Between May 2003 when the stock market began rising, and January 2008 when it peaked, ICICI Bank shares outperformed those of arch rival HDFC Bank by a wide margin. However, since January 2008 till now, the trend has reversed and the HDFC Bank stock has been consistently ahead of ICICI Bank on the returns curve. In terms of loan book size, ICICI Bank is still number one at Rs 2.54 lakh crore compared to HDFC Bank’s Rs 1.95 lakh crore. But HDFC Bank scores over ICICI Bank in terms of asset quality, which largely explains the outperformance of the stock.
HDFC Bank’s restructured loans—the process wherein terms of repayment are altered to accommodate a borrower facing financial difficulty—comprise around 0.5% of the loan book compared to ICICI Bank’s nearly 2%. Also, HDFC Bank’s net NPAs are about 0.2% of the loan book, compared to ICICI Bank’s 0.6%.
ICICI Bank’s fourth quarter financial performance was better than analyst estimates, and there was noticeable improvement in its gross and net NPA ratios. Can the stock narrow the gap in performance with its rival anytime soon?
Chart 1: % Change in price performance over the years. Time frame: 1st Jan 2003 to 14th Jan 2008
Chart 2: Time Frame: 14th Jan 2008 to 30th April 2012