pi ta l o f Equi ty for HDFC Ban k

𝒌 = 𝑹 + 𝛃 ( 𝐑𝐦 – 𝐑𝐟 ) Here: Rf= Risk free rate of returnβ= 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%

C os t o f C a p i t a l o f E qu i t y for I C I C I Ba n k 𝒌 = 𝑹 + 𝛃 ( 𝐑𝐦 – 𝐑𝐟 )Here: Rf= Risk free rate of return𝛃= 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%)

Page 19: Hdfc and Icici Bank Final Report

Ke= 8+1.33(1)

Ke = 9.33%

R eturn on Eq u i t y ( R o E) a nd R et u rn on A ss e t s ( R o A ) 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 rangeThere are only three levers for boosting ROE: Net Margin, Asset Turnover and FinancialLeverage. Again, among all the private banks, ICICI Bank has the poorest record.

Page 20: Hdfc and Icici Bank Final Report

Wei g hted A v era g e Co s t o f Capit a l An a l y sis

WACC fo r HDF C Ban k

Amount as per Balance sheet March’11 (Rs. In crore)

Particulars Capital value Market Share TotalEquity 465.23 9.01% 41.87Debt 208586.01 3.03% 6320.15Total 209051.04 6362.03

𝑾𝑨𝑪𝑪 = 𝑀𝑒 𝑖𝑇 𝑖 𝑥100

WACC = 3.04%

WACC for I CI CI Ba nk

6362.03𝑾𝑨𝑪𝑪 = 209051.04 𝑥100

Amount as per Balance sheet March’11 (Rs .in crores.)

Particulars Capital value Market Share TotalEquity 1151.82 9.33% 107.46Debt 225602.11 5.71% 12881.88Total 226753.93 12989.34

𝑾𝑨𝑪𝑪 = 𝑀𝑒 𝑖𝑇 𝑖 𝑥100

WACC = 5.72%

𝑾𝑨𝑪𝑪 =

12989.342267

53.93

Page 21: Hdfc and Icici Bank Final Report

Wei g hted A v era g e Co s t o f Capit a l An a l y sis 𝑥100

Page 22: Hdfc and Icici Bank Final Report

Weighted Average Cost of Capital (WACC)According to the findings of both banks WACC this is clear that HDFC bank is the best player inmarket 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.

Co mpa ra tive Ana ly sis :

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.

Tha n k You


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