HDFC Bank replaces a bruised ICICI Bank to become India’s largest private bank

Image: Reuters/Shailesh Andrade
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There’s been a shakeup at the very top of India’s private sector banking pyramid.

Battered and bruised, ICICI Bank has made way for HDFC Bank to take the lead as the country’s largest private sector lender in terms of standalone assets.

ICICI Bank’s total asset base, the key parameter to measure a bank’s size, stood at Rs7.87 lakh crore as of September 2017. That’s 19% less than HDFC Bank’s Rs9.33 lakh crore. To be sure, this isn’t the first quarter that HDFC Bank’s asset base has surpassed that of ICICI Bank. The difference has been building up for the last few quarters, with the gap widening progressively.

ICICI Bank argued that on a consolidated level (by including its other subsidiary businesses, such as mutual funds and home finance) the bank is bigger. In reply to an email from Quartz, a spokesperson explained: 

ICICI Bank is the largest private sector bank on the basis of consolidated assets. On Sept. 30, 2017, the total consolidated assets of ICICI Bank was Rs10.23 lakh crore. ICICI Bank directly owns majority stakes in a spectrum of financial services, including insurance, asset management, securities brokerage and fixed income. These businesses have grown to become top players in their respective segments. Further, with the introduction of new accounting standard, IndAS, from FY2019, it is more appropriate to look at businesses on a consolidated basis.

An email sent to HDFC Bank remained unanswered.

However, analysts explained that typically, for an objective bank-to-bank comparison, only standalone assets are taken into account. “If we take the consolidated business of ICICI Bank, then other businesses apart from banking also come into play and that won’t be a fair comparison,” said Asutosh Kumar Mishra, a senior research analyst at Reliance Securities, a domestic brokerage.

The growth story

ICICI Bank, which has been the largest private lender for years, hasn’t had a smooth run lately. In the last two years, the volume of bad loans on its books has ballooned, requiring it to set aside a higher sum to provision for these. In turn, profitability has taken a beating. And while the bank has been focusing on cleaning up its books, its asset base hasn’t grown significantly. 

At the end of September, its gross non-performing assets stood at 7.87% of the total gross advances. This led to a steep 30% decline in its consolidated net profit from Rs2,979 crore a year ago to Rs2,071.38 crore. Meanwhile, most Indian lenders are bogged down by bad loans. At Rs7.29 lakh crore in March 2017, these toxic assets were equivalent to 5% of the country’s GDP.

“In the last couple of years, ICICI Bank has been caught up in cleaning up its books and changing its strategy due to the change in the business environment,” said Alpesh Mehta, research analyst at Motilal Oswal, a domestic brokerage. “They have been reducing their international business and trying to make their domestic asset business stronger. All this has had an effect on the bank’s growth.”

HDFC Bank, on the other hand, is among a select few lenders that have managed to keep their bad loans under check. At the end of September, its gross NPAs stood at 1.26% of its total gross advances.

Another factor at HDFC Bank is its focus on retail loans. At a time when the business environment is still sluggish, corporate borrowing from banks has taken a beating, while it has traditionally been a strong business for ICICI Bank. But retail loans—auto, personal loans, credit cards etc—continue to grow at a robust pace, allowing HDFC Bank to get ahead.

“There has been pressure on the corporate loan book of banks as there is no significant demand,” said Siddharth Purohit, research analyst at SMC Institutional Equities, a domestic brokerage. “In such a scenario, a lender such as HDFC Bank, which mainly focuses on retail loans and working capital loans, is better placed to grow. I expect HDFC Bank to grow at a faster pace compared to ICICI Bank for the next two years.”

In September, the Reserve Bank of India gave a vote of confidence to HDFC Bank by including it in its “too big to fail” category. Being a part of this list means that a crisis at these banks can signal an economic disaster. The State Bank of India, the country’s largest lender, and ICICI Bank are the other two members of this club. 

The markets, too, have given HDFC Bank a thumbs up, with the company emerging as the most valuable lender in the country. It had a market capitalisation of Rs4.73 lakh crore on Nov. 03, 2017.