Compare Indian Banks: A Quick Fundamental Analysis [2021]

By Harshit Patel

India is a large country with a large population, and it has a large, diverse economy. The country has large infrastructure projects in the pipeline, and the banking sector is expected to grow at a robust pace. However, the country has been facing rising inflation and high unemployment, and it has struggled to achieve high growth rates. The government has been trying to revamp the banking sector with the objective of increasing both lending and lending growth.

Which bank to pick for your financial needs? There are numerous banks in India, which are exclusive, and recommend a particular bank for different type of investors. So, to help you choose the right bank for you, we have prepared an overview of Indian Banks for your reference.

Let’s compare Indian banks to see which ones are the best and which ones are better to avoid.

Nifty bank has been corrected from 37,300 on 15/02/21 to 33,100 today (10/05/21). This is a correction of almost 11%.

As an investor you can use this correction as a buying opportunity. But we must also remember that COVID-19 will have a drastic impact on the bank’s operations.

We could buy a potential Yes Bank or IDBI Bank of the future. Such an investment decision can lead to regret.

While it is also true that bank stocks are the safest stocks to buy and hold over the long term. We just need to make sure we buy shares from a reliable bank at a fair price.

In this article, we will compare Indian banks. For my example, I examined fifteen (15) banks. Thirteen of these are private banks, and only two are large state-owned banks.

Development of the bank’s share price (last 3 months)

Speaking of specific actions, since the 10’21. During the month of May, banks made some price corrections (the list is below). At the top of the page is the RBL Bank. While Axis and ICICI Bank now remain at the bottom of the list, they did rise to the top of the list in FY21. April also put up figures of Rs 635 crore (Axis) and Rs 540 crore (ICICI).

Name Price Change in 3M (%)
RBL Bank 187.55 -23.87
HDFC Bank 1,419.85 -11.91
Bandhan Bank 295.95 -9.85
State Bank of India 361.70 -8.38
Indusind Bank 945.40 -7.84
Kotak Mahindra Bank 1,809.35 -7.17
Bundesbank 79.55 -4.10
Axis Bank 715.25 -3.67
ICICI Bank 613.25 -3.17
Bank of the city association 167.35 0.42

So if you see these price corrections as buying opportunities, are they worth investing in? Yes, but the only problem is that we don’t cling to the weird Yes Banks and IDBI Banks.

Therefore, I decided to conduct a self-analysis of these banks (15 in total). What I discovered was very helpful. So I decided to post it for my readers. I hope you enjoy it.

Basis of analysis

I have used nine (9) financial ratios to compare Indian banks. All these ratios are used by experts to analyze banks.

Most of these ratios differ from the financial ratios we use to analyze non-bank equities. So I will both compare and give an idea of the ratios used for comparison.

Indian bank indicators used for comparison

#1. Gross ABO and net ABO

For banks, loans to individuals/companies are assets. Why? Because it generates income for the bank in the form of interest. When a loan stops generating income, it is treated as a non-performing asset (NPA).

A bank’s gross non-performing assets (GVA) are the sum of all loans (principal plus interest) that are classified as NPA in its name. Generally, a loan becomes an NPA if it remains more than 90 days past due. Read: What happens if a loan is not repaid?

Gross NPA is usually expressed as a percentage. The percentage indicates the proportion of the total loan amount that has become NPA. For example, 11% GNPA means that out of 100 rupees provided as loans, 11 rupees were identified as NPAs.

How do banks manage their NPAs?

NPAs make losses for banks. As per RBI norms, banks are required to make provisions for NPAs. A reserve is nothing but money set aside from the bank’s net profits. When the NPA becomes uncollectible (a loss-making asset), it is written off by adjusting the provision (see figure above).

There is a rule for storing supplies. To understand this rule, we need to know the three types of NPAs. Discharge rates were determined based on the type of NPA.

  • Subprime assets: These are loans that have been NPA for 12 months or less. For these NPAs, banks are required to establish a reserve of 25%.
  • Impaired assets : These are loans that have been in place for 12 months or more as an NPA. For these NPAs, banks must set aside 100 % of the unsecured portion and 40 % of the secured portion. After the third year, a 100% subsidy must be given for the total amount of the outstanding loan.
  • Deficit assets : These are NPAs that the bank has determined are uncollectible. This has also been verified by the auditors and the RBI, if applicable. For these NPAs, banks must maintain a reserve of 100%. Learn more about the NPA classification.

Net asset value (NAV)

The net NPA, expressed as a percentage, represents the part of the NPAB for which reserves have not yet been constituted. It can also be understood as a risk of future loss against which banks may have to make provisions, further reducing their profits.

The lower the GNPA and NNPA values, the safer the bank.

Now that we know what GNPA and NNPA are, let’s see what these two indicators look like for Indian banks.

Of the 15 banks participating in the comparison, HDFC Bank is the best in terms of GNPA and NNPA. It is followed by IndusInd Bank and Kotak Mahindra Bank.

[P.Note: Individuals and businesses will have more confidence in a bank with a low NGPA and NNPA. More and more retail savings accounts are being opened in the branches of these banks. Companies will also show their trust in these banks by opening current accounts. As a result, the CASA ratio of these banks will become high].

#2. CASA report

The business model of banks is to collect deposits at low cost and lend that money to borrowers at higher interest rates.

First, in order to attract deposits, a bank must encourage individuals and businesses to open bank accounts at its branches. Once an account is opened, banks receive deposits from account holders.

There are essentially four types of deposits: (a) overnight deposits; (b) savings deposits; (c) time deposits; and (d) periodic deposits. Of these four types of deposits, the chequing account offers no interest. A savings account offers a minimum interest of 3 to 4% per year. Fixed and recurring deposits offer higher interest rates.

The higher the CASA factor, the better. As investors, we should be on the lookout for banks that are constantly improving their CASA ratio. A higher CASA ratio indicates that the bank has a cheaper source of funds (deposits). A cheaper source of funds means the bank achieves a higher net interest margin (NIM), a measure of profitability.

Let’s see what the CASA ratio is for 15 banks in India:

Of the 15 banks participating in the comparison, Kotak Mahindra Bank seems to be the best. It is followed by HDFC Bank, ICICI Bank and SBI. IDBI, an industrial bank, has a higher proportion of current accounts. As a result, CASA values are also high.

#3. Reserve funding ratio (RCP)

This is a ratio that indicates how much of the gross NPA is already protected by the bank’s reserves. The combination of high PCR, high ROA/ROE and high NIM makes it an attractive investment.

PCR is the ratio of total reserves to the bank’s gross NPA. Reserves and gross NPAs can be removed from the company’s balance sheet. A PCR of 90% means that of the total gross NPAs 90% is covered by the bank’s reserves. Only 10% are not covered.

Let’s see what the PCR is for our 15 Indian banks:

Ujjivan Small Finance Bank performs best of all. But it’s a new sofa. By comparison : We only have four years of bank records. Of the other banks, HDFC Bank and IndusInd Bank look good. But I should also note that HDFC Bank had the lowest GNPA and NNPA.

#4. Loans-to-deposits ratio (ADR)

Banks collect deposits from account holders and provide them in the form of loans (advances) to individuals/companies who need them. A bank that attracts Rs 100 million in deposits and disburses Rs 90 million in loans has an A/D ratio of 0.9.

The lower the ADR, the more reliable the bank. However, a low ADR would also have a negative impact on the bank’s NIM and thus on ROA and ROE. Thus, banks must maintain a balance between low ADR and high NIM.

Let’s see what ADR is for our Indian bank 15 :

Two state-owned banks (SBI and Bank of Baroda) did well in the ADR. But a weak ADR like IDBI Bank is not good either. We have to ask ourselves why the bank doesn’t lend. In recent years, it has made only 56% of its deposits as loans. The other 44% remained inactive at the bank?

#5. Power multiplier (EM)

If we look at the balance sheet of a bank, it consists of two elements as a source of funds: Equity and deposits. The capital ratio is also known as equity (net assets). It consists of the share capital and the reserves.

Deposits are balances in various current, savings, FD and RD accounts of the Bank.

The amount of own funds and deposits constitutes the total capital at the disposal of the Bank for the pursuit of its activities. How does the bank do business? Loans to individuals and businesses.

The ratio of total capital to total equity is called the equity multiplier (EM = total capital / total equity).

If the multiplier of a bank’s capital exceeds 15, the bank can generally be considered risky.

Let’s see which of our 15 banks meet the EM-15 rule:

As far as multiple shares are concerned, Ujjivan Small Finance, Bandhan and Kotak Mahindra Bank seem to be the safest.

#6. Return on assets (ROA) and return on equity (ROE)

If you are interested in the fundamentals of ROA and ROE, please refer to the attached links. Here I would like to move directly to a comparison of the ROA and ROE of our 15 banks.

In terms of ROA and ROE, the large private banks are doing well. HDFC Bank, Bandhan Bank and AU Small Finance Bank are the big winners. But the returns of ICICI and Kotak banks are also decent.

The older and larger the bank gets over time, the harder it is to maintain ROA and ROE. The performance of HDFC Bank and ICICI Bank is first-rate in this regard.

AU Small Finance Bank is a very new and small bank, so we cannot compare it with HDFC and ICICI. But yes, the numbers are good. Bandhan and Ujjival Small Finance Bank have almost the same year as AU Small Finance Bank, but their ROA and ROE are lower.

#7. Net interest margin (NIM)

For banks and financial institutions, the main activity consists of collecting interest (on loans) and paying interest on deposits.

If we look at the income statement of the bank, we see that the main source of income is interest. In the case of HDFC Bank, the average share of interest income in total income over the last 5 years was 84%.

Similarly, HDFC Bank’s average interest expense over the past 5 years was 54% of total expenses.

Since interest is an important part of income and expenses, banks and financial institutions are best measured in terms of profitability with a ratio called the net interest margin (NIM).

NIM is a measure of the efficiency with which a bank uses its assets to earn net interest (net interest = interest income – interest expense).

NIM = Net interest / Total assets

The higher the MIN, the more efficient the bank.

Let’s see how our 15 banks compare to the NIM parameter:

If you compare, you will see that the newer banks are doing better. Banks like Bandhan, AU Small and Ujjivan Small are doing better.

If we remove these three banks from the list, all that remains are those that have at least 10 years of data to compare. In this case, the cash flow equation seems more accurate. All major Indian private banks are outperforming their competitors. Even small banks like RBL and City Union have decent cash flow.


The largest bank in India is State Bank of India (SBI), followed by HDFC Bank. But unfortunately, the two banks don’t have much in common. In terms of banking efficiency and profitability, HDFC Bank is far ahead of SBI.

Here’s a brief overview of how the 15 banks compare.

As an investor, it is easy to see that the big private banks HDFC Bank, ICICI, Kotak, Axis and IndusInd Bank are doing well compared to other banks.

Of the small banks, Bandhan and AU Small Finance are worthy competitors of the big banks.

I hope you enjoyed this comparison of the top 15 banks. Which bank do you think is the best? Leave your answer in the comment box below.

Have fun investing.

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