HDFC Bank and ICICI Bank, two of India's leading private sector lenders, have recently announced their financial numbers for the March quarter, shedding light on their performance. The two banks are often compared for their market share, customer base, financial performance, and overall reputation in the industry.
HDFC Bank vs ICICI Bank: Who reported better fourth-quarter earnings?
HDFC Bank's net profit for the March quarter came in at ₹12,047.5 crore, up 19.8% YoY. ICICI Bank's net profit for Q4 FY23 stood at ₹9,122 crore, a 30.0% YoY increase, and its net profit for the fiscal year 2023 was ₹31,896 crore, a 36.7% YoY increase.
While both banks have reported healthy profits, we will compare and analyse the Q4 numbers of HDFC Bank and ICICI Bank in this article, examining their profitability, return ratios, asset quality, and brokerages' outlook to understand how they stack up against each other.
NII surges for HDFC Bank and ICICI Bank
Net interest income (NII), which is the difference between the interest earned from lending activities and the interest paid to depositors, is a key metric for measuring the financial health of a bank.
In the March quarter, HDFC Bank's NII surged 23.7% YoY to Rs. 23,351 crore, compared to Rs. 18,872.7 crore in the corresponding period of the previous year. The bank's core net interest margin was 4.1% on total assets and 4.3% on interest-earning assets.
Non-interest revenue, which accounted for 27.2% of net revenues, stood at Rs. 8,731.2 crore in Q4FY23, compared to ₹7,637.1 crore for the corresponding period of the previous year.
In comparison, ICICI Bank's net interest income for Q4 FY23 rose 40.2% to Rs. 17,667 crore from ₹12,605 crore in the same quarter last year. The bank's net interest margin came in at 4.90% in the March quarter, compared to 4.00% in Q4 FY22 and 4.65% in Q3 FY23.
Non-interest income of the bank increased 11.3% YoY to Rs. 5,127 crore in Q4 FY23 from Rs. 4,608 crore in Q4 FY22.
In terms of net interest income, both HDFC Bank and ICICI Bank, delivered strong performances in Q4-FY2023. However, ICICI Bank's NII growth rate of 40.2% outpaced HDFC Bank's growth rate of 23.7%.
Moreover, ICICI Bank's net interest margin was higher than HDFC Bank's, indicating better profitability from its lending activities.
ICICI Bank provisions rise YoY but fall sequentially
Profit before provisions and taxes, is a financial metric used in the banking industry to measure a bank's operating profitability, which excludes provisions for bad loans and taxes.
In the case of HDFC Bank, the pre-provision operating profit (PPOP) stood at ₹18,620.9 crore for the March 2023 quarter, showing a growth of 14.4% YoY, excluding net trading and mark-to-market income.
The provisions and contingencies for HDFC Bank were ₹2,685.4 crore, compared to ₹3,312.4 crore in the same period of the previous year. In the December quarter of FY23, the bank reported ₹2,806 crore in provisions.
ICICI Bank's pre-provision operating profit (PPOP), which excludes net trading and mark-to-market income, stood at ₹13,866 crore, showing a strong growth of 36.4% over the same period last year. The bank reported an operating profit of ₹10,164 crore in Q4FY22.
The provisions of ICICI Bank rose by 51.5% YoY to ₹1,619 crore in Q4 of FY23 compared to ₹1,069 crore in the corresponding period of the previous year. However, the provisions decreased sequentially, as in the December quarter (Q3 FY23), the bank announced a provision number of ₹2,257 crore.
Both banks witness an improvement in asset quality
HDFC Bank reported a drop in its gross non-performing ratio (GNPAs) to 1.12% in the March quarter, compared to 1.17% in Q4 FY22 and 1.23% in Q3 FY23. Meanwhile, its net NPAs stood at 0.27% in Q4 FY23, compared to 0.32% in the same quarter last year.
Similarly, ICICI Bank's gross NPA ratio declined to 2.81% in Q4FY23 from 3.07% on December 31, 2022. The net NPA ratio also came in lower at 0.48% from 0.55% in Q3 FY23 and 0.76% in Q4 FY22.
Better provisioning boosts profits
HDFC Bank reported a profit before tax (PBT) of ₹15,935.5 crore. After accounting for a provision of ₹3,888 crore towards taxation, the bank's net profit stood at ₹12,047.5 crore for the March quarter, indicating a 19.8% growth over the same quarter last year.
Furthermore, HDFC Bank's net profit for the financial year ended March 31, 2023, was recorded at ₹44,108.7 crore, marking an impressive 19.3% rise over the previous financial year.
ICICI Bank reported a notable increase in profit after tax, with a growth of 30.0% YoY to ₹9,122 crore in Q4 FY23 compared to ₹7,019 crore in Q4 FY22.
The bank also witnessed a substantial growth in its profit after tax for the fiscal year 2023, which increased by 36.7% YoY to ₹31,896 crore from ₹23,339 crore in the previous fiscal year ending on March 31, 2022.
HDFC Bank's total deposits have grown steadily to ₹18,83,395 crore, an increase of 20.8% over the similar quarter of last fiscal. CASA deposits grew by 11.3%, with savings account deposits at ₹5,62,493 crore and current account deposits at ₹2,73,496 crore.
ICICI Bank's total deposits have also improved, rising 10.9% YoY to ₹11,80,841 crore in Q4FY23. During the quarter, the average current account deposits of the bank rose 9.3% YoY, and the average savings account deposits climbed 7.5% YoY.
HDFC Bank is among the few banks to see deposit growth outpacing credit growth despite the intense competition for deposits as well as smaller banks offering competitive rates, said brokerage firm Axis Securities.
The bank's extensive distribution network is expected to support continued robust deposit mobilization. Although the bank's aggressive branch expansion efforts may result in elevated operating expenses in the near to medium term, they are expected to pave the way for the bank's future growth, the brokerage added.
On the other hand, ICICI Bank has been performing well in terms of growth, margins, and asset quality, and has a strong retail-led loan growth and a granular deposit franchise.
In addition, the bank's improving operational profitability and robust provision buffer are expected to help deliver a superior RoA and RoE of 2-2.1%/17-18% over FY23–25E, according to the brokerage.
Given these factors, ICICI Bank remains the most preferred pick amongst private-sector banks for Axis Securities.
Following the Q4FY23 performance of both banks, Axis Securities has maintained its 'buy' rating on them. The brokerage has set a target price of ₹1,975 apiece for HDFC Bank and a target price of ₹1,150 apiece for ICICI Bank.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
personal financeKirti Jha
personal financeAbeer Ray