International Journal for Multidisciplinary Research (IJFMR)

E-ISSN: 2582-2160 ● Website: www.ijfmr.com ● Email: [email protected]

Bank Balance: A Comparative Study of SBI &

HDFC
Raghav Singhal

High School Student, Grade XII, Modern School, New Delhi, India

Abstract
The research project titled "Financial Analysis of SBI and HDFC" aims to provide a comprehensive
comparison of the financial performance of two of India's leading banks: the State Bank of India (SBI), a
prominent public sector bank, and Housing Development Finance Corporation(HDFC) Bank, a major
private sector player. The objective is to evaluate their financial health through key metrics such as
profitability, asset quality, and operational efficiency, thus informing stakeholders about their competitive
positions. Utilizing a quantitative methodology, the study analyzes financial statements and key
performance indicators from the fiscal years 2019 to 2024. Data was sourced from official bank reports,
regulatory filings, and financial databases, allowing for a robust comparative analysis. Key financial ratios,
including return on equity (ROE), net interest margin (NIM), and non-performing assets (NPA), were
employed to assess performance differences systematically. The findings reveal that HDFC Bank
maintains superior profitability measures, characterized by a higher ROE and lower NPAs compared to
SBI. Conversely, SBI exhibits larger asset bases and a more extensive branch network, reflecting its strong
market presence and commitment to financial inclusion. Furthermore, HDFC Bank's focus on digital
banking and operational efficiency positions it favorably for future growth. The implications of this
research suggest that while both banks have distinct strengths aligned with their sectoral differences,
HDFC Bank's emphasis on technological innovation may provide a competitive edge in the evolving
banking landscape. This study contributes original insights by delineating performance metrics that inform
investment strategies and risk assessments, thereby serving as a valuable resource for investors, financial
analysts, and policymakers seeking a nuanced understanding of the competitive dynamics within India's
banking sector.

Keywords: Banking, Ratio, Profitability

1. Introduction
The Indian banking sector is a pivotal component of the country’s financial system, underpinning
economic growth and development. It encompasses a diverse range of financial institutions, including
public sector banks, private sector banks, foreign banks, and co-operative banks. This sector is
fundamental in facilitating savings, securing investments, and providing loans to both individuals and
businesses, thereby contributing significantly to the economy's overall health and dynamism. Historically,
banking practices in India can be traced back to ancient times, evolving significantly through various
phases, such as the pre-independence era, nationalization during the 1960s and 1970s, and liberalization
initiated in the 1990s. The nationalization of banks in 1969 was a pivotal moment, aimed at improving
access to banking services, especially in rural areas and among underprivileged segments of society. This

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E-ISSN: 2582-2160 ● Website: www.ijfmr.com ● Email: [email protected]

transformation led to the establishment of numerous branches and the promotion of financial inclusion.
The liberalization era, starting in the early 1990s, ushered in private sector banks and foreign banks,
introducing competition and innovation in banking services. This period has been characterized by
technological advancements, the introduction of banking products, and enhanced customer service. Today,
the Indian banking sector is marked by a mix of well-established public sector banks, such as the State
Bank of India (SBI), and dynamic private sector banks like HDFC Bank, which has become a key player
through strategic growth initiatives and a strong customer focus.
State Bank of India (SBI), a Fortune 500 company, stands as an Indian multinational and public sector
banking and financial services institution, headquartered in Mumbai. With a rich heritage spanning over
200 years, SBI is recognized as India's most trusted bank, earning the loyalty of generations of Indians.
As the largest banking and financial services organization in India, SBI boasts an asset base exceeding Rs.
61 trillion. The bank serves more than 500 million customers through an extensive network of over 22,500
branches, 63,580 ATMs/ADWMs, and 82,900 BC outlets. Committed to innovation and customer focus,
SBI operates on core values of Service, Transparency, Ethics, Politeness, and Sustainability. The bank has
diversified its offerings through subsidiaries such as SBI General Insurance, SBI Life Insurance, SBI
Mutual Fund, and SBI Card. With a global footprint, SBI operates 241 offices across 29 foreign countries,
spanning multiple time zones. Continuously evolving, SBI remains dedicated to delivering responsible
and sustainable banking solutions in India.
HDFC Bank Limited is India’s largest private sector bank by assets and ranks as the world’s tenth-largest
bank by market capitalization as of May 2024. The Reserve Bank of India has designated HDFC Bank as
a "too big to fail" institution. It was among the first financial entities in India to establish a private sector
bank under the policy of liberalizing the Indian banking industry in 1994. Headquartered in Mumbai,
HDFC Bank had, as of June 30, 2024, a distribution network comprising 8,851 branches and 21,163
ATMs/Cash Recycler Machines (for cash deposits and withdrawals) spread across 4,081 cities and towns.
The bank provides services to customers across India through various delivery channels, including Phone
Banking, Net Banking, Mobile Banking, and SMS-based banking. Additionally, HDFC Bank operates a
network of 18,089 ATMs throughout India. The bank’s mission is to be a world-class Indian bank, with a
steadfast commitment to upholding the highest ethical standards, professional integrity, corporate
governance, and regulatory compliance.

2. Literature Review
The financial landscape of India's banking sector is intricately shaped by the performance of major banks,
such as the State Bank of India (SBI) and HDFC Bank. Several studies have been conducted to evaluate
and compare the financial performance of these two leading financial institutions, delving into various
metrics such as profitability, efficiency, and customer satisfaction. Numerous researchers have utilized
financial ratios to assess the performance of SBI and HDFC Bank. Metrics such as Return on Equity
(ROE), Return on Assets (ROA), and the Net Interest Margin (NIM) are commonly employed in
comparative studies. For instance, a comprehensive review indicated that HDFC Bank consistently
outperforms SBI in profitability ratios, suggesting a stronger operational efficiency and a better ability to
generate returns for shareholders (Verma, 2021).
The quality of assets is a critical concern in the banking sector, particularly concerning NPAs that
adversely affect profitability. Several studies have pointed out that SBI has faced challenges regarding
asset quality, with a higher ratio of NPAs compared to HDFC Bank. These issues have contributed to a

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lower overall profitability for SBI, impacting its market position (Kumar, 2017). Customer satisfaction is
another essential dimension of financial performance, with studies revealing diverse preferences between
customers of SBI and HDFC Bank. A survey indicated that factors such as interest rates, trust, and service
quality play significant roles in customer preferences; approximately 65% of customers favored SBI over
HDFC Bank for its established reputation and broader network (Chaki, 2019). Understanding these factors
is crucial for banks looking to enhance their competitive positioning within the market.
The emergence of digital banking has significantly impacted financial performance in recent years. Studies
emphasize that HDFC Bank has been more effective in embracing technology, leading to improved
customer service and operational efficiency. This technological integration has allowed HDFC to
streamline processes, reduce costs, and enhance customer engagement, placing it ahead of SBI in the
digital banking space (Singh, 2013). The ability to adapt to technological changes is vital, as it facilitates
innovative banking solutions that meet evolving consumer needs.

3. Research Methodology
Research Design
This study employs a comparative research design to analyze the financial performance of State Bank of
India (SBI) and HDFC Bank over the past five years. The research will focus on quantitative data collected
from various reliable financial reports and databases.
Research Objectives
The primary objectives of this research are:
1. To evaluate and compare the financial metrics of SBI and HDFC Bank, including profitability, asset
quality, capital adequacy, and efficiency.
2. To analyze the market position of both banks, emphasizing the distinctions between public sector and
private sector banking operations.
3. To draw implications for stakeholders based on the findings of the analysis.
Data Collection
Data will be collected through the following means:
1. Primary Data: Surveys and questionnaires will be administered to banking professionals and analysts
to gather insights on banking practices and financial management strategies.
2. Secondary Data:
a) Annual reports and financial statements of SBI and HDFC Bank for the past five years (2019-2024).
b) Financial publications, journal articles, and industry reports from recognized financial databases.
c) Regulatory filings and disclosures available on the respective bank's official websites.
Data and Research Analysis
The following tools are utilized for data analysis to evaluate the financial performance of SBI and HDFC
effectively:
A. Financial Ratio Analysis
• Net Profit Margin: Total profit after taxes to assess overall profitability.
• Operating Profit Margin: Indicates operational efficiency by measuring the percentage of revenue that
remains after operating expenses.
• Return on Equity (ROE): Evaluates the bank's ability to generate profit from shareholders’ equity.
• Return on Assets (ROA): Measures how efficiently the bank utilizes its assets to generate earnings.
• Capital Adequacy Ratio (CAR): Assesses the bank's capacity to absorb potential losses.

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• Current Account Savings Account (CASA) Ratio: Evaluates overall operating efficiency of the bank
through deposits made
• Debt-to-Equity Ratio: Evaluates a company's financial leverage
B) Statistical Software
Excel: For basic calculations, data organization, and graphical represemtation
C) Comparative Analysis
Horizontal Analysis: To compare line item changes over periods to highlight growth rates and anomalies
in performance
Vertical Analysis: To analyze financial statements as a percentage of base figure (e.g. total assets or total
revenue), facilitating easy comparison across banks
Ratio benchmarks: To calculate and compare profitability, efficiency, and leverage ratios side by side to
allow stakeholders to gauge relative strengths
Future Research Directions
Based on the findings, future research could expand to include:
• The impact of technological advancements on the operational efficiency of both SBI and HDFC Bank.
• Longitudinal studies examining more extensive time frames beyond five years.
• The influence of economic factors such as inflation and interest rates on bank performance metrics.

4. Findings And Discussion

4.1) Evaluating SBI’s Strategic Operations
As of the financial year 2023-24, the State Bank of India (SBI) has shown robust financial performance,
with significant growth in net profit and improvements in asset quality. For the fourth quarter of FY24,
SBI reported a net profit of ₹20,698 crore, reflecting a 24% increase compared to ₹16,694.5 crore in the
same quarter of the previous year. This upward trend in profitability can be attributed to a moderate
increase in net interest income (NII), which stood at ₹41,656 crore for Q4, up 3.1% year-on-year from
₹40,392.5 crore SBI has implemented a diversification strategy, expanding its product offerings beyond
traditional banking services. By venturing into areas such as insurance, wealth management, and
technology-driven services, the bank has created additional revenue streams, further reinforcing its
financial performance. Investments in technology and digital banking have allowed SBI to streamline
operations and reduce costs. Initiatives like the SBI YONO app have improved customer access to a
variety of banking services, enhancing customer satisfaction and driving increased usage of financial
products, which contributes to profit growth.
The notable increase in net profit can be attributed to various factors, including improved net interest
income stemming from increased loan disbursements and better asset management leading to lower non-
performing assets (NPAs). Specifically, the bank’s strategies for risk management and maintaining quality
in loan portfolios have yielded positive results, as evidenced by a reduction in NPAs, enhancing overall
profitability. The operating profit margin's decline in FY23 came as a surprise following a steady recovery
in previous years. However, FY24's margin has shown signs of recovery despite remained subdued. The
initial decline since FY20 likely resulted from increased provisions for bad debts and operational
challenges posed by the COVID-19 pandemic. The return to a positive operating profit margin in FY24
reflects improved operational efficiencies and a lower level of provisioning for NPAs as a result of better
asset quality. However, the margin remains below historical averages, indicating a need for continued
focus on cost control and revenue enhancement. The gradual decline in the CASA ratio indicates a

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decrease in low-cost deposits relative to total deposits. This decline may reflect increased competition,
leading to a shift in customer behavior towards fixed deposits with potentially higher returns. Maintaining
a high CASA ratio is vital for cost-effectiveness in banking operations. With a decrease in CASA, SBI
may face increased interest expenses, thereby influencing net interest margin and profits. Therefore,
enhancing deposit mobilization strategies focusing on attracting low-cost current and savings accounts
will be crucial going forward.
There has been a significant increase in ROE from 7.24% in FY20 to 16.72% in FY24. This positive trend
indicates that SBI has effectively utilized its shareholders' equity to generate profits. The upward
movement can primarily be attributed to improved profitability and efficient capital management. A higher
ROE is often viewed favorably by investors and signals operational efficiency. This robust performance
in ROE is critical for attracting potential investors as it demonstrates the bank's capability in effectively
utilizing its resources for generating earnings. ROA has shown a consistent improvement, suggesting a
better ability to convert assets into profits. This increase denotes successful management strategies to
enhance asset productivity, ultimately reflecting improved operational effectiveness. An increasing ROA
signifies not only effective asset management but also indicates lower levels of NPAs and higher returns
from deployed capital. This trend is essential for banking sustainability, as it denotes efficient use of
resources to yield profit. The PER reflects investor sentiment about SBI's earnings relative to its stock
price. A declining PER from FY2022 marks a concerning trend of market valuations, particularly as it
approaches an undervalued status in 2023, albeit recovering to 10.01 in 2024. The debt-equity ratio appears
to be trending upward, indicating that SBI is utilizing higher levels of debt relative to its equity financing.
However, the modest increase suggests a balanced approach to leveraged financing, which is essential for
funding asset growth. A moderate debt-equity ratio signals an appropriate level of debt for financing
expansion without excessive financial risk. However, continuous monitoring of financial leverage is
essential to maintain stability, particularly in changing economic environments. Despite some challenges
in operating margins and CASA, the bank’s strategic initiatives have enabled it to enhance profitability
while managing risk effectively.
The State Bank of India's (SBI) strengths are evident in its dominant market position as the largest public
sector bank in India, holding a 23% share of the total assets and loans. This significant market share not
only reflects its robust customer base built over 200 years, fostering trust and reliability, but also positions
SBI favorably within the competitive banking landscape, promoting economic stability and attracting
investments. The bank's inclusion in the Fortune Global 500 list underscores its substantial revenue and
financial health, aligning with economic concepts of scale and competitive advantage. However, SBI faces
notable weaknesses, particularly concerning its asset quality, highlighted by ongoing issues with non-
performing assets (NPAs). This challenge necessitates higher provisioning, which directly impacts
profitability metrics and reflects a critical risk factor in financial stability. Operationally, the bank's
bureaucratic structure can lead to inefficiencies, affecting its accountancy practices by complicating
decision-making and eroding customer satisfaction. The employees’ attitudes toward service delivery,
influenced by job security, can also result in a lack of innovation and responsiveness to market demands,
posing significant management risks. Overall, while SBI's strengths provide a solid foundation for growth
and sustainability, addressing its weaknesses through more agile management and technological adoption
is essential to enhance its operational efficiency and financial performance.

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4.2) Performance Review of HDFC

HDFC Bank has shown a robust financial performance across recent quarters, reflecting its position as
one of India's leading private sector banks. In the first quarter of FY25, the bank reported a net profit of
₹16,175 crore, which, while exhibiting a slight decrease of 2% compared to the ₹16,511.9 crore from the
previous quarter, still highlights the bank's resilience amidst competitive market conditions. This
performance is indicative of the bank's ability to manage its operations effectively, even in a challenging
economic environment. The bank's profitability is significantly driven by its net interest income, which
has shown consistent strength over recent quarters. For instance, in June '24, HDFC Bank earned
₹58,714.89 crore from interest on advances, demonstrating a solid foundational revenue stream. Other
income sources, particularly from investments, have also contributed to financial stability, although there
may be fluctuations in quarterly performance depending on market conditions and interest rate changes.
HDFC Bank's financial performance over the last five years has demonstrated a mix of robust growth and
emerging challenges across key metrics such as net profit, operating profit margin, CASA ratio, return on
equity (ROE), return on assets (ROA), price-to-earnings (P/E) ratio, and debt-equity ratio. Starting with
net profit, HDFC Bank has witnessed a consistent upward trajectory, increasing from ₹26,257.32 crore in
FY20 to ₹64,382 crore in FY24, representing a commendable growth rate of 46% YoY. This remarkable
increase underscores the bank's operational efficiency, effective cost management strategies, and a robust
loan portfolio, which have all contributed to better profitability. However, the operating profit margin has
seen a significant decline, falling from a high of 77.55% in FY21 to 26.99% in FY24, well below the five-
year average of 57.60%. This substantial decrease suggests rising operational costs amidst a competitive
banking environment, signaling a need for the bank to focus on cost control and efficiency enhancements
to maintain profitability. HDFC Bank's CASA ratio exhibits fluctuations but reached 42.5% in FY24, a
slight recovery from 38.2% in FY23, although still down from a peak of 48.16% in FY22. This ratio
highlights the bank's ability to maintain low-cost deposits, crucial for enhancing net interest margins,
despite increased competition for retail deposits.
The return on equity has shown a downward trend, declining from 16.00% in FY23 to 14.12% in FY24,
below the five-year average of 15.23%. This decrease may indicate challenges in profit generation relative
to shareholder equity, suggesting potential inefficiencies in capital management or reduced profitability.
Similarly, ROA peaked at 1.82% in FY23 but fell to 1.59% in FY24, marking a decline of 12.84% year-
on-year, which raises concerns about the effectiveness of asset utilization in generating earnings. The P/E
ratio has also diminished, dropping from a high of 25.81 in March 2021 to 16.01 in March 2024, reflecting
a decrease in market confidence regarding future growth prospects. Investors appear less willing to pay a
premium for earnings, possibly due to increased competition and profitability concerns. Lastly, HDFC's
debt-equity ratio rose sharply from 0.961 in March 2021 to 1.61 in March 2024, indicating a more
aggressive approach to leveraging. This upward trend suggests increased financial risk, particularly as it
relates to managing interest expenses in a fluctuating rate environment. To sustain growth, HDFC Bank
must address these operational challenges while leveraging its strong market presence to enhance
efficiency and profitability.
HDFC Bank exhibits notable strengths in its financial performance, highlighted by consistent growth
across key metrics, including an 18.4% increase in total balance sheet size and a profit after tax growth of
18.8%. The bank maintains a robust asset quality with a low gross non-performing assets (GNPA) ratio
of 1.17%, demonstrating effective risk management strategies. Furthermore, HDFC Bank's comprehensive
range of financial products and services significantly enhances its market position and customer base.

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However, weaknesses persist, particularly in its limited rural presence, which contrasts sharply with
competitors like ICICI Bank. Additionally, HDFC Bank has faced challenges in some sectors, leading to
underwhelming stock performance and fluctuating share prices, which may deter investors. The bank’s
relatively weak marketing approach restricts its appeal to a broader audience, potentially impacting growth
and market penetration.
4.3) Market Share Dynamics
As of 2024, SBI commands a substantial market share of approximately 22.55% in total deposits and
19.06% in advances within the Indian banking sector. This dominance underscores SBI's position as the
largest bank in India, benefiting from its extensive network of over 22,542 branches and more than 63,580
ATMs, which enhance its accessibility and financial inclusion across both urban and rural areas. In
contrast, HDFC Bank holds a market share of about 10.89% in total deposits and 9.60% in total loans.
While HDFC is the leading private sector bank, its market share indicates a focused strategy primarily
targeting urban customers and a more affluent demographic. HDFC Bank aims to expand its presence
significantly, planning to reach over 13,000 branches in the coming years.

5. Results
5.1) Evaluating Turnovers and Valuation
Table 1: Return on Equity
Return on Equity (%)
Year SBI HDFC
2024 17.46 14.62
2023 16.75 15.74
2022 12.33 15.39
2021 8.86 15.27
2020 6.95 15.35
Average 12.47 15.27

Table 1 shows that SBI’s ROE has improved significantly, from 6.95% in 2020 to 17.46% in 2024. The
bank’s effots in expanding its lending portfolio have led to enhanced net interest income, a crucial driver
of its bottom line. A high Provision Coverage Ratio of 91.52% indicates that SBI has effectively managed
risks associated with potential loan defaults, contributing to its financial stability. The sharp rise in SBI’s
ROE, especially from 2022 onwards, could be linked to digital transformation. Conversely, HDFC Bank’s
ROE has fluctuated from 15.35% in 2020, peaking at 15.74% in 2023, before dropping to 14.62% in 2024.
Despite robust growth in revenue, factors such as rising operational costs and challenges in loan
disbursement efficiency have led to decreased profitability, impacting ROE negatively. Similar to SBI,
HDFC Bank’s performance has also been impacted by macroeconomic uncertainties. Fluctuating interest
rates and macroeconomic volatility have affected both banks but impacted HDFC’s operations more
significantly due to its investment focus. However, a positive noticeable fact is that HDFC’s ability to
maintain a stable ROE even during the economic disruptions of 2020 highlights its resilience and effective
management.

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Table 2: Return on Asset

Table 2 gives information that HDFC Bank consistently demonstrates a higher ROA than SBI, reflecting
more effective asset utilization and higher profitability relative to total assets. In 2024, HDFC Bank's ROA
stood at 1.77%, while SBI's was only 0.98%. This highlights HDFC’s superior financial health and
operational efficiency. The economic concept of asset utilization, which refers to how efficiently a bank
uses its assets to generate earnings, is crucial in this context. HDFC Bank's higher ROA signifies better
asset utilization compared to SBI. It indicates a more efficient conversion of assets into profitable income.
HDFC Bank has maintained a consistent revenue generation model centered around core banking and
financial services, enabling stable returns on its asset base. HDFC Bank has significantly focused on
diversifying its asset management portfolio by offering a wide range of investment products, including
over 50 equity-oriented mutual funds, various debt funds, hybrid schemes, and alternatives such as
exchange-traded funds (ETFs) and gold funds. This broad suite of investment options allows the bank to
cater to a diverse client base with varying risk appetites and investment goals.

Figure 1: Key Performance Ratios of SBI and HDFC

From Figure , A lower P/E ratio of suggests that investors are less confident about SBI's future growth
prospects compared to HDFC. This reflects concerns about the bank's profitability and operational
effectiveness, which may stem from higher levels of non-performing assets (NPAs) and competitive
pressures within the banking sector. Changes in net earnings significantly impact P/E ratios. On the other

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hand, HDFC Bank’s reputation as a leading private bank in India allows it to attract long-term investment.
Its robust asset quality, low NPAs, and diversified portfolio give investors assurance of sustained
performance, thus translating into a higher P/E ratio. For investors, the differing P/E ratios signal varying
risk and return profiles. HDFC’s higher P/E ratio suggests a potential for better returns and lower perceived
risk, making it a more attractive investment option.

5.2) Assessing Liquidity and Leverage

Table 3: Current Account Saving Account Ratio (CASA)
CASA (%)
Year SBI HDFC
2024 39.89 38.18
2023 42.66 44.38
2022 44.51 48.16
2021 45.39 46.11
2020 44.22 42.23
Average 43.334 43.812
SBI's CASA ratio has demonstrated fluctuations but remains relatively strong, averaging approximately
43.33% over the period. SBI has maintained a CASA ratio above 43% over the five years, emphasizing
its ability to attract both current and savings accounts. This low-cost funding source supports profitability
as CASA deposits typically incur lower interest rates compared to term deposits. As a major public sector
bank, SBI often implements government-led initiatives to encourage deposit mobilization, including
special savings schemes that enhance CASA accounts. These strategies aim to attract a broader customer
base and stabilize funding via low-cost deposits. HDFC Bank skillfully utilizes targeted marketing efforts
to promote its CASA offerings, such as higher interest rates on savings accounts and customer-friendly
services. This aggressive marketing strategy has helped HDFC sustain higher CASA levels, peaking at
48.16% in 2022. The CASA ratios of both banks (SBI's average at 43.33% vs. HDFC's 43.81%) indicate
that both institutions enjoy favorable low-cost funding. However, HDFC's slight edge suggests a more
effective strategy in cultivating higher CASA deposits while maintaining a competitive advantage in
customer services. A stable CASA ratio enhances liquidity, providing banks with a consistent source of
funds to meet customer withdrawal demands. SBI’s slight downward trend over the years, dropping from
44.51% in 2022 to 39.89% in 2024, could imply increases in outflows or challenges in deposit
replenishment during competitive challenges. In contrast, HDFC remains relatively stable due to its
effective management tactics.

Table 4: Debt to Equity Ratio

Debt-to-Equity Ratio
Year SBI HDFC
2024 13.71 4.59
2023 12.03 7.83
2022 10.51 7.41
2021 8.58 7.23
2020 8.96 7.62

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Average 10.75 6.93

Figure 2: Comparison of D/E Ratio

SBI's D/E ratio indicates that the bank has significantly leveraged debt to finance its operations and
growth. A higher D/E ratio may suggest increased financial risk as it indicates that a larger portion of
financing comes from debt rather than equity. This could lead to concerns about the bank's ability to meet
its debt obligations, especially during periods of economic downturns or increased interest rates. As a
public sector bank, SBI may face pressures to extend credit to priority sectors such as agriculture and small
businesses, often requiring the use of debt financing. This leads to a higher D/E ratio as the bank pursues
growth aligning with government objectives, which may not always translate into immediate profitability.
As it is clear from Figure 2, HDFC Bank adopts a conservative approach to leveraging debt, maintaining
a lower D/E ratio. This implies a balanced capital structure, wherein the bank relies more on equity
financing, making it less vulnerable to market fluctuations and interest rate hikes, fostering long-term
stability. In this regard, a higher D/E ratio of SBI is more susceptible to fluctuations in credit market
conditions. Increased debt levels raise concerns over debt servicing capabilities, especially during periods
of economic stress, impacting investor sentiment negatively.

5.3) Profitability and Related Margins Analysis

Table 5: Net Profit Margin
Net Profit Margin (%)
Year SBI HDFC
2024 14.71 24.92
2023 15.12 27.29
2022 11.49 28.93
2021 7.69 25.74
2020 5.63 22.86
Average 10.928 25.948

Table 6: Operating Profit Margin

Operating Profit Margin (%)

Year SBI HDFC
2024 2.26 5.86
2023 4.10 7.97

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2022 -3.22 5.83

2021 -8.70 4.89
2020 -11.94 2.60
Average -3.5 27.15
SBI's NPM has exhibited fluctuations and a general upward trend from 5.63% in 2020 to 14.71% in 2024,
averaging approximately 10.93% over the period. Rising operational costs, particularly in response to
wage settlements and regulatory compliance, constrained SBI's ability to increase margins. The pressure
from these rising expenses reduces net income, thus lowering the NPM despite improving revenues. As a
public sector bank, SBI often faces intense competition from private banks, particularly in retail lending,
leading to reduced pricing power and squeezed margins on loans. This restricts the growth of its NPM
relative to more agile competitors like HDFC. HDFC Bank has maintained a consistently higher NPM,
rising from 22.86% in 2020 to 24.92% in 2024, averaging around 25.95%.. Continuous growth in lending
activities, paired with a diversified portfolio across retail and wholesale banking segments, has empowered
HDFC to achieve a higher revenue base without a proportional increase in costs, leading to elevated
margins. The stark contrast in average NPMs (10.93% for SBI vs. 25.95% for HDFC) indicates markedly
different financial health and management effectiveness between the two banks. HDFC's high NPM
reflects its strong operational management, while SBI struggles with profitability due to rising NPAs and
operational costs.
The persistent negative margins of SBI from 2020 to 2022 indicate that SBI's operating expenses have
exceeded its operational revenues. High provisions for non-performing assets (NPAs) and a burdensome
cost structure contribute to these challenges. The need to adequately reserve funds for potential loan
defaults affects overall profitability, inhibiting OPM benefits. HDFC benefits from a diversified income
stream, including retail banking and fee-based services, resulting in increased overall revenue without a
proportional rise in costs. This diversification buffer helps maintain stable income levels against
fluctuations in operational expenses. HDFC's significant advantage over SBI in OPM (27.15% average
vs. -3.5%) underscores its superior operational efficiency and ability to generate profits from its core
business activities. While HDFC successfully balances its costs with revenues, SBI struggles to manage
its cost structure amid persistent challenges. . HDFC's positive margins enable it to finance growth
opportunities and improve shareholder returns, while SBI's negative margins indicate liquidity constraints
that can create challenges in maintaining competitive advantages.

Figure 3: Comparison of NP and OP margins of the Banks

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SWOT Analysis was conducted to evaluate the strategic positioning of State Bank of India (SBI) and
HDFC Bank in the context of the economic landscape and accountancy practices within the Indian banking
sector. The analysis provides critical insights into how both banks can leverage their strengths to capitalize
on emerging opportunities while addressing their weaknesses and mitigating potential threats in an
evolving economic environment.

Table 7: SWOT Analysis of SBI and HDFC

SBI HDFC
Strengths Strong Government Support Pan India Focus
Commands total Market Share Retail Banking Focus
Extensive Branch Network High Customer Satisfaction
Weaknesses High Non-Performing Assets Rural Presence
Bureaucratic Inefficiencies Stock Price Volatility
Opportunities Emerging Market Access International Expansion
Digital Banking Growth Corporate Banking Growth
Threats Economic Downturns Cybersecurity Risks
Intense Competition Regulatory Pressure

6. Conclusion
Recommendations for State Bank of India:
• Investing in technology to automate routine banking processes can significantly reduce overhead costs
and processing times. By implementing robotic process automation (RPA) for tasks like customer
onboarding, loan processing, and compliance checks, SBI can streamline operations while minimizing
human error.
• Expanding the portfolio of financial products, particularly in retail banking and digital services, can
attract a wider customer base. Introducing innovative products tailored to specific customer needs,
such as green loans or customized savings accounts, can improve customer satisfaction and retention.
• Enhancing customer engagement through personalized service offerings and improved digital
platforms is crucial for retaining clients. By employing customer relationship management (CRM)
tools, SBI can gain insights into customer behavior and preferences, enabling targeted marketing
initiatives.
Recommendations for HDFC:
• Developing sophisticated risk assessment frameworks using real-time data analytics can improve
HDFC's ability to manage credit risk and market fluctuations. Implementing stress testing scenarios
and scenario analysis will enable the bank to prepare for adverse economic conditions, ensuring more
resilient financial performance in line with risk management theory.
• By strategically targeting underserved rural and semi-urban markets, HDFC can diversify its customer
base and create new revenue streams. Tailoring financial products to meet the specific needs of these
demographics, such as microfinance and affordable loan options, aligns with principles of market
segmentation and economic inclusion.
• Emphasizing corporate social responsibility and sustainability within its operations can enhance
HDFC's public image and attract socially-conscious investors. Integrating environmental, social, and
governance (ESG) criteria into its business strategy will not only improve compliance with regulatory
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requirements but also bolster long-term profitability by meeting the growing demand for sustainable
banking practices. This reflects the increasing importance of ethical investment in modern finance.
Recommendations for Indian Banking Sector:
• Adopting lean management principles can significantly enhance operational efficiency in the Indian
banking sector. Lean focuses on minimizing waste and maximizing value delivery by streamlining
processes and eliminating redundancies. By conducting value stream mapping, banks can identify
inefficiencies and areas for improvement within their operations. For example, reducing over-
processing, waiting times, and defects can lead to increased customer satisfaction, lower operational
costs, and enhanced profit margins.
• Adopting blockchain technology in banking can reduce transaction costs, enhance security, and
improve the overall efficiency of operations. Through decentralized ledger systems, banks can
streamline processes such as cross-border payments, settlements, and compliance verifications while
minimizing the need for intermediaries. This aligns with the principles of transaction cost economics,
which suggest that reducing the number of intermediaries in financial transactions can lower costs. By
automating verification and audit processes with smart contracts, banks can significantly speed up
transaction times and reduce the likelihood of errors. Consequently, the operational efficiency gained
through blockchain adoption can lead to increased profitability and improved customer satisfaction.
• Implementing robotic process automation (RPA) can significantly improve operational efficiency
within the Indian banking sector. RPA can automate routine tasks, such as data entry, transaction
processing, and compliance reporting. Conducting a thorough cost-benefit analysis prior to RPA
implementation can help banks understand the potential savings from reduced labor costs and
increased accuracy in financial reports. By minimizing human errors and accelerating transaction
processing times, RPA increases the overall efficiency of operations, leading to cost savings that
positively impact profitability. Moreover, RPA can free up staff to engage in higher-value tasks like
client relationship management and financial advisory, further enhancing service delivery.
The study has explored the analysis of financial ratios between State Bank of India (SBI), a prominent
public sector bank, and HDFC Bank, a leading private sector bank, and highlights significant differences
in their financial health and operational efficiency. While SBI benefits from its extensive branch network
and strong government backing, which fosters stability and trust, HDFC Bank illustrates superior
profitability and agility, evident in its higher return on equity and refined customer service strategies. The
comparative metrics indicate that HDFC Bank generally outperforms SBI in key areas such as net profit
margins and asset quality, signifying the effectiveness of its innovative approaches and customer-oriented
practices. However, SBI remains vital to India's banking landscape, emphasizing financial inclusion and
community trust. This analysis underscores the need for both types of banks to leverage their respective
strengths and address their weaknesses, fostering a more robust and competitive banking environment that
can better serve the diverse needs of their customers and support broader economic growth. The
contrasting dynamics between public and private sector banks in India present valuable insights into their
strategic imperatives and financial performance.

7. Acknowledgements
The author would like to express gratitude to Mrs Ritika Sood, Senior Vice President, YES Bank for
providing with the basic knowledge and working of banking operations.

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Special thanks also to family, friends and schoolmates for their unwavering support and engagement
during the study.

8. Conflict Of Interest
This is to bring to your kind consideration that this research work has no conflicts of interest.

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