Banking - 3QFY2013 Result Review

Transcription

1 Result Review Banking February 26, 2013 Banking - 3QFY2013 Result Review Economic environment remains challenging 3QFY2013 snapshot - Asset quality stress continues, as slippages remain elevated; but the extent of asset quality deterioration shows diminishing signs: Annualized slippage ratio for PSU banks under our coverage moderated to 2.8%, from 3.5% in 2QFY2013. Considering different disclosure practices being followed by banks, wherein some net-off any inter-quarter movement of NPAs, while some don t, to corroborate our understanding that the extent of asset quality deterioration is increasingly reflecting diminishing signs, during 9MFY2013 the increase in annualized slippage ratio was 43bp yoy, lower than the increase of 91bp yoy witnessed in 1HFY2013. Most of our coverage PSU banks witnessed moderate performance on the recoveries & upgrades, which led to an 8.0% qoq increase in gross NPAs for them. Private banks continue to perform relatively much better vis-à-vis PSU banks on the asset quality front, as they not only reported sequentially lower slippages, but also posted better recoveries and upgrades performances, which aided them to limit the sequential increase in their gross NPA levels to just 1.2% in 3QFY2013, much lower compared to an increase of 3.7% witnessed in last quarter. Asset quality pressures continued to reflect on the sector s margins during the quarter, as nearly half of our coverage banks reported sequentially lower margins, primarily due to higher interest reversals/lower income recognition during 3QFY2013 on increased slippages/elevated gross NPA inventory. Overall, PSU banks reported a weak performance during 3QFY2013, as interest reversals/lower interest recognition and higher provisioning led to a 5.1% yoy decline in bottom-line. Private banks continued to report impressive performances, with an operating profit growth of 25.1% yoy. On the earnings front, new private banks reported a strong growth of 28.7% yoy, while old private banks witnessed a healthy growth of 20.3% yoy. Banking indicators Particulars* (%) Latest yoy credit growth 16.4 Latest yoy deposit growth 13.2 Latest credit-to-deposit ratio 77.6 Monthly Avg. LAF (` cr) 108,649 Monthly Avg. 1 yr G-Sec yield 7.8 Monthly Avg. 10 yr G-Sec yield 7.9 Monthly Avg. 3M CP 9.3 Monthly Avg. 12M CP 9.5 Source: RBI, Bloomberg, Angel Research; Note*: Monthly averages are on preceding 30 day basis Policy rates Particulars (%) Repo rate 7.75 Reverse repo rate 6.75 MSF rate 8.75 Cash reserve ratio (CRR) 4.00 Statutory liquidity ratio (SLR) Source: RBI, Angel Research Given the economic environment, continue to prefer Private banks: Decelerating economic growth environment, policy woes in select sectors and elevated inflation and interest rates point towards further economic stress and are not suggesting any conclusive trigger for improvement in asset quality in the near-term. Hence, we prefer private banks, given their favorable cyclical and structural outlook, with Axis Bank and ICICI Bank being our top picks. But with the risk of higher competitive intensity in light of higher number of likely new entrants, the upsides are expected to be relatively more moderate than estimated earlier. Due to cyclical macro concerns, PSU banks are already trading at depressed valuations. Even, higher number of likely new entrants in the sector, create a structural impediment for PSU banks medium-term re-rating, as we expect them to lose market share in any case, considering their capital crunch. Upsides in these stocks would largely depend on an eventual economy turn-around, which would lead to lower re-pricing of high-cost deposits (relative benefit for low-casa banks) and higher recoveries (relative benefit for banks that have experienced maximum asset quality pain, and importantly, also provided for it already). Screening for these criteria, as well as Tier-1 capital adequacy and trailing adjusted valuations, in our view, PSU banks that would stand to gain the most from an eventual turn-around include State Bank of India (SBI) and Punjab National Bank (PNB) among the large-caps and United Bank, Corporation Bank and Indian Bank among the mid-caps. Vaibhav Agrawal Ext: 6808 vaibhav.agrawal@angelbroking.com Sourabh Taparia Ext: 6872 sourabh.taparia@angelbroking.com Please refer to important disclosures at the end of this report 1

2 IDBI ANDBK ALLBK IOB J&KBK CRPBK SIB AXSB YESBK UTDBK UCOBK ICICIBK OBC DENABK VIJAYA PNB CENTBK SYNBK BOI INDBK SBI UNBK BOM HDFCBK FEDBK BOB CANBK Asset quality pressures continue to reflect on margins Asset quality pressures continue to reflect on the banking sector s margins during the quarter, as nearly half of our coverage banks reported sequentially lower margins. Canara Bank (CANBK), Bank of Baroda (BOB) and Federal Bank (FEDBK) witnessed the highest sequential margin compression; primarily due to higher interest reversals/lower income recognition during 3QFY2013 on increased slippages/elevated gross NPA inventory (slippages for BOB and FEDBK were higher by 40.9% and 193.1% qoq, respectively). Exhibit 1: Margins compressed for most banks Exhibit 2: New Pvt. Banks* continue to outperform on NII front % chg (yoy) % chg (qoq) (5) (10) 10.0 (15) (20) New Pvt. Old Pvt. Mid PSUs Large PSUs, Note:*Domestic NIMs for SBI, BOB and BOI, Note: *our coverage banks Exhibit 3: Our coverage banks performance on reported margins front Bank 3QFY2013 2QFY2013 Chg (bps) Bank 3QFY2013 2QFY2013 Chg (bps) HDFCBK (10.0) UNBK (7.0) J&KBK BOM (10.0) SBI (5.0) DENABK AXSB OBC FEDBK (11.0) BOI (4.0) PNB (3.0) UTDBK ANDBK CENTBK (4.0) SYNBK (4.0) IOB SIB CANBK (17.0) BOB (15.0) CRPBK INDBK (5.0) UCOBK ICICIBK IDBI ALLBK VIJAYA (2.0) YESBK , Note: *domestic margins for SBI, BOB, BOI February 26,

3 Exhibit 4: CD ratio expanded sequentially for most of the banks under our coverage Bank CD ratio 2QFY13 CD Ratio 3QFY13 Chg (bps) Bank CD ratio 2QFY13 CD Ratio 3QFY13 Chg (bps) CRPBK SIB IOB UNBK UTDBK CENTBK PNB BOM CANBK INDBK DENABK SYNBK FEDBK BOB SBI HDFCBK VIJAYA AXSB ICICIBK J&KBK BOI IDBI (78) ALLBK YESBK (260) ANDHBK UCOBK (269) OBC , CASA deposits growth remains moderate Growth in savings deposits for our coverage banks (excluding Indian Bank [INDBK], due to unavailability of data) remained moderate at 12.8%, on back of persistent high differential between savings and term deposit rates. The growth in current deposits for our coverage banks (excluding INDBK, due to unavailability of data), at 9.9% yoy, was also moderate considering the decelerating economic environment. Private banks continue to outperform their PSU peers on the savings deposits (SA) front, with a growth of 16.8% yoy. Amongst our coverage Private banks, Yes Bank witnessed the highest SA growth (significant traction being witnessed post the hike in savings rate to 6-7%). Within large private banks, while Axis Bank (AXSB) and HDFC Bank (HDFCBK) fared well and reported a healthy growth of 21.6% and 16.5%, yoy respectively, ICICIBK witnessed a moderate growth of 10.8% yoy. Amongst PSU banks, the top two performers on the SA front were IDBI Bank (20.6% yoy growth on account of traction post waiver of CASA charges during FY2012) and Jammu & Kashmir Bank (J&K Bank; 16.7% yoy growth considering insulation from competition in its parent state of J&K). On the current deposits (CA) front, UCO Bank registered a strong performance, as its CA deposits more than tripled on a yoy basis, due to substantial float being made available on opening of rupee accounts with the bank for facilitating Indo- Iran trade payments. Amongst other PSU banks, the top two performers on the CA front were Bank of Maharashtra (BOM; 28.1% yoy growth) and Oriental Bank of Commerce (OBC; 23.0% yoy growth). PSU banks managed to outperform their private counterparts on the CA front this time around, with a growth of 12.7% yoy, compared to a subdued growth of 3.7% yoy for Private banks, whose performance on the CA front was dragged by a 10.9% yoy decline witnessed by ICICI Bank (ICICIBK) and subdued growth of 2.0% yoy registered by AXSB. February 26,

4 YESBK IDBI ICICIBK CORPBK VIJBK CANBK FEDBK OBC UCOBK IOB SIB ALLBK ANDHBK INDBK J&KBK UNIONBK AXSB DENABK PNB BOM UTDBK CENTBK SYNBK BOI BOB HDFCBK SBI Exhibit 5: CASA yearly growth rate trends Bank SA - 3QFY13 SA - 3QFY12 yoy growth CA - 3QFY13 CA - 3QFY12 yoy growth CASA - 3QFY13 CASA - 3QFY12 yoy growth YESBK 4,905 1, ,436 4, ,341 5, UCOBK 28,350 25, ,341 6, ,691 31, IDBI 20,445 16, ,124 17, ,569 34, BOM 25,341 22, ,359 6, ,700 28, HDFCBK 81,942 70, ,048 40, , , ALBK 42,534 36, ,002 7, ,536 44, OBC 29,724 26, ,505 8, ,229 34, FEDBK 12,324 11, ,879 2, ,203 13, JKBK 17,479 14, ,027 4, ,506 19, BOB 79,980 71, ,958 22, ,938 94, PNB 117, , ,345 23, , , AXSB 57,521 47, ,236 39, ,757 86, BOI 72,000 63, ,972 14, ,972 78, UNBK 54,470 48, ,331 18, ,801 66, UTDBK 28,997 25, ,822 7, ,819 32, ANDBK 22,679 20, ,585 5, ,265 26, CNTBK 57,101 51, ,898 10, ,999 61, DENABK 20,216 18, ,083 5, ,299 23, SIB 6,500 6, ,500 1, ,000 7, SYNBK 36,930 32, ,430 11, ,360 44, SBI 410, , ,094 79, , , VIJBK 14,163 13, ,531 4, ,694 17, CANBK 68,689 63, ,473 12, ,162 75, CRPBK 18,904 17, ,818 9, ,722 26, INDBK NA 29,489 NA NA 6,430 NA 38,268 35, IOB 36,733 33, ,606 10,300 (6.7) 46,339 43, ICICIBK 81,463 73, ,674 40,039 (10.9) 117, , CASA Ratio Exhibit 6: CASA ratio and Investment-to-deposits ratio for our coverage PSU banks as of 3QFY CASA ratio - (%) Investments to Deposits - (%) , Note: For INDBK, Investment-to-deposits ratio as of 2QFY2013 February 26,

5 Exhibit 7: Yield on advances # for banks under our coverage Bank 9MFY13 9MFY12 Chg (bps) Bank 9MFY13 9MFY12 Chg (bps) YESBK CRPBK SIB AXSB JKBK PNB (21) FEDBK (76) UTDBK ANDBK (35) CANBK HDFCBK IOB (10) OBC BOM (58) DENABK SYNDBK (53) INDBK (36) UNBK UCOBK ICICIBK* ALBK (73) SBI* (6) IDBI (23) BOB* (8) VIJBK (26) BOI* (7) CNTBK , Note:*including international operations, # Calculated Exhibit 8: Risk adjusted yield on assets # for banks under our coverage Bank 9MFY13 9MFY12 Chg (bps) Bank 9MFY13 9MFY12 Chg (bps) SIB PNB YESBK CNTBK JKBK IOB ANDBK UNBK FEDBK SYNDBK (9) DENABK BOM (1) HDFCBK IDBI (64) INDBK (6) UCOBK VIJBK SBI* OBC ICICIBK* CANBK UTDBK (1) ALBK (13) BOI* CRPBK BOB* (9) AXSB , Note:*including international operations, # Calculated Subdued performance continues on the non-interest income (excluding treasury) front Our coverage banks performance on the non-interest income (excluding treasury) front in 3QFY2013, remained subdued at 5.0% yoy, similar to the modest growth of 4.7% yoy during the last quarter, largely due to muted performance on the fee income front. Most banks reported a sluggish performance on the fee income front, largely due to slowed credit off-take and waiver of processing charges for various products, both on the assets and liabilities side. Even, the performance of Private banks on the non-interest income (excluding treasury) front moderated to 7.9% yoy, but they were able to comfortably outperform the coverage PSU banks, which saw a modest growth of 3.6% yoy. February 26,

6 Amongst PSU banks, despite a yoy decline witnessed in three of seven banks (BOB, CANBK and PNB), 72.4% yoy growth in IDBI Bank, aided the larger PSU banks pack to register a growth of 4.2% yoy, much better than the marginal growth of 2.0% yoy witnessed in the mid-psu banks, whose performance was dragged by yoy decline witnessed in nearly one-third of our coverage mid-psus. Amongst mid- PSU banks, the better performers were Oriental Bank of Commerce (OBC), United Bank (UTDBK) and Indian Overseas Bank (IOB); (OBC and IOB witnessed significant jump in recoveries from written-off accounts, income from exchange transactions increased substantially for UTDBK), whereas the worst performers were INDBK and Allahabad Bank (ALBK). Exhibit 9: Non-interest income (excl. treasury) performance for banks under our coverage As % to avg. assets Bank 3QFY2013 2QFY2013 % chg (qoq) 3QFY2012 % chg (yoy) 9MFY2012 9MFY2013 Chg (bps) AXSB 1,456 1, , (11) HDFCBK 1,663 1, , ICICIBK 1,964 1, , (15) YESBK SBI 3,230 3, , (14) IDBI BOI OBC (11.0) PNB (1.3) (9) IOB (4) CRPBK (3.1) (6) UNBK (1) INDBK (38.1) 263 (21.5) (14) CANBK (4.4) (13) UTDBK FEDBK (3.8) (11) ANDHBK (2.4) 219 (4.5) BOM (3.3) (16) BOB (1.6) 764 (7.7) (11) ALLBK (12.1) (18) SIB (14.6) 54 (2.4) DENABK (2.0) (15) SYNBK (4.4) 235 (0.5) (9) J&KBK (2) CENTBK (2) VIJAYA (5) UCOBK (10.9) (4) February 26,

7 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 Asset quality stress continues as slippages remain elevated; but the extent of asset quality deterioration shows diminishing signs Asset quality concerns, which had made FY2012 a challenging year for the banking sector (specifically for the PSU banks), continue to plague the sector s fundamentals even in 9MFY2013. Considering the weak economic growth environment, inflation persisting at stubborn levels, and continuing burden of high interest servicing costs, incremental slippages have remained elevated and much above comfort levels; however, the extent of asset quality deterioration has shown signs of moderation. During 3QFY2013, the annualized slippage ratio for banks under our coverage (excl. HDFCBK and YESBK, due to unavailability of data), moderated to 2.6%, from 3.3% in 2QFY2013 and 3.1% in 1QFY2013. However, considering different disclosure practices being followed by banks, wherein some net-off any interquarter movement of NPAs (within the same year), while some don t, we also compare cumulative reported slippages on a yoy basis, which also corroborates our understanding that the extent of asset quality deterioration is increasingly reflecting diminishing signs. While the annualized slippage ratio was higher by 38bp yoy from 2.6% in 9MFY2012 to 3.0% in 9MFY2013, the increase was, however, lower than what was witnessed in 1HFY2013, when the annualized slippage ratio increased by 57bp yoy to 3.2% from 2.6% in 1HFY2012. Exhibit 10: Gross NPA trend (%) for the banking industry Exhibit 11: Net NPA trend (%) for the banking industry Exhibit 12: Gross NPA trends (%) Private vs. PSU Exhibit 13: Net NPA trends (%) Private vs. PSU Pvt Banks PSU Banks Pvt Banks PSU Banks February 26,

8 Exhibit 14: Slippages moderate sequentially in 3QFY13; even the increase in 9MFY13 is lower than in 1HFY13 Bank 3QFY13 2QFY13 chg (bps) 9MFY13 9MFY12 chg (bps) 1HFY13 1HFY12 chg (bps) ALLBK (261) UCOBK (111) INDBK PNB (297) SIB (267) IOB (216) BOB BOM SYNBK (34) CRPBK CENTBK (155) CANBK (105) DENABK (36) J&KBK ANDHBK (152) SBI ICICIBK (58) AXSB (20) YESBK NA NA NA NA NA NA NA NA NA HDFCBK NA NA NA NA NA NA NA NA NA BOI (243) (9) (63) UTDBK (41) (141) UNBK (26) (46) (70) IDBI (61) (13) FEDBK (81) (139) OBC (100) (150) VIJAYA (174) (160) (80) Aggregate level PSU (72) Mid PSU (82) Large PSU (53) Pvt (30) New Pvt (43) Old Pvt (7) (18) Amongst large PSU banks, while PNB, CANBK, Union Bank of India (UNBK) and Bank of India (BOI), witnessed a sequential reduction in their quarterly slippage ratios (PNB and BOI, which had witnessed sharp jump in slippages in 2QFY2013, managed to lower their slippages the most), quarterly slippage ratio came in higher sequentially for SBI and BOB and was largely stable for IDBI Bank. Large PSU banks, as a segment, saw a reduction in the extent of asset quality deterioration, as the increase in annualized slippage ratio during 9MFY2013 came in at 26bp yoy to 3.2% (from 2.9% in 9MFY2012) compared to an increase of 56bp yoy in 1HFY2013 to 3.5% (2.9% in 1HFY2012). February 26,

9 Amongst the mid-psu banks, ALBK, IOB, Vijaya Bank (VIJBK), Central Bank (CNTBK) and Andhra Bank (ANDBK), which had seen a sharp jump in slippages in 1HFY2013, managed to lower their annualized slippage ratio by ~ bp. Banks such as INDBK and UTDBK witnessed a sharp increase in slippages. Hence, the overall mid-psu segment saw similar extent of asset quality deterioration as the increase in annualized slippage ratio during 9MFY2013 came in at 73bp yoy, compared to an increase of 75bp yoy witnessed in 1HFY2013. Segment-wise, slippages for most of the PSU banks continue to emanate largely from the mid corporate and SME segments. Sectorally, a higher chunk of NPAs for most of the PSU banks came from textiles, iron and steel and infrastructure. Unlike last quarter, this time around, neither there were any prominent common names on the slippage front, nor any of our coverage banks reported any major slippage on account of classification differences arising at the Reserve Bank of India (RBI) s annual financial inspection. Despite increased recoveries/upgrades efforts, considering the challenges in economic environment, most PSU banks reported a moderate performance on the recoveries/upgrades front, even after taking into account increased inventory of slippages. Hence, gross NPA levels for our coverage PSU banks were higher sequentially by 7.9% during the quarter (the increase for large PSU banks was 6.6% qoq, lower compared to 10.6% qoq increase for mid-psu banks). Even worse, this was accompanied by a significant decline in the provisioning coverage for most of our coverage PSU banks, with the few exceptions being Syndicate Bank (SYNDBK) and BOM (in line with our relatively positive view on asset quality compared to peers) as well as UNBK, IDBI Bank, PNB, JKBK, VIJBK and CNTBK, which led to a sequentially higher increase in net NPA levels at 8.6% during the quarter. On the other hand, Private banks continue to perform relatively much better vis-àvis PSU banks on the asset quality front, as they not only reported sequentially lower slippages, but also posted better recoveries and upgrades performances, which aided them to limit the sequential increase in their gross and net NPA levels to just 1.2% and 6.7%, respectively in 3QFY2013, much lower compared to an increase of 3.7% and 12.9% qoq, respectively witnessed in gross and net NPA levels during 2QFY2013. Going forward, considering the weakening GDP growth environment and with downward movement in interest rates expected to be relatively much slower than earlier estimated, the mid-corporate and SMEs are expected to remain vulnerable to being NPAs going ahead as well, in our view. February 26,

10 Exhibit 15: Asset quality continue to deteriorate during 3QFY2013 GNPA(` cr) NNPA(` cr) PCR (%) Bank 3QFY13 2QFY13 qoq (%) 3QFY13 2QFY13 qoq (%) 3QFY13 2QFY13 chg (bps) INDBK 3,180 1, ,142 1, (974) BOB 7,321 5, ,363 2, (484) UTDBK 2,902 2, ,416 1, (190) CRPBK 2,284 1, ,698 1, (242) HDFCBK 2,432 2, (225) UCOBK 6,711 5, ,927 3, (25) DENABK 1,317 1, (190) IOB 6,516 5, ,595 3, ANDHBK 3,302 3, ,023 1, (71) IDBI 6,401 5, ,302 3,395 (2.7) FEDBK 1,564 1, (608) SBI 53,458 49, ,370 22, (129) CANBK 6,090 5, ,134 4, (202) ALLBK 3,532 3, ,478 2, OBC 3,690 3, ,611 2, (92) J&KBK (10.5) CENTBK 8,938 8, ,864 5, AXSB 2,275 2, PNB 13,998 14,024 (0.2) 7,586 7,883 (3.8) VIJAYA 1,889 1,897 (0.4) 1,098 1,116 (1.6) SYNBK 3,160 3,179 (0.6) 1,141 1,164 (2.0) BOM 1,284 1,292 (0.6) (12.9) UNBK 6,384 6,470 (1.3) 3,169 3,559 (11.0) ICICIBK 9,763 10,036 (2.7) 2,182 2, (108) BOI 8,625 8,899 (3.1) 5,455 5, (22) SIB (4.3) (18.7) YESBK (25.9) (22.7) (85) Exhibit 16: Aggregate gross NPA levels Private Banks Bank (` cr) 3QFY13 2QFY13 3QFY12 %yoy %qoq Pvt. New 15,709 15,613 14, Pvt. Old 4,956 4,719 3, Total 20,665 20,332 18, Exhibit 17: Aggregate gross NPA levels PSU Banks Bank (` cr) 3QFY13 2QFY13 3QFY12 %yoy %qoq PSU Large 102,277 95,931 70, PSU Mid 50,586 45,622 31, Total 152, , , Exhibit 18: Aggregate net NPA levels Private Banks Bank (` cr) 3QFY13 2QFY13 3QFY12 %yoy %qoq Pvt. New 3,820 3,651 3, Pvt. Old 1,861 1,695 1, Total 5,681 5,346 4, Exhibit 19: Aggregate net NPA levels PSU Banks Bank (` cr) 3QFY13 2QFY13 3QFY12 %yoy %qoq PSU Large 53,380 49,634 36, PSU Mid 30,283 27,285 16, Total 83,664 76,919 52, February 26,

11 Accretion to the restructuring book moderates Fresh addition to the restructuring book moderated during 3QFY2013, compared to what was witnessed in the last few quarters (where restructuring of discoms contributed a larger chunk). Amongst our coverage PSU banks, PNB, BOI, IDBIBK, UNBK, CNTBK and UTDBK witnessed higher sequential increases in their restructuring books during the quarter, compared to the increase witnessed in last quarter. While in case of PNB, higher restructuring during the quarter was on account of restructuring of a chunky Suzlon advance; textile and steel sector advances contributed a large part of the increase in restructuring book in case of BOI and UNBK, respectively. During the quarter, all banks provided for 75bp increase in provisioning requirement on standard restructured advances. Recently RBI has, in its draft prudential guidelines on restructuring of advances, proposed to increase the provisioning on outstanding standard restructured stock as of March 31, 2013 (calculated after upgrading accounts based on two years of satisfactory performance) from the current 2.75% to 3.75% by FY2014 (spread over four quarters of FY2014) and to 5% by FY2015 (spread over four quarters of FY2015). However, in case of any fresh restructuring after April 1, 2013, provisioning at the rate of 5% has to be made. Though many banks have stated that they expect no major restructuring to be in the pipeline, however, as indicated by their Managements, restructuring pipeline appears substantial for banks like SBI (~`8,000cr, which will include Suzlon advance worth ~`3,500cr) and UNBK (~`1,700cr). Even, fresh approvals through the CDR route (`24,581cr in 3QFY2013 vs. `18,925cr in 2QFY2013) and pending cases amounting to `23,065cr are likely to keep the restructuring pipeline for most banks active. February 26,

12 Exhibit 20: Restructuring book as of 3QFY2013 Bank (` cr) Rest. book as of 3QFY13 Rest. book as of 2QFY13 Ch.qoq (%) % to total adv. Comments CENTBK 22,182 21, Outstanding restructured book ANDHBK 10,382 9, Outstanding restructured book ALLBK 13,069 12, Outstanding restructured book INDBK 10,650 10, Outstanding restructured book, stated borrower-wise PNB 30,329 27, Outstanding restructured book, stated borrower-wise IOB 15,608 14, Outstanding restructured book, stated borrower-wise OBC 11,798 11, Outstanding restructured book IDBI 15,133 12, Outstanding restructured book CRPBK 8,895 8, UNBK 15,565 14, Cumulative restructured book BOI 21,766 20, Outstanding restructured book BOB 22,993 21, Cumulative restructured book DENABK 4,700 4, SYNBK 9,800 9, BOM 5,266 NA NA 7 UTDBK 4,557 4, UCOBK 8,333 7, Outstanding standard restructured book VIJAYA 4,352 4, FEDBK 2,670 2, CANBK 14,501 14,895 (2.6) 7 Outstanding restructured book SIB 1,348 1, SBI 34,783 40,454 (14.0) 4 restructured book revised in 3QFY13, after upgrading satisfactory advances AXSB 4,257 4, ICICIBK 4,169 4, YESBK (1.6) 0. February 26,

13 Exhibit 21: CDR Snapshot Year (` cr) Referred Approved No. of cases Additions No. of cases Additions FY , ,763 FY , ,615 1QFY , ,141 2QFY , ,095 3QFY , ,364 9MFY , ,600 4QFY , ,001 FY , ,601 1QFY , ,957 2QFY , ,925 3QFY , ,581 9MFY , ,463 Outstanding , ,978 Exhibit 22: Fund-based sectoral exposures across PSU banks, as of 1HFY2013 Bank Infra + Power Metals & Mining Fund Based Exposures Textiles Metals + Textiles Total Dom. loan book Fund Based Exp. as % to total dom. loans Infra + Power Metals & Mining Textiles Metals + Textiles CNTBK 51,015 7,149 4,942 12, , IDBIBK 53,122 20,523 9,528 30, , UCOBK* 34,266 13,945 6,452 20, , ANDBK 20,901 5,280 4,624 9,904 85, CANBK 46,081 17,742 10,893 28, , DENABK* 11,869 3,085 2,227 5,312 56, VIJBK* 12,096 3, ,674 57, UNBK 33,918 11,064 4,952 16, , OBC 24,187 9,956 6,212 16, , PNB 54,578 20,706 7,308 28, , INDBK 17,752 4,844 3,793 8,637 89, UTDBK 11,841 5,279 1,283 6,563 61, ALBK* 20,380 7,777 3,278 11, , BOI 32,543 17,087 8,349 25, , CRPBK 17,305 4,758 4,191 8,949 98, IOB 21,488 11,933 6,474 18, , BOB 32,773 15,235 4,616 19, , SYNDBK 17,287 4,461 1,986 6, , BOM 9,713 3,315 1,464 4,779 63, J&KBK 4,697 2, ,514 34, , Note- *as of FY2012 February 26,

14 New Private banks continue to shine on earnings front, while performance of PSU banks remained weak, dented by persistent asset quality stress During 3QFY2013, PSU banks reported a weak performance, primarily dented by persistent asset quality pressures, as interest reversals/lower income recognition and higher provisioning impacted the bottom-line performance of large PSU banks, whereas for mid-psu banks earnings declined by 16.0% yoy. On the NII front, large PSU banks registered a subdued growth of 3.5% yoy, whereas the growth in the mid-psu banks segment was moderate at 7.3% yoy, on account of reduced interest rates across various retail and other products (as almost all large and many mid-psus had reduced interest rates so as to garner more of higher risk-adjusted yield offering assets) and also due to persistent asset quality pressures. Hence, while the growth in operating income remained moderate (growth of 5.7% and 6.4%, respectively for large PSU banks and mid-psu banks), the increase in operating expenses was higher (growth of 12.4% and 11.4% yoy, respectively for large PSU banks and mid-psu banks), which resulted in the operating profit growing at a subdued pace of 1.0% and 2.6% yoy, respectively for large PSU banks and mid-psu banks. Exhibit 23: Large PSU banks P&L Parameter (` cr) 3QFY13 2QFY13 % chg (qoq) 3QFY12 % chg (yoy) NII 25,330 24, , Other Income 8,752 7, , Operating Income 34,082 32, , Operating Expenses 15,082 14, , Pre provision profit 18,999 17, , Provisions 7,861 6, , PBT 11,138 11,344 (1.8) 11,185 (0.4) Tax 3,192 3,318 (3.8) 3,284 (2.8) Net Profit 7,946 8,026 (1.0) 7, Exhibit 24: Mid-PSU banks P&L Parameter (` cr) 3QFY13 2QFY13 % chg (qoq) 3QFY12 % chg (yoy) NII 14,432 13, , Other Income 3,810 3, , Operating Income 18,242 17, , Operating Expenses 8,280 7, , Pre provision profit 9,962 9, , Provisions 5,858 4, , PBT 4,104 4,982 (17.6) 5,192 (21.0) Tax 736 1,102 (33.2) 1,177 (37.5) Net Profit 3,368 3,880 (13.2) 4,015 (16.1) Continued asset quality stress (evident in 44.7% and 61.4% yoy increase in gross NPA levels for large PSU banks and mid-psu banks respectively), led to provisioning expenses growing by 29.8% yoy for mid-psu banks and only 3.0% yoy for large PSU banks (SBI, PNB and UNBK had high base of provisioning expenses in 3QFY2012 and hence provisioning expenses for these banks were lower yoy). Higher provisioning expenses resulted in PBT declining by 21.0% yoy for mid-psu banks, while it remained flattish for large PSU banks. However, tax expenses for mid-psu banks declined by 37.5% yoy (excl. Syndicate Bank, which reported a tax write-back during the quarter, tax expenses for other mid-psus declined by 19.9% yoy), primarily due to higher provisioning expenses, which limited the decline in bottom-line to 16.1% yoy. Large PSU banks posted a flat performance on the earnings front. February 26,

15 Exhibit 25: New Private banks P&L Parameter (` cr) 3QFY13 2QFY13 % chg (qoq) 3QFY12 % chg (yoy) NII 11,778 11, , Other Income 6,603 5, , Operating Income 18,380 17, , Operating Expenses 7,935 7, , Pre provision profit 10,446 9, , Provisions 1,241 1,462 (15.1) 1, PBT 9,205 7, , Tax 2,778 2, , Net Profit 6,428 5, , Exhibit 26: Old Private banks P&L Parameter (` cr) 3QFY13 2QFY13 % chg (qoq) 3QFY12 % chg (yoy) NII 2,206 2, , Other Income Operating Income 3,024 2, , Operating Expenses 1,518 1, , Pre provision profit 1,507 1, , Provisions PBT 1,194 1, Tax Net Profit Private banks continued to outperform their PSU counterparts and reported impressive performance during 3QFY2013, with operating profit growth of 25.1% yoy. They faced relatively much lower asset quality pressures than their PSU peers, with sequential increase in gross NPAs limited to 1.6% for private banks compared to increase of 8.0% for PSU banks. Hence, provisioning expenses for the new and old private banks were higher by only 4.4% and 5.5% yoy, respectively. On the overall earnings front, new private banks reported a strong growth of 28.7% yoy, while old private banks witnessed a healthy growth of 20.3% yoy. Exhibit 27: Advances growth (%) Banks-Type 3QFY13 2QFY13 % chg (qoq) 3QFY12 % chg (yoy) Large PSU 2,465,295 2,362, ,134, Mid PSU 1,466,608 1,397, ,246, New Pvt. 844, , , Old Pvt. 182, , , Grand Total 4,958,574 4,739, ,230, ; Note:*excluding DHB Exhibit 28: Deposits growth (%) Banks-Type 3QFY13 2QFY13 % chg (qoq) 3QFY12 % chg (yoy) Large PSU 3,056,267 3,018, ,711, Mid PSU 1,949,912 1,890, ,698, New Pvt. 974, , , Old Pvt. 239, , , Grand Total 6,219,974 6,076, ,444, ; Note:*excluding DHB February 26,

16 Tier-I CAR remain low for many PSU banks As of 3QFY2013, amongst our coverage, Bank of Maharashtra, Central Bank and Indian Overseas Bank had the lowest tier-i CAR at 6.0%, 7.0% and 7.3%, respectively (excluding 9MFY2013 profits). Even after considering 9M profits, government s capital infusion (a sum total of `12,377cr) reported so far via exchange fillings, the core equity tier-i capital adequacy (calculated, adjusting for non-core equity as of 1HFY2013) for BOM and UCOBK is likely to remain one of the lowest in the industry at 6.0% and 7.1%, respectively. Exhibit 29: PSU banks Capital adequacy, as of 3QFY2013 Bank Total CAR Tier-I CAR Exp. Core Equity Tier-I CAR* Bank Total CAR Tier-I CAR Exp. Core Equity Tier-I CAR* BOM ALBK UCOBK CRPBK VIJBK ANDBK CNTBK OBC IOB SBI BOI PNB UTDBK CANBK IDBI BOB UNBK INDBK SYNDBK JKBK DENABK , Note: *as of 3QFY2013, adjusting for non-core equity tier-i as of 1HFY2013 and taking into account nine-months profit and capital infusion plans informed to the exchanges Exhibit 30: DuPont analysis Pvt. New* PSU Large PSU Mid Parameter FY12 9MFY13 FY13E FY14E FY12 9MFY13 FY13E FY14E FY12 9MFY13 FY13E FY14E NII (-) Prov. Exp Adj NII Other Inc Op. Inc Opex PBT Taxes ROA Leverage ROE , Note: *our coverage universe only February 26,

17 Given the economic environment, continue to prefer Private banks A decelerating economic growth environment, policy woes in select sectors, and elevated inflation and interest rates point towards further economic stress and are not suggesting any conclusive trigger for improvement in asset quality in the nearterm. Hence, we prefer private banks, given their favourable cyclical and structural outlook, with Axis Bank and ICICI Bank being our top picks. But with the risk of higher competitive intensity in light of higher number of likely new entrants, the upsides are expected to be relatively more moderate than estimated earlier. Due to cyclical macro concerns, PSU banks are already trading at depressed valuations. Even, higher number of likely new entrants in the sector, creates a structural impediment for PSU banks medium-term re-rating, as we expect them to lose market share in any case, considering their capital crunch. Upsides in these stocks would largely depend on an eventual economy turn-around, which would lead to lower re-pricing of high-cost deposits (relative benefit for low-casa banks) and higher recoveries (relative benefit for banks that have experienced maximum asset quality pain, and importantly, also provided for it already). Screening for these criteria, as well as Tier-1 capital adequacy and trailing adjusted valuations, in our view, PSU banks that would stand to gain the most from an eventual turnaround include SBI and PNB in the large-caps as well as United Bank, Corporation Bank and Indian Bank amongst the mid-caps. February 26,

18 Exhibit 31: Dashboard for our coverage PSU banks PSU Banks Large (Prov + TW)* as % to 3QFY13E total assets Sub-std# as % to GNPA CASA ratio as of 3QFY13 Investments to Deposits ratio as of 3QFY13 Tier-I CAR Trailing^ P/ABV (x) FY2014E P/ABV (x) FY2012 ROE 9MFY2013 ROE BOI CANBK IDBI UNBK PNB BOB SBI Mid UTDBK IOB CRPBK BOM INDBK ALLBK SYNBK VIJAYA DENABK ANDHBK CENTBK OBC UCOBK 2.0 NA JKBK , Note: *Cumulative provisions including technically written-off, as of 3QFY2013, #substandard GNPA assets, as of 3QFY13, as % to total 3QFY2013 GNPA (including technically written-off), wherein technically written-off considered as part of loss assets), ^Equity Net worth calculated on a trailing basis (i.e) including 3QFY2013 profits and adjusting for 75% PCR (incl. technical write-off) February 26,

19 Exhibit 32: Recommendation summary Company Reco. CMP (`) Tgt. price (`) Upside (%) FY2014E P/ABV (x) FY2014E Tgt. P/ABV (x) FY2014E P/E (x) FY E EPS CAGR (%) FY2014E RoA (%) FY2014E RoE (%) AxisBk Buy 1,368 1, FedBk Accumulate HDFCBk Neutral ICICIBk* Buy 1,064 1, SIB Buy YesBk Accumulate AllBk Buy (5.2) AndhBk Neutral (4.6) BOB Buy BOI Accumulate BOM Accumulate CanBk Accumulate CentBk Neutral CorpBk Buy (3.1) DenaBk Buy IDBI# Buy IndBk Buy IOB Buy J&KBk Accumulate 1,282 1, OBC Accumulate PNB Buy SBI* Accumulate 2,199 2, SynBk Accumulate UcoBk Neutral UnionBk Buy UtdBk Buy VijBk Neutral ; Note:*Target multiples=sotp Target Price/ABV (including subsidiaries), # Without adjusting for SASF, CMP as of February 26, February 26,

20 Mar-12 Apr-12 May-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Feb-13 Mar-12 Mar-12 Apr-12 May-12 May-12 Jul-12 Jul-12 Aug-12 Sep-12 Sep-12 Oct-12 Nov-12 Nov-12 Dec-12 Feb-13 Feb-12 Mar-12 Apr-12 May-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Feb-13 Feb-12 Mar-12 Apr-12 May-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Feb-13 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Feb-13 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Banking indicators watch Exhibit 33: Credit and deposit growth trends Exhibit 34: Investment-Deposit ratio Credit growth (%) Deposit growth (%) Credit/Deposit (%) Investment/Deposit (%) - RHS Source: RBI, Angel Research Source: RBI, Angel Research Exhibit 35: CP rates have eased considerably on a yoy basis... Exhibit 36:...similar to CD rates (%) CP 3M CP 12M (%) CD 3M CD 12M Source: RBI, Angel Research Source: Bloomberg, Angel Research Exhibit 37: LAF borrowings trends (` bn) - (500) (1,000) (1,500) (2,000) Exhibit 38: Forex reserves trends US$ Bn (2,500) 240 Source: RBI, Angel Research Source: RBI, Angel Research February 26,

21 Jun-05 Jan-06 Aug-06 Mar-07 Oct-07 May-08 Dec-08 Jul-09 Feb-10 Sep-10 Apr-11 Nov Exhibit 39: Corporate and government bond yields Exhibit 40: G-Sec yields spread vs. Repo rate (%) Nov Feb G sec 1yr and 10yr yield spread (%) Repo Rate (%) - RHS AAA 1 Yr AAA 3 Yr AAA 5 Yr AAA 10 Yr Gsec 1Yr Gsec 3Yr Gsec 5Yr Gsec 10Yr (1.00) 0 Source: Bloomberg, Angel Research; Source: Bloomberg, Angel Research Sectoral and Industry-wise distribution of credit Exhibit 41: Large industry, Agri and Personal loans aids credit growth Sector Dec 2011 Dec 2012 (` cr) % of total (` cr) % of total % chg (yoy) Agriculture 460, , Industry 1,858, ,114, Micro & Small 246, , Medium 198, , Large 1,413, ,640, Services 984, ,085, Personal Loans 741, , Housing 378, , Vehicle 90, , Non-food Credit 4,045, ,623, Source: RBI, Angel Research Exhibit 42: Chemicals, Infra, Metals & Food processing witness strong growth Industry Dec 2011 Dec 2012 (` cr) % of total (` cr) % of total % chg (yoy) Infrastructure 596, , Metals 247, , Textiles 152, , Engineering 108, , Chemicals 104, , Food Processing 92, , Oil and Gas 66, , Construction 54, , Vehicles 52, , Gems & Jewelry 48, , Other Industries 334, , Total 1,858, ,114, Source: RBI, Angel Research February 26,

22 Apr-04 Nov-04 Jun-05 Jan-06 Aug-06 Mar-07 Oct-07 May-08 Dec-08 Jul-09 Feb-10 Sep-10 Apr-11 Nov-11 Apr-04 Nov-04 Jun-05 Jan-06 Aug-06 Mar-07 Oct-07 May-08 Dec-08 Jul-09 Feb-10 Sep-10 Apr-11 Nov-11 Apr-04 Nov-04 Jun-05 Jan-06 Aug-06 Mar-07 Oct-07 May-08 Dec-08 Jul-09 Feb-10 Sep-10 Apr-11 Nov-11 Apr-04 Nov-04 Jun-05 Jan-06 Aug-06 Mar-07 Oct-07 May-08 Dec-08 Jul-09 Feb-10 Sep-10 Apr-11 Nov-11 Apr-04 Nov-04 Jun-05 Jan-06 Aug-06 Mar-07 Oct-07 May-08 Dec-08 Jul-09 Feb-10 Sep-10 Apr-11 Nov-11 Apr-04 Nov-04 Jun-05 Jan-06 Aug-06 Mar-07 Oct-07 May-08 Dec-08 Jul-09 Feb-10 Sep-10 Apr-11 Nov-11 Valuation watch Exhibit 43: Private banks* P/ABV trend Exhibit 44: Public sector banks P/ABV trend P/ABV Median 15th percentile 85th percentile P/ABV Median 15th percentile 85th percentile ; Note: *Pvt. banks under our coverage Exhibit 45: New private* banks P/ABV trend Exhibit 46: Large public sector banks P/ABV trend P/ABV Median 15th percentile 85th percentile P/ABV Median 15th percentile 85th percentile ; Note: *New Pvt. banks under our coverage Exhibit 47: Old private* banks P/ABV trend Exhibit 48: Mid-cap* public sector banks P/ABV trend 1.80 P/ABV Median 15th percentile 85th percentile 1.80 P/ABV Median 15th percentile 85th percentile ; Note: *Old Pvt. banks under our coverage, Note:*Mid and small PSU banks February 26,

23 Mar-12 Apr-12 May-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Feb-13 Feb-12 Mar-12 Apr-12 May-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Feb-12 Mar-12 Apr-12 May-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Economy watch Exhibit 49: Quarterly GDP trend Exhibit 50: IIP trend (%) (%) (2.0) (4.0) (2.8) (1.3) 2.5 (2.0) (0.1) 2.0 (0.7) 8.3 (0.8) (0.6) Source: CSO, Angel Research Source: MOSPI, Angel Research Exhibit 51: Monthly WPI inflation trend Exhibit 52: Manufacturing and services PMI (%) 60.0 Mfg. PMI Services PMI Source: MOSPI, Angel Research Source: Markit, Angel Research Exhibit 53: Exports and imports growth trends Exhibit 54: Policy rates - RBI (%) 30.0 Exports yoy growth Imports yoy growth (%) 9.50 Repo rate Reverse Repo rate CRR (15.0) 3.50 (30.0) Source: Bloomberg, Angel Research Source: Office of the Economic Adviser, Angel Research February 26,

24 Research Team Tel: Website: DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report. February 26,