Indian Banking Sector

Industry Update Prepared by: AUM Capital Market Private Ltd.

Feb 2011

AUM Capital Market Private Limited 2 Indian Banking Sector Indian banking system remains the most dominant segment of the financial sector. As compared to the global peers, Indian banks continue to be wellregulated and have emerged stronger over the period of time. Setting an example, State Bank of India (SBI) has become the first Indian bank to be ranked among the Top 50 banks in the world, capturing 36th rank. The brand value of SBI increased from USD1.5 bln in 2009 to USD4.6 bln in 2010. ICICI Bank also made it to the Top 100 list with a brand value of USD 2.2 bln. In regards to the ratios as well, the Indian banking Industry stands at par with the developed economies of the world and in line with the emerging ones. It enjoys an above average Return on Equity of 15.1% (China 18.4%), Weak nonperforming Loans as a ratio to loans of 9.7% (China 2.3%) and Strong Capital Adequacy ratio of 13.2% (China 11.4%). Table 1: Indian Banking Industry vis-a-vis Other Geographies Dec 2009 Particular ROE (%) NPL (%) CAR (%) US 0.9 5.4 14.3 UK 2.6 3.5 14.8 Japan 4.7 NA 15.8 France 8.2 3.6 12.4 Germany 6.6 3.3 14.8 Portugal 3.6 3.2 10.5 Italy 1.5 7.0 12.1 Greece 9.3 7.7 11.7 Spain 20.4 5.1 12.2 Brazil 4.9 9.0 18.8 Russia 12.3 4.2 20.9 India 15.1 9.7 13.2 China 18.4 2.3 11.4 Indonesia 16.1 3.3 17.6 Malaysia 10.8 3.7 15.4 Philippines 9.5 4.1 15.8 Thailand 12.8 5.3 15.8 Mexico 0.9 3.1 15.9 Source:RBI Amit Baheti Research Analyst amit.baheti@aumcap.com + 91 93316 98790 Ajay Binani Research Analyst ajay.binani@aumcap.com + 91 98312 52939 Industry Structure: Indian banking industry can be categorized into scheduled and non-scheduled banks. Scheduled banks are the banks covered under the Reserve Bank of India Act, 1934 and have a network of more than 65,000 branches. Scheduled banks can further be segregated into other banks with Public, Private and Foreign banks forming the major chunk of the industry. Public Sector Banks (PSBs) dominates the industry, accounting for ~75% of the total industry assets. Private Sector Banks and Foreign Banks contribute 18% and 7% respectively.

AUM Capital Market Private Limited 3 Indian Banking Sector Table 2: Total Banks in India Particular Total Public Sector Banks New Private Sector Banks Old Private Sector Banks Foreign Banks Regional Rural Banks Local Area Banks Co-operative Banks Source: Business Standard Table 3: Indian Banks Balance Sheet Snapshot (March 2010) 20 In Rs. Cr. Public Banks Private Banks Foreign Banks Capital 13,544 4,549 30,555 R&S 227,458 115,435 38,584 Deposits 3,691,802 822,801 237,853 Demand 368,528 134,589 67,902 Saving 887,267 186,220 36,427 Term 2,436,006 501,992 133,524 Borrowings 313,814 148,803 62,416 Investments 1,205,783 354,117 159,286 Advances 2,701,300 632,494 163,260 Source: RBI Figure 1: SCB Deposits & Advances SCB Deposits SCB Advances
18% 1% 18% 7%

CASA for SCBs stood ~35% in FY10 where as Advances to Deposits for the same stood at 74%

Number 2,292 27 7 15 31 85 4 2,123

SCBs 48,648 381,477 4,752,456 571,019 1,109,914 3,071,522 525,033 1,719,186 3,497,054

Public banks account for ~80% and ~75% of the total scheduled banks deposits and advances resp.

81%

75%

Public

Private

Foreign

Public

Private

Foreign

Source: RBI Foreign Direct Regulations Regulations: While foreign investment in the public sector banks is capped at 20%, the same is allowed up to 74% in the private sector. However, investment in private sector are subject to the following constraints: Limit of 10% for individual FII investment with the aggregate limit for all FIIs restricted to 24% - can be raised to 49% with the approval of the board or general body. Limit of 5% for individual NRI portfolio investment with the aggregate limit for all NRIs restricted to 10% - can be raised to 24% with the t approval of the board or general body. Banking Regulation Act, 1949, states that no person holding shares in private banks is entitled to exercise voting rights in excess of 10% of the total voting rights of all the shareholders of the bank.

FDI in Public sector and Private sector banking is capped at 20% and 74% resp.

AUM Capital Market Private Limited 4 Indian Banking Sector Current environment From Base rate to Benchmark Prime Lending Rate: The base rate is the lowest rate below which banks cannot offer loans. In order to bring in more transparency, the base rate was introduced as a replacement for the Benchmark Prime Lending Rate (BPLR) from July 1, 2010. Base Rates of scheduled commercial banks (SCBs) were fixed in the range of 5.50-9.00%. Subsequently, several banks reviewed and increased their Base Rates in the range of 1050 basis points by October 2010. Base Rates of major banks, accounting for over 94% in total bank credit, are in the range of 7.50-8.50%. Banks have also raised their BPLRs in the range of 25-75 basis points for their old loans. The Cabinet, on December 1, 2010 approved to provide an additional amount of USD1.33 bln, in addition to the USD3.32 bln already provided in the Budget 2010-11, to ensure Tier I CRAR (Capital to Risk Weighted Assets) of all Public Sector Banks (PSBs) at 7% and also to raise Government of India holding in all PSBs to 58%. The proposed capital infusion would enhance the lending capacity of the PSBs to meet the credit requirement of the economy in order to maintain and accelerate the economic growth momentum. The Cabinet, in Dec 2010 provided an additional amount of USD1.33 bln, in addition to the USD3.32 bln already provided in the Budget 2010-11, to ensure Tier I CRAR of all Public Sector Banks (PSBs) at 7% and also to raise Government of India holding in all PSBs to 58%. Figure 2: Banks Base Rate
10.00% 9.50% 9.50% 9.50% 9.00% 9.00% 9.00% 8.50% 8.50% 8.00% 7.50% 7.00% BOI PNB BOB Canara Fed AXIS ICICI Kotak SBI HDFC 8.25% 8.25% 8.25% 8.00% 7.75%

The Base Rate system replaced the Benchmark Prime Lending Rate (BPLR) system with effect from July 1, 2010.

Source: Company Report, As on Feb 02, 2011

AUM Capital Market Private Limited 5 Indian Banking Sector New Banking License: In a step towards strengthening and broadening of Indian Banking System, Finance Minister Pranab Mukherjee, in his Budget Speech for FY 2011, announced issuances of new banking licenses to private payers as well as NBFCs. India has 80 scheduled commercial banks (SCBs)27 public sector banks, 22 private banks and 31 foreign banks with a combined network of over 65,000 branches. With regard to the new licenses, RBI has recently published a paper on the discussion of the same. Areas of concern thrown up for discussion are - the minimum capital requirements, promoter contributions, caps on promoter shareholding, foreign equity participation, conversion of NBFC into Banks and finally the business model for new banks. Below are the details regarding the same: Minimum Capital Requirement: Financial stability is the core requirement from a bank and so the new banks may need to have a capital base of more than Rs 1,000 Cr. to meet the high investments in technology, operations and ensuring serines regarding the industry. On the other hand, NBFC/MFI sector may get a preferred lower start-up with capital of Rs 300 to Rs 500 Cr. RBI may also consider giving restricted (traditional) banking licenses to about 20 new banks with minimum capital of Rs. 50 Cr. and a capital to asset ratio of not less than 15%. Promoter Holdings: Promoters shareholding in the new banks may range from as low as 30% to complete shareholding of 100%. Also, in order to ensure long term interest and commitment from the promoters, the promoter may be required to retain 5%-26% of the stake over a period of 5-10 years even after dilution. Few other suggestions regarding promoters contribution includes relating promoter contribution to capital (higher the capital higher promoter contribution) or promoters contribution with restrictions on voting rights. Foreign shareholdings: As per the existing norms of foreign investments in the banking sector, investments up to an extent of 74% are allowed collectively from FDI and FII. RBI is considering whether to continue the same norms for the new banks. Permitting conversion of NBFC into banks or promoting new banks: There has been discussion on whether conversion from NBFC to Bank permission should be given to NBFCs or should they be asked to promote new banks. While few believe that NBFC should not be permitted due to difficulty in aligning its business model to banking or be asked to wind up the activities which banks can do, in a phased manner in order to eliminate the arbitrage opportunities due to the lighter regulations in the NBFC sector, other industry associations were generally in favor of conversion or promotion of new banks by NBFCs.

In a step towards strengthening and broadening of Indian Banking System, Finance Minister Pranab Mukherjee, in his Budget Speech for FY11, announced issuances of new banking licenses to private players and NBFCs.

Issues to discuss on new licences (RBI): Minimum Capital Requirement, Promoter Holding, Foreign Shareholding, Conversion of NBFC into banks, Industrial hand in banking industry, Business model.

AUM Capital Market Private Limited 6 Indian Banking Sector Industrial hand in banking industry: RBI has been cautious about entry of industrial houses into banking industry and is reluctant to issue unrestricted banking license to them. Supporting them are other banks of the country. With a significant capital base, financial license and industrial activity can lead to lot of connected lending. Self controlled banks may lead to concentration on motives of the respective industries and individual instead of required growth in the banking sector. Not only this, issue of licenses to established industry banking houses may lead to further wealth concentration in few hands (already an area of concern with the country). Allowing industrial houses to own banks will exacerbate the concentration of economic power and political influence. On the economic other hand, pros from inclusion of industrial houses may mean an experienced set of players, established scale of operations and large capital base.

RBI has been cautious about entry of industrial houses into banking industry and is reluctant to issue unrestricted banking license to them.

Positives

Negatives

Eashtablished set of Operations Experienced Players Significant Capital Base

Wealth creation in few hands Connecting Lending Unhappy Past

NBFCs like Indiabulls, Reliance Capital, Religare, IL&FS, IDFC, SREI Group and Aditya Birla Financial Services are likely to apply for bank licences after the RBI norms are in place.

Business Model: In regard to the business model, industry association are of the view to grant licenses to new players without any restriction to specific industries (be it real estate or telecommunication) or geography (Metros or Rural). Another interesting discussion was to issue license to banks only for trad traditional banking for the initial phase (say 3-5 years), and relaxing the norms 5 further based on the performance and scenario. Race participants: NBFCs like Indiabulls, Reliance Capital, Religare, IL&FS, IDFC, SREI Group and Aditya Birla Financial Services are likely to apply for bank licences after the RBI norms are in place. NBFCs that were earlier allowed to be converted into banks were Kotak Mahindra Finance and 20th Century Finance. Kotak has diversified into financial services, 20th Century became Cent Centurion Bank; it was taken over by PE investors and eventually merged with HDFC Bank. Impact on industry & common man: As in any other business, entry of new players shall lead to decreased cost of funds for consumers and diminishing margins for banks. In order to maintain the market share, companies have to increase the deposit rates or need to capture market with different marketing strategy such as giving more & better services then before. No comments can be made regarding the consolidation in the banking industry. banking industry

AUM Capital Market Private Limited 7 Indian Banking Sector Teaser Loans tweaks Teaser loans are the loans in which Interest rate is lower for the initial period and rises gradually after a stipulated period of time. Banks have recently used this technique to increase its home/auto loan credit portfolio. However, the move is restricted by RBI suspecting a risk in the increase in defaults by customer when exercised by the increase in interest rates at later part of the loan payment schedule. (Quite similar to the reasons behind recent Crisis in US). RBI has put the following limitations on the home loans and teaser rates borrowing: Loan-To-Value (LTV) Ratio Cap: LTV ratio is the ratio to which loans are allowed as a percentage of property value to the customers. Banks and housing finance companies are financing loans for more than 90% with minimum equity from the customers side. RBI has caped this rate at 80% for the buyers. Similarly, LTV for loans with a value less than Rs 20 lakhs has been capped at 90%. Impact on banks: While a feeling of losing the customer base may be in the air, but not much impact is expected as the equity portion will increase by 5-10% only. Impact on consumers: Property buyers need to pay more as down payment than before in case of buying their dream home. However, the idea may postpone, but not eliminate. Increase in risk weight: In addition to the above mentioned increase in LTV Ratio, risk weight for loans above Rs 75 lakhs has been increased by 25% to 125% (100% previously). Impact on banks: Banks will now have to increase their CAR in terms of value. Banks which were giving a weight of 100% to the loans above Rs 75 lakhs (say 1 Cr.), had to keep Rs. 9 lakhs as value in CAR in order to maintain the 9% CAR requirement by RBI. The same banks will have to keep Rs 11.25 lakhs as a result of increase in the risk weight to 125% by RBI. Impact on consumers: Consumers may have to shell more as margin money and also on the interest rate as increase in the risk weight may lead banks to charge higher interest rates than earlier. Teaser Loan Provisioning: Standard asset provisioning for teaser loans has been increased to 2% by the RBI.

Teaser loans are the loans in which Interest rate is lower for the initial period and rises gradually after a stipulated period of time.

Changes in the LoanTo-Value (LTV) Ratio Cap, Increase in risk Weight and Teaser Loan Provisioning by RBI

AUM Capital Market Private Limited 8 Indian Banking Sector Deregularation of Savings Account to be or not to be In another step towards the banking sector reforms in the country, RBI recently opened door for discussion on deregulation of interest rates on savings bank (SB) account. Interest rate on savings bank deposits has remained unchanged at 3.5% p.a since March 2003 and is as on date regulated by RBI. Once deregulated, the SB rates could fluctuate wildly, depending on the liquidity situation. If call money rates shoot up, SB rates would go up, and vice versa. The ostensible reason for RBI control was that that the SB deposit rate would be a signaling rate. Another reason was that the rate SB accounts account for one-fourth of total deposits and any increase in the deposit rate could adversely affect the bottom-line of banks. With the Consumer Price Index (CPI) showing a year-on-year increase of 13-14% and the Wholesale Price Index (WPI) an increase of more than 10%, a 3.5% interest rate on SB accounts seems to meagre. Few of the options in news for RBI to initiate a change in the SB accounts rate are: The present daily product basis for calculating the interest on savings bank accounts should be limited to Rs 2 lakh on any single day. In order to encourage movement to current account from savings account, the total debits and credits in SB account can be limited to 52 entries p.a and excess entries subject to heavy charges. Let 3.5% be the minimum rate rather then it being a fixed rate. Freedom with the banks to offer higher rates with tight and regular handling from RBI Impact on banks Current account and Savings account (CASA) form integral part of the banking industry. It represents the banks ability to generate funds at a lower costs (as very less interest is paid on savings account i.e. 3.5% and no interest on current accounts) resulting into higher interest margins. With degulation in almost all the interest rate instruments, banks may not be happy with the RBI move on Savings account interest deregulation. This may generate unhealthy competition in the industry resulting into lower margins and profitability. Bankers, especially from the public sector, are against deregulation of savings bank (SB) deposit rates. However, all banks will not be affected with this deregulation. Banks like Axis Bank and HDFC Bank which have higher current account deposits (Rs 37,227 Cr and Rs 32,168 Cr resp.), will not have an affect on their margins as such. Where as other banks such as Bank of India and Canara Bank which already have a lower current account deposits (Rs 18,386 Cr and Rs 15,887 Cr resp.) shall get maximum hit. Also, Foreign banks, due to limited branch network, rely heavily on the call money market to lend. Bankers say these banks could go overboard by quoting higher interest rates on SB deposits once the rate is deregulated. Impact on consumers While the chances of decrease in the interest rates in SB account exists, the probability seems low with the rising competition from private and especially foreign banks. This may lead to better then previous interest earnings to the consumers at the cost of instability and uncertainty over long term.

Interest rate on savings bank deposits has remained unchanged at 3.5% p.a since March 2003 and is as on date regulated by RBI.

Deregulation of Savings Account will not have significant impact on banks which have higher percentage allocation to Current account such as HDFC and Axis Bank

AUM Capital Market Private Limited 9 Indian Banking Sector

Banks (Rs. Cr.) SBI ICICI HDFC AXIS Fed PNB Canara Kotak % Data SBI ICICI HDFC AXIS Fed PNB Canara Kotak

Table 4: Comparison of Saving and Current account deposits of banks March 2010 Deposits Savings Current CASA
804,116 202,017 167,404 141,300 36,058 257,460 53,218 49,877 33,862 7,611 78,132 49,875 2,471 122,579 30,998 37,227 32,168 1,602 23,718 18,386 4,992 380,040 84,216 87,104 66,030 9,213 101,850 68,261 7,463

Term
424,076 117,801 80,301 75,271 26,616 147,479 166,390 16,423

249,329 234,651 23,886 Deposits

100% 100% 100% 100% 100%

Savings
32% 26% 30% 24% 21%

Current
15% 15% 22% 23% 4%

CASA
47% 42% 52% 47% 26%

Term
53% 58% 48% 53% 74%

100% 100% 100%

31% 21% 10%

10% 8% 21%

41% 29% 31%

59% 71% 69%

Source: Company Filings

AUM Capital Market Private Limited 10 Indian Banking Sector Increase in Fee-Based Income In order to maintain the profit margins at the time of intense competition and a slow growth market, banks have gone thinking out of the box and focused on other income considering fee income and cross-selling opportunities. Fee Based income of banks includes: Brokerage business Insurance sales Asset management services Trust services ATM use and electronic services Marketing products like mutual funds and insurance policies, offering credit cards to suit different categories of customers and services such as wealth management and equity trading, are proving to be more profitable for banks than plain vanilla lending and borrowing. As retail income continues to grow, there is immense opportunity for banks to raise fee-based income. Private banks are leading the race in the Fee Income. Axis bank and ICICI bank generates almost one fourth of their total income from fee business. Figure 3: Composition of Fee Income in Total Income March 2010
30% 25% 25% 20% 15% 23% 19% 17% 16% 14% 14% 13% 13% 13%

In order to maintain the profit margins at the time of intense competition and a slow growth market, banks are focusing more other income considering Feebased income

Axis bank and ICICI bank generates almost one fourth of their total income from fee business

10% 5% 0% AXIS ICICI HDFC SBI Kotak BOB PNB Canara BOI Fed

Source: Company Filings As lending and deposit-gathering have grown increasingly competitive, profit margins have narrowed. Banks like the reliable (and profitable) streams of fee income that nontraditional banking activities such as money management and insurance product sales generate. Going further, banks are set to see a rise in feebased income, as interest income continues to be under pressure and profits from trading keep declining.

AUM Capital Market Private Limited 11 Indian Banking Sector

RBI had raised the repo rate, reverse repo rate by 175 bps and 225 bps respectively in the past 11 months

RBI Monetary Policy In a move to control the unabated Inflation, RBI, though slowly but constantly has been trying to tighten its monetary policy through fluctuations in the lending and deposit rates i.e. repo and reverse repo rates and other regulatory requirements i.e. CRR and SLR. Repo rate is the rate at which RBI lends money to commercial banks and Reverse Repo is the rate at which RBI borrows money from them, while CRR is the minimum cash balance to be deposited by banks with RBI and SLR is the minimum required investment in the government securities by banks. In order to tame inflation, RBI had raised the repo rate, reverse repo rate by 175 bps and 225 bps respectively in the past 11 months. Nevertheless, unable to tame inflation, RBI in its Third Quarter Review of Monetary Policy 2011 increased the targeted inflation for FY 11 from 5.5% to 7.0%. RBI has maintained the real GDP growth rate forecast for FY 11 at 8.5%. Figure 4: Projection of GDP Growth for 2010-11

Figure 4: Projection Path of Y-o-Y Inflation

Loans seekers may have to pay higher EMIs and depositors can earn a better interest on their savings.

Source: RBI As a result of the above, loans seekers may have to pay higher EMIs and depositors can earn a better interest on their savings. The interest rates on home, auto and corporate loans have gone up by about 2 % during the course of the year. The increase in lending rate was matched by a similar increase in interest rate on fixed deposit. While interest rate on auto and home loans ranges between 8 to 11 %, the depositors can earn up to 8-9 %.

AUM Capital Market Private Limited 12 Indian Banking Sector Banks on the other hand were initially silent and reluctant to increase their deposit / interest rates with a fear of losing the market share, but had to surrender after further hardening of interest rates by RBI. Most of the banks including HDFC Bank, State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India, Oriental Bank of Commerce and Canara Bank raised their interest rates as well as lending rates accordingly. Upward movement in the interest rates still continues as many banks have further raised deposit and lending rates in late December as well. Interest rates are expected to harden further in the coming year as there seems to be mismatch between credit and deposit growth. Figure 6 : Repo and Reverse Repo Rate for period June 2008Dec 2010
10.00% 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00%

Most of the banks including HDFC Bank, State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India, Oriental Bank of Commerce and Canara Bank raised their interest rates recently.

Repo rate

Reverse Repo rate

Source: RBI

AUM Capital Market Private Limited 13 Indian Banking Sector Outlook: Strong loan growth expected to continue: Banking sector has witnessed a commendable loan growth (~20%) for the recent period. This momentum is expected to continue on the basis of increasing capital requirement from corporates both due to higher inflation and increasing economy environment leading to production demand. Stable economy, but rising inflation: While the economy has been growing notably, same is the prices for goods and commodities. Unable to peg the inflation, RBI in its third quarter review for monetary policy in Feb 2011, revised its WPI inflation targets for FY 2011 from 5.5% to 7.0%. Deposit growth The core area of concern: Interest rate, Inflation, RBI policies etc have always been an area of concern for banks. But this time the focus needs to be changed. While banks have been successful in maintaining the credit growth rate, where they need to look forward is the the widening gap between the loan and deposit rates. The FY11 9 month data for banks show that loan to deposit ratio for banks have been quite high recently. Adding to this is the tenure gap between the tenure of loans and deposits. While the maturity of deposits has come down substantially, tenure for lending needs financing for a longer term (say infrastructure projects). Depositors are parking money for a shorter tenure of less than two years while average maturity of infra and home loans is 5-10 years. Banks with higher CASA such as HDFC Bank and SBI bank, have a negative ranking here as CASA depositers are for a shorter period of time and money can be withdrawn anytime. Banks y-o-y loan growth was 24% in 2010 as against 20% projected by RBI for FY2011, while deposits lagged behind at 16.5% versus a projection of 18%. Q4 11 will be the period for banking to redress their balance sheets. Banks y-o-y loan growth was 24% in 2010 as against 20% projected by RBI for FY2011, while deposits lagged behind at 16.5% versus a projection of 18%. Banks may dress up books by attracting short-term bulk deposits matching the maintained loan growth rates, depositors can look forward for another good quarter with few basis points increase in the deposit rates.

RBI in its third quarter review for monetary policy in Feb 2011, revised its WPI inflation targets for FY 2011 from 5.5% to 7.0%.

AUM Capital Market Private Limited 14 Indian Banking Sector Comparison of Q3 2011 results with Q3 2010 results Table 5: 2011 Third Quarter Results State Bank of India Particular (Rs Cr.) Q3 2010 Borrowings NA Deposits 770,985 Investments NA Advances 607,154 Total Income 21,145 NII* 6,316 Net Profit 2,479 EPS (Rs) 39.05 Ratios (%) Net NPA 1.8% CAR 13.7% Bank of Baroda Particular (Rs Cr.) Q3 2010 Borrowings 12,296 Deposits 215,117 Investments 57,490 Advances 156,171 Total Income 4,836 NII* 1,601 Net Profit 832 EPS (Rs) 22.85 Ratios (%) Net NPA 0.3% CAR 14.6% HDFC Bank Particular (Rs Cr.) Q3 2010 Borrowings 14,008 Deposits 154,788 Investments 64,082 Advances 119,613 Total Income 4,933 NII* 2,223 Net Profit 818 EPS (Rs) 18.70 Ratios (%) Net NPA 0.5% CAR 18.3% *NII is Net Interest Income

Q3 2011 NA 878,979 NA 739,971 24,726 9,050 2,828 44.54 1.6% 13.1% Q3 2011 18,815 281,511 71,837 207,208 6,342 2,292 1,068 29.34

Particular (Rs Cr.) Borrowings Deposits Investments Advances Total Income NII* Net Profit EPS (Rs) Ratios (%) Net NPA CAR

ICICI Bank Q3 2010 91,829 197,653 123,409 179,269 3,731 2,058 1,101 9.84 2.1% 19.4% Bank of India Q3 2010 NA 206,001 645,214 156,953 5,057 1,494 405 7.72 1.0% 13.6% Axis Bank Q3 2010 16,010 113,853 49,273 84,769 3,871 1,349 656 16.29 0.4% 16.8%

Q3 2011 105,327 217,747 133,703 206,692 4,061 2,312 1,437 12.48 1.1% 19.9% Q3 2011 NA 252,525 672,539 192,753 6,115 1,986 653 12.44 0.8% 12.4% Q3 2011 25,595 155,811 596,22 123,547 4,986 1,733 891 21.77 0.2% 12.4%

Particular (Rs Cr.) Borrowings Deposits Investments Advances Total Income NII* Net Profit EPS (Rs) Ratios (%) 0.3% Net NPA 12.4% CAR Particular (Rs Cr.) Borrowings Deposits Investments Advances Total Income NII* Net Profit EPS (Rs) Ratios (%) 0.2% Net NPA 16.3% CAR

Q3 2011 13,435 192,201 63,013 159,183 6,357 2,776 1,087 23.50

AUM Capital Market Private Limited 15 Indian Banking Sector

Table 6: 2011 Third Quarter Results Federal Bank Particular (Rs Cr.) Q3 2010 Borrowings 584 Deposits 34,587 Investments 12,521 Advances 26,029 Total Income 1,061 NII* 381 Net Profit 110 EPS (Rs) 25.78 Ratios (%) Net NPA 0.5% CAR 18.5% Canara Bank Particular (Rs Cr.) Q3 2010 Borrowings 8,818 Deposits 210,093 Investments 70,281 Advances 147,411 Total Income 5,469 NII* 1,477 Net Profit 1,052 EPS (Rs) 25.67 Ratios (%) Net NPA 1.3% CAR 14.4% * NII is Net Interest income Source: Company Filings

Q3 2011 2,166 36,913 13,146 28,240 1,143 447 143 33.47 0.8% 16.4% Q3 2011 12,079 263,496 79,268 189,881 6,444 2,119 1,105 26.97 1.0% 13.0%

Punjab National Bank Particular (Rs Cr.) Q3 2010 Borrowings NA Deposits 233,946 Investments 739,98 Advances 170,427 Total Income 6,236 NII* 2,212 Net Profit 1,011 EPS (Rs) 32.07 Ratios (%) Net NPA 0.4% CAR 14.5% Kotak bank Particular (Rs Cr.) Q3 2010 Borrowings 8,004 Deposits 22,200 Investments 12,707 Advances 21,400 Total Income 968 NII* 486 Net Profit 142 EPS (Rs) 2.05 Ratios (%) Net NPA 2.1% CAR 17.0%

Q3 2011 NA 288,873 883,78 186,601 7,976 3,203 1,089 34.56 0.7% 11.9% Q3 2011 9,703 28,300 14,286 28,900 1,300 571 187 2.56 0.8% 18.6%

Figure 7: Peer Group Valuation Price/Book Value Comparison

5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

3.7x 2.7x 2.5x

2.3x

2.2x

2.2x 1.7x 1.6x 1.6x 1.2x

HDFC

AXIS

Kotak

SBI

ICICI

BOB

PNB

BOI

Canara

Fed

Source: Prices as on Feb 05, 2011 from NSE Book Value as on Feb 05, 2011 from Company Filings and BSE, on a standalone basis

AUM Capital Market Private Limited 16 Indian Banking Sector Figure 8: Annual Resutls Comparison March 2010 CASA Ratio (%) Net Interest Margin (%)
60 50 40 30 20 HDFC AXIS SBI ICICI PNB BOB BOI CAN FED 52.0 46.7 46.6 41.7 40.8 35.6 31.7 29.8 26.0 8 6 4 2 0 HDFC PNB FED AXIS CAN BOB SBI ICICI BOI 4.3 3.9 3.8 3.7

2.8

2.7

2.6

2.5

2.5

Capital Adequecy Ratio (%)

20 18 16 14 12 10 19.4 17.4 17.2 15.8 14.1 13.4 13.3 12.9 12.9 100 90 80 70 60 50 86.8

Provision Coverage (%)

78.4 77.7 74.9 72.3 65.5 59.5 59.2 58.3

ICICI HDFC FED AXIS PNB CAN SBI BOB BOI

PNB HDFC CAN BOB AXIS BOI ICICI SBI KOT

Operating Cost to Income Ratio (%)

70 52.5 50 30 10 SBI HDFC BOI BOB AXIS CAN PNB ICICI FED 47.3 43.8 43.5 41.4 40.7 39.3 37.0 34.8 30 25 20 15 10 5 24.5 22.1

Return on Equity (%)

19.8 18.2 16.8

14.8 13.4

10.3

7.9

PNB BOB AXIS KOT HDFC SBI CAN FED ICICI

Non-Performing Assets* (%)

3.0 2.10 2.0 1.0 0.0 ICICI SBI BOI CAN PNB FED HDFC AXIS BOB 1.70 1.30 1.00 0.50 0.40 0.30 0.30 0.30 2.0 1.5 1.0 0.5 0.0

Retun on Assets (%)

1.60 1.50 1.40 1.30 1.20 1.10 1.10 0.80 0.70

AXIS HDFC PNB CAN BOB FED ICICI SBI

BOI

Operating Cost to Income (%)

55 50 45 40 35 30 52.5 47.3 43.8 43.5 41.4 40.7 39.3 10 37.0 34.8 8 6 SBI HDFC BOI BOB AXIS CAN PNB ICICI FED FED SBI 12 10.2 9.6

Yield on Advances (%)

8.7

8.5

8.4

7.9

7.8

7.5

AXIS BOB

BOI

ICICI PNB CAN

Source: Company Filings

AUM Capital Market Private Limited 17 Indian Banking Sector

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