Sector Update

September 26, 2016

Banking

Sector View
Underperform

Near term headwinds to stay; remain selective

Despite some moderation in slippages, concerns on the banking sector
with respect to asset quality, credit growth and margins have not abated.
Led by continued slippages owing to seasonal slippage from retail
exposure along with delinquencies from watch list accounts, absolute
GNPA increased to | 623373 crore, up 96% YoY and 8.4% QoQ.
Accordingly, the GNPA ratio rose ~80 bps QoQ at ~8.5%. A large part of
slippages in the quarter happened from already impaired assets standard restructured assets, which led to a decline in outstanding
restructured assets. Slippages from already disclosed watch list of
stressed assets contributed to overall pains.
The RBI has proposed draft guidelines to curb/restrict exposure of
individual banks to single borrower in order to prevent concentration of
exposure to a single counterparty or a group of connected borrowers. As
a measure to reduce dependence of large borrower on banks for funding
their capital requirement and develop other capital raising avenues
including the bond market, the RBI has framed guidelines imposing
restriction on banking system exposure to large borrowers.
Given dull corporate capex and reluctance of banks to lend to risky
businesses, credit growth is expected to stay subdued at ~10-12% in
FY17E.
Exhibit 1: Private banks with substantial exposure trade at premium led by prudent asset quality
Sector / Company
Bank of Baroda (BANBAR)
Punjab National Bank (PUNBAN)
State Bank of India (STABAN)
Indian Bank (INDIBA)
Axis Bank (AXIBAN)
City Union Bank (CITUNI)
DCB Bank (DCB)
Federal Bank (FEDBAN)
HDFC Bank (HDFBAN)
IndusInd Bank (INDBA)
Jammu & Kashmir Bk(JAMKAS)
Kotak Mahindra Bank (KOTMAH)
Yes Bank (YESBAN)

CMP
(|)
167
138
254
217
593
129
123
72
1,288
1,184
83
793
1,207

TP(|)
152
112
240
190
510
140
98
62
1,375
1,250
68
750
1,150

Rating
Hold
Hold
Hold
Hold
Hold
Buy
Hold
Hold
Buy
Buy
Hold
Hold
Hold

M Cap
EPS (|)
P/E (x)
P/ABV (x)
RoA (%)
RoE (%)
(| Cr) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E
38,489
-23
7
20 -7.1 24.0
8.5
2.0
1.9
1.4 -0.8 0.2 0.6
-13
4
11
27,000
-20
15
22 -6.8
9.3
6.3
7.5
2.5
1.3 -0.6 0.4 0.6
-10
7
10
189,966
13
18
24 19.9 14.2 10.7
2.2
2.0
1.6 0.5 0.6 0.7
7
9
11
10,398
15
22
28 14.6
9.9
7.6
1.0
1.0
0.9 0.4 0.5 0.6
5
6
8
140,810
35
35
42 17.2 17.1 14.3
2.8
2.6
2.2 1.7 1.5 1.5
17
14
15
7,797
7
8
10 17.5 15.4 12.9
2.8
2.5
2.1 1.5 1.5 1.6
16
16
16
3,183
7
7
9 18.0 17.5 13.7
2.1
1.9
1.8 1.1 1.0 1.0
12
11
13
12,365
3
4
5 26.0 18.0 13.4
1.7
1.7
1.5 0.5 0.7 0.8
6
8
10
322,113
49
59
72 26.5 22.0 18.0
4.6
3.9
3.5 1.9 1.9 1.9
18
19
20
70,466
38
49
61 30.8 23.9 19.4
4.0
3.5
3.1 1.9 2.0 2.0
16
15
17
4,033
9
13
19
9.7
6.5
4.3
1.0
1.0
0.9 0.5 0.7 1.0
7
9
13
145,029
11
16
19 69.6 50.4 41.5
6.4
5.7
5.0 1.1 1.4 1.4
9
11
12
50,675
48
60
65 25.1 20.0 18.6
3.7
2.5
2.2 1.6 1.7 1.7
21
20
17

Source: Company, ICICIdirect.com Research

Research Analyst
Kajal Gandhi
kajal.gandhi@icicisecurities.com
Vishal Narnolia
vishal.narnolia@icicisecurities.com
Vasant Lohiya
vasant.lohiya@icicisecurities.com

ICICI Securities Ltd | Retail Equity Research

With regard to the asset quality, going ahead, credit cost is seen
remaining elevated in the near term owing to anticipated slippages from
the watchlist coupled with ageing of existing stressed assets and MTM hit
on SDR. Consequently, we expect the underperformance in the banking
sector to continue in the near term. We continue to advocate selective
stock picking. We suggest sticking with retail centric banks with prudent
asset quality like HDFC Bank and IndusInd Bank. One can also consider
State Bank of India, Axis Bank among large caps and City Union Bank in
the small cap space with a horizon of at least a year or two.
Recently, PSB stocks have seen a run up. However, earnings need to
follow to sustain current price levels. Therefore, we do not advocate
midcap PSU banks at current levels. In case of private banks, their retail
segment is performing well, helping them sail through the current
environment profitably. Hence, as and when an economic revival
happens, private banks can still outperform with stronger returns.

Slippages accretion continues; though pace has moderated

Banking system NPA woes continued in Q1FY17, led by continued
slippages owing to seasonal slippage from retail exposure along with
delinquencies from watch list accounts. However, the pace of accretion
has moderated compared to H2FY16 due to RBIs asset quality review
(AQR). Absolute GNPA increased to | 623373 crore, up 96% YoY and
8.4% QoQ. Accordingly, GNPA ratio rose ~80 bps QoQ at ~8.5%. NNPA
also increased 107% YoY and 10.4% QoQ to | 365812 crore. PSU banks
continued to be worse off on the asset quality front with 99.7% YoY
increase in GNPA to | 565042 crore. On the other hand, though private
banks fared well compared to PSBs, they were unable to escape the
consequence with reported GNPA increasing 67.6% YoY to | 58331 crore.
A large part of slippages in the quarter happened from already impaired
assets - standard restructured assets, which led to a decline in
outstanding restructured assets. Thus, total stressed assets of the system
as on June 2016 remained stable at ~12% of loans. Apart from this,
stressed assets under newly formed categories of 5:25 scheme &
strategic debt restructuring (SDR) continued to add to asset quality woes
of banks.
Exhibit 2: Asset quality of Indian banking industry
Fiscals
Mar-13
Sep-13

GNPA (%)
3.4
4.2

Mar-14
Sep-14

4.1
4.5

Mar-15
Sep-15
Mar-16
Jun-16

NNPA (%) RA (%)

2.3

5.8
6.0

Stressed assets (%)

9.2
10.2

2.2
2.5

5.9
6.2

10.0
10.7

4.6
5.1

2.5
2.8

6.5
6.2

11.1
11.3

7.6
8.5

4.6
5.0

3.9
3.5

11.5
12.0

Source: Company, ICICIdirect.com Research

Among peers, corporate banks faced the brunt with PSBs getting
impacted the most. Consequently, most PSU banks, except SBI, continue
to report higher NPA stress. Within private banks, corporate focused
banks like Axis Bank reported weak asset quality trends owing to
slippages from the watch list exposure. However, private banks including
HDFC Bank and IndusInd Bank, with substantial retail exposure, remained
better off with better performance in terms of asset quality.
Exhibit 3: Stressed assets of banks (Q1FY17)
Banks

NNPA (|
crore)

NNPA (%)

Standard RA Standard RA
(| crore) (%)

Loans
refinanced
under 5:25

5:25 as % of
1Q17 loans

O/s loans SDR as % of

revoked 1Q17 loans
under SDR

Net
Stressed
Assets

Stress book
as % of
1Q17 loans

Public Banks
BoB

20,784

5.7%

14,164

3.9%

2,600

0.7%

565

0.2%

38,113

10.5%

PNB
SBI

35,729
57,421

9.2%
4.1%

18,909
36,551

4.8%
2.6%

6,377
2,361

1.6%
0.2%

2,352
7,398

0.6%
0.5%

63,366
103,731

16.2%
7.3%

Axis Bank
Kotak Bank

40,102
1,565

1.1%
1.1%

73,630
160

2.1%
0.1%

35,000
-

1.0%
0.0%

8,500
-

0.3%
0.0%

155,532
1,725

4.5%
1.2%

J&K Bank
Yes Bank

30,235
302

6.2%
0.3%

32,474
523

6.7%
0.5%

11,176
-

2.3%
0.0%

9,657
32

2.0%
0.0%

83,542
857

17.1%
0.8%

Private Banks

Source: Company, ICICIdirect.com Research

With the objective of early and conservative recognition of stress, banks

have disclosed a watch list of stressed loans assets showing signs of
stress, out of which a substantial proportion was anticipated to turn into
NPA. With regard to asset quality ahead, credit cost is seen remaining
elevated owing to anticipated slippages from the watch list coupled with

ICICI Securities Ltd | Retail Equity Research

Page 2

ageing of existing stressed assets and MTM hit on SDR. However, some
moderation in slippages compared to the surge seen in H2FY16 cannot
be ruled out. Within segments, the retail segment continues to remain the
safest bet for banks. However, concerns remain on rampant growth in
LAP, though no asset quality implication has surfaced yet. Private banks,
with a larger retail focus, are expected to fare well on asset quality
parameters ahead.
RBI proposes curbing large exposure (individual bank-wise)
In a bid to prevent concentration of exposure to single counterparty or a
group of connected borrowers, RBI has proposed draft guidelines to
curb/restrict individual banks exposure to single borrower. As per current
prudential exposure norms, exposure of banks to a single borrower is
restricted to 15% of capital funds (Tier I and Tier II capital). In case of a
group borrower, the exposure limit is restricted at 40% of capital funds
(Exhibit 5).
Exhibit 4: Individual bank exposure limit current and proposed limit
Exposure

Current Limit on Tier I and Tier II

capital

Proposed Limit on Tier I capital

General Limit
Extension to infrastructure projects

15%
5%

20%

Additional exposure on board discretion

Maximum exposure (allowed)

5%
25%

5%
25%

General Limit
Extension to infrastructure projects

40%
10%

25%

Additional exposure on board discretion

Maximum exposure (allowed)

5%
55%

Single Counterparty

Connected/ Group Counterparty

25%

Source: RBI, ICICIdirect.com Research

As per the proposed framework, RBI seeks to tighten exposure norms

with maximum permissible exposure limit for an individual bank at 25%
of eligible capital base for connected/group borrower. In case of single
borrower, additional exposure limit of 5% allowed for infrastructure
projects has been extended to other categories of borrowers, increasing
permissible limit to 25% of capital. In addition, eligible capital base has
been changed to include only Tier I capital instead of Tier I and II capital
earlier. For NBFCs, bank exposure to single borrower is proposed to be
limited at 15% of eligible capital base while in case of connected/group
NBFCs, individual bank exposure is restricted at 25% of eligible capital
base.
Guidelines to cap banking system exposure to large borrowers
As a measure to reduce the dependence of large borrower on banks for
funding their capital requirement and develop other capital raising
avenues including bond market, RBI has framed guidelines imposing
restriction on banking system exposure to large borrowers. According to
the framework, a large borrower (specified borrower) is defined as one
whose aggregate fund based credit limits either sanctioned or
outstanding (whichever is higher), from banking system is;

| 25000 crore at any time during FY 2017-18;

| 15000 crore at any time during FY 2018-19;

| 10000 crore at any time from April 1, 2019 onwards

Half of incremental capital sourced over and above the specified limit by a
borrower from overall banking system will be termed as normally
permitted lending limit (NPLL) and will be subject to additional provision
and higher risk weight as under;

ICICI Securities Ltd | Retail Equity Research

Page 3

An additional provision of 3%, over and above applicable

provision on the incremental exposure of the banking system in
excess of NPLL, to be distributed among banks in proportion to
their respective exposure

Additional risk weight of 75%, over and above the applicable risk
weight for the exposure to the specified borrower
To provide a breather in the near term, banks are allowed to subscribe to
bonds issued by specified borrowers (over and above NPLL) in the first
year of this framework taking effect (FY18), subject to divestment of these
bonds in following manner;

Not less than 30% by March 31, 2019

Not less than 60% by March 31, 2020

Not less than 100% by March 31, 2021.

Within the large exposure framework, bank credit for large corporate is
expected to become expensive and could constraint capex needs of
corporate until the bond market is able to gather increased participation.
In the long run, development of bond market with increased depth and
liquidity will help reduce cost of borrowings for corporate and NBFCs. On
the other hand, banks could face some pressure on margins with
replacement of loans into bonds. In addition, growth of corporate banks is
expected to be constrained in the near term. Therefore, banks need to
focus more on non-corporate segments including retail, SME and
microfinance for future balance sheet growth.
Exposure to unrated borrower to attract higher risk weight
In a bid to regularise corporate rating and banking asset quality, RBI has
mandated higher risk weights for loans to unrated corporate/AFC/NBFC
IFC from current 100% to 150%, having aggregate exposure from banking
system of more than | 200 crore. However, corporate/AFC/NBFC IFCs,
with exposure of more than | 100 crore, which were earlier rated and
subsequently have become unrated, will attract higher risk weight at
150%. This move can act as positive for rating agencies as more
corporates are expected to opt for external rating.
Initiative to revive construction sector to provide breather to lenders
Indian banks have been reeling under a large pile of bad assets being
balanced by thin balance sheet size. The reason is liquidity crunch and a
slowdown in corporate activities. The analysis of the current stress
reveals that the lions share is due to corporate delinquencies in sectors
including iron & steel, infrastructure (mainly power segment),
construction and textile. According to sources, ~| 70000 crore is tied up
in arbitration. Approximately 85% of claims raised against government
bodies remain under arbitration of which ~11% are at employer level,
~64% at arbitrators and ~8.5% in courts. Though construction sector
contributes ~1.1% of overall banking credit, a large chunk at ~27.1% is
stressed, making it second highest stressed sector after basic metals.

ICICI Securities Ltd | Retail Equity Research

Page 4

Exhibit 5: Construction sector contributes ~1.1% of overall credit

1.2%
1.2%
1.2%
1.2%
1.2%
1.1%
1.1%
1.1%
1.1%
1.1%

80000

74538

74303

(crore)

70000
62571
60000
1.1%

1.2%

1.1%

FY14

FY15

FY16

Const/ Total credit

50000

Construction

Source: RBI, ICICIdirect.com Research

Exhibit 6: Stressed asset as percentage of sector loans (FY16)

50
40

34.4
27.1
19

17.7

16.7

16.5

Food
Processing

Infrastructure

Enginerring

21.3

20

Cement

(%)

30

16.3

10

Minning

Textile

Construction

Basic Metals

Source: RBI, ICICIdirect.com Research

The construction sector, which is the second largest contributor to

economic activity accounting for ~ 8% of GDP, has an important role in
the Indian economy. Post services sector, construction sector accounts
for second highest inflow of FDI and generates employment opportunity
(direct and indirect) for ~4 crore people. The sector also has high
multiplier effect on economic growth with forward linkages
(infrastructure, real estate, manufacturing) and backward (steel, cement,
etc.) linkages. With expansion of infrastructure sector, industrialisation,
urbanisation and various government initiatives, demand for construction
services is expected to rise growing at a pace higher compared to
previous fiscals. However, currently the sector is plagued by factors
including stalled infrastructure projects, slowdown in real estate sector
and high levels of receivables (especially from government entities). This
is affecting their ability to service loans and thereby financial stability.
In a bid to strike a resolution to pump liquidity as well as enable faster
resolution of disputes pertaining to construction sector, the Cabinet
Committee on Economic Affairs (CCEA) has approved a series of
initiatives to revive the construction sector. In cases where arbitral awards
have been made, PSU/department has challenged the dictum. Total 75%
of arbitration amount may be released to the contractor against a margin
free bank guarantee. This decision is expected to help improve the
liquidity in the short run and help them reduce their dependence on
working capital and, thus, interest outgo.

ICICI Securities Ltd | Retail Equity Research

Page 5

To ensure faster and cheaper resolution of disputes, CCEA has approved

transferring arbitration cases initiated under the pre-amended Arbitration
Act to the amended Arbitration Act, subject to consent of both parties. In
addition, the new rules also provide for setting up of conciliation board by
PSU/department issuing public contracts. These boards will comprise
independent domain experts to provide speedy disposal of pending or
new arbitration. Initiatives undertaken to provide relief to construction
sector are expected to provide some breather to banks either in terms of
partial repayment of loans or revival in stalled projects.
Measures to increase depth of fixed income market
In a bid to reduce dependence on banks to fund incremental capital
requirement of corporate, RBI has announced several measures limiting
overall exposure to large borrowers at individual bank level as well as
overall system level. Consequently, RBI has announced a package of
measures to increase depth of fixed income markets to provide a platform
which can enhance participate, facilitate greater liquidity and improve
communication.
Exhibit 7: Measures announced to increase fixed income market
Market Development

Partial credit enhancement (PCE) ceiling raised to 50% from 20%

Issuance of rupee denominated bonds overseas (Masala Bonds) for Tier - I, II capital
Issuance of long term bonds by banks for financing infrastructure and affordable
housing

Enhancing Participation

Permitting brokers in repo in corporate bonds

Allowing FPIs to trade on NDS-OM
Allowing FPIs to trade directly in corporate bonds
Encouraging further retail participation in Government securities

Facilitating Greater
Market Liquidity

Accepting corporate bonds under Liquidity Adjustment Facility (LAF) of RBI

Removing the 7 day restriction for lending by listed companies in market repo in
Government securities (G-Sec)

Source: RBI, News Articles, ICICIdirect.com Research

Following are key measures;

Increase in partial credit enhancement limit: With the intent of developing
the corporate bond market, banks were permitted to provide partial credit
enhancement to corporate bonds with credit rating of at least BBB-,
limiting overall PCE of not more than 20% of the bond issue. PCE
enhances credit rating of bonds, and hence, enables corporates to raise
resources from the bond market at better terms. To provide further
impetus to the corporate bond market, aggregate PCE that may be
provided by the financial system for a given bond issue has been
increased from 20% to 50% of bond issue size, subject to PCE provided
by individual participant should not exceed 20% of bond issue size and
the extant exposure limit. This move will increase the depth of the
corporate bond market and enable lower rated corporates to tap the bond
market to fund their capital requirement at better terms otherwise.
Issuance of Masala bonds for Tier I and II capital: Introduced in 2015,
Masala bonds are rupee denominated bonds issued in the overseas
market. In a bid to develop the market for rupee denominated bonds
overseas and provide an alternative source for banks to raise capital, RBI

ICICI Securities Ltd | Retail Equity Research

Page 6

in consultation with the government has proposed to allow banks to issue

perpetual debt instruments (PDI) qualifying for inclusion as Additional Tier
1 capital (AT1) and Tier 2 debt instruments through Masala bonds (rupee
denominated bonds).
Issuance of Masala bonds for infrastructure: With the intent to boost
infrastructure development, RBI has allowed banks to issue long term
bonds for lending to infrastructure and affordable housing segment.
These bonds were exempted from computation of net demand & time
liabilities (NDTL) and, therefore, not subject to reserve requirement
(CRR/SLR). In addition, exemption was provided in terms of PSL
requirement. In August 2016, RBI has proposed to allow banks to issue
Masala bonds under the extant framework of incentivising issuance of
long term bonds for financing infrastructure and affordable housing. This
decision will provide banks with alternative source to raise long term
bonds with exemptions on regulatory requirements.
Retail participation in G-Sec: RBI has allowed individual investors with a
demat account with depositories to trade directly on NDS-OM with effect
from August 16, 2016. Further, to promote retail participation in the bond
market and facilitate small investor participation in the primary and
secondary bond market, RBI plans to eradicate restrictions for seamless
transfer of G-Secs between depositories and central bank.
Proposal to accept corporate bonds under LAF: In line with international
practice, RBI is actively considering making corporate bonds eligible as
collateral in liquidity operations (LAF). The process to make necessary
amendments to the RBI Act has commenced. On implementation, this
decision will improve the acceptability of corporate bonds as an
instrument for LAF, thereby increasing scope for corporate bonds.
Remove restriction on lending by listed companies in G-Sec repo:
Currently, listed companies are permitted to lend through repo in G-Sec
for a period not less than seven days to banks and primary dealers (PD).
However, this restriction constrains their participation in the bond market.
Therefore, RBI has proposed to allow listed companies to lend through
the repo market, without any tenor or counterparty restrictions. This
proposal is expected to increase the depth of repo market with increase in
number of participants in overnight and shorter duration instruments.
New norms on stressed asset sale to impact NPA sale
RBI has amended guidelines pertaining to sale of NPA by banks to
securitisation companies (SCs)/reconstruction companies (RCs). Key
highlights of the guidelines comprises laying down detailed guidelines on
sale of distressed assets by board, restricting banks investment in
security receipts (SR) backed by their own stressed assets, introducing
first right of refusal to SC/RC with substantial proportion of exposure and
adoption of Swiss Challenge Method for sale of their stressed assets to
SC/RC. These guidelines are expected to impact the quantum of stressed
assets shelved in the near term. Higher provision on substantial
proportion of SR on books will act as a deterrent in sale of stressed asset
as currently SR holding of banks are inclined towards their own exposure.

ICICI Securities Ltd | Retail Equity Research

Page 7

Exhibit 8: Banks SR holding inclined towards their own stressed assets

Bank
Axis Bank
Yes Bank

SR (| crore)
Backed by NPAs sold by the Bank
790
199

Total SR
800
199

% of NPA backed by bank

98.7%
100.0%

198
214

401
214

49.5%
100.0%

5,426
1,003

5,453
1,003

99.5%
100.0%

710
980

710
980

100.0%
100.0%

Kotak Bank
IndusInd Bank
State Bank of India
Punjab National Bank
Bank of Baroda
Indian Bank

Source: RBI, News Articles, ICICIdirect.com Research

To enhance transparency in sale of stressed assets, RBI has mandated

active involvement of corporate office in stressed asset identification,
including special mention account, beyond a specified value. Banks shall,
once in a year with board approval, identify and list internally specific
financial assets for sale to other institution. E-auction platform has been
adopted for sale of stressed asset to attract wide variety of buyers and
better price discovery.
In a bid to effect actual sale of incremental stressed assets, RBI has
decided to restrict banks investment in SR backed by their own assets.
Therefore, effective from April 2017, if a bank invests and holds more
than 50% of SR backed by stressed asset it sold, will be subject to higher
provision. Provisioning for such SR will be higher of 1) net asset value
declared by the SCs/RC, or 2) provisioning as per extant asset
classification assuming that the loans notionally continued in the books of
the bank. Further, threshold of SR holding will be reduced to 10%,
effective from April 2018.
RBI has also allowed banks to sell stressed assets to financial entities with
required capital and expertise in resolving stressed assets. Therefore,
banks, NBFC or other financial entities, along with SC/RC can be
prospective buyers. Adequate time should be provided to prospective
buyer for due diligence with a floor of two weeks. On valuation of asset to
be sold, banks should have clear guidelines with respect to acceptance of
internal/external valuation. However, in case of exposure being more than
| 50 crore, banks need to obtain valuation from two external agencies.
Any cost pertaining to external valuation is to be borne by the bank to
ensure that the bank's interests are protected.

ICICI Securities Ltd | Retail Equity Research

Page 8

Annexure
Exhibit 9: Sensitivity of various banks to 20 and 30 bps reduction in 10 year G-sec yields

Q4FY16
Banks
Public sector banks
Bank of India*
Bank of Baroda
PNB
SBI
OBC*
Private sector banks
Axis Bank
City Union Bank
DCB
J&K Bank

Investment book
(| crore)

Modified Impact of yield

duration (in movement of 30
years)
bps (| crore)
AFS

AFS (| crore)

Impact of yield
movement of 10
bps (| crore)

PAT (| crore)
FY17E

Impact on PAT of Impact on PAT of

30 bps yield
10 bps yield
movement (%)
movement (%)

105,775
132,439
154,727
590,268
65,030

24,733
41,710
53,909
129,859
23,577

4.1
3.6
4.1
2.0
4.6

306.4
446.7
664.7
779.2
325.4

102.1
148.9
221.6
259.7
108.5

NA
1,604
2,904
13,904
526

NA
19.5
16.0
3.9
43.3

NA
6.5
5.3
1.3
14.4

123276
6,843.6
4,392
21,384

40681
2,074.4
1,001
8,104

3.0
0.9
1.7
0.9

360.0
5.6
5.2
20.7

120.0
1.9
1.7
6.9

8243
508.0
200
623.5

3.1
0.8
1.8
2.3

1.0
0.3
0.6
0.8

Source: Company, ICICIdirect.com Research, * Not under coverage, AFS- Available for Sale

Exhibit 10: Quarterly margin trend

NIM (%)
PSU coverage
Bank of Baroda
Punjab National Bank
SBI
Indian Bank
Private coverage
Axis Bank
City Union Bank
Development Credit Bank
IndusInd Bank
Federal Bank
HDFC Bank
Jammu & Kashmir Bank
Yes Bank

Q3FY15

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

2.2
3.2
3.1
2.5

2.2
2.8
3.2
2.5

2.3
2.9
3.0
2.4

2.1
2.9
3.0
2.3

1.7
2.9
2.9
2.3

2.2
2.6
3.0
2.4

2.2
2.5
2.8
2.5

3.9
3.5
3.7
3.7
3.2
4.4
3.7
3.2

3.8
3.4
3.8
3.7
3.3
4.4
3.9
3.2

3.8
3.6
3.8
3.7
3.1
4.3
3.9
3.3

3.9
3.7
3.8
3.9
3.1
4.2
4.0
3.3

3.8
3.8
4.0
3.9
3.0
4.3
3.9
3.4

4.0
4.0
3.9
3.9
3.3
4.3
3.6
3.4

3.8
4.1
4.1
4.0
3.3
4.4
3.4
3.4

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 9

Exhibit 11: Key financials of industry as on Q1FY17 (listed banks + SBI associates)
(| crore)
NII
Growth YoY
Other income
Growth YoY
Total operating exp.
Staff cost
Operating profit
Growth YoY
Provision
PBT
PAT
Growth YoY
GNPA
Growth YoY
NNPA
Growth YoY

Q1FY17
71877
3.3
35295
31.9
51825
27585
55348
9.6
41571
13777
9480
-49.9
623373
96.2
365812
107.0

Q4FY16
71510
4.6
40640
10.2
57441
28343
54710
-4.4
76632
-22014
-12302
-166.4
575313
92.3
331340
99.2

Q3FY16
69546
4.2
30823
10.7
49321
26693
51048
3.6
48698
2350
215
-98.7
435255
50.3
249191
48.1

Q2FY16
65515
-0.6
29145
17.1
42181
25893
52480
12.2
25528
26931
17329
-2.7
337826
27.3
186531
23.4

Q1FY16
69579
8.4
26763
13.4
45841
25264
50501
7.7
22439
28045
18911
-8.0
317795
27.8
176728
26.7

Q4FY15
68381
7.7
36892
26.5
48032
25676
57241
12.6
31991
25234
18538
-4.1
299145
25.4
166296
26.5

Q3FY15
66732
8.4
27846
26.4
45292
25070
49286
13.8
23391
25876
17015
12.2
289590
20.6
168204
23.0

Source: Capitaline, Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Page 10

ICICIdirect.com coverage universe (BFSI)

CMP
(|)
167
138
254
217
593
129
123
72
1,288
1,184
83
793
1,207

TP(|) Rating
152 Hold
112 Hold
240 Hold
190 Hold
510 Hold
140 Buy
98 Hold
62 Hold
1,375 Buy
1,250 Buy
68 Hold
750 Hold
1,150 Hold

M Cap
(| Cr)
38,489
27,000
189,966
10,398
140,810
7,797
3,183
12,365
322,113
70,466
4,033
145,029
50,675

567
560
1,393

550
481
1,530

Hold
Buy
Buy

28,696
13,764
219,761

33
43
45

39
42
47

46
46
53

17.2
13.0
31.0

14.4
13.3
29.8

12.2
12.2
26.1

3.2
1.1
6.5

2.7
1.0
5.9

2.2
0.9
5.3

1.4
1.8
2.6

1.4
1.5
2.4

1.5
1.5
2.4

20
8
22

20
7
21

19
7
21

37
1,243
CARE (CARE)
3,096
Bajaj Finserv (BAFINS)
1,075
Bajaj Finance (BAJAF)
Source: Company, ICICIdirect.com Research

39
1,400
2,900
1,060

Hold
Buy
Buy
Buy

2,123
3,604
49,304
5,765

3
48
117
25

7
40
149
32

5
46
198
44

13.0
25.7
26.4
43.7

5.4
31.1
20.7
34.0

8.1
27.0
15.7
24.7

1.4
10.0
3.8
7.6

1.2
8.9
3.2
6.5

1.1
8.3
2.7
5.2

2.6
43.2
1.9
3.2

5.0
40.9
2.1
3.2

2.9
43.5
2.5
3.4

12
39
16
21

25
29
17
21

15
31
19
23

Sector / Company
Bank of Baroda (BANBAR)
Punjab National Bank (PUNBAN)
State Bank of India (STABAN)
Indian Bank (INDIBA)
Axis Bank (UTIBAN)
City Union Bank (CITUNI)
Development Credit Bank (DCB)
Federal Bank (FEDBAN)
HDFC Bank (HDFBAN)
Indusind Bank (INDBA)
Jammu & Kashmir Bank (JAMKAS)
Kotak Mahindra Bank (KOTMAH)
Yes Bank (YESBAN)
NBFCs
LIC Housing Finance (LICHF)
Reliance Capital (RELCAP)
HDFC (HDFC)
PTC India Financial Services (PTCIND)

ICICI Securities Ltd | Retail Equity Research

EPS (|)
P/E (x)
P/ABV (x)
RoA (%)
RoE (%)
FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E
-23
7
20 -7.1 24.0
8.5
2.0
1.9
1.4 -0.8
0.2
0.6 -13
4
11
-20
15
22 -6.8
9.3
6.3
7.5
2.5
1.3 -0.6
0.4
0.6 -10
7
10
13
18
24 19.9 14.2 10.7
2.2
2.0
1.6
0.5
0.6
0.7
7
9
11
15
22
28 14.6
9.9
7.6
1.0
1.0
0.9
0.4
0.5
0.6
5
6
8
35
35
42 17.2 17.1 14.3
2.8
2.6
2.2
1.7
1.5
1.5
17
14
15
7
8
10 17.5 15.4 12.9
2.8
2.5
2.1
1.5
1.5
1.6
16
16
16
7
7
9 18.0 17.5 13.7
2.1
1.9
1.8
1.1
1.0
1.0
12
11
13
3
4
5 26.0 18.0 13.4
1.7
1.7
1.5
0.5
0.7
0.8
6
8
10
49
59
72 26.5 22.0 18.0
4.6
3.9
3.5
1.9
1.9
1.9
18
19
20
38
49
61 30.8 23.9 19.4
4.0
3.5
3.1
1.9
2.0
2.0
16
15
17
9
13
19
9.7
6.5
4.3
1.0
1.0
0.9
0.5
0.7
1.0
7
9
13
11
16
19 69.6 50.4 41.5
6.4
5.7
5.0
1.1
1.4
1.4
9
11
12
48
60
65 25.1 20.0 18.6
3.7
2.5
2.2
1.6
1.7
1.7
21
20
17

Page 11

RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;

Pankaj Pandey

Head Research

pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai 400 093
research@icicidirect.com

ICICI Securities Ltd | Retail Equity Research

Page 12

ANALYST CERTIFICATION
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report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s)
or view(s) in this report.

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ICICI Securities Ltd | Retail Equity Research

Page 13