In this video we are going to talk about the second largest private bank in India
And we will talk about how we can fundamentally analyse a bank
And after doing the fundamental analysis
You can decide yourself whether you should invest in it or not
I, Jagdeep Singh, welcome you to the Groww channel
Today we are going to talk about ICICI bank
We will talk about the history of ICICI bank
About their business model
And we will talk about their financial parameters
And those financial parameters that are prevalent in the banking sector
And this analysis will not only help you analyse ICICI bank
Using this, the other banks in the private sector
Or public sector banks
You can analyse them
You can see which company is more fundamentally sound
You can take a good investment decision
Let us start today's video
If we talk about ICICI bank's history, its history goes back to 1955
When this company was started with the name ICICI ltd
And a big hand behind starting it was of World bank
After this if I talk about 1994
In 1994, for the first time, ICICI bank as a promoter
Promoted ICICI bank
After this they launched the IPO
They reduced their promoter holding and got it down to 46%
After which ICICI banks journey as a bank began
And they diversified themselves a lot
They brought many services
If we talk about ICICI bank today
They provide many services
Like if I talk about the normal operations of the bank
Then you know how the operations of the bank works
Many people deposit there
That money is further lent by banks
And whenever you talk about fundamental analysis
This generic business model
It is very important to understand this
After that, if many people come and give their money to banks
And that money is further lent by banks
You can imagine where the biggest risk will be
The biggest risk will be, whoever kept the money
They will come to take their money
And the person they gave the money to, they aren't returning it
So if you understand these things properly
You can do the fundamental analysis of a bank well
Now let us talk about some fundamental parameters
That are very important for any bank
Which are very important even for ICICI bank
And we will compare these financial parameters
To the same quarter of last year of ICICI bank
So that you can find out their growth in the last year
After this we will talk about their segmental revenues
And we will compare their financial parameters
To HDFC bank
So that you can find out how their financial parameters perform when we compare that to other banks
Let us start with the business of the bank and a little about their profit
You can think how a bank earns profits
Now you depofit money in a bank
The bank gives you 4-5% interest
But that money is lent by the bank at 8%
The difference in between
That is the profit for the bank
And this ratio in financial terminology
Net interest margin
The higher this is, better it is for the bank
By that much thei rprofit increases
And lower it is, worse is it for the bank
Which means that the bank is not able to make that profit
So you can relate this ratio to the business model
So if I talk about the net interest margin of ICICI bank
Their net interest margin in the quarter 4 of 2020
That is 3.87%
Their margin comes out to be 3.87%
Which is a decent number
But when we compare this to India's biggest private bank
Means with HDFC bank
There this number is lesser
So if I talk about HDFC banks net interest margin then that is
4.30%
So here their number is slightly lower as compared to HDFC bank
But here you must want to know
In this quarter their NIM is 3.87%
But was it in the last year
Because if in last years comparison their numbers have improved
Maybe they have brought some improvements in their business model
But if it has reduced, maybe it isn't a good thing
So if I talk about ICICI banks net interest margin
In quarter 4 of 2019
Then their interest margin was 3.72%
So if we talk year on year
Their net interest margin has improved
From 3.72% to 3.87%
Now you have understood why net interest margin is important
And why is it better when higher
But how can a bank take their net interest margin higher
There is a very important ratio here, CASA ratio
How much money is kept in the current account a savings account of the bank
Now you must be thinking why CASA ratio is so important
As you know that if any bank wants to improve their net interest margin
Their cost of borrowing money
They have to reduce it
And higher the CASA ratio
Higher is the cost for them
Why does this happen?
You know that you get a higher interest rate in FDs
But if you keep your money in current or savings accounts
You get very low interest rates
So if the bank has to give lower interest rates, the cost becomes lower
Because of which their margins increase a little
If I talk about the CASA ratio of ICICI bank of quarter 4 2020
Their CASA ratio is 45.1%
If I compare their CASA ratio to HDFC bank
HDFC banks CASA ratio is 42%
Which means that compared to HDFC bank, ICICI banks CASA ratio is better
But if we compare this CASA ratio to the same quarter of the last financial year
Which means that if we compare 45% to the quarter 4 of 2019
There this number is lesser
Because in 2019, their CASA ratio
Was around 48.77%
Which means that their CASA ratio has reduced
But as compared to HDFC bank their CASA ratio is better
And a CASA ratio of more than 40%
Is considered a good number in the banking industry
Now we will talk about if their NIM is good and their CASA ratio is good
The profit automatically increases for any bank
So if I talk about the core operating profit margin in the case of ICICI bank
Their core operating profit margin has increased by 18% year on year
Which means that their core operating profit which comes from their core business
Which comes from the core business of banking
There has been a healthy improvement there of 18%
If we compare that to last year
Apart from this, many people see a particular share or a particular company
How much earning it gives you per share
And whether that earning has improved or reduced
If I talk in the case of ICICI bank
Their EPS earning per share
That has improved
From 6.3 to
14.5
Which means that they said in this quarter that their earning per share
That is of 14.5 rupees
Whenever we talk about the profit of any bank, it can only be good when
They have lent money somewhere and it comes back on time
And the opposite party doesn't default there
Now we will talk about the financial parameters
What are those ratios
Which can help you to judge how healthy the loan book of a bank is
The guarantee of the money that they have lent
Whether that will come back on time
Because the biggest mistake that happened with many investors
Was in the case of Yes bank, they weren't able to judge the NPAs in the right way
Because maybe the bank didn't show the NPAs in the right way
What are other financial parameters apart from this
Which can help you understand
How healthy the loan book of a bank is
There is a very important parameter here called Provisioning
Whenever you see the quarterly result of any bank
It comes for every bank that they have increased their provisioning
A bank has tripled their provisioning
Now you must want to know what provisioning is
And how it impacts you as an investor
Here I will tell you a number of ICICI bank itself
In this quarter ICICI bank has made a provisioning of 5967 crores
If I compare that to the same quarter of last financial year
This number is almost triple
Now you must want to know what provisioning is
Where did this 6000 crores go
As you know that when a bank lends some money
It works as an asset for the bank
And whenever we talk about assets, that is in the balance sheet
And whenever the bank feels that the money it has lent
That money won't come back
The bank will reduce it assets
And books a loss
And when the bank reduces its assets and books a loss
That is what we call provisioning
And the meaning of more provisioning
The bank knew before that its money won't come back
And to clean its books, it did provisioning
This can be judged in both ways
If there is more provisioning
One meaning of this can be that the bank is cleaning its books at the right itme
And the second can be that the loan book of the bank
From there, their money is not coming at the right time
So here if we talk about ICICI bank
They have done a provisioning of almost triple the amount
They made a provisioning of almost 6000 crorea
But out of this 6000 crores
2700 crores was especially provisioned because of Coronavirus
The more a bank provisions
The more it books losses
That much their net NPA reduces
So the more provisioning a bank does, the more it cleans it books
And the faster it cleans its books
That much their net NPA will reduce
After provisioning let us come to the next financial parameter
Which is very linked with provisioning
Like I explained to you now
The more a bank does provisioning
That much their net NPA will reduce
And all of us investors see what the net NPA is
So here if I talk about net NPA
About non performing assets
The non performing assets of the bank in this quarter comes out to be
That is 1.41%
In the same quarter of last financial year their net NPA was 2.06%
In comparison, they have reduced their net NPA
But they have also increased their provisions
Now let us talk about the revenue that comes of ICICI bank and from which segment
And if we compare this segment to the last financial year
From which segment has their revenue increased a lot
So if I talk about the main segments of ICICI bank
The main segments are, first retail
The ones who give their loan in retail
Second is corporate that give to companies
And the thirs is life insurance
A big chunk comes from life insurance as well
If I talk about the total revenue
The total revenue of ICICI bank
Has grown by 10%
If we compare that to March 2019
If I talk segment wise
the most revenue growth has been in the case of retail banking
In the retail segment their revenue has increased from 15,969 crores
HAs reached 18,847 crores
Which means that their revenue growth here
That is more than 18%
And you know that in recent times
Since people have started raising a lot of questions on debt
The focus of many banks
They shifted it to the retail side
Because there isn't as much risk on the retail side as there is on the corporate side
There if we talk about the corporate side
Their revenue in the corporate side
That grows by more than 10%
There if we talk about life insurance
The growth in their revenue there
That is around 5.5%
Now let us talk about the last parameter which is very important in banking
Which we call price to book value
Price to book value tells us that in comparison to the book value
How the price of any bank is
And normally when we talk about other bank, we talk about P/E ratio a lot
But in case of banks, P/B ratio is more relevant that P/B ratio
So if I talk about the P/B ratio of ICICI bank
Their P/B ratio is around 1.8
If I compare that to HDFC bank
The P/B ratio of HDFC bank is 2.9
So in comparison to HDFC bank, ICICI bank has quite a lot P/B ratio
If we compare this to Kotak Mahindra bank
The P/B ratio of Kotak Mahindra bank is around 4
So in comparison to Kotak Mahindra and HDFC bank, ICICI has quite a low P/B ratio
So the video we got today was purely for educational purposes
We do not give the recommendation of buying or selling of any stock
Our agenda was NOT to tell you to buy the stock of ICICI bank
We wanted to make an educational videos and explain from ICICI banks perspective
How you can fundamentally analyse any bank
Like I told you about different parameters
How CASA ratio is important
How net interest margin is important
How provisioning is important
Why P/B ratio is important
And why NPA is important
So all these parameters can help a lot in the financial industry and banking sector
They can tell you that the bank you are investing in
How its loan book is
How its revenue is
How its profit is
And you should also see the segments the bank is focusing on
If their focus is more in retail, more in corporate
Or apart from this whether their focus is more in any other services
So by paying attention to these things
By doing fundamental analysis you can pick a good stock
Which can give you a good return in the longer horizon
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