HDFC Bank overtakes SBI in Market Capitalization

January 9, 2012

Recently, the 17-year-old HDFC Bank for the first time became the most valuable lender in the country overtaking the 204-year-old State Bank of India in market capitalization.

Up till now, SBI was the number one bank on all parameters of size and profits. The SBI’s market capitalization which had touched Rs 2,21,582 crore on that day is now less than half its peak level at Rs 1,09,846 crore. The share price of HDFC Bank has continued to firm up with a market capitalization of Rs 1,10,200 crore.

What is market Capitalization?

Market capitalization is a measurement of the value of the voting ownership interest that shareholders hold in a business enterprise.
It is equal to the share price times the number of shares outstanding means the shares that have been authorized, issued, and purchased by investors of a publicly traded company. Market capitalization could be used as a proxy for the public opinion of a company’s net worth and is a determining factor in some forms of stock valuation. Preferred shares are not included into the calculation.

Comparing the two banks:

SBI with a loan book of Rs 75,6719 crore is almost five times as big as HDFC Bank in advances.
In terms of physical assets, SBI is seven times bigger with 13,929 offices as against HDFC Bank’s 1,963 branches.
HDFC Bank has employee base of 55,752, its workforce is still a fraction of SBI’s which stands at 2,22,933.

How this ironic change was possible?

The SBI’s outlook for the banking sector has turned negative in recent months due to the scare of bad loans, SBI has been the worst hit for several reasons—the most significant being the government’s reluctance to bring in capital even as the bank’s tier one capital adequacy ratio slipped below 8%. Its recent problems in the stock market began after rating agency Moody’s downgraded the bank’s outlook.

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