HDFC Bank Case Study and analysis 2021: In this article, we will look into the fundamentals of HDFC Bank, focusing on both qualitative and quantitative aspects. Here, we will perform the SWOT Analysis of HDFC Bank, Michael Porter’s 5 Force Analysis, followed by looking into HDFC Bank’s key financials. We hope you will find the HDFC Bank case study helpful.
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About HDFC Bank and its Business Model
Incorporated in 1994, HDFC Bank is one of the earliest private sector banks to get approval from RBI in this segment. HDFC Bank has a pan India presence with over 5400+ banking outlets in 2800+ cities, having a wide base of more than 56 million customers and all its branches interlinked on an online real-time basis.
HDFC Limited is the promoter of the company, which was established in 1977. HDFC Bank came up with its 50 crore-IPO in March 1996, receiving 55 times subscription. Currently, HDFC Bank is the largest bank in India in terms of market capitalization (Nearly Rs 8.8 Lac Cr.). HDFC Securities and HDB Financial Services are the subsidiary companies of the bank.
HDFC Bank primarily provides the following services:
- Retail Banking (Loan Products, Deposits, Insurance, Cards, Demat services, etc.)
- Wholesale Banking (Commercial Banking. Investment Banking, etc.)
- Treasury (Forex, Debt Securities, Asset Liability Management)
HDFC Bank Case Study – Industry Analysis
There are 12 PSU banks, 22 Private sector banks, 1485 urban cooperative banks, 56 regional rural banks, 46 foreign banks and 96,000 rural cooperative banks in India. The total number of ATMs in India has constantly seen a rise and there are 209,110 ATMs in India as of August 2020, which are expected to further grow to 407,000 by the end of 2021.
In the last four years, bank credit recorded a growth of 3.57% CAGR, surging to $1698.97 billion as of FY20. At the same time, deposits rose with a CAGR of 13.93% reaching $1.93trillion by FY20. However, the growth in total deposits to GDB has fallen to 7.9% in FY20 owing to pandemic crises, which was above 9% before it.
Due to strong economic activity and growth, rising salaries, and easier access to credit, the credit demand has surged resulting in the Credit to GDP ratio advancing to 56%. However, it is still far less than the developed economies of the world. Even in China, it is revolving around 150 to 200%.
As of FY20, India’s Retail lending to GDP ratio is 18%, whereas in developed economies (US, UK) it varies between 70% – 80%).
Michael Porter’s 5 Force Analysis of HDFC Bank
1. Rivalry Amongst Competitors
- The banking sector has evolved very rapidly in the past few years with technology coming in, and now it is not only limited to depositing and lending but various categories of loans and advances, digital services, insurance schemes, cards, broking services, etc.; hence, the banks face stiff competition from its rivals.
2. A Threat by Substitutes
- For services like mutual funds, investments, insurances, categorized loans, etc., banks are not the only option these days because a lot of niche players have put their foot in the specialized category, surging the threat by substitutes for the banks.
- Another threat for the traditional banks is NEO Banks. The Neo Banks are virtual banks that operate online, are completely digital, and have a minimum physical presence.
3. Barriers to Entry
- Banks run in a highly regulated sector. Strict regulatory norms, huge initial capital requirements and winning the trust of people make it very tough for new players to come out as a national level bank in India. However, if a company enters as a niche player, there are relatively fewer entry barriers.
- With RBI approving the functioning of new small finance banks, payment banks and entry of foreign banks, the competition has further intensified in the Indian banking sector.
4. Bargaining Power of Suppliers
- The only supply which banks need is capital and they have four sources for the capital supply viz. deposits from customers, mortgage securities, loans, and loans from financial institutions. Customer deposits enjoy higher bargaining power as it is totally dependent on income and availability of options.
- Financial Institutions need to hedge inflation, and banks are liable to the rules and regulations of the RBI which makes them a safer bet; hence, they have less bargaining power.
5. Bargaining Power of Customers
- In modern days, customers not only expect proper banking but also the quality and faster services. With the advent of digitalization and the entry of new private banks and foreign banks, the bargaining power of customers has increased a lot.
- In terms of lending, creditworthy borrowers enjoy a high level of bargaining power as there is a large availability of banks and NBFCs which are ready to offer attractive loans and services at low switching and other costs.
HDFC Bank Case Study – SWOT Analysis
Now, moving forward in our HDFC Bank case study, we will perform the SWOT analysis.
- Currently, HDFC Bank is the leader in the retail loan segment (personal, car and home loans) and credit card business, increasing its market share each year
- The HDFC tag has become a sign of trust in the people as HDFC has come out as a pioneer not only in banking, but loans, insurances, mutual funds, AMC and brokerage.
- HDFC Bank has always been an institution of its words as it has, without fail, delivered its guidance and this has created a strong brand loyalty in the market for them.
- HDFC Bank has very well leveraged the technology to help its profitability, only 34% transaction via Internet Banking in 2010 to 95% transaction in 2020.
- HDFC bank doesn’t have a significant rural presence as compared to its peers. Since its inception, it has focused mainly on high-end clients. However, the focus is shifting in the recent period as nearly 50% of its branches are now in semi-urban and rural areas.
- The average age of the Indian population is around 28 years and more than 65% of the population is below 35, with increasing disposable income and rising urbanization, the demand for retail loans is expected to increase. HDFC Bank, being a leader in retail lending, can make the best out of this opportunity.
- With modernization in farming and a rise in rural and semi-urban disposable income, consumer spending is expected to rise. HDFC Bank can increase its market share in these segments by grabbing this opportunity. Currently, the bank has only 21% of the branches in rural areas.
- A lot of niche players have set up their strong branches in respective segments, which has shown stiff competition and has shrined the market share and profit margin for the company. Example – Gold Loans, Mutual Funds, Brokerage, etc.
- In-Vehicle Financing (which is HDFC Bank’s major source of lending income), most of the leading vehicle companies are providing the same service, which is a threat to the bank’s business.
HDFC Bank’s Management
HDFC Bank has set high standards in corporate governance since its inception.
Right from sticking to their words to proper book writing, HDFC has never compromised with the banking standards, and all the credit goes to Mr. Aditya Puri, the man behind HDFC Bank, who took the bank to such great heights that today its market capitalization is more than that of Goldman Sachs and Morgan Stanley of the US.
In 2020, after 26 years of service, he retired from his position in the bank and passed on the baton of Managing Director to Mr. Shasidhar Jagadishan. He joined the bank as a Manager in the finance function in 1996 and with an experience of over 29 years in banking, Jagadishan has led various segments of the sector in the past.
Financial Analysis of HDFC Bank
- 48% of the total revenue for HDFC bank comes from Retail Banking, followed by Wholesale Banking (27%), Treasury (12%), and 13% of the total comes from other sources.
- Industries receive a maximum share of loans issued by HDFC bank, which is 31.7%, followed by Personal Loans and Services both at a 28.7% share of the total. Only 10.9% of the total loans are issued to Agricultural and allied activities.
- HDFC Bank has a 31.3% market share in credit card transactions, showing a growth of 0.23% from the previous fiscal year, which makes it the market leader, followed by SBI.
- HDFC Bank is the market leader in large corporate Banking and Mid-Size Corporate Banking with 75% and 60% share respectively.
- In Mobile Banking Transaction, the market share of HDFC bank is 11.8%, which has seen a degrowth of 0.66% in the current fiscal year.
- With each year, HDFC Bank has shown increasing net profit, which makes the 1-year profit growth (24.57%) greater than both 3-year CAGR (21.75%) and 5-year CAGR (20.78%).
|Kotak Mahindra Bank||17.89|
- Capital Adequacy Ratio, which is a very important figure for any bank stands at 18.52% for HDFC Bank.
- As of Sept 2020 HDFC, is at the second position in bank advances with a 10.1% market share, which has shown a rise from 9.25% a year ago. SBI tops this list with a 22.8% market share, Bank of Baroda is at the third spot with a 6.68% share, followed by Kotak Mahindra Bank (6.35%).
- HDFC Bank is again at the second spot in the market share of Bank deposits with 8.6%. SBI leads with a nearly 24.57% market share. PNB holds 7.5% of the market share in this category, coming out as the third followed by Bank of Baroda with 6.89%.
HDFC Bank Financial Ratios
1. Profitability Ratios
- As of FY20, the net profit margin for the bank stands at 22.87%, which has seen a continuous rise for the last 4 fiscal years. This a very positive sign for the bank’s profitability.
- The Net Interest Margin (NIM) has been fluctuating from the range of 3.85% to 4.05% in the last 5 fiscal years. Currently, it stands at 3.82% as of FY20.
- Since FY16, there has been a constant fall in RoE, right from the high of 18.26% to 16.4% as of FY20.
|Kotak Mahindra Bank||22.08||3.88||13.08||1.77|
- RoA has been more or less constant for the company, currently at 1.89%, which is a very positive sign.
2. Operational Ratios
- Gross NPA for the bank has fallen from FY19 (1.36) to 1.26, which a positive sign for the company. A similar improvement is also visible in the Net NPA, currently standing at 0.36.
- The CASA ratio for the bank is 42.23%, which has been seeing a continuous fall since FY17 (48.03%). However, there has been a spike rise in FY17 as in FY16, it was 43.25 and in FY18, again came to the almost same level of 43.5.
- In FY19, Advance Growth witnessed a massive spike from 18.71 level in FY18 rising to 24.47%. However, in FY20, it again fell nearly 4 points, coming down to 21.27%.
|Gross NPA||Net NPA||CASA||Advance Growth|
|Kotak Mahindra Bank||2.3||0.71||56.17||6.83|
HDFC Bank Case Study – Shareholding Pattern
- Promoters hold 26% shares in the bank, which has been almost at the same level for the last many quarters. In the December quarter a years ago, the promoter holding was 26.18%. The marginal fall is only due to Aditya Puri retiring and selling few shares for his post-retirement finance, which he stated.
- FIIs own 39.95% shareholding in the bank, which has been increasing for years in every quarter. HDFC bank has been a darling share in the investor community.
- 21.70% of shares are owned by DIIs as of December Quarter 2020. Although it is less than the SeptQ2020(22.90%), it is still far above the year-ago quarter (21.07).
- Public holding in HDFC bank is 12.95% as of Dec Q2020, which has tanked from the year-ago quarter (14.83%) as FIIs increasing their share, which is evident from the rising share prices.
In this article, we tried to perform a quick HDFC Bank case study. Although there are still many other prospects to look into, however, this guide would have given you a basic idea about HDFC Bank.
What do you think about HDFC Bank fundamentals from the long-term investment point of view? Do let us know in the comment section below. Take care and happy investing!
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