Indian Banks Turning Titanic- flash september 2011

Sept 2011 1 JM Financial Services Private Limited

Banking Flash

September 2011

Portfolio Management Group

Aniruddha Kekatpure

[email protected]

(91-22)-6704-3367


RBI Monetary Policy Review, September 2011 – Key Extracts

Since the Reserve Bank’s First Quarter Review of July 26, the global macroeconomic outlook has worsened. There is growing

consensus that sluggishness will persist longer than was earlier expected….

…..Inflationary pressures are expected to ease towards the later part of 2011-12….However, in the current scenario, with the

likelihood of inflation remaining high for a few more months, rising inflationary expectations remain a key risk. This makes it

imperative to persevere with the current anti-inflationary stance. …

…..The HSBC Purchasing Managers' Index for the manufacturing sector also suggested moderation. Corporate margins in Q1 of

2011-12 moderated across several sectors compared to their levels in Q4 of 2010-11. However, barring a few sectors, significant

pass-through of rising input costs is still visible….. In recent weeks, as a result of global risk aversion, the rupee has depreciated,

which may have adverse implications for inflation.

…. The central government’s fiscal imbalances widened during April-July of 2011 reflecting, primarily, the impact of decline in

revenue receipts coupled with pressures from non-plan revenue expenditures on account of higher petroleum and fertilizer

subsidies. Fiscal deficit at 55.4 per cent of the budget estimates in the first four months of the current fiscal was significantly

higher than that of 42.5 per cent during the corresponding period last year…

.…Although India's exports have performed extremely well in the recent period, this trend is unlikely to be sustained in the face

of weakening global demand. This, combined with the slowing down of domestic demand, to which the monetary policy stance

is also contributing, suggests that risks to the growth projection for 2011-12 made in the July Review are on the downside….

Meanwhile, inflation remains high, generalised and much above the comfort zone of the Reserve Bank. …Moreover, there is still

an element of suppressed inflation. Though global oil prices have moderated, the pass-through to domestic prices remains

incomplete. Also, current administered electricity prices are yet to reflect increase in input prices, even as many states have

initiated increases.

As monetary policy operates with a lag, the cumulative impact of policy actions should now be increasingly felt in further

moderation in demand and reversal of the inflation trajectory towards the later part of 2011-12. As such, a premature change in

the policy stance could harden inflationary expectations, thereby diluting the impact of past policy actions. It is, therefore,

imperative to persist with the current anti-inflationary stance. Going forward, the stance will be influenced by signs of

downward movement in the inflation trajectory, to which the moderation in demand is expected to contribute, and the

implications of global developments.


Q1FY12: Balance sheet growth slowing down with CD ratios moderating

Q1FY12 Advances Growth

17

18

19

20

20

20

21

22

22

23

24

25

26

26

3136

0 5 10 15 20 25 30 35 40

Union Bank

Federal Bank

State Bank of India

ICICI Bank

SYSTEMIC

HDFC Bank

Axis Bank

Bank of India

Corporation Bank

Punjab National

Canara Bank

Bank of Baroda

ING Vysya

Yes Bank

IndusInd Bank

Kotak Bank

Q1FY12 Deposit Growth

15

15

16

17

18

22

22

23

23

24

26

27

29

29

2944

0 5 10 15 20 25 30 35 40 45 50

ICICI Bank

HDFC Bank

Union Bank

State Bank of India

SYSTEMIC

Bank of India

Kotak Bank

Federal Bank

Bank of Baroda

Axis Bank

Canara Bank

Punjab National

IndusInd Bank

ING Vysya

Corporation Bank

Yes Bank

CD Ratio -

64

64

66

67

67

68

69

71

72

73

73

74

75

75

8383

60 65 70 75 80 85

ICICI Bank

Axis Bank

Yes Bank

Corporation Bank

ING Vysya

IndusInd Bank

Bank of Baroda

Federal Bank

Canara Bank

Union Bank

Bank of India

SYSTEMIC

Punjab National

HDFC Bank

Kotak Bank

State Bank of India


Margins under pressure. Flow through to RoA depends on slippages

Q1FY12 NIM -

2.1

2.2

2.4

2.6

2.8

3.0

3.1

3.3

3.4

3.4

3.6

3.8

3.9

4.25.0

0.0 1.0 2.0 3.0 4.0 5.0 6.0

Corporation Bank

Bank of India

Canara Bank

ICICI Bank

Yes Bank

ING Vysya

Union Bank

Axis Bank

Bank of Baroda

IndusInd Bank

State Bank of India

Punjab National

Federal Bank

HDFC Bank

Kotak Bank

CASA Ratio -

11

21

25

27

27

28

30

32

34

36

38

41

42

48

49

0 10 20 30 40 50 60

Yes Bank

Corporation Bank

Canara Bank

Kotak Bank

Federal Bank

IndusInd Bank

Bank of India

Union Bank

Ing Vysya

Bank of Baroda

Punjab National

Axis Bank

ICICI Bank

State Bank of India

HDFC Bank

Q1FY12 RoA -

0.58

0.66

0.83

0.84

1.03

1.09

1.14

1.16

1.20

1.31

1.34

1.38

1.47

1.63

2.11

0.00 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25

State Bank of India

Bank of India

Union Bank

ING Vysya

Corporation Bank

Canara Bank

Federal Bank

Punjab National

Bank of Baroda

ICICI Bank

IndusInd Bank

Yes Bank

HDFC Bank

Axis Bank

Kotak Bank


Lower profit surprises for banks with stable asset quality & high CASA

NII Growth (Jun11) -

1

4

6

10

11

14

18

19

19

21

22

24

32

33

35

0 5 10 15 20 25 30 35 40

Corporation Bank

Canara Bank

Bank of India

ING Vysya

Federal Bank

Axis Bank

Union Bank

HDFC Bank

Punjab National

ICICI Bank

Kotak Bank

Bank of Baroda

IndusInd Bank

State Bank of India

Yes Bank

Q1FY12 PPP Growth -

(14)

(7)

(1)

(1)

2

6

12

16

18

18

19

20

21

31

35

(15) (5) 5 15 25 35

Canara Bank

Corporation Bank

ING Vysya

Bank of India

ICICI Bank

Federal Bank

Union Bank

HDFC Bank

Punjab National

State Bank of India

Kotak Bank

Bank of Baroda

Axis Bank

Yes Bank

IndusInd Bank

PBT Growth

(33)

(27)

(19)

(17)

(13)

1

9

13

28

28

33

34

37

42

(40) (30) (20) (10) 0 10 20 30 40 50

State Bank of India

Canara Bank

Bank of India

Corporation Bank

Union Bank

Punjab National

Federal Bank

Bank of Baroda

Kotak

ICICI Bank

HDFC Bank

ING Vysya

Yes Bank

Axis Bank


Asset Quality stable but pressures building up

Gross NPAs as % of Advances (Jun 2011)

0.17

1.04

1.06

1.07

1.08

1.46

1.59

1.67

2.00

2.15

2.57

2.69

3.52

4.36

4.49

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00

Yes Bank

HDFC Bank

Axis Bank

Corporation Bank

IndusInd Bank

Bank of Baroda

Kotak Bank

Canara Bank

Punjab National

Ing Vysya

Union Bank

Bank of India

State Bank of India

ICICI Bank

Federal Bank

Net NPAs as % of Advances (Jun 2011)

0.01

0.20

0.30

0.31

0.35

0.44

0.52

0.54

0.74

0.86

1.04

1.27

1.32

1.34

1.61

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80

Yes Bank

HDFC Bank

IndusInd Bank

Axis Bank

Ing Vysya

Bank of Baroda

Corporation Bank

Kotak Bank

Federal Bank

Punjab National

ICICI Bank

Bank of India

Union Bank

Canara Bank

State Bank of India

Specific Coverage Ratio - PSU Banks' ratios have slipped with pressure on asset quality

20

49

51

54

55

57

66

70

71

73

77

82

83

84

95

10 20 30 40 50 60 70 80 90 100

Canara Bank

Union Bank

Corporation Bank

Bank of India

State Bank of India

Punjab National

Kotak Bank

Bank of Baroda

Axis Bank

IndusInd Bank

ICICI Bank

Federal Bank

HDFC Bank

ING Vysya

Yes Bank


NPAs at record lows. Should start to move up with increasing pressures.

Gross NPA Ratio - Punjab National Bank

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

Jun-

06

Sep

-06

Dec

-06

Mar

-07

Jun-

07

Sep

-07

Dec

-07

Mar

-08

Jun-

08

Sep

-08

Dec

-08

Mar

-09

Jun-

09

Sep

-09

Dec

-09

Mar

-10

Jun-

10

Sep

-10

Dec

-10

Mar

-11

Jun-

11

Gross NPA Ratio - Bank of Baroda

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

Jun-

06

Sep

-06

Dec

-06

Mar

-07

Jun-

07

Sep

-07

Dec

-07

Mar

-08

Jun-

08

Sep

-08

Dec

-08

Mar

-09

Jun-

09

Sep

-09

Dec

-09

Mar

-10

Jun-

10

Sep

-10

Dec

-10

Mar

-11

Jun-

11

Gross NPA Ratio - HDFC Bank

0.50

0.70

0.90

1.10

1.30

1.50

1.70

1.90

2.10

2.30

Jun-

06

Sep

-06

Dec

-06

Mar

-07

Jun-

07

Sep

-07

Dec

-07

Mar

-08

Jun-

08

Sep

-08

Dec

-08

Mar

-09

Jun-

09

Sep

-09

Dec

-09

Mar

-10

Jun-

10

Sep

-10

Dec

-10

Mar

-11

Jun-

11

Gross NPA Ratio - Axis Bank

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

1.30

Jun-

06

Sep

-06

Dec

-06

Mar

-07

Jun-

07

Sep

-07

Dec

-07

Mar

-08

Jun-

08

Sep

-08

Dec

-08

Mar

-09

Jun-

09

Sep

-09

Dec

-09

Mar

-10

Jun-

10

Sep

-10

Dec

-10

Mar

-11

Jun-

11


Overnight Index Swaps(OIS) indicate policy tightening cycle at its fag end

Policy & OIS Rates - OIS rates pricing in last stages of near term policy rate hikes

Source: Bloomberg, JM Financial PMS

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

Jul-01

Jan-0

2

Jul-02

Jan-0

3

Jul-03

Jan-0

4

Jul-04

Jan-0

5

Jul-05

Jan-0

6

Jul-06

Jan-0

7

Jul-07

Jan-0

8

Jul-08

Jan-0

9

Jul-09

Jan-1

0

Jul-10

Jan-1

1

Jul-11

Repo Rate 1 Year OIS 5 Year OIS

India OIS 2/5 Spread - Above the peak levels of 2008.


-250

-200

-150

-100

-50

0

50

100

150

Aug-0

1

Feb-0

2

Aug-0

2

Feb-0

3

Aug-0

3

Feb-0

4

Aug-0

4

Feb-0

5

Aug-0

5

Feb-0

6

Aug-0

6

Feb-0

7

Aug-0

7

Feb-0

8

Aug-0

8

Feb-0

9

Aug-0

9

Feb-1

0

Aug-1

0

Feb-1

1

Aug-1

1


However, Oil prices though moderating are still at elevated levels.

Average Prices - Prices impacting India basket marginally lower. Spread higher


8595

102

9187

106

117 113

85

101

111 108

211 15

22

0

20

40

60

80

100

120

140

Q4CY10 Q1CY11 Q2CY11 Q3CY11

WTI Brent Dubai Oman Brent WTI Spread

India Crude Basket - Though moderating but still well above $100/bbl


0

20

40

60

80

100

120

140

160

Jun-

07

Sep

-07

Dec

-07

Mar

-08

Jun-

08

Sep

-08

Dec

-08

Mar

-09

Jun-

09

Sep

-09

Dec

-09

Mar

-10

Jun-

10

Sep

-10

Dec

-10

Mar

-11

Jun-

11

Sep

-11

Brent WTI Spread - Resumption of Libyan production should narrow the spread


-10

-5

0

5

10

15

20

25

30

Jun-0

7

Sep-0

7

Dec-0

7

Mar-

08

Jun-0

8

Sep-0

8

Dec-0

8

Mar-

09

Jun-0

9

Sep-0

9

Dec-0

9

Mar-

10

Jun-1

0

Sep-1

0

Dec-1

0

Mar-

11

Jun-1

1

Sep-1

1


Coupled with high oil prices, expansionary fiscal policy is keeping…

Revenue Deficit (% of GDP) - Expansionary fiscal policy keeping inflation high


1

2

3

4

5

6

7

8

Mar-

05

Jun-0

5

Sep-0

5

Dec-0

5

Mar-

06

Jun-0

6

Sep-0

6

Dec-0

6

Mar-

07

Jun-0

7

Sep-0

7

Dec-0

7

Mar-

08

Jun-0

8

Sep-0

8

Dec-0

8

Mar-

09

Jun-0

9

Sep-0

9

Dec-0

9

Mar-

10

Jun-1

0

Sep-1

0

Dec-1

0

Mar-

11

Jun-1

1

Fiscal Deficit (% of GDP) - High deficits crowding out private investments


2

3

4

5

6

7

8

9

10

Mar-

05

Jun-0

5

Sep-0

5

Dec-0

5

Mar-

06

Jun-0

6

Sep-0

6

Dec-0

6

Mar-

07

Jun-0

7

Sep-0

7

Dec-0

7

Mar-

08

Jun-0

8

Sep-0

8

Dec-0

8

Mar-

09

Jun-0

9

Sep-0

9

Dec-0

9

Mar-

10

Jun-1

0

Sep-1

0

Dec-1

0

Mar-

11

Jun-1

1


…. headline inflation stubbornly high thereby…

Infllation (WPI) - Moderation in headline but core component still high


-2

0

2

4

6

8

10

12

Apr-

05

Jul-05

Oct-

05

Jan-0

6

Apr-

06

Jul-06

Oct-

06

Jan-0

7

Apr-

07

Jul-07

Oct-

07

Jan-0

8

Apr-

08

Jul-08

Oct-

08

Jan-0

9

Apr-

09

Jul-09

Oct-

09

Jan-1

0

Apr-

10

Jul-10

Oct-

10

Jan-1

1

Apr-

11

Jul-11

(%)

WPI Average

Manufacturing Inflation - Continues to remain stubbornly high


-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

Apr-

05

Jul-05

Oct-

05

Jan-0

6

Apr-

06

Jul-06

Oct-

06

Jan-0

7

Apr-

07

Jul-07

Oct-

07

Jan-0

8

Apr-

08

Jul-08

Oct-

08

Jan-0

9

Apr-

09

Jul-09

Oct-

09

Jan-1

0

Apr-

10

Jul-10

Oct-

10

Jan-1

1

Apr-

11

Jul-11


…. forcing RBI to maintain a hawkish inflation fighting stance, but…

RBI Policy Rates - Further tightening likely to be more data & oil price dependent


3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Jan-0

1

Jul-01

Jan-0

2

Jul-02

Jan-0

3

Jul-03

Jan-0

4

Jul-04

Jan-0

5

Jul-05

Jan-0

6

Jul-06

Jan-0

7

Jul-07

Jan-0

8

Jul-08

Jan-0

9

Jul-09

Jan-1

0

Jul-10

Jan-1

1

Jul-11

Cash Reserve Ratio Repo Reverse Repo

State Bank of India Rates (%) - Lending rates have surpassed 2008 highs


4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

Apr-

92

Apr-

93

Apr-

94

Apr-

95

Apr-

96

Apr-

97

Apr-

98

Apr-

99

Apr-

00

Apr-

01

Apr-

02

Apr-

03

Apr-

04

Apr-

05

Apr-

06

Apr-

07

Apr-

08

Apr-

09

Apr-

10

Apr-

11

SBI Prime Lending rate SBI 1 Year Deposit Rate

Systemic Liquidity - RBI continues to maintain systemic liquidity in deficit mode


-1500

-1000

-500

0

500

1000

1500

2000

Jun-0

7

Aug-0

7

Nov-0

7

Feb-0

8

May-0

8

Jul-08

Oct-

08

Jan-0

9

Apr-

09

Jun-0

9

Sep-0

9

Dec-0

9

Mar-

10

May-1

0

Aug-1

0

Nov-1

0

Feb-1

1

May-1

1

Jul-11

12345678910111213141516

Reverse Repo Funds (Rs.Bn.) (LHS) 3m Commercial Paper Rate (%) (RHS)


….high interest rates are adversely affecting the investment cycle thereby…

HSBC Markit India Manufacturing PMI - Sharp deceleration since April 2011


40

45

50

55

60

65

Jan-0

6

Apr-

06

Jul-06

Oct-

06

Jan-0

7

Apr-

07

Jul-07

Oct-

07

Jan-0

8

Apr-

08

Jul-08

Oct-

08

Jan-0

9

Apr-

09

Jul-09

Oct-

09

Jan-1

0

Apr-

10

Jul-10

Oct-

10

Jan-1

1

Apr-

11

Jul-11

Capital Goods Growth - Capex cycle continues to remain weak. Reforms critical.


-30

-20

-10

0

10

20

30

40

50

60

70

Ap

r-0

6

Ju

l-0

6

Oct-

06

Ja

n-0

7

Ap

r-0

7

Ju

l-0

7

Oct-

07

Ja

n-0

8

Ap

r-0

8

Ju

l-0

8

Oct-

08

Ja

n-0

9

Ap

r-0

9

Ju

l-0

9

Oct-

09

Ja

n-1

0

Ap

r-1

0

Ju

l-1

0

Oct-

10

Ja

n-1

1

Ap

r-1

1

Ju

l-1

1

IIP Capital Goods Growth (%) 3 Month Moving Average

Industrial Production Growth - Political uncertainty & high rates feeding through


-10

-5

0

5

10

15

20

25

Apr-

06

Jul-06

Oct-

06

Jan-0

7

Apr-

07

Jul-07

Oct-

07

Jan-0

8

Apr-

08

Jul-08

Oct-

08

Jan-0

9

Apr-

09

Jul-09

Oct-

09

Jan-1

0

Apr-

10

Jul-10

Oct-

10

Jan-1

1

Apr-

11

Jul-11

India Industrial Production Growth (%) 3 Month Moving Average


.…resulting in declining credit & economic growth.

India Banking Credit Growth (%) - Reflecting slowdown in Investment cycle


5

10

15

20

25

30

35

Aug-9

7

Fe

b-9

8

Aug-9

8

Fe

b-9

9

Aug-9

9

Fe

b-0

0

Aug-0

0

Fe

b-0

1

Aug-0

1

Fe

b-0

2

Aug-0

2

Fe

b-0

3

Aug-0

3

Fe

b-0

4

Aug-0

4

Fe

b-0

5

Aug-0

5

Fe

b-0

6

Aug-0

6

Fe

b-0

7

Aug-0

7

Fe

b-0

8

Aug-0

8

Fe

b-0

9

Aug-0

9

Fe

b-1

0

Aug-1

0

Fe

b-1

1

Aug-1

1

Credit Growth Average Credit Growth

India GDP Growth (QoQ) - RBI tightening slowing the trend growth


5.0

6.0

7.0

8.0

9.0

10.0

11.0

Jun

-05

Sep-0

5

Dec-0

5

Mar-

06

Jun

-06

Sep-0

6

Dec-0

6

Mar-

07

Jun

-07

Sep-0

7

Dec-0

7

Mar-

08

Jun

-08

Sep-0

8

Dec-0

8

Mar-

09

Jun

-09

Sep-0

9

Dec-0

9

Mar-

10

Jun

-10

Sep-1

0

Dec-1

0

Mar-

11

Jun

-11

Annualised Rolling Four Quarters QoQ GDP Growth (%)


Headwinds persist. Reforms to determine severity of NPA cycle.. I

Earnings visibility getting clouded

Operating environment for financial sector should remain challenging as RBI continues to target near double digit inflation

despite decelerating economic growth momentum. These challenges are getting compounded due to 1. Overshoot in budgeted

government deficits since fiscal policy continues to remain expansionary & 2. Paralyzed legislative & administrative process in

the wake of ongoing corruption scandals. The slowing down in credit demand has been material even accounting for the slack

season and there is considerably lesser headroom within system to absorb rate hikes without affecting credit quality.

Investment & infrastructure capex cycle has become subdued and loan sanctions in these segments have dropped materially.

Spread stabilization to be dependent on monetary policy stance

Margin outlook dependent on 1. Composition of Deposits 2. Pass through of costs & 3. Pace of balance sheet growth.

Composition of Deposits: Higher term deposit rates are resulting in cannibalization of CASA deposits in favor of term deposits

thereby increasing cost of deposits. Since RBI has been in rate tightening mode for almost 18 months and effective tightening

of 500bps from the low (150bps in last 6 months) interest rates are nearer peak levels. However, deposit rates are expected to

remain sticky on government deficits unless RBI lowers the statutory reserve requirements to infuse liquidity in to the system

thereby lowering the wholesale borrowing costs. Typically the banking system subscribes to ~40% of GOI bond issues & with

the slippage in budgeted deficit targets, large part of funds would get diverted towards statutory requirements. Hence deposit

rates would need to remain attractive to help banks mobilize deposits for credit growth.

Pass through of costs: Slowdown in investment cycle is resulting in most banks targeting growing the Retail, SME & Agriculture

portfolios to generate loan book growth. However, it is difficult to pass costs in agriculture, SME & mortgage segments without

affecting asset quality. As long as the economy doesn’t slow down sharply & asset quality remains stable, the need to be

absorb costs for the banks will be lower thereby helping margins.

Pace of balance sheet growth: Assuming sustainable growth rate of 7-8%, in line with RBI comfort zone, & credit multiplier of

2x, sustainable systemic credit growth can be 14-16%. Current systemic CD ratio at ~73% means credit growth to be function

of deposit growth since bulk of investment book close to statutory levels. Credit growth could be 17-18% if deposit growth

stays healthy. Well capitalized banks with high CAR will be in a position to grow higher than the systemic average and gain

market share from banks looking to conserve capital to protect against asset quality deterioration. Current credit demand

more for working capital loans v/s Investment demand as can be seen from the improved utilization of working capital limits.


.

NPA cycle at cyclical low and due for a turn

NPA cycle is at a cyclical low and has likely turned with the rising stress levels on asset quality. The stress levels though are

still at manageable levels at an aggregate balance sheet levels of banks and certainly at the systemic level. Current asset

quality pressures are largely coming from Airlines, Textiles, Gems & Jewelry, Agriculture & MFIs. Fears of large delinquencies

from infrastructure segment specifically power sector have been persistent and increasingly making the markets nervous. At a

systemic level the banking sector has largest exposure to infrastructure segment since bulk of the credit growth over last few

years has been on the back of lending to infrastructure segment specifically power & telecom. However, to what extent will the

banks remain insulated from the turn in NPA cycle and how sharply will the cycle turn will largely be a function of 1. Domestic

Policy actions & Policy Reforms & 2. Capital Flows.

Power sector case study: Risks to the power sector exposure of banks & FIs are primarily arising from two levels –

1. Off-taker Risk: On account of pricing issues of SEBs and 2. Fuel Risk: Shortages of Coal/ Gas to delay cash flow to projects

thereby increasing risks to creditors.

The off-taker risk can be managed/ mitigated through policy actions improving the financial health of the SEBs. SEB losses are

primarily on account of static tariffs even in face of rising costs of power production/ procurement, non payment of subsidies

by the state governments to the SEBs, large capex on T&D without commensurate returns since 100% metering still not done,

free power to agricultural sector and rising wages, salaries. In light of these, the power ministry recently held a conference of

state power ministers on state distribution reforms of SEBs to focus on urgent steps & improve the health of SEBs and passed

resolutions to effect the same. What will be critical though is the implementation of these resolutions. Upon implementation of

agreed resolution, the default risk of distribution companies (discoms) of SEBs should substantially reduce.

Structurally, fuel risk is the more worrisome risk though even here a large part can be mitigated through policy initiatives. Mid

size power companies without fuel linkages likely to get under stress. The probability of restructuring is higher of bad loans

on account of the fuel supply risk.

Conclusion: Key headwinds: 1. Pressure on Revenues: Lower credit growth coupled with margin pressure 2. Pressure on

Profits: Rising credit costs & 3. Policy inaction & delayed reforms impacting business confidence and industrial activity. After

effectively tightening the monetary policy by 500bps since early 2010, RBI’s hawkish stance should moderate. Further

tightening will be primarily Oil price dependent since domestic demand has begun to moderate. Financial sector being a

leveraged sector on the economy would be under pressure with global and domestic macro headwinds gathering momentum,

sentiment would likely remain weak towards financial stocks. Valuations though are hovering near or below long term

averages, but not near trough levels as yet. Prefer private sector banks to public sector banks since they are better capitalized to

withstand the challenging environment.

Headwinds persist. Reforms to determine severity of NPA cycle.. II


Consensus Earnings Estimates & Valuations

NEW PRIVATE BANKS CMP MCAP MCAP

(Mn$) (Rs.Mn) 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013

ICICI BANK LTD 884 21,549 1,018,562 55.4 67.2 508 552 12.0 13.5 16.0 13.1 1.74 1.60

HDFC BANK LTD 484 23,915 1,130,424 21.6 27.4 125 147 18.5 20.1 22.4 17.6 3.87 3.30

AXIS BANK LTD 1133 9,884 467,186 97.8 119.6 537 635 19.6 20.5 11.6 9.5 2.11 1.78

KOTAK MAHINDRA BANK LTD 471 7,353 347,553 13.7 16.6 170 196 15.3 15.9 34.4 28.3 2.77 2.40

INDUSIND BANK LTD 266 2,627 124,171 16.0 20.4 96 113 17.6 19.4 16.6 13.1 2.78 2.36

YES BANK LTD 281 2,080 98,335 26.8 33.8 136 167 21.8 22.5 10.5 8.3 2.07 1.68

Wt. Average 3,186,230 19.5 15.7 2.71 2.35

OLD PRIVATE BANKS CMP MCAP MCAP

(Mn$) (Rs.Mn) 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013

FEDERAL BANK LTD 371 1,343 63,496 41.9 51.4 322 361 13.5 14.9 8.9 7.2 1.15 1.03

KARUR VYSYA BANK LTD 361 823 38,900 48.8 59.2 250 295 21.4 22.0 7.4 6.1 1.45 1.23

ING VYSYA BANK LTD 290 920 43,471 30.6 37.5 257 289 13.4 13.8 9.5 7.7 1.13 1.00

JAMMU & KASHMIR BANK LTD 866 888 41,982 147.2 165.0 830 960 18.6 18.2 5.9 5.2 1.04 0.90

SOUTH INDIAN BANK LTD 23 559 26,443 3.0 3.6 18 21 17.9 18.3 7.9 6.6 1.32 1.13

CITY UNION BANK LTD 45 386 18,261 6.3 7.8 31 37 23.0 22.5 7.1 5.8 1.47 1.22

KARNATAKA BANK LTD 92 367 17,353 16.2 16.2 136 146 10.3 12.1 5.7 5.7 0.68 0.63

DEVELOPMENT CREDIT BANK LTD 48 204 9,621 1.9 3.2 33 36 6.4 9.3 25.7 15.1 1.47 1.33

DHANLAXMI BANK LTD 80 143 6,781 7.1 10.7 109 119 6.7 8.7 11.3 7.5 0.73 0.67

Wt. Average 266,309 8.5 6.9 1.18 1.03

PUBLIC SECTOR BANKS CMP MCAP MCAP

(Mn$) (Rs.Mn) 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013

STATE BANK OF INDIA 1946 26,137 1,235,454 180.5 235.6 1494 1717 17.4 17.7 10.8 8.3 1.30 1.13

PUNJAB NATIONAL BANK 981 6,573 310,666 160.6 194.3 754 911 22.3 22.5 6.1 5.0 1.30 1.08

BANK OF BARODA 774 6,415 303,213 120.3 144.1 606 722 21.0 21.3 6.4 5.4 1.28 1.07

CANARA BANK 434 4,064 192,085 93.3 111.1 481 574 20.1 20.2 4.6 3.9 0.90 0.76

BANK OF INDIA 324 3,748 177,142 52.4 66.8 323 376 16.4 18.2 6.2 4.9 1.00 0.86

UNION BANK OF INDIA 238 2,640 124,791 47.7 57.6 246 291 19.7 20.4 5.0 4.1 0.97 0.82

IDBI BANK LTD 107 2,236 105,698 19.6 23.2 142 161 13.8 15.2 5.5 4.6 0.76 0.67

ORIENTAL BANK OF COMMERCE 292 1,805 85,296 57.9 71.5 391 446 15.0 16.4 5.1 4.1 0.75 0.66

ALLAHABAD BANK 164 1,655 78,218 36.6 45.3 186 222 19.9 21.1 4.5 3.6 0.88 0.74

INDIAN BANK 208 1,892 89,435 43.9 53.1 226 267 20.4 21.2 4.7 3.9 0.92 0.78

INDIAN OVERSEAS BANK 100 1,314 62,091 21.1 26.9 143 161 15.3 17.5 4.8 3.7 0.70 0.62

CENTRAL BANK OF INDIA 105 1,435 67,829 28.1 29.6 152 182 16.7 16.4 3.7 3.5 0.69 0.58

CORPORATION BANK 449 1,406 66,467 100.4 119.6 549 639 19.2 19.8 4.5 3.8 0.82 0.70

Wt. Average 2,898,387 7.7 6.1 1.14 0.98

Consensus EPS Est Consensus BVPS Consensus RoE P/E Ratio

Consensus EPS Est Consensus BVPS

Consensus BVPS P/B RatioConsensus EPS Est Consensus RoE P/E Ratio

Consensus RoE P/E Ratio P/B Ratio

P/B Ratio


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Indian Banks Turning Titanic- flash september 2011

Economy & Finance

Transcript of Indian Banks Turning Titanic- flash september 2011