Finstat Icici Axis

7/30/2019 Finstat Icici Axis

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ICICI Bank and Axis Bank

Financial statement Analysis of



Overview

Investments

Short Term Investment

Long Term Investment

Lending



Strategic Analysis



Investments:




Short Term Investment :Capital Adequacy Ratio (CAR)

This is capital to risk weighted assets ratio which signifies the risk

exposure of the bank.

Its minimum limit prescribed by RBI is 9% for scheduled banks.

It is similar for both ICICI and Axis Bank.

Both the banks have CAR in range of 13%



• Higher CASA ratio indicates cheaper funds which in turn suggestshigher returns for the banks

Short Term Investment : CASA Ratio



Short Term Investment : Net Interest Income to Total

Funds

Net interest is the difference in the interest earned on advances andinterest paid on deposits.

It signifies the efficiency of utility of funds by bank.

ICICI has better efficiency than Axis bank. The only exception was

last year when ICICI was hit by global financial crisis.



Short Term Investment : Price to Earnings

• Investments in stock should be primarily based on future earnings

of the company

• Trailing PE’s are indicative of past performance but not a

categorical criteria for investment

• Axis looks relatively cheap, so investment decision should be taken

in favor of Axis bank



Short Term Investment : Price to Book

• Book value indicates the value of the company on liquidation• Axis looks relatively cheap, so investment decision should be taken

in favor of Axis bank

• ICICI definitely looks in better shape and priced lower compared to

Axis, however ICICI might have strained books which is responsible

for is cheaper valuations in terms of book value



• Credit- Deposit ratio signifies bank’s performance in its core function i.e.

lending.• A higher CD Ratio signifies better performance of its lending performance

and hence better utilization of funds.

• The credit deposit ratio is higher for ICICI than Axis Bank.

Short Term Investment: Credit Deposit Ratio



• They show the long-term earning power of the company.

• Higher profit margins mean a more sustainable future earnings

• Axis bank is better based on these ratios

Short Term Investment: Profitability Ratios



• β value signifies the volatility of the stock as compared to the movement of the Sensex.

• β Value>1 signifies that the movement in stock is proportionately more thanthe market movement.

• β Value>1 signifies that the movement in stock is proportionately less thanthe market movement.

• The β Value of ICICI Bank is 1.34 and that for Axis Bank is 1.2.

• In a bullish market ICICI would be a better investment because it will givehigher capital returns

Short Term Investment: Beta Value



• A positive value of cash flow from Operating activities indicates negative

credit growth.• Cash flow from operating activities for ICICI was negative in last two

years as compared to high positive value Axis Bank.

• This was basically due to withdrawal of deposits from the bank duringthe financial crisis and doesn’t mean that the bank has performed well.

Short Term Investment: Cash Flow from operating activities



• Looking at the above mentioned parameters, it would be better to

invest in Axis Bank

• Axis bank has been growing even during this crisis period as it has

good mix of income from various sources

• ICICI books are primarily strained because of huge retail lending

portfolio which is almost 60% and its derivatives exposure.• The retail portfolio will be adversely hit during times of recession by

adding more complexity to its lending portfolio impacting its ALM

(Asset Liability maturity) management

• Looking at relative valuations ICICI’s PE is comparatively higher

than Axis and other private banks

Short Term Investment - Recommendations






Long Term Investment : Capital Adequacy ratio

• A safe CAR is required to ensure that the company can keep ongrowing by advancing more loans.

• Both the banks have safe Capital Adequacy Ratio in the range of 12-14%.

• Both banks seem to be pretty safe in terms of CAR.



Long Term Investment : Business Per Employee

• Business per employee is directly related to the efficiency of the

company• Business per employee has remained almost constant for all 5

years for Axis Bank. Though there was a increase in it in the year of

2008.

• For ICICI, it has been regularly increasing reaching a maximum

value at 11.54 crores in 2009. though there was a dip in 2008 whichcan be attributed to the financial crisis.



Long Term Investment : Dividend Payout Ratio

• DPR is defined as the ratio of DPS and EPS

• It signifies the proportion of earnings paid out as dividends and

shows the growth plan of the company

• Lower the Dividend Pay out, higher the retention ratio which in turn

signifies higher growth

• For ICICI, the value is around 33% whereas for axis bank it is 22%• This also indicates that there are better growth prospects for Axis

bank



Long Term Investment : Return on Equity

• It shows the ratio of profit and net worth of the company.

• Higher ROE indicates better returns to the shareholders.

• ROE for Axis Bank is much higher as compared to that of ICICI

Bank



Long Term Investment : Other Income/Total Income

• Other income consists of fee income from guarantee, underwriting

commissions, credit card commissions, fees from merchantbanking, income from money market instruments etc.

• ICICI derives significant part of its income from other non interest

income which indicates more diversified in its operations.

• ICICI will fare well during times of boom as they have greater

transactions in securities trading, merchant banking etc



Long Term Investment : Return on Asset

• It shows the ratio of profit to the total assets of the company.

• Higher ROA indicates better efficiency

• ROA for Axis Bank has improved over time. This shows better

managerial efficiency



Long Term Investment: Net Interest Margin

• Net interest margin is the net interest income earned by the bank

on its average earning assets. These assets comprises of advances, investments, balance with the RBI and money at call

• NIM = Interest income – Interest expenses / Average earningassets

• Since Axis has higher NIM%, it indicates better earnings throughloan interest income hence indicating stable and higher incomeover long term



• CASA ratio = Current account & savings account deposits / Total

deposits• Higher CASA ratio indicates cheaper funds hence better earnings

• In the long run, Axis has better prospects due to better CASA ratio.

Long Term Investment: CASA Ratio



Long Term Investment: Gross NPA

• GNPA indicates defaults in advances, which indicates losses for

the banks. In the long run this is not for the good health of the bank• Axis has reduced its NPA over time. Thus it seems to be better

investment



Long Term Investment: Net NPA

• Net NPAs are calculated by reducing cumulative balance of

provisions outstanding in a period from gross NPAs.• Higher ratio reflects rising bad quality of loans which is not in the

favour of the company in the long run

• Axis has considerable reduced its Net NPA’s through higher

provisions and also reducing its overall non performing asset

portfolio



Long Term Investment: Net Profit Margin

• Net Profit margin indicates profitability of the bank

• Axis bank has improved its profitability after becoming private in

2006

• As per this ratio we can say that Axis banks looks better than ICICI

as how in the figure

0

5

10

15

20

2005 2006 2007 2008 2009Year

Net Profit margin

ICICI

Axis



Long Term Investment - Recommendation

• Axis has better growth opportunities in the future because of its

access to cheaper funds and can be expected to deliver better

returns in the long run

• Axis has higher CASA,ROE, ROA, NIM and lower GNPA and

NNPA.• Cash Flow from operations for Axis bank is positive and hence

there is scope to lend more money in the future

• Axis is cheap compared to other private banks in terms of PE,

however it has higher Price to book which negates the investment

decision

• However based on all these ratios Axis bank is the stock to be

invested for long term



Lending:Short Term Lending



Short-Term Lending: Cash Deposit Ratio

• Axis Bank is not in very comfortable position due to lower Cash Deposit Ratio during recent years

• In the short run Axis is expected to have liquidity problems.



Short Term Lending: Deposits Growth Rate

• In recent years, due to financial crisis, the deposits for ICICI have

fallen, but overall deposits of ICICI bank are much higher than AxisBank



Short Term Lending: Investments / Deposit Ratio

• Generally Investments by banks are held in liquid form e.g. T-Bills

• Thus, higher this ratio, better the liquidity position of the bank

• ICICI has a better ratio in recent years. So, it seems to be a good

option for short-term lending



Short-Term Lending - Recommendations

• Due to lower cash deposit ratio, Axis Bank has more chances of

defaulting in the short run. This can also be attributed to efficiency

of the management.

• ICICI has better Investment-deposit Ratio, this is because of

decrease in deposit due to global Financial Crisis. Similarly Axis

Bank’s decrease in ratio can be attributed to increase in deposits

• In the Short run, Axis Bank seems to be a better borrower.



Long Term Lending



Tier I capital is the most permanent and readily available support

against unexpected losses.

Higher CAR Tier I is good for the Bank in the long run.

Both the banks have almost similar CAR Tier I.

Long-Term Lending: CAR Tier I



Long Term Lending: Return on Asset

• It shows the ratio of profit to the total assets of the company.

• Higher ROA indicates better efficiency

• ROA for Axis Bank has improved over time. This shows better

managerial efficiency



• Total Asset Base represents scale of operations of the bank

• Total Asset base of ICICI bank is almost 4 times as large as

that of Axis Bank

• ICICI bank has better market penetration due to more

branches all over India

Long-Term Lending: Total Asset Base



• GNPA indicates defaults in advances, which indicates losses for

the banks. In the long run this is not for the good health of the bank

• Axis has reduced its NPA over time. Thus it seems have better

managerial efficiency and less future losses. Hence it would be the

preferred bank for lending in the long run.

Long Term Lending: Gross NPA



• Net NPAs are calculated by reducing cumulative balance of

provisions outstanding in a period from gross NPAs.• Higher ratio reflects rising bad quality of loans which is not in the

favour of the company in the long run

• Axis has considerable reduced its Net NPA’s through higher

provisions and also reducing its overall non performing asset

portfolio. So in the long run it is expected to have better earnings

Long Term Lending: Net NPA



• For long term lending, the following non-financial parameters,

should also be taken into consideration

• Diversity of business,

• size of the bank which determines the strength it exercisesthrough Market Capitalization

• Management quality and reputation

• Corporate Relations of Management

• Corporate governance• Organizational structure

Long Term Lending: Non financials

L T L di C dit R ti



• Before giving loans the lender has to measure the default,

measure and operational risk of the bank

• They have to measure default risk, market risk and operational risk

of the bank

• The non financial parameters are also to be taken into

consideration

• All of these are incorporated in the CR given by the credit ratingagency

• The agency also check the operating cash flow and other

profitability ratios to give a credit rating .

As per Fitch Ratings, For long term loans, both the banks have

following ratings

•ICICI BBB-

• Axis BBB

Axis has a better rating.

Long Term Lending: Credit Rating



• The purpose for utilization of long term loans for both the banks arefor giving out advances. This can be ascertained by analyzing their

PAT and Gross Block.

• Total asset base of ICICI is more than that of Axis, which provides

more security for the loan.

• On basis of Gross and Net NPA Axis Bank would be our preference

because it has less chances of loss due to defaults in the future.

• ROA of Axis Bank is Higher which denotes better efficiency on the

long run.

• Credit rating of Axis Bank is better than ICICI basically due torerating of ICICI due to financial crisis. Going with the current

trend, Axis Bank will be our preference.

• On the whole, Axis Bank seems to be a better borrower in the long

term

Long-Term Lending - Recommendations



Strategic Analysis



Ratios – ICICI Bank

2005 2006 2007 2008 2009

CAR 7.59 9.2 7.42 11.76 11.84

NIM 2.8 2.7 2.6 2.2 2.4

GNPA 1.2 1.5 2.1 3.3 4.3

NNPA 0.9 0.7 1 1.5 2

NPM 15.34 11.76 11.77 10.5 9.71

ROE 19.51 14.62 13.37 11.75 7.85

ROA 1.2 1.3 1.1 1.1 1



Ratios – Axis Bank

2005 2006 2007 2008 2009

CAR 8.87 7.26 6.42 10.17 9.26

NIM 2.32 2.17 2.89 3.7 3.33

GNPA 2.2 1.7 1.25 0.83 1.09

NNPA 1.07 0.75 0.55 0.36 0.35

NPM 14.29 13.41 11.83 12.16 13.21

ROE 18.88 18.37 21.0 17.61 19.13

ROA 1 1.1 1.31 1.24 1.44



Risk Portfolio – Non Performing Assets to Total Assets

ICICI’s non performing assets form a large proportion of net assetswhich is about % while HDFC’s form about 0.90%

This reflects on the inability of ICICI to recover its loans.

ICICI should properly evaluate its risk associated with its loans.



Recommendations – ICICI Bank

The NPM of the bank has shown a decreasing trend over last yearswhich has reflected badly on its ROE.

With the revision of the criteria for recognizing NPA, the NPA’s of

the bank has increased tremendously. The ICICI should be thus

more careful in giving loans.

Over the last three years ROA of the bank has decreased. The

management should look into matters for efficient utilization of

assets

NIM has also reduced. This could be basically attributed to the

volatility in rates in the recent years. Looking at the recent trendsthe bank should take steps to improve NIM.

There have been deposit withdraws from the bank after the bank

was personally affected by the crisis. The bank has to rebuild its

reputation to bring back the deposits



Recommendations – Axis Bank

The NPM of the bank has shown a decreasing trend over last years

which has reflected badly on its ROE.

Even after the revision of the criteria for recognizing NPA, the NPA’s

of the bank has decreased. It seems the bank is overcautious in

giving loans. Axis thus should try to relax its stringent policies Over the last three years ROA of the bank has increased. This is

basically due to change in management after its privatization. The

low cash credit ratio shows the efficiency of the bank. NIM has also

increased even after such volatile interest rates in the recent years

Basically the bank has to improve its credit-deposit ratio to improveprofitability.



Thank You

Documents

Finstat Icici Axis