ICRA Research

Indian Banking System: Q4FY11: Performance Review & Outlook
Contact:
Karthik Srinivasan karthiks@icraindia.com +91-22-3047 0028 Vibha Batra vibha@icraindia.com +91-124-4545302 Avinash P avinashp@icraindia.com +91-44-4596 4311   The current ICRA research is an update on the performance of 42 Indian Banks (26 public sector banks and 16 private sector banks. These banks account for around 95% of the Indian Banking System assets as on March 2011.  Overall profitability indicators for banks under review showed marginal improving trends in the first three quarters of fiscal 2011 with net profits as a percentage of average total assets at around 1.15% in Q3FY11 from 1.00% in Q4FY10, but declined to 0.92% in Q4FY11 mainly owing to the decline in profitability of Public Sector banks (PSU banks). Private sector banks steadily improved their profitability levels in FY11 widening the gap with their public sector peers. Treasury gains remained thin in FY11 on the back of rise in interest rates; banks would need to provide depreciation for any further rise in bond yields. ICRA estimates that the impact of increase in funding costs owing to interest rate hardening and the higher interest rate on savings accounts are likely to be felt on banks’ interest margins in FY12, particularly for those banks with a high proportion of bulk deposits. This coupled with a temporary slackening of credit growth, atleast in the first half of FY12, could impart some pressure on banks’ interest margins in FY12. PSU banks absorbed nearly Rs. 180 billion on account of additional provisions for employee compensation in Q4FY11 and an estimated liability of Rs. 220 billion would be amortised over the next 4 years, which is likely to offset the impact of operational efficiencies on overall operating cost levels. Overall provisioning cost levels increased in FY11 owing to higher regulatory provisioning requirements and are expected to remain at fairly high levels in FY12 as well, owing to likely increase in NPAs and higher prudential provisioning. In FY11, private sector banks’ credit cost levels were better than PSU banks as the incremental provisions required to meet regulatory targets were lower because of the available provision cover. Banks registered the strongest credit growth in FY11 since the slowdown in FY09 with an expansion of the credit portfolio by 22.72% by banks under review. The growth was driven primarily by credit to industry, particularly infrastructure, and services, mainly non-banking financial companies. Agricultural and retail credit lagged overall credit growth. Overall, the base effect of strong credit growth in FY11 and a possible slowdown in credit offtake in FY12 owing to rising interest rates could lead to a slower credit growth of 17%-18% in FY12. Overall asset quality indicators were stable in FY11 with gross NPAs remaining steady at 2.26%. Supported by the improvement in the asset quality of ICICI Bank, the largest private sector lender, private sector banks’ gross NPA levels registered a significant improvement as compared to PSU banks. Most banks, however, registered a sharp improvement in net NPA levels owing to higher regulatory provisioning requirement. Despite the expected increase in slippages in the short-to-medium term, ICRA believes that the banking system is well-equipped with a good overall solvency profile and a comfortable provision cover to absorb any shocks in the near term. Supported by over Rs. 150 billion equity infusion from GOI in several PSU banks, the overall bank capitalisation levels remained comfortable despite the strong expansion in credit portfolios. Even as banks resorted to raising Tier I capital through non-equity instruments, the core capitalisation levels remained stable at 6.09% as on Mar-11.

June 2011

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Indian Banking System: Q4 FY11 - Performance Review & Outlook

June 2011

Key recent developments
The key developments during the last 15 months, which could have an impact on the credit profile of the banks going forward, are highlighted below: Sizeable Capital infusion into PSU banks by the Government; more capital likely to be infused in FY12. Increase in provision coverage on NPAs by majority of the banks to 70% 1 leading to improvement in Solvency profile2. Steady rise in interest rates in the economy as the Reserve Bank takes steps to tackle inflationary pressures. Introduction of “Base Rate” from Jul-10; rise in yield on advances for the banking system albeit with some lag Interest on savings account balances increased to 4.00% from 3.50%; interest to be paid on daily balance; ICRA estimates adverse impact on cost of funds at 8-15 basis points. Reopening of pension option to employees of PSU banks and enhancement of gratuity limit to Rs. 1 million per employee from Rs. 0.35 million likely to impact Tier I capital; option to amortize over 5 years cushions immediate adverse impact on reported Tier I capital.

Strong credit growth and improving yields off-set rise in funding costs in Q4FY11 restricting the decline in interest margins
The Net interest margins (NIM) and gross interest spreads of the 42 banks analysed by ICRA marginally declined in Q4FY11 after a steady rise in the first three quarters of FY11. Banks mostly managed to compensate the increase in cost of funds through a series of hikes in their Base Rates since Q3FY11. The quarterly NIM increased from 2.71% in Q4FY10 to a peak of 3.10% in Q3FY11 and declined marginally to 2.90% in Q4FY11. On a rolling twelve month 3 analysis, NIMs steadily increased to 2.86% in FY11 compared to 2.44% in FY10 as the transmission of higher rates to borrowers in the current year has positively impacted the yields whereas the upward repricing of deposits normally happens with a lag.
Chart 1: Net Interest Margin (Rolling 12M)
3.40% 3.20% 3.00% 2.80% 2.60% 2.40% 2.20%

Chart 2: Net Interest Margin (Q-o-Q basis)
3.40% 3.20%

3.00%
2.80% 2.60% 2.40% 2.20% 2.00%

2.00%
Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

All Banks

PSU Banks

PSU Banks (Excl SBI Grp)

PVT Banks

All Banks

PSU Banks

PSU Banks (Excl SBI Grp)

PVT Banks

Source: ICRA Research; Note: Net interest margin expressed as percentage of average assets

Owing to the sharp increase in NIMs for PSU banks from Q1FY11 (largely on account of the positive impact of the introduction of the Base Rate) the gap with private sector banks has narrowed from 0.57% in Q4FY10 to 0.41% in Q4FY11. Nonetheless, the interest margins for the private sector banks continue to remain higher than their public sector peers on the back of the higher yield on advances and better capitalization levels as compared to the PSU banks, despite their relatively higher cost of funds. With the incremental cost of deposits rising sharply in the last two quarters, ICRA believes that the impact of repricing of the low cost deposits of the past will get reflected in pressures on interest margins in the current year. Even as ICRA expects RBI to increase interest rates further in the current year given the continuing inflationary trends, further upward revision in loan rates (post the increase by some banks after the RBI’s Annual Credit Policy in May 2011) could impact credit off-take and banks may not fully pass on rate hikes to borrowers, resulting in a temporary contraction of NIMs at least over the next few quarters. We believe that impact could be relatively severe on banks which have mobilised significant wholesale deposits to fund credit growth in FY11.
1 2

SBI has been permitted time upto September 2011 by the RBI Solvency ratio is computed as Net NPAs as % of networth 3 Trailing Twelve Months ICRA Rating Services Page 2

private sector banks’ fee income levels with non-interest income comprising 34. Note: Non-interest income expressed as percentage of average assets A prime reason for the declining non-interest income has been the lower trading profits on bank’s investment portfolio. On a quarterly basis.20% 1. With amortisation of staff costs coupled with branch expansion plans of the banks and an expected moderation in credit growth. the noninterest income remained modest upto Dec-10 but increased to 1.00% Chart 6: Operating Profit Margin (Q-o-Q basis) 3.80% 1.00% Chart 4: Non-Interest Income (Q-o-Q basis) 2. However.00% 2. Employee-related expenses pull down Operating profitability in Q4FY11 Despite stagnant non-interest income.20% 2.50% 1.80% 1. additional provisions for employee compensation on account of reopening of pension option (including for retired employees) and higher gratuity provisions impacted operating cost levels in Q4FY11.12% from 1.00% Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 All Banks PSU Banks PSU Banks (Excl SBI Grp) PVT Banks All Banks PSU Banks PSU Banks (Excl SBI Grp) PVT Banks Source: ICRA Research. operating cost levels over the next 12-16 quarters could be marginally higher by ~ 10 bps owing to amortisation of deferred employee costs.60% Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 All Banks PSU Banks PSU Banks (Excl SBI Grp) PVT Banks All Banks PSU Banks PSU Banks (Excl SBI Grp) PVT Banks Source: ICRA Research.00% Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 1.00% 1.47% of operating income remain better diversified compared to PSU banks which have 26. PSU banks have been given the option to amortise the additional liability over five years4.81% during FY10. and most of the Banks have opted to do so in order to cushion the impact on profitability and capitalisation. the noninterest income levels could continue to remain subdued in FY12. Chart 3: Non-Interest Income (Rolling 12M) 2. Chart 5: Operating Profit Margin (Rolling 12M) 3.50% 2. As the yields on Government Securities started to harden from Q2FY11.60% 1.80% 1.00% 1. Note: Operating profit expressed as percentage of average assets 4 Also see ICRA Comment: RBI notification on pension liabilities: PSBs get a breather Page 3 ICRA Rating Services . While all categories of banks have reported decline in non-interest income levels. ICRA expects the operating expense levels to rise marginally in the medium term.60% 1.50% 2.80% 0. there were fewer opportunities to make trading profits on investments.40% 1. In ICRA’s estimates.Indian Banking System: Q4 FY11 .00% 2.00% 0. As interest rates are expected to remain hard for most part of FY12. higher net interest margins and control over operating costs led to a sharp rise in the operating profitability of banks in the first nine months of FY11 to 2.40% 1.20% 1.00% 0.20% as compared to 1.04% of operating income through non-interest revenue sources.50% 1.32% in FY10 on account of moderate growth in fee income and low treasury income.31% of average assets in Q4FY11 (partly aided by the rise in credit off-take and an increased thrust on recoveries from delinquent accounts).Performance Review & Outlook June 2011 Steady decline in Non-Interest Income levels… Non-interest income as a percentage of average total assets registered a steady decline in FY11 to 1. the increase in core fee income is expected to largely track the growth in bank credit.60% Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 0.20% 2.

However. Chart 7: Net Profit Margin (Rolling 12M) 1.30% 1. However the adverse impact in movements is largely mitigated by the high levels of investments that are classified in the “Held to Maturity” category which do not require any mark-to-market provisioning requirements. Further. in ICRA’s estimates. While the decline was mainly on account of the modest profitability reported by SBI (0. any further increase in bond yields could necessitate mark-to-market provisions on banks’ investments books. In FY12.80% 0. 2010 to 8. In addition to the decline at the operating profitability level. Private sector banks continued to report an improvement in their profitability in Q4FY11 through control over operating cost levels and credit costs. The table below indicates the impact of changes in the yield curve and modified duration of the investment portfolio as a proportion of the pre tax profits. Note: Net profit expressed as percentage of average assets The steep fall in Q4FY11 profitability has dragged the profitability of FY11 to the same levels as in FY10 even as quarterly trends during the year indicated an improvement.07% as on March 31. On the other hand.40% 1. As such the pressure on credit provisions could continue in FY 12 as well. 2011 and further to around 8. overall bank profitability is likely to be weighed down by increasing cost of funds. the profitability levels of other PSU banks also dropped.Performance Review & Outlook June 2011 The overall core operating profitability of the PSU banks will be impacted adversely on account of the expected pressures on interest margins and rise in operating expenses.96% from 1. ICRA research Page 4 ICRA Rating Services . although higher yields on advances could partly mitigate the pressures.10% during this period.4% as on date5.30% 1. the credit provisioning levels also increased for PSU banks. albeit at lower levels.00% 0. However. ICRA also expects the liquidity profile to tighten in the current financial year as RBI is likely to maintain tight systemic liquidity and raise benchmark rates for moderating inflationary pressures. the prudential provision requirements for the various NPA classifications (sub standard and doubtful assets) have been revised upwards. in ICRA’s view. in ICRA’s opinion.90% 0. While RBI has relaxed the provision requirement of 70% on NPAs.01%). credit and investment provisions and amortisation of staff provisions.50% 1.20% 1. Nevertheless with most banks having around 30-35% of their investments in the “Available for Sale” and “Held for Trading” categories.89% as on March 31. albeit moderately to 0.90% 0. most banks had some cushion against investment depreciation and consequently did not have to make sizeable additional investment provisions in FY11.60% 1. the Private Sector Banks reported a stable quarterly operating profitability of 2. Weekly Statistical Supplement.20% 1.10% 1.10% 1. the banks would need to keep a closer watch on the asset quality and also manage the interest rate risk on their investment portfolio.80% Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 All Banks PSU Banks PSU Banks (Excl SBI Grp) PVT Banks All Banks PSU Banks PSU Banks (Excl SBI Grp) PVT Banks Source: ICRA Research. Accordingly.66% through FY11 supported by lower leverage levels and relatively stable non interest income.Indian Banking System: Q4 FY11 . sudden change in interest rates could impact valuations.40% 1. bond yields might not have peaked and any mark-to-market impact on account of further rise in yields could impact returns from banks’ bond portfolios in Q1FY12. in order to protect the overall profitability. Credit provisions and lower interest margins hit net profitability in Q4FY11 The net profitability of PSU banks fell sharply in Q4FY11 to 0.00% Chart 8: Net Profit Margin (Q-o-Q) 1. Further rise in bond yields to adversely impact profitability in FY12 The yield on the benchmark 10-year G-Sec increased by 18 bps during FY11 from 7.76% after a steady improvement in the first nine months.50% 1. 5 Source: Reserve Bank of India.70% Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 0. Treasury gains were also muted in FY11 given the hardening interest rates and banks would do well if they can manage with limit the provisioning requirements on their investment book this year. leading to a drop in net profitability.

67% growth as on Dec-10 and 17.82% -27.73% as on Mar-10. 6 We have assumed an investment portfolio at 32% of the deposit base and the Available for Sale and Held for Trading portfolio accounting for 30% of the investment portfolio.13% -13.98% -9.50% 2.00% 5.09% as on Mar11 compared to 42.23% -29.42% -23.75 -4.40% 2.00% Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 -4.92% Y-o-Y compared to PSU banks which reported a growth of 18.43% y-o-y and 5.57% -26.64% -13.00% 30.00 -3.67% -24.25% -22. Among the PSU banks.75% 1.96% -13.50% 0.72% in Q4FY11.18% -21. PSU banks’ CASA share declined to 33.32% as on Mar-10.50 -4.00% 1. ICRA expects most of the private sector banks to be near the lower end of the stated band while the PSU banks remain at the higher end on account of the reasons stated earlier.28% -19. which reported a growth of only 12. while it declined for other PSU banks by 0.30% -12. Among the PSU banks.20% -14. Chart 9: Total Deposit Growth (Y-o-Y Basis) 35.45% as on Mar-11 from 34.01% as on Mar-11 from 34.92% as on Mar-11 from 36.55% -33. The growth in term deposits has also resulted in these banks registering a decline in their low-cost deposit base and an increase in cost of funds for PSU banks. Empirical data suggests that the decline in the share of low-cost deposits is further accentuated by the decline in Corporates’ surplus balances with Banks for working capital requirements and spurt in issuances of certificate of deposits (CD).00% 2.07% on a Y-o-Y basis.89% -31.00% Jun-09 -2.00% 8.59% -19. Deposit growth likely to remain strong.25 -5.05% as on Mar-10.28% -16.39% as on Mar-11 from 30.08% in the first upto YTD Dec-10.47% -11. ICRA Rating Services Page 5 .45%.00% All Banks PSU Banks PSU Banks (Excl SBI Grp) PVT Banks All Banks PSU Banks PSU Banks (Excl SBI Grp) PVT Banks Source: ICRA Research Private sector banks reported a stronger growth in FY11 of 21.00 -6.45% -18.00% 15.Indian Banking System: Q4 FY11 .36% 3.50 -5.11% -37.00% 10.64% -9.00% 12. deposit growth remained muted in the first three quarters registering a growth of only 7.83% 6 June 2011 ICRA estimates that adverse impact for the banks on account of the rise in interest rates would be of the order of 1020% of FY12 pre tax profits.94% as on Dec-10 and 34.99% as on Mar-10 owing to strong growth in term deposits and CDs.Performance Review & Outlook Table 1: Impact on PBT due to rise in bond yields at various Modified Duration levels Modified Duration levels of Investment Portfolio Rise in Interest Rates 0. The share of low cost deposits of banks analysed by ICRA marginally declined in Q4FY11 to 34.33% as on Mar-10.91% -24.39% -10.89% -29.04% in Q4FY11 compared to 6. overall deposits growth was partially pulled down by SBI group.03% y-o-y and 13.91% 2.32% -6.38% 3. While private sector banks registered a good improvement in CASA share to 40. particularly in term deposits which registered a quarterly growth of 12.19% -39.00% 25.00% 6.22% -12. cost of funds to rise further The deposit base for the 42 banks analysed by ICRA grew by 19.79% -16.89% 2.90% as on Dec-10 and 39.00% 20.73% -7.91% -26.77% Q-o-Q.74% -24. while the savings account balances continued to grow.96% -14.87% 3.00% 0.59% -20.00% Chart 10: Total Deposit Growth (Q-o-Q Basis) 16.85% 3.00% 14.04% -34.00% 4. All banks had several rounds of interest rate hikes aggregating 150-300 bps during the year starting from Q3FY11 which translated into strong growth.17% as on Sep-10 as a result of the strong Q-o-Q growth of 11.93% -18. Barring few exceptions. the SBI Group managed to retain the CASA share at 42. marginally higher than the 17.53% in Q3FY11. adjusting for this the remaining PSU banks’ growth was significantly higher at 21.75 -6.94%pts at 29.25 -3.25% 1.15% -8.81% -11.50% as on Dec-10 and 34.20% in Q4FY11.25% 0.00% Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 0.56% -9.00% 10.93% -19. The growth of PSU banks was largely fuelled by growth in term deposits as these banks aggressively increased term deposit interest rates.97% -32.00 -4.69% -18.34% 4.45% -16.62% -17.67% -22.

0% 40 Rs. Given the hike in interest rates coupled with the volatility in the capital markets we expect some retail funds to be diverted to bank deposits in the near term.0% 1. mostly for short tenures. 122.0% 0.33% as of Dec-10 from 74.0% Chart 12: Certificates of Deposit Issued (All tenures) 80 70 60 Rs.6 3.0% 10.0% 4.0% -1.0% 3.0% 2.79% from 5. RBI increased the interest rate on savings deposits to 4% from 3.0% 0.0% 6. 4.17% as on September 2010 and 7.0% 20 15 10 5 0 5 0 Issuance Rate Issuance Rate Source: RBI.0% 2.16% as on March 2011 from 7.07% in Q4FY10.8 3. at the systemic level.0% 0. Chart 11: Certificate of Deposit Outstanding 11.4 4. '000-crore 35 30 25 20 15 10 8. The share of CDs outstanding increased to 8. 2011 and the increase in saving rate could dilute the NIM by 8-15 basis points.0% 9. '000-crore 11.0% 2.0% Rs.0% 5.25 trillion during this period. In ICRA’s estimates.34% as on Mar-11. Issuance volumes increased from Rs. Also.06% as of Mar-10 and moderating marginally to 76.45% in Q3FY11 and 5. savings accounts are estimated to account for 22%-23% of total Bank deposits as on March 31. and help sustain the higher pace of deposit growth witnessed in Q4FY11. ICRA Research 7 Also see ICRA Comments on the RBI’s Annual Policy Statement for 2011-12 released in May 2011 Page 6 ICRA Rating Services .0% 9. 3.60% as on March 2010 with the outstanding CDs increasing from Rs.0% 6.5% in view of the widening spread between term deposit rates and savings rates.0% 4. '000-crore 12.41 trillion to Rs.54% in Q3FY11 and 5.0 3.0% 7.0% 8.0 50 40 30 20 5.0% 3. Debt on Net.0% 7.0% 4.44% in Q4FY10 while private sector banks registered an increase to 5. while the post tax impact could be lower at 6-7 basis points.0% Outstanding Rate < 1M 1-3M 3-6M 6-12M Rate Chart 13: Certificates of Deposit Issued (1-3 months) 50 45 12.Performance Review & Outlook June 2011 In its monetary policy statement for FY12. RBI has already expressed concern banks’ ability to sustain credit growth without a matching growth in deposits in light of the sharp increase in the Credit-to-Deposit ratio in the current year. the rise in the credit off-take coupled with marginal growth in deposits led the Credit-to-Deposit ratio to increase to 78.74% in Q4FY11 from 5. 752.0% Chart 14: Certificates of Deposit Issued (6-12 months) 30 25 Rs.0% 6.2 10.2 3.0% 10 - 1.0% 8. The growth in share of term deposits. the cost of funds of banks could increase considerably in FY12 given the effect of hardening interest rate scenario and declining CASA share.Indian Banking System: Q4 FY11 .0% 4. increase in interest rates and the increase in interest on savings deposits would considerably impact the cost of funds for banks adversely in FY12.4 3.41 billion in March 2011. However. with a significant share of short tenure issuances. the impact could be more adverse for large banks that have a stronger savings account base. The cost of funds also increased for PSU banks in Q4FY11 to 5. ICRA expects interest rates to remain at elevated levels at least in the early part of the current fiscal as RBI is likely to raise policy rates to contain inflation.72 billion in April 2010 to Rs. While the impact is not very significant per se. lakh-crore 4. Banks aggressive on raising short term bulk funds despite high rates ICRA’s analysis of the current liquidity situation reveals that Indian banks have been raising bulk funds in the form of CDs and high-cost deposits from corporates. ICRA expects the system deposit base to grow by 16-17%7 as against RBI’s projection of 17%.0% 10.

particularly power sector (growth of 43.12% growth registered in FY10. However. Punjab National Bank (29.39 billion in the month of March 2010 alone). a large part of the decline can be attributed to the base effect (agri credit increased by Rs.00% 20. the fixed tenure of CDs augurs well for banks from an asset-liability management perspective as compared to bulk deposits which carry risk of preclosure. This is likely to impact the banks’ cost of funds as these CDs maturing in the near term typically would get refinanced at the prevailing high short term rates. respectively.Indian Banking System: Q4 FY11 .00% 10. Corporation Bank (37. the share of lending to NBFCs qualifying as priority sector as percentage of the banking system’s total priority sector lending portfolio is under 2%. higher than RBI’s comfort level of 20%.82% during the same period.00% 0. SBI group’s credit growth lagged other PSU peers on an annual basis as well registering a growth of 14. a large chunk of the incremental credit has been absorbed by the infrastructure sector (growth of 38.26%).73 trillion as on March 31. Recovering from the economic downturn in FY09 private sector banks have registered strong recovery in growth since December 2009 compared to their public sector peers.36% Q-o-Q growth and 22. Banks continue to favour higher credit exposures to Medium and Large Corporates.00% Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 All Banks PSU Banks PSU Banks (Excl SBI Grp) PVT Banks All Banks PSU Banks PSU Banks (Excl SBI Grp) PVT Banks Source: ICRA Research The sectoral credit data released by the RBI9 indicates that while credit to industry and services was buoyant. Within industry and services. as compared to Small Corporates which registered a modest growth of 11. 457. In ICRA’s view. while HDFC Bank (27. 2011. Canara Bank (25. credit to commercial real estate also increased in FY11 registering a growth of 21. Chart 15: Advances Growth (Y-o-Y Basis) 30. there was a sharp fall in agricultural credit growth to 10.00% 0. an increase of over 40 times. 2011 Page 7 ICRA Rating Services . The total credit extended by the banks under review stood at Rs. FY11 credit growth strongest in past 3 financial years.00% 10. however.00% 5.00% Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 -4. 444.00% 8. 8 9 Bulk deposits are typically large ticket.74 billion in March 2011 (59.03%. the quarterly growth registered by SBI group in Q4FY11 was significantly lower at 4.44% led by large banks including Bank of Baroda (30.18% and 24. 11 billion in April 2010 (8.and Infrastructure Non-Banking Financial Companies (54.31%) .Performance Review & Outlook June 2011 Market estimates indicates issuances of short tenure (1-3 months) CDs increased from Rs.00% Chart 16: Advances Growth (Q-o-Q Basis) 12. RBI notified in its May 2011 Monetary Policy Statement for 2011-12 that loans to NBFCs (except microfinance companies) would not be eligible for classification as priority sector lending.00%.96% of total issuances) to Rs.88% in FY10).00% 4.00% Jun-09 -2.71% in FY11 vis-à-vis 25.42%) and Indian Overseas Bank (41.48%) registered strong growth rates in the private sector space. While retail lending also lagged overall credit growth in FY11 registering a growth of 17. In view of the increasing cost of CD issuances. moderation likely in FY12 The credit growth for the 42 banks analysed by ICRA was robust during FY11 fuelled by credit to telecom sector in Q1FY11 and to other infrastructure sectors in the remaining part of the year.47%).65%).00% 6.63%) .75%). However.68% compared to other PSU banks which grew their advances portfolio by 10. which grew by 39. Among the PSU banks.00% 2.00% 25.14%. we do not foresee any significant impact on priority sector levels as banks could deploy funds in other eligible sectors to meet their priority sector targets. in ICRA’s estimate.11%).39% compared to nil growth in FY10. high cost deposits As on March 25. representing an 8.72% Y-oY.00% 15.62% (22.14%) and Axis Bank (36.77%). at a systemic level. several banks have also been increasing the portfolio of bulk deposits8 to fund credit growth in Q3 & Q4FY11. this was significantly higher than the 4. 40. The reclassification of credit to NBFCs as non-priority sector loans could result in a shortfall in meeting priority sector targets for smaller private sector banks.

the improvement in the asset quality has been brought about by the strong credit growth and the stepped up recovery efforts by the banks.50% Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 - All Banks PSU Banks PSU Banks (Excl SBI Grp) PVT Banks PSU Banks Pvt Banks Increase (Y-o-y %) Increase (Q-o-Q %) Source: ICRA Research Banks reported relatively stable gross NPA% in FY11 as the impact of slippages from restructured accounts were largely absorbed in FY10.96% to 1.54% in FY09 largely on account of the 25.12% rise in PSU banks NPA levels during FY11. the NPAs of the SBI group increased by 29. whereas the NPA levels of SBI group increased from 2.30% 2.50% 2. Partly.26% as on Mar-11. ICRA believes that the credit growth in FY12 would be marginally lower at 17%-18% compared to RBIs expectations of 19%.80% 0.68% to 3. several PSU banks witnessed an increase in ‘technical’ NPAs.15% as on Mar-11 while other PSU banks registered an increase of 22.83% as on Mar-10 to 2.90% 1. the gross NPAs for the 42 banks under review increased by 20. Chart 19: Net NPA % 1.000 30% 25% 2.00% 0. which were partially regularised by the end of FY11.70% Rs.20% Rs. The NPA levels for the PSU banks increased in Q1 & Q2FY11 as most banks migrated to automated identification of NPAs from a manual identification system.90% 2.40% Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 - All Banks PSU Banks PSU Banks (Excl SBI Grp) PVT Banks PSU Banks Pvt Banks Increase (Y-o-y %) Increase (Q-o-Q %) Source: ICRA Research ICRA Rating Services Page 8 . While the gross NPA% for the 42 banks under review increased from 2.000 15.000 20% 60.000 35. it decreased marginally to 2.52%.60% 5% 0% 0.000 5.16% as on Mar-09 to 2. Chart 17: Gross NPA % 3. NPA level moderates marginally in FY11. crore Chart 20: Net NPAs 45.000 10% 2.000 5% 0% 1.40% 1. large government borrowing programme in FY12 and the expected further monetary tightening resulting in a persistence of the present high interest rate scenario is expected to impart some pressure on the overall systemic growth in credit in FY12. other than SBI group. PSU banks.25% to Rs 936.70% 20. net NPAs reduce on higher provisions During FY11.Indian Banking System: Q4 FY11 .000 10.31% as on Mar-10.60% 1. crore 80.000 25.80% in FY10 and 17.Performance Review & Outlook June 2011 Overall.000 20% 20.000 15% 40. Among the PSU banks. the base effect on account of the sharp growth in credit off-take reported during FY11.92%.30% 3.01% during this period.82% increase with 7 out of 15 private sector banks analysed by ICRA reported a decline in gross NPAs in FY11.10% Chart 18: Gross NPAs 100.000 15% 10% 40% 35% 30% 25% 1. As a result of this migration. private sector banks have reported a steep improvement in gross NPA levels in FY11 from 2.10% 1. Supported by the improvement in the asset quality indicators of ICICI Bank.34% as on Mar-11. also reported a slight improvement from 1.000 40.36 billion as against a rise of 25.000 30. The NPAs of the private sector banks remained nearly stable with a moderate 3.

03% 2. mainly on account of equity infusion from the government in several PSU banks. 2011. Sharp improvement in solvency indicators for private sector banks Notwithstanding the steady accretion to reserves supported by strong profits and fresh capital raised. Although a few PSU banks reported sharp rise in NPAs in FY11. However. and retaining surplus provisions available as a counter-cyclical buffer.39% as on Mar-11 as compared to 63. While the net NPA levels of SBI group was higher at 1.41% 2. PSU banks. The solvency indicator of SBI group weakened considerably to 17.50% 2. ICRA expects that banks would endeavour to maintain provision coverage at the current levels without significantly impacting profitability given the likely increase in NPAs. As a result. ICRA Rating Services Page 9 . the net NPAs of PSU banks remained stable at 1.39%.01% 2.00% 2.56% as on Mar-11.10% as on Mar-10. but this was also partially on account of the technical write offs that banks resorted to during this period.79% 2. other than SBI group also registered a marginal improvement to 11. The provision cover for other PSU banks declined to 52.56% as on Mar-10 (excluding technically written-off cases) while the provisioning cover of PSU banks increased marginally to 52.a. ICRA expects banks to be reasonably equipped to absorb the impact of the increase in NPAs.30% as on Mar-09 to 0. the solvency ratio remains comfortable at 10. the solvency profile of banks over medium term could remain comfortable though the profitability margins could shrink moderately in the near term owing to higher cost of funds.75% . several other PSU banks registered sharp deterioration in FY11 on account of higher NPA slippages.94%.00% as on Mar-11 compared to 50.39% 2. generally fresh NPA generations have remained under control for most banks in FY 11 as opposed to an increase of 26% in FY10 owing to the restructuring of advances in FY09 and FY10.20% 2. At a systemic level.65% from 15.58% as on Mar-10.52% 2.46% from 53. However.31% 2.09% as on Mar-11 compared to 1.30% 2. for next two years and 10% slippage on the restructured portfolio over the next two years. banks managed to contain any significant deterioration in NPA levels.00% as on Mar-11 for all banks.82% 2. With the implementation of the norm of 70% provisioning cover for assets as on September 2010.77% as on Mar-10.21% 3.medium term.55% to 56.82% (excluding technically written off10 accounts) during the year following RBI’s directive to maintain a provision coverage of atleast 70% (including technically written off accounts) by September 201011.25% 3.60% 2. These accounts are not included in reported NPAs.00% over the next two years as against 2.13% 3.50% 2.75% 2. the improvement in the provision cover for PSU banks was mainly on account of SBI group which increased the provision cover on its NPAs to 51.70% 2.49% from 12.34% from 45. However.92% 2. but have been written-off at Head Office level.32% 3.35% during this period.11% 3. Technically. In fiscal 2012. Private sector banks registered sharp improvement in the net NPA levels in the past 2 years from 1. Table 2: Gross NPAs at various levels of fresh generation and recovery from existing stock12 Assumption on NPA Generation Rate 30% 35% 40% 45% 50% 55% 1.00% 3.81% 2.Performance Review & Outlook June 2011 The aggregate net NPAs of the banks analysed by ICRA improved in FY11 to 0.22% 3. In ICRA’s estimate. through aggressive follow-up procedures and cash recoveries and further accentuated by improvement in environment.93% Recovery Assumption on Reduction on existing Gross NPA 10 Despite the expected increase in slippages in the short-to. these accounts carry a 100% provision 11 Certain banks obtained an extension from RBI upto Mar-11 to increase provision coverage to 70% 12 We have assumed a credit growth of 18% p.99% from 1. Notwithstanding the expected demand slowdown due to rising interest rates and an operating environment that is becoming challenging for the borrowers.49% 2.73% 2.26% as on March 31.59% 2.90% 2.71% 2.09% as banks increased the provision cover on NPAs from 53. the increase in NPAs in the past few years has led to deterioration in the solvency indicators (Net NPA as a proportion of Net Worth) for the PSU banks.11% 1. ICRA believes the rise in Gross NPA% would be limited to 2.62% 2. marginally better than 10.3.Indian Banking System: Q4 FY11 .92%. the total slippages from restructured account were nearly 15% of total restructured accounts and banks continued to suffer slippages from such accounts in FY11 as well.41% 3.49% as on Mar-11 that of other PSU banks stood at 0.47% as the country’s largest bank Technical write-off is the amount of non-performing loans which are outstanding in the books of the branches.50% 3. Private sector banks increased their provisioning coverage to 76.

30% from 11. Correspondingly.49% as on Mar-11. Private sector banks also have internal norms to maintain capital adequacy of at least 12% notwithstanding a regulatory minimum of 9%.00% 12. 2011 reveals that the regulatory capitalisation levels as per Basel II norms for the banks under review remains comfortable at over 13.76% supported by strong accretion to reserves and the fresh equity of over Rs. In Q4FY11.00% 8.00% 2.46% from 7. with a large part of it infused by the Government of India in several PSU banks (over Rs.00% 13.00% 13.Indian Banking System: Q4 FY11 . 150 billion).00% 9.00% Chart 23: Tier I Capital Adequacy Ratio (Median) 14.00% 4. 210 billion through other capital instruments.00% 12.93% as on Mar-11 compared to 5.00% 10.00% 11.30% as on March 2008 to 6. The median capital adequacy ratio for banks analysed by ICRA stood at 13.00% Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 All Banks PSU Banks PSU Banks (Excl SBI Grp) PVT Banks Source: ICRA Research Capitalization levels remain adequate for the Indian Banking System… The ICRA analysis of 42 banks as on March 31.40% during this period. However.69% from 59. PSU banks registered a sharp improvement in Tier I capitalisation from 8. Chart 21: Solvency Ratio (Net NPAs / Networth) 16.09% as on March 2011. ICICI Bank.00% 8.51% as on Mar-11 owing to the equity infusion from the GoI. the median Tier I capital adequacy also improved to 9.00% 14.48% during FY11 and the solvency indicator improved to 4.00% 14. and over Rs. In recent years. 79.00% 12. 230 billion.00% 10. Private sector banks have consistently maintained lower leverage levels compared to their PSU peers with a core capitalisation level of 9.03% as on Dec-10 to 8. banks have raised Tier I capital increasingly through non-equity instruments such as Innovative Perpetual Debt Instruments and Perpetual Non-Cumulative Preference Shares to increase leverage on their equity base.43% as on Mar-10.00% 15. Private sector banks have registered a consistent improvement in the past 2 years mainly as the largest private sector lender. the median Tier I capitalisation of private sector banks dropped marginally to 11. marginally higher than 13.11% during this period. Out of the 42 banks analysed by ICRA.27 billion on account of transitional pension liability. 4 banks had a capital adequacy of less than 12%.00% Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 7.00% Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 All Banks PSU Banks PSU Banks (Excl SBI Grp) PVT Banks All Banks PSU Banks PSU Banks (Excl SBI Grp) PVT Banks Source: ICRA Research The comfortable capitalisation levels are backed by the Government of India’s intention to maintain a capital adequacy of at least 12% for PSU banks on a steady basis. increased the provision cover on its NPAs to 75.09% for PSU banks.00% 16. core capitalisation levels (computed as networth as percentage of total assets) has only marginally reduced from 6. ICRA Rating Services Page 10 . however. Chart 22: Capital Adequacy Ratio (Median) 17.Performance Review & Outlook June 2011 registered an increase in NPA levels coupled with sharp reduction in networth of Rs.00% 6.44%.24% from 9. while 7 banks had a capital adequacy of more than 15%.

13 Only those banks which carry unamortized costs have been considered for this purpose. and the median Tier I capital could be impacted by 0. While credit growth is expected to slowdown owing to the general slowdown in demand. Reported asset quality indicators could marginally weaken in the current year owing to a demand slowdown coupled with rising interest rates which are expected to impact overall corporate profitability. the systemic liquidity is expected to remain tight as RBI battles to rein in inflation. The operating cost levels could continue to be impacted as the banks expand their physical reach in addition to the impact of amortisation of the pension and gratuity costs. As interest rates are expected to remain hard for most part of FY12. however.Indian Banking System: Q4 FY11 . The interest margins could improve during the second half depending on the credit off-take and the banks adherence to “Base Rate”. without additional support from GOI while still maintaining GOI holding above 51%. 220 billion. Page 11 ICRA Rating Services . In terms of liquidity. Most private sector banks have adequate capital to support medium term growth although some for the smaller banks could need regular equity injection inline with their growth aspirations. PSU banks can now approach the capital market to raise further equity for their medium term requirements. the pace of retail funds flow into bank deposits is likely to remain strong owing to the high interest rates. coupled with the impact of higher interest on savings balances. While so far banks have managed to largely absorb the impact of hardening bond yields. the non-interest income levels could continue to remain subdued owing to lower treasury profits. ICRA expects the deterioration to remain within manageable levels as most banks have built adequate cushions to absorb asset quality shocks. apart from providing adequate capital to support growth in FY12. as banks already carry some cushion in their balance sheets.Performance Review & Outlook June 2011 As on Mar-11. Nonetheless. This unamortised liability comprises 8% of the total networth of banks13 as on Mar-11. Banks raised significant bulk funds. The equity infusion by the GoI in FY12 in various PSU banks. ICRA estimates that adverse impact for the banks on account of the rise in interest rates would be of the order of 10-20% of FY12 pre tax profits. In ICRA’s expectation. PSU banks have an additional burden of the unamortised employee compensation liabilities of nearly Rs. which would need to be absorbed over the next 12-16 quarters. the provisioning requirements on account of fresh slippages are likely to be lower than FY11.70% if the entire liability were to be knocked off. any further rise in interest rates could necessitate depreciation provisions for banks’ bonds portfolio. systemic deposits could grow at 16-17% while credit growth could moderate to around 18% in FY 12. a large part of it for short term (less than 3 months) in FY11 which would need to be refinanced at marginally higher rates in the early part of FY12. Outlook ICRA expects some pressure on the net interest margins at least during the first half of FY12 as the higher cost deposits currently being sourced from Q3FY11 replace the relatively low cost deposits raised last year. has also increased the government ownership in these banks.

2: FY2010-11 ICRA Comments on RBI’s Second Quarter Review of Monetary Policy for FY 2010-11 ICRA’s Comments on the RBI’s Mid-Quarter Monetary Policy Review. may reign in excessive growth and returns ICRA Comments on RBI’s Third Quarter Review of Monetary Policy for 2010-11 ICRA Comment: RBI notification on pension liabilities: PSBs get a breather ICRA’s Comments on the RBI’s Mid-Quarter Monetary Policy Review. September 2010 Proposed Basel III Guidelines: A Credit Positive for Indian Banks Financial Markets & Banking Update —Vol. 2: Calendar 2010 ICRA Comments on the RBI’s Annual Policy Statement for 2010-11 Performance Review of Housing Finance Companies and Indian Mortgage Finance Market for 2009-10 and Industry Outlook ICRA Comments on the RBI’s First Quarter Review of Monetary Policy for FY 2010-11 Financial Markets & Banking Update —Vol. 3: FY2010-11 ICRA Comment: Malegam Sub-committee recommendations a Credit Positive for MFI sector. December 2010 Financial Markets & Banking Update —Vol.Indian Banking System: Q4 FY11 . March 2011 Financial Markets & Banking Update —Vol.Performance Review & Outlook June 2011 List of Annexures Annexure 1: List of Banks rated by ICRA with ratings outstanding Annexure 2: List of Banks analysed in the current research for Q4FY11 update Annexure 3: Detailed financials indicating Q4FY11 update of All Banks Annexure 4: Detailed financials indicating Q4FY11 update of Public Sector Banks Annexure 5: Detailed financials indicating Q4FY11 update of Private Sector Banks Related ICRA Research Reports in Financial Sector released in FY10-11 April 2010 April 2010 June 2010 July 2010 July 2010 September 2010 September 2010 October 2010 November 2010 December 2010 January 2011 January 2011 January 2011 February 2011 March 2011 April 2011 May 2011 May 2011 Financial Markets & Banking Update —Vol. 4: FY2010-11 ICRA Comments on the RBI’s Annual Policy Statement for 2011-12 Credit quality of ICRA-rated MF schemes maintained amid slowdown in inflows ICRA Rating Services Page 12 . 1: FY2010-11 ICRA’s Comments on the RBI’s Mid-Quarter Monetary Policy Review.

No.(Stable) LAA.Indian Banking System: Q4 FY11 .Indian Branches Canara Bank Central Bank of India Corporation Bank Limited Dhanalakshmi Bank Limited ICICI Bank Limited IDBI Bank Limited Indian Bank Indian Overseas Bank IndusInd Bank Limited Karnataka Bank Limited Karur Vysya Bank (The) Kotak Mahindra Bank Limited Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore (Now merged with State Bank of India) State Bank of India State Bank of Mysore State Bank of Patiala State Bank of Travancore UCO Bank Union Bank of India United Bank of India Yes Bank Limited LAAA (Stable) LAA+(Stable) LAAA (Stable) LAAA (Stable) LAA+ LAA+ (Stable) LAA LAA+ (Stable) LAA (Stable) LAA LA+ (Stable) LAA (Stable) LAA MAAA MAA+ A1+ A1+ A1+ A1+ A1+ LAA LAA+ LAA+ MAAA (Stable) A1+ A1+ MAAA A1+ LAAA (Stable) LAAA (Stable) LAAA (Stable) LAAA (Stable) LAA+ (Stable) LAAA (Stable) LAA (Stable) LAA (Stable) MAAA A1+ A1+ A1+ LAA (Stable) LAA. 2011 S.S. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Bank Lower Tier II Upper Tier II / Hybrid Tier I Innovative Perpetual Debt Instruments Medium Term Short Term A1+ A1+ A1+ A1+ MAAA MAAA A1+ A1+ A1+ A1+ LAAA (Stable) LAA+ (Stable) LAAA (Stable) LALAAA (Stable) LAA+ (Stable) LAA+ (Positive) LAA+ LAA.(Stable) LA+ (Stable) LA+ (Positive) LAA+ LAAA LAA+ (Stable) LAAA (Stable) LAAA (Stable) LAAA (Stable) LAAA (Stable) A1+ LAA (Stable) 28 29 30 31 32 33 34 35 ABN AMRO Bank NV (Indian Branches) Allahabad Bank Axis Bank Limited Bank of Bahrain and Kuwait B.Performance Review & Outlook June 2011 Annexure 1: List of Banks rated by ICRA and ratings outstanding as on June 22.(Stable) A1+ A1+ A1+ ICRA Rating Services Page 13 .C (Indian Branches) Bank of Baroda Bank of India Bank of Maharashtra Barclays Bank PLC (India operations) Calyon Bank .(Stable) LAA (Stable) LAA+(Stable) LAA.

Karnataka Bank Ltd. Karur Vysya Bank Ltd. Development Credit Bank Ltd. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Public Sector Banks Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank IDBI Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab National Bank Punjab & Sind Bank State Bank of India State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Mysore State Bank of Patiala State Bank of Travancore Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank Sr. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Private Sector Bank Axis Bank Ltd. South Indian Bank Ltd.Performance Review & Outlook June 2011 Annexure 2: List of Banks analysed in the current research for FY11 Update Sr. Yes Bank Ltd. Lakshmi Vilas Bank Ltd. ICICI Bank Ltd. IndusInd Bank Ltd. HDFC Bank Ltd. City Union Bank Ltd. Kotak Mahindra Bank Ltd. ICRA Rating Services Page 14 . Jammu & Kashmir Bank Ltd. No.Indian Banking System: Q4 FY11 . Dhanalakshmi Bank Ltd Federal Bank Ltd. No. ING Vysya Bank Ltd.

750 28.256 13.25% 9.373 3.358 44.07% 9.75% 5.34% 13.429 14.265 15.26% 4.154 3.67% 14.43% Non-interest income and treasury profits include ICRA estimates for some banks in the absence of quarterly information on the split of banks’ other income between treasury profits and other non-interest income.342 15.478 40.90% 13.978 3.41% 9.804 51.796 2.914 33.382 16.376 135 3.76% 8.866 146 2.42% 4.045 53.860 56.276 814 462 200 662 328 334 126 207 9 216 70 146 1.580 3.443 14.734 3.118 39.755 35.041 651 390 140 530 236 294 87 206 16 223 70 152 991 630 361 169 530 243 287 118 169 18 187 54 133 973 637 336 132 469 221 248 74 174 21 195 56 138 961 669 292 132 423 204 219 68 151 35 186 56 131 949 680 269 120 389 209 180 56 124 55 179 57 121 147 3.48% 14.458 55.18% 8.421 66.61% 9.244 137 3.717 46.83% 14. Adjusted Profit Before Tax 14 Trading Profits Profit Before Tax Tax Expense Profit After Tax BALANCE SHEET Share Capital Reserves Net worth Total Deposits Advances Investments Total Assets OTHER DETAILS Capital Adequacy Ratio Tier I Capital / RWA Tier II Capital / RWA 14 QE Mar-11 3 QE Dec-10 3 QE Sep-10 3 QE Jun-10 3 QE Mar-10 3 QE Dec-09 3 QE Sep-09 3 QE Jun-09 3 1.189 726 462 147 610 271 339 101 239 10 249 77 172 1.236 135 2.222 3. of months PROFIT AND LOSS ACCOUNT Interest Income Interest Expense Net Interest Income 14 Non-Interest Income Operating Income Operating Expenses Operating Profit Provisions etc.65% 14.42% 5.71% 14.724 48.240 49.823 17.298 40.58% 4.13% 4.508 44.945 38.092 37.572 61.871 30.898 4.873 48.608 34.Indian Banking System: Q4 FY11 .09% 9.97% 9. billion) No.17% 4.60% 4. ICRA Rating Services Page 15 .904 29.445 140 3.158 58.281 13.053 137 3.417 136 3.Performance Review & Outlook June 2011 Annexure 3: Detailed Quarterly Financials: All 42 Banks under review Quarterly Performance Analysis (Rs.107 680 428 152 579 264 315 107 208 7 215 63 152 1.672 16.

42% 45.83% 6.06% 16.07% 64.27% 1.36% 32.07% 0.41% 1.48% 6.06% 14.71% 1.34% 6.75% 1.52% 29.25% 6.96 14.15% 0.48% 2.14% 2.97% 9.44% 45.54% 28.42% 0.79% 0.27% 0.44% 13.09% 14.79% 1.88% 1.41% 9.25% 9.10% 14.82% 0.82% 2.81% 60.24% 1.96% 5.03% 47.58% 4.60% 31.10% 0.26% 1.68% 5.78% 2.00% 8.99% 1.32% 5.26% 4.67% 6.42% 5.41% 9.62 14.49% 32.96% 49.76% 3.08% 8.27% 2.52% 2.Indian Banking System: Q4 FY11 .55% 54.99% 1.07% 9.80% 1.84% 2.26% 5.38% 2.34% 13.82% 1.69% 2.59% 1.05% 1.25% 2.46% 1.71% 6.01% 2.66% 1.37% 57.03% 1.06% 2.24% 14.63% 1. of months Gross NPAs Net NPAs KEY RATIOS (Q-o-Q Basis) Yield on Average Advances Yield on Average Investments Yield on Average Earning Assets Cost of Average Interest Bearing Funds Gross Interest Spread PROFITABILITY RATIOS Net Interest Margin/Average Tot Assets Non-Interest Income/Average Tot Assets Operating Expenses/Average Total Assets Operating Profit / Average Total Assets Provisions/Average Total Assets Core Profit before Tax (NII + Fee Income-Operating Exp-Provisions)/ Average Total Assets Net Interest Income Less Provisions/ Average Total Assets Net profit on sale of securities & assets / Average Total Assets Profit before Tax / Average Total Assets Tax / Profit before Tax Profit after Tax / Average Total Assets Profit after Tax / Average Net worth EFFICIENCY RATIOS Other Income / Operating Expenses Operating Cost to Operating Income Ratio CAPITALISATION RATIOS Core Capital / Total Assets Total Debt / Net worth CRAR Tier I Capital / RWA Tier II Capital / RWA QE Mar-11 3 936 404 QE Dec-10 3 898 379 QE Sep-10 3 877 378 QE Jun-10 3 827 370 QE Mar-10 3 779 362 QE Dec-09 3 741 349 QE Sep-09 3 690 310 QE Jun-09 3 646 300 9.01% 16.61% 48.17% 4.77% 6.23% 1.66 13.76% 2.39% 1.30% 2.69% 7.35% 0.24% 2.10% 17.13% 1.60% 2.96% 0.38% 1.17% 0.Performance Review & Outlook June 2011 Quarterly Performance Analysis (Rs.00% 1.54% 9.73% 6.56% 1.18 14.75% 5.75% 1.15% 18.25% 14.67% 1.77% 0.24% 0.74% 1.05% 5.12% 1.59% 1.44% 53.05% 1.26% 2.37% 13.30% 9.40% 28.67% 30.50% 29.09% 17.06% 9.90% 1.65% 6.81% 1.33% 9.00% 16.06% 1.60% 4.56% 69.16% 2.37% 2.54% 7.61% 9.83% 0.74% 9. billion) No.44% 7.44 14.82% 7.85% 2.11% 0.82% 60.56% 59.81% 2.13% 57.20% 0.07% 1.29% 1.07% 17.43% ICRA Rating Services Page 16 .46% 6.10% 0.70% 5.34% 6.20% 6.50% 0.37% 2.60% 7.08 13.66% 1.90% 6.16% 1.45% 2.72% 8.93% 6.47% 1.08% 6.75% 1.84% 2.07% 1.05% 1.70% 8.79 13.75 14.11% 6.42% 4.44% 44.87% 1.13% 4.15% 44.09% 9.72% 8.59% 9.92% 14.09% 0.77% 2.18% 8.14% 1.00% 1.76% 8.

45% 36.18% 56.99% 37.06% 34.01% 358% 9.25% 73.89% 34.78% 877 378 2.92% 936 404 2.09 35.99% 330% 10.24 1.31% 1.31% 1.13 1.38% 1.46 1.18 1.76% 62.85% 827 370 2.99% 65.33 1.39 1.44% 1.34% 34.41% 1.26 1.24 1.17% 53.22% 66.01% 74.16 1.25% 75.45 1.34% 72.94% 65.07% 333% 10.55% 34.95% 55.78% 37.06% 36.82% 64.77% 53.19 1. billion) No.31% 779 362 2.86% ICRA Rating Services Page 17 .82% 34.08% 318% 10.33% 36.47 1.55% 741 349 2.02% 646 300 2.82% 898 379 2.41 1.54% 55.79% 57.00% 56.Performance Review & Outlook June 2011 Quarterly Performance Analysis (Rs.59% 52.67% 36.15% 284% 10.88% 690 310 2.64% 34.83% 66.01% 33.48% 67.31% 76.09% 317% 10.05% 283% 9.22% 78.06% 240% 10.63% 32. of months COVERAGE RATIOS Total Interest Coverage Fund Based Coverage LIQUIDITY RATIOS Total Liquid Assets /Total Liability Total Advances/Total Deposits ASSET QUALITY Gross NPAs Net NPAs Gross NPAs / Gross Advances Net NPAs / Net Advances Operating Profits (Annualised) / Net NPAs Net NPAs / Networth Provision Cover DEPOSIT RATIOS CASA Deposits / Total Deposits Term Deposits / Total Deposits QE Mar-11 3 QE Dec-10 3 QE Sep-10 3 QE Jun-10 3 QE Mar-10 3 QE Dec-09 3 QE Sep-09 3 QE Jun-09 3 1.26% 1.Indian Banking System: Q4 FY11 .35% 1.26 1.63% 74.26% 0.45% 65.46 1.16% 76.51% 33.

121 94 2.45% 4. Adjusted Profit Before Tax 14 Trading Profits Profit Before Tax Tax Expense Profit After Tax BALANCE SHEET Share Capital Reserves Net worth Total Deposits Advances Investments Total Assets OTHER DETAILS Capital Adequacy Ratio Tier I Capital / RWA Tier II Capital / RWA Gross NPAs Net NPAs QE Mar-11 3 QE Dec-10 3 QE Sep-10 3 QE Jun-10 3 QE Mar-10 3 QE Dec-09 3 QE Sep-09 3 QE Jun-09 3 1. of months PROFIT AND LOSS ACCOUNT Interest Income Interest Expense Net Interest Income 14 Non-Interest Income Operating Income Operating Expenses Operating Profit Provisions etc.261 44.386 40.12% 7.77% 648 312 13.28% 4.586 2.90% 8.032 32.339 2.918 27.542 39.28% 8.942 31.757 23.211 2.97% 691 325 13.857 94 2.554 24.056 13.66% 4.376 46.56% 5.70% 569 276 13.660 106 1.041 2.134 33.285 52.509 27.271 30.Performance Review & Outlook June 2011 Annexure 4: Detailed Quarterly Financials: Public Sector Banks Quarterly Performance Analysis (Rs.25% 8.711 22.783 10.094 11.36% 8.86% 8.569 94 2.512 12.373 13.689 43.990 44. billion) No.791 97 2.434 37.99% 519 236 13.190 36.71% 8.177 93 2.096 2.22% 8.785 10.73% 601 297 13.355 12.939 2.980 39.Indian Banking System: Q4 FY11 .56% 752 361 12.778 93 1.90% 4.836 1.676 11.873 12.915 28.48% 712 330 13.38% 4.11% 5.576 38.60% 477 226 ICRA Rating Services Page 18 .55% 4.812 48.730 33.011 655 356 142 499 252 247 112 135 9 144 48 96 945 583 362 97 459 202 257 83 174 8 182 57 126 881 547 334 103 437 200 237 87 150 8 158 47 111 834 530 303 97 401 177 224 66 158 12 170 54 116 791 515 275 122 397 182 215 94 120 15 135 37 98 774 520 254 89 344 166 178 50 128 19 147 42 104 760 542 218 90 308 150 158 42 116 26 142 43 99 743 543 200 84 283 156 127 28 99 38 137 44 93 103 2.305 36.446 2.

37% 1.20% 59.56% 5.29 13.06% 2.08% 0.24% 0.65% 2.27% 27.92% 1.76% 14.76 13. billion) No.17% 0.Performance Review & Outlook June 2011 Quarterly Performance Analysis (Rs.46% 30.59% 1.80% 8.28% 8.65% 1.22% 9.39% 29.83% 48.11% 0.81% 2.75% 9.76% 2.45% 4.58% 7.90% 4.95% 5.84 12.59% 2.82% 2.76% 1.12% 1.25% 8.01% 0.50% 9.14% 2.34% 0.97% 5.50% 1.80% 1.54% 31.62% 0.27% 2.00% 9.73% 1.23% 16.53% 31.46% 28.06% 1.77% 0.07% 1.99% 1.54% 1.70% 1.00% 6.11% 5.03% 5.49% 0.43% 1.97% 6.72% 2.91% 7.91% 1.60% ICRA Rating Services Page 19 .07% 1.71% 6.14% 1.48% 5.71% 8.90% 2.30% 1.56% 9.28% 5.61% 6.59% 7.52% 56.09% 17.74% 53.57% 55.77% 4.13% 43.05% 0.31% 2.65% 7.14% 33.18% 0.71% 2.47% 2.28% 4.07% 44.72% 0.89% 1.06% 17.53% 0.39% 2.84% 45.69% 5.19% 2.87% 1.86% 48.90% 8.04% 20.81% 0.55% 4.14% 6.35% 0.42% 2.12% 7.09% 1.66% 4.28% 17.02% 0.70% 0.65% 1.89% 8.74 13.79% 2.88% 8.13% 1.21% 2.27% 1.13% 0. of months KEY RATIOS (Q-o-Q Basis) Yield on Average Advances Yield on Average Investments Yield on Average Earning Assets Cost of Average Interest Bearing Funds Gross Interest Spread PROFITABILITY RATIOS Net Interest Margin/Average Tot Assets Non-Interest Income/Average Tot Assets Operating Expenses/Average Total Assets Operating Profit / Average Total Assets Provisions/Average Total Assets Core Profit before Tax (NII + Fee Income-Operating Exp-Provisions)/ Average Total Assets Net Interest Income Less Provisions/ Average Total Assets Net profit on sale of securities & assets / Average Total Assets Profit before Tax / Average Total Assets Tax / Profit before Tax Profit after Tax / Average Total Assets Profit after Tax / Average Net worth EFFICIENCY RATIOS Other Income / Operating Expenses Operating Cost to Operating Income Ratio CAPITALISATION RATIOS Core Capital / Total Assets Total Debt / Net worth CRAR Tier I Capital / RWA Tier II Capital / RWA QE Mar-11 3 QE Dec-10 3 QE Sep-10 3 QE Jun-10 3 QE Mar-10 3 QE Dec-09 3 QE Sep-09 3 QE Jun-09 3 9.60 13.36% 8.27% 6.11% 1.09% 66.22% 8.93% 0.12% 17.63% 45.15% 1.81% 0.98% 18.88% 1.70% 3.01% 8.44% 2.19% 1.04% 1.73% 5.70% 5.88% 1.91% 53.99% 5.54% 2.36% 8.14% 17.95% 0.12% 8.40% 1.18% 1.86% 8.44% 32.77% 55.76% 2.17% 0.98% 51.19% 0.89% 1.03% 0.29% 5.93% 18.01% 19.13% 6.67% 5.25% 9.38% 4.59% 1.23% 16.33% 6.32% 2.54% 1.45% 50.96% 18.06% 0.81% 1.04% 20.05 13.82% 1.10% 5.68% 7.93 13.25 13.52% 48.98% 19.Indian Banking System: Q4 FY11 .93% 0.56% 5.06% 20.07% 1.

38 1.Indian Banking System: Q4 FY11 .89% 67.07% 0.09% 311% 13.25% 1.61% 52.00% 53.36% 75.10% 290% 13.56% 691 325 2.12% 287% 13.00% 712 330 2.19% 1.56% 50.27 QE Sep-10 3 1.05% 65.35% 53.17 QE Sep-09 3 1.60% 36.31% 1.42 1.00% 648 312 2.84% 601 297 2.63% 54.42 1.39% 1.53% 51.43 1.18% 32.47% 477 226 2.44 1.18 QE Dec-09 3 1.41% 52.68% 71.29 1.16 QE Dec-10 3 1.25% 65.05% 73.74% 33.87% 63.06% ICRA Rating Services Page 20 .52% 67.24 QE Mar-10 3 1.85% 752 361 2.58% 569 276 2. of months COVERAGE RATIOS Total Interest Coverage Fund Based Coverage LIQUIDITY RATIOS Total Liquid Assets /Total Liability Total Advances/Total Deposits ASSET QUALITY Gross NPAs Net NPAs Gross NPAs / Gross Advances Net NPAs / Net Advances Operating Profits (Annualised) / Net NPAs Net NPAs / Networth Provision Cover DEPOSIT RATIOS CASA Deposits / Total Deposits Term Deposits / Total Deposits QE Mar-11 3 1.34 1.22% 34.25% 75.24 QE Jun-10 3 1.39% 35.Performance Review & Outlook June 2011 Quarterly Performance Analysis (Rs.23 1.12% 258% 12.50% 33.50% 65.13 QE Jun-09 3 1.28% 1.35% 68.53% 519 236 2.41% 32.35% 36.16% 0.30% 1.01% 67.08 34.67% 76.20% 35.15% 34.59% 33.76% 73.99% 267% 11.42% 72.09% 274% 13. billion) No.92% 51.14% 292% 13.99% 226% 11.54% 35.95% 32.30% 35.00% 34.23% 77.

782 12.255 41 1.331 8.80% 4.113 1.49% 187 49 17.484 43 1.21% 4.27% 4.417 10.821 7.72% 4. billion) No.38% 12.126 1.869 3.203 8.318 3.44% 4.162 1.49% 180 58 17.156 7.18% 171 74 16.00% 11.56% 4.907 16.458 42 1.136 13.468 3.61% 186 54 16.767 4.17% 12. of months PROFIT AND LOSS ACCOUNT Interest Income Interest Expense Net Interest Income 14 Non-Interest Income Operating Income Operating Expenses Operating Profit Provisions etc.753 3.43% 178 65 17.21% 11.471 3.660 3.171 3.996 6.240 1.260 10.74% 169 74 ICRA Rating Services Page 21 .312 1.73% 13. Adjusted Profit Before Tax 14 Trading Profits Profit Before Tax Tax Expense Profit After Tax BALANCE SHEET Share Capital Reserves Net worth Total Deposits Advances Investments Total Assets OTHER DETAILS Capital Adequacy Ratio Tier I Capital / RWA Tier II Capital / RWA Gross NPAs Net NPAs QE Mar-11 3 QE Dec-10 3 QE Sep-10 3 QE Jun-10 3 QE Mar-10 3 QE Dec-09 3 QE Sep-09 3 QE Jun-09 3 265 159 105 58 163 76 87 14 73 (1) 72 22 50 244 143 101 50 151 69 82 17 65 2 67 20 47 226 132 94 48 142 64 78 20 58 (1) 57 17 41 208 121 87 42 130 60 70 21 49 4 53 16 36 200 115 86 47 132 60 72 23 49 3 52 17 35 200 118 82 43 125 55 70 24 46 2 48 14 34 201 128 73 42 115 53 62 26 35 9 44 12 32 207 138 69 36 105 53 53 28 25 17 42 13 29 44 1.318 5.081 7.147 5.099 6.654 43 1.039 1.749 7.206 41 960 1.26% 4.387 43 1.24% 12.000 7.288 1.240 43 1.46% 172 74 16.07% 4.Indian Banking System: Q4 FY11 .760 12.598 11.93% 12.468 11.Performance Review & Outlook June 2011 Annexure 5: Detailed Quarterly Financials: Private Sector Banks Quarterly Performance Analysis (Rs.840 6.283 8.040 5.168 7.356 9.56% 12.148 9.49% 185 44 16.

32% 12.92% 1.67% 2.80% 4.18% 10.11 17.15% 8.49% -0.76% 1. billion) No.24% 12.00% 1.96 16.22 16.56% 78.63% 9.07% 2.66% 7.11% 1.07% 2.28% 2.03% 6.12% 8.41% 6.51% 8.68% 5.08% 1.63% 2.21% 4.12% 1.74% 2.18% 2.59% 7.93% 8.25% 1.22% 2.26% 4.10% 0.69% 0.11% 2.59% 73.19% 5.29% 10.30% 0.09% 1.49% 10.45% 8.75% 27.93% 12.71% 0.98% 1.08% 2.47% 68.Performance Review & Outlook June 2011 Quarterly Performance Analysis (Rs.92% 50.07% 1.95% 8.77% 2.16% 1.13% 2.73% 13.09% 2.71% 6.00% 5.05% 46.16% 30.80% 2.02% 1.16% 2.15% 1.71% 1.31% 3.40% 8.15% 3.26% 12.69% 9.68% 1.28% 11.65% 0.43% 6.05% 7.56 16.76% 2.23% 45.96% 2.95% 8.40% 1.56% 4.09% 3.59% 43.38% 12.05% 7.32% 0.56% 8.13% 11.87% 0.45% 1.44% 2.73% 1.29% 12.60% 75.55% 44.42 17.52% 2.99% 77.72% 9.73% 6.91% 71.45% 2.74% 7.43% 6.21% 11.09% 1.34% 1.69% 1.61% 10.44% 2.38% 13.53% 14.87% 30.92% 33.67% 10.66% 2.16% 1.66% 0.04% 1.47% 0.61% 10.66% 0.54% 75.21% 30.91% 46.86% 1.23% 0.00 16. of months KEY RATIOS (Q-o-Q Basis) Yield on Average Advances Yield on Average Investments Yield on Average Earning Assets Cost of Average Interest Bearing Funds Gross Interest Spread PROFITABILITY RATIOS Net Interest Margin/Average Tot Assets Non-Interest Income/Average Tot Assets Operating Expenses/Average Total Assets Operating Profit / Average Total Assets Provisions/Average Total Assets Core Profit before Tax (NII + Fee Income-Operating Exp-Provisions)/ Average Total Assets Net Interest Income Less Provisions/ Average Total Assets Net profit on sale of securities & assets / Average Total Assets Profit before Tax / Average Total Assets Tax / Profit before Tax Profit after Tax / Average Total Assets Profit after Tax / Average Net worth EFFICIENCY RATIOS Other Income / Operating Expenses Operating Cost to Operating Income Ratio CAPITALISATION RATIOS Core Capital / Total Assets Total Debt / Net worth CRAR Tier I Capital / RWA Tier II Capital / RWA QE Mar-11 3 QE Dec-10 3 QE Sep-10 3 QE Jun-10 3 QE Mar-10 3 QE Dec-09 3 QE Sep-09 3 QE Jun-09 3 10.86% 29.56% 12.27% 4.22% 2.61% 6.12% 2.22% 2.63% 0.44% 4.17% 12.00% 11.84 16.49% 10.22% 2.09% 6.05% 2.62% 2.51% 14.46% 10.94% 29.91% 1.07% 4.11% 2.68% 1.65% 0.94% 1.10% 8.56% 2.29% 3.85% 6.89% 3.18% 1.Indian Banking System: Q4 FY11 .49% 10.74% 5.32% 2.50% 2.72% 4.74% 9.78% -0.31% 45.74% ICRA Rating Services Page 22 .43% 11.02% 2.96% 3.08% 1.47% 8.72% 2.17% 1.74% 5.02% 45.13% 5.72% 2.13 17.22% 1.43% 5.99% 78.66% 32.03% 9.58% 2.

32% 171 74 2.38% 39.65% 0.55% 63.50% 0.71% 38.78% 586% 4.92% 59.10% 38.32% 60.95% 39.71% 185 44 2.67% 38.12 38.86% 40.40% 56.22 QE Sep-10 3 1.18 QE Dec-10 3 1.28% 381% 6.16 QE Jun-09 3 1.35% 285% 7.38% 63.68% 38.22% 76.58 1.55 1.85% 56.97% 1.00% ICRA Rating Services Page 23 .71% 79.17% 71.57 1.95% 1.04% 1. billion) No.56% 798% 3.17% 40.34% 0.48 1.23 QE Sep-09 3 1.11% 33.22 QE Dec-09 3 1.31% 332% 6.58% 61.63 1.06% 67.39% 187 49 2.Indian Banking System: Q4 FY11 .42% 37.86% 79.60 1.67% 73.81% 67.38 1.36% 57.60% 77.48% 36.86% 186 54 2.08% 36.23 QE Mar-10 3 1.07% 62.07% 82.73% 0.83% 1.04% 78. of months COVERAGE RATIOS Total Interest Coverage Fund Based Coverage LIQUIDITY RATIOS Total Liquid Assets /Total Liability Total Advances/Total Deposits ASSET QUALITY Gross NPAs Net NPAs Gross NPAs / Gross Advances Net NPAs / Net Advances Operating Profits (Annualised) / Net NPAs Net NPAs / Networth Provision Cover DEPOSIT RATIOS CASA Deposits / Total Deposits Term Deposits / Total Deposits QE Mar-11 3 1.16% 180 58 2.44% 64.48% 79.81% 178 65 2.23 QE Jun-10 3 1.61% 39.89% 484% 4.66% 169 74 3.20% 39.Performance Review & Outlook June 2011 Quarterly Performance Analysis (Rs.91% 77.67% 672% 3.56% 172 74 2.19% 40.76% 77.05% 444% 5.59 1.90% 63.

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