The banking sector plays a pivotal role in the prosperity of an economy. If we compare the economy to a car, then we can say that the banking sector is like oil for this car. It is necessary to keep the economy running well, but many dislike it. If you do not have oil in your car or banking sector in the economy, your car engine (as well the economy) is likely to incur significant damage.
Today, I would like to discuss about a private Indian bank that has proven itself as a strong investment opportunity. Over the last few years, the Indian economic condition was a turbulent one. Despite this topsy-turvy situation, ICICI Bank Ltd (ADR) (NYSE:IBN) has played well. ICICI Bank is the only truly universal bank in India besides the government owned State Bank of India. With a market cap of $24.86 billion, the bank has a network of 3,753 branches and 11,292 ATMs in India, and has a presence in 19 countries, including India.
Headquartered in Mumbai, India, the bank operates in 7 business segments: Treasury, Wholesale Banking, Life Insurance, Retail Banking, Other Banking, Other, and General Insurance. ICICI Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in the United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany.
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- IBN 15-Year Financial Data
- The intrinsic value of IBN
- Peter Lynch Chart of IBN
Tracking the Performance
On January 29, 2014, ICICI Bank reported its third quarter 2014 results. A chart has been provided below to compare its third quarter 2014 results with third quarter 2013 results.
Profit after tax increased after additional tax provision of INR215 crore ($35 million) for deferred tax liability on Special Reserve; growth in profit after tax excluding this impact was 22%. ICICI Bank’s Cost-to-income ratio and Current and savings account (CASA) was maintained sequentially at 37.0% and 43.3% respectively in Q3-2014. The bank had a year-on-year growth of 17% in CASA deposits.
ICICI Bank’s balance sheet is provided below.
As of Dec. 31, 2013, ICICI Bank’s total advances were INR3,326.32 billion ($53.8 billion), rising 16% from INR2,867.66 billion ($46.4 billion) as of Dec 31, 2012. The bank’s savings account deposits amounted to INR957.25 billion ($15.5 billion), while current account deposits totaled INR414.41 billion ($6.7 billion). In compliance with the Reserve Bank of India's guidelines on Basel III norm, ICICI Bank's capital adequacy was 16.81%, and Tier-1 capital adequacy was 11.53% as of Dec 31, 2013. These are well above regulatory requirements. A chart has been provided further to show the bank’s consolidated key ratios.
Head to Head
ICICI Bank faces stiff competition from HDFC Bank Limited (ADR) (NYSE:HDB) and Deutsche Bank AG (NYSE:DB). ICICI Bank is ahead of its peers as their performances are not so impressive. HDFC Bank reported fiscal third-quarter 2014 (ended Dec 31) net profit of INR23.26 billion ($0.38 billion), up 25.1% from the prior-year quarter. Increase in top-line was partially offset by higher operating expenses. On the other hand, Deutsche Bank reported net loss of €965 million ($1.3 billion) in the fourth quarter of 2013 as compared with a loss of €2.5 billion ($3.4 million) in the prior-year quarter. Lower revenues and higher provision for credit losses were partially offset by a decrease in expenses.
Despite of this poor economic condition, ICICI Bank has shown a great performance because of its focus on a balanced approach. The bank will continue this approach in the future. ICICI Bank’s main focus is in three segments: Profitability, growth, and risk management. This has been further illustrated in the chart below.
To Wrap Things Up
ICICI Bank has a strong balance sheet which includes healthy capital position and robust funding profile. The bank also has a consistent delivery against stated objectives, and has regular and increasing dividend income which is shown below.
Charts are from company website
Further, ICICI Bank’s healthy trends in retail segment, strong deposit franchise, and continued innovation in technology offerings will help to strengthen its position amid this tough Indian economy. I am therefore pretty bullish that this private Indian bank will continue to grow and generate incredible revenue in the long run.