Comparative Financial Analysis of State Bank of India and HDFC Bank

Executive Summary Following some significant changes in monetary policy, India's banking sector has come under scrutiny. The cost of funds for banks has increased significantly as the Reserve Bank of India (RBI) raised interest rates to help the falling Indian currency, the Rupee. This may show up as a rise in non-performing assets (NPAs) and a drop in profitability. Internal and external factors have an effect on bank profitability. The aim of this paper is to compare and evaluate the financial performance of India's largest public and private sector banks and also to understand their trends of NPAs through secondary data analysis. Both banks' earnings were guided by bank-specific metrics and risk factors. Leverage financial ratios of SBI were found at higher default risk than HDFC. Productivity measures were the key drivers of profits at India's largest private sector bank HDFC but not at SBI. Asset usage efficiency measures were almost same of both the banks. NPA ratios were much higher at India's largest public sector bank SBI. The single most important determinant of SBI proved to be the liquidity ratios. Two sample T test assuming equal variances was also conducted to check if there was significant difference between the NPA ratio of SBI and HDFC bank over the last 3 years.