Fundamental analysis of Banks | Best Private bank to INVEST? | HDFC, Kotak, & ICICI Q3 2023 Results
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- čas přidán 7. 07. 2024
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HDFC Bank Q3 results show that its Net Interest Income has increased by 24.6%. ICICI Bank Q3 results reflect that their NIT has increased by 34% and as per Kotak Mahindra Bank's quarterly results their NIT has increased by 30%. This shows that all banks have performed exceptionally well on this one metric. Why are all the banks performing well at the same time? Is a particular bank relatively better positioned than others?
To learn about these questions we need to consider these metrics - Net Interest Income, CASA Proportion, Non-Performing Assets, and Net Interest Margin. We will also consider the deposits at the end of the video. In this video, I’ve explained in the beginning how banks make money and what exactly NII is. You don’t need any banking background or experience to understand these quarterly results and make decisions about your deposit and investments.
Banks use customer deposits to give out loans. If a bank is giving out loans worth ₹100 at an interest rate of 10%, they will get back ₹110 on the successful repayment of loans. But Banks also have to pay interest on deposits to their customers. If we assume the interest on the deposit to be 3% then the bank has to spend ₹3 on giving interest to its customers. After we subtract the interest given to customers from the interest gained upon loans, we get Net Interest Income. This is the first metric on the financial results page of every bank.
Why is NII increasing for every bank? It is because of two reasons. First is that more people are opting for current accounts on which the interest rate is 0%. This change is driven by the adoption of digital payments and the boom in the use of UPI over the past few years. Ease of use has prompted many people to choose UPI and link a current account to their UPI ID to enjoy restriction-free use of money. This leads to an increase in CASA ratios. CASA stands for Current Accounts and Savings Account which represents the ratio of current accounts to savings accounts. Apart from this, the number of Indians taking loans has also increased. People are becoming credit-oriented. But in order to get this credit, they must maintain a good credit score.
This is where decreasing NPAs come in. Non-Performing Assets are basically the percentage of money that banks cannot recover from the borrowers. Decreasing NPA and increasing CASA ratios are helping the banks generate better NII. Net Interest Margin is also doing well for banks because, in the last few quarters, the interest rate has been increased by RBI because of Inflation. Because of this banks can now charge higher interest rates on loans. These factors are helping every bank in the industry.
Kotak Mahindra Bank has an advantage in terms of CASA ratios. The free money coming into Kotak’s accounts is more than 55% and for the other banks, it is in the mid-40s. NPAs are the lowest for HDFC. Which bank will do well? Banks need deposits to give out loans which is why the number of deposits in a bank must also increase. So, we should look at the deposit growth percentage. The deposit growth percentage is highest at HDFC at 19.3%. 10% ICICI and 13% for Kotak.
At the end of the video, I talked about the future of banks. In my opinion, banks would have to fight for increasing deposits rather than give out more loans. It is easy to give out loans now but increasing deposits will be difficult. Any bank that adapts to digital transformation and provides prompt and easy-to-use services will definitely have an edge over other banks. HDFC seems to have an edge in this regard. Hope you found this video helpful, please let me know what other topics would you like me to cover in the upcoming videos.
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I publish meaningful and valuable content on this channel. My aim is to make business news more accessible and easy to grasp. If you find my videos informative and insightful then make sure to subscribe and leave a comment. I’ll see you in the next video
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Chapters
0:00 - Intro
0:52 - Video Pointers
1:30 - How do banks make money?
2:21 - Why is NII increasing for every bank?
3:53 - Non-Performing Assets
5:18 - Net Interest Margin
5:59 - Which bank is doing better?
6:57 - Future of the banks
7:41 - Summary
8:48 - Outro
The way you explained the fundamentals in such simple language is amazing. Great work!
Thank you:)
Please do share the video in your circle (linkedIn or any other network) if you can. I believe, this can help with basic understanding!
I work in a US based bank and do this peer bank comparison as my day job. Your simple yet profound explanation is useful.
really loved the way you explained
Great work! Thank you for putting time and uploading these videos, they are great explanations, well-structured, and easy to follow. I found you on Linkedin and has been watching your videos daily before work. I will also start my studies at INSEAD towards the end of this year and I dont have much of business background so these are wonderful resources! Thank you, sir!!!
Wonderful explanation. I have started following your content and it is very easy to understand. As per your linkedin profile, you are INSEAD pass out. Now, viewers have another good CZcams channel besides Akshat Shrivastava who is also INSEAD pass out.
Looking forward to more enriching content.
Came through your linkedin post, this video is very informative!
Thank you so much sir !! For including my question in your video and you have expalined in a very amazing manner.
Keep posting such kind of videos..
Glad it is helpful!
I am confident it will be helpful for others as well Harshit. please do share it in your network (LinkedIn or anywhere else) if you can. Cheers!
Very informative!
It was very helpful. Thank you. Always looking forward for your new videos. :)
Glad it is helpful!
Please do share it in your network (LinkedIn or otherwise:)). Would help others as well. Pretty confident about it:)
A very simple explanation.Thanks a lot for sharing this great video
Thank you for the kind words Manan!
Please do share this video in your circle if you can (LinkedIn or any other network). I believe, this can help a lot of folks with basic understanding:)
loved this vedio. you make everything so simple to undrstand
Thank you:)
Extremely well made video Pavan!
Thanks for the kind words!
Please do share this video in your circle if you can (LinkedIn or any other network). I believe, this can help a lot of folks with basic understanding!
Please make a video on Fundamental analysis of general stocks. I would love to hear that from you.
Super explanation
Thank you:)
You have made it very simple and easy to understand. Your content is very good. Keep making such videos. Thank you.
Glad to read that Sunil:) Thanks for the kind words.
Please do share the video in your circle if you can. I believe, this can help a lot of folks with basic understanding!
@@PavanSathiraju Sure.
@@sunilkumarmt Thank you :)
Please make a video for oil and gas valuation from macro perspective!😊
Great content easily explained! I’m a regular on your channel now but this music in the video is very disturbing..
Hey Pavan great video can you make a video on Credit cost and how should one interpret it. Also how do you understand the structured book and NPA table
Please please please try and cover these topics too. Would really appreciate the work
Stay blessed
Credit cost - Yes. Will try to make it. Not sure how many people will be interested though:) Becomes very specific. I will try to cover it from a wider perspective!
Please do share the video in your circle if you can. I believe, this can help with basic understanding!
Nice one... it was very easy to understand Thanks for sharing. Would love to learn P&L statement of manufacturing/Opex oriented companies
Glad to read that Prafull:) Thanks for the kind words. I will try to do one soon in the manufacturing space!
Please do share this video in your circle if you can (LinkedIn or any other network). I believe, this can help a lot of folks with basic understanding!
@@PavanSathiraju Thanks, certainly I will share this and looking forward to manufacturing P&L video.
There is another factor now govt is allowing banks to offload their npas from their balance sheets that's why they have to pay fewer taxes on those assets. Because NPA is also calculated as future assets of the banks. They are transferring those deprived assets to bad banks.
Yes. Mentioned that customer paying back dues is only one factor:)
Govt has made a major reform in 2017/2018 where they reclassified all the NPAs and from that point in time - it is not being easy for companies to offload NPAs by working through their books.
All these banks also increased their provisions which is helping them offset the losses from NPAs.
Sorry to say, but CASA ratio doesn’t tell about share of current account relative to savings account, as you mentioned.
It’s rather share of aggregated (current + savings account) balance with respect to bank’s total deposit.
This is right that high CASA represents high net interest income of the bank, as below,
If weighted average term deposit rate (WATDR) is 6% for TDs and weighted average deposit rate (WADR) is 3% for savings account.
Now say a bank is having CASA ratio of 40%, means it has Rs 40 in current and savings account out of its total deposit of Rs 100, with balance in TD account is Rs 60.
Now let us assume, out of Rs 40 CASA, bank has Rs 10 in current account for which bank needs to pay 0 interest to depositor, but on Rs 30 in savings account bank needs to pay Rs 0.90 at 3% rate of interest. So here bank is paying Rs 0.90 against its total CASA of Rs 40. Thus, Rs 10 in current account helps bank to bring down its average deposit rate from 3% to 2.25%.
Similarly, as TD attracts more interest which is 6% in average, more TD portfolio, meaning less CASA portfolio increases bank’s interest expenses.
So, thumb rule for minimising interest expense vis-à-vis optimising net interest income is to first increase the CASA portfolio of bank and then to increase the share of current account within CASA portfolio.
Some may even question what if bank increases its interest income without contracting its interest expense to move net interest income up. Right, that is too possible. But shrinking of interest expense is more safe option for bank instead of elevating its interest income. Because to raise up bank’s interest income, bank either needs to extend more unsecured lending attracting higher interest rate or to offer loans to sub-prime customers at higher interest rate. But these lending may risk bank at later stage with higher defaults, upticking bank’s NPA position.
Good info, however couldn't get your point on how the Banks reduce their avg int rate on CASA portfolio due current account when they would still be paying the 3% twds savings account depositors
So helpful sir 🙌
Thanks for the kind words!
Please do share this video in your circle if you can (LinkedIn or any other network). I believe, this can help a lot of folks with basic understanding!
@@PavanSathiraju sure sir, looking forward to completing the mini mba from your youtube channel!
I've been watching a lot of videos about Indian banks which are likely to see a massive run-up in the coming months and this video is the only one where it's been explained why and how in the simplest way possible.
Great video!
Question: When banks give out loans to people, do they actually loan out their deposits or do they make new entries in their books which they then borrow from the RBI? Or is it a combination of both?
I was under the impression that the loans given out by banks are not essentially our deposits, indeed they are fresh ones and the banks incur no loss in creating them. Would love to hear from you.
Thanks Prasanna!!
Yes. They do borrow from public sector banks or RBI or Mutual Funds or whoever has money:) Didn't cover it in this video - will try to cover in the next video.
Please do share the video in your circle if you can. I believe, this can help with basic understanding!
@@PavanSathiraju Sir if you cover this topic like how public sector banks borrow money from rbi in the following video then it's my humble request plz include how banks and other financial institutions bid for the T bills, which are auctioned by RBI. Plz explain the bidding process , It is already available on the rbi original website but I could not understand anything. It's very complicated if you will do it I will be very grateful to you☺☺☺. BTW this video was very informative ..🥰🥰🥰🥰
@@anarghanayak8586 Sure Anargha!
@@PavanSathiraju thank you sir😍😍😍
Hi pavan. In the summary, you have mentioned that the focus of banks now is to get more deposits. Are you trying to say that the banks want more money in current accounts or only saving accounts?
Hey Pavan great video. I have a question How would you differentiate a PSU bank with a Private sector bank. Also if you look at the PSU's their interest rates are more competitive than the Private bank and the perceived safety attached to it.
They don't give out loans that easily because they have to get APPROVALS:)
and in general they are not efficient with their digital transformation.
Both these things are playing into the private sector bank hands
Is NPA calculated only on Principal amount or on interest also, if yes what is the formula?
Whatever is overdue! It could be principal + interest.
NPA definition is - whatever is overdue beyond 90 days that comes under NPA.
Read more about gross and net NPA.
ICICI bank mobile app is a lot better than hdfc
Please watch the video I am releasing today:) and you let me know what you think about it!
@@PavanSathiraju ok will let you know