India Banking Trends
Transcript of India Banking Trends
INSTITUTIONAL EQUITY RESEARCH
Page | 1 | PHILLIPCAPITAL INDIA RESEARCH Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker‐dealer unregistered in the USA. PHILLIPCAP research is prepared by research analysts who are not registered in the USA.PHILLIPCAP research is distributed in the USA pursuant to Rule 15a‐6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities Inc, an SEC registered and FINRA‐member broker‐dealer.
India Banking Trends Q3FY19 results review: A step forward towards normalized credit cost INDIA | FINANCIAL | QUARTERLY UPDATE
11 February 2019
• Strong recovery during the quarter (+42% qoq) endorses our view that the asset‐quality cycle is transitioning from decline to an early phase of recovery (Click here). Recoveries were primarily granular in nature despite the absence of any major resolution under NCLT (except for Uttam Galva and Binani Cement). Slippages declined qoq by 7% and 12% below our estimate, including slippage of IL&FS accounts. As most banks have already classified holdco exposure of IL&FS as NPAs, we would expect slippages to continue falling. Credit cost declined by 100bps qoq to 1.72% that too after banks increased their provisions coverage and accelerated provisioning. Going forward, we would expect credit cost to continue normalizing as slippages decline and as most banks have comfortable provision coverage. We would expect strong recovery as a few major accounts are in the last stages of resolution.
• Better performance by public banks: Banks' earnings under our coverage outperformed by 9% mainly because of higher NIIs (better NIMs) and lower provisions (lower slippages). This was slightly offset by higher opex (employee cost on higher retirement benefits). The outperformance was predominant in public banks, which reported 27% better profit compared to our estimates. This was mainly due to lower provisions on lower slippages and writeback of investment provisions (lower GSec yields). Corporate banks saw 17% better PAT vs. our estimates, mainly due to strong performance by public banks (+27% vs. our estimates) on strong NII and lower provisions. Retail banks’ PAT was in line with our estimates.
• NBFC: The operating performance for most of the NBFCs under coverage remains weak (except Mahindra Finance/Cholamandalam Finance‐AUM growth at 6% qoq vs. decline for other NBFCs) as they curtailed growth so as to maintain sufficient liquidity position. While some of the NBFCs were not able to borrow from the markets post September but the one with strong parentage were able to borrow albeit at a higher cost, which impacted margins. While liquidity situation has eased out over the last 2 months, smaller NBFCs are still finding it difficult to raise resources, hence giving away market share to stronger NBFCs like Cholamandalam, and Mahindra Finance. While underlying vehicle demand across categories like two wheeler, Cars, Utility vehicles, Commercial vehicles remain subdued, we believe market share gain will help to support growth in the near term. Cholamandalam Finance remains our preferred pick.
• Key catalyst for 4QFY19: We believe these would be: (1) Details about IL&FS’ resolution, (2) Recoveries in NCLT cases as quite a number of cases are at the last stages of resolution, (3) fresh round of stress from some of the large corporate accounts such as DHFL, Jet Airways, Reliance Infra and Reliance Power, and (4) last tranche of government’s capital infusion into PSUs.
• Top picks in banking: We prefer banks with high CASA and strong liquidity positions. ICICI Bank, IndusInd, SBI, DCB, HDFC Bank, Axis and Kotak Mahindra Bank provide a strong liability franchise with sturdy LCRs.
Profit for the banks under our coverage were better than expectation on higher NII and lower provisions slightly offset by higher opex
Source: PhillipCapital India Research;
Manish Agarwalla (+ 9122 6246 4125) [email protected] Sujal Kumar (+ 9122 6246 4114) [email protected] Pradeep Agrawal (+ 9122 6246 4113) [email protected]
100% 109%11% 1%
18%
22%
8%
0%
50%
100%
150%
PAT‐3Q19E NII Non NII Opex Provision Tax PAT‐3Q19A
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BANKING AND FINANCIAL SECTOR UPDATE
Public banks outperformed vs. estimates on lower provisions. Retail/Private banks were in line Corporate banks’ PAT was 17% better than our estimate on better NIIs (strong credit growth and higher NIMs) and lower provisions, partly offset by higher opex (employee expenses on higher retirement benefits). Retail banks’ PAT was in line with estimates
Corporate Retail
Private banks under our coverage reported 4% better PAT compared to our estimates on higher trading income. Public banks under our coverage reported strong performance with 27% better PAT vs. our estimates. Higher NII and lower provisions were partly offset by higher opex and lower non‐NII income
Private Public
Source: PhillipCapital India Research
100%
117%24%
7%
30%
43% 14%
0%
20%
40%
60%
80%
100%
120%
140%
PAT‐ 3Q19E NII Non NII Opex Provision Tax PAT‐3Q19A
100% 100.3%1.9% 9.6%
5.1%0.3% 2.6%
0%
20%
40%
60%
80%
100%
120%
140%
PAT‐3Q19E NII Non NII Opex Provision Tax PAT‐3Q19A
100% 104%3% 14%
8%5%
0%
40%
80%
120%
160%
PAT‐3Q19E NII Non NII Opex Provision PAT‐3Q19A
100%
127%35%
36%
46%
101%
27%
0%
40%
80%
120%
160%
PAT‐3Q19E NII Non NII Opex Provision Tax PAT‐3Q19A
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BANKING AND FINANCIAL SECTOR UPDATE
Year on Year: Retail banks continue to show stable growth; corporate banks grew on lower base Retail banks under our coverage reported 19% yoy growth in PAT, while corporate banks saw 522% increase PAT on lower base
Corporate Retail
Private banks saw 21% PAT growth yoy mainly on higher NII (strong credit growth and stable NIMs). Within private banks, retail banks saw 19% PAT growth (higher income offset by higher provisions and opex). Public banks reported stable operating profit growth as higher NII was offset by lower other income and higher opex
Private Public (Pre‐Provision operating profit)
Source: PhillipCapital India Research
100%
522%426%
6%
319%
822%
501%
0%
200%
400%
600%
800%
1000%
1200%
PAT‐ 2Q18 NII Non NII Opex Provision Tax PAT‐3Q19
100%
119%
49%
19%
24%15%
10%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
PAT‐3Q18 NII Non NII Opex Provision Tax PAT‐3Q19
100% 121%
60%
28%
32%20%
15%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
PAT‐3Q18 NII Non NII Opex Provision Tax PAT‐3Q19
100% 103%
21%
7%
17%
0%
20%
40%
60%
80%
100%
120%
140%
PPOP‐3Q18 NII Non NII Opex PPOP‐3Q19
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BANKING AND FINANCIAL SECTOR UPDATE
Sector Trend Credit growth: Credit growth for both private and public banks continued to remain stable. Growth mainly came from services (NBFCs), retail, and MSME corporate loans continued to remain weak although better than previous quarters mainly driven by loans to PSUs
Deposit growth: Private banks reported strong deposit growth (driven by term deposits). Deposit growth for public banks remained stable
Advances Growth Deposit Growth
Net interest margins of both public and private banks increased, as benefits of higher MCLR started coming in, resulting in higher loan yields. NIMs for public banks increased mainly because of recoveries, resulting in interest reversal. Cost‐to‐income ratio remained stable
NIM (NII / average interest‐earning asset) Cost‐to‐income ratio
Source: PhillipCapital India Research
‐5%
0%
5%
10%
15%
20%
25%
Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19
Private Public
0%
5%
10%
15%
20%
25%
Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19
Private Public
4.0%
2.7%3.2%
4.1%
2.9%3.4%
0%
1%
2%
3%
4%
5%
Private Public Overall
Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19
30%
35%
40%
45%
50%
55%
60%
65%
70%
Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19
Private Public Overall
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BANKING AND FINANCIAL SECTOR UPDATE
Credit cost, GNPA ratio, and slippages continue to decline, showing early signs of the credit‐cost cycle normalising
Credit cost (provisions/average loan) GNPA ratio Slippages as a % of average loans
Source: PhillipCapital India Research
PNB, Union, and Syndicate have highest GNPA and NNPA ratios while IndusInd, HDFC, and RBL have lower ones
Bank‐wise GNPA ratio (3QFY19) Bank‐wise NNPA ratios (3QFY19)
Source: Company Reports, PhillipCapital India Research
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Q1FY17 Q3FY17 Q1FY18 Q3FY18 Q1FY19 Q3FY19
Private Public Overall
2.9%
9.3%
7.1%
4.4%
10.9%
8.2%
0%
2%
4%
6%
8%
10%
12%
14%
Private Public Overall
Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18
Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Q1FY17 Q3FY17 Q1FY18 Q3FY18 Q1FY19 Q3FY19Private Public Overall
0%
4%
8%
12%
16%
20%
PNB
Union
Synd
icate
BOB
Canara SBI
ICICI
Indian
Vijaya
Axis
Karnataka
Fede
ral
Band
han
Yes
Kotak
DCB
RBL
HDFC
Indu
sInd
0%
2%
4%
6%
8%
10%
Union
PNB
Synd
icate
Canara
Indian
BOB
Vijaya SBI
Karnataka
ICICI
Axis
Fede
ral
Yes
RBL
Kotak
DCB
Band
han
Indu
sInd
HDFC
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BANKING AND FINANCIAL SECTOR UPDATE
IL&FS exposure NBFC exposure Private banks
Axis Total Rs 8.0bn exposure (Fund Based: Rs 2.5bn is NPA); provided 20% for fund‐based exposure. Rs 5.5bn non fund based exposure is part of BB and below vulnerable book.
ICICI Primarily to EPC company and non fund in nature. Account is already downgraded to BB and below.
IndusInd Exposure to holding entity: Rs 20bn. Operating entity: Rs 10bn. Holdco exposure is 30% provided and plan to take this to 50% by 4Q19
Yes Total exposure of Rs25.2bn towards IL&FS of which banks has recognized Rs19.1bn as NPA (25% provided) on remaining Rs6.2bn bank has provided 15% standard provisioning
Public banks
BoB Total exposure of Rs 46.7bn. Exposure to Parent (Rs 11.6bn) slipped to NPA in 3Q19. Provision is as per IRAC norms (20%)
Canara Rs 25bn spread over 13 accounts; out of this Rs 19bn has slipped in to NPATotal provision on these are Rs 4.1bn
Indian Total exposure Rs 17.1bn (NPA: Rs 0.9bn; standard: Rs 7.6bn); provided Rs2.5bn.
SBI Total exposure Rs 40bn (holdco Rs 0.9bn; ITNL Rs 1.5bn; balance to SPVs).Holdco exposure has slipped to NPA with 50% provided
Key Catalyst for 4QFY19 IL&FS: Most of the banks have recognised holdco exposure of IL&FS as NPA, SPVs exposure are still standard. If no resolution is reached these exposure will also slip to NPA Capital infusion: Final round of capital infusion is expected to finalise in 4QFY19. Banks are likely to get growth capital in this round for expanding their lending, particularly MSMEs. The government had announced Rs 2.11tn of capital infusion in October 2017. According to the plan, PSBs were to get Rs 1.35tn through re‐capitalisation bonds and the rest Rs 580 bn by raising capital from the market. Recoveries: Resolution of some of the large accounts under NCLT and Samadhan (power) could result in higher recovery in 4QFY19. Some of the major accounts, which are at the last stage of resolution under NCLT are Essar Steel and Bhusan Power & Steel. Some of the power accounts that could see recovery are SKS power and Prayagraj
0%
5%
10%
15%
20%
25%
BOB
Karnataka
Union
Canara
Indian SBI
ICICI
Yes
HDFC
Kotak
Indu
sInd Axis
RBL
NBFC HFC
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BANKING AND FINANCIAL SECTOR UPDATE
Bank‐wise performance vs. estimates NII Non NII Total Operating Income
Opex Pre Provision Profit Provision
Source: Company reports, PhillipCapital India Research; *excluding stake sale by SBI
‐8%
‐6%
‐4%
‐2%
0%
2%
4%
6%
8%
10%
12%
Canara
BOB
PNB
Axis
Yes
SBI
Kotak
ICICI
DCB
HDFC
Indu
sInd
Indian
MissBeat
‐40%
‐30%
‐20%
‐10%
0%
10%
20%
30%
40%
Axis
HDFC
DCB
Indu
sInd
BOB
ICICI
PNB
Indian SBI
Canara
Kotak
Yes
MissBeat
‐15%
‐10%
‐5%
0%
5%
10%
15%
20%
Axis
BOB
ICICI
DCB
HDFC
PNB
Indu
sInd
Canara SBI
Kotak
Indian Yes
MissBeat
‐6%
‐4%
‐2%
0%
2%
4%
6%
8%
10%
SBI
ICICI
Axis
Indu
sInd
Kotak
PNB
Canara
BOB
HDFC
Indian
DCB
Yes
Miss Beat
‐20%
‐15%
‐10%
‐5%
0%
5%
10%
15%
20%
25%
30%Ax
is
DCB
BOB
HDFC
ICICI
PNB
Canara
Indu
sInd Yes
Indian SBI
Kotak
MissBeat
‐120%
‐100%
‐80%
‐60%
‐40%
‐20%
0%
20%
40%
BOB
HDFC
ICICI
DCB
Axis
Indian
Canara
PNB
Indu
sInd SBI
Yes
Kotak
Miss Beat
Page | 8 | PHILLIPCAPITAL INDIA RESEARCH
BANKING AND FINANCIAL SECTOR UPDATE
PBT PAT NIM
GNPA NNPA Slippages
Source: Company reports, PhillipCapital India Research
‐60%
‐40%
‐20%
0%
20%
40%
60%
Axis
SBI
DCB
Indu
sInd Yes
Canara
HDFC
Kotak
BOB
ICICI
Indian
MissBeat
‐80%
‐60%
‐40%
‐20%
0%
20%
40%
60%
Axis
SBI
Canara
DCB
Yes
Indu
sInd
HDFC
Kotak
ICICI
BOB
Indian
MissBeat
‐4
‐2
0
2
4
6
8
10
12
Canara
Kotak
Axis
BOB
PNB
DCB
SBI
ICICI
Yes
HDFC
Indian
Indu
sInd
MissBeat
‐8%
‐6%
‐4%
‐2%
0%
2%
4%
6%
Indian
Indu
sInd
DCB
HDFC
PNB
Axis
BOB
Kotak
Canara
ICICI
SBI
Miss Beat
‐50%
‐40%
‐30%
‐20%
‐10%
0%
10%
20%
30%
40%
Indu
sInd
Indian
Axis
PNB
Canara
HDFC
DCB
SBI
BOB
Kotak
ICICI
Yes
Miss Beat
‐60%
‐40%
‐20%
0%
20%
40%
60%
80%
Indu
sInd
Canara
DCB
Axis
Indian
HDFC
BOB
PNB
ICICI
SBI
Yes
Miss Beat
Page | 9 | PHILLIPCAPITAL INDIA RESEARCH
BANKING AND FINANCIAL SECTOR UPDATE
Advance Deposit
Source: Company Reports, PhillipCapital India Research
‐4%
‐2%
0%
2%
4%
Indu
sInd Axis
SBI
Kotak
HDFC
Indian
ICICI
BOB
Canara
Yes
DCB
PNB
MissBeat
‐6%‐4%‐2%0%2%4%6%8%10%12%14%16%
Axis
ICICI
Indu
sInd
PNB
Indian
Canara
HDFC
DCB
SBI
Kotak
BOB
Yes
MissBeat
Page | 10 | PHILLIPCAPITAL INDIA RESEARCH
BANKING AND FINANCIAL SECTOR UPDATE
Bank‐wise sequential performance (qoq) NII Non NII Total Operating Income
Opex Pre Provision Profit Provision
Source: Company reports, PhillipCapital India Research
‐15%
‐10%
‐5%
0%
5%
10%
15%
20%
Canara
RBL
Yes
Kotak SBI
PNB
ICICI
Axis
HDFC
BOB
Fede
ral
Karnataka
Band
han
DCB
Indu
sInd
Synd
icate
Vijaya
Indian
Union
‐50%‐40%‐30%‐20%‐10%0%10%20%30%40%50%60%
Karnataka
Axis
DCB
Synd
icate
ICICI
HDFC
Union
BOB
RBL
Indu
sInd
Fede
ral
PNB
Indian
Band
han
Vijaya SBI
Canara
Kotak
Yes
‐15%
‐10%
‐5%
0%
5%
10%
15%
20%
25%
Axis
Karnataka
ICICI
RBL
HDFC
DCB
BOB
Synd
icate
PNB
Indu
sInd
Canara
Fede
ral
Band
han
SBI
Kotak
Indian
Vijaya
Union Yes
‐5%
0%
5%
10%
15%
20%
25%
30%
Karnataka
Union RBL
Canara SBI
Fede
ral
Kotak
Synd
icate
Indu
sInd Axis
HDFC
ICICI
PNB
Band
han
Indian Yes
DCB
BOB
Vijaya
‐20%
‐10%
0%
10%
20%
30%
40%Ax
isDC
BICICI
BOB
HDFC
Karnataka
Synd
icate
RBL
PNB
Indu
sInd
Band
han
Fede
ral
Canara
Vijaya
Indian
Kotak SBI
Union Yes
204%
‐150%
‐100%
‐50%
0%
50%
100%
150%
Band
han
DCB
HDFC RBL
BOB
Karnataka
ICICI
Axis
Indu
sInd
Vijaya
Union
Indian
Canara
Fede
ral
Yes
SBI
PNB
Synd
icate
Kotak
Page | 11 | PHILLIPCAPITAL INDIA RESEARCH
BANKING AND FINANCIAL SECTOR UPDATE
PBT PAT NIM
GNPA NNPA Slippages
Source: Company reports, PhillipCapital India Research;
165%
‐10%
10%
30%
50%
70%
90%
110%
130%
150%
SBI
Axis
ICICI
Fede
ral
Indian
Karnataka
DCB
BOB
Kotak
HDFC RBL
Indu
sInd
Vijaya
Yes
319%
‐10%
10%
30%
50%
70%
90%
110%
130%
150%
SBI
Axis
ICICI
RBL
Karnataka
Fede
ral
DCB
Kotak
HDFC
BOB
Indu
sInd
Canara
Yes
Vijaya
‐15
‐10
‐5
0
5
10
15
20
25
Band
han
PNB
Kotak
Canara
Synd
icate
Axis
BOB
RBL
Karnataka
SBI
ICICI
Fede
ral
DCB
Yes
Union
HDFC
Indu
sInd
Vijaya
Indian
101%
‐20%
‐10%
0%
10%
20%
30%
40%
Band
han
Yes
Indu
sInd
DCB
HDFC RBL
Vijaya
Indian
Fede
ral
Kotak
Axis
Union
Karnataka
Canara
Synd
icate
BOB
PNB
ICICI
SBI ‐30%
‐20%
‐10%
0%
10%
20%
30%
40%
50%
Yes
Indu
sInd
Vijaya
HDFC
Band
han
Indian RBL
DCB
Karnataka
Fede
ral
Canara
Synd
icate
Union Axis
PNB
Kotak
BOB
SBI
ICICI ‐60%
‐40%
‐20%
0%
20%
40%
60%
80%
100%
Indu
sInd
Vijaya RBL
Canara
Yes
Axis
HDFC
DCB
Union
Karnataka
Kotak
BOB
Fede
ral
Synd
icate
Indian
PNB
ICICI
SBI
Page | 12 | PHILLIPCAPITAL INDIA RESEARCH
BANKING AND FINANCIAL SECTOR UPDATE
Advance Deposit
Source: Company Reports, PhillipCapital India Research
‐8%
‐6%
‐4%
‐2%
0%
2%
4%
6%
8%
RBL
Band
han
Kotak
Indu
sInd SBI
Fede
ral
Axis
HDFC
Karnataka
DCB
ICICI
BOB
Vijaya
Indian
Canara
Yes
PNB
Union
Synd
icate
‐6%
‐4%
‐2%
0%
2%
4%
6%
8%
10%
RBL
ICICI
Axis
DCB
Band
han
Fede
ral
Indu
sInd
Canara
Vijaya
Kotak
Indian
HDFC
Karnataka
SBI
Union
BOB
PNB
Yes
Synd
icate
Page | 13 | PHILLIPCAPITAL INDIA RESEARCH
BANKING AND FINANCIAL SECTOR UPDATE
Bank‐wise year‐on‐year performance (yoy) NII Non NII Total Operating Income
Opex Pre Provision Profit Provision
Source: Company reports, PhillipCapital India Research
‐20%
‐10%
0%
10%
20%
30%
40%
50%
60%
Band
han
Yes
RBL
Kotak
HDFC SBI
Indu
sInd
ICICI
Axis
DCB
Fede
ral
Karnataka
BOB
PNB
Indian
Canara
Vijay
Synd
icate
Union
‐60%
‐40%
‐20%
0%
20%
40%
60%
Karnataka
Axis
Fede
ral
Band
han
RBL
HDFC
DCB
Union
Indu
sInd
ICICI
Synd
icate
SBI
BOB
Kotak
Canara
Vijay
Indian Yes
PNB
‐20%
‐10%
0%
10%
20%
30%
40%
50%
60%
Band
han
RBL
Axis
HDFC
Karnataka
Indu
sInd
ICICI
Fede
ral
DCB
SBI
Kotak
Yes
BOB
Synd
icate
Indian
Vijay
Canara
Union
PNB
‐10%
0%
10%
20%
30%
40%
50%
Band
han
RBL
Kotak
ICICI
SBI
Karnataka
Yes
Axis
HDFC
BOB
Fede
ral
Indu
sInd
Canara
Synd
icate
PNB
DCB
Indian
Union
Vijay
‐40%‐30%‐20%‐10%0%
10%20%30%40%50%60%70%
Band
han
RBL
Axis
DCB
HDFC
Indu
sInd
Fede
ral
Karnataka
ICICI
SBI
Kotak
Yes
Vijay
BOB
Indian
Union
Canara
Synd
icate
PNB
‐150%
‐100%
‐50%
0%
50%
100%
150%
200%
250%
Band
han
Indu
sInd RBL
HDFC Yes
ICICI
DCB
Fede
ral
Axis
Karnataka
Indian
Vijay
BOB
Canara
PNB
Union SBI
Synd
icate
Kotak
Page | 14 | PHILLIPCAPITAL INDIA RESEARCH
BANKING AND FINANCIAL SECTOR UPDATE
PBT PAT NIM
GNPA NNPA Slippages
Source: Company reports, PhillipCapital India Research; *excluding stake sale by SBI
‐50%
0%
50%
100%
150%
200%
250%
BOB
Canara
Axis
Vijay
DCB
Karnataka
RBL
Fede
ral
ICICI
Kotak
HDFC
Band
han
Indu
sInd Yes
Indian
‐100%
‐50%
0%
50%
100%
150%
200%
250%
300%
350%
BOB
Canara
Axis
RBL
Vijay
Karnataka
DCB
Fede
ral
Kotak
HDFC
Band
han
PNB
Indu
sInd
ICICI
Yes
Indian
‐70‐60‐50‐40‐30‐20‐10010203040
SBI
Canara
RBL
Kotak
Axis
PNB
Synd
icate
Indian
ICICI
Union
HDFC
BOB
Karnataka
Fede
ral
Indu
sInd Yes
DCB
Vijay
‐20%
0%
20%
40%
60%
80%
100%
120%
140%
Band
han
Yes
Fede
ral
Indian
PNB
HDFC
Karnataka
Indu
sInd
DCB
Synd
icate
Axis
Union RBL
Vijay
ICICI
Kotak
Canara
BOB
SBI ‐40%
‐20%
0%
20%
40%
60%
80%
100%
Yes
Indu
sInd
Fede
ral
Indian
Band
han
Karnataka
Vijay
HDFC
Union
Synd
icate
Canara
PNB
Axis
DCB
RBL
BOB
Kotak SBI
ICICI ‐100%
‐50%
0%
50%
100%
150%
Yes
Vijay
Indu
sInd
Canara
Karnataka
Indian
PNB
Synd
icate
DCB
Fede
ral
RBL
Kotak
HDFC
Axis
Union
BOB
ICICI
SBI
Page | 15 | PHILLIPCAPITAL INDIA RESEARCH
BANKING AND FINANCIAL SECTOR UPDATE
Advance Deposit
Source: Company Reports, PhillipCapital India Research
‐10%
0%
10%
20%
30%
40%
50%
60%
Band
han
Yes
Indu
sInd RBL
Fede
ral
HDFC
Kotak
DCB
Vijay
Karnataka
Indian
Axis
BOB
SBI
Canara
ICICI
Union
PNB
Synd
icate
‐10%
0%
10%
20%
30%
40%
50%
60%
Band
han
RBL
Yes
DCB
Vijay
Axis
Fede
ral
HDFC
Indu
sInd
Kotak
ICICI
Canara
Karnataka
Indian SBI
BOB
Union
PNB
Synd
icate
Page | 16 | PHILLIPCAPITAL INDIA RESEARCH
BANKING AND FINANCIAL SECTOR UPDATE
NBFCs
Page | 17 | PHILLIPCAPITAL INDIA RESEARCH
BANKING AND FINANCIAL SECTOR UPDATE
NBFC performance vs. estimates NII Operating profit PAT
NBFC’s year‐on‐year performance (yoy growth) NII growth Operating profit PAT growth
Source: Company reports, PhillipCapital India Research
‐10
‐8
‐6
‐4
‐2
0
2
4
6
CIFC STFC MMFS SCUF MGMA‐20
‐15
‐10
‐5
0
5
CIFC STFC MMFS SCUF MGMA ‐25
‐20
‐15
‐10
‐5
0
5
10
15
20
25
30
SCUF STFC CIFC MGMA MMFS
(5.0)
‐
5.0
10.0
15.0
20.0
25.0
CIFC MMFS STFC MGMA SCUF(10.0)
(5.0)
‐
5.0
10.0
15.0
20.0
25.0
30.0
35.0
CIFC STFC MGMA MMFS SCUF(30.0)
(20.0)
(10.0)
‐
10.0
20.0
30.0
40.0
50.0
60.0
70.0
MGMA CIFC STFC SCUF MMFS
Page | 18 | PHILLIPCAPITAL INDIA RESEARCH
BANKING AND FINANCIAL SECTOR UPDATE
NBFCs: Key indicators GNPA AUM growth(yoy) Two ‐wheeler sales
Tractor sales Cars and utility vehicle sales MHCV and LCV sales
Source: Company reports, PhillipCapital India Research
9.0
2.7
7.7
8.7
6.36.9
8.8
2.8
9.0 8.99.5
7.8
0
2
4
6
8
10
STFC CIFC MMFS SCUF MGMA Total
Dec‐18 Sep‐18
15.3
29.0 30.5
10.4
8.2
20.0
0
5
10
15
20
25
30
35
STFC CIFC MMFS SCUF MGMA Total
‐10
0
10
20
30
40
50
60
Apr‐17
May‐17
Jun‐17
Jul‐1
7Au
g‐17
Sep‐17
Oct‐17
Nov
‐17
Dec‐17
Jan‐18
Feb‐18
Mar‐18
Apr‐18
May‐18
Jun‐18
Jul‐1
8Au
g‐18
Sep‐18
Oct‐18
Nov
‐18
Dec‐18
Two Wheeler Scooters
‐20
‐10
0
10
20
30
40
50
60
Apr‐17
May‐17
Jun‐17
Jul‐1
7Au
g‐17
Sep‐17
Oct‐17
Nov
‐17
Dec‐17
Jan‐18
Feb‐18
Mar‐18
Apr‐18
May‐18
Jun‐18
Jul‐1
8Au
g‐18
Sep‐18
Oct‐18
Nov
‐18
Dec‐18
‐40
‐30
‐20
‐10
0
10
20
30
40
50
60
Apr‐17
May‐17
Jun‐17
Jul‐1
7Au
g‐17
Sep‐17
Oct‐17
Nov
‐17
Dec‐17
Jan‐18
Feb‐18
Mar‐18
Apr‐18
May‐18
Jun‐18
Jul‐1
8Au
g‐18
Sep‐18
Oct‐18
Nov
‐18
Dec‐18
Cars Utility Vehicles
‐100
‐50
0
50
100
150
200
Apr‐17
May‐17
Jun‐17
Jul‐1
7Au
g‐17
Sep‐17
Oct‐17
Nov
‐17
Dec‐17
Jan‐18
Feb‐18
Mar‐18
Apr‐18
May‐18
Jun‐18
Jul‐1
8Au
g‐18
Sep‐18
Oct‐18
Nov
‐18
Dec‐18
MHCV LCV
Page | 19 | PHILLIPCAPITAL INDIA RESEARCH
BANKING AND FINANCIAL SECTOR UPDATE
Banking & Financial Services Trends
Page | 20 | PHILLIPCAPITAL INDIA RESEARCH
BANKING AND FINANCIAL SECTOR UPDATE
Credit and deposit growth Credit and deposit growth (yoy) Credit growth by sector (yoy)
Rates 10‐year GSec rate SBI one‐year MCLR
Source: RBI, SBI, PhillipCapital India Research
64
66
68
70
72
74
76
78
80
0
5
10
15
20
25
30
Dec‐12
Mar‐13
Jun‐13
Sep‐13
Dec‐13
Mar‐14
Jun‐14
Sep‐14
Dec‐14
Mar‐15
Jun‐15
Sep‐15
Dec‐15
Mar‐16
Jun‐16
Sep‐16
Dec‐16
Mar‐17
Jun‐17
Sep‐17
Dec‐17
Mar‐18
Jun‐18
Sep‐18
Dec‐18
Deposit (%) Credit (%) CD ratio (rhs)
‐10
‐5
0
5
10
15
20
25
30
35
Dec‐12
Mar‐13
Jun‐13
Sep‐13
Dec‐13
Mar‐14
Jun‐14
Sep‐14
Dec‐14
Mar‐15
Jun‐15
Sep‐15
Dec‐15
Mar‐16
Jun‐16
Sep‐16
Dec‐16
Mar‐17
Jun‐17
Sep‐17
Dec‐17
Mar‐18
Jun‐18
Sep‐18
Dec‐18
Agriculture Industry Retail Services
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
Mar‐16
May‐16
Jul‐1
6
Sep‐16
Nov
‐16
Jan‐17
Mar‐17
May‐17
Jul‐1
7
Sep‐17
Nov
‐17
Jan‐18
Mar‐18
May‐18
Jul‐1
8
Sep‐18
Nov
‐18
Jan‐19
7.5%
7.7%
7.9%
8.1%
8.3%
8.5%
8.7%
8.9%
9.1%
9.3%
Apr‐16
Jun‐16
Aug‐16
Oct‐16
Dec‐16
Feb‐17
Apr‐17
Jun‐17
Aug‐17
Oct‐17
Dec‐17
Feb‐18
Apr‐18
Jun‐18
Aug‐18
Oct‐18
Dec‐18
Page | 21 | PHILLIPCAPITAL INDIA RESEARCH
BANKING AND FINANCIAL SECTOR UPDATE
Bank liquidity Liquidity coverage ratio (LCR) (Sep 2018) Excess liquidity as a % of advance (Sep 2018)
*March 2018
Bank liquidity and exposure Excess liquidity/advances (bank group‐wise) Banks’ exposure to NBFC
Source: Company, PhillipCapital India Research
0%
40%
80%
120%
160%
200%
0%
5%
10%
15%
20%
25%
7%
5%
1%
0%
1%
2%
3%
4%
5%
6%
7%
PSU Bank (Ex PCA) PCA Banks Private Banks
0%
5%
10%
15%
20%
25%
BOB
Karnataka
Union
Canara
Indian SBI
ICICI
Yes
HDFC
Kotak
Indu
sInd Axis
RBL
NBFC HFC
Page | 22 | PHILLIPCAPITAL INDIA RESEARCH
BANKING AND FINANCIAL SECTOR UPDATE
Mutual fund exposure to NBFCs Portfolio breakup of debt mutual funds CPs and CDs outstanding (Rs bn)
Maturity and rating profile Maturity profile of commercial papers Rating profile of debt mutual fund investments
Source: SEBI, RBI, PhillipCapital India Research
15.323.2 24.1 30.2 33.3 31.0 28.7
8.07.5 11.8
9.3 8.0 8.2 10.433.2
38.038.1 33.7 30.0 32.4 33.7
14.2
10.511.0 10.1 9.1 9.6 10.120.1
12.5 7.3 8.1 8.3 7.1 7.29.3 8.3 7.7 8.6 11.3 11.7 9.9
0%
20%
40%
60%
80%
100%
Sep‐17 Dec‐17 Mar‐18 Jun‐18 Aug‐18 Sep‐18 Dec‐18
CP CDs Corporate Debt PSU Bonds Gov Securities & T Bills Others
‐
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Apr‐16
Jul‐1
6
Oct‐16
Jan‐17
Apr‐17
Jul‐1
7
Oct‐17
Jan‐18
Apr‐18
Jul‐1
8
Oct‐18
Jan‐19
CP Outstanding CD Outstanding
Less than 90 days, 89%
90 days to 182 days, 10%
182 days to 1 year, 1%
G Secs & Tbills, 8%A1 (CPs), 33%
A1 (CDs), 8%
AAA (Bonds), 23% AA (Bonds), 13%
A (Bonds), 4%
Others, 11%
Page | 23 | PHILLIPCAPITAL INDIA RESEARCH
BANKING AND FINANCIAL SECTOR UPDATE
Valuation Metrics P/B vs. RoE P/B vs. RoA
Relative price performance Weekly performance Monthly performance
Source: PhillipCapital India Research
Axis
DCBICICI
IIB
HDFCKotak
BOB
CBK
INBKPNB SBI
Yes
‐
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
‐ 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0
P/Ad
j BV
RoE
Axis
DCB
ICICI
IIB
HDFCKotak
BOBCBK
INBK
PNB
SBI
Yes
‐
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
‐ 0.5 1.0 1.5 2.0 2.5
P/Ad
j BV
RoA
‐12%‐11%
‐7%‐5%‐5%‐5%‐4%‐4%
‐3%‐2%‐1%‐1%0%
0%0%1%
5%6%
11%
‐15.0% ‐10.0% ‐5.0% 0.0% 5.0% 10.0% 15.0%
SCUFYESCBKBOBINBKPNBSBI
ICICIMGMA
IIBAxisDCB
HDFCKMB
MMFSMUTHCIFCSHTFMGFL
‐19%‐16%
‐14%‐14%‐14%
‐10%‐10%
‐9%‐7%‐6%‐5%‐5%
‐3%0%0%
0%1%
6%15%
‐25.0% ‐20.0% ‐15.0% ‐10.0% ‐5.0% 0.0% 5.0% 10.0% 15.0% 20.0%
CBKINBK
MGMAMMFSBOBPNBYES
SHTFSBI
SCUFIIB
ICICIHDFCMUTHKMBCIFCDCB
MGFLAxis
Page | 24 | PHILLIPCAPITAL INDIA RESEARCH
BANKING AND FINANCIAL SECTOR UPDATE
Valuation table Reco M.Cap
(Rs bn) CMP (Rs)
TP Upside (%)
P/BV EPS BV
FY18 FY19 FY20 FY18 FY19 FY20 FY18 FY19 FY20 Private Banks Axis Bank BUY 1,827 711 765 8% 3.3 2.8 2.5 15.4 15.6 39.7 202 236 269 DCB Bank BUY 55 176 205 16% 2.3 2.0 1.6 8.0 9.8 12.4 78 88 108 ICICI Bank BUY 2,255 350 450 29% 1.9 1.6 1.4 10.5 7.0 23.0 133 151 170 IndusInd Bank BUY 897 1,489 2,000 34% 3.9 3.5 2.8 60.1 68.7 93.6 379 428 531 HDFC Bank BUY 5,799 2,132 2,524 18% 4.9 3.7 3.3 67.4 77.5 93.4 403 532 600 Kotak Bank BUY 2,490 1,305 1,450 11% 4.6 4.1 3.6 21.5 26.8 33.0 191 216 247 Yes Bank BUY 510 171 300 75% 1.6 1.6 1.4 18.1 17.9 17.7 108 110 126
PSU Banks Bank of Baroda BUY 273 103 145 41% 1.2 0.9 0.7 ‐9.2 8.4 27.9 89 114 145 Canara Bank Sell 165 225 210 ‐7% 1.8 1.2 0.9 ‐57.6 12.5 27.6 124 195 251 Indian Bank BUY 100 209 280 34% 0.9 0.9 0.7 26.2 17.0 38.7 243 232 280 Punjab National Bank Neutral 269 71 UR NA 5.9 1.5 1.0 ‐44.5 ‐3.0 7.1 12 47 68 State Bank of India BUY 2,522 283 370 31% 1.6 1.3 1.0 ‐7.3 6.5 29.5 131 158 202
NBFCs Cholamandalam BUY 190 1,218 1,435 18% 4.2 3.6 2.6 62.3 75.4 81.9 290 339 475 Mahindra Finance Neutral 240 388 425 9% 3.3 3.3 2.9 13.8 22.2 26.7 119 119 134 Shriram City Union Finance BUY 103 1,557 1,905 22% 2.2 1.8 1.5 100.8 147.3 156.6 711 852 1,006 Shriram Transport Finance BUY 240 1,058 1,200 13% 2.3 1.8 1.5 65.0 103.7 120.7 460 595 721 Manappuram Finance BUY 85 101 110 8% 2.3 1.9 1.7 8.3 9.4 10.9 45 52 61 Magmafincorp BUY 25 92 150 64% 1.3 1.2 1.0 9.7 11.2 14.3 71 79 92 Muthooth Finance BUY 206 514 550 7% 3.4 2.3 1.9 43.0 49.3 55.3 149 224 268
HFCs HDFC Ltd. BUY 2,915 1,951 2,192 12% 4.9 4.0 3.5 72.6 63.5 62.2 267 307 344 Repco Home Finance Neutral 23 362 424 17% 1.9 1.6 1.4 33.2 36.1 40.9 192 221 256 LIC Housing Finance BUY 203 458 520 14% 1.9 1.6 1.5 39.4 43.4 49.4 237 278 312 Indiabulls Housing BUY 406 581 1,217 110% 1.9 1.7 1.4 84.1 100.1 122.8 308 339 401 Source: PhillipCapital India Research Estimates
Page | 25 | PHILLIPCAPITAL INDIA RESEARCH
BANKING AND FINANCIAL SECTOR UPDATE
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Page | 26 | PHILLIPCAPITAL INDIA RESEARCH
BANKING AND FINANCIAL SECTOR UPDATE
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Page | 27 | PHILLIPCAPITAL INDIA RESEARCH
BANKING AND FINANCIAL SECTOR UPDATE
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