Banking. Near term headwinds; outlook remains bright. Sector Update. ICICI Securities Ltd Retail Equity Research. January 3, 2017

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1 Sector Update Sector View Outperform January 3, 217 Banking Near term headwinds; outlook remains bright Battling with concerns on various fronts, including moderation in credit offtake, pressure on margins and deteriorating asset quality, demonetisation, in the beginning, seemed like another addition to a long list. However, despite the initial hiccups and disruptions in the system, demonetisation could be structurally positive for the economy, as a whole, and the banking sector in the long run. Exhibit 1: Private banks with substantial exposure trade at premium led by prudent asset quality Demonetisation will have a positive impact on the sector on two to three fronts higher deposit accretion, treasury gains and a gradual improvement in operating efficiency owing to increased use of digital modes for transactions. Phasing out old currency notes and withdrawal restriction has led to a surge in low cost deposits, which is margin accretive and could have a positive impact of 5-15% on the PAT of the banking sector. Lower cost of digital transactions will also aid in lowering operating costs of banks. Further, major banks would get earnings benefit of 12-2% from treasury gains arising out of a fall in yields. However, in the midst of these positives, some concerns can offset some gains. Amid an increased proportion of deposit base, longer than anticipated slowdown in credit demand from the corporate segment could impact revenue. In addition, banks also face the risk of higher delinquencies from exposure to small businesses and LAP, which have been impacted the most by the liquidity crunch. CMP M Cap EPS ( ) P/E (x) P/ABV (x) RoA (%) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E Bank of Baroda (BANBAR) Hold 34, Punjab National Bank (PUNBAN) Hold 23, State Bank of India (STABAN) Buy 182, Indian Bank (INDIBA) Buy 1, Axis Bank (AXIBAN) Hold 17, City Union Bank (CITUNI) Buy 7, DCB Bank (DCB) Hold 2, Federal Bank (FEDBAN) 66 8 Hold 11, HDFC Bank (HDFBAN) 1,19 1,5 Buy 297, IndusInd Bank (INDBA) 1,18 1,35 Buy 65, Jammu & Kashmir Bk(JAMKAS) 6 75 Buy 2, Kotak Mahindra Bank (KOTMAH) Hold 13, Yes Bank (YESBAN) 1,166 1,3 Hold 48, Research Analyst Kajal Gandhi kajal.gandhi@icicisecurities.com Vasant Lohiya vasant.lohiya@icicisecurities.com Vishal Narnolia vishal.narnolia@icicisecurities.com Given higher level of impairment, focus on balance sheet cleanup, capital constraints and impact of demonetisation on consumption, credit growth is seen staying in single digits at sub-6% in FY17E. However, with normalisation of the demonetisation effect, we expect credit growth to pick up in FY18E at ~12%, aligning to nominal GDP growth. Steady margins and continuance of treasury gains in FY18E are expected to further aid profitability. Though ageing of existing stressed assets and MTM hit on SDR could keep near term credit cost elevated, asset quality pressure (Q2FY17 GNPA crore) seems to have peaked out. Consequently, we remain optimistic on the recovery potential of the sector, going ahead. With a selective approach, we suggest staying with private sector banks like HDFC Bank & IndusInd Bank. One can also consider SBI among large cap PSU banks and City Union Bank and Indian Bank in the midcap space with a horizon of at least a year or two.

2 Demonetisation Unprecedented move In an unprecedented and historic move, the Government of India announced the demonetisation of high denomination bank notes of 5 and 1, from November 9, 216. The objective was to curb the menace of a parallel economy. As per the World Bank, the size of the shadow economy is estimated at ~25% of the formal economy. This initiative is expected to help control corruption, fake currency circulation, terror financing, money laundering, etc. The outstanding amount under 5 and 1 denominations was ~ 15 lakh crore, amounting to ~86% of the total outstanding currency in circulation then. In the initial days of demonetisation until November , ~ crore was deposited in the banks at per day average of crore. This got reduced to 225 crore per day by December 1, 216 (see exhibit below). The official number for total amount received by banks by December 3, 216 is not yet out. Exhibit 2: Race to demonetisation Date Amount deposited ( crore) Deposit per day ( crore) 8-Nov-16 Demonetisation announced 18-Nov Nov Dec Dec Dec ; Figure for 3th December 216 is an estimate taken from RBI website Will demonetisation be beneficial for BFSI space? Demonetisation would be structurally positive for the overall economy, including bond markets and the banking sector as it will help reduce the interest cost of the system The liability side of banks has got a big boost as ~ 12.4 lakh crore or ~12% of total deposits have come back. We estimate a positive impact of ~ % on PAT (see Exhibit 3) depending on what proportion of deposits stays within the system Further, major banks would get earnings benefit of 12-2% from treasury gains (see Exhibit 4) arising out of a fall in yields. These gains would help aid bank s earnings, which could get impacted owing to slower credit growth and a rise in impaired assets, mainly in the SME and LAP segment The earnings benefit of Corporate India would be in the range of 5-2% of PAT for a 5-2 bps expected decline in interest rate As money shifts to the formal economy, it would be beneficial for the business of insurance companies (new premium collection more than doubled YoY to 1661 crore for November 216) and AMCs Demonetisation would have a significant impact on India s nascent digital economy. Already data for November, 216 suggests a sharp surge in digital transactions across instruments like NEFT, IMPS, mobile banking, etc. This would be beneficial to banks in terms of higher fee income & cost optimisation Page 2

3 The banking system is expected to witness ~ % positive impact on earnings based on different scenarios of money coming back to the system and finally staying as deposits with the banks Exhibit 3: Sensitivity analysis of incremental CASA on profitability Money back in system/ CASA 2% 25% 3% 35% 4% 75% 5.5% 6.9% 8.3% 9.6% 11.% 8% 5.9% 7.4% 8.8% 1.3% 11.8% 85% 6.2% 7.8% 9.4% 1.9% 12.5% 9% 6.6% 8.3% 9.9% 11.6% 13.2% 1% 7.4% 9.2% 11.% 12.9% 14.7% In the above table, we have assumed the net interest gains of banks at a rate of 1.75% (5.75% at which banks would park the money with RBI minus 4% cost of incremental CASA). However, instead of depositing with RBI, banks could start disbursing a large part of the incremental CASA for lending towards the retail or agriculture segment. If this happens then net interest gains to the banking system would be higher than 1.75% assumed lending rates are >8% levels. Thus, the positive impact on PAT would be higher. Recently, SBI and other large PSU banks reduced lending rates drastically between 3 bps and 9 bps (steepest decline in rates in last several years). SBI s one year MCLR is now at 8% vs. 8.9% earlier. We expect this to propel credit growth higher, especially in the retail segment. Private and other banks would have to soon follow suit. NBFCs, which were until now benefiting from a decline in system rates on the liability side, will now see that advantage waning, at least in the short-term, as they adjust their own lending rate in order to remain competitive. Since the announcement of demonetisation, G-sec yields have witnessed sharp volatility. Yields were around 6.8% levels on November 8, 216, which then fell to 6.2% by December 6, 216 before rising to 6.45% levels by the end of the month. Such volatility and ~35 bps decline would enable treasury gains for banks Exhibit 4: Decline in G-sec yield to favour bank s profitability FY16 SBI BoB PNB Axis Bank Canara Bank Total Investment AFS ,149 Modified Duration Bond yields as on Sep % 6.8% 6.8% 6.8% 6.8% 1 yr bond-yield (8 December 216) 6.4% 6.4% 6.4% 6.4% 6.4% Decline in G-sec yield.4%.4%.4%.4%.4% Post tax gain related to AFS portfolio FY17E PAT , Bond gains as % of FY17E PAT 12.% 15.8% 2.1% 8.6% 4.4% Demonetisation is expected to lead to a structural pick-up in the digital economy. As seen in the charts below, since demonetisation, there has been an increase in digital transactions across all instruments both in terms of number of transaction and absolute value. Further, higher usage of this digital media for low ticket transactions has led to a decline in value per transaction. Page 3

4 Exhibit 5: NEFT transactions Exhibit 6: IMPS transactions billion billion Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Absolute value Oct-16 Nov-16 Dec-16 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Absolute value Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Value per transaction (RHS) Source: Company, ICICIdirect.com, Research Source: Company, ICICIdirect.com, Research Exhibit 7: Debit & credit card transactions at POS Exhibit 8: Mobile banking transactions 14 2 billion Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Absolute value Nov-16 Dec billion Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Absolute value Oct-16 Nov-16 Dec Source: Company, ICICIdirect.com, Research Source: Company, ICICIdirect.com, Research Credit offtake to take hit in near term due to demonetisation The demonetisation drive is seen impacting the credit growth of banks both on the retail as well as corporate side. Near term scarcity of currency notes and fear of holders of illegitimate cash have led to near term pressure on retail credit demand. Business slowdown, along with moderate capex plans, is expected to keep corporate credit demand bleak. Consequently, credit growth is seen remaining muted at ~5-6% YoY in FY17E, lower compared to the previous estimate of ~1-12%. Advance growth of banks has been crippled to below 6% YoY for the fortnight ended December 9, 216. In absolute terms, during March November 216, banking advances have declined by crore at crore. If we assume absolute credit growth in December- March, 217 remains at the same level as in previous fiscal, the resultant YoY credit growth is seen at ~6% YoY by the end of the current fiscal. Exhibit 9: Demonetisation to hit near term credit growth Advances Mar-15 Nov-15 Mar-16 Nov-16 Mar-17E Advances ( crore) 6,82,521 6,839,154 7,53, 7,292,293 7,983,139 Absolute incremental growth ( crore) 36,633 69, ,77 69,846 YoY growth (%) 1.7% 6.6%.618 Source: RBI, ICICIdirect.com Research Page 4

5 Though credit growth has been impacted in FY17E, normalisation of currency circulation is expected to gradually improve credit demand from the retail segment. Growth in corporate credit demand is seen accelerating with a lag, initially in the form of working capital requirement. Private bank outpaces PSBs in terms of absolute credit growth Non-food credit traction of the system has been on a downward trend beginning from FY13, which was at 15.9% YoY in FY13, sliding to sub 1% as of FY16. Comparing among constituents, private banks have been extending loans at a more rapid pace compared to state run rival PSBs. A slowdown in corporate capex, especially greenfield projects and projects stuck under government machinery for want of clearance has impacted credit offtake, which led PSB s credit growth to come in low single digits at 2.5% in FY16 compared to 15.3% in FY12. Emergence of concerns surrounding high exposure to corporates with stretched balance sheets and a rise in wilful defaulters have also increased the reluctance among bankers in their lending activities. However, growth of public sector banks has been moderating, in terms of absolute figure. They kept the lead in the previous fiscal. However, in FY16, private sector lenders surpassed the mark for the first time with absolute credit growth at ~ crore in FY16, growing at 22.8% YoY, compared to PSBs growth at ~ crore; up 2.5% YoY. Lower credit growth led to higher market share erosion for PSBs. Overall credit growth may remain lacklustre due to corporate investment remaining behind the curve, led by balance sheet stress and de-leveraging. In addition, the recent demonetisation move will keep near term credit growth at the lower end. Therefore, credit offtake is expected to remain moderate in FY17E. Exhibit 1: Credit growth of private banks ahead of PSBs in FY16 Advances FY12 FY13 FY14 FY15 FY16 Bank 4,615,98 5,348,772 6,165,12 6,75,336 7,28,77 Private Bank 857,297 1,15,533 1,198,441 1,431,858 1,758,88 PSB 3,758,61 4,333,238 4,966,572 5,318,478 5,449,898 Absolute growth FY12 FY13 FY14 FY15 FY16 Bank 732, ,24 585, ,371 Private Bank 158, ,97 233, ,951 PSB 574, , ,96 131,421 YoY Growth FY12 FY13 FY14 FY15 FY16 Bank 15.9% 15.3% 9.5% 6.8% Private Bank 18.5% 18.% 19.5% 22.8% PSB 15.3% 14.6% 7.1% 2.5% Market share FY12 FY13 FY14 FY15 FY16 Private Bank 18.6% 19.% 19.4% 21.2% 24.4% PSB 81.4% 81.% 8.6% 78.8% 75.6% Source: Capital line, ICICIdirect.com Research * Figures pertaining to 39 banks, excluding IDFC Bank Amid slower credit offtake, led by tepid credit demand from the corporate segment, retail loans continue to grow in double digits. Within retail, housing finance continues to remain the largest contributor at ~5% of total retail advances. Apart from home loans, unsecured lending - personal loans and credit cards - are outpacing overall bank credit growth. The personal loan growth trajectory has gone northwards from FY12 onwards from 7.8% YoY growth in FY12 to 25.2% in FY16 and 27.6% in September 216. Another loan in the unsecured category credit card Page 5

6 growth also remained robust from 12.9% in FY12 to 23.7% in FY16 and 28% in September 216. A majority of bankers also indicated that the retail book has been a major segment contributing to the overall loan growth in recent quarters. Exhibit 11: Composition of retail loans of banking sector Retail Advances Mar-1 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Sep-16 Consumer Durables 8,294 6,292 7,131 8, ,35 17,753 19,521 Housing (Including Priority Sector Housing) 3, ,67 397,53 456, , ,78 85,795 Advances against Fixed Deposits 48,654 49,57 56,972 61, ,516 66,683 66,385 Advances to Individuals against share, bonds, etc 2,863 2,88 3, 3, ,434 6,419 5,914 Credit Card Outstanding 2,145 18,98 2,435 24, ,462 37,679 43,2 Education 36,863 43,12 49,933 54, ,32 68,224 71,197 Vehicle Loans 63,791 73,38 89,54 111, ,61 152,98 163,469 Other Personal Loans 14,95 147, , , , , ,176 Total 585, , , , ,166,348 1,392,216 1,51,658 YoY growth (%) Mar-1 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Sep-16 Consumer Durables Housing (Including Priority Sector Housing) Advances against Fixed Deposits Advances to Individuals against share, bonds, etc Credit Card Outstanding Education Vehicle Loans Other Personal Loans Total Composition (%) Mar-1 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Sep-16 Consumer Durables Housing (Including Priority Sector Housing) Advances against Fixed Deposits Advances to Individuals against share, bonds, etc Credit Card Outstanding Education Vehicle Loans Other Personal Loans Total Source: RBI, ICICIdirect.com Research Page 6

7 Exhibit 13: Stressed assets in major banking peers Banks Stressed Assets (%) as of Q2FY17 SBI 9.9 PNB 18.9 BoB 14.8 Canara Bank 14. Union Bank of India 14. Axis Bank 7.3 Source: RHP, ICICIdirect.com, Research Slippages accretion moderate; watchlist exposure under scanner The banking system continued to reel under asset quality pressure in Q2FY17, led by slower resolution of restructured assets and delinquencies from watch list accounts. However, the pace of accretion has moderated compared to H2FY16, which was led by RBI s asset quality review (AQR). Absolute GNPA increased to crore, up 96.2% YoY and 6.3% QoQ. Accordingly, the GNPA ratio rose ~3 bps QoQ at ~8.8%. NNPA also increased 15% YoY and 4.7% QoQ to crore. A large part of delinquencies in the quarter happened in already impaired assets - standard restructured assets, which led to a decline in outstanding restructured assets. Apart from restructured asset, slippages from the watchlist formed substantial a proportion of bad asset accretion in the quarter. Thus, total stressed assets of the system as on September 216 continued to inch up gradually at more than ~12.3% of loans. Stressed assets under newly formed categories of 5:25 scheme & strategic debt restructuring (SDR) continued to add to the asset quality woes of banks. RBI, in its Financial Stability Report, has indicated that banks could continue to witness asset quality headwinds, though the pace of NPA accretion seems to moderate ahead. As per the stress test conducted by RBI, under the baseline scenario, the GNPA ratio of SCBs could increase to 9.8% in FY17E and 1.1% in FY18E. PSBs could witness higher stressed accretion as their GNPA ratio is expected to increase from 11.8% in September 216 to 12.5% in FY17E and 12.9% in FY18E. Analysing RBI s indication, the pace of GNPA accretion is expected to slow down compared to that witnessed in the last months. Exhibit 12: Slippages moderate in most banks; Axis Bank sees higher slippages mainly from watchlist Slippages Q3FY16 Q4FY16 Q1FY17 Q2FY17 SBI 2,692 3, ,852 PNB 13,482 23, ,22 BoB 15,785 5, ,861 Canara Bank 5,42 14, ,449 Union Bank of India 3,49 6, ,396 Axis Bank 2,82 1, ,772 Total 67,396 89, ,561 Among peers, banks with higher corporate exposure continued to face the brunt with incremental slippages coming from restructured asset and watchlist. Divergence between private and public sector has been partly reversed with private banks witnessing higher stress with 23% QoQ rise in GNPA. On the other hand, PSU banks continued to be worse off on the asset quality front with 96.3% YoY increase in GNPA to crore. However, on a sequential basis, with recoveries and upgrades sustaining momentum, GNPA accretion of PSU banks fell to 4.6% QoQ. Exhibit 14: Break-up of slippages from watchlist (Q2FY17) Watchlist Axis Bank SBI Slippages from watchlist 7,288 4,853 Slippages from non-watchlist 91 4,147 Corporate slippages 8,189 9, Non corporate slippages 583 1,341 Slippages 8,772 1,341 Source: RHP, ICICIdirect.com, Research Most PSU banks, except SBI, witnessed a moderation in NPA accretion, while corporate focused private banks, including Axis Bank, reported weak asset quality trends owing to slippages from watch list exposure. Page 7

8 However, private banks, including HDFC Bank, IndusInd Bank, with substantial retail exposure, remained better off with a better performance in terms of asset quality. Exhibit 15: Asset quality of Indian banking industry Period GNPA (%) NNPA (%) RA (%) Stressed assets (%) Mar Sep Mar Sep Mar Sep Mar Jun Sep With the objective of curbing black money & terror financing, the recent move by government of phasing out high denomination notes, will have a spillover effect on bank s asset quality. Banks may face risk of higher delinquencies in small business loans and LAP portfolio, owing to shortterm cash crunch. RBI has given dispensation of 9 days relaxation for NPA recognition on loans up to 1 crore, due between November 8, 216 and December 31, 216. However, problems with regard to slippages from the watchlist were coupled with ageing of existing stressed assets and MTM hit on SDR prevails. Consequently, private banks, with a larger retail focus, are expected to fare well on asset quality parameters ahead. RBI announces guidelines curbing large exposure (individual bank wise) In a bid to prevent concentration of exposure to single counterparty or a group of connected borrowers, RBI has issued guidelines to curb/restrict individual banks exposure to single borrower. As per current prudential exposure norms, exposure of banks to a single borrower is restricted to 15% of capital funds (Tier I & Tier II capital). In case of a group borrower, the exposure limit is restricted at 4% of capital funds. Exhibit 16: Individual bank exposure limit current and proposed limit Exposure Current Limit on Tier I and Tier Proposed Limit on Tier I capital II capital Single Counterparty General Limit 15% 2% Extension to infrastructure projects 5% Additional exposure on board discretion 5% 5% Maximum exposure (allowed) 25% 25% Connected/ Group Counterparty General Limit 4% 25% Extension to infrastructure projects 1% Additional exposure on board discretion 5% Maximum exposure (allowed) 55% 25% Source: RBI, ICICIdirect.com Research As per the revised framework, RBI has tightened exposure norms with maximum permissible exposure limit for an individual bank at 25% of the eligible capital base for connected/group borrower. In case of a single borrower, additional exposure limit of 5% allowed for infrastructure projects has been extended to other categories of borrowers, increasing the permissible limit to 25% of capital. In addition, the eligible capital base has been changed to include only Tier I capital instead of Tier I and II capital earlier. For NBFCs, bank exposure to a single borrower is proposed to be limited at 15% of eligible capital base while in case of connected/group NBFCs, individual bank exposure is restricted at 25% of the eligible capital base. Page 8

9 Revision in sustainable structuring of stressed asset Indian banks have been reeling under a large pile of bad assets being balanced by a thin balance sheet size, which remains a concern as it can stall the flow of capital to sectors critical for economic growth. In addition, bankers remained reluctant in taking resolution measures fearing harassment from vigilance agencies. Therefore, RBI had released a scheme Sustainable structuring of stressed assets to cater to stressed asset mechanism along with minimising banker s fear and reluctance. Exhibit 17: Measures announced for stressed asset resolution 3-Jan-14 RBI releases framework for revitalising distressed assets in economy 26-Feb-14 Introduces Joint Lenders Forum (JLF), special mention account (SMA) and corrective action plan (CAP) for quick resolution of stressed assets New restructuring scheme - 5/25 scheme launched that allowed banks to reset and roll over 15-Jul-14 project loans after every five years 1-Feb-15 Union Budget proposes setting up of National Investment and Infrastructure Fund that would invest in distressed projects 1-Apr-15 RBI conducts asset quality review across banks 8-Jun-15 RBI introduces strategic debt restructuring scheme (SDR), which allows banks to convert defaulting company s debt into equity and take majority control 2-Dec-15 RBI ask banks to undertake balance sheet cleaning, which led to surge in NPA and provisions 11-May-16 Parliament passed bankruptcy law to enable faster resoltion of stressed assets Amendment in Securitisation and Reconstruction of Financial Assets and Enforcement of 14-May-16 Security Interest (Sarfaesi) Act, and Debt Recovery Tribunal (DRT) Act 13-Jun-16 RBI introduces "sustainable structuring of stressed assets", which allows banks to do deep restructuring of stressed projects without management change 1-Nov-16 Revision in S4A scheme allowing increased time frame and change in asset classification Source: RBI, News Articles, ICICIdirect.com Research Under this scheme, banks can divide their exposure into two sustainable (Part A) and unsustainable portions (Part B). The proportion of overall debt, which can be serviced with existing cash flows, is termed as sustainable debt while the remaining is categorised as unsustainable. According to the scheme, restructuring of the sustainable portion in terms of moratorium, interest reduction or extension of repayment tenure is prohibited. The unsustainable portion shall be converted into equity or redeemable cumulative optionally convertible preference shares. However, the equity was needed to be marked to market. Sustainable debt should not be less than 5% of current funded liabilities. Under the new revised norms, for account categorised as NPL, banks can upgrade the sustainable portion as standard upon implementation of S4A by the consortium, which was not allowed as per older norms. However, upgradation of exposure is subject to provisions made upfront by lenders being at least the higher than 5% of the amount held in part B or 25% of the aggregate outstanding. This requirement is higher than earlier norm of 4% for Part B and 2% for full exposure for standard loans. Banks have also been allowed an extended time frame of 18 days compared to 9 days in terms of asset classification during implementation of S4A. Page 9

10 Annexure Exhibit 18: Sensitivity of various banks to 2 and 3 bps reduction in 1 year G-sec yields Modified duration (in Impact of yield movement of 3 Impact of yield movement of 1 bps ( crore) Impact on PAT of 3 bps yield movement (%) Impact on PAT of 1 bps yield movement (%) Q4FY16 Investment book years) bps ( crore) PAT ( crore) Banks ( crore) AFS ( crore) AFS FY17E Public sector banks Bank of India* 15,775 24, NA NA NA Bank of Baroda 132,439 41, , PNB 154,727 53, , SBI 59, , , OBC* 65,3 23, Private sector banks Axis Bank City Union Bank 6, , DCB 4,392 1, J&K Bank 21,384 8, , * Not under coverage, AFS- Available for Sale Exhibit 19: Quarterly margin trend NIM (%) Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 PSU coverage Bank of Baroda Punjab National Bank SBI Indian Bank Private coverage Axis Bank City Union Bank Development Credit Bank IndusInd Bank Federal Bank HDFC Bank Jammu & Kashmir Bank Yes Bank Exhibit 2: Key financials of industry as on Q2FY17 (listed banks + SBI associates) ( crore) Q2FY17 Q1FY17 Q4FY16 Q3FY16 Q2FY16 Q1FY16 Q4FY15 NII Growth YoY Other income Growth YoY Total operating exp Staff cost Operating profit Growth YoY Provision PBT PAT Growth YoY GNPA Growth YoY NNPA Growth YoY Source: Capitaline, Company, ICICIdirect.com Research Page 1

11 ICICIdirect.com coverage universe (BFSI) CMP M Cap EPS ( ) P/E (x) P/ABV (x) RoA (%) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E Bank of Baroda (BANBAR) Hold 34, Punjab National Bank (PUNBAN) Hold 23, State Bank of India (STABAN) Buy 182, Indian Bank (INDIBA) Buy 1, Axis Bank (UTIBAN) Hold 17, City Union Bank (CITUNI) Buy 7, Development Credit Bank (DCB) Hold 2, Federal Bank (FEDBAN) 66 8 Hold 11, HDFC Bank (HDFBAN) 1,19 1,5 Buy 297, Indusind Bank (INDBA) 1,18 1,35 Buy 65, Jammu & Kashmir Bank (JAMKAS) 6 75 Buy 2, Kotak Mahindra Bank (KOTMAH) Hold 13, Yes Bank (YESBAN) 1,166 1,3 Hold 48, NBFCs LIC Housing Finance (LICHF) Hold 26, Reliance Capital (RELCAP) Hold 1, HDFC (HDFC) 1,216 1,57 Buy 191, PTC India Financial Services (PTCIND) Hold 2, CARE (CARE) 1,319 1,65 Buy 3, Bajaj Finserv (BAFINS) 2,964 3,47 Hold 47, Bajaj Finance (BAJAF) 869 1,3 Buy 46, Page 11

12 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/2% for large caps/midcaps, respectively, with high conviction; Buy: >1%/15% for large caps/midcaps, respectively; Hold: Up to +/-1%; Sell: -1% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai 4 93 research@icicidirect.com Page 12

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Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report. We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Page 13