Operating metrics stable, marginal uptick in slippages retain ADD

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1 HDFC Bank Absolute :ADD Relative : Equal Weight 1QFY18 Result: Est. ( ), Target ( ), Rating ( ) Regular Coverage 7.6% ATR in 14 months Operating metrics stable, marginal uptick in slippages retain ADD BFSI 2017EquirusAll rights reserved Rating Information Price (Rs) 1,735 Target Price (Rs) 1,875 Target Date Target Set On Implied yrs of growth (ERE) Sep Jul-17 Fair Value (ERE) 1,875 Fair Value (DDM) NA Ind Benchmark BANKEX Model Portfolio Position - Stock Information Market Cap (Rs Mn) 4,465,945 Free Float (%) 74.0% 52 Wk H/L (Rs) 1748/1158 Avg Daily Volume (1yr) 1,979,558 Avg Daily Value (1yr) 2,704 Equity Cap (Rs Mn) 5,148 Face Value (Rs) 2.0 Bloomberg Code HDFCB IN Ownership Recent 3M 12M % Promoters 25.9% -0.1% -0.5% DII 13.6% 0.5% -0.4% FII 42.0% -0.1% 2.4% Public 18.6% -0.2% -1.6% Price % 1M% 3M% 12M% Absolute 3.4% 13.2% 41.0% Vs Industry -0.5% 1.5% 11.7% ICICI Bank 3.8% 24.1% 26.5% Indusind Bank 4.2% 8.4% 36.5% Standalone Quarterly EPS forecast Rs/Share 1Q 2Q 3Q 4Q EPS (17A) EPS (18E) HDFC Bank (HDFCB) reported in-line PAT growth of 20% yoy to Rs 38.9bn (EE: Rs. 39.1bn) driven by (1) a 10bps qoq improvement in NIM to 4.4%, (2) healthy loan growth of 23% yoy/5% qoq and (3) 30% yoy growth in core fee income. Slippages were higher at Rs 31bn of which Rs 8bn were from the agri segment. Provisions were driven up by general provisions (Rs 1.2bn towards stressed sectors) and ~50% coverage on agri slippages. We retain our FY18/FY19 loan growth estimates at 19% each, lower our FY18E C/I ratio assumptions by 120bps, and increase our FY18E credit cost estimates by 5bps. Retain ADD with an ERoE-based Sep 18 TP of Rs 1,875 (Rs 1,645 earlier) which corresponds to a 4.6x/4.3x Sep 18 ABV of Rs 408/439. PAT in-line, higher fee income includes one-offs from OMC business: NII was in line with EE at Rs 93.7bn (+20% yoy) aided by a 10bps qoq margin improvement to 4.4%. A 30% yoy growth in core fee income included one-off fees from OMC (contribution of ~5 percentage points) and seasonal businesses, and strong bancassurance income. Forex income had a negative carry from swap transactions undertaken to fund HDFCB s rupee loan book growth (funded by foreign currency borrowings). The cost to core income ratio improved to 42.7% vs 46.2% in 1QFY17 as growth in employee expenses was contained at 5% yoy due to a reduction in the employee base in 2HFY17. IND-AS implementation from FY19 could push up employee expenses by additional ~5%. Advances growth healthy at 23% yoy, CASA ratio declines to 44%: Advances grew 23% yoy driven by credit card (37% yoy/12% qoq) and personal loan (37% yoy/11% qoq) segments. Domestic corporate loans increased by 35% yoy led by working capital loans and refinancing opportunities. The CASA ratio dropped 400bps qoq to 44% as CA deposits slid 12% qoq. HDFCB has not seen any negative impact of GST implementation on business banking growth or asset quality. The bank raised Rs 80bn from AT1 bonds and Rs 20bn from tier 2 bonds. Tier 1/CET1 ratio as of 1QFY18 stood at 13.6%/12.5%. GNPL/NNPL ratios inch up to 1.24%/0.44%: GNPA/NNPA ratios deteriorated by 20bps/ 12bps yoy to 1.2%/0.4% while the PCR ratio dropped to ~65%. Of the total slippages of Rs 31bn, slippages from agri loans stood at ~Rs 8bn, of which ~90% were crop loans. Of the ~Rs 15bn of provisions, ~Rs 3.7bn were towards fresh agri slippages (50% of NPLs provided vs. regulatory requirement of ~15%) and ~Rs 1.2bn towards general provisioning on stressed sectors (telecom, iron& steel). The O/S restructured book was contained at ~0.1% and HDFCB had exposure to one of the 12 NCLT referred cases fully provided for. The bank doesn t expect any material increase in credit costs from IND-AS implementation in FY19E. Key risks: A protracted slowdown in the economy, considerable increase in fresh slippages and adverse regulatory changes are key risks to our call. Rs Mn Revised Estimates % Change FY18E FY19E FY18E FY19E NII 401, , % 0.3% Provisions 50,328 57, % 0.0% PAT 176, , % 3.3% EPS % 3.3% Advances 6,599,362 7,853, % 0.0% Deposits 7,208,764 8,650, % 0.0% Standalone Financials Rs Bn YE Mar FY17A FY18E FY19E FY20E Interest Income ,148 Interest Expense Net Interest Inc Other Income Operating Exp Provisions PAT Loan and Advances 5,546 6,599 7,853 9,345 Deposits 6,436 7,209 8,651 10,381 Net Worth 895 1,037 1,203 1,402 NIM 4.4% 4.5% 4.5% 4.4% Prov/Avg Loans 0.7% 0.8% 0.8% 0.8% Rs Per Share FY17A FY18E FY19E FY20E EPS Adjusted EPS Book Value Adjusted BVPS DPS P/E (x) 30.4x 25.2x 21.1x 18.0x Adj P/B (x) 5.3x 4.6x 4.0x 3.4x ROE (%) 17.9% 18.3% 18.8% 19.0% RoA (%) 1.8% 1.9% 1.9% 1.9% Tier 1 Ratio (%) 12.8% 13.7% 13.6% 13.4% July 25, 2017 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page 1 of 14 Before reading this report, you must refer to the disclaimer on the last page.

2 1QFY18 quarterly performance HDFC Bank Absolute ADD Relative Equal Weight 7.6% ATR in 14 Months Particulars %Variation P&L Statement (Rsmn) 1QFY18 1QFY18E 4QFY17 1QFY17 % change vs Est % change q-o-q % change y-o-y Net interest income (NII) 93,707 93,892 90,551 77, % 3.5% 20.4% Other income 35,167 32,773 34,463 28, % 2.0% 25.3% Total income 128, , , , % 3.1% 21.7% Operating expenses 53,675 56,015 52,220 47, % 2.8% 12.6% Staff expenses 16,575 18,221 15,527 15, % 6.8% 4.6% Other expenses 37,100 37,794 36,693 31, % 1.1% 15.3% Operating profit 75,199 70,650 72,794 58, % 3.3% 29.2% Total provisions 15,588 11,259 12,618 8, % 23.5% 79.8% Profit before tax 59,611 59,391 60,176 49, % -0.9% 20.4% Tax 20,673 20,336 20,275 17, % 2.0% 20.6% Profit after tax 38,938 39,055 39,901 32, % -2.4% 20.2% Balance sheet (Rsmn) 1QFY18 1QFY18E 4QFY17 1QFY17 % change vs Est % change q-o-q % change y-o-y Deposits 6,713,761 6,758,216 6,436,397 5,737, % 4.3% 17.0% Advances 5,809,758 5,712,052 5,545,682 4,706, % 4.8% 23.4% Investment 2,161,083 2,208,972 2,144,633 2,063, % 4.7% Gross NPL 72,429 58,857 49, % 47.2% Net NPL 25,282 18,440 14, % 69.3% July 25, 2017 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page 2 of 14

3 Particulars 1QFY18 4QFY17 1QFY17 Profitability ratios bp change qoq Yield on Advances 10.2% 10.3% 10.7% (9.0) (46.2) Cost of Funds 5.0% 5.1% 5.6% (4.5) (58.3) NIM 4.4% 4.3% 4.4% RoaA 1.8% 1.9% 2.0% (8.0) (16.0) RoaE 17.0% 18.3% 17.4% (133.9) (43.0) Asset Quality Gross NPL ratio 1.2% 1.1% 1.0% Net NPL ratio 0.4% 0.3% 0.3% Coverage ratio 65.1% 68.7% 69.7% (357.6) (455.8) Business & Other Ratios CASA 44.0% 48.0% 39.9% (400.0) Cost-income ratio 41.6% 41.8% 45.0% (12.2) (339.1) Non int. inc / total income 27.3% 27.6% 26.5% (28.0) 78.0 Credit deposit ratio 86.5% 86.2% 82.0% CAR 15.6% 14.6% 15.5% Tier-I 13.6% 12.8% 13.3% Source: Company Filings, Equirus Securities bp change yoy July 25, 2017 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page 3 of 14

4 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 HDFC Bank Absolute ADD Relative Equal Weight 7.6% ATR in 14 Months Exhibit 1: Advances grow 23% yoy/5% qoq vs. deposit growth of 17% yoy/4% qoq, pushing up the C/D ratio to ~87% 15.0% 12.0% Credit Growth (qoq) Deposit Growth (qoq) C/D Ratio (%) - RHS 87.0% 84.0% Exhibit 3: NIMs improve by 10bp qoq YoA CoF NIM - RHS 12.0% 9.0% 4.6% 4.5% 4.4% 9.0% 81.0% 4.3% 6.0% 78.0% 6.0% 4.2% 3.0% 75.0% 4.1% 0.0% 72.0% 3.0% 4.0% Source: Company, Equirus Securities Exhibit 2: Share of domestic corporate loans declines 30qoq to 30.4% Source: Company, Equirus Securities Exhibit 4: CASA ratio declines by ~400bps to 44.0% in 1QFY18 Rs Bn Current Account Saving Account CASA Ratio (%) - RHS Exhibit 3: NIM improves 10bps qoq to 3.6% 14% Yield on Advances (%) Cost of Funds(%) NIM - RHS (%) 12% 10% 8% 6% 4% 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 Source: Company, Equirus Securities 4.5% 3.5% 2.5% 1.5% 2,500 2,000 1,500 1, % 45.0% 40.0% 35.0% 30.0% Source: Company, Equirus Securities Source: Company, Equirus Securities July 25, 2017 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page 4 of 14

5 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 HDFC Bank Absolute ADD Relative Equal Weight 7.6% ATR in 14 Months Exhibit 5: GNPL rises to 1.2% and coverage ratio declines to ~65%, pushing up NNPL by 10bps qoq 1.4% GNPL NNPL Coverage Ratio - RHS 76.0% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% 74.0% 72.0% 70.0% 68.0% 66.0% 64.0% 62.0% 60.0% Source: Company, Equirus Securities July 25, 2017 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page 5 of 14

6 Concall highlights Business update HDFCB did not see any significant impact of GST in the business banking loan growth or asset quality. Management stated that while defaults in Dec 16 were due to a decline in borrowers repayment ability, the recent agri defaults were more intentional in nature on expectations of crop loan waivers. Fee income was higher due to strong distribution in the mutual fund segment, especially equities and credit cards. One-offs included fees from OMCs which contributed 4-5 percentage points to fee income growth. Adjusting for one-off and seasonal items, core fee income growth would have been ~20-21%. Management indicated that competition on yields is incrementally declining. The commodity finance segment has been shifted to the business banking segment from the wholesale segment earlier. Capex-linked loan demand in the wholesale segment remained weak. Wholesale loan demand was driven by working capital loans and re-financing opportunities. Employee base was flat qoq and 52% of the branch network was in rural/semiurban locations. The bank gained market share in car loans during 1Q. The bank expects employee expenses to be higher going ahead due to annual wage hikes. IND-AS implementation in FY19 could push up employee expenses by additional ~5 percentage points. FX income had a negative carry from swap transactions undertaken to fund HDFCB s rupee loan book growth (funded foreign currency borrowings). Asset quality HDFCB provided Rs 13.4bn of specific loan loss provisions and Rs 2.1bn towards general provisions. Of the total Rs 6.9bn increase in provisions yoy, general provisions rose by Rs 2bn and specific loan provisions by Rs 5bn. Under general provision, Rs 1.2bn was set aside towards stressed sectors i.e. telecom and iron & steel. Under specific loan provisions, Rs 3.7bn was towards the agri segment. About ~Rs 8bn of slippages came from the agri segment. The bank has provided for ~50% of agri slippages. About 90% of agri NPAs of ~Rs 8bn were related to crop loans and the rest to other retail loans to agri customers. The agri GNPL ratio stood at ~5% on the O/S agri loan book. Management indicated that defaults on crop loans were on expectations of loan waivers and most of the defaulting agri borrowers were otherwise repaying non-crop loans on time. GNPA movement in 1QFY18 was as follows: opening balance Rs 58.9bn, slippages Rs 31bn, reduction Rs 17.5bn (upgrades Rs 4.9bn, write-offs Rs 7.4bn and recoveries Rs 5.2bn). The bank s CET 1 ratio as on Jun'17 stood at 12.44%. Capital consumption in 1QFY18E was higher due to annual increase in operational risk weighted assets (RWA). Advances Average advances grew 20.7% yoy. During 1QFY18, HDFCB purchased Rs 25bn of home loans from HDFC Ltd as against Rs 30bn per quarter seen normally. HDB Financials loan book stood at Rs 329.4bn, AUM Rs 350bn and PAT Rs 1.5bn. PAT was hit as HDB financials moved to 90dpd recognition of NPLs during 1Q. International advances as on Jun'17 stood at Rs 201bn as against Rs 199bn in Mar '17 and Rs 330bn in Jun'16. Others HDFCB did not provide any indicative timelines on new capital raising. The bank expects an improvement in the C/I ratio driven by digital initiatives, productivity improvement and a reduction in the turnaround time. While management expects some stress in the agri segment, it will continue lending in this segment as (a) it needs to comply with the regulatory guidelines of maintaining agri PSL targets and sub-targets and (b) the annual cost of buying PSL certificates is 3-4%. July 25, 2017 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page 6 of 14

7 Exhibit 6: ROE-ROA Tree Analysis Particulars (RsMn) FY16A FY17A FY18E FY19E FY20E Yield on Advances 10.8% 10.2% 10.1% 10.0% 9.9% Yield on Investments 8.3% 7.9% 8.3% 8.2% 8.1% Cost of Funds 5.8% 5.4% 5.3% 5.3% 5.2% Advances 4,645,940 5,545,682 6,599,362 7,853,240 9,345,356 Investments 1,958,363 2,144,633 2,641,373 3,084,719 3,618,212 Cash and Balances with RBI 300, , , , ,468 Balances with Bank 88, , , , ,166 Interest Earning Assets 6,993,491 8,179,836 9,796,410 11,599,850 13,751,201 AvgInt Earning Asset 6,264,087 7,586,664 8,988,123 10,698,130 12,675,525 NII/AvgInt Earning Assets 4.4% 4.4% 4.5% 4.4% 4.4% Non IntInc/AvgInt Earning Assets 1.7% 1.6% 1.6% 1.5% 1.5% Total Income/AvgInt Earning Assets 6.1% 6.0% 6.1% 6.0% 5.9% Op. Costs/AvgInt Earning Assets 2.7% 2.6% 2.5% 2.5% 2.4% PPI/AvgInt Earning Assets 3.4% 3.4% 3.5% 3.5% 3.5% Provisions/AvgInt Earning Assets 0.4% 0.5% 0.6% 0.5% 0.6% Taxes/AvgInt Earning Assets 1.0% 1.0% 1.0% 1.0% 1.0% Return on AvgInt Earning Assets 2.0% 1.9% 2.0% 2.0% 2.0% Extraordinary item 0.0% 0.0% 0.0% 0.0% 0.0% Adj Return on AvgInt Earning Assets 2.0% 1.9% 2.0% 2.0% 2.0% Productivity (AvgInt Earning Assets/Avg Total Assets) 94.1% 94.6% 94.8% 95.1% 95.3% Return on Average Total Assets 1.8% 1.8% 1.9% 1.9% 1.9% Leverage (Average Total Assets/Average Equity) Return on Average Equity 18.3% 17.9% 18.3% 18.8% 19.0% Source: Company, Equirus Securities July 25, 2017 Analyst: Rohan Mandora ( )/Ankit Choudhary Page 7 of 14

8 Company Snapshot How we differ from Consensus Equirus Consensus % Diff Comment EPS NII + Other Inc PAT FY18E % FY19E % FY18E % FY19E % FY18E % FY19E % We expect consensus to be revised upwards Our Key Investment arguments: (1) Healthy asset quality with FY18/FY19 fresh slippages estimated at ~1.6%/1.4%. (2) Steady FY18E/FY19E NIMs. (3) Healthy FY19E ROEs of ~19% driven by efficient capital utilization. (4) Expectations of earnings growth to be in line with balance sheet CAGR of ~19%. Key Assumptions 2016A 2017A 2018E 2019E 2020E Net Interest Income (Rsmn) 275, , , , ,670 Net interest margin (%) 4.4% 4.4% 4.5% 4.5% 4.4% Other Income (Rsmn) 107, , , , ,936 Total Income (Rsmn) 383, , , , ,605 Operating Expense (Rsmn) 169, , , , ,945 Cost to Income Ratio (%) 44.3% 43.4% 41.6% 41.0% 40.6% Credit Cost (%) 0.7% 0.7% 0.8% 0.8% 0.8% PAT (Rsmn) 122, , , , ,175 Advances Growth (%) 27.1% 19.4% 19.0% 19.0% 19.0% Deposits Growth (%) 21.2% 17.8% 12.0% 20.0% 20.0% Key Risks: Protracted slowdown in economy, considerable increase in fresh slippages and adverse regulatory changes. Sensitivity to Key Variables % Change % Impact on EPS Net Interest Income 10% 14.7% Provisioning Costs 10% -1.8% Loans & Advances Growth 10% 0.3% EroE Valuations & Assumptions Rf Ke Term. Growth RoE in Terminal Yr 6.8% 12.0% 5% 18.5% - FY18E FY19-22E FY23-27E FY28-37E PAT Growth (%) 21.4% 14.7% 15.3% 15.3% Dividend Payout (%) 25.5% 23.0% 23.0% 23.0% BV Growth 15.9% 15.3% 15.3% 15.3% RoE (%) 18.3% 18.6% 18.5% 18.5% Years of strong growth Valuation as on date (Rs) ,166 1,771 Valuation as of 30 st Sep ,234 1,875 Our EroE-based Sep 18 TP of Rs 1,875 implies 20 years of high growth, with cost of equity at 12% and average RoE at 18.5%. Company Description: HDFC Bank Limited provides a range of banking and financial services to individuals and businesses in India, Bahrain, Hong Kong, and Dubai. The company operates in Treasury, Retail Banking, Wholesale Banking, and Other Banking Business segments. As of June 30, 2017, the company operated a network of 4,727 branches and 12,220 ATMs in 2,593 cities/towns. HDFC Bank Limited was founded in 1994 and is headquartered at Mumbai, India. Key Triggers: (1) Operating efficiencies leading to significant improvement in the C/I ratio. (2) Fee income growth coming in higher than balance sheet growth. Comparable valuation Mkt Cap Price Target EPS P/E ABPS P/B RoE Div Yield Company Reco. CMP (RsBn) Target Date FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY17A FY18E FY19E FY17A FY18E HDFC Bank ADD 1,735 4,466 1,875 Sep ' % 18.3% 18.8% 0.6% 0.8% ICICI Bank LONG 303 1, Sep % 9.2% 10.8% 0.8% 1.6% Indusind Bank ADD 1, ,652 Sep % 17.0% 17.2% 0.4% 0.5% July 25, 2017 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page 8 of 14

9 Standalone quarterly earnings forecast and key drivers Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18A 2Q18E 3Q18E 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E Interest Income 165, , , , , , , , , , , , , , ,050 1,148,181 Interest Expense 87,346 90,764 92,965 90,593 92,980 98,559 99, , , , , , , , , ,512 Net Interest Income 77,814 79,936 83,091 90,551 93,707 95, , , , , , , , , , ,670 Non Interest Income 28,066 29,010 31,427 34,463 35,167 34,233 36,583 36,657 38,820 39,731 42,086 44, , , , ,936 Total Income 105, , , , , , , , , , , , , , , ,605 Operating and Other Expenses 47,689 48,700 48,425 52,220 53,675 55,080 56,560 60,716 64,147 66,267 68,047 63, , , , ,945 Staff Cost 15,852 16,572 16,886 15,527 16,575 17,238 17,583 21,221 22,282 22,728 23,637 15,589 64,837 72,617 84,236 97,713 Other Operating Expenses 31,837 32,128 31,539 36,693 37,100 37,841 38,977 39,495 41,865 43,539 44,410 48, , , , ,232 Pre-Provision Income 58,192 60,246 66,093 72,794 75,199 74,945 82,603 85,127 87,021 89,800 99, , , , , ,660 Provisions and Write-offs 8,667 7,490 7,158 12,618 15,588 11,724 11,775 11,241 13,354 12,725 15,734 15,945 35,933 50,328 57,671 71,152 PBT 49,525 52,756 58,935 60,176 59,611 63,221 70,828 73,886 73,667 77,075 83,385 85, , , , ,508 TAX 17,136 18,202 20,281 20,275 20,673 21,495 24,081 24,716 25,047 26,206 28,351 29,184 75,894 90, , ,333 Extraordinary PAT 32,389 34,553 38,653 39,901 38,938 41,726 46,746 49,171 48,620 50,870 55,034 56, , , , ,175 EPS Key Drivers YoA 10.7% 10.7% 10.7% 10.3% 10.2% 10.2% 10.3% 9.9% 10.0% 10.2% 10.2% 10.1% 10.2% 10.1% 10.0% 9.9% YoI 8.2% 7.4% 7.3% 7.6% 7.2% 7.4% 7.5% 11.6% 8.1% 8.1% 8.1% 8.4% 7.9% 8.3% 8.2% 8.1% CoF 5.6% 5.5% 5.4% 5.1% 5.0% 5.1% 5.0% 6.2% 5.3% 5.3% 5.2% 5.6% 5.4% 5.3% 5.3% 5.2% NIM 4.8% 4.6% 4.6% 4.8% 4.4% 4.2% 4.4% 4.4% 4.3% 4.3% 4.1% 4.5% 4.4% 4.5% 4.5% 4.4% C/I Ratio 45.0% 44.7% 42.3% 41.8% 41.6% 42.4% 40.6% 41.6% 42.4% 42.5% 40.7% 38.5% 43.4% 41.6% 41.0% 40.6% CD Ratio 82.0% 83.6% 78.0% 86.2% 86.5% 86.5% 86.5% 91.5% 90.7% 90.7% 90.7% 90.8% 86.2% 91.5% 90.8% 90.0% Non-Interest Income/ Total Income 26.5% 26.6% 27.4% 27.6% 27.3% 26.3% 26.3% 25.1% 25.7% 25.5% 25.2% 27.1% 27.1% 26.2% 25.9% 25.6% ROA 2.0% 2.0% 2.0% 1.9% 1.8% 1.8% 2.0% 2.0% 1.8% 1.9% 1.9% 1.9% 1.8% 1.9% 1.9% 1.9% ROE 17.4% 17.6% 18.7% 18.3% 17.0% 17.3% 18.6% 19.0% 18.7% 19.1% 19.7% 19.3% 17.9% 18.3% 18.8% 19.0% Sequential Growth (%) NII 4.4% 2.7% 3.9% 9.0% 3.5% 2.2% 7.1% 6.4% 2.9% 3.6% 7.5% -3.6% TI 2.6% 2.9% 5.1% 9.2% 3.1% 0.9% 7.0% 4.8% 3.7% 3.2% 7.1% -1.1% PPI 1.5% 3.5% 9.7% 10.1% 3.3% -0.3% 10.2% 3.1% 2.2% 3.2% 10.4% 2.6% Provisions and Write-offs 30.8% -13.6% -4.4% 76.3% 23.5% -24.8% 0.4% -4.5% 18.8% -4.7% 23.6% 1.3% PAT -4.0% 6.7% 11.9% 3.2% -2.4% 7.2% 12.0% 5.2% -1.1% 4.6% 8.2% 2.8% EPS -5.1% 6.7% 11.9% 3.2% -1.9% 7.1% 12.0% 5.2% -1.1% 4.6% 8.2% 2.8% Advances 1.3% 5.1% 0.1% 12.0% 4.8% 3.0% 4.0% 6.0% 4.0% 3.0% 4.0% 6.8% Deposits 5.0% 3.1% 7.3% 1.4% 4.3% 3.0% 4.0% 0.2% 5.0% 3.0% 4.0% 6.7% Total Business 3.3% 4.0% 4.0% 6.1% 4.5% 3.0% 4.0% 2.9% 4.5% 3.0% 4.0% 6.8% Yearly Growth (%) NII 21.8% 19.6% 17.6% 21.5% 20.4% 19.8% 23.5% 20.6% 19.9% 21.4% 21.9% 10.4% 20.1% 20.1% 21.1% 18.2% TI 19.6% 18.0% 15.2% 21.1% 21.7% 19.3% 21.5% 16.7% 17.3% 20.0% 20.1% 13.4% 18.5% 18.5% 19.7% 17.6% PPI 20.0% 19.5% 15.2% 26.9% 29.2% 24.4% 25.0% 16.9% 15.7% 19.8% 20.0% 19.5% 20.5% 20.5% 23.5% 18.8% Provisions and Write-offs 19.1% 9.9% 9.5% 90.5% 79.8% 56.5% 64.5% -10.9% -14.3% 8.5% 33.6% 41.8% 31.8% 31.8% 40.1% 14.6% PAT 20.2% 20.4% 15.1% 18.3% 20.2% 20.8% 20.9% 23.2% 24.9% 21.9% 17.7% 15.0% 18.3% 18.3% 21.4% 19.6% EPS 18.8% 19.1% 13.9% 17.0% 18.8% 19.7% 20.0% 23.8% 24.8% 21.9% 17.7% 15.0% 17.0% 17.0% 20.6% 19.6% Advances 23.2% 18.1% 13.4% 19.4% 23.4% 21.0% 25.7% 19.0% 18.1% 18.1% 18.1% 19.0% 19.4% 19.4% 19.0% 19.0% Deposits 18.5% 16.7% 21.1% 17.8% 17.0% 16.9% 13.3% 12.0% 12.7% 12.7% 12.7% 20.0% 17.8% 17.8% 12.0% 20.0% Total Business 20.6% 17.4% 17.6% 18.5% 19.9% 18.8% 18.7% 15.2% 15.2% 15.2% 15.2% 19.5% 18.5% 18.5% 15.2% 19.5% July 25, 2017 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page 9 of 14

10 Sep/12 Mar/13 Sep/13 Mar/14 Sep/14 Mar/15 Sep/15 Mar/16 Sep/16 Mar/17 Sep/17 Mar/18 Sep/18 Sep/12 Mar/13 Sep/13 Mar/14 Sep/14 Mar/15 Sep/15 Mar/16 Sep/16 Mar/17 Sep/17 Mar/18 Sep/18 Standalone financials HDFC Bank Absolute ADD Relative Equal Weight 7.6% ATR in 14 Months P&L (Rsbn) FY17A FY18E FY19E FY20E Balance Sheet (Rsbn) FY17A FY18E FY19E FY20E Particulars FY17A FY18E FY19E FY20E Interest Income ,148 Capital Asset Quality Interest Expense Reserves and Surplus 889 1,032 1,198 1,397 Gross NPA (Rsbn) Net Interest Income Deposits 6,436 7,209 8,651 10,381 Gross NPA (%) 1.1% 1.3% 1.2% 1.0% % Growth 20.1% 21.1% 18.2% 17.8% Borrowings 740 1,447 1,643 1,869 Net NPA (Rsbn) Treasury Income Other Liabilities Net NPA (%) 0.3% 0.4% 0.4% 0.4% Other Inc Total liabilities 8,638 10,316 12,190 14,420 % coverage of NPA 68.7% 67.2% 68.3% 62.4% Total Income Cash & Bal with RBI Delinquencies (%) 1.5% 1.6% 1.4% 1.4% Employees Expenses Bal. with banks Business Ratios Other Op. Expenses Investments 2,145 2,641 3,085 3,618 Credit / Deposit(%) 86.2% 91.5% 90.8% 90.0% Operating Profit Advances 5,546 6,599 7,853 9,345 Investment/ Deposit 33.3% 36.6% 35.7% 34.9% % Growth 20.5% 23.5% 18.8% 18.0% Fixed Assets CASA (%) 48.0% 51.3% 49.0% 48.0% Tax Other Assets RoaA (%) 1.8% 1.9% 1.9% 1.9% Total Provisions Total assets 8,638 10,316 12,190 14,420 RoE (%) 17.9% 18.3% 18.8% 19.0% Net Profit % Growth 16.6% 19.4% 18.2% 18.3% Dividend Yield (%) 0.6% 0.8% 0.9% 1.0% % Growth 18.3% 21.4% 19.6% 17.0% Key assumptions CAR Earnings Ratios Deposits RWA (Rs. Bn) 6,400 7,495 8,776 10,277 Int Inc. / Avg.assets 8.6% 8.7% 8.7% 8.6% Avg deposit growth 17.8% 12.0% 20.0% 20.0% Tier I (%) 12.8% 13.7% 13.6% 13.4% Int Exp./ Avg. assets 4.5% 4.5% 4.5% 4.4% Avg cost of deposits 5.3% 5.1% 5.0% 4.9% Tier II (%) 1.8% 1.8% 1.5% 1.3% NIM (%) 4.4% 4.5% 4.5% 4.4% Advances Total CAR (%) 14.6% 15.5% 15.1% 14.7% Int. exp/ Int earned 52.2% 51.3% 51.5% 51.3% Avg. advances growth 19.4% 19.0% 19.0% 19.0% Per Share Data Oth. Inc./ Tot. Inc. 27.1% 26.2% 25.9% 25.6% Avg yield on advances 10.2% 10.1% 10.0% 9.9% BVPS, Rs Staff ex/total opex 32.9% 32.1% 32.1% 32.0% Investments Adj. BVPS, Rs Cost/ Income Ratio 43.4% 41.6% 41.0% 40.6% Avg. investments gr 9.5% 23.2% 16.8% 17.3% Price/ Adj. BV Prov./ Op Profit 14.0% 15.8% 15.3% 16.0% Avg. YoI 7.9% 8.3% 8.2% 8.1% EPS, Rs Prov./Avg. loans 0.7% 0.8% 0.8% 0.8% P/E Ratio TTM P/E vs. 2 yr forward EPS growth TTM P/B vs. 2 yr forward RoE EPS Growth 30% 24% 18% 12% 6% 0% 27x 22x 17x 12x 7x RoE 25% 20% 15% 10% 5% 0% 5.0x 4.0x 3.0x 2.0x 1.0x July 25, 2017 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page 10 of 14

11 Historical standalone financials HDFC Bank Absolute ADD Relative Equal Weight 7.6% ATR in 14 Months P&L (Rsmn) FY14A FY15A FY16A FY17A Balance Sheet (Rsmn) FY14A FY15A FY16A FY17A Particulars FY14A FY15A FY16A FY17A Interest Income Capital Asset Quality Interest Expense Reserves and Surplus Gross NPA (Rsmn) Net Interest Income Deposits 3,673 4,508 5,464 6,436 Gross NPA (%) 1.0% 0.9% 0.9% 1.1% % Growth 16.9% 21.2% 23.2% 20.1% Borrowings Net NPA (Rsmn) Treasury Income Other Liabilities Net NPA (%) 0.3% 0.2% 0.3% 0.3% Other Inc Total liabilities 4,916 5,905 7,088 8,638 % coverage of NPA 72.6% 73.9% 69.9% 70.8% Total Income Cash Balance with RBI Delinquencies (%) 1.7% 1.4% 1.4% 1.5% Employee Expense Bal. with bank Business Ratios Other Opex Investments 1,210 1,516 1,639 2,145 Credit / Deposit(%) 82.5% 81.1% 85.0% 86.2% Operating Profit Advances 3,030 3,655 4,646 5,546 Investment/ Deposit 32.9% 33.6% 30.0% 33.3% % Growth 25.7% 21.2% 22.7% 20.5% Fixed Assets CASA (%) 44.8% 44.0% 43.2% 48.0% Tax Other Assets RoaA (%) 1.9% 1.9% 1.9% 1.9% Total Provisions Total assets 4,916 5,905 7,088 8,638 RoE (%) 21.3% 19.4% 18.3% 18.0% Net Profit % Growth 22.8% 20.1% 20.0% 21.9% Adjusted RoE (%) 0.5% 0.5% 0.6% 0.8% % Growth 26.0% 20.5% 20.4% 18.8% Key assumptions CAR Earnings Ratios Deposits RWA (Rs. Bn) 3,453 4,227 5,298 6,400 IntInc/Avg. assets 9.2% 9.0% 9.3% 8.8% Avg deposit growth 24.0% 22.7% 21.2% 17.8% Tier I (%) 11.8% 13.7% 13.2% 12.8% IntExp/Avg assets 5.1 % 4.8 % 5.0 % 4.6 % Avg cost of deposits 5.7% 5.7% 5.9% 5.4% Tier II (%) 4.3% 3.1% 2.3% 1.8% NIM 4.1 % 4.1 % 4.2 % 4.2 % Advances Total CAR (%) 16.1% 16.8% 15.5% 14.6% Int. exp/int earning 55.1% 53.8% 54.2% 52.2% Avgadv growth (%) 26.4% 20.6% 27.1% 19.4% Per Share Data OthInc/Tot. Inc. 30.0% 28.7% 28.0% 27.1% Avg yield on adv (%) 11.7% 11.1% 10.8% 10.2% BVPS, Rs Staff exp/total exp 34.7% 34.0% 33.6% 32.9% Investments Adj. BVPS, Rs Cost/Inc Ratio 45.6% 44.6% 44.3% 43.4% Avg invest growth (%) 8.4% 25.4% 8.1% 30.9% Price/ ABV Prov/Op Profit 11.1% 11.9% 12.8% 13.9% Avg yield on invest (%) 7.9% 7.4% 9.2% 8.6% EPS, Rs Total prov/avg. loan 0.6% 0.6% 0.7% 0.7% P/E Ratio July 25, 2017 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page 11 of 14

12 Equirus Securities Research Analysts Sector/Industry Equity Sales Abhishek Shindadkar IT Services VishadTurakhia Ashutosh Tiwari Auto, Metals & Mining Subham Sinha Depesh Kashyap Mid-Caps SwetaSheth Devam Modi Power & Infrastructure Viral Desai DhavalDama FMCG, Mid-Caps BinoyDharia Manoj Gori Consumer Durables Dealing Room Maulik Patel Oil and Gas Ashish Shah Praful Bohra Pharmaceuticals IleshSavla Rohan Mandora Banking & Financial Services Manoj Kejriwal Associates Dharmesh Mehta Ankit Choudhary SandipAmrutiya Ashdeep Kaur Compliance Officer Bharat Celly Jay Soni Harshit Patel Meet Chande ParvaSoni Pranav Mehta RonakSoni Samkit Shah ShreepalDoshi Vikas Jain Rating & Coverage Definitions: Absolute Rating LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap >Rs 5 billion andatr >= 20% for rest of the companies ADD: ATR >= 5% but less than Ke over investment horizon REDUCE: ATR >= negative 10% but <5% over investment horizon SHORT: ATR < negative 10% 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) July 25, 2017 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page 12 of 14

13 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. 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Thus, investors should be aware that the firm may have conflict of interest. July 25, 2017 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page 13 of 14

14 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. July 25, 2017 Analyst: Rohan Mandora rohan.mandora@equirus.com ( )/Ankit Choudhary ankit.choudhary@equirus.com Page 14 of 14