ICICI bank, Bank of America, JPM Chase - A comparison

	Bank of America ($ Mi)	JPM Chase ($ Mi)	ICICI Bank (Rs Cr)	ICICI Bank ($ Mi)
Market cap	125,025	182,867	126,487	28,108
Price	12.34	45.79	1,098.00	24.40
P/E	-55.87	10.18	24.55	24.55
P/B	0.59	1.07	2.23	2.23
Net Income	-2,238	17,370	5,151	1,145
CAR(%) Tier I	8.60	12.10	13.17	13.17
Financial leverage	7.21	7.00	NA	NA
Gross NPA(%)	4.47	4.71	4.47	4.47
Net NPA(%)	3.60	3.39	1.16	1.16
PCR (%)	NA	NA	76.00	76.00
NIM(%)	2.78	NA	2.60	2.60
5 yr Rev growth (%)	50.03	65.64	24.82	24.82
RoE	-0.01	10.00	NA	NA
RoA	Neg	0.85	1.35	1.35
Efficiency ratio	74.61	NA	NA	NA
Revenue	111,390	102,694	15,665	3,481
NII	52,700	51,001	9,017	2,004
Total Assets	2,264,909	2117605	406234	90,274
Total Deposits	1,010,430	930369	225602	50,134

I have tried to compile whatever I saw in the 2010 annual reports of BofA and JPM Chase (Jan till Dec 2010) and compare it with FY11 annual results of ICICI Bank (Apr 2010 till Mar 2011). Please let me know if I have miscalculated or misunderstood something.

JPM - ICICI Bank comparison
The market cap of JPM Chase is just 6.5 times that of ICICI bank. This seems a bit costly to me. The net income (Net profit) of ICICI bank at $ 1.1 bi pales with respect to the $ 17.3 bi of JPM Chase (around 15 times higher). The revenues of JPM Chase at $ 102 billion is 30 times the $3.5 billion that ICICI generates. NII of JPM is 25 times that of ICICI Bank and Assets are 23 times that of ICICI bank. Even the deposits of JPM Chase are 18 times that if ICICI Banks deposits. Revenue of JPM Chase has grown 65% from 2006 revenue whereas ICICI banks revenue has grown 25% from Fy07.

ICICI bank is better than JPM Chase when Capital adequecy or Net NPAs are considered. But is that reason enough for such a high market cap?

How to analyze Bank Stocks - Fundamental Analysis of Banks

Parameters	Considerations
CAR	Capital adequacy ratio(Tier 1 and tier 2 capital/ Risk weighted assets) - RBI stipulates this at > 9%. Indian banks do have 12-14% mostly
Financial leverage	12 times is the average in the financial institutions
NPA	Non performing assets - Low NPA is good (Say gross <1.5% and net < 0.5%)
Provisional coverage ratio	Provisional expense/Gross NPA – greater the better (say greater than 100%)
NIM	Net Interest Margin - 3% or more is considered good. 4% is excellent. At least 2% is needed for reasonable profitability
Revenue growth	Just like any other sector, banks also need good revenue growth
RoE	15 to 20% return on equity is considered good. It is easy to boost returns by leveraging up the balance sheet or under provisioning. So, RoE should be seen in context of RoA. RoE is based on the levers – net margins, Asset turnover and financial leverage.
RoA	Greater than 1.2% return on assets is considered good. RoA is based on the levers – net margins, Asset turnover and financial leverage.
Efficiency ratio	This is the Cost to income ratio – operating expenses (non-interest expenses) as a percentage of income.
P/B	Price to book ratio is appropriate as book values are marked to market every quarter (acceptable value). Big banks trade at 2 to 4 times book value.

HDFC Bank - 500180

Name of Company	HDFC Bank
BSE Code	500180
NSE Code	HDFCBANK
ICICI Code
Established
My Take	Like
Headquarters	Mumbai
Promoters
Story
Sector	Banking
Sub-sector	Banking (retail and commercial)
Website	http://www.hdfcbank.com/
Positives	Regularly dividend paying company (around 0.5% yield). One of the most customer friendly banks.
Negatives
Peers	ICICI banks, Kotak mahindra bank, yes bank, SBI
News
Price @ blogged	2172 (20-Feb-11)
Cost of company	1 lakh 1 thousand crore marker cap for a 2950 Cr FY10 profit makes it 34 times. I dont know how to value banks ( i dont know about NPAs)

Banks - ones that have borrowed less

Banks are growing at a huge pace. But let us assume they don’t grow at all from now. This is a hypothetical case - to find the best banks in the Indian market.

I like companies which have cash surpluses and less (or even better – no debt). But we cannot think of banks in the same way. Banks always have huge borrowings, but small cash reserves. That is their business. Leveraging money is what makes money for banks.

So, as all banks have debts, let us think how many months it would take to repay all debts for a bank if the banks did not grow- i.e profits were stagnant (FY10 numbers). These are the banks that would repay within 55 years. J yes 55 years.

company	reserves	unsecured loans	PE	sales	net profit	NPM(%)
Karur Vysya Bank Ltd.	1565.54	19271.85	12.189775	1757.94	336.03	16.76
YES Bank Ltd.	2749.88	26798.57	19.051723	2369.71	477.74	16.22
Indian Bank	6217.25	88227.66	6.000656	7857.06	1554.99	17.22
Kotak Mahindra Bank Ltd.	4191.78	23886.47	47.318672	3255.62	561.11	14.45
Axis Bank Ltd.	15639.27	141300.22	19.903759	11638.02	2514.53	16.14
HDFC Bank Ltd.	21064.75	167404.44	31.721303	16172.91	2948.69	14.76
ICICI Bank Ltd.	50503.48	202016.6	28.491376	25706.93	4024.98	12.13

(except NPM and PE all are in Crores)

Kotak Mahindra and HDFC Bank were the ones which would repay very early (around 35 years). The 5 others were very close to each other (around 50 years).

My assumption that profits would not grow is not realistic. Also, it is not a good comparison as different banks grow at different rates. Generally private sector banks grow faster than public ones.

My assumption that banks would try to reduce their borrowings is also far from the truth. The banks don’t mind if their debt grows. They only care about having more money at lesser rates and lesser assets (money the bank has lent out or invested) going bad.

My model does not view NPAs at all and they can be a major factor in analyzing banks.

So, please analyze all this while using my viewpoint.