Indian Financials
Pathik Gandotra / Chinmaya Garg / Kavita Kejriwal(Tel): +91 22 6622 2525/ 2563/ 2558
[email protected]/[email protected]/[email protected]
February 2011
Darkest before dawn!
A torrent of bad news!!!
2
1 Persistent inflation
2
3
4
Liquidity crunch
Multitude of scams brought corruption to the forefront
Monetary tightening by the RBI
5 Government spending and reforms took a hit
Inflation – refuses to relent
8.59.7
10.211.0 10.6 10.3 10.0
8.8 8.9 9.1
7.58.4
130
134
138
142
146
Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-100
3
6
9
12W PI (LHS) yoy (% - RHS)
Liquidity deficit assumes worrisome proportions
-2,000
-1,500
-1,000
-500
0
500
Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-117.4
7.7
7.9
8.2
8.4Repo amt (Rs bn) G-Sec 10yr yields (%)
RBI on a tightening spree
0
1
2
3
4
5
6
7
Mar-10 Jun-10 Sep-10 Dec-10
CRR Reverse Repo Repo Rate
`Repo rate up 175bp since Mar-10
Source: BloombergSource: RBI
Source: CSO
Investor sentiment takes a beating…
17,500
18,500
19,500
20,500
21,500
Oct-10 Nov-10 Dec-10 Jan-11 Feb-11
CBI begins investigation on the
2G scam
Home loan scam raises concerns on corporate governance
IIP slows down to 2.7% in November
2010
Food inflation increases to
18.3% in December 2010
Liquidity tightens as deposit growth lags credit
growth
RBI hikes repo and reverse
repo by 25bp
Net FII outflows at
US$1bn in Jan 2011
Down 10% in just 3 months
3
Source: Bloomberg
70
80
90
100
110
Nov-10 Nov-10 Dec-10 Dec-10 Jan-11 Jan-11 Feb-11
Sensex BANKEX Index PSU Banks
…financials have been hit harder
4
1 Higher interest rates and liquidity crunch – rising costs
2
3
Microfinance, 2G telecom and real estate exposures under scanner
Deteriorating earnings outlook – persistent delinquencies and a likely stress on margins
Banks corrected by 25-30% from peak, and underperformed the
Sensex since Nov-2010
Source: Bloomberg
5
Rise in funding cost mars banks’ earnings outlookShort-term interest rates have touched 2-year highs
Source: Bloomberg
NIMs, and hence core earnings, to come under stress?
3
5
7
9
11
Sep-09 Nov -09 Jan-10 Mar-10 May -10 Ju l-10 Sep-10 Nov -10 Jan-11
3 mnth CP 6 mnth CP(% )
Funding costs have increased at a scorching pace – bulk rates up ~350bp in six monthsFunding costs have increased at a scorching pace – bulk rates up ~350bp in six months
6
Asset quality improvement: Slower than expected
Gross NPA (%)
Q3FY10 Q2FY11 Q3FY11
Allahabad Bank 1.77 1.77 1.77
Axis Bank 1.23 1.12 1.09
Bank of Baroda 1.43 1.39 1.32
Bank of India 2.67 2.64 2.36
Canara Bank 1.77 1.49 1.44
Corporation Bank 1.32 1.05 1.26
Dhanlaxmi Bank 1.76 1.26 1.05
HDFC 0.91 0.86 0.85
HDFC Bank 1.63 1.16 1.11
ICICI Bank 4.84 5.06 4.75
Indian Bank 0.89 1.29 1.02
IndusInd Bank 1.34 1.21 1.21
ING Vysya Bank 2.68 2.91 2.66
LIC Housing 1.44 0.74 0.67
M&M Finance 8.70 5.80 5.60
OBC 1.64 1.67 1.94
PFC 0.02 0.01 0.01
PNB 1.83 1.91 2.03
Shri Ram Transport 2.40 2.54 2.40
State Bank of India 3.11 3.35 3.17
Union Bank of India 1.96 2.79 2.66
Yes Bank 0.29 0.22 0.23
Decline in delinquencies lag expectations (especially for PSU banks); only a marginal fall so far
Decline in delinquencies lag expectations (especially for PSU banks); only a marginal fall so far
Private banks display resilience
As per RBI’s recent provisioning norms, NBFCs make higher provisions
Private banks display resilience
As per RBI’s recent provisioning norms, NBFCs make higher provisions
Rs m Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11
All banks
Slippages 84,650 91,651 100,492 106,834 88,194
% of opening advances 1.72% 1.80% 1.81% 1.84% 1.46%
PSU banks
Slippages 68,755 80,452 78,959 93,664 81,484
% of opening advances 1.86% 2.08% 1.88% 2.14% 1.79%
PSU banks (ex-SBI)
Slippages 46,277 55,412 38,149 49,544 42,484
% of opening advances 2.06% 2.36% 1.47% 1.83% 1.51%
Spate of news flow on microfinance, telecom & real estate accentuates concerns
Valuations 25-30% off the peaks...
7
Axis Bank – 1 yr fwd P/B (x) HDFC Bank – 1 yr fwd P/B (x)
SBI – 1 yr fwd P/B (x) ICICI Bank – 1 yr fwd P/B (x)
0.0
0.5
1.0
1.5
2.0
2.5
Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10
SBI PB (x) Average
0.0
1.5
3.0
4.5
6.0
Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10
HDFC Bank PB (x) Average
0.0
1.0
2.0
3.0
4.0
Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10
ICICI Bank PB (x) Average
0.0
1.0
2.0
3.0
4.0
5.0
Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10
Axis Bank PB (x) Average
Source: IDFC Research estimates, companies, Bloomberg
…and now prevailing at long-term averages
8
Allahabad Bank – 1 yr fwd P/B (x) Punjab National Bank – 1 yr fwd P/B (x)
Yes Bank – 1 yr fwd P/B (x) Union Bank– 1 yr fwd P/B (x)
0.00
0.50
1.00
1.50
2.00
2.50
Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10
PNB PB (x) Average
0.0
1.5
3.0
4.5
6.0
Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10
Yes Bank PB (x) Average
0.0
0.5
1.0
1.5
2.0
Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10
Union PB (x) Average
0.0
0.4
0.8
1.2
1.6
Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10
Allahabad BK PB (x) Average
Are banks bargain bets now?
9
1 Systemic liquidity has improved, further easing likely in next couple of months
2 Inflation seems to have peaked
3 Policy rate hikes expected to be calibrated
4 Earnings to remain robust led by declining provisions; concerns on NIMs appear exaggerated
5 Valuations now offer a considerable margin of safety
Turning OVERWEIGHT on the sector
We see the tide turning
10
14
18
22
26
30
Sep-10 Oct-10 Nov-10 Dec-10 Jan-11
Deposit growth(%) Credit Growth (%)
Systemic liquidity: Some relief visible…
10
Higher rates have led to improved deposit flows… ...leading to easing of incremental CD ratio
Government cash balances with RBI have come off LAF balances too off the peak
YTD incremental CD ratio down to 95% from 108% in Dec-10
-2,000
-1,500
-1,000
-500
0
500
1-Nov 16-Nov 1-Dec 16-Dec 31-Dec 15-Jan 30-Jan
Repo amt (Rs bn)
40,000
43,000
46,000
49,000
52,000
Apr-10 Jun-10 Aug-10 Nov-10 Jan-11-
7.5
15.0
22.5
30.0Deposits (Rs bn) yoy grow th (%)
0
300
600
900
1,200
10-D
ec
17-D
ec
24-D
ec
31-D
ec
7-Ja
n
14-J
an
21-J
an
28-J
an
4-Fe
b
(Rs bn)
Source: RBI Source: RBI
Source: RBI Source: RBI
…and situation to turn benign in next 2-3 months
11
While liquidity may tighten in March, it is expected to be only temporary
High rates to ensure robust deposit flowsHigh rates to ensure robust deposit flows
Seasonal decline in credit demand from April
2011
Seasonal decline in credit demand from April
2011Deposit growth to
outstrip credit growthDeposit growth to
outstrip credit growth
Historically liquidity conditions have eased in the beginning of each fiscal year
(1,500)
(750)
0
750
1,500
Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11
LAF balances (Rs bn)
12
Inflation likely to decline as:
Recent policy rate hikes will keep manufacturing inflation under control
Food inflation to soften from its peak levels, recent weekly food inflation indicates a decline
Declining inflation and moderating growth to impel RBI to calibrate policy rate hikes going forward
Inflation likely to decline as:
Recent policy rate hikes will keep manufacturing inflation under control
Food inflation to soften from its peak levels, recent weekly food inflation indicates a decline
Declining inflation and moderating growth to impel RBI to calibrate policy rate hikes going forward
Inflation likely to have peaked
Macro indicators start turning favorable
Food prices spurt; inflationary concerns return… …but rise in manufacturing inflation still under control
Inflation expected to decline hereon
4
6
8
10
12
Jan-
10
Feb-
10
Mar
-10
Apr-
10
May
-10
Jun-
10
Jul-1
0
Aug-
10
Sep-
10
Oct
-10
Nov
-10
Dec
-10
Jan-
11
-
6
12
18
24WPI % (LHS) Primary articles inflation (% - RHS)
4.85.2
4.94.5
3.8
5.0
4.8
5.1
5.75.6
6.4
5.2
6.0
3.0
4.0
5.0
6.0
7.0
Jan-
10
Feb-
10
Mar
-10
Apr-
10
May
-10
Jun-
10
Jul-1
0
Aug-
10
Sep-
10
Oct
-10
Nov
-10
Dec
-10
Jan-
11
Manufacturing Inflation(%)
8.5
9.710.2
11.0 10.6 10.3 10.0
8.8 8.9 9.18.1 8.4 8.2
7
4.0
6.0
8.0
10.0
12.0
Jan-
10
Feb-
10
Mar
-10
Apr-
10
May
-10
Jun-
10
Jul-1
0
Aug-
10
Sep-
10
Oct
-10
Nov
-10
Dec
-10
Jan-
11
Mar
-11E
128
133
138
143
148Index WPI % (LHS)
RBI sees inflation at 7% by Mar-11E
13
Pessimism on earnings overdone: NIMs to sustainLending rates have been increased
We see steady margins in FY12
Source: Bloomberg
Source: IDFC Securities
Liquidity to also ease from April 2011, driving a steep decline in wholesale borrowing costs
Lower bulk rates to support margins
Liquidity to also ease from April 2011, driving a steep decline in wholesale borrowing costs
Lower bulk rates to support margins
Lending rates have been increased in response to
• Increase in short-term rates
• Recent policy rate hikes
Margins to sustain as loans gets repriced faster than deposits
Lending rates have been increased in response to
• Increase in short-term rates
• Recent policy rate hikes
Margins to sustain as loans gets repriced faster than deposits
PNB base rate (%)
7.00
8.00
9.00
10.00
Sep-10 Oct-10 Nov-10 Dec-10 Jan-11
2.6 2.6
3.0 3.0
2.62.5
3.02.9
2.6
2.8
3.03.1
2.2
2.5
2.8
3.1
FY09 FY10 FY11E FY12E
All banks PSU Banks Private Banks
14
Pessimism on earnings overdone: Provisions to fall
Stress remains only in pockets
Provisioning expenses have declined sequentially
Source: IDFC Securities estimates (Annualized provision to average assets)
(%)
0.58
0.92
0.62 0.61
0.00
0.35
0.70
1.05
1.40
Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11
All Banks Private Banks PSU BanksAnnualized Provisioning
Gross NPAs have started coming off
Source: IDFC Securities estimates
1.60%
1.70%
1.80%
1.90%
2.00%
All Banks Private Banks PSU Banks
Q4FY10 Q1FY11 Q2FY11 Q3FY11Gross NPA (%)
Rs m Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11
All banks
Slippages 84,650 91,651 100,492 106,834 88,194
% of opening advances 1.72% 1.80% 1.81% 1.84% 1.46%
PSU banks
Slippages 68,755 80,452 78,959 93,664 81,484
% of opening advances 1.86% 2.08% 1.88% 2.14% 1.79%
PSU banks (ex-SBI)
Slippages 46,277 55,412 38,149 49,544 42,484
% of opening advances 2.06% 2.36% 1.47% 1.83% 1.51%
Source: IDFC Securities estimates and company reports
Expect provisioning expenses to taper in FY12E*
Source: IDFC Securities estimates, * (Provision to average assets)
(%)
0.00
0.30
0.60
0.90
1.20
FY07 FY08 FY09 FY10 FY11E FY12E
All banks PSUs Private Banks
PSU banks to see a sharper
decline
15
Earnings momentum to be sustainedPAT (Rs bn) FY10 FY11E FY12E CAGR (%)
Allahabad Bank 12.1 16.0 19.3 26.4
Axis Bank 25.1 33.4 43.4 31.4
Bajaj Auto Finance 0.9 2.4 3.3 93.0
Bank of Baroda 30.6 41.0 49.3 27.0
Bank of India 17.4 27.3 32.2 36.0
Canara Bank 30.2 42.7 51.5 30.5
Corporation Bank 11.7 14.6 17.4 21.8
Dhanlaxmi Bank 0.2 0.3 0.9 94.0
HDFC 28.3 34.8 41.2 20.8
HDFC Bank 29.5 39.2 51.0 31.6
ICICI Bank Ltd 40.2 52.6 67.6 29.5
Indian Bank 15.5 17.9 23.0 21.6
IndusInd Bank 3.5 5.8 7.9 49.7
ING Vysya Bank Ltd 2.4 3.2 4.3 32.8
LIC Housing Finance 6.6 9.4 12.0 34.7
MMFS 3.3 4.7 6.0 35.0
OBC 11.3 15.8 18.6 28.0
PFC 23.6 26.9 33.4 19.1
PNB 39.1 45.4 58.0 21.9
REC 20.0 25.3 32.1 26.6
Shri Ram Transport 8.7 12.3 16.2 36.3
Shriram City Union Finance 1.9 2.4 3.2 28.4
State Bank of India 91.7 116.1 143.0 24.9
Union Bank of India 20.7 21.5 28.7 17.7
Yes Bank 4.8 7.3 9.9 43.9
All banks 396.5 511.9 641.4 27.2
PSU banks 290.6 370.1 456.6 25.3
Private Banks 105.8 141.7 184.9 32.2
NBFCs 92.4 115.9 144.1 24.9
Largely steady marginsLargely steady margins
Healthy credit demandHealthy credit demand
Provisions to declineProvisions to decline
Fee income driven by higher credit offtake
Fee income driven by higher credit offtake
+
Expect 25% yoy PAT growth in FY12
Expect 25% yoy PAT growth in FY12
+
+
16
Banks - In the last leg of correction?
17
Valuations have become reasonablePrice Target Earlier New Mkt Cap Adj Book value
(Rs) EPS cagr RoE (%) PE (x) P/Adj. Book Value
14th Feb 2011 Price (Rs) Reco Reco (Rs bn) FY11E FY12E FY10-
FY12 FY11E FY12E FY11E FY12E FY11E FY12E
PSU Banks
Allahabad Bank 204 296 UP OP 91 160 197 26.4 24.6 24.6 5.7 4.7 1.3 1.0
Bank of Baroda 897 1,250 OP OP 327 463 569 28.7 27.1 26.6 8.0 6.6 1.9 1.6
Bank of India 430 540 UP OP 226 275 339 35.5 20.0 19.8 8.3 7.1 1.6 1.3
Canara Bank 562 760 UP OP 231 369 476 30.5 29.6 27.7 5.4 4.5 1.5 1.2
Corporation Bank 581 780 UP OP 83 477 577 21.8 23.0 23.0 5.7 4.8 1.2 1.0
Indian Bank 220 350 UP OP 94 201 250 22.1 22.9 24.5 5.3 4.1 1.1 0.9
OBC 337 570 UP OP 85 337 407 28.0 17.8 18.0 5.3 4.5 1.0 0.8
Punjab National Bank 1,060 1,410 OP OP 334 632 785 21.9 25.0 26.0 7.4 5.8 1.7 1.4
State Bank of India 2,698 3,360 UP OP 1,713 1,470 1,767 24.9 16.5 17.7 14.8 12.0 1.8 1.5
Union Bank of India 338 415 UP OP 170 209 261 17.7 22.2 24.2 7.9 5.9 1.6 1.3
Pvt Banks
Axis Bank 1,270 1,700 OP OP 515 470 566 27.6 19.2 21.2 15.4 11.9 2.7 2.2
Dhanlaxmi Bank 106 na OP OP 9 97 106 68.4 19.2 9.9 30.7 10.3 1.1 1.0
HDFC Bank 2,105 2,610 OP OP 968 544 640 28.9 19.2 19.1 24.6 19.0 3.9 3.3
ICICI Bank 1,034 1,450 OP OP 1,190 478 521 27.5 19.2 11.8 22.6 17.6 2.16 2.0
IndusInd Bank 220 na OP OP 102 83 98 37.0 19.2 19.2 17.7 13.0 2.6 2.2
ING Vysya Bank 332 480 OP OP 40 199 230 42.1 19.2 16.0 12.6 9.3 1.7 1.4
Yes Bank 269 440 OP OP 91 109 135 43.9 19.2 24.0 12.5 9.2 2.5 2.0
NBFCs
Bajaj Auto Finance 614 990 OP OP 22 361 425 93.0 19.1 23.2 9.5 6.8 1.7 1.4
HDFC 643 750 OP OP 935 119 136 19.7 21.4 22.2 26.7 22.7 5.4 4.7
LIC Housing Finance 179 220 OP OP 85 93 113 34.7 24.8 25.7 45.1 7.1 1.9 1.6
Mahindra Finance 698 825 OP OP 68 230 294 34.8 24.4 25.0 14.5 11.4 3.0 2.4
Power Finance 264 380 OP OP 303 131 150 19.1 19.0 20.8 11.3 9.1 2.0 1.8
Rural Electrification 247 380 OP OP 244 129 152 22.4 21.3 23.1 9.6 7.6 1.9 1.6
Shri Ram Transport 698 1,000 OP OP 158 222 284 33.0 28.3 29.4 12.8 9.7 3.2 2.5
Shriram City Union 525 950 OP OP 26 245 313 28.4 22.4 24.2 10.6 8.1 2.1 1.7
18
We turn OVERWEIGHT on the sector
Private banks and NBFCs offer value
Sensible loan growth strategy with focus on profitability
Sustained traction in core earnings
Valuations have corrected significantly
Private banks and NBFCs offer value
Sensible loan growth strategy with focus on profitability
Sustained traction in core earnings
Valuations have corrected significantly
Recommend adding weights in PSU bank stocks in correction
Valuations have corrected by 25%+, now at attractive levels
Earnings momentum to sustain as provisions come off, a function of receding asset quality stress
Margin compression likely to be lower than estimates
Recommend adding weights in PSU bank stocks in correction
Valuations have corrected by 25%+, now at attractive levels
Earnings momentum to sustain as provisions come off, a function of receding asset quality stress
Margin compression likely to be lower than estimates
Our top picks: ICICI Bank, Axis Bank, IndusInd Bank, ING Vysya Bank, Shriram Transport, Bajaj Finance, Bank of Baroda, Canara Bank, OBC and Yes Bank
Our top picks: ICICI Bank, Axis Bank, IndusInd Bank, ING Vysya Bank, Shriram Transport, Bajaj Finance, Bank of Baroda, Canara Bank, OBC and Yes Bank
Global commodity prices and persistent food inflation remain key risks to our callGlobal commodity prices and persistent food inflation remain key risks to our call
19
Indian Banks: The quarter gone by…
20
Q3FY11 earnings: Key themes
PAT – inline with estimates
Our financials universe net profit was up by strong 22% yoy, in line with our estimates• Growth stronger for private banks – 35% yoy and 18% qoq rise• Public banks growth lower at 18% yoy and 12% qoq due to higher provisioning expenses & lower opex
Strong NII performance
NII growth at 36% yoy and 9% qoq for our coverage universe was marginally ahead of estimates.Strong performance was led by • Uptick in credit growth… : Up ~6% qoq in Q3FY11, broad based growth across sectors • …as margins expand qoq: Uptick qoq for almost all banks except wholesale funded banks and few NBFCS),
as rise in lending rates mitigate impact of higher funding costs
Muted other income
Sluggish growth at 3% yoy and 1% qoq decline • Low treasury income due to elevated G-Sec yields• Subdued fee and commissions income for PSU banks due to low transaction and banking fees• Forex income witnesses traction for select banks
Provision expenses and asset quality – divergent trends
• NBFCs makes higher provisioning expenses impacted by chances in recent RBI norms• Private banks maintain resilient asset quality; provision expenses decline by 16% qoq• Slippages for PSU banks persist at elevated levels
Operating expenses • Higher than estimates as PSU banks make higher provisions for second pension options
Robust operating performance, but delinquencies persist
21
Outliers at a glance
Key monitorables Comment Negative outliersPositive outliers
Margins (NIM)Margins surprise on the upside - increase in loan yields more than offset higher funding costs Rise in CD ratios and investment yields
MMFS, OBC and ING Vysya – qoqdecline as costs of funds inched up
BoI –higher loan yields and lower slippagesBoB – rise in domestic and international marginsShriram Transport – Decline in costs of funds
Credit demand/Disbursements
Uptick in loan growth, broad based growth
Corp Bank and OBC – 3% qoq rise Yes Bank – inline with sluggish deposit growth
ICICI Bank – uptick in retail loansAxis Bank – driven by large and mid corpMMFS – Strong business volumes
NPAs and loan loss provisions
Marginal decline in PSU banks’ slippages, the pace of improvement remains slowPvt bank display higher resilienceHigh provisioning expenses for NBFCswrt new RBI norms
PSU banks report high slippages - Allahabad, Corporation Bank, PNB, Union Bank and SBI
Axis Bank, ING Vysya Bank, HDFC Bank –Stable gross NPAsCanara Bank, Bank of India - Decline in slippages
Fee incomeSluggish treasury income Muted transaction and processing fees Uptick in forex fee income
CEB sluggish across PSU banks –Canara Bank, Allahabad Bank, Union Bank, SBI
HDFC – higher investment sale incomeAxis Bank – traction in corporate fees IndusInd Bank- Uptick in IB fees ING Vysya – Traction in wealth management and forex income
CASAStable for most banks after the high increase witnessed in Q2FY11, though current deposits decline on tight systemic liquidity
Allahabad Bank, Dhanlaxmi Bank, ING Vysya Bank
Axis & ICICI Bank - robust increase in savings depositsIndusInd Bank
22
Banks’ earnings have exhibited tractionNet Interest Income Operating profit PAT
Rs m Q3FY11 yoy growth (%) Q3FY11 yoy growth (%) Q3FY11 yoy growth (%)
Allahabad Bank 10,516 55.7 7,884 21.3 4,158 20.4
Axis Bank 17,324 28.4 16,578 20.6 8,906 35.8
Bajaj Auto Finance 2,836 46.2 1,599 55.4 764 179.5
Bank of Baroda 22,923 43.2 18,512 46.3 10,689 28.4
Bank of India 19,869 32.9 13,888 22.9 6,532 61.1
Canara Bank 21,192 43.4 15,130 2.9 11,057 5.0
Corporation Bank 8,424 40.5 7,369 33.6 3,824 25.4
Dhanlaxmi Bank 736 87.7 177 530.4 73 458.5
HDFC 10,739 20.0 12,279 26.2 8,909 32.7
HDFC Bank 27,767 24.9 20,727 27.7 10,878 32.9
ICICI Bank 23,117 12.3 23,428 (1.1) 14,368 30.6
Indian Bank 10,377 18.9 8,119 17.5 4,913 11.3
IndusInd Bank 3,630 52.7 2,912 67.5 1,539 74.8
ING Vysya Bank Ltd 2,459 12.1 1,594 9.4 830 37.0
LIC Housing Finance 3,522 54.5 4,891 110.5 2,135 39.0
MMFS 3,390 31.5 2,277 19.6 1,159 22.0
OBC 10,299 18.0 7,739 24.3 4,083 41.1
PFC 9,260 24.1 9,280 26.4 6,590 16.7
PNB 32,033 37.5 23,499 29.2 10,898 7.8
Shri Ram Transport 8,367 43.6 6,351 38.0 3,014 27.2
Shriram City Union Finance 2,108 43.3 1,215 26.2 587 44.0
State Bank of India 90,498 43.3 67,645 46.5 28,280 14.1
Union Bank of India 16,159 51.8 12,612 38.0 5,796 8.5
Yes Bank 3,232 53.2 3,113 44.0 1,911 51.8
All Banks 320,554 36.3 250,926 27.9 128,735 22.3
Private Banks 78,265 23.5 68,528 16.0 38,505 35.1 PSU Banks 242,289 41.0 182,398 33.1 90,230 17.6
NBFCs 48,303 31.3 46,241 35.0 29,324 30.2
Operating metrics displayed strength, with NIMs expanding for most banks under our coverage
23
Strong NII performance…Net Interest Income (Rs m) Q3FY10 Q2FY11 Q3FY11 yoy change (%) qoq change (%)
Allahabad Bank 6,756 9,692 10,516 55.7 8.5
Axis Bank 13,492 16,151 17,324 28.4 7.3
Bajaj Auto Finance 1,940 2,370 2,836 46.2 19.6
Bank of Baroda 16,012 20,381 22,923 43.2 12.5
Bank of India 14,948 17,761 19,869 32.9 11.9
Canara Bank 14,778 20,033 21,192 43.4 5.8
Corporation Bank 5,994 7,153 8,424 40.5 17.8
Dhanlaxmi Bank 392 527 736 87.7 39.6
HDFC- pre exceptional 8,952 10,845 10,739 20.0 (1.0)
HDFC 8,952 10,845 10,739 20.0 (1.0)
HDFC Bank Ltd 22,239 25,263 27,767 24.9 9.9
ICICI Bank Ltd 20,581 22,044 23,117 12.3 4.9
Indian Bank 8,730 9,832 10,377 18.9 5.5
IndusInd Bank 2,377 3,297 3,630 52.7 10.1
ING Vysya Bank Ltd 2,194 2,542 2,459 12.1 (3.3)
LIC Housing Finance 2,280 3,051 3,522 54.5 15.4
MMFS 2,578 3,178 3,390 31.5 6.7
OBC 8,729 10,771 10,299 18.0 (4.4)
PFC 7,460 8,960 9,260 24.1 3.3
PNB 22,123 29,767 32,033 44.8 7.6
Shri Ram Transport 5,840 7,527 8,367 43.3 11.2
Shriram City Union Finance 1,472 1,799 2,108 43.3 17.2
State Bank of India 63,163 81,149 90,498 43.3 11.5
Union Bank of India 10,647 15,358 16,159 51.8 5.2
Yes Bank 2,109 3,132 3,232 53.2 3.2
All Banks 235,263 294,853 320,554 36.3 8.7
Private Banks 63,384 72,956 78,265 23.5 7.3
PSU Banks 171,879 221,897 242,289 41.0 9.2
NBFCs 36,774 45,530 48,303 31.3 6.1
Led by robust 26% yoycredit growth
Positive margin surprise
Led by robust 26% yoycredit growth
Positive margin surprise
Positive surprises: SBI, Allahabad Bank, BoI, IndusIndBank and Shriram transport
Negative surprise: OBC, Yes Bank
Positive surprises: SBI, Allahabad Bank, BoI, IndusIndBank and Shriram transport
Negative surprise: OBC, Yes Bank
24
…as margins held up…
*NIMs calculated on average quarterly balances
NIMs (%) Q3FY10 Q2FY11 Q3FY11 yoy change (bps) qoq change (bps)
Allahabad Bank 2.55 3.04 3.11 56 7
Axis Bank 3.57 3.32 3.41 (16) 9
Bajaj Auto Finance 19.36 15.25 15.92 (17.8) 4.4
Bank of Baroda 2.61 2.67 2.86 25 19
Bank of India 2.45 2.50 2.70 25 20
Canara Bank 2.52 2.91 2.92 40 1
Corporation Bank 2.33 2.45 2.73 40 28
Dhanlaxmi Bank 2.28 2.06 2.47 9 20
HDFC 3.17 3.44 3.28 11 (15)
HDFC Bank Ltd 4.46 4.18 4.44 (2) 26
ICICI Bank Ltd 2.28 2.34 2.36 8 2
Indian Bank 3.71 3.62 3.64 (7) 1
IndusInd Bank 3.00 3.46 3.53 53 7
ING Vysya Bank Ltd 2.91 2.96 2.73 (18) (23)
LIC Housing Finance 2.61 2.84 3.02 41 17
MMFS 12.25 12.20 11.57 (68) (63)
OBC 2.80 3.03 2.82 2 (21)
PFC 3.95 3.89 3.88 (7) (1)
PNB 3.23 3.73 3.81 58 8
Shri Ram Transport 8.52 10.26 10.88 236 62
Shriram City Union Finance 10.40 11.37 12.15 174 78
State Bank of India 2.54 2.95 3.16 62 21
Union Bank of India 2.47 3.04 3.07 60 2
Yes Bank 3.02 2.70 2.48 (53) (22)
All Banks 3.78 3.68 3.79 1 11
Private Banks 3.18 3.14 3.25 6 10
PSU Banks 2.72 3.00 3.08 36 9
NBFCs 6.42 6.90 6.98 56 9
Positive surprise: SBI, Bank of India, PNB, IndusInd & ShriramTransport
Negative surprise: Yes Bank, ING Vysya Bank, Mahindra Finance
Positive surprise: SBI, Bank of India, PNB, IndusInd & ShriramTransport
Negative surprise: Yes Bank, ING Vysya Bank, Mahindra Finance
Margins expand 11bp qoq
NIMs expand by ~10bp qoq for banks as increase in lending rates more than offset rise in funding costs
Wholesale funded banks and NBFCs witnessed margin compression
Margins expand 11bp qoq
NIMs expand by ~10bp qoq for banks as increase in lending rates more than offset rise in funding costs
Wholesale funded banks and NBFCs witnessed margin compression
25
…and credit off-take gained tractionTotal Advances (Rs bn) Q3FY10 Q2FY11 Q3FY11 yoy change (%) qoq change (%)
Allahabad Bank 657 821 868 32.2 5.8
Axis Bank 848 1,106 1,235 45.7 11.7
Bajaj Auto Finance 37 58 67 81.4 16.2
Bank of Baroda 1,562 1,930 2,072 32.7 7.4
Bank of India 1,570 1,814 1,928 22.8 6.2
Canara Bank 1,474 1,761 1,899 28.8 7.8
Corporation Bank 567 698 719 26.8 3.1
Dhanlaxmi Bank 44 71 78 77.0 10.1
HDFC 989 1,063 1,091 10.2 2.6
HDFC Bank 1,196 1,571 1,592 33.1 1.3
ICICI Bank 1,793 1,942 2,067 15.3 6.4
Indian Bank 575 694 739 28.6 6.5
IndusInd Bank 191 235 250 31.0 6.6
ING Vysya Bank Ltd 175 202 215 22.5 6.0
LIC Housing Finance 342 434 464 35.7 6.9
MMFS 79 103 115 45.6 11.5
OBC 786 875 908 15.6 3.8
PFC 724 879 921 27.2 4.8
PNB 1,704 2,088 2,213 29.8 6.0
Shri Ram Transport 204 203 204 0.4 0.6
Shriram City Union Finance 44 58 66 49.4 12.8
State Bank of India 6,072 6,932 7,400 21.9 6.7
Union Bank of India 1,065 1,241 1,338 25.6 7.8
Yes Bank 187 303 311 66.3 2.5
All Banks 20,464 24,284 25,831 26.2 6.4
Private Banks 4,434 5,430 5,748 29.6 5.9
PSU Banks 16,031 18,854 20,083 25.3 6.5
NBFCs 3,018 3,476 3,643 21.4 5.0
Growth was broad based –traction in large corporate, SME and agriculture loans
Housing and auto loans drive growth in retail advances
ICICI bank witnessed traction in credit off-take at 6% qoq
Growth was broad based –traction in large corporate, SME and agriculture loans
Housing and auto loans drive growth in retail advances
ICICI bank witnessed traction in credit off-take at 6% qoq
Positive surprise: Axis Bank, ICICI Bank, Union Bank
Negative surprise: OBC, Corporation, Yes Bank
Positive surprise: Axis Bank, ICICI Bank, Union Bank
Negative surprise: OBC, Corporation, Yes Bank
26
Muted other incomeNon trading income Q3FY10 Q2FY11 Q3FY11 yoy change
(%)qoq change
(%)
Allahabad Bank 2,065 3,067 2,376 15.1 (22.5)
Axis Bank 7,997 8,490 9,677 21.0 14.0
Bank of Baroda 5,203 5,712 5,914 13.7 3.5
Bank of India 4,351 5,485 5,890 35.4 7.4
Canara Bank 4,863 4,980 5,076 4.4 1.9
Corporation Bank 2,148 2,082 2,456 14.3 18.0
Dhanlaxmi Bank 166 83 79 (52.3) (4.4)
HDFC 653 817 554 (15.1) (32.2)
HDFC Bank Ltd 9,256 10,128 11,585 25.2 14.4
ICICI Bank Ltd 16,990 17,220 17,280 1.7 0.3
Indian Bank 2,162 2,637 2,367 9.5 (10.2)
IndusInd Bank 1,113 1,631 1,719 54.4 5.3
ING Vysya Bank Ltd 1,213 1,303 1,548 27.6 18.8
MMFS 81 93 96 19.4 3.3
OBC 1,869 2,133 2,000 7.0 (6.2)
PNB 6,908 6,803 7,702 11.5 13.2
Shri Ram Transport 28,599 40,829 35,166 23.0 (13.9)
State Bank of India 29,287 38,079 30,939 5.6 (18.7)
Union Bank of India 3,350 3,226 3,856 15.1 19.5
Yes Bank 1,278 1,310 1,617 26.5 23.4
All Banks 100,220 114,368 112,081 11.8 (2.0)
Private Banks 38,013 40,165 43,504 14.4 8.3
PSU Banks 62,208 74,204 68,577 10.2 (7.6)
Positive surprise: HDFC Bank, ING Vysya, Yes, Union Bank
Negative surprise: SBI, Allahabad Bank, OBC
Positive surprise: HDFC Bank, ING Vysya, Yes, Union Bank
Negative surprise: SBI, Allahabad Bank, OBC
Commission and transaction banking fees muted, specially for PSU banks
Sluggish treasury income impacted by high G-Sec yields
Buoyant rise in forex income
Commission and transaction banking fees muted, specially for PSU banks
Sluggish treasury income impacted by high G-Sec yields
Buoyant rise in forex income
27
Thank you
28
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