Sapm Final Deck(1)

8/13/2019 Sapm Final Deck(1)

1/45

Source: www.bseindia.com

Prateek Gupta(31A)

Nagarjuna Pavan Kumar (21B)

Saurabh Kumar(35B)

Shasank S. Jalan(37B)

Sriyans Saxena(40B)

Varun Chadda(46B)

Indian Banking Sector


2/45

Robust demand

Increase in working population and growing disposable

incomes will raise demand for banking and related services Housing and personal finance are expected to remain key

demand drivers

Rural banking is expected to witness growth in the future

Innovation in services

Mobile, Internet banking and extension of facilities at ATM

stations to improve operational efficiency Vast un-banked population highlights scope for innovation in

delivery

Business fundamentals

Rising fee incomes improving the revenue mix of banks

High net interest margins, along with low NPA levels, ensurehealthy business fundamentals

Policy support

Wide policy support in the form of private sectorparticipation and liquidity infusion

Heath Regulatory oversight and credible monetary policy byRBI have lent strength and credibility to countrys bankingsector

Advantage India

Banking- Advantage India


3/45


4/45

Reserve Bank of India

Banks

Cooperative credit

institutions

Urban Cooperative Banks

(1674)

Foreign Banks (41)

Private Sector Banks (22)

Regional Rural Banks (62)

Public sector banks (27)

Scheduled Commercial

Banks (SCBs)

Rural Cooperative Credit

Institutes (96,751)

All India Financial Institutions

Other Institutions

State Level Institutions

Financial Institutions

Structure of Indian Banking Sector


5/45

Banking Sector: Statistical Overview (1/3)

352

495610

552

742

896 916 991

1140

0

5

10

15

20

25

30

0

200

400

600

800

1000

1200

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

Amount (USD Billion) Growth

489

665

822763

1030

1182 11701274

1453

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

100 110 125

270 290 300

9101000

1100

1290

1336

1510

1150

1200

1250

1300

1350

1400

1450

1500

1550

0

200

400

600

800

1000

1200

FY10 FY11 FY12

Foreign Banks Private Banks Public Banks Total Assets- RHS

6.3 5.5 5.9 7.6

17.7 17.3 20.227.9

56.9

63.8

76.3

101

FY09 FY10 FY11 FY12

Foreign Banks Private Banks Public Banks

Growth in credit off-take over past few years (USD billion) Growth in deposits over the past few years

Interest income growth in Indian banking sector (USD billion)Total Banking sector assets (USD billion)


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FY08 FY09 FY10 FY11 FY12

Net Interest Margins

Growth (FY12) 2.58% 2.63% 2.54% 2.91% 2.90%

2.30%

2.40%

2.50%

2.60%

2.70%

2.80%

2.90%

3.00%

3.20%2.60% 2.80%

3.10%

4.00%

2.90%

SBI &

Associates

Nationalized

Banks

Public Sector

Banks

Private

Sector Banks

Foreign

Banks

Scheduled

Commercial

Banks

Net Interest Margin Across Sector (FY12) Average

4.22%

2.73%

3.85%3.59%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

HDFC ICICI SBI Axis

3.1

2.1 2.3 2.3

3.74.3 4.3

5.1

8.9

10.2 1010.5

0

2

4

6

8

10

12

FY09 FY10 FY11 FY12

Net Interest Margins growth (FY12) Net Interest Margin across sector (FY12)

Other income growth in Indian banking sector (USD billion)Healthy net interest margins (FY12)


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3.17%

2.08%

2.68%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

Public Sector Banks Private Sector Banks Foreign Banks

Gross NPAs to Gross Advances (FY12)

91.00%100.00% 97.00%

128.00% 126.00%

79.00%

103.00%96.00%

143.00%

175.00%

89.00% 88.00% 88.00%

153.00%

176.00%

0.00%

50.00%

100.00%

150.00%

200.00%

SBI &

Associates

Nationalized

Banks

Public Sector

Banks

Private Sector

Banks

Foreign Banks

FY10 FY11 FY12

77.00%

71.00%

73.00%

77.00%

70.00%

80.00%

74.00%

76.00%

80.00%81.00%

82.00%

76.00%

78.00%

82.00%83.00%

60.00%

65.00%

70.00%

75.00%

80.00%

85.00%

SBI &

Associates

Nationalized

Banks

Public Sector

Banks

Private Sector

Banks

Foreign Banks

FY10 FY11 FY12

78.2 77.5

17.1 18.2

4.7 4.3

FY05 FY12

Public Banks Private Banks Foreign Banks

Gross NPAs to Gross Advances (FY12) Return on assets

Market share of bank groups by depositsLoan-to-Deposit ratio


8/45

Industry Scenario


9/45

Growth flagging but no respite on borrowing requirements

Likely FY12E systemic liquidity environment and estimating the need for raising deposits

FY12E - Base case (18% credit Growth) FY12E - Credit growth at 20% FY12E - Credit growth at 16%Rs. tn 1HFY12 2HFY12 FY12 2HFY12 FY12 2HFY12 FY12Demand for capital during FY12:Expected systemic credit demand 1.47 5.62 7.09 6.41 7.88 4.83 6.30

Net Central Govt. borrowing (Rs. 4.7tn of GoI borrowing (-)

redemptions of Rs. 0.7tn) 1.90 2.10 4.00 2.10 4.00 2.10 4.00

Net State Govt. borrowing 0.60 0.60 1.20 0.60 1.20 0.60 1.20

Total systemic demand for liquidity (1) 3.97 8.32 12.29 9.11 13.08 7.53 11.50Sources of capital during FY12LAF balances at beginning of FY12 -1.00 -0.70 -1.00 -0.70 -1.00 -0.70 -1.00

Bank balances in MFs at beginning of FY12 0.75 0.65 0.75 0.65 0.75 0.65 0.75

Insurance cos/ FIIs/ MFs buying GoI/ corporate bonds 1.00 1.00 2.00 1.00 2.00 1.00 2.00

GoI cash balances at beginning of FY12E 0.90 0.16 0.90 0.16 0.90 0.16 0.90

Surplus SLR/ excess liquidity in banks balance sheets @1% of NDTL 0.55 1.10 0.55 1.10 0.55 1.10 0.55Total liquidity available other than deposits (2) 2.20 2.21 3.20 2.21 3.20 2.21 3.20Deposit mobilization needed by the banking system to bridge the gap (3)= (1)=(2) 3.22 6.11 9.09 6.90 9.88 5.32 8.30FY11 Deposit mobilization (4) 7.20 7.20 7.20FY12E YoY growth needed in deposit mobilization (3)/(4) 26.3% 37.2% 15.3%

-20%

0%

20%

40%

60%

80%

100%

120%

FY 08 FY 09 FY 10 FY 11 FY 12 FY 13

Offbreak%o

ffullye

ar

growth

Q4

Q3

Q2

Q1

Trends suggests risk to base case growth estimate of 18%


10/45

Cost of Money not cheap as all avenues are turning expensive


11/45

Credit growth driven by large industrials

High Yielding Retail sector credit demand lost market share to low yielding large industry credit

Incremental Market Share of industrial credit was 51% of

total bank credit between FY08- Jul FY13

Credit to industries & Services grew at a higher pace than

the sector


12/45

Infrastructural leads the industrial growth segment

Most of the incremental credit growth between FY 08- Jul FY

12 has happened in the infra sector

Within industrial space infrastructure sector has gained the highest share in the credit between FY 08-Jul FY-12

Within infra, Power sector contributed towards 52%

incremental credit off take between FY 08- Jul FY-12


13/45

Retail Book has Seasoned

Retail Loan market grows significantly below the bank credit growthCAGR (FY08-

FY08 Jul-FY13 Jul- FY13)Total Bank Credit (Rs. bn) 17,561 37,282 21%Retail Loans (Rs. bn) 4,676 6,988 11%Education (Rs. bn) 152 464 32%

Home Loans (Rs. bn) 2,330 3,616 12%

Loan against FD (Rs. bn) 409 574 9%

Vehicle loan (Rs. bn) 608 835 8%

Other Loan (Rs. bn) 839 1,181 9%

Consumer Durables (Rs. bn) 98 98 0%

CC (Rs. bn) 197 186 -1%

LAS (Rs. bn) 42 33 -6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY08 Jul-FY13

Unsecured

Secured

unsecured loans (excluding education loans) contributed to

only 14% of incremental credit growth in the retail segment

resulting in loss in share of unsecured retail (excluding

education) and more seasoned retail loan book

While mix of secured unsecured products in thesegment remained constant


14/45

Mining & Quarrying(0.7%)

Gems & Jewellery (1.2%)

Education(1.2%)

Textiles(3.9%)Telecom(2.4%)

CRE(3.1%)

Personal Loans including

CC(2.4%)

Basic Metals(6.0%)

Power(7.8%)

Agriculture(11.9%)

Transport Equipment(1.3%)

Construction(1.3%)

Other infra(1.8%)

Engineering(2.6%)

Roads(2.7%)Other Industries(4.1%)

Trade(4.9%)

NBFC(4.6%)

Vehicle loan(2.2%)

Other Personal Loan(3.2%)

Other Services(6.9%)

Other Industrials (3.5%)Petroleum & Others(1.4%)

Cement & Professional

Services(2.4%)

Food Processing( 2.3%)

Chemicals(2.5%)

Transport Operators(1.7%)

Housing(9.7%)

Current sectoral exposure and risk matrix

High

Risk

Low

40.6%

35.8%

23.6%

High Banks Exposure Low


15/45


Framework of Analysis


16/45

#1: Asset Quality

Kotak Mahindra Banks >100% risk weighted assets are the

highest and also have grown the fastest; CUB has the

lowest amount of>100% risk weighted assets

>100% Riskweight Growth in >100% riskweight Growth in totalexposure Score

CUBK 3% -23% 65% 19

IOB 3% -40% 35% 19

ICICIBC 5% -54% 9% 18

IIB 4% 41% 82% 16

BOB 5% -20% 62% 16

KVB 6% 0% 14

BOI 5% 130% 120% 14

AXSB 6% 140% 80% 11

FB 7% 47% 33% 11

SIB 7% -3% 38% 11

VYSB 6% 150% 41% 10

YES 5% 910% 240% 8

CBK 7% 140% 28% 8

HDFCB 25% 53% 64% 7

UNBK 6% 520% 100% 6

PNB 7% 210% 74% 5

INBK 10% 190% 48% 3

SBIN 11% 160% 48% 3

CRPBK 8% 300% 35% 2

KMB 27% 310% 88% 1

Yes Bank and KVB have the lowest slippages among 20

banks in the coverage; IOB and Federal Bank are expected

to post high slippages over FY12-FY13

Retail advances are most sought after as they have low

slippages and higher yields; HDFC Bank and IndusInd Bank

have the highest proportion of retail advances


17/45

Kotak Mahindra Bank and IndusInd Bank score high on

Risk adjusted Yields (YoASlippage)

FY 10 FY 11 FY 12 Weighted Average

KMB 9.70% 12.20% 13.00% 12.00%

IIB 10.20% 10.70% 11.90% 11.10%

KVB 10.00% 10.40% 10.80% 10.50%

CUBK 10.20% 10.20% 10.80% 10.50%

YES 9.40% 10.00% 10.90% 10.20%

SIB 9.50% 9.40% 10.60% 9.90%

HDFCB 8.10% 9.40% 10.00% 9.40%

VYSB 7.20% 8.40% 9.90% 8.70%

INBK 9.10% 7.70% 9.20% 8.60%

PNB 8.00% 7.50% 8.80% 8.10%

CRPBK 7.90% 7.40% 8.70% 8.00%

ICICIBC 6.90% 7.50% 7.90% 7.50%

AXSB 6.40% 7.00% 8.40% 7.50%

FB 8.20% 6.30% 8.00% 7.40%

CBK 6.70% 6.90% 8.20% 7.30%

UNBK 7.10% 6.50% 7.70% 7.10%

BOB 6.70% 6.90% 7.30% 7.00%

IOB 5.70% 6.50% 8.00% 6.90%

BOI 5.50% 6.40% 6.40% 6.20%

SBIN 6.40% 5.80% 6.40% 6.10%

#1: Asset Quality

Kotak Mahindra Bank and HDFC Bank score high on Risk

adjusted Margins (NIMSlippage)

FY 10 FY 11 FY 12 Weighted Average

KMB 2.50% 4.50% 3.80% 3.80%

HDFCB 2.00% 3.70% 3.50% 3.30%

KVB 2.00% 2.90% 2.10% 2.40%

IIB 1.80% 2.40% 2.10% 2.10%

YES 2.10% 2.40% 1.90% 2.10%

INBK 2.90% 1.40% 1.70% 1.80%

AXSB 1.10% 2.00% 1.90% 1.80%

CUBK 1.10% 1.80% 2.00% 1.70%

VYSB 0.40% 1.80% 2.00% 1.60%

BOB 1.40% 1.90% 1.40% 1.60%

SIB 1.20% 1.70% 1.60% 1.60%

ICICIBC 0.70% 1.90% 1.50% 1.50%

PNB 1.60% 1.50% 1.30% 1.40%

CRPBK 1.50% 1.30% 1.10% 1.30%

UNBK 0.70% 0.70% 0.90% 0.80%

CBK 0.20% 0.80% 0.20% 0.40%

BOI -0.40% 1.00% 0.10% 0.40%

SBIN 0.40% 0.30% 0.30% 0.30%

IOB -1.50% 0.30% 0.20% -0.10%

FB 0.40% -0.40% -0.20% -0.20%


18/45

#1: Asset Quality

IOB, BOI, PNB and SBI have the highest amount of stressed assets as a % of loan

book and also as a % of Net worthRestructured Assets Gross NPA % Total Stress Assets Stressed Assets as % of Net worth

YES 0.30% 0.20% 0.40% 3.50%

HDFCB 0.40% 1.00% 1.40% 9.50%

KMB 0.20% 1.90% 2.10% 9.50%

IIB 0.40% 1.10% 1.50% 10.30%

AXSB 1.60% 1.10% 2.70% 18.60%

ICICIBC 0.90% 4.40% 5.30% 21.20%

VYSB 1.60% 2.20% 3.80% 22.90%

KVB 2.60% 1.50% 4.10% 30.80%

CUBK 2.70% 1.20% 4.00% 35.70%

SIB 1.90% 1.10% 3.00% 36.90%

BOB 3.10% 1.50% 4.50% 51.00%

FB 4.40% 3.90% 8.30% 51.40%

CRPBK 4.10% 1.10% 5.10% 54.30%

CBK 4.00% 1.70% 5.60% 64.80%

INBK 6.30% 1.00% 7.30% 69.00%

UNBK 4.00% 2.60% 6.60% 82.60%

SBIN 4.50% 3.50% 8.00% 94.20%

PNB 6.50% 2.00% 8.50% 98.40%

BOI 5.20% 2.70% 7.90% 105.40%

IOB 5.70% 2.80% 8.40% 120.10%

IndusIndHDFCB

KVB

SIB

Yes

ICICI

Kotak

Axis

BoB

Fed

Indian

CUB

ING Vysya

CorpB

Union

IOBCanara

PNB

BOI

SBI


19/45

#2: Private Sector Banks - Size, Market Share & Growth

SBI, Axis Bank and PNB gained the maximum market share over Q1 FY12-FY13; Indian Bank is expected to lose share; Due

to their small size, South Indian Bank and City Union Bank may not gain market share though their loan growth is higher

than the industry growth rate

Advances Q1 FY12(Rs. Bn) Advances FY 13(Rs. Bn) Change in Market Share(FY08 - Q1 FY12) Change in Market Share(Q1 FY12 - FY 13)SBIN 7709 10604 1.1% 0.6%

AXSB 1319 1991 0.7% 0.4%

PNB 2429 3466 0.9% 0.4%

UNBK 1456 2169 0.4% 0.4%

BOB 2323 3301 1.1% 0.4%

CRPBK 789 1229 0.3% 0.3%

BOI 2149 3011 0.4% 0.3%YES 331 540 0.4% 0.2%

CBK 2150 2945 0.7% 0.2%

ICICIBC 2207 3010 -4.2% 0.1%

HDFCB 1755 2402 1.6% 0.1%

KMB 323 476 0.1% 0.1%

IIB 284 414 0.1% 0.1%

KVB 185 281 0.1% 0.1%

VYSB 238 349 0.0% 0.1%

FB 320 454 0.0% 0.1%

IOB 1191 1613 0.3% 0.1%

SIB 222 307 0.1% 0.0%

CUBK 96 138 0.0% 0.0%

INBK 825 1070 0.3% -0.1%


20/45

#2: Sector Market Share & Growth

Kotak Mahindra and Yes Bank are expected grow faster

than average; ICICI Bank and Canara Bank are expected to

grow slower than average CAGR

Yes Bank and KVBsCASA is expected to grow faster than

average due to low base; Federal and Indian BanksCASA

is expected to grow at slow pace

Yes Bank and KVBs NII is expected to grow faster than

others due to higher loan book growth and higher CASA

growth

BOB and HDFC BanksPAT is expected to grow faster than

other banks; SBI and BOIsPAT growth seems higher due

to decline and low base in FY 11

YesAxis

HDFCB

IndusInd

BoB

SBI

Kotak

KVB

CUB

CorpB

PNB

SIB

Canara

Union

BOI

ING VysyaIOB

Indian

ICICI

Fed


21/45

#3: Profitability

ICICI Bank and IndusInd Bank have shown the least volatility in

their NIMs; whereas Kotak Mahindra and Federal BanksNIMs

have dropped the highest since last peak

IndusInd Bank and SBI have shown high pricing power(ability

to rise lending rates when rates go up and ability to continue

higher lending rates when rates drop)

Kotak Mahindra Bank and HDFC Bank had high sustainable NIMs for long periods and are expected to continue the same trend; ICICI

and Corp BanksNIMs are lowest


22/45

#3: Profitability

Axis Bank and ICICI Bankscore fee income to assets is higher than other

banks in the coverage; Kotak Mahindra and CUBsfee income is expected

to grow fastest

HDFC Bank, SBI and ICICI Bank have the highest CASA among the

scheduled banks. Yes Banks CASA is expected to grow fastest on a low

base

South Indian Bank and Canara Bank score best with respect to

RoRWA as the proportion of RWAs to total assets is low and thus

higher RoRWA/RWA

RoRWA RoA Weighted Avg.(RORWA/RoA)FY 10 FY 11 FY 10 FY 11

SIB 2.30% 2.10% 1.00% 1.00% 2.23

CBK 2.50% 1.80% 1.30% 1.00% 1.83

CRPBK 2.10% 1.50% 1.10% 0.90% 1.82

KVB 2.90% 2.90% 1.70% 1.60% 1.76

BOB 2.30% 1.90% 1.30% 1.10% 1.71

IOB 1.20% 1.00% 0.70% 0.60% 1.70

BOI 1.40% 1.20% 0.80% 0.70% 1.70

CUBK 3.00% 2.80% 1.70% 1.70% 1.70

UNBK 1.60% 1.40% 1.00% 0.90% 1.64

INBK 2.40% 2.30% 1.50% 1.40% 1.59

PNB 2.00% 1.70% 1.30% 1.10% 1.54

VYSB 1.40% 1.30% 0.90% 0.90% 1.53

IIB 2.20% 2.00% 1.40% 1.40% 1.51

SBIN 1.10% 1.20% 0.70% 0.80% 1.50FB 1.90% 1.60% 1.20% 1.10% 1.50

HDFCB 2.30% 2.40% 1.60% 1.70% 1.43

KMB 2.70% 2.50% 1.90% 1.80% 1.42

YES 2.10% 1.80% 1.50% 1.30% 1.37

AXSB 2.00% 1.80% 1.60% 1.40% 1.25

ICICIBC 1.60% 1.60% 1.30% 1.30% 1.19


23/45

#4: Capital Efficiency (1/4)

SBI and ICICI Bank have seen highest drop in proportion of RWAs to

total assets over FY09-FY11

Indian Bank and Union Bank have the highest avg RoE over 5 years

due to high leverage; Federal Bank and ICICI Bank have the lowest

ICICI and Kotak have lowest leverage due to high tier I capital; BOI

and IOB have high leverage; CUB, Indian Bank and KVB have optimal

Kotak and HDFC have highest Core RoE assuming uniform leverage

of 12; Had leverage been optimal they would have highest Core RoE


24/45

#4: Capital Efficiency (2/4):

BanksUnamortised Pension

(Rs.Bn)Number of Employees

Pension cost per

employeeNetworth (Rs. Bn)

Liability as a portion of

Networth

AXSB - 26,000 - 160.4 0.00%

CUBK

-

2,836

-

8.3

0.00%

HDFCB - 55,752 - 215.2 0.00%

ICICIBC - 56,969 - 516.2 0.00%

IIB - 7,008 - 21.7 0.00%

KMB - 11,000 - 45.4 0.00%

SBIN - 2,22,933 - 659.5 0.00%

YES - 3,929 - 30.9 0.00%

FB 1.3 8,273 152.7 46.8 2.70%

VYSB 0.7 7,000 99.6 22.2 3.10%

KVB 0.6 4,574 138.5 16.2 3.90%

CRPBK 4.1 13,861 299 57.7 7.20%

SIB 1.2 6,340 185.2 14.7 8.00%

BOB 13.7 39,385 348.5 137.9 10.00%

INBK 7.3 19,232 381.9 66.5 11.10%

IOB 7.5 25,626 294.2 63.5 11.90%

CBK 19 43,397 437.8 125.8 15.10%

BOI 19.8 44,434 445.8 124.6 15.90%

UNBK 15.1 29,462 513 87.6 17.30%

PNB 31.2 57,020 546.5 162.3 19.20%

Canara, BOI, Union and PNB have high unamortized pension liability as a proportion

of networth; Most of the new gen private banks do not have pension liabilities


25/45

Banks EPS FY08 EPS FY12 Difference Accrual to NetworthReturn on Retained

Earnings

Share premium to

networth

IIB 2.1 12.4 10.3 23.4 44.00% 56.30%

YES 3.4 20.9 17.6 51.4 34.20% 44.10%

BOB 28.1 108 79.9 265.4 30.10% 23.80%

AXSB 23.5 82.5 59 202.1 29.20% 52.70%

CBK 34.7 90.9 56.2 243.9 23.00% 1.50%

PNB 48.8 139.9 91.1 398.5 22.90% 10.10%

KVB 18.4 41 22.7 101.9 22.20% 25.00%

HDFCB 7.1 16.9 9.7 45.6 21.30% 41.50%

VYSB 9.8 26.3 16.6 80.4 20.60% 47.10%

INBK 17.7 39.9 22.2 120.2 18.50% 8.40%

UNBK 16.7 39.6 22.9 133.1 17.20% 4.80%

CUBK 2.8 5.5 2.7 15.9 16.80% 19.30%

KMB 4.3 11.1 6.8 44.5 15.20% 55.90%

CRPBK 37.4 75.4 38 263.8 14.40% 9.80%

SIB

1.5

2.6

1.1

8.3

13.30%

30.20%

BOI 23 38.5 15.5 167.5 9.20% 11.90%

ICICIBC 34.6 44.7 10.1 127.9 7.90% 59.20%

SBIN 86.3 100.2 13.9 486.6 2.90% 31.80%

FB 34.2 34.3 0.1 120 0.10% 48.50%

IOB 18.5 12.3 -6.2 76.8 -8.00% 1.70%

#4: Capital Efficiency (3/4): IndusInd and Yes Banks return on retained earnings (increase in EPS due toaccrued profits) are the highest among the 20 banks


26/45

Banks Tier 1% Tier 1%, excluding Hybrid Tier 2% Tier 2, Leg room

KMB 18.00% 18.00% 1.90% 16.10%

FB 15.60% 15.60% 1.20% 14.50%

ICICIBC 13.20% 12.40% 6.40% 6.80%

KVB 13.10% 13.10% 1.30% 11.70%

IIB 12.30% 12.30% 3.60% 8.70%

HDFCB 12.20% 12.10% 4.00% 8.20%

CUBK 11.80% 11.80% 0.90% 10.90%

SIB 11.30% 11.30% 2.70% 8.50%

INBK 11.00% 10.50% 2.50% 8.50%

CBK 10.90% 10.00% 4.50% 6.40%

BOB 10.00% 9.10% 4.50% 5.50%

YES 10.00% 8.60% 6.80% 3.20%

AXSB 9.40% 9.20% 3.20% 6.20%

VYSB 9.40% 8.90% 3.60% 5.80%

CRPBK 8.70% 7.90% 5.40% 3.30%

UNBK 8.70% 7.90% 4.30% 4.40%

PNB 8.40% 7.60% 4.00% 4.50%

BOI 8.30% 7.30% 3.80% 4.50%

IOB 8.20% 7.40% 6.40% 1.80%

SBIN 7.80% 7.20% 4.20% 3.60%

#4: Capital Efficiency (4/4): PSU Banks tier I excluding hybrid instruments drops below comfort level of8% necessitating a capital raise as Basel III norms kick in


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Net Int Income, Rs bn Operating Profits, Rs bn PAT, Rs bn Gross NPA FY 11-13 CAGR NIM

FY11A FY12A FY13A FY11A FY12A FY13A FY11A FY12A FY13A FY11A FY12A FY13A NII PAT ABV FY11A FY12A FY13A

AXSB 66 72 92 64 68 85 34 39 46 1% 1% 1% 18% 16% 16% 3% 3% 3%

BOB 88 100 123 70 81 97 42 45 55 1% 1% 1% 18% 13% 19% 3% 3% 3%

BOI 78 79 100 54 60 76 25 27 36 2% 3% 2% 13% 21% 15% 3% 2% 3%

CBK 78 80 102 61 59 77 40 36 45 2% 2% 2% 14% 5% 17% 3% 2% 3%

CRPBK 30 32 42 27 26 35 14 14 17 1% 1% 1% 17% 11% 16% 3% 2% 2%

CUBK 4 5 6 4 5 6 2 3 3 1% 1% 1% 23% 20% 23% 4% 3% 3%

FB 18 19 21 14 14 16 6 6 8 4% 4% 3% 10% 14% 9% 4% 4% 4%

HDFCB 106 117 141 77 84 101 39 48 57 1% 1% 1% 16% 20% 15% 5% 5% 4%

ICICIBC 90 102 121 91 97 116 52 58 69 5% 4% 3% 16% 16% 8% 3% 3% 3%

INBK 41 45 51 33 35 40 17 19 22 1% 1% 1% 12% 12% 18% 4% 4% 4%

IOB 42 49 55 29 33 38 11 11 12 3% 2% 2% 15% 6% 12% 3% 3% 3%

IIB 14 17 20 11 13 16 6 7 8 1% 1% 1% 21% 21% 14% 4% 4% 4%

VYSB 10 11 14 6 6 8 3 4 4 2% 2% 2% 17% 16% 17% 3% 3% 3%

KVB 8 9 11 6 7 9 4 5 6 1% 1% 1% 20% 16% 22% 3% 3% 3%

KMB 23 23 28 13 16 19 8 10 12 2% 2% 2% 13% 22% 17% 6% 5% 5%

PNB 118 130 153 91 98 116 44 46 55 2% 2% 2% 14% 11% 21% 4% 4% 4%

SIB 8 9 12 5 6 8 3 4 4 1% 1% 1% 21% 19% 18% 3% 3% 3%

SBIN 325 410 486 253 308 362 83 110 151 3% 3% 3% 22% 35% 16% 3% 3% 3%

UNBK 62 68 83 43 51 63 21 22 26 2% 2% 2% 16% 11% 16% 3% 3% 3%

YES 13 15 20 12 14 17 7 9 10 0% 0% 0% 25% 20% 20% 3% 3% 3%

#5: Valuation Matrix (1/2)


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#5: Valuation Matrix (2/2)

RoE RoA ABV/share Rs. P/ABV

FY11A FY12A FY13A FY11A FY12A FY13A FY11A FY12A FY13A FY11A FY12A FY13A

AXSB 19.30% 18.80% 18.90% 1.60% 1.50% 1.40% 453 525 614 2 1.7 1,030

BOB 25.30% 20.70% 21.10% 1.30% 1.10% 1.10% 483 568 685 1.3 1.1 741

BOI 17.80% 16.30% 18.70% 0.80% 0.70% 0.80% 248 270 327 1.2 1 313

CBK 26.40% 18.30% 19.50% 1.30% 1.00% 1.00% 352 405 481 1 0.9 423

CRPBK 21.90% 18.60% 19.60% 1.10% 0.90% 0.90% 455 523 613 0.8 0.7 405

CUBK 24.40% 23.70% 21.70% 1.70% 1.60% 1.50% 24 29 36 1.5 1.2 43

FB 12.00% 12.00% 12.20% 1.20% 1.10% 1.20% 287 309 342 1.1 1 352

HDFCB 16.70% 17.30% 18.00% 1.60% 1.60% 1.50% 108 124 144 3.6 3.1 450

ICICIBC 9.70% 10.20% 11.40% 1.30% 1.30% 1.40% 457 490 529 2 1.9 824

INBK 22.90% 12.00% 12.20% 1.50% 1.40% 1.40% 184 216 257 0.9 0.8 196

IOB 14.80% 13.20% 12.90% 0.70% 0.60% 0.50% 111 125 138 0.7 0.7 92

IIB 19.30% 17.10% 18.00% 1.40% 1.40% 1.30% 81 92 105 2.6 2.3 243

VYSB 13.40% 11.80% 10.80% 0.90% 0.90% 0.80% 200 250 275 1.2 1 288

KVB 22.10% 19.70% 18.90% 1.70% 1.50% 1.40% 199 256 298 1.4 1.2 363

KMB 14.40% 13.90% 14.60% 1.90% 1.80% 1.80% 110 128 149 4.2 3.7 447

PNB 24.50% 20.90% 21.10% 1.30% 1.10% 1.10% 567 680 823 1.4 1.1 925

SIB 18.50% 18.90% 19.40% 1.00% 0.90% 0.90% 14 17 20 1.3 1.1 22

SBIN 12.60% 15.90% 18.90% 0.70% 0.80% 0.90% 829 946 1,120 1.7 1.4 1,752

UNBK 20.90% 18.40% 18.40% 1.00% 0.90% 0.80% 178 204 241 1.1 1 230

YES 21.10% 20.60% 20.80% 1.50% 1.30% 1.30% 109 131 156 2 1.7 263


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#6: Evaluation Matrix:

Criteria Asset QualityMarket Share &

QualityProfitability Capital Valuation Overall Score

AXSB 13 19 17 13 14 14

BOB

12

16

17

9

4

11

BOI 2 6 3 3 10 1

CBK 4 8 1 10 17 5

CRPBK 7 10 1 2 18 7

CUBK 9 12 15 16 8 12

FB 11 1 4 12 16 9

HDFCB 19 18 20 18 2 19

ICICIBC 15 2 7 14 5 13

IIB 20 17 14 16 9 20

INBK 10 3 13 15 20 10

IOB 5 4 5 1 19 3

KMB 14 14 9 19 6 15

KVB 18 13 12 20 11 18

PNB

3

10

11

7

1

4

SBIN 1 15 19 4 3 2

SIB 17 9 6 8 14 17

UNBK 6 7 15 5 12 6

VYSB 8 5 10 6 13 8

YES 16 20 8 10 7 16

The following table summarizes the overall business analysis and ranking

(higher the score, better the rank)


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Recent Trends andDevelopments


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h f d k


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Growth Drivers of Indian Banking Sector

Source: Indian Bank's Association statistics

Economic and demographic drivers

Favorable demographics and rising income levels

Strong GDP growth (CAGR of 7.0 per cent

expected over 201217) to facilitate banking

sector expansion

The sector will benefit from structural economic

stability & continued credibility of Monetary

Policy

Policy Support

Extension of interest subsidy to low cost home

buyers

Simplification of KYC norms, introduction of no-

frills accounts and Kisan Credit Cards to increase

rural banking penetration

RBI is considering giving more licenses to private

sector players to increase banking penetration

Infrastructure financing

India currently spends 6 per cent of GDP on

infrastructure; Planning Commission expects this

fraction to grow going ahead Banking sector is expected to finance part of the

USD1 trillion infrastructure investments in the

12th Five Year Plan, opening a huge opportunity

for the sector

Technological innovation

Technological innovation will not only help to

improve products and services but also to reachout to the masses in cost effective way

Use of alternate channels like ATM, internet and

mobile hold significant potential in India

N bl d i ki I d (1/3)


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Improved risk

management practices

Notable Trends in Banking Industry (1/3)

Diversification of revenuestream

Technological

innovations

Indian banks are increasingly focusing on adopting integrated approach to

risk management

Banks have already embraced the international banking supervision accord of

Basel II; interestingly, according to RBI, majority of the banks already meetcapital requirements of Basel III

Most of the banks have put in place the framework for asset-liability match,

credit and derivatives risk management

Banks are laying emphasis on diversifying the source of revenue stream to

protect themselves from interest rate cycle and its impact on interest income Focusing on increasing fee and fund based income by launching plethora of

new asset management, wealth management and treasury products

Indian banks, including public sector banks are aggressively improving their

technology infrastructure to enhance customer experience and gaincompetitive advantage

Internet and mobile banking is gaining rapid foothold

Customer Relationship Management (CRM) and data warehousing will drive

the next wave of technology in banks

N bl T d i B ki I d (2/3)


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Focus on financial

inclusion


Derivatives and riskmanagement products

Consolidation

RBI has emphasized the need to focus on spreading the reach of banking

services to the un-banked population of India

Indian banks are expanding their branch network in the rural areas to capture

the new business opportunity

The increasingly dynamic business scenario and financial sophistication has

increased the need for customized exotic financial products Banks are developing Innovative financial products and advanced risk

management methods to capture the market share

With entry of foreign banks competition in the Indian banking sector hasintensified

Banks are increasingly looking at consolidation to derive greater benefits

such as enhanced synergy, cost take-outs from economies of scale,

organizational efficiency, and diversification of risks

N t bl T d i B ki I d t (3/3)


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Increasing focus on

Woman Banking


Wide usability of RTGS

and NEFT

Know Your Client

Total lending by public sector banks to self-employed women touched USD43

billion in FY12 from USD31 billion in FY10

In July 2012, RBI extended lending to individual women up to USD965 under

the weaker section

Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer

(NEFT) are being implemented by Indian banks for fund transaction

Securities Exchange Board of India (SEBI) has included NEFT and RTGS

payment system to the existing list of methods that a company can use for

payment of dividend or other cash benefits to their shareholders & investors

RBI mandated the Know Your Customer (KYC) Standards, wherein all banks

are required to put in place a comprehensive policy framework in order to

avoid money laundering activities

The KYC policy is now mandatory for opening an account or any making any

investment such as mutual funds

Source: Indian Bank's Association, Indian Banking Sector 2020, Business India Aranca Research


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Company Overview

BSE BANKEX


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BSE BANKEX


About BSE BANKEX

Base Period: 01 January, 2002

Base Index Value: 1000

Date of Launch: 23 June, 2003

Method of Calculation: Free-float

market capitalization

B ki S t Vi St k (1/6)


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Company Analysis Outcome View

Axis Bank Rank : 6

Aggressive loan growth culture in SME/Agri segments

High infrastructure sector exposure and asset quality risks with >100% riskweighted assets growing faster than loan book

High Pace of capital consumption

Yet better than most of PSU banks in terms of asset quality and cheap

valuations are the reasons for our positive stance

Bank of Baroda Rank : 10

BOB has seen sustained loan growth for long period and moved from being

fifth to third largest PSU Bank and is expected to become second largest by

FY13E;

One of the best on asset quality among PSU Banks with low slippages, lowNPAs and low restructured assets

Good risk adjusted marginsThough BOBs NIMs are not the highest among

PSU Banks the right mix of risky and non-risky assets keeps slippages low and

thus risk adjusted margins high for BOB

Good operational efficiencies demonstrated by low cost-core income ratio and

opex/assets

Bank of India Rank : 20

BOI scores low on every growth metric. BOIs growth parameters have been

inconsistent and erratic with loan growth, profitability never together

BOIs NIMs are among the lowest in PSU Banks and good amount of NIM

compression expected in future

Due to growing slippages and dropping margins risk reward profile is becoming

unfavorable;

BOI has the least CASA among PSU Banks and inability to grow CASA faster is

expected to hurt NIMs

Banking Sector: View on Stocks (1/6)



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Canara Bank Rank : 16

Though NPAs have been low slippages have been one of the highest for Canara

Bank and going forward tough economic conditions can lead to lesser

recoveries hurting profitability

Higher wholesale funding and weak ALM mismatch bringing down pricing

power

Lower margins expected

Lower NIMs and higher slippages places it unfavorably with respect to risk-

reward profile

Absent fee income sources and inability to grow fee income

Corporation Bank Rank : 14

Low profitability due to dependency on bulk borrowing and bulk lending

Low CASA and lower Tier I affect NIMs unfavorably

Concerns on slippages due to system generation of NPAs though risk reward

profile has been favorable in the past due to low slippages

Conservative pension assumptions make us believe pension liabilities are not

underestimated

City Union Bank Rank : 9

Focused on lending to agriculture, trading, SME and mid-sized businesses

Good quality, low risk balance sheet

Measured and consistent growth with good profitability

Mainly focused on south India and expansion only in the region which is

overbanked could be a deterrent




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Federal Bank Rank : 12

Bank is in the process of restructuring the business strategy, businessprocesses, trying to lower the riskiness of balance sheet and slowly moving

towards centralized credit appraisal and shifting away from archaic practices

It is likely to grow par with industry average or slightly slower, due to the

ongoing restructuring exercise

Unfavorable risk-reward profile resulting in low risk adjusted yields and low risk

adjusted margins in spite of higher margins

At current cheap valuations all the negatives are priced in and we expect

positive movement from here

HDFC Bank Rank : 2

Consistent, measured and good growth over a lengthy period makes it one of

the most favored banks in the Indian banking space

Good Risk adjusted margins, scores the highest among private sector banks

Healthy risk profile of balance sheet leading to healthy pace of capital

consumption

Well managed ALM and good retail wholesale mix bringing best profitability

ICICI Bank Rank : 8

Undergoing a radical business restructuring to correct the mistakes made in

earlier high growth phase

Showing an all-round improvement and good earnings growth

Healthy pace of capital consumption as riskiness of the balance sheet is fairly

stable

Better prepared to handle the current rising interest rate environment with

better and improved ALM profile



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Kotak Mahindra Bank Rank : 7

We believe Kotak Mahindra Bank has transformed from being a capital markets

driven entity to a more lending activities driven entity

More retail focused with good risk adjusted yield and margins

We are uncomfortable with high CRE exposure and high proportion of >100%

risk weighted assets

With lots of positives we believe negatives can easily be mitigated and bank is

expected to achieve greater Strides

Karur Vysya Bank Rank : 3

Measured and consistent growth over past 5 years

Solid profitability from core business and low dependence on trading gainsmakes it one of the best in terms of Core RoE/RoA

Due to the calculated nature of doing business the risk profile of the bank is

very good and yields one of the highest risk adjusted margins

Low CASA levels, high on AFS book duration, high concentration in terms of

borrowers could hurt in the long run if not corrected

Punjab National Bank Rank : 17

Increasing exposures to risky sectors like Power, CRE and metals & mining is a

worry

Stressed assets are the highest in the industry

Margins likely to remain under pressure due to high deposit rates

Pension liabilities as a % of networth are the highest in the banking industry

High dependence on hybrid capital instruments could cause stress when Basel

III norms kick in




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South Indian Bank Rank : 4

Steady, consistent performer over past 3 years and trying to emerge as leader

among the smaller regional private banks

Has a strong ALM profile with low dependence on wholesale liabilities

Healthy asset quality with lowest risk weighted assets as a % of total assets

makes it the best in terms of RoRWA

Though employees are unionized similar to other regional banks, staff is

relatively young and well motivated

State Bank of India Rank : 19

High exposure to risky sectors; Stressed assets as % of networth one of the

highest in our banking coverage

Least Tier I necessitating a capital raise

Highest impact to our base case ABV on our stress test and is a concern Increasing margins under new management might not be able to counter the

underlying negatives

Union Bank of India Rank : 15

Deteriorating asset quality off late with high slippages

Concern on slippages continuing to FY12E and FY13E

Risk reward profile turning unfavorable - volatile NIMs and increasing slippages

Exposure in some of the risky sectors high and exposures growing at fast pace

Yes Bank Rank: 5

Heavily dependent on wholesale liabilities and growing faster than the industrytargeting only on corporate loans

Superior management quality and good understanding of the business and

experience makes them thrive in spite of a challenging business model

Scores high risk adjusted margins and returns due to low slippages

Growth and profitability going forward might get affected due to the absence

of retail on both liability and assets



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