In a challenging year, the top three private banks have turned in a laudable performance, reflecting strong fundamentals. But there have been some weak links too.

ICICI Bank’s net profit grew by 15 per cent in the fourth quarter ending March 2014, and 18 per cent for the full year 2013-14 (FY14), driven by 17 per cent loan growth. Axis Bank, on the other hand, saw an 18 per cent jump in net profit in the March quarter and 20 per cent for the full year with 17 per cent growth in loans. Last week, HDFC Bank reported a 26 per cent growth in net profit for 2013-14.

Favourable factors Private sector banks have had two main factors in their favour. One, strong retail focus that has aided profitability and growth. And, two, lower loan delinquencies when compared to public sector banks.

While ICICI Bank and Axis Bank have scored well on the retail front, HDFC Bank has fallen behind. While ICICI Bank saw its retail portfolio grow 23 per cent in the fourth quarter, Axis Bank’s grew 31 per cent growth. HDFC Bank, was far behind with just 10 per cent growth.

While HDFC Bank put up a sober performance on the retail front, it has beaten its peers on asset quality.

HDFC Bank has the lowest loan delinquency, with bad loans at 0.98 per cent of loans as of March 2014.

Axis Bank, on the other hand, saw some pressure on asset quality during the year.

The gross non performing assets (GNPA) increased to 1.22 per cent as of March 2014, from 1.06 per cent last year.

ICICI Bank’s troubles with its current bad loans are bigger than that of its peers, with GNPA at 3 per cent in the latest quarter.

But it is not just bad loans that have been a concern for ICICI Bank. The bank has been stepping up its loans recasts too.

In the first half of 2013-14, the bank restructured about ₹1,800 crore of loans.

This increased to ₹2,000 crore in the December quarter and to ₹2,156 crore in the March quarter. So, from 1.8 per cent last year, ICICI Bank’s restructured book currently accounts for 3 per cent of its loans.

Axis Bank’s restructured loans also went up to 2.4 per cent of loans from 1.9 per cent last year. In contrast, HDFC Bank’s restructured book is just 0.2 per cent of loans.

At the current price, both ICICI Bank and Axis Bank trade at a 50 per cent discount to HDFC Bank. They need to show a significant improvement in asset quality to narrow the valuation gap.

Axis Bank’s ability to sustain the stellar growth in retail loans, ICICI Bank’s slippages on bad loans and HDFC Bank’s poor show on retail loans will need watching in the coming financial year.

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