HDFC and ICICI are India’s leading private sector and systematically important banks. Both have a strong digital presence and good financial performance. While Both have a strong influence in the Indian banking sector, their strengths lie in different segments, with ICICI standing out with its diversified portfolio and HDFC with its strong presence in the retail sector.
Foreign brokerage firm Bernstein has done a comparison of both banks on various financial parameters like Valuation, Profitability, growth, etc.
HDFC BANK
HDFC Bank currently has a Return on Assets (ROA) of 1.88 percent, with Bernstein expecting the bank to close the gap over time. In terms of loan growth, HDFC is taking a cautious approach by reducing its Loan-to-Deposit (LDR) ratio. Both ICICI Bank and HDFC Bank have similar Price-to-Earnings (P/E) ratios however, HDFC Bank trades at a lower valuation of 2.6x Price to Book (PB).
Over the past year, the bank has delivered a return of 19 percent. the key driver for HDFC Bank’s future returns lies in narrowing the RoA gap with ICICI Bank. In the long term, its profitability improvements are expected to be a crucial factor in enhancing overall performance.
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ICICI BANK
ICICI Bank has higher profitability with a Return on Assets (ROA) of 2.4 percent. The bank’s loan growth is growing at a faster pace, contributing to its strong financial performance. Both ICICI Bank and HDFC Bank have similar Price-to-Earnings (P/E) ratios however, ICICI Bank trades at a premium valuation of 3.0x Price-to-Book (P/B).
Over the past year, the bank has delivered a return of 11 percent. A key driver for ICICI Bank’s future returns is its strong asset growth, which could further enhance its profitability. Additionally, the bank’s market share plays a significant role in strengthening its overall valuation.
Bernstein’s Pick
Bernstein picked HDFC Bank as their preferred pick even though ICICI Bank has better loan growth and higher Return On Assets. They believe that HDFC has better long-term Prospects considering its profitability will improve.
Written By Abhishek Das
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