Comparative Financial Performance of HDFC Bank and ICICI Bank

Abstract

The nationalization phase of the early 1970s brought some of the elite banks under the government's control. The next decade heralded the second phase of nationalization with the merging of old private sector banks. The 1990s saw partial liberalization of the banking industry and the emergence of new private sector banks as well as international banks. During the next few years, fears of liberalization were put to rest and in the past decade the banking system has gained much from it. Liberalization brought out the best in the industry inducing competitive spirit among various banks.

The present research paper is aimed to analyze and compare the Financial Performance of HDFC and ICICI Bank and offer suggestions for the improvement of efficiency in select banks. For the purpose of analysis of comparative financial performance of the select banks, world-renowned, CAMELS model with t-test is applied. CAMELS stand for Capital Adequacy, Asset Quality, Management, Earning Quality, Liquidity and Sensitivity.

The capital adequacy and Tier I capital ratio of ICICI and HDFC bank is more than the Basel Accord. We conclude that both the banks are good with respect capital adequacy because it is above the Basel norms. The efficiency of HDFC Bank management is good because its NPAs are less than 0.5 for the study period from 2003 to 2012. The net profit, operating profit, return on net-worth, spread, liquidity and loans to total assets of HDFC bank has more compared with ICICI bank. Hence HDFC bank earns more profits compared with ICICI bank.

The total advances to customer deposit, debtequity and burden of HDFC have less compared with ICICI bank and hence long term solvency is well in ICICI bank. The CAMELS' analysis and t-test concludes that there is no significance difference between the ICICI and HDFC bank's financial performance but the ICICI bank performance is slightly less compared with HDFC.