HDFC Bank (premerger scenario) v/s SBI: Assessing the Financial Performance of two leading Banks in India using the CAMEL approach

Voluminous literature has been dedicated to the finance-growth nexus. The banking industry in India is indeed on a high growth trajectory because of rising disposable incomes, increasing consumerism, easier access to credit and boost in investor confidence due to the recent structural reforms. It is the recent performance of the State Bank of India (SBI) bank and the reverse merger of Housing Development Finance corporation (HDFC) Ltd. with its subsidiary, i.e., HDFC Bank, which motivated us to carry out an analysis of the robustness of the leading two banks in India in the public and private sectors, viz. SBI and HDFC Bank (premerger scenario) using the CAMEL framework and that too for a longer period of time, i.e., ten years (2013-2022). The study shows that despite being the largest public sector bank of India, the State Bank of India continued to underperform in terms of various CAMEL ratios when compared to HDFC Bank. The key policy lesson for SBI is that it has to focus more on its performance/profitability by diversifying its borrowers and improving its asset quality by regulating its NPAs efficiently vis-à-vis that of HDFC Bank, as this has wider implications for the financial and economic stability of the country.