Idfcbank Gs 011215

November 30, 2015

ACTION

Sell IDFC Bank Ltd (IDFB.BO)

Return Potential: (7%) Equity Research

Value creation to take time; better return potential elsewhere; initiate Sell

Source of opportunity

We initiate IDFC Bank (IDFB) at Sell with a 12-month SOTP-based target price

of Rs57. IDFC Limited recently demerged its lending business into a banking

entity to benefit from possible diversification of its loan book/revenues and

develop its retail franchise, despite high regulatory costs. However, the

business strategy appears mixed and is unlikely to lead to a strong retail build

out (low cost deposits, high-yielding retail loan book) in the near-to-medium

term, which could have otherwise, partially offset the high regulatory cost,

in our view. As a result, we expect IDFB to deliver below median ROAs by

FY21E and lower headline loan growth vs. other private (PVT) banks.

Catalyst

We see IDFB as a laggard, over its first five years of operations, amongst the

PVT banks on multiple counts: (1) Subdued operating metrics as we

forecast its ROA to take at least five years to reach 1.5%, below median

levels of 1.9%; (2) lower headline loan growth than peers over

FY17E/FY18E even though we expect growth in non-infrastructure loans to

grow fairly strong; (3) tepid build out of granular liability franchise which

could have otherwise helped partially negate the impact of high regulatory

costs (cash reserve ratio, statutory lending ratio and priority sector lending);

(4) unfavorable risk reward with IDFB trading at 1.5X 12-month forward

book, +28%/-22%/-27% vs. the valuations of ICBK/AXBK/YES, which have

lower execution risks; and (5) lack of support from technical factors such

as the relaxation of foreign ownership (FII) limits thereby creating ample FII

room for other PVT banks (27%-41%) vs. IDFB (25%).

Valuation

We value IDFB at 1.4X 12-month forward banking book, while it is trading at

1.5X 12-month forward book. Our target price also includes the value of

existing private equity and project equity funds (Rs5) as the investment in

these funds remains part of the banking book.

Key risks

Sharp uptick in macro, strong loan growth, faster recovery from stressed

loans, and better strategy on retail thereby improving revenue streams.

INVESTMENT LIST MEMBERSHIP

Asia Pacific Sell List

Coverage View: Neutral

Rahul Jain +91(22)6616-9161 [email protected] Goldman Sachs India SPL Goldman Sachs does and seeks to do business with companies

covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.

Tabassum Inamdar, CFA +91(22)6616-9052 [email protected] Goldman Sachs India SPL

Mayank Bukrediwala +91(22)6616-9169 [email protected] Goldman Sachs India SPL

The Goldman Sachs Group, Inc. Global Investment Research

Growth

Returns *

Multiple

Volatility Volatility

Multiple

Returns *

Growth

Investment Profile

Low High

Percentile 20th 40th 60th 80th 100th

* Returns = Return on Capital For a complete description of the investment

profile measures please refer to the

disclosure section of this document.

IDFC Bank Ltd (IDFB.BO)

Asia Pacific Banks Peer Group Average

Key data Current

Price (Rs) 61.00

12 month price target (Rs) 57.00

Market cap (Rs mn / US$ mn) 206,883.5 / 3,100.0

Foreign ownership (%) --

-- 3/16E 3/17E 3/18E

EPS (Rs) -- (1.72) 2.76 3.38

EPS growth (%) -- -- 260.1 22.4

P/B (X) -- 1.5 1.4 1.4

P/E (X) -- NM 22.1 18.1

Dividend yield (%) -- 0.0 0.9 1.1

P/PPOP (X) -- 8.9 13.7 11.0

PPOP growth (%) -- -- (34.8) 24.9

Preprovision ROA (%) -- NM 1.7 1.9

Credit cost (%) -- NM NM NM

ROA (%) -- NM 1.04 1.13

ROE (%) -- NM 6.7 7.7

Price performance chart

24,500

25,000

25,500

26,000

26,500

27,000

27,500

60

62

64

66

68

70

72

Aug-15 Sep-15 Oct-15

IDFC Bank Ltd (L) India BSE30 Sensex (R)

Share price performance (%) 3 month 6 month 12 monthAbsolute -- -- --

Rel. to India BSE30 Sensex -- -- --

Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 11/27/2015 close.

November 30, 2015 IDFC Bank Ltd (IDFB.BO)

Goldman Sachs Global Investment Research 2

IDFC Bank Ltd: Summary Financials

Analyst Contributors

Rahul Jain

[email protected]

Tabassum Inamdar, CFA

[email protected]

Mayank Bukrediwala

[email protected]

Profit model (Rs mn) -- 3/16E 3/17E 3/18E Balance sheet (Rs mn) -- 3/16E 3/17E 3/18E

Net interest income -- 22,804.1 16,075.2 19,464.7 Gross loans -- -- -- --

Non-interest income -- 11,031.2 14,366.0 16,276.1 NPLs -- 16,643.0 24,821.5 42,850.9

Operating revenue -- 33,835.3 30,441.2 35,740.8 Loan loss reserves -- 8,818.7 2,805.3 1,780.3

Non-interest expense -- (10,654.4) (15,323.1) (16,860.6) Total interest earning assets -- 766,972.7 902,272.5 999,766.7

Preprovision operating profit -- 23,180.9 15,118.1 18,880.2 Other non-interest earning assets -- 65,372.9 65,372.9 65,372.9

Total provision charge -- (4,919.4) (930.9) (1,516.1) Total assets -- 832,345.6 967,645.4 1,065,139.6

Associates -- 0.0 0.0 0.0 Customer deposits -- 0.0 22,750.0 188,150.0

Pretax profit -- (8,125.5) 14,187.2 17,364.1 Total interest-bearing liabilities -- 666,822.4 789,595.8 878,311.2

Tax -- 2,275.1 (4,823.7) (5,903.8) Total equity -- 136,444.9 143,617.5 152,396.4

Minorities -- -- -- --

Net profit -- (5,850.3) 9,363.6 11,460.3 CAMEL ratios (%) -- 3/16E 3/17E 3/18E

C: Tier 1 capital ratio -- 21.7 19.5 17.7

Dividends -- 0.0 1,872.7 2,292.1 C: Equity/loans -- 27.9 25.5 22.9

Dividends payout (%) -- 0.0 20.0 20.0 C: Equity/assets -- 16.4 14.8 14.3

A: NPL ratio -- NM NM NM

Earnings growth drivers (%) -- 3/16E 3/17E 3/18E A: Loan loss reserves/NPLs -- 53.0 11.3 4.2

Net interest margin -- -- 1.93 2.05 E: Net interest margin -- -- 1.93 2.05

Provision charge/total loans -- 1.00 0.17 0.23 E: Non int inc/oper revenues -- 32.60 47.19 45.54

YoY Growth (%) E: Cost-income ratio -- 31.5 50.3 47.2

Customer deposits -- -- -- 727.0 E: ROAA -- NM 1.04 1.13

Loans -- -- 15.0 18.3 L: Loan/deposit ratio -- NM 2,476.5 354.3

Net interest income -- -- (29.5) 21.1

Fee income -- -- 133.7 42.7 Loan portfolio (%) -- 3/16E 3/17E 3/18E

Non-interest income -- -- 30.2 13.3 Commercial & corporate -- NM NM NM

Operating revenue -- -- (10.0) 17.4 Mortgages/home loans -- NM NM NM

Operating expenses -- -- (43.8) (10.0) Consumer -- NM NM NM

Preprovision operating profit -- -- (34.8) 24.9

Provision charges -- -- (80.1) 62.9 Valuation (current price) -- 3/16E 3/17E 3/18E

Pretax profit -- -- 274.6 22.4 P/E basic (X) -- NM 22.1 18.1

Net profit -- -- 260.1 22.4 P/B (X) -- 1.52 1.44 1.36

EPS -- -- 260.1 22.4 P/PPOP (X) -- 8.9 13.7 11.0

DPS -- -- -- 22.4 Dividend yield (%) -- 0.0 0.9 1.1

Market dimensions -- 3/16E 3/17E 3/18E EPS, basic (Rs) -- (1.72) 2.76 3.38

No of branches -- 55.0 140.0 265.0 EPS, fully-diluted (Rs) -- (1.72) 2.76 3.38

No of staff (000) -- 1.4 2.9 4.5

Revenues/staff (US$) -- 381,100.4 155,150.2 118,879.7 EPS, basic growth (%) -- -- 260.1 22.4

Net profit/staff (US$) -- (65,894.7) 47,723.6 38,118.8 EPS, fully diluted growth (%) -- -- 260.1 22.4

BVPS (Rs) -- 40.23 42.35 44.93

DuPont analysis (%) -- 3/16E 3/17E 3/18E DPS (Rs) -- 0.00 0.55 0.68

ROE -- NM 6.7 7.7

x leverage -- NM 15.6 14.6

=ROA -- NM 1.04 1.13

% of assets -- 3/16E 3/17E 3/18E

Net interest income -- NM 1.79 1.92

Fee income -- NM 0.26 0.33

Non-interest income -- NM 1.60 1.60

Operating revenue -- NM 3.38 3.52

Operating expenses -- NM 1.70 1.66

Preprovision operating profit -- NM 1.68 1.86

Loan loss provisions -- NM 0.10 0.15

Pretax profits -- NM 1.58 1.71

Taxes -- NM 0.54 0.58

Note: Last actual year may include reported and estimated data.

Source: Company data, Goldman Sachs Research estimates.



Table of contents

Executive summary: Better investment opportunities elsewhere 4

IDFC Bank to join the club of corporate-oriented banks 7

Strategy: A mixed bag 10

Profitability to recover only gradually 14

Risk reward unfavorable; initiate Sell with 8% downside 16

Comparison with Yes Bank 18

Key risks 20

Appendix 21

Disclosure Appendix 23

Prices in this report are as of the close of November 26, 2015, unless otherwise stated.

Exhibit 1: Private banks coverage valuation summary

Note: *denotes stock is on our Conviction List. For IDFC Bank, FY16 numbers are not comparable as it does not include a full year of banking ops.

Source: Datastream, Goldman Sachs Global Investment Research.

Related Research

Pass on bank license hype; bank on existing Buys and stay Neutral on IDFC/LICH, dated

November 22, 2013

IDFC Ltd: Bank spin-off: The riddle of the net payoff, dated April 1, 2015

IDFC Ltd: Bank spin-off, Part 2: Solving the riddle; down to Sell, dated September 22, 2015

Market Cap

3m

ADVT 11/26/2015

12m TP/

Valuation

Upside/

Downside

Rating (US$ mn) (US$ mn) Price (Rs) (Rs)

Potential

(%) FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17E

Private banks

Axis Buy 17,217 71.5 465 562 21% 2.1 1.8 13.1 10.3 2.3 2.0 1.7 1.8 Federal Buy 1,446 4.7 57 78 37% 1.2 1.0 11.0 7.2 1.3 1.1 1.0 1.3 HDFCB Neutral 41,712 24.0 1,065 1,090 2% 3.7 3.2 21.9 17.6 3.7 3.2 1.9 1.9 ICICIB Buy 25,498 56.9 264 340 29% 1.7 1.5 12.6 10.6 2.0 1.7 1.8 1.9

ICICI Bank standalone valuation 194 270 1.3 1.2 10.9 9.0 1.5 1.3 1.6 1.7 IndusInd Bank Neutral 8,237 16.5 916 930 1% 3.1 2.7 23.2 17.7 3.1 2.7 1.9 2.0

IDFC Bank Sell 3,173 3.6 62 57 -8% NA 1.5 NA 22.4 NA 1.5 NA 1.0

KMB Neutral 19,073 13.0 684 675 -1% 5.2 4.5 54.0 30.6 5.2 4.5 1.5 1.9 KMB standalone valuation 500 490 3.9 3.3 40.3 22.7 3.9 3.3 1.2 1.8

Yes Bank Buy* 4,981 45.5 750 900 20% 2.3 1.9 12.4 9.7 2.5 2.1 1.7 1.8

P/B (X) P/E (X) P/ABVPS (X) ROA (%)



Executive summary: Better investment opportunities elsewhere

We initiate coverage on IDFC Bank (IDFB) with a Sell rating and a 12-month SOTP-based

target price of Rs57, implying 8% downside. We believe the newly formed bank is likely to

underperform its peers, given: (1) subdued return trajectory (partly due to regulatory

requirements and higher operating costs); (2) lower headline loan growth even though

we expect a strong growth momentum in other non-infrastructure oriented businesses; (3)

likely tepid build out of liability franchise which would have otherwise neutralized the

impact of high regulatory costs (statutory liquidity and cash reserve ratios, priority sector

norms etc.); (4) relatively higher execution risk as compared to other existing private

(PVT) banks; and (5) lack of technical support as other existing PVT banks now have

ample foreign holding room available compared to IDFB. IDFB currently trades at a 12-

month forward P/B of 1.5X as compared to our target price implied 12-month forward P/B

of 1.4X.

We would turn constructive on the stock if we see: (1) sharp improvement in macro,

leading to improvement in asset quality and better lending opportunities (as the private

capex cycle picks up); (2) better strategy on retail banking (including low cost deposits and

high yielding retail assets); and (3) diversification of revenue streams driven by sustainable

fee income stream. Our bull case scenario suggests that the average ROA over FY18E-

FY24E can improve by c.30bps against our base case on better CASA mix, higher

proportion of high yielding loan book and better operating efficiency (refer to Exhibit 38).

#1: We believe IDFB’s return ratio would remain subdued over the next five years on

higher regulatory costs and banking-related opex. Even if its ROA were to recover

from our expectations of c.1% in its first year of banking operations, we believe it

would likely remain below median ROAs for peers, thus limiting any potential

significant re-rating of valuation.

Exhibit 2: While IDFB’s return ratios could fall in the near

term on account of regulatory and banking-related

costs… ROA comparison, PVT banks

Exhibit 3: …we do not expect its returns to reach levels

similar to other PVT banks over the next five years

ROE comparison, PVT banks

Note: ROA for IDFB refers to the period of FY17E and FY21E.

Note: ROE for IDFB refers to the period of FY17E and FY21E.

Source: Goldman Sachs Global Investment Research.


0.5

0.9

1.3

1.7

2.1

FED YESB AXBK HDBK KTKM ICBK INBK IDFB

FY16E FY18E

%

5

10

15

20

25

ICBK INBK KTKM FED AXBK HDBK YESB IDFB

FY16E FY18E

%



#2: Although we foresee a strong non-infrastructure loans growth momentum in the

wholesale and SME segments, we expect headline loan growth to remain subdued,

mainly driven by the lack of activity pick up in the infrastructure segment (accounts

for c.100% of IDFB’s loan book at present), repayment of loans and deleveraging that

may cap the growth pick up.

Exhibit 4: IDFB is likely to deliver lower growth compared to other new private banks of a similar size such as YESB,

INBK and KTKM on account of lower growth in infra book (81% of loan book in FY17E), with bulk of the incremental

growth likely coming from other segments which we estimate would deliver 55% CAGR over FY17E-21E IDFB loan CAGR breakdown and comparison with other PVT banks


#3: We expect IDFB’s liability franchise build out to remain tepid, over its first five

years of operations, which otherwise would have been helpful to partially offset high

regulatory costs besides building a granular liability franchise expeditiously.

Moreover, with regulators focusing on ensuring that banks have stable and granular

funding resources (net stable funding ratio and liquidity coverage ratio), we believe it

would be essential for IDFB to focus on its deposit franchise. IDFB’s management plans to

initially rely on the digital platform for its consumer banking businesses (including its

liability franchise), which could be an interesting strategy (as none of its peers are focusing

solely on digital) but the jury is still out. For most of the other existing PVT banks, despite

their significant focus on the digital platform, they are also focusing on ramping up their

distribution network.

Exhibit 5: We believe management’s strategy to rely

significantly on the digital channel to build out IDFB’s

retail liability franchise… CA as % of liabilities

Exhibit 6: …would likely lead to a slower pick up in

deposits

SA as % of liabilities

Source: Company data, Goldman Sachs Global Investment Research.


22.5

16.8

5.8

0

5

10

15

20

25

30

ICBK AXBK HDBK INBK FED YESB KTKM IDFB

% CAGR FY16-18E

81%50%

19%

12%

12%

7%

FY17E FY21E

Non

-Inf

ra

CA

GR

: 55

%

Corp.

Retail

SME

Rural

Rs0.56tn

Rs1.2tn

Infr

a

CA

GR

:8.7

%

CAGRFY17-21E

Loan Mix

0%

10%

20%

30%

40%

50%

60%

Yr1 Yr4 Yr6 Yr8

IDFB ICBK YESB KTKM

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Yr1 Yr4 Yr6 Yr8

IDFB ICBK YESB KTKM



#4: We view IDFB’s risk reward profile as unfavorable, with the stock trading at 1.5X

12-month forward book, +28%/-22%/-27% vs. the valuations of ICBK/AXBK/YES.

Moreover, we believe the lack of support from technical factors such as the relaxation

of foreign ownership limits creates ample foreign holding room in other PVT banks

(27%-41%) vs. IDFB (25%), leading to potential share price underperformance.

Exhibit 7: IDFB currently trades at a 13% discount to

peers; we believe it warrants a higher discount…

12m fwd P/B vs. avg ROA, PVT banks

Exhibit 8: …given its relatively lower returns in the near

term and higher execution risk

Comparison on key metrics

Note: 1) ROA avg for IDFC Bank is for the period FY17E-19E. 2) *denotes stock is on our Conviction List.

Note: LT asset growth, ROA and ROE are for avg FY17E-24E. Tier 1 ratio and net impaired loans are as of FY16E.



Exhibit 9: We also expect IDFB to deliver lower returns

and growth compared to peers over the long term 12m fwd P/B (bubble size) vs. RIM assumptions of LT ROA &

asset growth

Exhibit 10: Foreign room holding in IDFB is lower vs.

other PVT banks as it has regulatory constraint of 49%

foreign ownership (vs. 74% for other banks) for first 5

years of ops

Foreign holding room available (as of Sep ’15)

Note: 1) LT ROA & asset growth is for the period of FY17E-24E based on RIM assumptions for all banks except IDFB which is for the period FY17E-28E. 2) *denotes stock is on our Conviction List.

Source: Datastream, Goldman Sachs Global investment Research.

Source: RBI, Company data.

R² = 0.303

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1.1% 1.2% 1.3% 1.4% 1.5% 1.6% 1.7% 1.8% 1.9% 2.0%

12

m f

wd

P/B

Average ROA (FY16-18)

SellBuy

(X)

AXBKYESB*

ICBK

INBK

FED

KTKMHDBK

IDFC Bank

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

0

5

10

15

20

25

30

. .

LT Asset

growth (%)

LT ROE (%) Tier 1 Ratio (%) Net Impaired

Loans (%)

LT ROA (%) 12m fwd PB (X)

IDFB Corporate Bank Average

RHSLHS

AXBK

FED

ICBK

YESB*

HDBK INBK

KTKM

IDFB

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

2.0

18 19 20 21 22 23 24 25 26 27 28

LT A

vg R

OA

LT Asset CAGR

Buy Neutral Sell

%

%Size of bubble indicates 12m fwd PB

73.069.8 67.6

46.3 46.341.9

32.4

24.3

1.0

4.2 6.5

27.7 27.732.1

41.6

24.7

0

10

20

30

40

50

60

70

80

HDBK INBK ICBK KTKM AXBK YESB FED IDFB

Total Foreign Holding Foreign Holding room

%



IDFC Bank to join the club of corporate-oriented banks

Exhibit 11: Our DuPont analysis suggests IDFB’s 10-year average could be similar to YES Bank Comparison of banks using DuPont analysis (%)

Note: FY17E is the first full year of banking ops for IDFC Bank; 10 years avg. for each bank is calculated from the start of their banking ops, except for ICBK whose starting year is FY03, the first full year after its reverse merger. For IDFC Bank, it is an 8-year average from FY17E-24E.


Comparison with corporate-oriented banks on multiple metrics

While we acknowledge that a direct comparison between IDFB and other existing banks

may not be indicative as operating metrics differ depending on macro, interest rate cycles,

liquidity conditions etc., we believe the trajectory that these banks have witnessed, could

be useful to get a sense as to how IDFB’s operating metrics may progress. We expect:

(1) Loan book mix to gradually change like the way it did for other banks in the past.

However, it will remain wholesale heavy, in our view.

Exhibit 12: IDFB’s corporate book likely to moderate over

time… Loan breakup & growth rate of IDFB

Exhibit 13: …similar to other corporate-oriented banks

Corporate loans incl. SMEs as a % of total loans



AXBK ICBK YESB IDFB AXBK ICBK YESB IDFBNet interest income adjusted 3.41 3.20 3.15 1.79 1.93 1.91 2.48 2.36 Other income 2.01 1.91 1.85 1.60 2.02 2.24 1.99 1.76

Total income 5.42 5.11 4.99 3.38 3.95 4.15 4.47 4.12 Operating expenses 2.08 1.89 2.01 1.70 1.66 1.98 2.14 1.65

Employees 0.68 0.78 0.84 0.77 0.40 0.55 1.14 0.74

Others 1.40 1.11 1.18 0.93 1.25 1.43 0.99 0.92

Pre provision income 3.34 3.22 2.98 1.68 2.30 2.16 2.33 2.46 Provisions 0.58 0.55 0.36 0.10 0.49 0.68 0.24 0.31

Pre -tax pre extraordinary income 2.76 2.67 2.62 0.54 1.80 1.46 2.05 2.15

ROA 1.82 1.90 1.77 1.04 1.01 1.22 1.36 1.42 ROE 19.0 15.3 21.7 6.7 20.3 13.7 18.0 13.2

Du -pont Analysis FY17E 10 yrs Avg

81%57%

44%37%15%

18%

20%

22%

11%

12%

14%

7%

17%

19%

7%

7%

8%

0%

5%

10%

15%

20%

25%

30%

0

500

1,000

1,500

2,000

2,500

3,000

FY17E FY20E FY22E FY24E

Infrastructure loans Non-Infra. loans Retail

Business banking/SME Rural banking Growth rate

Rs. bn

0%

20%

40%

60%

80%

100%

120%

Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 Yr7 Yr8 Yr9

ICBK AXBK IDFB YESB



(2) Net interest margins to initially compress due to priority sector requirements.

However, we expect it to improve over time due to change in loan book mix and

improvement in CASA ratio. We believe the trajectory would be similar to what was

seen at ICICI Bank given reverse merger by parent with itself that increased regulatory

reserve requirement such as SLR (statutory liquidity ratio), CRR (cash reserve ratio)

and PSL (priority sector lending).

Exhibit 14: ICBK’s trajectory post 2002 could give a sense

about the likely trajectory at IDFB

NIM – IDFC Bank vs. ICICI Bank, Yes Bank, Axis Bank

Exhibit 15: For CASA liabilities, we believe YES Bank

could be used as an example given changed market

dynamic vs. FY93 (when new licenses were given out),

intense competition and limited brand recall CASA to total liabilities for IDFB, YESB, KTKM and ICBK

Note: Yr1 for IDFC Bank is FY17E, while that for YESB & KTKM is FY05; ICBK

is FY03 and Axis Bank is FY97.



Exhibit 16: Fee income to total loans will pick up as IDFB

diversifies its client mix, product and loan mix

Fee income to total loans for IDFB, YESB & ICBK

Exhibit 17: Fee income proportion in total income will

likely catch up only in the later part of the build-out

phase, similar to other banks Fee to total income for IDFB, YESB and ICBK



1.0

1.5

2.0

2.5

3.0

3.5

T-1 Yr1 Yr4 Yr6 Yr8

IDFB ICICI Bank Yes Bank Axis Bank

%

0%

10%

20%

30%

40%

50%

60%

Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 Yr7 Yr8

IDFB Yes Bank KTKM ICBK

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%


IDFB Yes Bank ICICIBK

0%

5%

10%

15%

20%

25%

30%

35%

40%





Exhibit 18: Off balance sheet mix will likely improve… Proportion of off b/s to total b/s

Exhibit 19: …providing support to fee income Fee income to risk-weighted assets (RWA) for IDFB, YESB &

ICBK



(3) Branch expansion and opex ratios: IDFB is focusing on ramping up distribution

network in rural/semi urban areas to build its micro/PSL eligible book. While this is a

right move in our view, we believe branch expansion is equally important in

metro/urban areas, besides focusing on digital banking platforms. A look at other

banks indicates most banks largely have a uniform distribution mix. Having said that,

we believe due to gradual recovery in macro, the recovery in IDFB’s topline will be

gradual and hence its cost-to-income ratio would be stretched initially till FY19E.

However, given intense competition from existing large banks and smaller private

banks (including new specialized banks) and regulatory requirements like NSFR (net

stable funding ratio) and LCR (liquidity coverage ratio), we believe IDFB would need to

focus on building a granular deposit base.

Exhibit 20: While the bank will focus initially on

rural/semi urban, it will need to ramp up network even in

metro/urban eventually, in our view Branch distribution of IDFB

Exhibit 21: Most banks largely have a uniform

distribution of mix Branch distribution of ICICI Bank, Axis Bank, Yes Bank

Note: Data on IDFB is for FY22E, while for ICBK, AXBK & YESB is as of FY15.


Source: Company data.

0%

50%

100%

150%

200%

250%

300%

350%

400%


IDFB ICBK AXBK YESB

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%



71%

52% 45%

40%

7%

13%12%

11%

14%

21%

25%

29%

7%

14%

18%

20%

0

100

200

300

400

500

600

700

800

900

1,000

FY17E FY20E FY22E FY24E

Rural Semi-urban Urban Metro

45%17% 13%

22%

19% 22%12%

24%

55%

29%

32% 30%

25% 33%

18%

24%

25% 23%

18%26%

14%

25%

24% 25%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

IDFB INBK FED AXBK HDBK ICBK

Rural Semi-Urban Urban Metro



Exhibit 22: Within the expense break up, we expect other

expenses to account for dominant proportion… Employee and other expenses at IDFB (FY15-24E)

Exhibit 23: …similar to YES Bank Employee and other expenses at Yes Bank (FY05-15)



Exhibit 24: IDFB’s cost-to-assets trajectory to improve on

productivity gains, similar to YES Bank Cost to asset ratio for IDFB, YESB & ICBK

Exhibit 25: Similarly, even cost-to-income will improve

Cost to income ratio for IDFB, YESB & ICBK



Please refer to Exhibit 45 for details on reference years as used in Exhibits 22, 24-25.

Strategy: A mixed bag

IDFB’s strategy appears to be a mixed bag at this stage. While focusing on micro loans to

meet priority sector loans targets, and leveraging and deepening existing relationships are

steps in the right direction, its strategy on the retail and consumer banking segments

(excluding rural) could have been better as expediting retail build out could help partially

offset higher regulatory costs (SLR, CRR and PSL). Management plans to initially mainly

rely on its digital platform for consumer banking, which we are uncertain as to how

successful it would be as there is no precedence in India. Moreover, other private banks

continue to focus on branch expansion to grab market share, besides focusing on digital

channels. We believe IDFB’s ROA would remain low at c.1% in FY17E before recovering to

a sustainable level of c.1.6% by FY24E.

59%45%

47%43%

40%

41%

55%

53%

57%

60%

0

10

20

30

40

50

60

T-1 Yr1 Yr4 Yr6 Yr8

(Rs bn)

Employee Expenses Other Expenses

53%59% 51%

51%

43%

47%

41%

49%

49%

57%

-

5

10

15

20

25

FY05 FY08 FY10 FY12 FY15

Employee Expenses Other Expenses%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Yr1 Yr4 Yr6 Yr8


0%

20%

40%

60%

80%

100%

120%

Yr1 Yr4 Yr6 Yr8




Exhibit 26: Bifurcating the business into 3 broad categories; consumer strategy is not very exciting, in our view, at least

for now Broad contours on banking strategy


Wholesale and Corporate

Mgt. Strategy1. Will be a growth engine, chiefly the

non-infra part;

2. Leverage and deepen existing relationships;

3. Focus is on diversification of loan mix and improve revenue streams

GS View1. Domain expertise in infra-related project finance should be helpful;

2. Understanding / involvement in govt. policies a plus;

3. Current deposits and off balance sheet businesses should benefit from existing

relationships

4. While execution and macro pick up will be the key, we expect IDFB to grow

non-infra piece at 46% CAGR over FY17E-24E

Micro/Rural banking

Mgt. Strategy1. Plan to follow micro finance rural

NBFC/model

2. Asset centric approach

3. Significant branch expansion will in rural areas...

4. Supplemented by outreach model

GS View1. A right strategy in our view as cost

for not meeting PSL is onerous

2. We estimate rural/micro could grow at 44% CAGR to c.8% of loan

book by FY24E

3. Profitability wise, while NIMs would be better, opex will be higher

initially

Consumer banking

Mgt. strategy1. As per mgt, this is the most difficult

piece to build...

2. ... given heavy investments and intense competition

3. Mgt. plan to rely more on digitial initially to generate traction

4. Will offer a complete product suite over time but initially focus will be on

affordable housing

GS View1. We are somehow not excited about

the strategy, at least for now

2. While digital is an important platform, branches are equally

important esp. in metro and urban centers which can be more profitable over time given scalability, cross sell

opportunities and higher CASA balances in metro and urban

3. PVT banks still expanding distribution network despite focusing

on digital channels



Exhibit 27: IDFC Bank to remain a corporate-centric bank amid a gradual retail build-out

Note: This is based on standalone financials of IDFC Bank; Yr 5: FY21; Yr 8: FY24.


Exhibit 28: We expect IDFC Bank’s ROA to recover from 1.04% in FY17E to c.1.6% levels in FY24E DuPont analysis of IDFC Bank


Particulars Period Banking BusinessBranches 5th Year 532

8th Year 912

CASA ratio 5th Year 7.7%

8th Year 12.3%

Loan growth 5 yr CAGR 22.6%

8 yr CAGR 23.4%

Cost/asset ratio 5 yr average 1.7%

8 yr average 1.7%

PAT growth 5 yr CAGR 30.3%

8 yr CAGR 29.3%

Cost of equity Average 13.0%

ROAs (%) 5 yr average 1.3%

8 yr average 1.4%

ROEs (%) 5 yr average 10.0%

8 yr average 13.2%

P/B Multiple (X) 1.4

FY17E FY18E FY19E FY20E FY21E FY22E FY23E FY24E

NII 1.79 1.92 2.33 2.51 2.56 2.55 2.60 2.62

Non interest income 1.60 1.60 1.71 1.69 1.81 1.95 1.87 1.82 Total income 3.38 3.52 4.04 4.20 4.37 4.51 4.46 4.45 Opex 1.70 1.66 1.79 1.75 1.62 1.58 1.55 1.57 - Emp. Expenses 0.77 0.78 0.80 0.83 0.72 0.68 0.67 0.63 - Others 0.93 0.88 0.99 0.92 0.90 0.90 0.89 0.94 PPoP 1.68 1.86 2.25 2.45 2.75 2.93 2.91 2.88

Prov. (total) 0.10 0.15 0.21 0.29 0.42 0.45 0.44 0.44 PBT 1.58 1.71 2.04 2.16 2.33 2.48 2.47 2.44

Tax 0.54 0.58 0.69 0.74 0.79 0.84 0.84 0.83 ROA 1.04 1.13 1.35 1.43 1.54 1.63 1.63 1.61

ROE 6.69 7.74 9.82 11.56 14.20 16.92 18.59 19.85

IDFB



Exhibit 29: Given its existing relationships with

corporates, IDFB should be able to ramp up current a/c

deposits in line with other corporate banks CA as % of liabilities

Exhibit 30: However, we believe SA growth would be

gradual given: (1) low brand recall; (2) initial focus on

rural; and (3) higher focus on digital SA as % of liabilities



Exhibit 31: We believe branch expansion would be key

for IDFB as other banks, especially smaller ones, have

been growing at a rapid pace despite gaining size… Bank branches as of 2Q16 & 3-yr CAGR (FY13-15)

Exhibit 32: …and have a uniform distribution mix

Distribution of bank branches, by region

Source: Company reports.

Source: Company reports.

0%

10%

20%

30%

40%

50%

60%

Yr1 Yr4 Yr6 Yr8

IDFB ICBK YESB KTKM

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Yr1 Yr4 Yr6 Yr8

IDFB ICBK YESB KTKM

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

YESB INBK FED KTKM AXBK ICBK HDBK

15.3%

6.3%

14.5%14.3%

26.6%21.0%

25.1%

45% 17% 13%

22%

19% 22%12%

24%

55%

29%

32% 30%

25% 33%

18%

24%

25% 23%

18%26%

14%

25%

24% 25%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

IDFB INBK FED AXBK HDBK ICBK

Rural Semi-Urban Urban Metro



Exhibit 33: We expect IDFB to have a higher cost to

income and will likely moderate in line with other

corporate-oriented banks Cost-to-income Bank wise

Exhibit 34: Likewise, cost to assets will likely improve

over time as growth picks up and operating leverage

kicks in Cost-to-assets Bank wise



Please refer to Exhibit 45 for details on reference years as used in Exhibits 29-30, 33-34.

Profitability to recover only gradually and remain below median

We estimate that IDFB’s ROA will be lower initially, due to: (1) priority sector gap and likely

penalty on non-compliance; we estimate IDFB to buy-out eligible securities from micro

finance institutions (MFIs)/non-banking financial companies (NBFCs) to meet PSL

requirements; (2) higher operating cost on ramp up of distribution mix; and (3) lower fee

income. We expect IDFB’s ROA to initially decline to c.1% in FY17E (first full year of

operation) and recover to levels of 1.5%-1.6% over the next 7-8 years, similar to other

corporate-oriented banks.

In terms of its new strategy, we view its focus on micro lending as positive in the long run

as it will limit potential penalties related to the non-compliance of PSLs (priority sector

loans). In the short run, while it will support NIMs, it will be opex heavy. We believe key to

higher ROAs include better CASA ratio, retail fee income and growth pick up.

110%

55%52%

50%49%53%

65%

42%

37%

48%

67%

35%38% 38%

54%

35%

0%

20%

40%

60%

80%

100%

120%

YESB ICBK KTKM IDFB

Yr1 Yr4 Yr6 Yr8

3.1%

1.6%

2.4%

1.6%

2.0%2.1%

3.1%

1.6%

1.4%

2.0%

4.2%

1.4%

1.3%

1.6%

3.1%

1.4%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

YESB ICBK KTKM IDFB

Yr1 Yr4 Yr6 Yr8



Exhibit 35: We expect IDFB’s ROA to shrink over FY15-

17E, due to lower NII, high opex and provision costs… Incremental ROA of IDFC Bank (FY15-17E)

Exhibit 36: …but it will likely improve over time Incremental ROA of IDFC Bank (FY17E-24E)

Note: FY15 numbers are based on pro-forma lending business of IDFC Ltd.



Sensitivity analysis on ROA: Bull and Bear case

We attempt to construct both bull and bear case scenarios based on varied past examples,

such as: (1) Axis Bank/FED Bank for fee income trajectory; (2) ICBK/AXBK for opex ratios; in

addition to (3) sensitivity to NIMs on 100bps sensitivity on CASA loans and high yielding

book. Though we acknowledge that each of these banks have had different business

trajectories and cycles and may not be fully representative, we feel it could provide some

anchor.

The key assumptions for our sensitivity analysis:

Bull case: (1) Higher average NIMs by 18bps over FY18-24E driven by 100bps higher CASA

ratio, better high-yielding loan book and better tier I ratio; (2) higher fee income to assets of

6bps, based on trajectory seen in first 10 years of Axis Bank’s operations; and (3) slightly

better opex to assets, taking best case example of Axis Bank though we acknowledge that

Axis did not have any legacy book. This leads to higher ROAs at 1.76%, similar to above

median ROAs in the banking system currently.

Bear case: (1) Lower average NIMs by 17bps driven by lower CASA ratio, lower mix of

high-yielding book and lower Tier I ratio by 100bps; (2) lower fee income by 11bps, similar

to FED Bank (old private sector); and (3) higher opex ratio based on average of ICBK and

AXBK. This leads to lower ROAs of c.1%, much lower than private banks average of c.1.7%.

2.10

1.04

-1.14

0.12

-1.270.94

0.10

(0.5)

-

0.5

1.0

1.5

2.0

2.5

FY15 ROA NII Oth. Inc Op-ex Provisions Tax FY17E ROA

%

1.04

1.61

0.84

0.23

0.14 -0.26

-0.35

-

0.5

1.0

1.5

2.0

2.5

FY17E ROA NII Oth. Inc Op-ex Provisions Tax FY24E ROA

%



Exhibit 37: We believe execution is key; our bear case

analysis, based on various examples, indicates that long

term avg. ROAs, if execution goes wrong, could be

c.1%...

Bear case ROA (avg. FY18E-24E)

Exhibit 38: …while bull case long-term average ROAs

could be 1.76%, c.30bps higher than our base case,

contingent upon successful execution Bull case ROA (avg. FY18E-24E)



Risk reward unfavorable; initiate at Sell with 8% downside

Given our view that IDFB’s ROA is likely to remain subdued (we expect c.1.5% by FY21E)

while growth will pick up gradually over the medium term, we expect IDFB to trade at 1.4X

12-month forward banking book (FY18E book value discounted to 2QFY17E), as implied by

our RIM (residual income model) derived banking value of Rs52/share. In addition to the

banking business, we also incorporate value for the existing private equity and project

equity AUMs (Rs5/share, based on 10%-15% of AUMs) in our derivation of IDFB’s target

price as management has transferred the existing investment book to IDFB post the

demerger.

We adopt the RIM methodology to value IDFB’s banking business – in line with the

methodology used to value the lending business of all other banks in our coverage.

The RIM methodology values stocks by adding the book value of the company to the

present value of residual income (based on ROE vs. cost of equity) over a 12-year forecast

period, and the present value of a terminal value (based on our long-term total asset

growth and ROE assumptions).

We see IDFB’s risk reward profile as unfavorable, with the stock trading at 1.5X 12-month

forward book, +28%/-22%/-24% vs. the valuations of ICBK/AXBK/YES. We believe our Buy-

rated PVT banks (YES Bank, ICICI Bank, Axis Bank and FED Bank), which offer upsides of

21%-37%, are better positioned as they offer higher return ratios, liability franchise and

diversified loan with relatively lower implementation risk.

We believe the government’s relaxation of foreign ownership limits for PVT banks

(removing sub limits within foreign ownership), thereby creating ample ownership room in

PVT banks (27%-41%) vs. IDFB (25%), would also lead to the latter’s share price

underperformance. Hence, we initiate coverage on IDFB at Sell with a 12-month SOTP-

based target price of Rs57.

1.47

1.00

-0.17

-0.11

-0.19

0.5

0.7

0.9

1.1

1.3

1.5

1.7

ROA Base case NIM Fee Income Opex Bear case ROAs

%

1.47

1.76

0.18

0.06

0.04

1.2

1.3

1.4

1.5

1.6

1.7

1.8

ROA Base case NIM Fee Income Opex Bull case ROAs

%



Exhibit 39: We see downside potential of 8% from current

levels based on our SOTP based (RIM for banking

business) 12m TP of Rs57 RIM assumptions for banking business of IDFB

Exhibit 40: IDFB’s valuation at 1.5X 12m fwd P/B is

unsustainable in our view given lower returns vs. peers 12m fwd P/B vs. avg ROA, PVT banks

Note: *denotes stock is on our Conviction List.



Exhibit 41: We believe returns and growth to justify higher valuations of greater than

1.75X P/B would be difficult to achieve for IDFC given a large legacy book along with

regulatory costs and a higher opex burden initially Scenario analysis – Implied RIM assumptions for higher banking business multiples


Asset growth (%) 18.5

ROA (%) 1.43

EPS growth (%) 21.9

ROE (%) 14.7

COE (%) 13.0

Dividend Payout (%) 20.0

Tier 1 Ratio 13.2

Implied 12m fwd target PB (X) 1.4

Implied value per share (Rs) 57

Difference vs. Current Price (%) -8%

RIM Assumption

(FY17-28E)

R² = 0.303

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1.1% 1.2% 1.3% 1.4% 1.5% 1.6% 1.7% 1.8% 1.9% 2.0%

12

m f

wd

P/B

Average ROA (FY16-18)

SellBuy

(X)

AXBKYESB*

ICBK

INBK

FED

KTKMHDBK

IDFC Bank

1.75X 2.0X

Asset growth (%) 22.1 24.4

ROA (%) 1.55 1.65

EPS growth (%) 27.0 29.3

ROE (%) 16.5 16.4

COE (%) 13.0 13.0

Dividend Payout (%) 20.0 15.8

Tier 1 Ratio 13.8 13.3

Implied 12m fwd target PB (X) 1.75 2.0

Implied value per share (Rs) 80 90

Difference vs. Current Price (%) 30% 46%

RIM Assumption

(FY17-28E)

Scenario Analysis



Comparison with Yes Bank

Based on our interaction with investors, we realised that some of them are of the view that

IDFB’s valuation multiple could be compared with the initial trading multiples of YES Bank,

as they believe IDFB’s growth would be strong, ROAs and ROEs would improve

significantly, and asset quality is better. While we agree with some of the points such as

scope for higher growth and asset quality not being a major concern, we believe YES Bank

would not be a right comparison from a valuation perspective given: (1) the market itself

was trading at premium valuations when YES Bank was listed; (2) YES Bank did not have

any legacy book and it managed to deliver much higher ROEs due to adequate

capitalization levels (though the ROA trajectory will likely be similar); (3) the macro

environment was picking up and was much better than the current environment; and (4)

YES Bank did not have any legacy asset quality issues.

1. Growth at IDFC Bank will be fairly strong as overall market share is insignificant

in system’s loan book

IDFB’s headline growth will be relatively lower in the initial phase, in our view,

because of the lack of pick up infrastructure activity. We believe most of the

growth would be driven by non-infra/rural banking/SME. On non-infrastructure

corporate loans, given that competition from existing PVT banks to gain market

share in corporate loans has picked up (average growth over the past four quarters

in corporate book: HDBK – 23.7% yoy, AXBK – 21% yoy), IDFB’s profitability could

be pressured.

We believe investors’ focus would gradually shift to the profitability of IDFB’s loan

growth and whether it is sustainable in the absence of a strong retail liability

franchise. Further, we believe IDFB would also need to maintain high levels of

liquid assets due to stringent liquidity coverage norms which in turn would be a

drag on profitability.

2. Asset quality pain is behind us

While we acknowledge that cleaning up of bad loans is a prudent move and it will

insulate the banking business from any legacy book issues, we believe the net

impaired loans would continue to be fairly high at c.6% of net loans in FY16E (ICBK

at 4.5%; AXBK at 3%).

We estimate the PCR excluding gas based projects would be c.35%. As such, we

assume minimum coverage of +50% on the entire stressed book (including 5/25

refinance) for other PVT banks.

In terms of recovery from these bad loans, we believe discom reforms and

availability of gas to power projects would be positive, but it would be difficult to

estimate the provisioning release due to that. Moreover, we estimate a low loan

loss provisions in the initial 3-5 year period to factor in some benefit due to an

improving macro.

3. Downside is limited as IDFB is already trading at a discount to other PVT banks

IDFC Bank’s valuation (12-month forward P/B) is +28%/-22%/-24% vs. the

valuations of other corporate-oriented banks such as ICBK/AXBK/YES respectively

for: (1) subdued ROA trajectory; (2) no retail liability franchise which will take a

fairly long period of time to build; and (3) concentration of loan book in wholesale

than in retail.



4. YES Bank as a fledgling bank traded at 4.6X P/B in the first three years post

listing, providing meaningful indications of where IDFB could trade at

a) YES Bank did not have any legacy book to deal with as is the case with IDFB and

hence profitability was not marred in any way;

b) YES Bank did not have to immediately onboard PSL assets as it did not have any

legacy book unlike IDFB due to regulatory pressures;

c) YES Bank generated 1.5%-1.6% ROAs and 14%-20% ROEs in its first five years of

operations; and

d) P/B multiple for the overall market was at a 36% premium to its 10-year average.

However, the market currently trades at c.3.2X, 6% lower vs. its 10-year average.

Exhibit 42: While we expect IDFC Bank’s returns to

expand post its first year of operations… IDFC Bank vs. Yes Bank ROA evolution

Exhibit 43: …similar to what we have seen for Yes

Bank… IDFC Bank vs. Yes Bank ROE evolution



Exhibit 44: …we do not expect IDFB to trade at similar valuations during the initial few

years, given that IDFB has an existing legacy book with asset quality issues and the

broader market is trading at much lower levels compared to when Yes Bank was listed MSCI India vs. Yes Bank trailing P/B

Source: Datastream, Company data.

(0.5)

-

0.5

1.0

1.5

2.0

2.5


IDFC Bank Yes Bank

%

(5)

-

5

10

15

20

25


IDFC Bank Yes Bank

%

0

1

2

3

4

5

6

7

MSCI India Trailing PB Yes Bank Trailing PB

%



Key risks

1) Better macro impacting loan growth and asset quality: If the macro situation

recovers faster than expected, IDFB could benefit on multiple accounts: (1) Asset

quality: With IDFB declaring potential problem loans and making extra provisions

of c.Rs26bn, which is c.20% of its net worth, the probability of recovering this

amount will increase. (2) Loan growth: IDFB may see an early pick up in loan

growth amid a better macro backdrop and revival of the capex cycle.

2) Faster improvement in operating leverage: We expect IDFB’s ROAs to be

impacted by higher opex ratios in the near term. However, if IDFB were to grow

faster than expected and improve efficiency over the medium term by effectively

using its digital platforms, better cross-selling ratio etc., its ROAs could improve

faster. Our sensitivity analysis indicates that its opex ratio could improve by c.4bps

in FY18E-24E on a faster improvement in operating leverage.

3) Better strategy on retail business: IDFB’s retail franchise could be a critical factor

in developing CASA deposits and retail fee income. We estimate that a 100bps

increase in CASA deposits could drive up NIMs by 17bps. Hence, a better strategy

on retail could lead to better NIMs and fee income on higher cross-selling ratio etc.

4) Higher P/B valuations: We believe: (1) the market’s expectation of robust growth

momentum led by diversified loan book; (2) likely better asset quality trends given

clean-up of legacy book; (3) opening of FII legroom; and (4) index inclusion are

potential reasons that could drive valuations higher than we foresee. However, we

do not expect such high valuations to be sustainable given our muted view on the

macro and micro strategy.



Appendix

Exhibit 45: IDFC Bank summary financials


Summary Financials FY17E FY18E FY19E FY20E FY21E FY22E FY23E FY24EAll data in Rsbn unless otherwise specified

P&LNII 16.1 19.5 26.9 35.0 44.9 56.6 72.7 92.0

Non Interest Income 14.4 16.3 19.8 23.5 31.7 43.3 52.3 63.9

Fee 4.0 4.8 6.9 10.3 18.2 29.5 38.2 49.4

Other 10.4 11.5 12.9 13.2 13.5 13.8 14.1 14.5

Total Income 30.4 35.7 46.6 58.4 76.6 99.9 125.1 155.9

Opex 15.3 16.9 20.7 24.3 28.3 35.0 43.6 54.9

Employee 6.9 7.9 9.3 11.5 12.6 15.2 18.7 22.1

Other 8.4 9.0 11.4 12.8 15.7 19.9 24.9 32.8

PPOP 15.1 18.9 26.0 34.1 48.2 64.9 81.5 101.0

Provisions 0.9 1.5 2.4 4.0 7.4 10.0 12.4 15.4

PBT 14.2 17.4 23.6 30.1 40.9 54.9 69.1 85.6

PAT 9.4 11.5 15.6 19.9 27.0 36.2 45.6 56.5

EPS (Rs/Share) 2.8 3.4 4.6 5.9 8.0 10.7 13.4 16.7

Balance SheetLoans 563 667 819 1,015 1,271 1,586 1,974 2,452

Infra 456 487 529 577 638 695 789 912

Non-Infra 107 179 290 439 634 891 1,185 1,540

Investments 322 313 334 419 572 743 997 1,234

SLR 150 151 172 239 345 440 599 730

Other Assets 82 85 91 105 119 141 164 193

Total Assets 968 1,065 1,244 1,540 1,962 2,470 3,135 3,879

Deposit 23 188 314 543 882 1,210 1,631 2,082

CASA 2 23 47 90 137 206 304 438

Borrowings 767 690 732 783 845 998 1,197 1,437

Other Liabilities 34 34 34 34 34 34 44 55

Total Liabilities 824 913 1,080 1,361 1,762 2,242 2,872 3,573

Shareholders Equity 144 152 164 180 200 228 263 306

BVPS (Rs/Share) 42.3 44.9 48.4 52.9 59.0 67.2 77.5 90.3

Share Count (mn) 3,392 3,392 3,392 3,392 3,392 3,392 3,392 3,392

Asset QualityGNPL 25 43 49 49 53 60 72 84

GNPL Ratio (%) 4.4 6.4 5.9 4.8 4.1 3.7 3.6 3.4

Net NPL 22 41 47 47 47 49 55 59

Net NPL Ratio (%) 3.9 6.2 5.8 4.6 3.7 3.1 2.8 2.4

Total Stress Loans 88 97 93 84 88 95 107 119

Stress Loan Ratio (%) 15.6 14.6 11.4 8.3 6.9 6.0 5.4 4.9

Key RatiosNIM (%) 1.79 1.92 2.33 2.51 2.56 2.55 2.60 2.62

Cost-Income (%) 50.3 47.2 44.3 41.6 37.0 35.1 34.8 35.2

Credit Cost (%) 0.17 0.23 0.29 0.40 0.58 0.63 0.63 0.63

CASA (% of Liabilities) 0.2 2.5 4.3 6.6 7.7 9.2 10.6 12.3

Leverage (X) 6.7 7.0 7.6 8.6 9.8 10.8 11.9 12.7

ROA (%) 1.04 1.13 1.35 1.43 1.54 1.63 1.63 1.61

ROE (%) 6.7 7.7 9.8 11.6 14.2 16.9 18.6 19.9



Exhibit 46: Reference for year of operation of selected banks that we use in our case study


Special Disclosure

One of the analysts in the coverage team is a beneficial owner of an immaterial stake of

certain bonds issued by IDFC Bank.

Yr1 Yr4 Yr6 Yr8ICBK FY03 FY06 FY08 FY10

AXBK FY96 FY99 FY01 FY03

YESBK FY05 FY08 FY10 FY12

IDFB FY17 FY20 FY22 FY24



Disclosure Appendix

Reg AC

We, Rahul Jain, Tabassum Inamdar, CFA and Mayank Bukrediwala, hereby certify that all of the views expressed in this report accurately reflect our

personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be,

directly or indirectly, related to the specific recommendations or views expressed in this report.

Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs' Global Investment Research division.

Investment Profile

The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and

market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites

of several methodologies to determine the stocks percentile ranking within the region's coverage universe.

The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:

Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate

of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend

yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends.

Quantum

Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for

in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets.

GS SUSTAIN

GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list

includes leaders our analysis shows to be well positioned to deliver long term outperformance through sustained competitive advantage and

superior returns on capital relative to their global industry peers. Leaders are identified based on quantifiable analysis of three aspects of corporate

performance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies' management of the

environmental, social and governance issues facing their industry).

Disclosures

Coverage group(s) of stocks by primary analyst(s)

Rahul Jain: Asia Pacific Financials. Tabassum Inamdar, CFA: Asia Pacific Financials.

Asia Pacific Financials: AIA Group, AMMB Holdings, Axis Bank, Bajaj Finance, Bajaj Finserv, Bangkok Bank, Bangkok Bank (Foreign), Bank Central

Asia, Bank Danamon, Bank Mandiri, Bank Negara Indonesia, Bank of Baroda, Bank of East Asia, Bank Rakyat Indonesia, Bank Tabungan Negara, Bank

Tabungan Pensiunan Nasional, BDO Unibank, BNK Financial Group, BOC Hong Kong (Holdings), Cathay Financial, Chailease Holdings, Chang Hwa

Commercial Bank, China Development Financial, CIMB Group Holdings, CTBC Financial Holdings, Dah Sing Banking Group, Dah Sing Financial

Holdings, DBS Group Holdings, DGB Financial Group, E.Sun Financial Holding, Federal Bank, First Financial Holdings, Fubon Financial Holdings,

Hana Financial Group, Hang Seng Bank, HDFC Bank, Hong Leong Bank, Housing Development Finance Corp., HSBC Holdings, ICICI Bank, IDFC Bank

Ltd, IDFC Ltd., IndusInd Bank, Industrial Bank of Korea, Kasikornbank, Kasikornbank (Foreign), KB Financial Group, Kotak Mahindra Bank, Krung Thai

Bank, Krung Thai Bank (Foreign), LIC Housing Finance, Mahindra & Mahindra Financial Svcs., Malayan Banking Bhd, Mega Financial Holdings,

Metropolitan Bank and Trust Co, Oversea-Chinese Banking Corp., Public Bank Bhd, Punjab National Bank, RHB Capital, Shin Kong Financial Holdings,

Shinhan Financial Group, Shriram Transport Finance, Siam Commercial Bank, Siam Commercial Bank (Foreign), SinoPac Holdings, Standard

Chartered Bank, State Bank of India, Taishin Financial Holdings, TMB Bank Public Co., TMB Bank Public Co. (Foreign), United Overseas Bank, Woori

Bank, Yes Bank, Yuanta FHC.

Company-specific regulatory disclosures

The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, "Goldman Sachs") and companies

covered by the Global Investment Research Division of Goldman Sachs and referred to in this research.

Goldman Sachs had a non-securities services client relationship during the past 12 months with: IDFC Bank Ltd (Rs61.00)

Distribution of ratings/investment banking relationships

Goldman Sachs Investment Research global coverage universe

Rating Distribution Investment Banking Relationships

Buy Hold Sell Buy Hold Sell

Global 32% 53% 15% 63% 57% 52%

As of October 1, 2015, Goldman Sachs Global Investment Research had investment ratings on 3,221 equity securities. Goldman Sachs assigns stocks

as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell

for the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage groups and views and related definitions' below.

Regulatory disclosures

Disclosures required by United States laws and regulations

See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager

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managed public offerings in prior periods; directorships; for equity securities, market making and/or specialist role. Goldman Sachs usually makes a

market in fixed income securities of issuers discussed in this report and usually deals as a principal in these securities.



The following are additional required disclosures: Ownership and material conflicts of interest: Goldman Sachs policy prohibits its analysts,

professionals reporting to analysts and members of their households from owning securities of any company in the analyst's area of

coverage. Analyst compensation: Analysts are paid in part based on the profitability of Goldman Sachs, which includes investment banking

revenues. Analyst as officer or director: Goldman Sachs policy prohibits its analysts, persons reporting to analysts or members of their

households from serving as an officer, director, advisory board member or employee of any company in the analyst's area of coverage. Non-U.S. Analysts: Non-U.S. analysts may not be associated persons of Goldman, Sachs & Co. and therefore may not be subject to NASD Rule 2711/NYSE

Rules 472 restrictions on communications with subject company, public appearances and trading securities held by the analysts.

Distribution of ratings: See the distribution of ratings disclosure above. Price chart: See the price chart, with changes of ratings and price targets in

prior periods, above, or, if electronic format or if with respect to multiple companies which are the subject of this report, on the Goldman Sachs

website at http://www.gs.com/research/hedge.html.

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Investment Research.

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Securities Finance Company.

Ratings, coverage groups and views and related definitions

Buy (B), Neutral (N), Sell (S) -Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy

or Sell on an Investment List is determined by a stock's return potential relative to its coverage group as described below. Any stock not assigned as

a Buy or a Sell on an Investment List is deemed Neutral. Each regional Investment Review Committee manages various regional Investment Lists to a

global guideline of 25%-35% of stocks as Buy and 10%-15% of stocks as Sell; however, the distribution of Buys and Sells in any particular coverage

group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists represent investment

recommendations focused on either the size of the potential return or the likelihood of the realization of the return.

Return potential represents the price differential between the current share price and the price target expected during the time horizon associated

with the price target. Price targets are required for all covered stocks. The return potential, price target and associated time horizon are stated in each

report adding or reiterating an Investment List membership.

Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at

http://www.gs.com/research/hedge.html. The analyst assigns one of the following coverage views which represents the analyst's investment outlook

on the coverage group relative to the group's historical fundamentals and/or valuation. Attractive (A). The investment outlook over the following 12

months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The investment outlook over the

following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook over

the following 12 months is unfavorable relative to the coverage group's historical fundamentals and/or valuation.

Not Rated (NR). The investment rating and target price have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an

advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances. Rating Suspended (RS). Goldman

Sachs Research has suspended the investment rating and price target for this stock, because there is not a sufficient fundamental basis for

determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and

price target, if any, are no longer in effect for this stock and should not be relied upon. Coverage Suspended (CS). Goldman Sachs has suspended



coverage of this company. Not Covered (NC). Goldman Sachs does not cover this company. Not Available or Not Applicable (NA). The

information is not available for display or is not applicable. Not Meaningful (NM). The information is not meaningful and is therefore excluded.

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