Indian Banks 2023 Growth at Reasonable Price Stay Positive

Equity Research
India | Banks January 3, 2023
Indian Banks 2023: Growth at Reasonable KEY STOCKS FEATURED INCLUDE:
Price; Stay Positive TICKER RATING PRICE TARGET
AXSB IN BUY INR1,110
Despite 21% returns by Nifty Bank in 2022, outperforming mkt/global peers, BANDHAN IN BUY INR340
vals. are near avg, and we see healthy profit growth & rise in ROE in 2023. IIB IN BUY INR1,600
Credit growth will normalise from peak, and capex will pick up. Concern on ICICIBC IN BUY INR1,150
deposit growth may ease, and sweet spot on credit costs may stay. We KMB IN BUY INR2,470
see 25-50bps of rate hikes, and in 2H23, we may see cuts. Election politics
may not be a big issue & cap. raise of $5-7bn may come. Our top picks are
ICICIB, SBI and IIB. KEY CHANGES INCLUDE:
Credit growth to normalise & drivers to switch. In 2022, bank credit growth improved from 8% TICKER RATING PRICE TARGET
to 17%, and in 2023, we expect bank credit growth to normalise to a sustainable level of 13%,
as moderation in WPI will affect working cap demand with 6-mth lag, which will be made-up
by pick-up in capex & retail growth. PSU banks' participation will keep banks' growth healthy.
Our Recent Notes on Indian Financials:
Deposit growth gap with credit growth to narrow. In 2022, banks' deposit growth of 10%
Pulse of Deposit Growth; What to Expect
lagged credit growth leading to tight liquidity and rise in rates. Going fwd, deposit growth can
Over Next 1-2yrs?
improve a bit to 11-12%, rates will stay elevated, and RBI may need to intervene. PSUs with
low LDR & ICICIB/ Kotak are better placed. PSU Banks: Narrowing of Performance
Gap Will Narrow Valuations Gap
Rate-hikes to peak with 25-50bps hikes; see cuts in 2H2023. RBI raised policy rates by
225bps, CRR by 50bps, and withdrew liquidity. Banks raised EBLR on lines of Repo & term India BFSI Monthly - December 2022
deposit rates by up to 165bps. Gap between inflation and policy rates are favourable, further
hikes should be limited to 25-50bps. In 2H24, we see the start of easing cycle.
Exhibit 1 - We expect healthy growth in banks'
Sweet spot on credit quality to stay. Retail borrower behaviour and corporate cash-flows are profit
the best in many years; we expect this trend will stay. Also, banks have adequately provided Split of net profit (Rsbn)
Pvt Bank (coverage) PSU (coverage)

for NPLs, and carry buffers. So, credit costs should stay benign in FY24-25. 2,500
2,000 748
697
NIM compression will be made-up by opex control. A key concern is if cyclical NIM
1,500 596
1,000 424
1,509
1,290
196 233 1,112
6 9
compression in 1HFY24 will drag ROA. We see limited risk to earnings, as banks may pull-back
500 154 865
373 462 637
324 346 343 322
-
(213) (87)
some opex; consensus estimates don't build in peak NIMs in FY24E. Although, with switch to
(500)
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23E
FY24E
FY25E
EBLR-based loan pricing, NIMs & ROA of banks have become volatile. .
Source: Company Data, Jefferies Estimates
PSU bks regaining lost ground. PSU bks are bridging gap with Pvt bks on growth & ROA. Their
loan growth at 15% is 5ppt below Pvt banks' vs. pre-Covid avg. gap of 17ppt. ROA gap has also Exhibit 2 - Nifty Bank valuations close to long
term average
narrowed. Still, PSUs' vals. are at c.70% disc. to Pvt banks' and can narrow.
Nifty Bank fwd P/B Average
Banks may selectively consider capital raise in 2H23; watch-out for M&A: Most banks are 3.0
well-capitalized, but as growth stays healthy, select banks may consider capital raises in 2H23; 2.0
pipeline est. $5-7bn with Axis and SBI as potential front-runners. With consolidation among 1.0
fintechs/ need for stake sales, banks may review M&A. 0.0
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Dec-22
Watch-out for moves by Reliance group in financial services. Reliance group plans to foray .
Source: FactSet, Jefferies
into financial services- it has 20m customers, allocated capital (led by MTM gains) & appointed
Mr. KV Kamath (past CEO of ICICIB) on board. So far, progress is limited, but it can impact
weaker players, and drive M&A.
Election year politics & regulations. 2023 has a busy state election calendar (9 state
elections) & preparations for central elections in 2024. Watch-out for loan-waivers, rural
schemes, Govt. capex & privatization of PSU bks. Hike in foreign ownership limit for private
banks can attract capital. RBI to focus on reducing arbitrages (banks, NBFCs, Fintechs). Prakhar Sharma * | Equity Analyst
+91 22 4224 6129 | prakhar.sharma@jefferies.com
Growth at reasonable valuation; Stay positive. In 2022, Nifty bank was up 21% OPFing Mkt
Vinayak Agarwal * | Equity Associate
& global peers. Still valuations are reasonable, with good earnings visibility. With performance +91 22 4224 6178 | vagarwal2@jefferies.com
Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on pages 63 - 67 of this report.
* Jefferies India Private Limited
Banks
Equity Research
January 3, 2023
gap narrowing, the range of valuations will also contract. Tweak earnings for PNB and TP to
Rs36. Our top picks among banks are ICICI Bank, SBI and IndusInd Bank.
Please see important disclosure information on pages 63 - 67 of this report. 2

This report is intended for Jefferies clients only. Unauthorized distribution is prohibited.
Banks
Equity Research
January 3, 2023
Summary of Changes
EPS Estimates P/E
Company Rating Price^ Price Target 2022 2023 2024 2022 2023 2024
Axis Bank BUY INR933.85 INR1,110 INR42.47 INR67.05 INR71.04 22.0x 13.9x 13.1x
AXSB IN
Bandhan Bank BUY INR234.20 INR340 INR0.78 INR13.53 INR28.76 NM 17.3x 8.1x
BANDHAN IN
IndusInd Bank Limited BUY INR1,221.50 INR1,600 INR59.57 INR93.50 INR118.63 20.5x 13.1x 10.3x
IIB IN
ICICI Bank BUY INR890.95 INR1,150 INR33.66 INR42.08 INR48.85 26.5x 21.2x 18.2x
ICICIBC IN
Kotak Mahindra Bank BUY INR1,826.45 INR2,470 INR43.23 INR48.54 INR57.75 42.3x 37.6x 31.6x
KMB IN
Punjab National Bank UNPF INR56.45 INR36 INR3.22 INR4.12 INR6.89 17.5x 13.7x 8.2x
PNB IN
+24% +3% +4%
Previous INR29 INR3.22 INR3.99 INR6.63
State Bank of India BUY INR613.20 INR760 INR35.49 INR50.42 INR58.85 17.3x 12.2x 10.4x
SBIN IN
^Prior trading day's closing price unless otherwise noted.

Banks
Equity Research
January 3, 2023
Table of Contents
#1. Credit growth to normalise and drivers to switch 8
#2. Deposit growth gap with credit growth to narrow 10
#3. Rate-hikes to peak with 25-50bps hikes; see cuts in 2H2023 12
#4. Sweet spot on credit quality to stay 14
#5. NIM compression will be made up by opex control 17
#6. PSU banks regaining lost ground 19
#7. Banks may selectively consider capital raise in 2H23; watch-out for M&A 22
#8. Watch-out for moves by Reliance group in financial services 24
#9. Election year politics & regulations 25
#10. Valuation not expensive; gap to narrow; Stay positive 26
Estimates and trends for key financials 30
Valuation Charts 46

Banks
Equity Research
January 3, 2023
Exhibit 3 - Key themes for Indian Banks in 2023
.
Source: RBI, Banks, Jefferies

Banks
Equity Research
January 3, 2023
Exhibit 4 - Valuation Matrix: Lenders and other financials

Company Price Mkt Cap ADTO Rating Target Upside Adjusted PB (x) P/B (x) Adjusted PE (x) Div Yield (%) ROA (%) Core ROE (%)
price
(Rs) (US$bn) (US$m) (Rs) (%) FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E
Private banks
ICICI Bank 891 75 124 BUY 1,150 29% 3.1 2.7 2.3 3.6 3.2 2.8 22 18 16 0.6% 0.7% 0.8% 1.8% 1.9% 1.8% 16% 16% 16%
Axis Bank 934 35 114 BUY 1,110 19% 2.4 2.0 1.7 2.5 2.1 1.8 20 13 12 0.1% 0.3% 0.4% 1.2% 1.6% 1.5% 12% 17% 15%
Kotak Bank 1,827 44 57 BUY 2,470 35% 3.8 3.2 2.7 5.0 4.5 3.9 30 26 20 0.1% 0.1% 0.1% 2.1% 2.1% 2.2% 13% 13% 14%
IndusInd Bank 1,220 11 48 BUY 1,600 31% 1.9 1.7 1.5 2.0 1.7 1.5 20 13 11 0.7% 1.1% 1.2% 1.2% 1.7% 1.8% 10% 14% 15%
Bandhan Bank 234 5 31 BUY 340 45% 2.4 2.1 1.7 2.2 1.9 1.6 300 17 8 0.0% 0.4% 1.1% 0.1% 1.5% 2.6% 1% 12% 22%
PSU Banks
SBI 614 66 88 BUY 760 24% 2.0 1.7 1.5 2.0 1.8 1.6 14 12 10 1.2% 1.4% 1.7% 0.7% 0.7% 0.8% 13% 13% 14%
PNB 56 8 74 UNPF 29 -49% 1.1 0.9 0.8 0.7 0.6 0.6 18 14 9 1.1% 1.4% 1.8% 0.3% 0.3% 0.5% 4% 5% 7%
NBFC
Bajaj Finance 6,575 48 80 HOLD 8,160 24% 9.3 7.6 6.2 9.0 7.4 6.0 56 36 28 0.3% 0.5% 0.6% 3.7% 4.5% 4.5% 17% 22% 23%
LIC HF 414 3 13 BUY 500 21% 1.2 1.2 1.1 0.9 0.8 0.8 11 6 5 2.3% 3.1% 3.8% 0.9% 1.2% 1.3% 10% 12% 13%
Shriram Finance 1,377 6 16 HOLD 1,365 -1% 1.7 1.5 1.3 1.4 1.3 1.1 14 10 9 0.9% 1.0% 1.2% 2.0% 3.1% 2.7% 11% 16% 14%
Piramal Ent. 828 2 13 BUY 1,000 21% 0.6 0.9 0.9 0.5 0.7 0.7 11 na 11 4.1% 4.2% 4.2% 1.5% -1.3% 1.7% 4% -4% 6%
CIFC 723 7 12 BUY 890 23% 6.2 5.1 4.2 5.1 4.3 3.6 28 25 20 0.1% 0.3% 0.3% 2.7% 2.6% 2.6% 20% 18% 19%
MMFS 235 4 13 UNPF 175 -25% 2.4 2.2 2.0 1.9 1.7 1.6 29 17 14 1.6% 1.7% 2.0% 1.3% 2.0% 2.0% 7% 10% 11%
Aavas 1,846 2 3 BUY 2,850 54% 5.3 4.6 4.0 5.2 4.5 3.9 41 34 28 0.0% 0.0% 0.0% 3.6% 3.4% 3.5% 14% 14% 15%
Aptus 304 2 1 BUY 380 25% 5.3 4.5 3.9 5.2 4.4 3.8 40 31 26 0.0% 0.0% 0.0% 7.3% 7.3% 6.7% 15% 15% 16%
CanFin 535 1 6 BUY 635 19% 2.4 2.0 1.7 2.3 2.0 1.7 15 12 11 5.2% 4.8% 5.0% 1.9% 1.9% 1.8% 17% 17% 17%
Home First 732 1 2 BUY 900 23% 4.3 3.7 3.2 4.1 3.5 3.0 37 29 24 0.0% 0.0% 0.0% 3.6% 3.7% 3.4% 12% 13% 14%
Other Financials
. CMS Infosystems 313 1 3 BUY 390 25% na na na 3.7 3.0 2.5 20 15 13 0.3% 0.4% 0.4% 13% 15% 15% 20% 22% 21%
Source: Company Data, FactSet, Jefferies Estimates

Exhibit 5 - Valuation Matrix: Insurers
Company Price Mkt Cap ADTO Rating Target Target Upside P/ EV (x) P/ VNB (x) VNB margin (%) Operating ROEV (%)
price multiple
Life Insurance (US$bn) (US$m) (Rs) (%) FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E
HDFC Life 566 15 20 Buy 680 3.0 20% 3.6 3.2 2.7 31 26 20.3 27% 27% 28% 17% 18% 18%
ICICI Pru Life 451 8 10 Buy 700 2.4 55% 2.1 1.9 1.6 15 12 8.6 28% 30% 30% 11% 16% 16%
Max Fin. Serv 678 3 10 Buy 860 1.7 27% 2.1 1.8 1.5 19.3 18.4 15.9 27% 29% 30% 19% 20% 20%
SBI Life 1,231 15 14 Buy 1,580 2.6 28% 3.1 2.7 2.2 23 15 11.1 26% 30% 30% 21% 21% 21%
Company Price Mkt Cap ADTO Rating Target Target Upside P/ E (x) P/ BV (x) ROE (%) Combined ratio (%)
price multiple
General Insurance (US$bn) (US$m) (Rs) (%) FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E
. ICICI Lombard GI 1,237 7 11 Buy 1,620 23 31% 36.0 28.8 25.3 5.9 5.1 4.5 17% 19% 19% 104% 103% 102%

Exhibit 6 - Valuation Matrix: AMCs
AMC Price Mkt ADTO Rating Target Upside P/ E (x) P/ BV (x) P/ AUM (%) EPS Growth (%) Div. Yield (%) PAT/ AUM (%) ROE (%)
Cap price
(US$bn (US$m) (Rs) (%) FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E
1.9)
. NAM 249 1 Buy 325 30% 21 24 19 4.5 4.5 4.2 8% 7% 6% 9% -12% 22% 4% 4% 4% 0.23% 0.24% 0.23% 23% 19% 22%

Banks
Equity Research
January 3, 2023
Exhibit 7 - Stock price performance of top and bottom 25 financial stocks in 2022
Stock price returns of financial stocks in CY22 (%)

Karnataka Bank 152
Karur Vysya Bank 147
Uco Bank 144
Bank Of Baroda 128
South Indian Bank 118
Ujjivan 114
Indian Bank 107
Punjab & Sind Bank 105
Union Bank Of India 88
Satin 79
Bank Of India 77
IIFL Holdings 72
Canara Bank 69
Federal Bank 68
Arman 65
Dcb Bank 65
Bank Of Maharashtra 60
Mahindra & Mahindra Fin Secs 60
Indian Overseas Bank 60
Yes Bank 59
Jammu And Kashmir Bank 57
Credit Access Grameen 54
Punjab National Bank 54
Central Bank Of India 52
GIC Housing Finance 49
Nifty Bank 21
NSE CNX NIFTY INDEX 5
Repco Home Finance -14
SBI Cards -14
ABSL Amc -15
CAMS -17
UTI Amc -18
ICICI Prudential Life Insurance -20
CDSL -24
Motilal Oswal -25
Star Health -25
Manappuram -28
Muthoot Finance -28
Indiabulls Housing -28
Nippon Life AMC -29
Aavas Financiers -29
Max Financials -31
Fino Payments Bank -32
Indostar -33
Reliance Home Finance -34
ICICI Securities -37
Srei Infra -38
Reliance Capital -39
Piramal -42
IEX -44
Pb Fintech -52
Paytm -60
.

Banks
Equity Research
January 3, 2023
#1. Credit growth to normalise and drivers to switch

In 2022, bank credit growth improved from 8% to 17% growth with pick-up in corp. lending,
healthy retail growth & mkt. share gains. In 2023, we expect bank credit growth to normalise to
sustainable level of 13% as moderation in WPI will affect working cap demand with 6mth lag,
which will be made-up by pick-up in capex and healthy retail growth. PSU bks' participation in
credit will also help keep banks' growth healthy.
In YTD FY23, corporate segment witnessed a sharp growth of 20% YoY after 8 years of muted
growth as they were constrained by heavy indebtness and banks were saddled with lumpy
corporate NPAs. Over the past few years, corporates have strengthened their balance sheet by
an unwavering focus on deleveraging. Further, continued investments in building a robust tech
platform and ramping up of digital stacks will ensure healthy growth in this segment.
Exhibit 8 - Bank credit growth remains firm with growth of 17% YoY in Dec-22
Credit growth
Credit (% (%
growth YoY)
YoY)
18%
20%
16%
18%
14%
16%
12%
14%
10%
12%
8%
10%
6%
8%
4%
6%
Nov-18
Nov-19
Jun-21 Nov-20
Mar-22 Nov-21
Aug-18
Aug-19
Aug-20
Aug-21
Sep-22 Aug-22
Feb-19
Jun-20 May-19
Dec-20 Feb-20
May-20
Feb-21
May-21
Feb-22
May-22
4%
Sep-20
Sep-21
Jun-22
Mar-20
Mar-21
Dec-19
Dec-21
Dec-22
.
Source: RBI, Jefferies
Exhibit 9 - Normal GDP should grow at 11% over next two years Exhibit 10 - Fall in WPI will drag working capital demand with 6month lag
Real GDP growth (%) Nominal GDP growth (%) Corporate credit growth Non- Food Credit growth WPI( 6mth lagged)
25%
25%
20%
20%
15% 15%
10% 10%
5% 5%
0%
0%
-5%
-5%
-10%
-10%
Nov-13
Nov-14
Nov-15
Nov-16
Nov-17
Nov-18
Nov-19
Nov-20
Nov-21
Nov-22
May-14
May-15
May-16
May-17
May-18
May-19
May-20
May-21
May-22
May-23
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23E
FY24E
FY25E
. .
Source: RBI, CMIE, Jefferies Estimates Source: CMIE, RBI, Jefferies

Banks
Equity Research
January 3, 2023
Exhibit 11 - Bank loan growth to remain strong c.13% over the next few years
Bank Domestic Loan Growth (%, YoY)

20.0%
17.4%
16.0% 14.6% 13.8% 15.0%
13.3% 13.0% 13.0%
12.0% 10.2% 10.0%
7.8% 8.6%
7.5%
8.0% 6.1% 5.6%
4.0%
0.0%
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
(Current)
FY23E
FY24E
FY25E
Dec-22
.
Source: RBI, Jefferies Estimates
Exhibit 12 - Bank credit growth should moderate from current run-rate of 17% Exhibit 13 - Trend in Bank loans and bonds
to 13% in FY24-25, partly due to softening of inflation and high base Rstn FY18 FY19 FY20 FY21 FY22 FY23E FY24E FY25E
Bank domestic loans 86 98 104 109 119 137 155 175
Domestic Credit Growth (% YoY)
Bonds (CP, bonds) 31 36 36 40 44 47 52 57
Bank domestic loans Bonds (CP, bonds) Total Total 117 133 140 149 163 184 206 232
16% 15%
14% Growth (% YoY)
13% 13% 13% 13% 13%
14% 12% Bank domestic loans 10% 13% 6% 6% 9% 15% 13% 13%
12%
12% 11% 11% Bonds (CP, bonds) 11% 14% 1% 11% 10% 8% 10% 11%
10% 10%
10% 9% Total 10% 13% 5% 7% 9% 13% 12% 12%
9% 8%
8% 7%
6% Share (% stock)
6%
6% 5%
Bank domestic loans 73% 73% 74% 73% 73% 74% 75% 75%
4% Bonds (CP, bonds) 27% 27% 26% 27% 27% 26% 25% 25%
1%
2% Total 100% 100% 100% 100% 100% 100% 100% 100%
0% GDP growth (% YoY)
FY19 FY20 FY21 FY22 FY23E FY24E FY25E Nominal 11% 11% 8% -3% 15% 16% 11% 11%
. . Real 7% 6% 4% -7% 10% 7% 6% 7%
Source: RBI, Jefferies Estimates Source: RBI, Jefferies Estimates

Exhibit 14 - WPI has already dropped sharply and CPI are peaking out
20.0 WPI YoY (%) (LHS) CPI YoY (%) (LHS) Repo Rate (%) (RHS) 7
6
15.0
5
10.0
4
3
5.0
2
0.0
1
-5.0 0
Mar-20
Mar-21
Mar-22
Sep-22
Sep-20
Sep-21
Dec-19
Jun-20
Dec-20
Jun-21
Dec-21
Jun-22
Dec-22
.
Source: RBI, CMIE, Jefferies

Banks
Equity Research
January 3, 2023
Exhibit 15 - Private Banks grew their loan book at a consistently higher pace Exhibit 16 - NII growth for pvt banks has also been higher vs. PSU banks due to
compared to PSU peers stronger growth and greater share of retail
Loan growth % NII Growth (%)
Pvt Bank PSU Total Total Pvt Bank PSU
25% 25%
20% 20%
15% 15%
10%
10%
5%
5%
0%
0%
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023E
2024E
2025E
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023E
2024E
2025E
. .
Source: Company data, Jefferies estimates Source: Company Data, Jefferies Estimates
#2. Deposit growth gap with credit growth to narrow

In 2022, banks' deposit growth of 10% lagged credit growth leading to tight liquidity and a rise
in rates. It is interesting to note that over past 5yrs, deposit growth for the banking sector has
been range bound between 8-11% YoY. In that context, current growth rate of 10% YoY doesn't
really seem weak. In absolute terms, YTD difference between credit growth of INR19t and deposit
growth of INR17tn is not significantly material as portrayed by the ppt growth due to base effect.
However, we do expect the divergence to correct as credit growth moderates and deposit growth
picks up, on the back of higher rates amid a chase for liabilities by banks.
In terms of geography, Metro markets have sustained better growth (11%) whereas non-urban
mkts (semi-urban/ rural) are not only weak at 8%, but have lagged behind since 2021, reflecting
impact of Covid and higher inflation. Households are the biggest owners of deposits with 63%
share and have witnessed slower deposit growth due to a combination of increased spending
(post-Covid) and a high base in FY21 (Covid-aided). Interestingly, household deposit/ GDP ratio
is currently at 45% as on Mar-22 vs. peak of 51% during Covid, but is still higher than pre-Covid
levels of 42-44%. Hence, we believe that deposit growth may continue to lag GDP growth for the
next 12 months. We have discussed these trends in Pulse of Deposit Growth; What to Expect
Over Next 1-2yrs?. Going fwd., deposit growth can improve a bit to 11-12% over 1-2yrs, rates will
stay elevated & RBI may need to intervene. PSUs with low LDR & ICICIB/ Kotak are better placed.
Exhibit 17 - Divergence in credit and deposit growth should narrow down as credit growth moderates with
a pickup in deposit growth
Deposit Growth (%, YoY) Credit Growth (%, YoY)
16%
14%
12%
10%
8%
6%
4%
2%
0%
FY14
FY16
FY18
FY20
FY22
FY13
FY15
FY17
FY19
FY21
FY24E
FY23E
FY25E
.
Source: RBI, Jefferies Estimates

Banks
Equity Research
January 3, 2023
Exhibit 18 - Banking sector's deposit growth has ranged between 8-11% and current growth of 10% is
within this range
Deposit Growth (%, YoY)
16.0% 14% 15%

13%
14.0%
11% 12%
12.0% 11%
10% 10% 10%
10.0% 9%
8% 8%
8.0% 6%
6.0%
4.0%
2.0%
0.0%
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23E
FY24E
FY25E
.
Exhibit 19 - However, current deposit growth of 10% YoY lags system credit Exhibit 20 - Household deposit/ GDP ratio of 45% has moderated from peak of
growth and poses a risk to loan growth ahead >50% (during Covid), but still higher than pre-Covid levels
Deposit growth (% YoY) Household savings in deposits (Rstn, LHS)

Household savings in deposits (% of GDP, RHS)
120 55%
14% 50% 50% 51%
110 48%
12% 47% 50%
46% 46%
100 45%
10% 44%
43%
90 42% 42% 41% 42% 43% 42% 45%
8%
6% 80 40%
4% 70
35%
2% 60
0% 50 30%
Dec-19
Apr-20
Dec-20
Apr-21
Dec-21
Apr-22
Dec-22
Jun-20
Jun-21
Jun-22
Feb-20
Oct-20
Oct-21
Aug-20
Feb-21
Aug-21
Feb-22
Aug-22
Oct-22
Sep-18
Sep-19
Sep-20
Sep-21
Jun-18
Dec-18
Mar-19
Jun-19
Dec-19
Mar-20
Jun-20
Dec-20
Mar-21
Jun-21
Dec-21
Mar-22
. .
Source: RBI, Jefferies Source: RBI, Jefferies
Exhibit 21 - Metro mkts dominate overall with affluent retail and corporate Exhibit 22 - Across forms of deposits, term deposits constitute over half of
depositors total deposits
Distribution of bank deposits (Sep-22) Distribution of bank deposits (Sep-22)
Rural Current
11% 9%
Semi-urban
16% Savings
Metro Terms 35%
52% 56%
Urban
22%
. .
Source: RBI, Jefferies Source: RBI, Jefferies
Exhibit 23 - Long-term trend in interest rates: Term deposit rates have risen by 140bps from lows; Banks
are offering up to 7% interest on 15-24 month deposits
Peak (Aug-18) Mar-20 Dec-21 Now
10.0
8.6
8.4
8.2
8.1
7.9
7.7
7.7
7.6
7.5
7.3
7.2
7.1
7.1
7.0
6.8
6.8
8.0
6.5
6.5
6.3
6.2
6.1
5.2
6.0
4.4
4.0
4.0
2.0
-
Repo Rate 10Yr Gsec yield 10Yr AAA PPF rate Avg 1-3 yr Avg MCLR
corp. yield deposit rate
.
Source: FactSet, RBI, Jefferies

Banks
Equity Research
January 3, 2023
Exhibit 24 - We expect cost of funds for leading banks to increase by 60bp on an average over the next
12-15 months
Cost of Funds (%) - Calculated

FY22 2QFY23 FY24E
5.5%
5.0%
6.0%
4.9%
4.4%
4.3%
4.3%
4.2%
4.0%
5.0%
4.0%
3.9%
3.9%
3.9%
3.8%
3.7%
3.6%
3.5%
3.5%
3.2%
4.0%
3.0%
2.0%
1.0%
0.0%
ICICI Axis Kotak IndusInd SBI PNB
.
Exhibit 25 - Large Banks barring IndusInd have raised interest rates in the Exhibit 26 - TD (1-3 yr bucket) rate has moved up sharply over the past few
range of 160-190bp in 2022 months
Term Deposit Rates (%)
Rate Hikes in 2022 (bps)
250 ICICI Kotak Axis IIB SBI
190 8.0
200 185 180
165 160
7.0
150 125
6.0
100
5.0
50
4.0
Nov-21
Mar-22
May-22
Nov-22
Aug-22
Dec-21
Jun-22
Dec-22
Jan-22
Sep-22
Oct-22
Feb-22
Apr-22
Jul-22
0
PNB Kotak ICICI SBI Axis IndusInd
. .
Source: Company data, Jefferies Source: Company data, Jefferies
Exhibit 27 - Large Private Banks score well on CASA ratio while scope exists for Exhibit 28 - As per LCR norms, share of retail deposit is highest for PNB and
mid-size banks to catch up SBI
CASA Ratio (2QFY23) Share of retail deposits, as per LCR (%)

60% 54%
50% 46% 47% 80%
42% 43% 44%
41% 67% 67%
70% 62% 62%
40% 59%
60% 53% 55%
30%
50% 41%
20% 40%
10% 30%
0% 20%
10%
SBI
Axis
ICICIB
PNB
Kotak
Bandhan
IndusInd
0%
. IndusInd Bandhan Axis ICICI Kotak HDFCB SBI PNB
Source: Company Data, Jefferies
.
Source: Company data, Jefferies
#3. Rate-hikes to peak with 25-50bps hikes; see cuts

in 2H2023
In 2022, RBI raised policy rates by 225bps, CRR by 50bps and withdrew surplus liquidity to
almost neutral level. So, banks raised EBLR on lines of Repo Rate & term deposit rates by up to
190bps (based on special rates). Gap between inflation (CPI & WPI) & policy rates are favourable,
so incremental hikes will be limited to 25-50bps. We expect liquidity conditions to improve as
government expenditure usually picks up in the final months of the financial year. Though RBI
remains in absorption mode in liquidity management, it is ready to inject liquidity in the economy
as and when required. However, a durable sign of change should be evident in the form of either
Banks drawing a significant portion of their standing deposit facility (SDF) or variable reverse
repo rate balances (VRRR). In 2023, we may see the start of an easing cycle on liquidity & rates.

Banks
Equity Research
January 3, 2023
Other than managing inflation through monetary policy, RBI has also tried to cut down the
existing arbitrage between Banks and NBFCs to bring them on a level playing field. It has divided
NBFCs into 4 different categories on the basis of scale. As an NBFC grows in size and moves up
a category, intensity of regulatory disclosure increases. Regulation on fintechs and other players
engaged in the digital ecosystem of financial transactions has also sharpened as they have
gained significant size. Through the year, several instances of unethical practises and mis-selling
were reported in media, which might have also prompted the Regulator to look at it closely.
Exhibit 29 - RBI has raised repo rates by 225bp over the last 7 months Exhibit 30 - RBI has increased repo rate thrice in the last two years and it
currently stands above long term average; scope to cut exists if inflation is
Repo rate (%) under control
9.0
CRR (%) CPI (%)
8.0
10.0
7.0
6.0 8.0
5.0 6.0
4.0 4.0
3.0
2.0
Dec-13
Dec-16
Dec-17
Dec-18
Dec-20
Dec-21
Dec-22
Dec-14
Dec-15
Dec-19
-
.
Dec-13
Dec-19
Dec-21
Dec-22
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-20
.
Exhibit 31 - Surplus liquidity has come down sharply in the last one year Exhibit 32 - As LDR increases back to long term peak levels, gap between credit
and deposit growth will narrow
10,000 Surplus liquidity (Rsbn) Surplus Liquidity as a % of System Deposits 6.0%
5.0%
8,000 LDR (%) - LHS Deposit Growth (%, YoY) Credit Growth (%, YoY)
4.0%
6,000 79% 16%
3.0%
78% 14%
4,000 2.0% 77%
12%
1.0% 76%
2,000 10%
75%
0.0%
0 74% 8%
-1.0% 73% 6%
(2,000) 72%
-2.0% 4%
71%
(4,000) -3.0% 70% 2%
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Dec-22
69% 0%
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23E
FY24E
FY25E
.
Source: RBI, Jefferies .
Exhibit 33 - Repo rate and yields on Gsec and AAA corporate bonds are a shade below the peak levels in
Aug-18
Peak (Aug-18) Mar-20 Dec-21 Now
10.0
8.6
8.4
8.2
8.1
7.7
7.7
7.5
7.3
7.2
7.0
8.0
6.5
6.5
6.3
6.1
6.0
4.4
4.0
4.0
2.0
-
Repo Rate 10Yr Gsec yield 10Yr AAA corp. yield Avg MCLR
.

Banks
Equity Research
January 3, 2023
Exhibit 34 - CPI inflation moderated further in Nov and is now c. higher end of Exhibit 35 - Higher inflation has pushed real interest rates, but its still just
RBI's acceptable range of 2-6% around zero
CPI Inflation (%) RBI tolerance level (Lower Band) Real Interest rates (%)
RBI tolerance level (Upper Band) 6.0
10.0%
4.0
8.0%
2.0
6.0%
0.0
4.0%
2.0% -2.0
0.0% -4.0
May-13
Nov-13
May-14
May-15
Nov-15
May-16
May-17
Nov-12
Nov-14
Nov-17
May-18
May-19
Nov-16
Nov-19
May-20
May-21
Nov-18
Nov-21
May-22
Nov-20
Nov-22
. .
Source: RBI, Jefferies Source: Bloomberg, Jefferies
Calculated as the difference between term deposit rate (average) of
SBI and Consumer Price Inflation (CPI)
Exhibit 36 - Advanced economies are expected to see reasonable additional Exhibit 37 - In Emerging economies, the additional hikes may be limited
hikes in policy rates
.
. Source: RBI's FSR, Bloomberg
Source: RBI's FSR, Bloomberg
Exhibit 38 - Forex reserves have started to improve after deterioration in 2022; this may offer liquidity to
domestic system and boost RBI's confidence about limited need for rate hikes
Forex Reserves (US$bn)
750
650
550
450
350
250
150
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Dec-22
.
#4. Sweet spot on credit quality to stay

Retail borrower behaviour & corporate cash-flows are the best in many years, and we expect this
trend to stay. Higher awareness about the importance of a good credit score is driving the former
while an unwavering focus on deleveraging coupled with lower intensity of private capex over
the last few years drove the latter. This resulted in a significant moderation in GNPA ratio of all

Banks
Equity Research
January 3, 2023
SCB's as it fell to a six-year low of 5.9%. As per RBI, this is further expected to improve to 5.3%
by FY23. A combination of lower slippages and higher recoveries will drive this moderation.
For top-10 economies (ex. India) in the world, private corp debt to GDP ratio rose by ~20 ppts over
the last 10 years to ~103% of GDP. For India, it is much lower at 53% of GDP as India went through
a period of corporate spending slowdown due to a series of events viz. NPL cycle, bankruptcy
law, disruptive GST implementation, demon etc. The corporate D/E ratio now stands at a low of
0.6x and we believe the negative impact of these events is now fully in the numbers. Improved
rating profile(with a greater share of higher rated borrowers), declining corporate gearing levels,
adequate provisions for NPL coupled with healthy reserves make us believe that credit costs will
stay benign in FY24-25 at 1.1%, marginally higher than FY23E. This in turn will support profitability
and aid banks to deliver well on ROA front.
Exhibit 39 - Slippages (% of past year loans) continues to fall as predominant Exhibit 40 - Lower slippages coupled with higher recoveries, driving lower
portion of possible stress accounts have already been identified credit costs
Slippages (% of past year loans) Credit Costs (%)
Total Pvt Banks PSU Banks Total Pvt Bank PSU Banks
8.0% 5.0%
4.0%
6.0%
3.0%
4.0%
2.0%
2.0%
1.0%
0.0% 0.0%
2023E
2024E
2025E
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023E
2024E
2025E
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
. .
Source: Company data, Jefferies Source: Company data, Jefferies
Exhibit 41 - GNPLs should continue to trend in a downward trajectory as fresh Exhibit 42 - ...and will have a positive rub-off effect on Net NPL ratio also
additions are limited vs. recovery/write-offs...
NNPL( % of loans)
GNPL (% of loans)
Total Pvt Bank PSU
Total Pvt Banks PSU Banks
7.0%
14.0% 6.0%
12.0% 5.0%
10.0% 4.0%
8.0% 3.0%
6.0% 2.0%
4.0% 1.0%
2.0% 0.0%
2023E
2024E
2025E
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
0.0%
.
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023E
2024E
2025E
. Source: Company data, Jefferies

Exhibit 43 - Almost all banks have healthy levels of provisioning - c.76% for our Exhibit 44 - Lenders carry buffer provisions, SBI used some reserves in 2Q
coverage universe
Contingent Provision (% of loans)
Coverage Ratio
1.6% 1.4%
1.4% 1.3%
Total Pvt Bank PSU
90% 1.2% 1.1%
80% 1.0%
70% 0.8%
0.8%
60% 0.5%
0.6% 0.5%
50%
40% 0.4%
30% 0.2%
20% 0.0%
2023E
2024E
2025E
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
IIB
Axis
SBI
HDFCB
Kotak
ICICI
. .
Source: Company data, Jefferies Source: Company Data, Jefferies

Banks
Equity Research
January 3, 2023
Exhibit 45 - Bounce rates (based on NACH debits) are near multi-year lows Exhibit 46 - Low level of restructured book for large Banks lends additional
comfort
NACH Returns (Rsbn, LHS) Bounce rate on NACH debits (% presentation, RHS)
2QFY23 Restructured Book (% of loans)
300 40%
2.0% 1.8%
35%
250 1.8%
30%
1.6% 1.5%
200
25%
1.4%
150 20%
1.2%
15%
100 1.0%
10% 0.7%
50 0.8% 0.6%
5%
0.6% 0.4%
0 0% 0.3% 0.3%
0.4%
Mar-19
Mar-20
Nov-20
Mar-21
Nov-21
Mar-22
Nov-18
Nov-19
Nov-22
Jul-19
Jul-20
Jul-21
Jul-22
0.2%
0.0%
.
ICICI
Kotak
Axis
HDFCB
SBI
IIB
PNB
Source: NPCI, Jefferies
.
Exhibit 47 - India's private corporate credit is among the lower levels on a % Exhibit 48 - India is one of the few countries where corporate gearing level has
GDP basis declined over the past decade
(%) Total credit to private corporate sector as % of GDP (ppt) Change in private corporate sector debt (ppt) over 2011-2021
180 50
160 40
140 30
120 20
100
10
80
0
60
40 (10)
20 (20)
0 (30)
US
China
Italy
UK
Malaysia
Australia
India
France
Korea
Thailand
EMs
DMs
Russia
Mexico
Germany
Canada
Japan
Saudi Arabia
Brazil
Euro area
Indonesia
South Africa
US
UK
China
Korea
Malaysia
Australia
Italy
India
France
Japan
Thailand
DMs
Mexico
Germany
EMs
Russia
Canada
Brazil
South Africa
Saudi Arabia
Indonesia
Euro area
. .
Source: BIS, Jefferies Source: BIS, Jefferies
Exhibit 49 - Our analysis of 600+ corporate balance sheets suggests that gearing is at cyclically low
levels, reflecting significant appetite for corporate capex
Sample of ~600 listed companies
1.2 (x)
Deleveraging cycle largely
1.0 played out
Deleveraging cycle
0.8
0.6
0.4
0.2
0.0
FY03
FY04
FY06
FY07
FY09
FY10
FY11
FY12
FY13
FY14
FY16
FY17
FY19
FY20
FY22
FY02
FY05
FY08
FY15
FY18
FY21
FY23e
FY24e
.
Source: Ace Equity, Jefferies

Banks
Equity Research
January 3, 2023
Exhibit 50 - Credit rating trends for corporate loans continue to more upgrades than downgrades
.
Source: RBI
#5. NIM compression will be made up by opex

control
In 2022, NIM expansion & low credit costs lifted ROA. While Banks are well-placed on the asset
quality front for the next few years as the incremental loan book seasons, there is a growing
concern if a cyclical NIM compression in 1HFY24 could be a drag on ROA. We do not expect
material rate hikes from here, but deposit rates may move up a tad more relatively as Banks
fight amongst each other for liabilities. Softness in CASA accretion will ensure competition for
term deposits remains intense, given latter is a more price sensitive product unlike the former
where service quality also plays a crucial role. However, we are not too concerned as we see a
limited impact of this on profitability as banks may pull-back some opex to offset the same; also
consensus estimates don't factor peak NIMs continuing in FY24. Although, with switch to EBLR-
based loan pricing, NIMs & ROA of banks have become volatile and pro-cyclical.
Exhibit 51 - Bulk of the expansion in NIM was seen in CY2022; we expect Exhibit 52 - We expect most individual banks to see a similar trend and post
margins to remain largely flattish in FY24/25E flat margins in FY24/25E
NIM (%) NIM (%)
Total Pvt Bank PSU ICICI Axis Kotak IIB SBI PNB
5.0% 5.0%
4.5% 4.5%
4.0% 4.0%
3.5% 3.5%
3.0% 3.0%
2.5% 2.5%
2.0% 2.0%
2018 2019 2020 2021 2022 2023E 2024E 2025E 2018 2019 2020 2021 2022 2023E 2024E 2025E
. .
Source: Company Data, Jefferies Estimates Source: Company Data, Jefferies Estimates
Exhibit 53 - Higher share of externally benchmarked linked loans led to faster upward repricing of loans...
(% of dom. loans) Loan-pricing benchmarks for banks
MCLR EBLR Fixed Rate Others

120%
100%
80%
60% 34%
41% 43% 53% 43%
40%
20%
0%
Axis ICICI Bank Kotak Bank SBI Average
.

Banks
Equity Research
January 3, 2023
Exhibit 54 - SBI (proxy for banking sector) has managed its NIM well across Exhibit 55 - ...that led to sharp expansion in NIMs during 2QFY23, but this will
rate cycles also add to volatility across cycles...
SBI NIMs Repo Rate, RHS NIMs 2QFY22 1QFY22 2QFY23 bps YoY bps QoQ
(%) (%) HDFCB 4.3% 4.2% 4.3% 0bps 10bps
ICICI 3.9% 4.0% 4.3% 42bps 30bps
4.0 Stability in NIMs despite changes in Repo Rate 7.0
Axis 3.5% 3.6% 4.0% 50bps 36bps
3.5 6.0 Kotak 4.6% 4.9% 5.2% 57bps 25bps
3.0 5.0 IIB 4.1% 4.2% 4.2% 18bps 3bps
2.5
4.0 SBI 2.9% 3.0% 3.2% 25bps 15bps
2.0
1.5
3.0 . PNB 2.7% 2.9% 3.1% 38bps 21bps
1.0 2.0 Source: Company data, Jefferies
0.5 1.0
0.0 0.0
Jun-17
Jun-18
Jun-19
Jun-20
Jun-21
Jun-22
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
.
Source: Company Data, RBI, Jefferies
Exhibit 56 - While margins may moderate going forward, impact will be offset by lower growth in opex
Pvt Bank Coverage
NIM (%) (LHS) Opex growth (%) (RHS)

4.5% 30%
4.2% 25%
20%
3.9%
15%
3.6%
10%
3.3% 5%
3.0% 0%
FY22 1QFY23 2QFY23 FY23E FY24E FY25E
.
Exhibit 57 - Pvt Banks invested in expanding distribution footprint and digital Exhibit 58 - ... thus potential exists to cut down spending in case of margin
offerings in 2022... headwinds
Cost to Assets (%) Cost to Assets (%)
Total Pvt Bank PSU ICICI Axis Kotak IIB SBI PNB
2.4% 3.4%
2.2% 3.0%
2.6%
2.0%
2.2%
1.8%
1.8%
1.6% 1.4%
1.4% 1.0%
2018 2019 2020 2021 2022 2023E 2024E 2025E 2018 2019 2020 2021 2022 2023E 2024E 2025E
. .
Source: Company Data, Jefferies Estimates Source: Company Data, Jefferies Estimates

Banks
Equity Research
January 3, 2023
Exhibit 59 - We expect healthy growth in banking sector profit in 2023... Exhibit 60 - ...and PSU banks regain lost share in profit terms as well
Split of net profit (Rsbn) Split of net profit (%)
Pvt Bank (coverage) PSU (coverage) Pvt Bank (coverage) PSU (coverage)
2,500 100%
3%
2%
25%
27%
33%
33%
35%
35%
2,000
38%
748 80%
1,500 697
596 60%
100%
100%
424
98%
97%
1,000
1,509
1,290
233 40%
1,112
75%
196
73%
9
67%
67%
6
65%
65%
500 154
62%
637 865
324 346 343 322 373 462 20%
-
(500) (213) (87) 0%
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23E
FY24E
FY25E
FY23E
FY24E
FY25E
. .
Source: Company Data, Jefferies Estimates Source: Company Data, Jefferies
In FY18/19, share of Pvt Banks (coverage) is 100% as PSU Banks
(coverage) reported losses in aggregate
Exhibit 61 - Pvt Banks (coverage) are set to clock high teens RoE Exhibit 62 - PSU Banks to witness decadal high return ratios led by high loan
growth and normalisation of asset quality cycle
RoAA (Aggregate) - Pvt Banks (coverage) RoAE (Aggregate) - Pvt Banks (coverage)
2.0% 20.0% RoAA (Aggregate) - PSU Banks (coverage) Aggregate PSU Banks (coverage)
1.8% 0.9% 17.0%
18.0%
1.6% 0.7%
16.0% 12.0%
1.4% 0.5%
1.2% 14.0% 7.0%
0.3%
1.0%
12.0% 0.1%
0.8% 2.0%
10.0% -0.1%
0.6%
-3.0%
0.4% 8.0% -0.3%
FY16
FY19
FY22
FY15
FY17
FY18
FY21
2020
-0.5% -8.0%
FY23E
FY24E
FY25E
FY15
FY16
FY17
FY18
FY19
FY21
FY22
2020
.
FY23E
FY24E
FY25E
Source: Company data, Jefferies Estimates .
Source: Company data, Jefferies Estimates
#6. PSU banks regaining lost ground

PSU banks are bridging gap with private ones on growth & ROA. PSU Banks have become more
active lenders with their credit growth improving to 15% YoY as of Sep-22, the highest since 2013.
The gap in growth versus the private banks has also narrowed to just 5ppt in Sep-22 vs. 24%
at peak in March 2019 and pre-Covid 3yr avg. gap of 17ppt. While part of the narrowing of the
gap reflects the significant rise in corporate credit demand, these banks are also able to leverage
their low LDRs and better capitalised balance sheets.
With the bulk of corporate stress loans already accounted for and limited incremental lending
over the past 3 years, PSU banks' default rates have also narrowed along with improvement in
NPL coverage ratio. We believe that even as credit costs normalise up a little from current levels,
they will remain low for FY24 offering headroom for PSU banks to deliver healthy ROA in FY24.
Capital is not a challenge for PSU banks as most of them have a CET-1 ratio of +10%.
Despite the re-rating in PSU bank stocks in recent months, their valuations on PB are still at a
discount of c.70% to that of private banks. As the gap in growth and profitability narrows over
next 12-18 months, we see further headroom for PSU banks to close the gap on valuations with
private banks. We think a valuation gap of c.50% is more sustainable.

Banks
Equity Research
January 3, 2023
Exhibit 63 - PSU banks' credit growth improved to 15% and is 5ppt below private bks' vs. pre-Covid 3yr
avg. gap of 17ppt
Loan Growth (% YoY)

35%
30%
25%
20%
15%
10%
5%
0%
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Sep-20
Sep-21
Sep-22
Dec-14
Dec-16
Dec-17
Mar-15
Dec-15
Dec-21
Jun-15
Mar-16
Jun-16
Mar-17
Jun-17
Jun-18
Dec-18
Jun-19
Dec-19
Jun-20
Dec-20
Mar-18
Mar-19
Mar-20
Mar-21
Jun-21
Mar-22
Jun-22
All Scheduled Commercial Banks Public Sector Banks Private Sector Banks
.
Source: CMEI, RBI, Jefferies
Exhibit 64 - Strong growth in corporate aids overall credit; international growth also improved
Public Sector Loan Growth (%)

45% 41%
40%
35%
35% 32%
30%
25% 22%
19% 18%
20% 17% 16%
14% 15%
15% 12% 12% 13%
11% 10%
9%
10% 6% 6%
5%
0%
Retail Corporate MSME Agriculture Domestic International
March 22 June 22 Sept 22

.
Exhibit 65 - The gap in deposit growth between PSU Banks and private has Exhibit 66 - Larger Banks have taken greater rate hikes so far to ensure
contracted to 4%, significantly lower than pre-Covid 3yr avg. gap of 12ppt competitiveness in terms of price
Deposit Growth (% YoY) Rate Hikes in 2022 (bps)

30% 250
25%
190 185
200 180
20% 165 160
15% 150 125
10%
100
5%
0% 50
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Sep-20
Sep-21
Sep-22
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Mar-15
Mar-16
Mar-17
Mar-18
Mar-20
Mar-21
Jun-15
Jun-16
Jun-17
Jun-18
Mar-19
Jun-19
Jun-20
Jun-21
Mar-22
Jun-22
0
PNB Kotak ICICI SBI Axis IndusInd
Total Public Sector Banks Private sector banks .
. Source: Company data, Jefferies
Source: CMEI, RBI, Jefferies Deposits Market Share

Banks
Equity Research
January 3, 2023
Exhibit 67 - Divergence in asset quality performance between PSU Banks and Exhibit 68 - Capitalisation level has improved; strong profitability to act as a
private has converged in recent quarters further boost
Gross NPL Ratio (%) CET 1 Ratio (%)

10.0% 20.0%
8.0% 5.8% 18.0% 16.3%
6.0% 16.0%
4.0% 4.7% 14.0% 12.3%
2.0% 2.2% 12.0%
0.0% 10.0%
10.5%
March 21 June 21 Sept 21 March 22 June 22 Sept 22 8.0%
March 21 June 21 Sept 21 March 22 June 22 Sept 22
Public Leading Private Public + Leading Private
. Public Leading Private Public + Leading Private
Source: Company data, Jefferies .
Exhibit 69 - Most PSU banks have lower LDR levels Exhibit 70 - Private banks have higher LDRs
Loan Deposit Ratio (%) - 2QFY23 Loan Deposit Ratio (%) - 2QFY23
100% 100.0% 90.1% 90.4% 90.8%
86.1% 88.4%
90% 90.0% 82.3%
76.3%
80%
70.0% 70.1% 72.4% 72.7% 73.6% 80.0%
69.6%
70% 66.0% 70.0%
60.5%
57.4%
60% 60.0%
50% 50.0%
40% 40.0%
30% 30.0%
20% 20.0%
10% 10.0%
0% 0.0%
CBI UCO IOB PNB IB P&SB SBI Canara BOM BOI IIB ICICI HDFC Axis Kotak Bandhan
. .
Exhibit 71 - PSU banks introduced special deposit schemes with higher returns Exhibit 72 - Lending rates of most PSU banks are in tight range; SBI & PNB
to beef-up deposits offer lower rates
Special Deposit Interest Rates Lending Deposit Rates
1-2 Years 2-3 year Special Scheme 10.0% 8.9%

8.8% 8.7% 8.8% 8.8% 8.8% 8.6% 8.8% 8.6%
8.1% 8.3%
8.0% 7.9% 8.1% 8.1% 8.1% 8.0% 8.1%
8.0% 7.7% 7.7%
8.0%
6.5% 6.3%
7.0% 7.0% 6.0% 6.3%
6.0% 6.3% 6.3% 6.3%
7.0% 5.8% 5.6%
6.4% 6.3% 6.5% 6.0%
6.3% 6.3% 6.3% 6.3% 6.2% 6.3%
6.0% 6.3% 6.3% 6.3% 6.1%
5.8% 6.0%
6.0% 5.8% 5.8%
6.0% 5.8% 5.6% 4.0%
5.0% 2.0%
4.0%
0.0%
BOI BOM Canara CBI IB IOB PNB P&SB UCO SBI
600 Days
444 Days
600 Days
400 Days
555 Days
555 Days
666 Days
3.0% EBLR MCLR Term Deposit rate

.
2.0%
1.0%
0.0%
BOI BOM Canara IOB PNB IB UCO SBI
.

Banks
Equity Research
January 3, 2023
Exhibit 73 - Snapshot of Public Sector Banks

PSB - 2QFY23 (Rsbn) SBI BOI BOM Canara CBI IB IOB PNB P&SB UCO
Balance sheet Details

Loans 30,351 4,938 1,442 8,241 1,970 4,156 1,727 8,302 737 1,422
Deposits 41,903 6,475 1,958 11,340 3,431 5,936 2,617 11,935 1,052 2,351
CASA Deposit 17,978 2,422 1,102 3,595 1,743 2,411 1,119 5,244 351 905
Investments 15,759 288 702 3,142 1,396 1,784 970 3,939 472 979
Growth Rates (% YoY)
Loan Growth 19.9% 17.9% 30.2% 20.0% 12.2% 6.5% 17.5% 12.8% 9.1% 17.0%
Deposits Growth 10.0% 5.6% 7.9% 9.8% 2.0% 10.3% 4.3% 7.0% 3.3% 10.0%
CASA Growth 5.4% 4.1% 12.6% 7.5% 4.2% 7.0% 4.8% 5.2% 13.9% 11.3%
Investments Growth 6.8% 2.9% -2.2% 9.0% -5.2% -0.6% 1.8% 8.3% 27.1% 1.6%
Ratios
Casa Ratio 46.2% 44.1% 56.3% 34.0% 51.0% 40.9% 42.8% 44.9% 33.4% 38.7%
LDR 72.4% 76.3% 73.6% 72.7% 57.4% 70.0% 66.0% 69.6% 70.1% 60.5%
NIM 3.3% 3.0% 3.6% 2.8% 3.4% 2.9% 2.8% 3.1% 3.1% 2.8%
Gross npl ratio 3.5% 8.5% 3.4% 6.4% 9.7% 7.3% 8.5% 10.5% 9.7% 6.6%
Net npl ratio 0.8% 1.9% 0.7% 2.2% 3.0% 1.5% 2.6% 3.8% 2.2% 2.0%
PCR 77.9% 89.0% 80.8% 85.4% 89.2% 80.7% 71.9% 66.3% 89.2% 92.9%
ROA 1.0% 0.5% 0.9% 0.8% 0.4% 0.6% 0.7% 0.1% 0.8% 0.7%
CET 1 Ratio 9.5% 13.0% 12.9% 10.2% 11.6% 12.5% 12.1% 10.9% 12.7% 11.3%
Valuation
Price (Rs.) 614 88 31 334 32 285 32 56 34 32
Market Capitlization ($bn) 66 4.4 2.5 7.3 3.4 4.3 7.3 7.5 2.8 4.6
. P/B Ratio (trailing) 1.7 0.8 1.4 0.8 1.0 0.8 2.6 0.6 1.6 1.6
Source: Company Data, Bloomberg, Jefferies

Exhibit 74 - Snapshot of Private Sector Banks
Leading Private - 2QFY23 (Rsbn) Axis ICICI HDFCB IIB Bandhan Kotak
Balance sheet Details

Loans 7,309 9,386 14,799 2,601 902 2,940
Deposits 8,108 10,900 16,734 3,159 994 3,252
CASA Deposit 3,746 5,078 7,597 1,335 686 1,826
Investments 2,876 3,330 5,191 760 307 989
Growth Rates (% YoY)
Loan Growth 17.6% 22.7% 23.4% 17.8% 21.1% 25.1%
Deposits Growth 10.1% 11.5% 19.0% 14.7% 21.3% 11.5%
CASA Growth 14.0% 12.7% 15.4% 15.0% 5.2% 13.8%
Investments Growth 15.1% 16.8% 24.7% 9.7% 18.8% -10.9%
Ratios
CASA Ratio 46.0% 45.0% 45.4% 42.0% 40.8% 56.2%
LDR 90.1% 86.1% 88.4% 82.3% 90.8% 90.4%
NIM 4.0% 4.3% 4.1% 4.2% 7.0% 5.2%
Gross NPL ratio 2.5% 3.2% 1.2% 2.1% 7.2% 2.0%
Net NPL ratio 0.5% 0.6% 0.3% 0.6% 1.9% 0.6%
PCR 80.0% 80.6% 73.3% 72.0% 75.5% 73.7%
ROA 1.8% 2.1% 2.0% 1.8% 0.6% 2.4%
CET 1 Ratio 15.1% 15.6% 16.3% 16.0% 18.4% 21.5%
Valuation
Price (Rs.) 934 891 1607 1220 234 1827
Market Capitlization ($bn) 35 75 108 11 5 44
P/B Ratio (trailing) 2.3 3.2 3.5 1.9 2.2 3.5
.
Source: Company Data, Bloomberg, Jefferies
#7. Banks may selectively consider capital raise in

2H23; watch-out for M&A
Most banks are well capitalized with CET-1 ratio >10%. However, if the current growth
momentum sustains, banks may need to raise additional capital in 2H23. Large private Banks
in India raised equity capital in 2020 to shore up reserves in case of a surge in bad loans. They
also used this opportunity to increase coverage ratio and further strengthen balance sheet to
withstand volatility. PSU Banks also raised capital from the external markets during the same
period after being dependent on their parent (Government of India) for funding.
We also feel that RBI is actively trying to reduce operating arbitrage among the different players
such as Banks, NBFCs and fintechs. Growing supervision and regulatory changes may either

Banks
Equity Research
January 3, 2023
disrupt the business model of some of these fintechs or make it unviable to operate at a small
scale, paving the way for M&A. Banks may consider such partnerships/acquisitions to fill the
necessary gaps. Banks may also look at minor stake sales/divestment of non-core assets in
order to boost capital reserves for growth.
Exhibit 75 - CET-1 ratio of PSU Banks is significantly lower vs. private peers
CET 1 Ratio (%) RBI threshold (%)

25%
22%
20% 18%
16%
15% 16% 16%
15% 12% 13% 13% 13% 13%
11% 11% 12%
10% 10%
10%
9%
5%
0%
IOB
BOM
BOI
ICICI
SBI
IB
UCO
IIB
HDFCB
P&SB
Kotak
Canara
PNB
Bandhan
CBI
Axis
.
PSU Bank capital raise
In the Union Budget 2022-23, the Government of India (GOI) did not allocate any amount for
capital infusion in public sector banks (PSU banks). In the year before this, GOI had earmarked
INR200b for recapitalisation of PSU banks. However, during Budget 2022-23, this was trimmed
to INR150b. The change in stance is primarily due to improving financial health of PSU banks as
the stock of bad loans has come down along with strong build up of provision buffers. Further, to
augment funding resources, these banks have been encouraged to raise funds from the markets
as well as divest non-core assets.
Between FY16-21, Government of India had infused Rs3.3tn in PSU Banks to help them tide over
the bad loan crisis. In FY22/YTD FY23, improved financial performance and a strong business
outlook for the next few years has enabled PSU banks to raise capital from the markets on their
own and not rely on Government of India for funding.
Status of IDBI Bank's privatization
Government has given in-principle approval for strategic disinvestment and transfer of
management control. Out of the 94.7% stake held by LIC and Government of India (GOI), it plans
to offload 60.7% (LIC: 30.2% and GOI: 30.5%) along with transfer of management control. As of
now, the last date for filing Expression of Interest (EoI) is Jan 7, 2023. Post RBI's 'Fit and Proper'
assessment and security clearance from Ministry of Home Affairs, access to data room will be
granted to qualified bidders. It usually takes 6 months for due diligence to get completed and
financial bids to come in. However, the sellers are hopeful of receiving financial bids by March,
2023. Further 40% of the equity will be locked in for 5 years. We watch out for progress on this
one and investors may leverage the bank-license and branch-network.

Banks
Equity Research
January 3, 2023
Exhibit 76 - Financial snapshot of IDBI Bank Exhibit 77 - LIC and GOI together hold 94.7% stake in IDBI Bank
Rsbn FY19 FY20 FY21 FY22
Shareholding structure as of Sep 30, 2022
Balance sheet details
Loans 1,468 1,298 1,281 1,458 Other Shareholders
5.3%
Deposits 2,274 2,224 2,309 2,331
CASA Deposits 967 1,062 1,164 1,324
Investments 931 818 810 830 Life Insurance
Growth rates (%, YoY) President of India Corporation (LIC)
45.5% 49.2%
Loan Growth (14.5) (11.5) (1.3) 13.8
Deposits Growth (8.3) (2.2) 3.8 1.0
CASA Growth 5.0 9.8 9.7 13.7
Investments Growth 1.6 (12.1) (0.9) 2.4
Ratio (%)
CASA Ratio 42.5 47.7 50.4 56.8 .
LDR 64.6 58.4 55.5 62.5 Source: BSE, Jefferies
NIM 2.0 2.6 3.4 3.7
Gross NPL Ratio 27.5 27.5 22.4 19.1
Net NPL Ratio 10.1 4.2 2.0 1.3
PCR (as per RBI guidelines) 82.9 93.7 96.9 97.6
RoA (4.7) (4.3) 0.5 0.8
CET 1 Ratio 8.9 10.5 13.1 16.7
Valuation
Price (Rs) 58.1 58.1 58.1 58.1
Market Capitalization (Rsbn) 625 625 625 625
. P/B ratio 1.5 2.2 2.0 1.9

Exhibit 78 - Ownership rules for FIIs have been relaxed over the years to promote foreign investment
Key parameter Banks NBFCs Insurance
74% - Automatic approval 74% - Automatic approval
Foreign ownership limit 100%
(CY 2021) (CY 2021)
49% - Automatic approval 49% - Automatic approval
(CY2015) (CY2015)
26% - Automatic approval
. (inception)
Source: RBI, IRDAI, Jefferies
#8. Watch-out for moves by Reliance group in

financial services
One of the interesting things to watch out in 2023 will be Jio Financial Services (JFSL). A few
months back, Reliance Industries (RIL) had announced the demerger of its financial services
division. This entity will be renamed as Jio Financial Services (JFSL) and will be eventually listed
on the Indian stock exchanges. The regulatory licenses for the key businesses are in place.
Reliance group has developed forte in the digital services space through various applications
and has best in class technology which could be further leveraged to provide digital financial
solutions to its huge customer base. Currently, Reliance through Jio platforms has over 20
million consumers who can become its potential customers to start with. Reliance is focusing
primarily on providing fully digital financial service platform that is well-capitalized to tap the high
growth financial services business. Through JFSL, it plans to launch consumer and merchant
lending business while continuing to evaluate organic growth, joint-venture partnerships as well
as inorganic opportunities in insurance, asset management and digital broking segments.
Reliance has also made a strong signal of its ambitious plans in this segment by appointing Mr.
K.V. Kamath as the Chairman for the entity. Reliance Industrial Investments and Holdings Limited
(RIIHL), a part of the financial services undertaking of RIL will also be transferred to JFSL. This
is significant as it is the beneficiary of 6.1% stake in Reliance Industries through its subsidiary.

Banks
Equity Research
January 3, 2023
Exhibit 79 - Holding Structure - Jio Financial Services Exhibit 80 - Jio Financial Services holds potential to be a significant player,
assuming its 6.1% stake in Reliance Industries as networth
Net Worth (Rsbn)

3,500
3,000
2,500
2,000
1,500
1,000
500
0
ICICI
BAF
SBI
HDFCB
Axis
PNB
Kotak
IndusInd
Jio FS
.
.
Source: Press Release, Jefferies
#9. Election year politics & regulations

2023 has a busy state election calendar (9 state elections incl. Karnataka, MP and Rajasthan)
& preparations for central elections in 2024 will begin. We watch-out for populist measures
(esp. agri/ MFI loan-waivers), rural schemes, push for Govt. led capex. We expect the BJP to
retain an edge in passing legislations through the parliament, given c.50% share in Upper House
(with support). However, there has been not much legislative action in 2022 and there isn't
much on agenda other than amendment to Electricity Act (to reduce cross subsidies), DESH
(allowing flexibility in SEZs for domestic operations) and PSU banks privatisation bill. A push for
privatisation could see deals ahead in the process viz. Concor and IDBI Bank to conclude. With
elections spread throughout the country (geography wise) and the year (timing wise); we believe
political pragmatism could take precedence to decision-making.
In 2023, RBI will continue to focus on reducing regulatory arbitrages (banks, NBFCs, Fintechs)
and improving system compliance level. In addition to managing inflation through monetary
policy, RBI has also tried to cut down the existing arbitrage between Banks and NBFCs to bring
them on a level playing field. It has divided NBFCs into 4 different categories on the basis of
scale. As an NBFC grows in size and moves up a category, intensity of regulatory disclosure
increases. Regulation on fintechs and other players engaged in the digital ecosystem of financial
transactions has also sharpened as they have gained significant size. Through the year, several
instances of unethical practices and mis-selling were reported in media, which might have also
prompted the Regulator to look at it closely.

Banks
Equity Research
January 3, 2023
Exhibit 81 - State election calendar in 2023
% Rajya Sabha
State Likely election date % LS In-power
(Upper house)
Meghalya Feb-Mar'23 0.4 0.4 BJP coalition govt
Nagaland Feb-Mar'23 0.2 0.4 BJP coalition govt
Tripura Feb-Mar'23 0.4 0.4 BJP
Karnataka May'23 5.2 4.9 BJP
Chhatisgarh Nov-Dec'23 2.0 2.0 Congress
Madhya Pradesh Nov-Dec'23 5.3 4.5 BJP
Mizoram Nov-Dec'23 0.2 0.4 BJP coalition govt
Rajasthan Nov-Dec'23 4.6 4.1 Congress
Telangana Nov-Dec'23 3.1 2.9 TRS
Total upcoming 21.4 20.0
.
Source: Election comission of India, Jefferies
Exhibit 82 - RBI has tightened its lens on fintech by bringing in important regulations on the basis of
market feedback and customer complaints
Key Regulations Details
Any loan related transaction - disbursement or repayment needs to be directly between
Fintechs - Digital Lending Norms borrower and Regulated Entity (RE). Thus,money and paper trail is not left with the fintech
(intermediary)
Data collection by lending apps can be done only with prior explicit consent of the
borrower. It should also have clear audit trails.
A key fact statatement (KFS) - containing important details related to the loan will be
shared with the borrower before contract execution. Further, a cooling off period will be
applicable where borrower can exit without paying any penalty.
In order to bridge the regulatory arbitrage that a non-Bank PPI issuer may have, RBI
Prepaid Payment Instruments barred issuers of PPIs from having the same loaded through credit lines. As per RBI, all
(PPI): Barred loading PPIs from PPIs shall be permitted to be loaded by bank transfers, debit card, credit cards and other
credit lines instruments issued by Regulated Entities in India. Unlike a credit card, no credit history is
built by use of PPIs
.
Exhibit 83 - RBI trying to reduce regulatory arbitrage between Banks and NBFCs through the following
Key Regulations: NBFCs Details
NBFCs Scale Based Regulations
RBI has identified 16 NBFCs as NBFC-UL (Upper Layer). These entities will need to migrate
(SBR): Identification of NBFCs-UL -
to Bank-like regulatory structure. However, RBI has granted 3 months to prepare a glide
to go through Bank like
path and a further two years for adherence to the glide path.
compliances
NBFCs Scale Based Regulations RBI has directed NBFCs-UL to make provisions on different asset classes in line with
(SBR): Differential Standard Asset practises followed by Banks. The different rates of provision have been decided based on
Provisioning for NBFC-UL expected credit losses in future.
RBI has proposed to regulate loans granted by NBFCs to their Directors, senior officers
NBFCs: Lending Restrictions to and relatives thereof. NBFC-BL are free to decide a specific threshold, above which Board
Directors and connected entities approval is required. However, limits for NBFC-ML and NBFC-UL will be set by RBI. Banks
are completely prohibited from granting loans to Directors.
In order to ensure an effective compliance system, RBI has made it mandatory for all
NBFCs: Compliance Function for NBFCs - categorised in Upper/Middle layer to appoint an independent Chief Compliance
large NBFCs Officer (CCO) and design a compliance policy for the NBFC, under the supervision of the
Board. Banks have an exhausitive compliance team.
In its Revised Regulatory Framework for NBFCs, RBI has inserted ICAAP requirements for
NBFC-ML (middle layer) from Oct-22. Under the existing regulatory guidelines, stress
NBFCs: ICAAP requirement
testing is done only for securitisation exposure or pool of loans acquired from other
institutions. Banks are already required to go through ICAAP norms.
.
#10. Valuation not expensive; gap to narrow; Stay

positive
In 2022, Nifty banks was up 21% outperforming region and Indian market. Despite re-rating
and good earnings visibility for 2023, valuations are reasonable. With performance gap between
private and PSU banks narrowing, the range of valuations will also narrow. Our top picks among
banks are ICICI Bank, SBI and IndusInd Bank.

Banks
Equity Research
January 3, 2023
Despite Nifty Bank (+21%) outperforming Nifty (+5%) in 2022, valuations are not expensive, given
visibility on earnings growth. Healthy credit growth along with stable asset quality will support
profitability. While we do not expect NIMs to moderate in FY24, any pressure on that front can be
managed by scaling down on opex. This will protect profits and therefore aid rerating. ICICI Bank
stays top-pick as it offers the best risk reward ratio across peers with superior growth, improved
asset quality and higher RoEs. We also like SBI as it is well positioned to deliver strong earnings
growth and trades at attractive valuations with healthy RoE. Among midcaps, we maintain our
preference for IndusInd Bank as it has potential to ramp up lending and defend margins while
credit costs continues to be low. In this context, IIB is attractively priced, and we see scope for
a turnaround in RoA.
Exhibit 84 - Performance of key financials indices
Index YTD performance (%) YoY (%)

Brazil Financials Index 16 17
India Financials Index 8 9
UK Financials Index -1 -1
Asia ex-Japan Financials Index -8 -8
EM Financials Index -11 -11
World Financials Index -13 -12
US Financials Index -15 -14
. China Financials Index -16 -16

Source: Bloomberg, Jefferies
Exhibit 85 - Over last year, Banks have OPFed Nifty Exhibit 86 - PSU Banks have significantly OPFed other sub-sectors within
financials in CY2022
Nifty Bank Nifty
1-yr price performance (%)
60
48
125 50
36
120 40
115 30 21
16 18
20
110 5 8
10
105 0
100 -10 -2
95 -20 -16 -12 -10
Nifty
Large pvt bank

AMC
Mid & small NBFC
Key PSU Banks

Pvt GI
Life Insurance
Nifty Bank
Mid-sized pvt bank

PSU NBFC
Large NBFC
90
85
80
Sep-22
Jan-22
Jul-22
Mar-22
Apr-22
Dec-22
May-22
Oct-22
Feb-22
Nov-22
Jun-22
Aug-22
.
. Source: FactSet, Jefferies; *Market-cap weighted performance

Exhibit 87 - With improvement in performance of private corporate banks, their valuation gap with retail
banks has narrowed with overall avg. being in similar levels
1-yr fwd adj P/B Large Pvt. Retail Banks

1-yr fwd adj P/B Large Pvt. Corporate Banks
(X)
Average of the two
5.0
4.0
3.0
2.0
1.0
-
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Dec-22
.

Banks
Equity Research
January 3, 2023
Exhibit 88 - Stock Price Performance in CY2022: Top 25 and Bottom 25 Performers
Stock price returns of financial stocks in CY22 (%)

Karnataka Bank 152
Karur Vysya Bank 147
Uco Bank 144
Bank Of Baroda 128
South Indian Bank 118
Ujjivan 114
Indian Bank 107
Punjab & Sind Bank 105
Union Bank Of India 88
Satin 79
Bank Of India 77
IIFL Holdings 72
Canara Bank 69
Federal Bank 68
Arman 65
Dcb Bank 65
Bank Of Maharashtra 60
Mahindra & Mahindra Fin Secs 60
Indian Overseas Bank 60
Yes Bank 59
Jammu And Kashmir Bank 57
Credit Access Grameen 54
Punjab National Bank 54
Central Bank Of India 52
GIC Housing Finance 49
Nifty Bank 21
NSE CNX NIFTY INDEX 5
Repco Home Finance -14
SBI Cards -14
ABSL Amc -15
CAMS -17
UTI Amc -18
ICICI Prudential Life Insurance -20
CDSL -24
Motilal Oswal -25
Star Health -25
Manappuram -28
Muthoot Finance -28
Indiabulls Housing -28
Nippon Life AMC -29
Aavas Financiers -29
Max Financials -31
Fino Payments Bank -32
Indostar -33
Reliance Home Finance -34
ICICI Securities -37
Srei Infra -38
Reliance Capital -39
Piramal -42
IEX -44
Pb Fintech -52
Paytm -60
.

Banks
Equity Research
January 3, 2023
Exhibit 89 - Nifty Bank valuations remain close to long term average
Nifty Bank fwd P/B Average
3.0
2.0
1.0
0.0
Dec-13
Dec-19
Dec-10
Dec-11
Dec-12
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-20
Dec-21
Dec-22
.
Exhibit 90 - Despite trading above 5 yr average multiples, ICICI and SBI hold Exhibit 91 - Despite sharp run up in banking names in CY2022, valuations are
potential for further re-rating still not expensive
Premium/ (Discount) to 5 yr average on 1yr forward P/Adj BV 1yr rolling forward P/ Adj. BV (x)
valuation (X)
33% 4.0
40% 30%
3.0
20% 3.0 2.5
0% 2.1
1.8
-3% 2.0 1.5 1.6 1.6
-20%
-19%
-24% 1.0
-40%
-35%
-60% -55% -
Bandhan
Axis
SBI
Kotak
Nifty Bank
IndusInd
ICICI
Axis
SBI
Bandhan
Nifty Bank
ICICI
Kotak
IndusInd
. .
Source: Company Data, FactSet, Jefferies Estimates Source: Company Data, Jefferies Estimates
Average since listing for Bandhan, BV used for Nifty Bank
Exhibit 92 - Valuation matrix: Banks and NBFCs
Company Price Mkt Cap ADTO Rating Target Upside Adjusted PB (x) P/B (x) Adjusted PE (x) Div Yield (%) ROA (%) Core ROE (%)
price
(Rs) (US$bn) (US$m) (Rs) (%) FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E
Private banks
ICICI Bank 891 75 124 BUY 1,150 29% 3.1 2.7 2.3 3.6 3.2 2.8 22 18 16 0.6% 0.7% 0.8% 1.8% 1.9% 1.8% 16% 16% 16%
Axis Bank 934 35 114 BUY 1,110 19% 2.4 2.0 1.7 2.5 2.1 1.8 20 13 12 0.1% 0.3% 0.4% 1.2% 1.6% 1.5% 12% 17% 15%
Kotak Bank 1,827 44 57 BUY 2,470 35% 3.8 3.2 2.7 5.0 4.5 3.9 30 26 20 0.1% 0.1% 0.1% 2.1% 2.1% 2.2% 13% 13% 14%
IndusInd Bank 1,220 11 48 BUY 1,600 31% 1.9 1.7 1.5 2.0 1.7 1.5 20 13 11 0.7% 1.1% 1.2% 1.2% 1.7% 1.8% 10% 14% 15%
Bandhan Bank 234 5 31 BUY 340 45% 2.4 2.1 1.7 2.2 1.9 1.6 300 17 8 0.0% 0.4% 1.1% 0.1% 1.5% 2.6% 1% 12% 22%
PSU Banks
SBI 614 66 88 BUY 760 24% 2.0 1.7 1.5 2.0 1.8 1.6 14 12 10 1.2% 1.4% 1.7% 0.7% 0.7% 0.8% 13% 13% 14%
PNB 56 8 74 UNPF 29 -49% 1.1 0.9 0.8 0.7 0.6 0.6 18 14 9 1.1% 1.4% 1.8% 0.3% 0.3% 0.5% 4% 5% 7%
NBFC
Bajaj Finance 6,575 48 80 HOLD 8,160 24% 9.3 7.6 6.2 9.0 7.4 6.0 56 36 28 0.3% 0.5% 0.6% 3.7% 4.5% 4.5% 17% 22% 23%
LIC HF 414 3 13 BUY 500 21% 1.2 1.2 1.1 0.9 0.8 0.8 11 6 5 2.3% 3.1% 3.8% 0.9% 1.2% 1.3% 10% 12% 13%
Shriram Finance 1,377 6 16 HOLD 1,365 -1% 1.7 1.5 1.3 1.4 1.3 1.1 14 10 9 0.9% 1.0% 1.2% 2.0% 3.1% 2.7% 11% 16% 14%
Piramal Ent. 828 2 13 BUY 1,000 21% 0.6 0.9 0.9 0.5 0.7 0.7 11 na 11 4.1% 4.2% 4.2% 1.5% -1.3% 1.7% 4% -4% 6%
CIFC 723 7 12 BUY 890 23% 6.2 5.1 4.2 5.1 4.3 3.6 28 25 20 0.1% 0.3% 0.3% 2.7% 2.6% 2.6% 20% 18% 19%
MMFS 235 4 13 UNPF 175 -25% 2.4 2.2 2.0 1.9 1.7 1.6 29 17 14 1.6% 1.7% 2.0% 1.3% 2.0% 2.0% 7% 10% 11%
Aavas 1,846 2 3 BUY 2,850 54% 5.3 4.6 4.0 5.2 4.5 3.9 41 34 28 0.0% 0.0% 0.0% 3.6% 3.4% 3.5% 14% 14% 15%
Aptus 304 2 1 BUY 380 25% 5.3 4.5 3.9 5.2 4.4 3.8 40 31 26 0.0% 0.0% 0.0% 7.3% 7.3% 6.7% 15% 15% 16%
CanFin 535 1 6 BUY 635 19% 2.4 2.0 1.7 2.3 2.0 1.7 15 12 11 5.2% 4.8% 5.0% 1.9% 1.9% 1.8% 17% 17% 17%
Home First 732 1 2 BUY 900 23% 4.3 3.7 3.2 4.1 3.5 3.0 37 29 24 0.0% 0.0% 0.0% 3.6% 3.7% 3.4% 12% 13% 14%
Other Financials
. CMS Infosystems 313 1 3 BUY 390 25% na na na 3.7 3.0 2.5 20 15 13 0.3% 0.4% 0.4% 13% 15% 15% 20% 22% 21%

Exhibit 93 - Valuation matrix: Insurers
Company Price Mkt Cap ADTO Rating Target Target Upside P/ EV (x) P/ VNB (x) VNB margin (%) Operating ROEV (%)
price multiple
Life Insurance (US$bn) (US$m) (Rs) (%) FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E
HDFC Life 566 15 20 Buy 680 3.0 20% 3.6 3.2 2.7 31 26 20.3 27% 27% 28% 17% 18% 18%
ICICI Pru Life 451 8 10 Buy 700 2.4 55% 2.1 1.9 1.6 15 12 8.6 28% 30% 30% 11% 16% 16%
Max Fin. Serv 678 3 10 Buy 860 1.7 27% 2.1 1.8 1.5 19.3 18.4 15.9 27% 29% 30% 19% 20% 20%
SBI Life 1,231 15 14 Buy 1,580 2.6 28% 3.1 2.7 2.2 23 15 11.1 26% 30% 30% 21% 21% 21%
Company Price Mkt Cap ADTO Rating Target Target Upside P/ E (x) P/ BV (x) ROE (%) Combined ratio (%)
price multiple
General Insurance (US$bn) (US$m) (Rs) (%) FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E
. ICICI Lombard GI 1,237 7 11 Buy 1,620 23 31% 36.0 28.8 25.3 5.9 5.1 4.5 17% 19% 19% 104% 103% 102%

Banks
Equity Research
January 3, 2023
Exhibit 94 - Valuation Matrix: AMCs

AMC Price Mkt ADTO Rating Target Upside P/ E (x) P/ BV (x) P/ AUM (%) EPS Growth (%) Div. Yield (%) PAT/ AUM (%) ROE (%)
Cap price
(US$bn (US$m) (Rs) (%) FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E FY22 FY23 FY24E
1.9)
. NAM 249 1 Buy 325 30% 21 24 19 4.5 4.5 4.2 8% 7% 6% 9% -12% 22% 4% 4% 4% 0.23% 0.24% 0.23% 23% 19% 22%
Estimates and trends for key financials

ICICI Bank: Franchise getting stronger - BUY
• ICICI Bank is among our top picks across Indian financials as we believe that the Bank offers
among the best risk-rewards across peers with superior growth, improved asset quality and
higher ROEs
• ICICI Bank is well poised to leverage on growth pickup in Indian Bank Credit as well as gain
market share in times of tighter liquidity and higher rates
• It has been able to ramp-up its unsecured lending business for retail loans as well as SME
lending business which have helped improve NIMs without raising asset quality risks.
• With improvement in NIMs and low credit costs, ICICI Bank has achieved peer-best ROA
levels of ~2% and sustainable ROE will move towards 16-17%.
• Hence, we believe that the Bank offers among the best risk-rewards across peers. It trades
at 2.5x on 1yr fwd adj. PB, which is well justified by its better growth, improved asset quality
and high profitability.
• We forecast ICICI Bank to deliver 19% CAGR in profit over FY22-25 and ROE of ~16%. BUY
with a PT of Rs1,150 based on 2.8x Sep-24E adjusted PB; for ADR, our PT is at $28.
Exhibit 95 - ICICI Bank : Forward price-to-book valuations
(x) ICICI Bank 1-yr fwd adj P/B 5yr Average
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Dec-15
Dec-11
Dec-12
Dec-13
Dec-14
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Dec-22
.
Exhibit 96 - ICICI Bank: Summary P&L
Income Statement (Rs mn) FY21 FY22 FY23E FY24E FY25E
Interest Income 791,183 863,745 1,069,446 1,286,773 1,534,572
Interest expense 401,288 389,085 503,577 627,049 760,055
Net interest income 389,894 474,661 565,869 659,724 774,517
Other income 189,685 185,175 204,461 247,003 287,013
Fees 124,039 156,031 182,853 214,986 249,384
Treasury income 51,738 7,026 (3,000) 4,947 7,853
Other income 13,909 22,119 24,608 27,069 29,776
Total income 579,580 659,836 770,330 906,726 1,061,530
Operating expenses 215,608 267,333 315,938 366,369 428,542
Employee costs 80,918 96,727 113,171 130,147 150,970
Other costs 134,691 170,606 202,767 236,222 277,571
Pre-provision Profit 363,971 392,503 454,392 540,357 632,988
Total Provision 162,144 86,414 69,037 92,441 110,874
Loan loss provisions 157,780 67,655 69,037 92,441 110,874
Pre-tax profit 201,827 306,089 385,354 447,916 522,114
Provision for Tax 39,900 72,694 92,485 107,500 125,307
. Net profit 161,927 233,395 292,869 340,416 396,807


Banks
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January 3, 2023
Exhibit 97 - ICICI Bank: Summary Balance Sheet

Balance Sheet (Rsmn) FY21 FY22 FY23E FY24E FY25E
Equity Capital 13,834 13,900 13,938 13,938 13,938
Reserves & Surplus 1,461,258 1,691,220 1,946,758 2,245,418 2,593,442
Shareholders' funds 1,475,092 1,705,120 1,960,696 2,259,356 2,607,380
Deposits 9,325,222 10,645,716 12,420,402 14,662,322 17,333,001
Casa deposits 4,316,234 5,184,366 6,139,849 7,251,270 8,513,848
Term deposits 5,008,987 5,461,350 6,280,553 7,411,052 8,819,152
Borrowings 916,310 1,072,314 1,144,031 1,246,586 1,362,474
Other liabilities 587,704 689,828 786,404 896,500 1,022,010
Total Liabilities 12,304,327 14,112,977 16,311,533 19,064,764 22,324,865
Cash & bank balance 1,331,283 1,678,224 1,688,186 1,887,737 2,151,282

Investments 2,812,865 3,102,410 3,595,417 4,210,547 4,944,530
G-Secs 2,136,208 2,563,877 3,012,657 3,583,640 4,269,022
Loans 7,337,291 8,590,204 10,190,327 12,020,473 14,159,904
Fixed assets 88,776 93,738 98,425 103,346 108,514
Current assets 734,112 648,401 739,177 842,662 960,635
. Total Assets 12,304,327 14,112,977 16,311,533 19,064,764 22,324,865

Exhibit 98 - ICICI Bank: Summary Key Ratios
FY21 FY22 FY23E FY24E FY25E
EPS (Rs) 24 34 42 49 57
EPS growth (% YoY) 97% 39% 25% 16% 17%
Profit growth (% YoY) 104% 44% 25% 16% 17%
BV/share (Rs) 213 245 281 324 374
Adjusted BV / share (Rs) 199 239 276 319 368
ROAA (%) 1.4% 1.8% 1.9% 1.9% 1.9%
Adj. ROE (%) 13% 16% 16.8% 16.8% 16.9%
RORWA (%) 2.1% 2.8% 3.0% 2.8% 2.8%
NIM (%) 3.8% 4.0% 4.2% 4.2% 4.2%
Gross NPAs (% of loans) 5.3% 3.8% 3.0% 2.6% 2.3%
Net NPAs (% of loans) 1.3% 0.8% 0.7% 0.6% 0.5%
Coverage (% of gross NPA) 78% 79% 77% 77% 76%
Capital Adequacy Ratio (% of RWA) 19% 19% 18% 17% 17%
Tier I CAR (% of RWA) 18% 18% 17% 17% 16%
Core Tier I CAR (% of RWA) 17% 18% 16% 16% 16%
Fee growth (% YoY) -8% 26% 17% 18% 16%
Fee/ asset (% of avg assets) 1.1% 1.2% 1.2% 1.2% 1.2%
Fee (% total revenue) 21% 24% 24% 24% 23%
Cost-Income ratio (Excl Treasury) (%) 41% 41% 41% 41% 41%
Cost/ asset ratio (%) 1.9% 2.0% 2.1% 2.1% 2.1%
Loan growth (% YoY) 14% 17% 19% 18% 18%
Equity / assets (%) 12% 12% 12% 12% 12%
Equity / loans (%) 20% 20% 19% 19% 18%
Loan/deposit ratio (%) 79% 81% 82% 82% 82%
Provision/ avg. loans (%) 2.4% 1.1% 0.7% 0.8% 0.8%
CASA (% of deposits) 46% 49% 49% 49% 49%
CASA (% funds) 42% 44% 45% 46% 46%
Tax rates (% of PBT) 20% 24% 24% 24% 24%
Yield on loans (%) 8.3% 8.0% 8.5% 8.8% 8.9%
Yield on Investments (%) 6.5% 5.8% 6.2% 6.4% 6.5%
Cost of funds (%) 4.1% 3.5% 4.0% 4.3% 4.4%
PPP / share (Rs) 54 57 65 78 91
Dividend per share (Rs) 2.0 5.0 6.0 7.0 7.0
Dividend payout (% of PAT) 8% 15% 14% 14% 12%
Dividend yield (%) 0.2% 0.6% 0.7% 0.8% 0.8%
P/E (x) 30 22 18 15 13
P/ PPP (x) 13.6 13.2 11.5 9.6 8.1
P/ABV (x) 3.7 3.1 2.7 2.3 2.0
. P/BV (x) 4.2 3.6 3.2 2.7 2.4

Banks
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January 3, 2023
Exhibit 99 - ICICI Bank Valuation
ICICI sum of parts valuations, Sep-24e (Rsbn ) (Rs/share) Valuation method
ICICI Prudential Life insurance (51% stake) 516 74 Target price of Rs700
ICICI Lombard General Insurance (48% stake) 251 36 Target price of Rs1620
ICICI Asset management (51% stake) 358 51 35x PE
ICICI Securities (75% stake) 121 17 Market Price
ICICI Ventures 15 2 4% of AUM
ICICI Home Finance 32 5 1.2x PB
ICICI PD Business 23 3 1.2x PB
ICICI Bank UK 25 4 1x PB
ICICI Bank Canada 43 6 1x PB
Total value of subsidiaries 1,384 199
Less: Holdco disc. on listed subs. (20%) 178 25
Net value of subsidiaries 1,206 173
Value of the bank 6,775 972 2.8x adj. PB
Value for ICICI Bank 7,981 1,145
. Price target (rounded off) 1,150

Source: Company data, Jefferies estimates
Exhibit 100 - ICICI Bank ADR target price
Aspect Value
Target price (local, Rs) 1,150
Shares per ADR (nos) 2
ADR premium to local (avg. %) 0%
Forex (Rs/ US$) 79
.
Target price (ADR, US$) 28
State Bank of India: Well-placed on growth and profitability - BUY
• SBI is well positioned to deliver a healthy growth in earnings with uptick in top line and low
credit costs. Moreover, valuations are quite attractive with healthy ROE.
• With a strong deposit franchise (Casa Ratio of 45%) that keep its funding costs low and
high share in retail and corporate lending, it is well-placed to deliver 14% CAGR in loans over
FY22-25. This will aid 15% Cagr in NII and we see stronger growth in operating profits.
• Bank’s credit costs should stay low, at 0.7-0.9% of avg loans, as the improvement in
corporate balance sheets and retail credit quality continues to play out. Bank also carries
additional reserves against such risks.
• While bank has limited buffer on capital adequacy ratio (CET1 of 9.5%), the needs aren’t
immediate as profitability is improving and bank can monetise stake in subsidiaries also.
• We expect SBI to report ROA of 0.9% and ROE of 16% in FY24. Valuations are attractive at
1.6x 1yr fwd adj. PB and ROE will aid reasonable compounding.
• SBI is among our top picks in the sector with SOTP based TP of Rs760 that includes value
of bank at 1.6x Sep24 adjusted PB.

Banks
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January 3, 2023
Exhibit 101 - SBI : Forward price-to-book valuations
SBI 1-yr forward adj P/B (LHS), x Average

3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Dec-12
Dec-13
Dec-16
Dec-17
Dec-20
Dec-21
Dec-11
Dec-14
Dec-15
Dec-18
Dec-19
Dec-22
.
Exhibit 102 - SBI: Summary P&L
Rs mn FY21 FY22 FY23E FY24E FY25E
Interest Income 2,651,506 2,754,573 3,284,904 3,868,617 4,403,621
Interest expense 1,544,406 1,547,497 1,874,966 2,257,341 2,625,367
Net interest income 1,107,100 1,207,076 1,409,938 1,611,276 1,778,254
Other income 434,964 405,639 340,829 427,585 467,323
Fees 259,272 280,443 318,313 346,196 373,482
Treasury income 60,309 32,218 (24,057) 32,487 42,493
Other income 115,383 92,979 46,574 48,902 51,347
Total income 1,542,064 1,612,715 1,750,767 2,038,861 2,245,577
Operating expenses 826,520 933,975 949,831 1,046,668 1,153,693
Employee costs 509,360 575,620 551,580 606,738 667,411
Other costs 317,160 358,355 398,251 439,931 486,281
Pre-provision Profit 715,543 678,740 800,936 992,193 1,091,884
Total Provision 440,130 244,521 192,880 282,504 338,776
Pre-tax profit 275,413 434,219 608,056 709,689 753,108
. Net profit 204,106 316,760 449,961 525,170 557,300

Exhibit 103 - SBI: Summary Balance Sheet
Equity Capital 8,925 8,925 8,925 8,925 8,925
Deposits 36,812,771 40,515,341 45,266,493 50,779,821 56,493,689
Casa deposits 16,712,813 18,035,806 20,089,414 22,581,493 25,193,544
Term deposits 20,099,958 22,479,535 25,177,079 28,198,328 31,300,145
Borrowings 4,172,977 4,260,434 4,473,455 4,741,863 5,026,375
Other liabilities 1,819,797 2,299,318 2,575,237 2,884,265 3,230,377

Investments 13,517,052 14,814,455 15,933,233 17,321,035 18,831,054
G-Secs 10,552,886 11,621,826 12,435,354 13,554,536 14,774,444
Loans 24,494,978 27,339,666 31,714,012 36,185,636 40,840,405
Fixed assets 384,192 377,082 377,082 377,082 377,082
Current assets 3,517,687 3,399,249 3,501,226 3,606,263 3,714,451
. Total Assets 45,344,296 49,875,974 55,502,653 62,042,550 68,853,096


Banks
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January 3, 2023
Exhibit 104 - SBI: Key Ratios

EPS (Rs) 23 35 50 59 62
EPS growth (% YoY) 41% 55% 42% 17% 6%
BV/share (Rs) 284 314 357 407 460
ROAA (%) 0.5% 0.7% 0.9% 0.9% 0.9%
Adj. ROE (%) 9% 13% 16% 16% 15%
RORWA (%) 0.9% 1.3% 1.7% 1.7% 1.6%
NIM (%) 3.0% 2.9% 3.1% 3.1% 3.1%
Net NPAs (% of loans) 1.5% 1.0% 0.7% 0.6% 0.6%
Tier I CAR (% of RWA) 11% 11% 11% 11% 11%
Fee growth (% YoY) -1% 8% 14% 9% 8%
Cost/ asset ratio (%) 1.9% 2.0% 1.8% 1.8% 1.8%
Loan growth (% YoY) 5% 12% 16% 14% 13%
Equity / assets (%) 6% 6% 6% 6% 6%
Equity / loans (%) 10% 10% 10% 10% 10%
CASA (% of deposits) 45% 45% 44% 44% 45%
CASA (% funds) 41% 40% 40% 41% 41%
Tax rates (% of PBT) 26% 27% 26% 26% 26%
Yield on loans (%) 7% 7% 7% 8% 8%
Yield on Investments (%) 7% 6% 6% 7% 7%
Cost of funds (%) 4% 4% 4% 4% 4%
PPP / share (Rs) 80 76 90 111 122
Dividend per share (Rs) 4 7 9 10 11
Dividend yield (%) 1% 1% 1% 2% 2%
P/E (x) 22 14 12 10 10
P/ PPP (x) 6.4 6.6 6.8 5.5 5.0
P/ABV (x) 2.4 2.0 1.7 1.4 1.2
. P/BV (x) 2.2 2.0 1.7 1.5 1.3
Exhibit 105 - SBI SOTP Valuation
Sum of parts valuations, Sep-24E (Rs/ share) Valuation Methodology

SBI Life Insurance 98 Target price, Rs1580
SBI Cards 63 Market Price
SBI Asset Management 38 35x PE
Total value of subsidiaries 199
Holdco Disc. On listed subs. (20%) 32
Value of subsidiary in SBI price 167
Value of the core bank 593 1.6x adjusted PB
SOTP 760
. Price target (rounded off) 760

IndusInd Bank: Set for next leg of re-rating- BUY
• After delivering a turnaround in ROA from 1.2% last yr to 1.8% in 2Q, we expect IIB's loan
growth to improve to +20% from FY24 and ROA to move towards 2%.
• New loan segments, initiatives on funding & credit quality checks pay off.
• IIB's funding profile has improved over the past few years, with share of retail deposits (LCR
based) rising from 31% of deposits in Mar-20 to 41% now, share of CDs falling from 15-16%
to sub-5% & share of borrowings falling from 23% in Mar-20 to 11% now.
• Still it is behind levels for larger private banks that would be a challenge in a high rate
environment. Bank has a shot at building granular liability relationships by focusing on
business owner clients, Non-resident markets, home markets.

Banks
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January 3, 2023
• Its asset quality will continue to demonstrate improvement-based provisioning towards

stressed loans (72% coverage and 1.5% buffer provisions), bank withdrawing from lending
to promoter & holding-co.
• At 1.5x FY24 adjusted PB, IIB is attractively valued for improvement in growth & profitability.
Its MD & CEO's tenure is set to expire in Mar-23 & based on approval from board, the bank
is awaiting RBI's approval for 3yr extension by Feb-23.
• We believe that this can be a key re-rating trigger for stock valuations. IIB is among our top
picks in sector with PT to Rs1600, based on 1.8x Sep-24 adjusted PB. BUY.
Exhibit 106 - IndusInd Bank : Forward price-to-book valuations
(x) IIB 1-yr adj P/B Forward Average
5.0
4.0
3.0
2.0
1.0
0.0
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-11
Dec-12
Dec-21
Dec-22
.
Exhibit 107 - IndusInd Bank: Summary P&L
Interest Income 289,998 308,224 362,126 437,451 526,673
Other income 65,586 73,970 80,458 92,791 106,748
Fees 47,993 62,401 73,114 84,016 97,236
Treasury income 14,862 5,932 2,800 4,000 4,500
Other income 2,731 5,638 4,543 4,774 5,011
Total income 200,865 223,979 254,764 299,093 348,764
Employee costs 22,135 24,883 28,865 33,483 38,840
Other costs 61,463 70,709 82,252 92,785 104,673
Total Provision 79,425 66,650 46,674 49,791 57,268
Pre-tax profit 37,841 61,736 96,973 123,035 147,983
. Net profit 28,364 46,111 72,430 91,895 110,529

Banks
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January 3, 2023
Exhibit 108 - IndusInd Bank: Summary Balance Sheet

Equity Capital 7,734 7,747 7,747 7,747 7,747
Reserves & Surplus 425,920 469,226 535,076 616,901 715,810
Shareholders' funds 433,654 476,972 542,823 624,647 723,557
Deposits 2,562,050 2,936,813 3,352,924 3,941,189 4,714,890
Casa deposits 1,071,256 1,256,645 1,471,135 1,758,314 2,139,098
Term deposits 1,490,794 1,680,168 1,881,789 2,182,875 2,575,792
Borrowings 513,228 473,232 520,555 583,022 652,985
Other liabilities 120,796 132,728 146,001 160,601 176,661
Cash & bank balance 563,272 682,745 689,540 726,648 816,599

Investments 696,947 709,708 805,209 883,479 986,188
G-Secs 648,963 666,840 760,197 836,217 936,563
Loans 2,125,954 2,390,515 2,798,921 3,394,476 4,119,250
Fixed assets 18,094 18,487 19,781 21,166 22,647
Current assets 225,461 218,291 248,852 283,691 323,408
. Total Assets 3,629,727 4,019,746 4,562,303 5,309,459 6,268,092
Exhibit 109 - IndusInd Bank: Summary Key Ratios
EPS (Rs) 39 60 93 119 143
EPS growth (% YoY) -43% 54% 57% 27% 20%
Profit growth (% YoY) -36% 63% 57% 27% 20%
BV/share (Rs) 561 616 701 806 934
ROA (%) 0.8% 1.2% 1.7% 1.9% 1.9%
ROE (%) 7% 10% 14% 16% 16%
RORWA (%) 1.1% 1.6% 2.4% 2.6% 2.7%
NIM (%) 4.6% 4.4% 4.5% 4.6% 4.6%
Net NPAs (% of loans) 0.7% 0.6% 0.6% 0.5% 0.5%
Tier I CAR (% of RWA) 17% 17% 18% 17% 17%
Fee growth (% YoY) -23% 30% 17% 15% 16%
Cost/ asset ratio (%) 2.5% 2.5% 2.6% 2.6% 2.5%
Loan growth (% YoY) 3% 12% 17% 21% 21%
Equity / assets (%) 12% 12% 12% 12% 12%
Equity / loans (%) 20% 20% 19% 18% 18%
CASA (% of deposits) 42% 43% 44% 45% 45%
CASA (% funds) 35% 37% 38% 39% 40%
Tax rates (% of PBT) 25% 25% 25% 25% 25%
Yield on loans (%) 11% 11% 11% 12% 12%
Cost of funds (%) 5% 5% 5% 6% 6%
PPP / share (Rs) 160 166 185 223 265
Dividend yield (%) 0% 1% 1% 1% 1%
P/E (x) 32 20 13 10 9
P/ PPP (x) 7.6 7.4 6.6 5.5 4.6
P/ABV (x) 2.2 1.9 1.7 1.5 1.3
. P/BV (x) 2.2 2.0 1.7 1.5 1.3
Exhibit 110 - IndusInd Bank Valuation
IndusInd Bank Valuation, Sep-24 Rs/share

Adj. BVPS (post haircuts) 863
Target P/ABV multiple 1.8
Value of IIB 1,592
. Price target (rounded-off) 1,600

Axis Bank - BUY

Banks
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January 3, 2023
Exhibit 111 - Axis Bank : Forward price-to-book valuations
(x) Axis Bank 1-yr adjusted P/B Forward Average
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Dec-12
Dec-13
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-22
Dec-14
Dec-21
.
Exhibit 112 - Axis Bank: Summary P&L
Interest Income 633,462 673,768 821,845 999,072 1,193,767
Other income 122,636 152,205 168,960 205,002 238,477
Fees 92,524 132,710 156,598 183,219 212,798
Treasury income 23,023 11,132 2,268 9,940 12,524
Other income 7,089 8,363 10,094 11,842 13,154
Total income 415,027 483,528 577,575 681,229 794,160
Employee costs 61,640 76,126 85,261 98,050 113,738
Other costs 122,111 159,982 182,540 210,141 242,322
Total Provision 143,217 73,595 34,987 81,776 97,758
Pre-tax profit 88,058 173,826 274,787 291,263 340,343
. Net profit 65,885 130,255 205,910 218,256 255,033

Exhibit 113 - Axis Bank: Summary Balance Sheet
Equity Capital 6,127 6,139 6,145 6,145 6,145
Deposits 6,979,853 8,217,209 9,440,353 11,030,041 12,979,203
Casa deposits 3,177,490 3,697,554 4,287,946 5,001,725 5,865,790
Term deposits 3,802,363 4,519,655 5,152,407 6,028,316 7,113,413
Borrowings 1,428,732 1,851,339 2,036,472 2,280,849 2,554,551
Cash & bank balance 617,298 1,109,871 1,282,192 1,467,094 1,714,432

Investments 2,261,196 2,755,972 2,964,143 3,305,142 3,685,263
G-Secs 1,807,028 2,190,931 2,344,297 2,625,612 2,940,686
Loans 6,143,994 7,076,960 8,173,940 9,579,320 11,345,107
Fixed assets 42,450 45,724 49,381 53,332 57,598
Current assets 803,038 763,255 839,580 923,538 1,015,892
. Total Assets 9,867,976 11,751,781 13,309,236 15,328,427 17,818,292


Banks
Equity Research
January 3, 2023
Exhibit 114 - Axis Bank: Key Metrices

EPS (Rs) 22 42 67 71 83
EPS growth (% YoY) 271% 90% 58% 6% 17%
BV/share (Rs) 332 375 441 509 588
ROAA (%) 0.7% 1.2% 1.6% 1.5% 1.5%
ROE (%) 7% 12% 17% 15% 15%
RORWA (%) 1.1% 1.9% 2.6% 2.3% 2.3%
NIM (%) 3.5% 3.6% 3.8% 3.9% 3.9%
Net NPAs (% of loans) 1.1% 0.8% 0.6% 0.5% 0.5%
Tier I CAR (% of RWA) 16% 16% 16% 15% 15%
Fee growth (% YoY) -18% 43% 18% 17% 16%
Cost/ asset ratio (%) 1.9% 2.2% 2.1% 2.2% 2.1%
Loan growth (% YoY) 8% 15% 16% 17% 18%
Equity / assets (%) 10% 10% 10% 10% 10%
Equity / loans (%) 17% 16% 17% 16% 16%
Loan provision/ avg. loans (%) 2.0% 0.8% 0.5% 0.9% 0.9%
CASA (% of deposits) 46% 45% 45% 45% 45%
CASA (% funds) 38% 37% 37% 38% 38%
Tax rates (% of PBT) 25% 25% 25% 25% 25%
Yield on loans (%) 8.0% 7.5% 8.1% 8.6% 8.9%
Cost of funds (%) 4.2% 3.7% 3.8% 4.2% 4.4%
PPP / share (Rs) 79 81 101 121 143
Dividend yield (%) 0.0% 0.1% 0.3% 0.4% 0.4%
P/E (x) 39 20 13 12 10
P/ PPP (x) 11 11 8 7 6
P/BV (x) 2.6 2.3 1.9 1.6 1.4
. P/ABV (x) 2.8 2.4 2.0 1.7 1.4
Exhibit 115 - Axis SOTP Valuation
SOTP valuation , Sep-24 basis Rsbn Rs/share Basis
Axis AMC 114 37 30x PE
Axis Finance 55 18 1.8x PB
Axis Broking 49 16 20x PE
Axis Capital 61 20 20x PE
Stake in Max Life 47 15 Target valn.
Value of subs 326 106
Value of subs (adj. for 20% disc. In listed cos) 317 103
Value of bank 1,624 1,004 1.9x Adj. PB
Total 1,941 1,107
. Target price (rounded-off) 1,110

Bandhan Bank - BUY

Banks
Equity Research
January 3, 2023
Exhibit 116 - Bandhan Bank: Summary P&L

Interest Income 125,242 138,711 165,230 204,275 251,177
Other income 21,091 28,228 23,175 27,391 31,064
Fees 18,591 25,907 22,175 25,891 29,314
Treasury income 2,500 2,321 1,000 1,500 1,750
Total income 96,724 115,368 117,797 142,730 170,719
Employee costs 16,646 21,349 26,866 32,149 38,132
Other costs 11,525 13,886 17,635 22,572 28,215
Total Provision 39,066 78,848 44,151 26,084 31,229
Pre-tax profit 29,487 1,286 29,146 61,925 73,143
Provision for Tax 7,432 28 7,345 15,605 18,432
. Net profit 22,055 1,258 21,801 46,320 54,711
Exhibit 117 - Bandhan Bank : Forward price-to-book valuations
(x) Bandhan 1-yr adj P/B Forward Average
8.0
7.0
6.0
5.0 4.8
4.0
3.0
2.0 1.9
1.0
0.0
Mar-19
Mar-20
Mar-21
Mar-22
Jun-19
Jun-20
Jun-21
Jun-22
Dec-18
Dec-19
Dec-20
Dec-21
Dec-22
Sep-19
Sep-20
Sep-21
Sep-22
.
Exhibit 118 - Bandhan Bank: Summary Balance Sheet
Equity Capital 16,106 16,108 16,108 16,108 16,108
Reserves & Surplus 157,976 157,704 178,022 220,081 268,336
Shareholders' funds 174,082 173,812 194,130 236,189 284,444
Deposits 779,722 963,306 1,127,068 1,408,835 1,732,867
Casa deposits 338,300 400,800 428,286 545,924 680,150
Term deposits 441,422 562,506 698,782 862,912 1,052,717
Borrowings 169,604 199,212 228,644 262,491 288,440

Investments 251,554 290,787 330,197 405,977 490,001
G-Secs 236,916 273,779 305,510 375,671 453,465
Loans 816,129 939,749 1,080,377 1,330,089 1,625,679
Fixed assets 4,867 5,879 6,217 7,034 7,767
Other assets 15,451 59,037 86,837 100,541 98,801
. Total Assets 1,149,931 1,388,665 1,604,795 1,967,962 2,372,243

Banks
Equity Research
January 3, 2023
Exhibit 119 - Bandhan Bank : Key Ratios

EPS (Rs) 14 1 14 29 34
EPS growth (% YoY) -27% -94% 1633% 112% 18%
Profit growth (% YoY) -27% -94% 1633% 112% 18%
BV/share (Rs) 108 108 121 147 177
ROA (%) 2.1% 0.1% 1.5% 2.6% 2.5%
ROE (%) 14% 1% 12% 22% 21%
RORWA (%) 3.2% 0.1% 2.1% 3.8% 3.7%
NIM (%) 7.4% 7.1% 6.7% 6.8% 6.8%
Net NPAs (% of loans) 3.5% 1.7% 1.4% 1.1% 1.1%
Tier I CAR (% of RWA) 23% 19% 18% 18% 18%
Fee growth (% YoY) 29% 37% -13% 17% 13%
Cost/ asset ratio (%) 2.7% 2.8% 3.0% 3.1% 3.1%
Loan growth (% YoY) 22% 15% 15% 23% 22%
Equity / assets (%) 15% 13% 12% 12% 12%
Equity / loans (%) 21% 18% 18% 18% 17%
CASA (% of deposits) 43% 42% 38% 39% 39%
CASA (% funds) 36% 34% 32% 33% 34%
Tax rates (% of PBT) 25% 2% 25% 25% 25%
Yield on loans (%) 15% 14% 14% 15% 15%
Cost of funds (%) 6% 5% 6% 6% 6%
PPP / share (Rs) 43 50 46 55 65
Dividend yield (%) 0% 0% 0% 1% 2%
P/E (x) 17 300 17 8 7
P/ PPP (x) 5.5 4.7 5.1 4.3 3.6
P/ABV (x) 2.6 2.4 2.1 1.7 1.4
. P/BV (x) 2.2 2.2 1.9 1.6 1.3
Exhibit 120 - Bandhan Bank: Valuation and price target
Bandhan Bank Valuation, Jun-24 Rs/share

Adj. BVPS 155
Target P/ABV multiple 2.2
Value of Bandhan 340
. Price target (rounded-off) 340
Source: Jefferies
HDFC Bank

Banks
Equity Research
January 3, 2023
Exhibit 121 - HDFC Bank: Summary P&L

Rs mn FY18 FY19 FY20 FY21 FY22
Interest Income 802,414 989,721 1,148,127 1,208,582 1,277,531
Other income 152,203 176,306 232,608 252,049 295,099
Fees 129,174 155,259 184,884 186,077 234,445
Treasury income 9,247 3,868 19,344 38,670 22,826
Other income 13,783 17,178 28,380 27,302 37,828
Total income 553,152 658,738 794,471 900,845 1,015,195
Employee costs 68,057 77,618 95,257 103,648 120,317
Other costs 158,846 183,576 211,719 223,578 254,105
Pre-tax profit 266,973 321,996 366,072 416,590 490,155
. Net profit 174,867 210,782 262,573 311,165 369,614

Exhibit 122 - HDFC Bank: Summary Balance Sheet
Rs mn FY18 FY19 FY20 FY21 FY22
Equity Capital 5,190 5,447 5,483 5,513 5,546
Deposits 7,887,706 9,231,409 11,475,023 13,350,602 15,592,174
Casa deposits 3,430,928 3,911,981 4,846,250 6,156,822 7,510,491
Term deposits 4,456,779 5,319,428 6,628,773 7,193,781 8,081,683
Borrowings 1,231,050 1,170,851 1,446,285 1,354,873 1,848,172
Cash & bank balance 1,229,151 813,476 866,187 1,194,704 1,523,269

Investments 2,422,002 2,905,879 3,918,267 4,437,283 4,555,357
G-Secs 1,883,648 2,396,593 3,230,399 3,511,410 3,665,273
Loans 6,583,331 8,194,012 9,937,029 11,328,366 13,688,209
Fixed assets 36,072 40,300 44,319 49,093 60,837
Current assets 368,787 491,740 539,311 459,259 857,678
. Total Assets 10,639,343 12,445,407 15,305,113 17,468,705 20,685,351


Banks
Equity Research
January 3, 2023
Exhibit 123 - HDFC Bank: Key Ratios

FY18 FY19 FY20 FY21 FY22
EPS (Rs) 34 40 48 57 67
EPS growth (% YoY) 19% 17% 21% 18% 18%
BV/share (Rs) 205 274 312 370 433
ROAA (%) 1.8% 1.8% 1.9% 1.9% 1.9%
ROE (%) 19% 17% 17% 17% 17%
RORWA (%) 2.4% 2.4% 2.7% 2.9% 3.0%
NIM (%) 4.7% 4.7% 4.4% 4.3% 4.2%
Net NPAs (% of loans) 0.4% 0.4% 0.4% 0.4% 0.3%
Tier I CAR (% of RWA) 13% 16% 17% 18% 18%
Fee growth (% YoY) 28% 20% 19% 1% 26%
Cost/ asset ratio (%) 2.4% 2.3% 2.2% 2.0% 2.0%
Loan growth (% YoY) 19% 24% 21% 14% 21%
Equity / assets (%) 10% 12% 11% 12% 12%
Equity / loans (%) 16% 18% 17% 18% 18%
CASA (% of deposits) 43% 42% 42% 46% 48%
CASA (% funds) 38% 38% 38% 42% 43%
Tax rates (% of PBT) 35% 35% 28% 25% 25%
Yield on loans (%) 10.3% 10.5% 10.1% 8.9% 7.9%
Cost of funds (%) 4.9% 5.2% 5.0% 4.1% 3.5%
PPP / share (Rs) 63 75 89 104 116
. Dividend yield (%) 0.4% 0.5% 0.6% 0.4% 0.9%

Kotak Mahindra Bank - BUY
Exhibit 124 - Kotak Bank : Forward price-to-book valuations
(x) Kotak Bank 1-yr adj. P/B Forward Average
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-17
Dec-19
Dec-21
Dec-22
Dec-16
Dec-18
Dec-20
.

Banks
Equity Research
January 3, 2023
Exhibit 125 - Kotak Bank: Summary P&L

Interest Income 268,403 270,388 340,032 404,062 478,023
Other income 50,065 63,544 71,122 95,104 109,690
Fees 43,330 57,810 70,916 83,740 96,970
Treasury income 2,725 (1,599) (8,000) 2,181 2,443
Other income 4,010 7,332 8,205 9,183 10,277
Total income 203,462 231,723 277,116 333,855 381,743
Employee costs 37,291 45,824 55,905 65,968 77,182
Other costs 48,550 65,390 82,338 96,375 111,369
Total Provision 24,590 6,896 10,405 18,624 26,581
Pre-tax profit 93,030 113,613 128,469 152,889 166,611
. Net profit 69,648 85,727 96,352 114,667 124,958

Exhibit 126 - Kotak Bank: Summary Balance Sheet
Equity Capital 9,909 9,923 9,927 9,927 9,927
Reserves & Surplus 622,382 709,955 803,639 914,842 1,035,343
Shareholders' funds 632,291 719,878 813,566 924,769 1,045,270
Preference shares 5,000 5,000 5,000 5,000 5,000
Deposits 2,801,000 3,116,841 3,513,349 4,076,936 4,762,049
Casa deposits 1,693,130 1,891,340 2,018,238 2,312,705 2,697,898
Term deposits 1,107,870 1,225,501 1,495,111 1,764,231 2,064,151
Borrowings 236,507 259,671 285,638 331,340 384,355

Investments 1,050,992 1,005,802 1,104,666 1,229,780 1,369,280
G-Secs 850,379 748,334 823,167 921,947 1,032,581
Loans 2,236,702 2,712,536 3,199,751 3,746,166 4,388,400
Fixed assets 15,353 16,437 18,081 19,889 21,878
Current assets 135,390 130,269 140,691 151,946 164,102
. Total Assets 3,834,702 4,294,284 4,829,737 5,571,447 6,453,416


Banks
Equity Research
January 3, 2023
Exhibit 127 - Kotak Bank: Summary Key Ratio

EPS (Rs) 35 43 49 58 63
EPS growth (% YoY) 14% 22% 12% 19% 9%
BV/share (Rs) 319 363 410 466 526
ROA (%) 1.9% 2.1% 2.1% 2.2% 2.1%
ROE (%) 13% 13% 13% 14% 13%
RORWA (%) 1.9% 2.1% 2.1% 2.2% 2.1%
NIM (%) 4.5% 4.5% 4.9% 4.9% 4.8%
Net NPAs (% of loans) 1.2% 0.6% 0.4% 0.4% 0.4%
Tier I CAR (% of RWA) 21% 22% 21% 21% 21%
Fee growth (% YoY) -3% 33% 23% 18% 16%
Cost/ asset ratio (%) 2.3% 2.7% 3.0% 3.1% 3.1%
Loan growth (% YoY) 2% 21% 18% 17% 17%
Equity / assets (%) 16% 17% 17% 17% 16%
Equity / loans (%) 28% 27% 25% 25% 24%
CASA (% of deposits) 60% 61% 57% 57% 57%
CASA (% funds) 56% 56% 53% 52% 52%
Tax rates (% of PBT) 25% 25% 25% 25% 25%
Yield on loans (%) 8.4% 7.8% 8.5% 8.8% 9.0%
Cost of funds (%) 3.8% 3.2% 3.7% 4.0% 4.3%
PPP / share (Rs) 60 61 70 86 97
Dividend yield (%) 0.0% 0.1% 0.1% 0.1% 0.1%
P/E (x) 39 30 26 20 17
P/ PPP (x) 23 21 18 14 11
P/BV (x) 5.7 5.0 4.5 3.9 3.5
. P/ABV (x) 4.7 3.8 3.2 2.7 2.2
Exhibit 128 - Kotak Bank: SOTP Valuation Summary
Sum of parts valuations, Sep-24 Rsbn Rs/share Valuation methodology
Kotak Bank 3,507 1,766 3.8x Adj. PB
Kotak Mahindra Prime 259 130 2.5x PB
Kotak Life Insurance 433 218 2.8x P/EV
Kotak Securities & Capital 342 172 22x PE
Kotak AMC 241 122 30x PE
Kotak Mahindra Investments 89 45 2.5x PB
Kotak General Insurance 25 13 6x investment
Total 4,896 2,466
. Price target (rounded-off) 2,470
PNB - Better Tailwinds, but Weaker Underwriting Track
We marginally upgrade earnings estimates for PNB as we build in slightly lower credit costs
driven by asset quality normalization underway across PSU Banks. Buoyed by the improving
outlook of PSU Banks, we revise our target multiple to 0.5x P/ABV Sep-24E and revised TP stands
at Rs36 (from Rs29). Stil, we remain cautious & UPF rating of the underwriting capabilities of
PNB as it continues to incur higher credit costs vs. peers.

Banks
Equity Research
January 3, 2023
Exhibit 129 - PNB : Summary P&L

Interest Income 808,184 748,795 846,394 927,075 1,013,090
Other income 119,223 123,200 111,664 113,434 125,400
Fees 43,261 44,826 50,921 56,013 61,615
Treasury income 43,499 35,828 9,687 11,471 13,240
Other income 32,463 42,546 51,055 45,950 50,545
Total income 424,679 410,144 446,061 471,090 506,821
Employee costs 121,757 118,410 118,410 129,067 140,683
Other costs 81,330 84,116 91,317 98,264 105,069
Total Provision 186,798 164,454 166,497 126,959 135,655
Pre-tax profit 34,794 43,164 69,837 116,800 125,414
. Net profit 20,216 34,570 45,394 75,920 81,519
Exhibit 130 - PNB : Summary Balance Sheet
Equity Capital 20,955 22,022 22,022 22,022 22,022
Reserves & Surplus 888,418 932,847 971,194 1,038,305 1,108,813
Shareholders' funds 909,373 954,869 993,216 1,060,327 1,130,835
Deposits 11,063,325 11,462,185 12,187,193 12,975,977 13,816,117
Casa deposits 4,927,830 5,336,540 5,755,266 6,158,134 6,589,204
Term deposits 6,135,495 6,125,645 6,431,927 6,817,842 7,226,913
Borrowings 428,403 456,814 465,950 484,588 503,972

Investments 3,929,833 3,721,678 3,807,941 3,863,990 3,921,537
G-Secs 3,437,720 3,197,079 3,261,021 3,293,631 3,326,567
Loans 6,742,301 7,281,857 8,082,861 8,891,147 9,780,262
Fixed assets 110,209 106,736 111,006 115,446 120,064
Current assets 710,487 711,312 732,651 754,631 777,270
. Total Assets 12,606,326 13,148,050 13,936,993 14,828,964 15,777,480

Banks
Equity Research
January 3, 2023
Exhibit 131 - Summary : Key ratio

EPS (Rs) 2 3 4 7 7
EPS growth (% YoY) 225% 67% 28% 67% 7%
BV/share (Rs) 87 87 90 96 103
ROAA (%) 0.2% 0.3% 0.3% 0.5% 0.5%
Adj. ROE (%) 2% 4% 5% 8% 8%
RORWA (%) 0.4% 0.6% 0.7% 1.2% 1.2%
NIM (%) 2.7% 2.5% 2.8% 2.8% 2.8%
Gross NPAs (% of loans) 14% 12% 10% 9% 8%
Net NPAs (% of loans) 6% 5% 3% 3% 3%
Tier I CAR (% of RWA) 11% 12% 12% 12% 12%
Fee growth (% YoY) 33% 4% 14% 10% 10%
Cost/ asset ratio (%) 1.9% 1.6% 1.5% 1.6% 1.6%
Loan growth (% YoY) 43% 8% 11% 10% 10%
Equity / assets (%) 7% 7% 7% 7% 7%
Equity / loans (%) 13% 13% 12% 12% 12%
CASA (% of deposits) 45% 47% 47% 47% 48%
CASA (% funds) 43% 45% 45% 46% 46%
Tax rates (% of PBT) 42% 20% 35% 35% 35%
Yield on loans (%) 7.9% 6.9% 7.4% 7.6% 7.8%
Cost of funds (%) 4.4% 3.9% 4.2% 4.4% 4.5%
PPP / share (Rs) 21 19 21 22 24
Dividend yield (%) 0% 1% 1% 2% 2%
P/E (x) 29 18 14 8 8
P/ PPP (x) 2.7 2.9 2.6 2.5 2.4
P/ABV (x) 1.2 1.1 0.9 0.8 0.8
. P/BV (x) 0.7 0.7 0.6 0.6 0.5
Exhibit 132 - PNB Valuation
PNB Valuation, Sep-24 Rs/share

Adj. BVPS (Rs) 72
Target P/ABV (x) 0.5
Value of PNB 36
.
Price target (rounded-off) 36
Valuation Charts
Exhibit 133 - ICICI Bank : Forward price-to-book valuations Exhibit 134 - SBI : Forward price-to-book valuations
(x) ICICI Bank 1-yr fwd adj P/B 5yr Average SBI 1-yr forward adj P/B (LHS), x Average
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Dec-22
Dec-12
Dec-13
Dec-16
Dec-17
Dec-20
Dec-21
Dec-11
Dec-14
Dec-15
Dec-18
Dec-19
Dec-22
. .

Banks
Equity Research
January 3, 2023
Exhibit 135 - Indusind Bank : Forward price-to-book valuations Exhibit 136 - Axis Bank : Forward price-to-book valuations
(x) IIB 1-yr adj P/B Forward Average (x) Axis Bank 1-yr adjusted P/B Forward Average
5.0 3.5
3.0
4.0
2.5
3.0 2.0
2.0 1.5
1.0
1.0
0.5
0.0 0.0
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Dec-22
Dec-12
Dec-13
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-22
Dec-14
Dec-21
. .
Source: FactSet, Jefferies Source: FactSet, Jefferies
Exhibit 137 - Bandhan Bank : Forward price-to-book valuations Exhibit 138 - Kotak Bank : Forward price-to-book valuations
Bandhan 1-yr adj P/B Forward Average (x) Kotak Bank 1-yr adj. P/B Forward Average
(x)
8.0 6.0
7.0 5.0
6.0
5.0 4.0
4.8
4.0 3.0
3.0
2.0
2.0 1.9
1.0 1.0
0.0 0.0
Mar-19
Mar-20
Mar-21
Mar-22
Jun-19
Dec-18
Dec-19
Jun-20
Dec-20
Jun-21
Dec-21
Jun-22
Dec-22
Sep-19
Sep-20
Sep-21
Sep-22
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-17
Dec-19
Dec-21
Dec-22
Dec-16
Dec-18
Dec-20
. .
Source: FactSet, Jefferies Source: FactSet, Jefferies
Exhibit 139 - Indian Financials have had a weak listing year, even the fintechs
have seen weak performance
Market Return
Date of IPO size
Company Sector Cap over issue
issuance (Rsbn)
(US$bn) price (%)
Life Insurance Corporation Of India Insurance May-22 52.4 210 -28%
Prudent Corporate Advisory Services Limited
Broking May-22 0.5 5 57%
Tamilnad Mercantile Bank Limited Bank Sep-22 0.9 8 -9%
Fusion Micro Finance NBFC/ HFC Nov-22 0.4 11 -1%
Five Star Business Finance NBFC/ HFC Nov-22 2.2 16 30%
. Abans Holdings Limited NBFC/ HFC Dec-22 0.1 3 -30%
Source: Bloomberg, Jefferies

Banks
Equity Research
January 3, 2023
The Long View: Axis Bank

Investment Thesis / Where We Differ Risk/Reward - 12 Month View
• SME book has risks, but initiatives to derisk the book are encouraging.
Upside : Downside
1.37 : 1
• Improvement in the deposit franchise will help growth/derisking. 1300
1240
• Cost controls and deposit rate cuts should support earnings. 1200
(+33%)
• Asset quality concerns are largely priced in, in our view, and macro 1110 (+19%)
1100
recovery could drive re-rating.
1000
900
800
700 710 (-24%)
600
2022 2023 +12 mo.
Base Case, Upside Scenario, Downside Scenario,

INR1110, +19% INR1240, +33% INR710, -24%
• Loan CAGR of 17% (over FY22-25E) • Loan CAGR of 19% (over FY22-25E) • Loan CAGR of 15% (over FY22-25E)
• NIMs around 3.8% (avg. FY23-25E) • NIMs around 3.9% (avg. FY23-25E) • NIMs around 3.6% (avg. FY23-25E)
• GNPA 2.1% and NNPA 0.5% in FY23E • GNPA 2% and NNPA 0.4% in FY23E • GNPA 2.4% and NNPA 0.6% in FY23E
• SOTP valuation with core bank valued at 1.9x • SOTP valuation with core bank valued at 2.1x • SOTP valuation with core bank valued at 1.2x
Sep-24E adjusted PB - Rs1110 Sep-24E ABV - Rs1240 Sep-24E ABV - Rs710
Sustainability Matters Catalysts

Top Material Issue(s): 1) Incorporation of ESG into credit analysis 2) Responsible Finance 3) Lending / • Broader revival in the economy.
Selling Practices 4) Customer Privacy & Data Security • Execution of derisking initiatives and
Company Target(s): 1) A carbon sink of 2m trees by FY27 2) The Bank will deploy appropriate risk strengthening of deposit franchise.
assessment toolkits covering ESG stress testing and scenario analysis, climate risk dashboard as • Positive surprise on costs and slippages/
well as integrating ESG into its credit risk management, and decision-making 2) The Bank is working asset quality.
to implement structures and processes to help manage/govern climate-related risks by enhancing • Resolution of stressed accounts.
its disclosures. It has voluntarily disclosed all scopes of emissions, verified by a third-party agency.
Qs to Mgmt: 1) How do you plan to participate in the +US$12tn green funding gap in India? What
is the share of the company’s revenues from sectors promoting socio-economic causes, and from
non-metro & non-tier 1 locations? 2) What steps is the company taking to ensure strong data security
and customer privacy? 3) What steps is the Company taking to promote gender diversity at different
levels?

Banks
Equity Research
January 3, 2023
Financials: Axis Bank

Estimate changes
INR 2022A 2023E 2024E 2025E
Operating Profit (B) 247.4 309.8 373.0 438.1
Net Profit (B) 130.3 205.9 218.3 255.0
ROAA 1.20% 1.64% 1.52% 1.54%
ROAE 12.3% 16.8% 15.3% 15.5%
DPS 1.00 3.00 3.50 4.00
BV/Share 362.07 424.95 490.90 566.28
EPS Growth 89.7% 57.9% 6.0% 16.9%
EPS 42.47 67.05 71.04 83.01
Valuation metrics
2022A 2023E 2024E 2025E
P/B 2.6x 2.2x 1.9x 1.6x
FY P/E 22.0x 13.9x 13.1x 11.2x

Banks
Equity Research
January 3, 2023
The Long View: Bandhan Bank

• With a strong liabilities profile, healthy capitalisation (Tier-1 of 19%)
Upside : Downside
and best-in-class operating profit profile (PPOP RoA of 6.5%+), Bandhan 450
37.1: 1
Bank should be able to absorb residual credit costs arising from COVID/
restructured book. 400
390 (+67%)
• We expect Bandhan Bank to deliver a robust 25% RoE in FY23E, despite

350
building in a cushion to our provision estimates (2.5% provs in FY23E in 340 (+45%)
our estimates, vs FY16-20 avg of 1.4%).

300
250
230 (-2%)
200
2022 2023 +12 mo.

INR340, +45% INR390, +67% INR230, -2%
• Loan CAGR of 20% (over FY22-25) • Loan CAGR of 23% (over FY22-25) • Loan CAGR of 17% (over FY22-25)
• NIMs around 6.8% (avg. FY23-25) • NIMs around 7% (avg. FY23-25) • NIMs around 6.5% (avg. FY23-25)
• Credit cost of 2.2% over FY24-25 • Credit cost of 1.8% over FY24-25 • Credit cost of 2.8% over FY24-25
• Valuation at 2.2x Sep-24 ABV - Rs340 • Valuation at 2.4x Sep-24 ABV - Rs390 • Valuation at 1.7x Sep-24 ABV - Rs230

Top Material Issue(s): 1) Incorporation of ESG into credit analysis 2) Responsible Finance 3) Lending / • Easing of stress arising from COVID, esp. in
Selling Practices 4) Customer Privacy & Data Security Bandhan's core eastern geographies.
Company Target(s): 1) Growth in MFI loans. Increasing the share of retail financing (including home • RBI is expected to issue a draft paper on
loans) in non-metros 2) Reduction in carbon footprint through greater use of tech and promoting the harmonised norms for microfinance. While
use of digital platforms (internet and mobile banking) by customers. forced caps on ticket sizes & spreads are
key risks, any favourable outcome could be a
catalyst.
is the share of company’s revenues from sectors promoting socio-economic causes, and from non-
• A sharp rebound in economic recovery would
metro & non-tier 1 locations? 4) What steps is the company taking to ensure strong data security and
aid normalisation of collections.
customer privacy, given the increasing share of digital transactions? 5) What steps is the Company
taking to promote gender diversity at different levels? What are initiatives towards employee training/
reskilling?

Banks
Equity Research
January 3, 2023
Financials: Bandhan Bank

Estimate changes
INR 2022A 2023E 2024E 2025E
Net Profit (B) 1.3 21.8 46.3 54.7
ROAE 0.7% 11.9% 21.5% 21.0%
ROAA 0.10% 1.46% 2.59% 2.52%
BV/Share 98.20 111.11 137.25 172.23
DPS 0.00 0.92 2.65 4.01
EPS 0.78 13.53 28.76 33.97
Valuation metrics
2022A 2023E 2024E 2025E
P/B 2.4x 2.1x 1.7x 1.4x
FY P/E NM 17.3x 8.1x 6.9x

Banks
Equity Research
January 3, 2023
The Long View: IndusInd Bank Limited

• We see potential to ramp-up lending (merchant lending, MFI, non-CV
Upside : Downside
auto loans), defend margins and lower credit costs. 1800
2.69 : 1
1790 (+47%)
• We believe IIB's asset quality pressures are behind it as it has

1600 1600 (+31%)
recognized/ provided for most of the stressed book.
• These can lift ROA from 1.2% in FY22 to 1.7% & ROE towards 15% by 1400
FY24.
1200
• The bank needs to strengthen the deposit franchise due to higher
1000 1010 (-17%)
concentration & risk aversion among wholesale depositors.
800
600
2022 2023 +12 mo.

INR1600, +31% INR1790, +47% INR1010, -17%
• GNPA 2.2% and NNPA 0.6% in FY23E • GNPA 2.0% and NNPA 0.5% in FY23E • GNPA 2.5% and NNPA 0.8% in FY23
• Valuation at 1.8x Sep-24E ABV - Rs1,600 • Valuation at 2.1x Sep-24E ABV - Rs1,790 • Valuation at 1.2x Sep-24E ABV - Rs1010

Top Material Issue(s): 1) Incorporation of ESG into credit analysis 2) Responsible Finance 3) Lending / Downside
Selling Practices 4) Customer Privacy & Data Security
• Asset quality deterioration CV/CE,
Company Target(s): 1) Improving its triple bottom line (i.e., People, Planet, and Profit) performance Microfinance
by further integrating sustainability considerations in its business practices, decision-making, • Loss of CASA especially from Government
operations, and products 2) Increasing lending to projects in renewable energy, drinking water and and corporate clients
other positive impact sectors 3) Reduction in GHG and Scope 1/2/3 emissions • Increasing reliance on non-funded and trading
Qs to Mgmt: 1) How do you plan to participate in the +US$12tn green funding gap in India? What book for generating fee and trade revenues
is the share of the company’s revenues from sectors promoting socio-economic causes, and from Upside
non-metro & non-tier 1 locations? 2) What steps are the company taking to ensure strong data
• Macro revival and receding risks in stressed
security and customer privacy, given the increasing share of digital transactions? 3) What steps are
segments
the Company taking to promote gender diversity at different levels? What are the initiatives toward
• Initiatives by the new CEO to consolidate
employee training/reskilling?
balance sheet and granularise the book.

Banks
Equity Research
January 3, 2023
Financials: IndusInd Bank Limited

Estimate changes
INR 2022A 2023E 2024E 2025E
Rev. (MM) 150,008 174,307 203,037 237,335
Cons. Rev. - 172,360.0 199,775.0 NA
Net Profit (B) 46.1 72.4 91.9 110.5
ROAA 1.21% 1.69% 1.86% 1.91%
ROAE 10.1% 14.2% 15.8% 16.4%
BV/Share 633.83 697.96 800.71 925.28
DPS 8.50 13.00 15.00 15.00
EPS Growth 54.1% 56.9% 26.9% 20.3%
Cons. EPS - 90.47 110.88 NA
EPS 59.57 93.50 118.63 142.68
Valuation metrics
2022A 2023E 2024E 2025E
P/Rev 6.3x 5.4x 4.7x 4.0x
P/B 1.9x 1.8x 1.5x 1.3x
FY P/E 20.5x 13.1x 10.3x 8.6x

Banks
Equity Research
January 3, 2023
The Long View: ICICI Bank

• Better positioned given lower exposure to riskier sectors and
Upside : Downside
manageable share of SME/unsecured retail loans. 1300
3.56 : 1
1250 (+40%)
• Among the strongest deposit franchises and, thus, should benefit from 1200
1150 (+29%)
deposit polarisation. 1100
• Valuations look attractive. 1000
900
800 790 (-11%)
700
600
500
2022 2023 +12 mo.

INR1150, +29% INR1250, +40% INR790, -11%
• Loan CAGR at 18% (over FY22-25E) • Loan CAGR at 20% (over FY22-25E) • Loan CAGR at 15% (over FY22-25E)
• Fee income CAGR at 17% (over FY22-25E) • Fee income CAGR at 20% (over FY22-25E) • Fee income CAGR at 14% (over FY22-25E)
• GNPA of 3% and NNPA of 0.7% in FY23E • GNPA of 2.7% and NNPA of 0.5% in FY23E • GNPA of 3.5% and NNPA of 0.8% in FY23E
• SOTP valuation with bank valuation at 2.8x • SOTP valuation with bank valuation at 3x • SOTP valuation with bank valuation at 1.8x
Sep-24E ABV Rs1,150; ADR PT US$28. Sep-24E ABV Rs1,250; ADR PT US$29 Sep-24E ABV Rs790; ADR PT US$17

Top Material Issue(s): 1) Compliance with regulations and other laws 2) digital innovation/ • Easing of COVID restrictions and
transformation 3) data privacy & cybersecurity 4) corporate governance and business ethics 5) normalisation of lending activity.
transparency and disclosures • Unsecured retail portfolio asset quality
Company Target(s): 1) Integration of ESG and climate change risks in lending and risk management holding up better than expected.
2) reduction in carbon footprint through greater use of tech and promoting the • Lower deposit rates (vs. peers) and higher
use of digital platforms (internet and mobile banking) by customers. CASA as benefits of deposit polarisation come
through.
Qs to Mgmt: 1) What is the share of the Bank's revenues from sectors promoting socio -economic
• Early resolution of stressed assets and any
causes and from non-metro & non-tier 1 locations? 2) What steps are being taken to ensure strong
recoveries.
data security and customer privacy, given the increasing share of digital transactions? 3) How is the
Bank promoting gender diversity at different levels? 4) What are the initiatives towards employee
training/re-skilling?

Banks
Equity Research
January 3, 2023
Financials: ICICI Bank

Estimate changes
INR 2022A 2023E 2024E 2025E
Net Profit (B) 233.4 292.9 340.4 396.8
ROAA 1.77% 1.93% 1.92% 1.92%
ROAE 15.6% 16.8% 16.8% 16.9%
BV/Share 238.68 276.14 318.98 368.03
DPS 5.00 6.00 7.00 7.00
EPS Growth 39.2% 25.0% 16.1% 16.6%
EPS 33.66 42.08 48.85 56.94
Valuation metrics
2022A 2023E 2024E 2025E
P/B 3.7x 3.2x 2.8x 2.4x
FY P/E 26.5x 21.2x 18.2x 15.6x

Banks
Equity Research
January 3, 2023
The Long View: Kotak Mahindra Bank

• Strong deposit franchise, with CASA at 60% and risk controls best among
Upside : Downside
emerging banks 2800
6.31: 1
2750 (+51%)
• Prudent lending to help navigate tougher macro
2600
• Peak ROE is lower than peers', but it's less volatile, too
2470 (+35%)
• Valuation is not cheap, but still among our Buys. 2400
2200
2000
1800
1680 (-8%)
1600
2022 2023 +12 mo.

INR2470, +35% INR2750, +51% INR1680, -8%
• GNPA 1.8% and NNPA 0.4% in FY23E • GNPA 1.5% and NNPA 0.3% in FY23E • GNPA 2.2% and NNPA 0.6% in FY23E
P/ABV (Sept-24E) - Rs2,470 Sept-24E ABV - Rs2,750 Sept-24E ABV - Rs1,680.

Top Material Issue(s): 1) Incorporation of ESG into credit analysis 2) Responsible Finance 3) Lending / • Macro recovery after lockdown is eased
Selling Practices 4) Customer Privacy & Data Security • Asset quality pressure from MSME, real estate
Company Target(s): 1) Increase financing towards environmentally & socially sustainable projects. segment, etc.
Bank has already adopted the IFC guidelines on Social Environmental Management Plan 2) Reduction
of GHG emissions; Kotak has been monitoring its GHG emissions and reporting to the CDP since 2014
to account for its carbon emissions 3) Improved ESG reporting and disclosures. The Kotak Mahindra
Group Board has established an ESG Committee for overseeing the same.
is the share of company’s revenues from sectors promoting socio economic causes, and from non-
metro & non-tier 1 locations? 2) What steps are the company taking to ensure strong data security and
customer privacy, given the increasing share of digital transactions? 3) What steps are the Company
reskilling?

Banks
Equity Research
January 3, 2023
Financials: Kotak Mahindra Bank

Estimate changes
INR 2022A 2023E 2024E 2025E
Net Profit (B) 85.7 96.4 114.7 125.0
ROAA 2.11% 2.11% 2.20% 2.08%
ROAE 13.2% 13.0% 13.7% 13.1%
BV/Share 338.92 386.90 441.78 500.19
DPS 1.10 1.50 2.00 2.00
EPS Growth 22.1% 12.3% 19.0% 9.0%
EPS 43.23 48.54 57.75 62.94
Valuation metrics
2022A 2023E 2024E 2025E
P/B 5.4x 4.7x 4.1x 3.7x
FY P/E 42.3x 37.6x 31.6x 29.0x

Banks
Equity Research
January 3, 2023
The Long View: Punjab National Bank

• The underwriting track record of PNB and OBC has been poor; they may
Upside : Downside
raise dilutive capital. 65
1: 3.37
64 (+13%)
• Integration issues could remain a drag on business, and delays could 60
push back expected synergy benefits. 55
• Overall, core franchise remains underwhelming. Hence, despite 50
reasonable valuation, we rate the stock UNPF.
45
40
36 (-36%)
35
31 (-45%)
30
25
2022 2023 +12 mo.

INR36, -36% INR64, +13% INR31, -45%
• Loan growth CAGR of 10% (FY22-25E) • Loan growth CAGR 12% (over FY22-25E) • Loan growth CAGR 8% (FY22-25E)
• Credit costs - avg 1.3% over FY24-25E • Credit costs at 1.2% over FY24-25E • Credit costs at 2% over FY23-25E
• Target Multiple: 0.5x Sept-24E ABV; PT Rs36 • Target Multiple: 0.9x Sept-24E ABV; PT Rs64 • Target Multiple: 0.5x Sept-24E ABV; PT Rs31

Top Material Issue(s): 1) Incorporation of ESG into credit analysis 2) Responsible Finance 3) Lending / • Negative earnings surprise.
Selling Practices 4) Customer Privacy & Data Security • Increase in slippages and potential dilutive
Company Target(s): 1) Increasing lending to projects in renewable energy, drinking water and other capital raise.
positive impact sectors 2) Reduction in GHG and Scope 1/2/3 emissions • Delays in integration and achieving
operational synergies.
is the share of company’s revenues from sectors promoting socio economic causes, and from non-
metro & non-tier 1 locations? 2) What steps is the company taking to ensure strong data security and
customer privacy, given the increasing share of digital transactions? 3) What steps is the Company
reskilling?

Banks
Equity Research
January 3, 2023
Financials: Punjab National Bank

Estimate changes
INR 2022A 2023E 2024E 2025E

<1% <1% <1%
Previous 234.1 242.0 259.2
Net Profit (B) 34.6 45.4 75.9 81.5

+3% +4% +4%
Previous 43.9 73.0 78.4
BV/Share 86.72 90.20 96.30 102.70

<1% <1% <1%
Previous 90.07 95.91 102.03
ROAA 0.27% 0.34% 0.53% 0.53%

+3% +4% +4%
Previous 0.32% 0.51% 0.51%
ROAE 3.9% 4.8% 7.7% 7.7%

+3% +4% +3%
Previous 4.7% 7.4% 7.4%
DPS 0.64 0.80 1.00 1.00
EPS Growth 66.8% 28.1% 67.2% 7.4%

+17% +2% <1%
Previous 24.1% 66.2% 7.3%
EPS 3.22 4.12 6.89 7.40

+3% +4% +4%
Previous 3.99 6.63 7.12
Valuation metrics
2022A 2023E 2024E 2025E
P/B 0.7x 0.6x 0.6x 0.5x
FY P/E 17.5x 13.7x 8.2x 7.6x

Banks
Equity Research
January 3, 2023
The Long View: State Bank of India

• One of the best PSU bank franchises with strong CASA franchise, digital-
Upside : Downside
banking platform 900
2.65 : 1
860 (+40%)
• Better loan underwriting standards vs PSU peers which has allowed it to 800
760
maintain asset quality better than its PSU peers. (+24%)
700
• Uncertainty around management change is behind us and with macro
600
trends and collection improving the key overhang around a) moral
520 (-15%)
pressure towards directed lending / "public service" should recede and 500
b) risks in SME/mid corporate book should ease. 400

• Valuations, though, are attractive, with value discovery at card and
300
insurance subsidiary.
200
2022 2023 +12 mo.

INR760, +24% INR860, +40% INR520, -15%
• Loan CAGR at 14% (over FY22-25E) • Loan CAGR at 15% (over FY22-25E) • Loan CAGR at 13% (over FY22-25E)
• NIMs around 3% (avg. FY23-25E) • NIMs around 3.2% (avg. FY23-25E) • NIMs around 2.8% (avg. FY23-25E)
• GNPA 2.8% and NNPA 0.6% in FY24 • GNPA 2.5% and NNPA 0.5% in FY24 • GNPA 3.2% and NNPA 1% in FY24
Sept-24 ABV - Rs760 price target Sept-24 ABV - Rs860 price target Sept-24 ABV - Rs520 price target

Top Material Issue(s): Incorporation of ESG into credit analysis, Responsible Finance, Lending / • Potential macro revival after COVID 19
Selling Practice, and Customer Privacy & Data Security headwind recedes
Company Target(s): Achieving long-term carbon neutrality in a phased manner by 2030, constituting • Improving asset quality, receding stress in
a framework for climate risk management and identifying/managing risk arising out of ESG practices SME /mid corporate loans
and integration of ESG risk assessment in overall credit assessment. SBI has deployed over Rs320bn
to the renewable energy sector and has issued green bonds over US$800m in aggregate since
inception and reduction in emissions; SBI has voluntarily disclosed all Scope 1, 2, and 3 emissions
verified by a third-party agency.
Questions to Mgmt: How do you plan to participate in the +US$12tn green funding gap in India? What
is the share of the company’s revenues from sectors promoting socio-economic causes, and from
non-metro & non-tier 1 locations? What steps are the company taking to ensure strong data security
and customer privacy? What steps are the Company taking to promote gender diversity at different
levels? And what are initiatives towards employee training/reskilling?

Banks
Equity Research
January 3, 2023
Financials: State Bank of India

Estimate changes
INR 2022A 2023E 2024E 2025E
Operating Profit (B) 678.7 800.9 992.2 1,091.9
Net Profit (B) 316.8 450.0 525.2 557.3
ROAA 0.67% 0.85% 0.89% 0.85%
ROAE 12.8% 16.0% 16.3% 15.1%
DPS 7.10 8.52 10.22 11.25
BV/Share 247.76 296.03 346.37 395.26
EPS 35.49 50.42 58.85 62.45
EPS Growth 55.2% 42.1% 16.7% 6.1%
Valuation metrics
2022A 2023E 2024E 2025E
P/B 2.5x 2.1x 1.8x 1.6x
FY P/E 17.3x 12.2x 10.4x 9.8x

Banks
Equity Research
January 3, 2023
Company Description
Axis Bank
Axis Bank is the third-largest private sector bank in India. It offers the entire spectrum of financial services to customer segments covering Large
and Mid-Corporates, SME, Agriculture, and Retail Businesses. The bank has a large domestic branch footprint and has overseas branches/offices
in Singapore, Hong Kong, Shanghai, Colombo, Dubai, DIFC — Dubai and Abu Dhabi. Axis Bank is one of the first new-generation private sector
banks to have begun operations in 1994. It was promoted in 1993, jointly by Specified Undertaking of Unit Trust of India (SUUTI; then known as
Unit Trust of India), Life Insurance Corporation of India (LIC), General Insurance Corporation of India (GIC), National Insurance Company Ltd., The
New India Assurance Company Ltd., The Oriental Insurance Company Ltd., and United India Insurance Company Ltd. The shareholding of Unit
Trust of India was subsequently transferred to SUUTI, an entity established in 2003.
Bandhan Bank
Bandhan Bank Ltd. is an Indian banking and financial services company headquartered in Kolkata, West Bengal. It is the largest provider of
microfinance loans in India. Bandhan started in 2001 as a not-for-profit and converted into an NBFC shortly afterward. In 2015, Bandhan received
a universal banking license from RBI. Bandhan Bank primarily serves unbanked and underbanked customers in India through microfinance,
affordable housing, and MSME loans.
ICICI Bank
ICICI Bank is India's leading private bank with subsidiaries in the United Kingdom and Canada; branches in the United States, Singapore, Bahrain,
Hong Kong, Sri Lanka, Qatar, and Dubai International Finance Centre; and representative offices in the United Arab Emirates and China, among
others. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery
channels and its specialised subsidiaries in the areas of investment banking, life and non-life insurance, venture capital, and asset management.
IndusInd Bank Limited

IndusInd Bank, which commenced operations in 1994, caters to the needs of both consumer and corporate customers. Its technology platform
supports multichannel delivery capabilities. The Bank believes in driving its business through technology. It enjoys clearing bank status for both
major stock exchanges (BSE and NSE) and major commodity exchanges in the country, including MCX, NCDEX, and NMCE. IndusInd Bank also
offers DP facilities for stock and commodity segments. On April 1, 2013, IndusInd Bank was included in the NIFTY 50 benchmark index.
Kotak Mahindra Bank

Kotak Mahindra Bank (‘KMB’) is one of India's leading banking and financial services group, offering a wide range of financial services that
encompass every sphere of life. KMB has transformed from an NBFC (non-banking financial company) into one of the fastest growing banks in
India after obtaining a banking license in 2003. The bank offers personal finance solutions of every kind from savings accounts to credit cards,
distribution of mutual funds to life insurance products. Kotak Mahindra Bank offers transaction banking, operates lending verticals, manages
IPOs and provides working capital loans. Kotak has one of the largest and most respected Wealth Management teams in India, providing the
widest range of solutions to high net worth individuals, entrepreneurs, business families and employed professionals. Over the years, it has
entered various financial service businesses, such as securities, investment banking, life insurance, asset management and retail banking and
has become a leading player in domestic capital markets.
Punjab National Bank

Since its humble beginning in 1895 with the distinction of being the first Swadeshi Bank to have been started with Indian capital, Punjab National
Bank has continually strived for growth in business. It remains the second-largest state-owned bank in terms of branch network and total
business. Apart from offering banking products, the bank has taken up wealth management services viz. credit card/debit card, bullion business,
life/non-life insurance, gold coins, and asset management. Marking its foray into life insurance business, the bank has tied up with one of the
world’s largest insurance company, Metlife India Insurance Company Ltd.
State Bank of India

State Bank of India (SBI), established in 1882, is a state-owned and the largest bank having a pan-India presence along with several offices
globally. Together with its five associate banks, SBI enjoys a lion's share of the total deposit and credit in the total banking sector. Along with
consumer and commercial lending, SBI has spread its business to include insurance (life and general), asset management, factoring etc. through
various associate and subsidiary companies.
Company Valuation/Risks
Axis Bank
We value AXSB at Rs1,110 - based on a SOTP valuation with core bank valued at 1.9x Sep-24E adjusted PB. Downside Risks: Higher slippages
in the retail /corporate loan segment and NIM compression.

Banks
Equity Research
January 3, 2023
Bandhan Bank
We value Bandhan Bank at 2.2x Sept-24E Adj. BVPS to arrive at a price target of Rs340. Risks include further stress from the restructured book
and slowdown in loan growth.
ICICI Bank
We value ICICI Bank at Rs1,150 — core banking at 2.8x Sep-24E adj book, IPRU and ICICIGI at price target, ICICI Securities at market price, and
AMC at 35x P/E and other subsidiaries. Risks include higher NPLs and a weak earning trajectory.
IndusInd Bank Limited

We value IIB at 1.8x Sep-24E Adj. BVPS to arrive at a price target of Rs1,600. Risks include asset quality deterioration from the MFI/CV portfolio,
increasing reliance on nonfunded and trading book for generating fee and trade revenues, and loss of CASA from corporate clients.
Kotak Mahindra Bank

We value KMB at Rs2,470 based on SOTP, with the core banking business valued at 3.8x adj. P/ABV (Sep-24E). Downside Risks: Asset quality
pressure from MSME, real-estate segment, Weaker than expected loan growth.
Punjab National Bank

Our PT of Rs 36 is based on 0.5x P/ABV (Sep-24E). Upside Risks: Lower NPLs, improvement in loan growth, and better-than-expected execution
on operational synergies.
State Bank of India

We value SBI at Rs 760 based on SOTP. We value the core banking business at 1.6x adj P/B, SBI Life at our PT (Rs1,580), SBI Cards at CMP and
Asset management business at 35x P/E. Upside risks: Improvement in asset quality, higher NIMs, higher than expected loan growth. Downside
risks: Lower NIM, weaker loan growth, asset quality.
For Important Disclosure information on companies recommended in this report, please visit our website at https://javatar.bluematrix.com/
sellside/Disclosures.action or call 212.284.2300.
Analyst Certification:
I, Prakhar Sharma, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and
subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or
views expressed in this research report.
I, Vinayak Agarwal, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and
subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or
views expressed in this research report.
Registration of non-US analysts: Prakhar Sharma is employed by Jefferies India Private Limited, a non-US affiliate of Jefferies LLC and is not registered/
qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may
not be subject to the FINRA Rule 2241 and restrictions on communications with a subject company, public appearances and trading securities held by
a research analyst.
Registration of non-US analysts: Vinayak Agarwal is employed by Jefferies India Private Limited, a non-US affiliate of Jefferies LLC and is not registered/
qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may
not be subject to the FINRA Rule 2241 and restrictions on communications with a subject company, public appearances and trading securities held by
a research analyst.
As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receives
compensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research as appropriate,
but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majority of reports are
published at irregular intervals as appropriate in the analyst's judgement.
Investment Recommendation Record

(Article 3(1)e and Article 7 of MAR)
Recommendation Published January 2, 2023 , 06:19 ET.
Recommendation Distributed January 2, 2023 , 20:30 ET.
Company Specific Disclosures

Jefferies is acting as Financial Advisers to HDFC Ltd on its merger with HDFC Bank
Ankur Pant holds a long position in HDFC Bank (HDFCB IN)
Jefferies Group LLC makes a market in the securities or ADRs of ICICI Bank.
Jefferies Group LLC makes a market in the securities or ADRs of HDFC Bank.

Banks
Equity Research
January 3, 2023
Jefferies Group LLC makes a market in the securities or ADRs of ICICI Lombard General Insurance Company Limited.
Jefferies Group LLC makes a market in the securities or ADRs of ICICI Prudential Life Insurance Company.
Jefferies Group LLC, its affiliates or subsidiaries is acting as a manager or co-manager in the underwriting or placement of securities for ICICI Bank or
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Banks
Equity Research
January 3, 2023
of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities such as ADRs, whose values are
affected by the currency of the underlying security, effectively assume currency risk.
Other Companies Mentioned in This Report

• Aavas Financiers Limited (AAVAS IN: INR1,807.65, BUY)
• Aptus Value Housing Finance Limited (APTUS IN: INR303.00, BUY)
• Axis Bank (AXSB IN: INR933.85, BUY)
• Bajaj Finance Limited (BAF IN: INR6,556.75, HOLD)
• Bandhan Bank Ltd (BANDHAN IN: INR234.20, BUY)
• Can Fin Homes Limited (CANF IN: INR546.05, BUY)
• Cholamandalam Investment and Finance Company (CIFC IN: INR731.95, BUY)
• CMS Info Systems Limited (CMSINFO IN: INR317.70, BUY)
• HDFC Bank (HDFCB IN: INR1,629.15, RESTRICTED)
• HDFC Standard Life Insurance Company (HDFCLIFE IN: INR570.35, BUY)
• Home First Finance Company India Limited (HOMEFIRS IN: INR750.00, BUY)
• Housing Development Finance Corp. Ltd. (HDFC IN: INR2,652.60, RESTRICTED)
• ICICI Bank (ICICIBC IN: INR890.95, BUY)
• ICICI Lombard General Insurance Company Limited (ICICIGI IN: INR1,242.30, BUY)
• ICICI Prudential Life Insurance Company (IPRU IN: INR451.95, BUY)
• IndusInd Bank Limited (IIB IN: INR1,221.50, BUY)
• Kotak Mahindra Bank Limited (KMB IN: INR1,826.45, BUY)
• LIC Housing Finance Limited (LICHF IN: INR424.40, BUY)
• Mahindra and Mahindra Financial Services Limited (MMFS IN: INR241.00, UNDERPERFORM)
• Max Financial Services Limited (MAXF IN: INR684.55, BUY)
• Nippon Life India Asset Management Limited (NAM IN: INR251.70, BUY)
• Piramal Enterprises Limited (PIEL IN: INR837.15, BUY)
• Punjab National Bank (PNB IN: INR56.45, UNDERPERFORM)
• Reliance Industries (RIL IN: INR2,575.15, BUY)
• SBI Life Insurance Company (SBILIFE IN: INR1,240.25, BUY)
• Shriram Finance (SHFL IN: INR1,385.80, HOLD)
• State Bank of India (SBIN IN: INR613.20, BUY)
Distribution of Ratings IB Serv./Past12 Mos. JIL Mkt Serv./Past12 Mos.

Count Percent Count Percent Count Percent
BUY 1978 59.94% 67 3.39% 14 0.71%
HOLD 1148 34.79% 8 0.70% 1 0.09%
UNDERPERFORM 174 5.27% 1 0.57% 0 0.00%

Banks
Equity Research
January 3, 2023
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January 3, 2023
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Indian Banks 2023 Growth at Reasonable Price Stay Positive

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Indian Banks 2023 Growth at Reasonable Price Stay Positive

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Equity Research

India | Banks January 3, 2023

Indian Banks 2023: Growth at Reasonable KEY STOCKS FEATURED INCLUDE:

Price; Stay Positive TICKER RATING PRICE TARGET

AXSB IN BUY INR1,110

Pvt Bank (coverage) PSU (coverage)

Please see important disclosure information on pages 63 - 67 of this report. 2

EPS Estimates P/E

Please see important disclosure information on pages 63 - 67 of this report. 3

Please see important disclosure information on pages 63 - 67 of this report. 4

Exhibit 3 - Key themes for Indian Banks in 2023

Please see important disclosure information on pages 63 - 67 of this report. 5

Exhibit 4 - Valuation Matrix: Lenders and other financials

Source: Company Data, FactSet, Jefferies Estimates

Source: Company Data, FactSet, Jefferies Estimates

Source: Company Data, FactSet, Jefferies Estimates

Please see important disclosure information on pages 63 - 67 of this report. 6

Stock price returns of financial stocks in CY22 (%)

Please see important disclosure information on pages 63 - 67 of this report. 7

#1. Credit growth to normalise and drivers to switch

Please see important disclosure information on pages 63 - 67 of this report. 8

Bank Domestic Loan Growth (%, YoY)

Source: RBI, Jefferies Estimates Source: RBI, Jefferies Estimates

Please see important disclosure information on pages 63 - 67 of this report. 9

Loan growth % NII Growth (%)

Pvt Bank PSU Total Total Pvt Bank PSU

#2. Deposit growth gap with credit growth to narrow

Deposit Growth (%, YoY) Credit Growth (%, YoY)

Please see important disclosure information on pages 63 - 67 of this report. 10

Deposit Growth (%, YoY)

16.0% 14% 15%

Deposit growth (% YoY) Household savings in deposits (Rstn, LHS)

Peak (Aug-18) Mar-20 Dec-21 Now

Please see important disclosure information on pages 63 - 67 of this report. 11

Cost of Funds (%) - Calculated

CASA Ratio (2QFY23) Share of retail deposits, as per LCR (%)

#3. Rate-hikes to peak with 25-50bps hikes; see cuts

Please see important disclosure information on pages 63 - 67 of this report. 12

Peak (Aug-18) Mar-20 Dec-21 Now

Please see important disclosure information on pages 63 - 67 of this report. 13

Forex Reserves (US$bn)

#4. Sweet spot on credit quality to stay

Please see important disclosure information on pages 63 - 67 of this report. 14

Slippages (% of past year loans) Credit Costs (%)

. Source: Company data, Jefferies

Please see important disclosure information on pages 63 - 67 of this report. 15

Please see important disclosure information on pages 63 - 67 of this report. 16

#5. NIM compression will be made up by opex

NIM (%) NIM (%)

(% of dom. loans) Loan-pricing benchmarks for banks

MCLR EBLR Fixed Rate Others

Please see important disclosure information on pages 63 - 67 of this report. 17

1.0 2.0 Source: Company data, Jefferies

Pvt Bank Coverage

NIM (%) (LHS) Opex growth (%) (RHS)

Cost to Assets (%) Cost to Assets (%)

Please see important disclosure information on pages 63 - 67 of this report. 18

Split of net profit (Rsbn) Split of net profit (%)

#6. PSU banks regaining lost ground

Please see important disclosure information on pages 63 - 67 of this report. 19

Loan Growth (% YoY)

Public Sector Loan Growth (%)

March 22 June 22 Sept 22