Karur Vysya Bank. Absolute: ADD Relative: Benchmark BFSI. Asset quality to remain under pressure; retain ADD

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1 2017EquirusAll rights reserved Rating Information Price (Rs) 111 Target Price (Rs) 122 Target Date 31 st Mar 19 Target Set On 31 st Jan 18 Implied yrs of growth (ERE) 20 Fair Value (ERE) 122 Fair Value (DDM) - Ind Benchmark Model Portfolio Position - Stock Information BANKEX Market Cap (Rs mn) 80,567 Free Float (%) % 52 Wk H/L (Rs) 150.4/77.0 Avg Daily Volume (Mn 1yr) 1,955,103 Avg Daily Value (1yr) 230 Equity Cap (Rs Mn) 1,453 Face Value (Rs) 2 Bloomberg Code KVB IN Ownership Recent 3M 12M % Promoters 2.1% DII 20.3% % FII 19.3% -0.3% -3.4% Public 58.3% 2.3% 3.3% Price % 1M% 3M% 12M% Absolute % % 42.6 % Vs Industry % % 3.7 % Federal Bk -7.4 % % 32.1 % City Union Bk % -1.8 % 16.3 % Standalone Quarterly EPS forecast Rs/Share 1Q 2Q 3Q 4Q EPS (17A) EPS (18E) Karur Vysya Bank Absolute: ADD Relative: Benchmark 3QFY18Result:Estimates ( ), Target ( ), Rating ( ) Regular Coverage 11% ATR in 14Months Asset quality to remain under pressure; retain ADD Strong commission income (+37% yoy) and contained opex (+3.6% yoy) led to an above-expected PAT of Rs 715mn (-38% yoy) for Karur Vysya Bank (KVB) in 3QFY18. Slippages remained elevated (~6.4%), on expected lines, pushing up GNPA/ NNPA ratios to 5.9%/3.9%. We believe various measures undertaken by KVB to focus on retail/commercial segments would take time to yield results; these measures include (i) scorecard-based credit appraisal of retail/commercial loans, (ii) technology-driven TAT reduction in loan sanctions, (iii) rework on the branch incentive structure, and (iv) tapping a 6.8mn customer base for cross-selling of products. Slippages from watch-list of Rs 6.5bn will keep pressure on asset quality over the next couple of quarters. We raise our provision estimates and pare FY18E/FY19E PAT by 14%/1%. Retain ADD with a Mar 19 TP of Rs 122 (vs. Rs 131 earlier) set at a 1.5x Mar 19 ABV. Loan growth at 17% yoy, FY19/FY20 loan growth estimated at 14%/15%: Loan book grew by 17% yoy with commercial/retail loans up 21%/2 yoy. Management retained its preference for commercial/retail loan growth over corporate loans. KVB is currently developing a scorecard-based credit assessment for retail/commercial loans to incorporate algorithmic underwriting. Consequently, management expects to reduce the sanctioning TAT for retail/commercial loans to ~1 day (vs. ~7-8 days currently) and gain incremental business from its existing customer base. Geographically, KVB will continue to focus on tier 2/3 cities in the South, and management retained its loan growth guidance to be in line with systemic growth in southern states. NII growth modest at 9% yoy, core fee income healthy: NII grew 9% yoy to Rs 5.6bn (EE: Rs 5.7bn) with NIMs moderating by 10bps qoq to 3.7%. Core fee income growth was robust at 44% yoy driven by third-party distribution, PSLC sales and re-alignment of service charges. Despite a 1 increase in wage payouts towards pending IBA wage negotiations, employee expenses declined 13% yoy on account of lower pension provisioning. Management indicated its willingness to underwrite higher yielding loans to maintain NIMs, which could lead to higher normalized credit cost in retail/ commercial segments. Asset quality deteriorates further: Slippages from watch-list were at Rs 5.5bn, and of the remaining Rs 6.5bn (incl. Rs 3.4bn of standard restructured/sdr/s4a), management expects further slippages over the next couple of quarters. While bulk of slippages came in from the corporate segment (~16% annualized slippages), net accretion to NPA during 3QFY18 was negligible in retail and agri segments. We expect corporate slippages to remain elevated over the next 2-3 quarters. Key risks: Slower-than-expected credit growth and negative asset quality surprises. February 1, 2018 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page1 of 14 Before reading this report, you must refer to the disclaimer on the last page. BFSI Revised Estimates % Change FY18E FY19E FY18E FY19E NII 22,291 25, % 0.3% Provisions 11,067 7, % 0. PAT 4,140 8, % -1.9% EPS % -1.9% Advances 464, , Deposits 598, , Standalone Financials Rs. Mn YE Mar FY17A FY18E FY19E FY20E NII 20,737 22,291 25,118 28,600 Other Income 7,822 9,230 10,615 12,207 Total Income 28,559 31,521 35,733 40,807 Operating Exp 12,850 14,182 15,749 17,249 PPoP 15,710 17,339 19,984 23,558 Provisions 6,875 11,067 7,669 8,857 PAT 6,060 4,140 8,128 9,702 Loan & Advance 409, , , ,380 Deposits 536, , , ,139 Net Worth 50,357 61,270 66,770 73,668 NIM 3.4 % 3.4 % 3.4 % 3.4 % Credit Cost 1.72 % 2.53 % 1.54 % 1.54 % Rs Per Share FY17A FY18E FY19E FY20E EPS Adjusted EPS Book Value Adjusted BVPS DPS P/E (x) Adj P/B (x) ROE (%) 12.6 % 7.4 % 12.7 % 13.8 % RoA (%) 1.0 % 0.6 % 1.1 % 1.2 %

2 Quarterly performance Particulars %Variation P&L Statement (Rs mn) 3QFY18 3QFY18E 2QFY18 3QFY17 % change vs Est % change q-q % change y-y Net interest income (NII) 5,616 5,702 5,550 5, % 1.2% 8.5% Other income 2,249 1,828 2,301 1, % 32.2% Total income 7,865 7,530 7,851 6, % 0.2% 14.4% Operating expenses 3,653 3,648 3,581 3, % % Staff expenses 1,534 1,597 1,551 1, % -12.7% Other expenses 2,119 2,051 2,031 1, % 4.4% 14.7% Operating profit 4,212 3,882 4,270 3, % -1.4% 25.7% Total provisions 3,247 3,306 3,214 1, % % Profit before tax ,057 1, % -8.7% -45.6% Tax % -16.7% -59.5% Profit after tax , % -5.5% -38.2% Balance sheet (Rs mn) 3QFY18 3QFY18E 2QFY18 3QFY17 % change vs Est % change q-q % change y-y Deposits 571, , , , % 1.3% 3.7% Advances 448, , , , % 3.2% 16.6% Investments 167, , , , % -8.1% Gross NPL (Rs mn) 26,633 21,362 10, % 160.5% Net NPL (Rs mn) 16,989 14,073 6, % 166.5% Ratios (%) 3QFY18 2QFY18 3QFY17 bp change q-q bp change y-y Profitability ratios Yield on Advances 10.2% 10.5% 11.3% (32) (111) Cost of Deposits % 6.4% (11) (47) NIM 3.7% 3.8% 3.7% (10) 3 RoaA 0.4% 0.5% 0.7% (5) (31) RoaE 4.6% 5.8% 9.5% (116) (487) Asset Quality Gross NPL ratio 5.9% 4.8% 2.7% Net NPL ratio 3.9% 3.2% 1.7% Coverage ratio 36.2% 34.1% 37.6% 209 (142) Business & Other Ratios CASA 28.1% 27.6% 30.8% 44 (277) Cost-income ratio 46.4% 45.6% 51.3% 83 (484) Non int.inc / total income 28.6% 29.3% 24.7% (72) 386 Credit deposit ratio 78.5% % CAR 13.9% 12.2% 11.8% Source: Company filings, Equirus Research February 1, 2018 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page2 of 13

3 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 Exhibit 1: CASA ratio improved 44bps qoq to 28.1% Exhibit 3: C/I up 80bps qoq to 46.4% on branch expansion, technology investments Current Ratio Savings Ratio Term Deposit Ratio Cost/Income Ratio Source: Company, Equirus Securities Source: Company, Equirus Securities Exhibit 2: Advances growth ~17% yoy, at its peak in the past 15 quarters Exhibit 4: NIMs down 10bps qoq to 3.7% 18% 16% 14% 12% 1 8% 6% 4% 2% YoY Advances Growth YoY Deposits Growth 14% 12% 1 8% 6% 4% 2% YoA CoF NIMs - RHS 4.5% % % % % 0. Source:Company, Equirus Securities Source: Company, Equirus Securities February 1, 2018 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page3 of 13

4 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 Exhibit 5:GNPA/NNPA inched up as gross loans worth Rs 7.13bn slipped into NPL, of which Rs 5.8bn were from watch-list Exhibit 7: Total gross stressed assets to total advances stood at 1 Rs Mn 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 7% GNPA (%) NNPA (%) PCR - RHS (%) 7 GNPA 10,222 14,838 18,070 21,362 26,633 NNPA 6,375 10,335 11,892 14,073 16,989 6% 5% 4% 3% O/S Restructured 12,791 8,418 8,079 7,036 7,152 SDR Outstanding 2,731 1, `5/ S4A Accounts ,084 2,351 1,821 SR - 5,040 5,027 4,990 4,960 2% 2 Non-Overlapping Watch-list 8,000 2,800 1% 1 Total Gross Stressed Asset 26,505 30,651 34,946 45,488 44,820 % of total Advances 6.9% 7.5% 8.2% 10.5% 10. Source: Company, Equirus Securities Source:Company, Equirus Securities Exhibit 6: Bank continues to focus on commercial/retail segments for incremental loan growth Commercial Corporate Agri Retail Source:Company, Equirus Securities February 1, 2018 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page4 of 13

5 Earnings call takeaways Business updates Management reiterated its focus to make processes paperless in order to reduce TAT and start real-time underwriting based on algorithmic analytics coupled with individual judgement in underwriting. First set of scorecards, one for retail and one commercial product, is being pilottested and would be rolled out soon. Currently, the liabilities book largely comprises retail customers, offering a good opportunity to cross-sell the retail asset book. Management believes that KVB is uniquely placed to grow its commercial loan book swiftly due to its strong presence/database of commercial loans vs. peers. KVB has recently started a centralized collection center and is currently only focusing on the SMA0 book across the country. KVB has tied up with Birla Sunlife and Bajaj Allianz for selling insurance products. RBI RBS audit is likely to be completed in 4QFY18. KVB is in the process to hire a Chief Risk Officer. The approved change in ESOP structure is the removal of a cap of 10,000 shares/ individual. The applicable cap now will be as per SEBI guidelines. A new branch takes ~18 months to break even and ~36 months to payback. Reasons for elevated expenses were: 1. Aggressive branch expansion in the past quarters. 2. Increase in employees total employee up by ~800 from 3QFY Hike in wages although negotiations are pending, the bank has provided a ~1 hike towards IBA wages. 4. Expenditure towards the bank s technological initiatives. Asset quality As on 2QFY18, KVB had an O/S watch-list of Rs 12bn, of which it recognized Rs 5.8bn as NPA this quarter. Management guided that any further slippages from the watchlist would happen over the next two quarters. Of the remaining Rs 6.2bn slippages, Rs 3.4bn are part of restructured/sdr/s4a. All NCLT accounts are now classified as NPA. O/S SR is Rs ~5bn. Loan book and balance sheet KVB aims to grow the loan book at market growth rate, but wishes to use analytics to price risky loans rationally, leading to an improvement in profitability. KVB is able to get reasonable business from takeover of PSUs clients, particularly in the commercial segment. Scorecard system will be started in housing loan products followed by 2Ws in the vehicle finance segment. Data points PSLC income in 3QFY18-3% of total non-interest income. 89% of commercial loan book is of <Rs 10mn ticket size loans. Of the Rs 3.25bn provisions created, Rs 3.1bn were credit related. Net slippages for the quarter stood at Rs 6.4bn, of which corporate/commercial/ agriculture/retail contributed Rs 5.8bn/Rs 590mn/Rs 10mn/Rs -20mn. Annualized fresh slippages in corporate/commercial segment were 16.2%/1.5%. Guidance KVB has no plans to aggressively grow the current branch network. The bank will realign/change branch location while core area of operation would remain in Karnataka, Tamil Nadu and Telangana. KVB plans to grow other income by sale of third party products and PSLC certificates February 1, 2018 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page5 of 13

6 Exhibit 8: RoA-RoE tree analysis Particulars (Rs Mn) FY16A FY17A FY18E FY19E FY20E Yield on Loans and Advances 11.5% % % Yield on Investments 8.2% 7.6% 7.4% 7.2% 7.2% Cost of Funds 7.3% 6.5% 5.8% 5.8% 5.7% Net Interest Margin 3.3% 3.6% 3.5% 3.5% 3.5% Advances (A) 390, , , , ,380 Investments (B) 144, , , , ,420 Cash and Cash Equivalents (C) 25,291 27,905 30,834 35,107 39,975 Balances with Bank 3,625 15,546 5,550 6,319 7,196 Interest Earning Assets (A+B+C) 564, , , , ,970 Average Interest Earning Assets 538, , , , ,216 NII/AvgInt Earning Assets 3.3% 3.6% 3.5% 3.5% 3.5% Non Int Inc/Avg Int Earning Assets 1.3% 1.3% 1.4% 1.5% 1.5% Total Income/Avg Int Earning Assets 4.6% 4.9% 4.9% Op. Costs/Avg Int Earning Assets 2.2% 2.2% 2.2% 2.2% 2.1% PPI/AvgInt Earning Assets 2.4% 2.7% 2.7% 2.8% 2.9% Provisions/AvgInt Earning Assets 0.7% 1.2% 1.7% 1.1% 1.1% Taxes/AvgInt Earning Assets 0.6% 0.5% 0.3% 0.6% 0.6% Return on AvgInt Earning Assets 1.1% % 1.1% 1.2% Extraordinary item Adj Return on AvgInt Earning Assets 1.1% % 1.1% 1.2% Productivity (AvgInt Earning Assets/Avg Total Assets) % 97.3% 97.3% 97.3% Return on Average Total Assets % 1.1% 1.2% Leverage (Average Total Assets/Average Equity) Return on Average Equity 12.9% 12.6% 7.4% 12.7% 13.8% Source: Company, Equirus Securities February 1, 2018 Analyst: Rohan Mandora ( )/Ankit Choudhary Page6 of 13

7 Company Snapshot How we differ from Consensus - Equirus Consensus % Diff Comment EPS NII + Other Inc PAT FY18E % FY19E % FY18E 31,521 31,478 0 % FY19E 35,733 35,498 1 % FY18E 4,140 4, % FY19E 8,128 8,026 1 % Estimates are yet to be updated Our Key Investment arguments: Asset quality uncertainties continue, and provisions will remain elevated and put pressure on profitability. Key Assumptions FY16A FY17A FY18E FY19E FY20 Net Interest Income (Rs mn) 17,814 20,737 22,291 25,118 28,600 Net interest margin (%) 3.3% 3.6% 3.5% 3.5% 3.5% Other Income (Rs mn) 7,068 7,822 9,230 10,615 12,207 Total Income (Rs mn) 24,882 28,559 31,521 35,733 40,807 Operating Expense (Rs mn) 11,851 12,850 14,182 15,749 17,249 Cost to Income Ratio (%) 47.6% % 42.3% Credit Cost (%) % 2.5% 1.5% 1.5% PAT (Rs mn) 5,676 6,060 4,140 8,128 9,702 Advances Growth (%) 8.2% 4.7% 13.5% Deposits Growth (%) 12.1% 7.2% 11.5% Key Risks: Negative surprises in asset quality and provisioning expenses. Key Triggers: Pick-up in business growth and controlled credit costs. Sensitivity to Key Variables % Change % Impact on EPS Net Interest Income Provisioning Costs 10 % -5.9 % Loans & Advances Growth 10 % 1.2 % ERoE Valuations & Assumptions Rf Ke Term. Growth RoE in Terminal Yr 6.9 % 11.4 % 5.0 % 13.3 % - FY18E FY19-22E FY23-27E FY28-37E PAT Growth (%) % 11.4 % 9.8 % 9.8 % Dividend Payout (%) 29.0 % 30.6 % 30.0 % 30.0 % BV Growth 21.7% 9.8% 9.8% 9.8% RoE (%) 7.4 % 13.1 % 13.3 % 13.3 % - Years of strong growth Valuation as on date (Rs) Valuation as of 31th Mar Our Mar 19 TP of Rs122 implies 20 years of high growth with average RoE of 13.3% and cost of equity at11.4% Company Description: The Karur Vysya Bank Limited, popularly known as KVB, was set up in It provides a full range of commercial banking services for retail and institutional customers. The Bank offers mutual funds, insurance, personal loan, fixed deposits, internet banking, gold and silver, lockers, credit cards, and agricultural finance. Karur Vysya Bank serves customers throughout India. Comparable valuation Mkt Cap Price Target P/E(x) P/B (x) BPS RoE Divi Yield Company Reco. CMP Rs. Bn. Target Date FY17A FY18E FY19E FY17A FY18E FY19E FY18E FY17A FY18E FY19E FY17A FY18E FY19E Karur Vysya Bk ADD Mar x 17.9x 9.9x 1.7x 1.3x 1.3x % 7.4% 12.7% 2.3% 2.5% 2.7% Federal Bank LONG Mar x 19.6x 16.9x 2.4x 1.9x 1.7x % 9.7% 9.9% 0.8% 0.9% 1. City Union Bk ADD Sep x 17.3x 15.1x 3.0x 2.8x 2.5x % 15.1% 15.6% 0.2% 0.2% 0.3% February 1, 2018 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page7 of 13

8 Standalone Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18A 2Q18A 3Q18A 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E Interest Income 13,850 13,929 14,112 14,332 13,841 14,024 14,223 14,368 15,527 15,924 16,445 15,341 56,224 56,456 63,238 71,464 Interest Expense 9,039 8,980 8,935 8,533 8,455 8,474 8,607 8,629 9,434 9,763 10,154 8,769 35,486 34,165 38,120 42,864 Net Interest Income 4,811 4,950 5,176 5,800 5,386 5,550 5,616 5,739 6,093 6,161 6,291 6,572 20,737 22,291 25,118 28,600 Non Interest Income 1,623 2,179 1,701 2,320 2,363 2,301 2,249 2,317 2,451 2,537 2,648 2,979 7,822 9,230 10,615 12,207 Total Income 6,434 7,128 6,877 8,120 7,749 7,851 7,865 8,056 8,544 8,698 8,940 9,552 28,559 31,521 35,733 40,807 Operating and Other Expenses 2,972 3,933 3,527 3,049 3,255 3,581 3,653 3,693 3,831 3,879 3,973 4,066 12,850 14,182 15,749 17,249 Staff Cost 1,400 1,544 1,756 1,380 1,515 1,551 1,534 1,572 1,603 1,651 1,701 1,709 6,079 6,171 6,664 6,931 Other Operating Expenses 1,572 2,389 1,771 1,669 1,740 2,031 2,119 2,121 2,227 2,227 2,272 2,358 6,770 8,011 9,084 10,318 Pre-Provision Income 3,462 3,195 3,350 5,071 4,494 4,270 4,212 4,363 4,713 4,819 4,967 5,485 15,710 17,339 19,984 23,558 Provisions and Write-offs 1,301 1,192 1,575 2,175 2,334 3,214 3,247 2,272 2,356 1,951 1,783 1,578 6,875 11,067 7,669 8,857 PBT 2,161 2,003 1,775 2,896 2,160 1, ,091 2,357 2,868 3,184 3,907 8,835 6,272 12,315 14,700 TAX ,083 1,328 2,775 2,133 4,187 4,998 Extraordinary PAT 1,464 1,263 1,158 2,176 1, ,380 1,555 1,893 2,102 2,578 6,060 4,140 8,128 9,702 EPS Key Drivers YoA 11.3 % 11.3 % 11.2 % 11.1 % 10.5 % 10.4 % 10.1 % 9.6 % 10.5 % 10.4 % 10.4 % 8.9 % 11.0 % 10.1 % 10.0 % 9.9 % YoI 7.3% 7.2% % 7.3% 7.3% 7.2% 8.1% 7.2% 7.1% 7.1% 7.2% 7.6% 7.4% 7.2% 7.2% CoF 6.8 % 6.8 % 6.5 % 6.1 % 6.1 % 6.0 % 6.0 % 5.8 % 6.0 % 6.0 % 6.0 % 5.0 % 6.5 % 5.8 % 5.8 % 5.7 % NIM 3.6 % 3.7 % 3.8 % 4.1 % 3.8 % 3.8 % 3.8 % 3.7 % 3.8 % 3.7 % 3.6 % 3.7 % 3.4 % 3.4 % 3.4 % 3.4 % C/I Ratio 46 % 55 % 51 % 38 % 42 % 46 % 46 % 46 % 45 % 45 % 44 % 43 % 45 % 45 % 44 % 42 % CD Ratio 77.7 % 75.2 % 69.8 % 76.2 % 77.6 % 77.0 % 78.5 % 77.5 % 76.8 % 77.5 % 77.4 % 78.2 % 76.2 % 77.5 % 78.2 % 79.6 % Non-Interest Income/ Total Income 25.2 % 30.6 % 24.7 % 28.6 % 30.5 % 29.3 % 28.6 % 28.8 % 28.7 % 29.2 % 29.6 % 31.2 % 27.4 % 29.3 % 29.7 % 29.9 % ROA 1.0 % 0.9 % 0.8 % 1.4 % 1.0 % 0.5 % 0.4 % 0.8 % 0.9 % 1.0 % 1.1 % 1.3 % 1.0 % 0.6 % 1.1 % 1.2 % ROE 12.6 % 10.5 % 9.4 % 17.3 % 11.5 % 5.8 % 5.0 % 8.9 % 10.0 % 11.9 % 12.8 % 15.4 % 12.6 % 7.4 % 12.7 % 15.9 % Sequential Growth (%) NII 1.8 % 2.9 % 4.6 % 12.0 % -7.1 % 3.1 % 1.2 % 2.2 % 6.2 % 1.1 % 2.1 % 4.5 % TI 0.7% 10.8% -3.5% 18.1% -4.6% 1.3% 0.2% 2.4% % 2.8% 6.8% PPI 6.0 % -7.7 % 4.9 % 51.4 % % -5.0 % -1.4 % 3.6 % 8.0 % 2.2 % 3.1 % 10.4 % Provisions and Write-offs 137 % -8 % 32 % 38 % 7 % 38 % 1 % -30 % 4 % -17 % -9 % -11 % PAT 6 % -14 % -8 % 88 % -32 % -49 % -5 % 93 % 13 % 22 % 11 % 23 % EPS 6 % -14 % -8 % 88 % -32 % -49 % -16 % 98 % 4 % 22 % 11 % 23 % Advances 1 % -1 % -2 % 6 % 4 % 2 % 3 % 4 % 3 % 4 % 5 % 2 % Deposits 1 % 3 % 6 % -2 % 2 % 3 % 1 % 5 % 4 % 3 % 5 % 1 % Total Business % 2.6% 1.2% 2.6% 2.8% 2.1% 4.3% 3.6% 3.4% 4.9% 1.8% Yearly Growth (%) NII 2 % 3 % 5 % 12 % -7 % 3 % 1 % 2 % 6 % 1 % 2 % 4 % 16 % 7 % 13 % 14 % TI 1 % 11 % -4 % 18 % -5 % 1 % 0 % 2 % 6 % 2 % 3 % 7 % 15 % 10 % 13 % 14 % PPI 6 % -8 % 5 % 51 % -11 % -5 % -1 % 4 % 8 % 2 % 3 % 10 % 21 % 10 % 15 % 18 % Provisions and Write-offs 137% -8% 32% 38% 7% 38% 1% -3 4% -17% -9% -11% 76% 61% -31% 16% PAT 6% -14% -8% 88% -32% -49% -5% 93% 13% 22% 11% 23% 7% -32% 96% 19% EPS 6% -14% -8% 88% -32% -49% -16% 98% 4% 22% 11% 23% 7% -38% 8 19% Advances 1 % -1 % -2 % 6 % 4 % 2 % 3 % 4 % 3 % 4 % 5 % 2 % 5 % 14 % 15 % 16 % Deposits 1 % 3 % 6 % -2 % 2 % 3 % 1 % 5 % 4 % 3 % 5 % 1 % 7 % 12 % 14 % 14 % Total Business 1 % 1 % 3 % 1 % 3 % 3 % 2 % 4 % 4 % 3 % 5 % 2 % 6 % 12 % 14 % 15 % February 1, 2018 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page8 of 13

9 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Standalone Financials P&L(Rs mn) FY17A FY18E FY19E FY20E Balance Sheet (Rsmn) FY17A FY18E FY19E FY20E Cash Flow(Rsmn) FY17A FY18E FY19E FY20E Interest Income 56,224 56,456 63,238 71,464 Capital 1,219 1,456 1,456 1,456 Asset Quality Interest Expense 35,486 34,165 38,120 42,864 Reserves and Surplus 49,138 59,814 65,314 72,212 Gross NPA (Rs mn) 14,838 27,681 27,589 29,466 Net Interest Income 20,737 22,291 25,118 28,600 Deposits 536, , , ,139 Gross NPA (%) 3.6% % 4.8% % Growth 16.4% 7.5% 12.7% 13.9% Borrowings 16,957 17,922 19,564 21,370 Net NPA (Rs mn) 10,551 18,081 16,808 17,211 Treasury Income 2,432 1, Other Liab& Provisions 13,765 15,141 16,807 18,655 Net NPA (%) 2.6% 3.9% 3.1% 2.8% Other Inc. 5,390 8,028 9,745 11,253 Total liabilities 618, , , ,833 % coverage of NPA 30.4% 34.7% 39.1% 41.6% Total Income 28,559 31,521 35,733 40,807 Cash & Bal with RBI 27,905 30,834 35,107 39,975 Delinquencies (%) 3.3% 4.3% 2.2% 2. Employees Expenses 6,079 6,171 6,664 6,931 Bal. with banks 15,546 5,550 6,319 7,196 Business Ratios Other Op. Expenses 6,770 8,011 9,084 10,318 Investments 148, , , ,420 Credit / Deposit(%) 76.2% 77.5% 78.2% 79.6% Operating Profit 15,710 17,339 19,984 23,558 Advances 409, , , ,380 Invest/ Deposit (%) 27.7% % 25.9% % Growth 20.6% 10.4% 15.3% 17.9% Fixed Assets 4,186 4,377 4,639 4,917 CASA (%) 27.7% Tax 2,775 2,133 4,187 4,998 Other Assets 12,787 14,577 16,618 18,945 RoaA (%) % 1.1% 1.2% Total Provisions 6,875 11,067 7,669 8,857 Total assets 618, , , ,833 RoE (%) 12.6% 7.4% 12.7% 13.8% Net Profit 6,060 4,140 8,128 9,702 % Growth 4.8% 12.1% 13.4% 13.5% Dividend Yield (%) 2.3% 2.5% 2.7% 2.9% % Growth 6.8% -31.7% 96.4% 19.4% Key assumptions CAR Earnings Ratios Deposits RWA (Rs. mn) Int Inc. / Avg.assets 9.3% 8.6% 8.6% 8.5% Avg deposit growth (%) 7.2% 11.5% Tier I (%) 11.9% 10.6% 9.9% 9.4% Int Exp./ Avg. assets 5.9% 5.2% 5.2% 5.1% Avg cost of deposits (%) 6.6% 5.8% 5.8% 5.7% Tier II (%) 0.7% 0.6% 0.5% 0.5% NIMs 3.4% 3.4% 3.4% 3.4% Cost to Average Asset Total CAR (%) 12.5% 11.2% 10.5% 9.9% Int. exp/ Int earned 63.1% 60.5% 60.3% 60. Avg. advances growth 4.7% 13.5% Per Share Data Oth. Inc./ Tot. Inc. 27.4% 29.3% 29.7% 29.9% Avg yield on advances % % BVPS Staff exp/ Opt. exp 47.3% 43.5% 42.3% 40.2% Investments Adj. BVPS, Rs Cost/ Income Ratio % 42.3% Avg. investments gro 2.9% 16.7% % Price/ Adj. BVPS Prov./ Oper Profit 43.8% 63.8% 38.4% 37.6% Avg. YoI 7.6% 7.4% 7.2% 7.2% EPS, Rs Prov./Avg. loans 1.7% 2.5% 1.5% 1.5% P/E Ratio Yr Forward P/E 1 Yr Forward P/B 300 Price 5x 10x 15x 20x 300 Price 1x 1.5x 2x 2.5x February 1, 2018 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page9 of 13

10 Historical Standalone Financials P&L(Rsmn) FY14A FY15A FY16A FY17A Balance Sheet(Rsmn) FY14A FY15A FY16A FY17A Cash Flow(Rsmn) FY14A FY15A FY16A FY17A Interest Income 51,160 53,959 54,434 56,224 Capital 1,072 1,216 1,219 1,219 Asset Quality Interest Expense 38,323 39,300 36,620 35,486 Reserves and Surplus 32,192 41,244 44,511 49,138 Gross NPA (Rs mn) 2,792 6,778 5,112 14,838 Net Interest Income 12,837 14,659 17,814 20,737 Deposits 437, , , ,998 Gross NPA (%) 0.8% 1.9% 1.3% 3.6% % Growth 10.8% 14.2% 21.5% 16.4% Borrowings 32,933 29,008 28,942 16,957 Net NPA (Rs mn) 1,647 2,978 2,262 10,551 Treasury Income 1,403 1,149 1,491 2,432 Other Liabilities 11,658 13,154 14,386 13,765 Net NPA (%) 0.5% 0.8% 0.6% 2.6% Other Inc. 4,242 4,659 5,578 5,390 Total liabilities 515, , , ,076 % coverage of NPA 49.9% 58.5% 57.7% 30.4% Total Income 18,482 20,467 24,882 28,559 Cash & Bal with RBI 25,462 26,929 25,291 27,905 Delinquencies (%) 0.5% 1.8% % Employees Expenses 5,279 5,471 5,474 6,079 Bal. with banks 1, ,625 15,546 Business Ratios Other Op. Expenses 4,824 5,564 6,377 6,770 Investments 132, , , ,575 Credit / Deposit(%) 77.7% 80.8% % Operating Profit 8,378 9,433 13,031 15,710 Advances 339, , , ,077 Investment/ Deposit 30.3% 27.7% 28.8% 27.7% % Growth -1.3% 12.6% 38.1% 20.6% Fixed Assets 3,847 4,112 4,201 4,186 CASA (%) 20.5% % 27.7% Tax ,440 2,775 Other Assets 12,411 15,081 21,459 12,787 RoaA (%) 0.9% 0.9% Total Provisions 4,423 4,805 3,914 6,875 Total assets 515, , , ,076 RoE (%) 13.3% % 12.6% Net Profit 4,296 4,556 5,676 6,060 % Growth 10.3% 3.1% % Dividend Yield (%) 2.3% 2.3% 2.5% 2.3% % Growth -21.9% 6.1% 24.6% 6.8% Key assumptions CAR Earnings Ratios Deposits RWA (Rs. mn) Int Inc./Avg. Assets 10.4% 10.3% 9.7% 9.3% Avg deposit growth (%) 13.2% 2.1% 12.1% 7.2% Tier I (%) 11.6% 13.6% 11.3% 11.9% IntExp./ Avg. Asset 7.8% 7.5% 6.5% 5.9% Avg cost of deposits (%) 8.4% % 6.6% Tier II (%) % 0.9% 0.7% NIMs (%) 2.6% 2.8% 3.2% 3.4% Cost to Average Asset Total CAR (%) 12.6% 14.6% 12.2% 12.5% Int. exp/ Int earned 74.9% 72.8% 67.3% 63.1% Avg. advances growth 15.3% 6.2% 8.2% 4.7% Per Share Data Oth. Inc./ Tot. Inc. 30.5% 28.4% 28.4% 27.4% Avg yield on advances 12.2% % 11. BVPS, Rs Staff exp/opex 52.3% 49.6% 46.2% 47.3% Investments Adj. BVPS, Rs Cost/ Income Ratio 54.7% 53.9% 47.6% 45. Avg. investment growth -4.3% -6.6% 16.7% 2.9% Price/ Adj. BV Prov./ Op Profit 52.8% 50.9% % Avg. YoI 8.9% 9.1% 8.2% 7.6% EPS, Rs Prov./Avg. loans 1.4% 1.4% % P/E Ratio February 1, 2018 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page10 of 13

11 Equirus Securities Research Analysts Sector/Industry Equity Sales Abhishek Shindadkar IT Services Vishad Turakhia Ashutosh Tiwari Auto, Metals & Mining Subham Sinha Depesh Kashyap Mid-Caps Sweta Sheth Devam Modi Power & Infrastructure Viral Desai Dhaval Dama FMCG, Mid-Caps Dealing Room Manoj Gori Consumer Durables Ashish Shah Maulik Patel Oil and Gas IleshSavla Praful Bohra Pharmaceuticals Manoj Kejriwal Rohan Mandora Banking & Financial Services Dharmesh Mehta Associates SandipAmrutiya Ankit Choudhary Compliance Officer Bharat Celly Jay Soni Harshit Patel Corporate Communications Meet Chande Mahdokht Bharda Parva Soni Pranav Mehta RonakSoni Samkit Shah Shreepal Doshi Varun Baxi Vikas Jain Rating & Coverage Definitions: Absolute Rating LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap >Rs 5 billion and ATR >= 2 for rest of the companies ADD: ATR >= 5% but less than Ke over investment horizon REDUCE: ATR >= negative 1 but <5% over investment horizon SHORT: ATR < negative 1 over investment horizon Relative Rating OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon BENCHMARK: likely to perform in line with the benchmark UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion. Registered Office: Equirus Securities Private Limited Unit No. 1201, 12th Floor, C Wing, Marathon Futurex, N M Joshi Marg, Lower Parel, Mumbai Tel. No: +91 (0) Fax No: +91- (0) Corporate Office: 3rd floor, House No. 9, Magnet Corporate Park, Near Zydus Hospital, B/H Intas Sola Bridge, S.G. Highway Ahmedabad Gujarat Tel. No: +91 (0) Fax No: +91 (0) February 1, 2018 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page11 of 13

12 2017 Equirus Securities Private Limited. All rights reserved. For Private Circulation only. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Equirus Securities Private Limited Analyst Certification We, Rohan Mandora/Ankit Choudhary, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Disclosures Equirus Securities Private Limited (ESPL) having Corporate Identification Number U65993MH2007PTC is registered in India with Securities and Exchange Board of India (SEBI) as a trading member on the Capital Market (Reg. No. INB ), Futures & Options Segment (Reg. No.INF ) of the National Stock Exchange of India Ltd. (NSE) and on Cash Segment (Reg. No.INB ) of Bombay Stock Exchange Limited (BSE).ESPL is also registered with SEBI as Research Analyst under SEBI (Research Analyst) Regulations, 2014 (Reg. No. INH ), as a Portfolio Manager under SEBI (Portfolio Managers Regulations, 1993 (Reg. No.INP ) and as a Depository Participant of the Central Depository Services (India) Limited (Reg. No.IN-DP ). There are no disciplinary actions taken by any regulatory authority against ESPL. ESPL is a subsidiary of Equirus Capital Pvt. Ltd. (ECPL) which is registered with SEBI as Category I Merchant Banker and provides investment banking services including but not limited to merchant banking services, private equity, mergers & acquisitions and structured finance. As ESPL and its associates are engaged in various financial services business, it might have: - (a) received compensation (except in connection with the preparation of this report) from the subject company for investment banking or merchant banking or brokerage services in the past twelve months;(b) managed or co-managed public offering of securities for the subject company in the past twelve months; or (c) have received a mandate from the subject company; or (d) might have other financial, business or other interests in entities including the subject company (ies) mentioned in this Report. ESPL & its associates, their directors and employees may from time to time have positions or options in the company and buy or sell the securities of the company (ies) mentioned herein. ESPL and its associates collectively do not own (in their proprietary position) 1% or more of the equity securities of the subject company mentioned in the report as the last day of the month preceding the publication of the research report. ESPL or its Analyst or Associates did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ESPL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ESPL has not been engaged in market making activity for the subject company. The Research Analyst engaged in preparation of this Report:- (a) has not received any compensation from the subject company in the past twelve months; (b) has not managed or co-managed public offering of securities for the subject company in the past twelve months; (c) has not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) has not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) has not received any compensation or other benefits from the subject company or third party in connection with the research report; (f) might have served as an officer, director or employee of the subject company; (g) is not engaged in market making activity for the subject company. This document 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 ESPL 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 a certain category of investors. Persons in whose possession of this document are required to inform themselves of, and to observe, such applicable restrictions. Please delete this document if you are not authorized to view the same. By reading this document you represent and warrant that you have full authority and all rights necessary to view and read this document without subjecting ESPL and affiliates to any registration or licensing requirement within such jurisdiction. This document has been prepared solely for information purpose and does not constitute a solicitation to any person to buy, sell or subscribe any security. ESPL or its affiliates are not soliciting any action based on this report. The information and opinions contained herein is from publicly available data or based on information obtained in good faith from sources believed to be reliable but ESPL provides no guarantee as to its accuracy or completeness. The information contained herein is as on date of this report, and is subject to change or modification and any such changes could impact our interpretation of relevant information contained herein. While we would endeavour to update the information herein on reasonable basis, ESPL and its affiliates, their directors and employees are under no obligation to update or keep the information current. Also there may be regulatory, compliance, or other reasons that may prevent ESPL and its group companies from doing so. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document including the merits and risks involved. This document is intended for general circulation and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. ESPL and its group companies, employees, directors and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. ESPL/its affiliates do and seek to do business with companies covered in its research report. Thus, investors should be aware that the firm may have conflict of interest. February 1, 2018 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page12 of 13

13 A graph of daily closing prices of securities is available at and (Choose a company from the list on the browser and select the three years period in the price chart). Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest Research Analyst or Relatives financial interest Research Analyst or Relatives actual/beneficial ownership of 1% or more Research Analyst or Relatives material conflict of interest No No No Disclaimer for U.S. Persons ESPL/its affiliates are not a registered broker dealer under the U.S. Securities Exchange Act of 1934, as amended (the 1934 act ) and under applicable state laws in the United States. In addition Equirus is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the Acts ), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by Equirus, including the products and services described herein are not available to or intended for U.S. persons. The information contained in this Report is not intended for any person who is a resident of the United States of America or a resident of any jurisdiction, the laws of which imposes prohibition on soliciting the securities business in that jurisdiction without going through the registration requirements and/ or prohibit the use of any information contained in this report. This Report and its respective contents do not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services and/or shall not be considered as an advertisement tool. "U.S. Persons" are generally defined as a natural person, residing in the United States or any entity organized or incorporated under the laws of the United States. US Citizens living abroad may also be deemed "US Persons" under certain rules. February 1, 2018 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page13 of 13