Business growth remains moderate

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1 June 2017 Results Preview Sector: Financials Financials Technology - Banks Motilal Oswal values your support in the Asiamoney Brokers Poll 2017 for India Research, Sales and Trading team. We request your ballot. Company name Axis Bank Bank of Baroda Bank of India Canara Bank DCB Bank Equitas Holdings Federal Bank HDFC Bank ICICI Bank IDFC Bank Indian Bank IndusInd Bank Kotak Mahindra Bank Punjab National Bank RBL Bank State Bank of India Union Bank of India Yes Bank Business growth remains moderate Provisioning to mar earnings; Core PPoP to be under pressure Moderate corporate loan growth, excess liquidity chasing quality credit (pressure on yields) and the Reserve Bank of India s (RBI) directive for the provisioning on 12 accounts directed under Insolvency and Bankruptcy Code (IBC) are the key factors expected to impact earnings for the quarter. Backed by excess liquidity and a continued high CASA ratio (although lower than 4Q) in the system, cost of funds may surprise positively, especially for bulk lenders. We expect trading gains to remain flat/decline marginally v/s 4Q. Key things to watch out: a) Banks comments on the exposures referred to the IBC, outstanding provisioning and the expected impact in the ensuing quarters, b) stake sale in strategic assets and capital raising plans, c) power sector exposure, d) comments/accounting on the large resolution (ESSAR, JP Associates) during the quarter and e) the trend in retail loan growth post demonetization (large banks better placed with CoF advantage). In our view, excluding power, most of highly levered sector stress exposures are well communicated/recognized by banks. Even in power, long-term restructuring in recent past would make it difficult to assess the asset quality impact for FY18. On a sequential basis, we expect profit growth to be slow for public sector banks (PSBs) as a whole due to higher provisions (offset in part by high investment gains). YoY growth is expected to be strong, as the base quarter had a lag impact of RBI AQR. We expect balance sheet clean-up for ICICIBC and AXSB to continue, which would impact their profitability. Mid-sized private banks would continue to outshine peers due to continued market share gains (loan growth of 4-5x system), stable asset quality and stable-to-improving margins (sharp fall in bulk deposits). We expect IIB, YES, RBL and KMB to report PAT growth of ~25% YoY. For comparison, SBIN base quarter earnings are adjusted for associate bank performance. Hence, there is a strong variation in SBIN s earnings on both QoQ and YoY basis. We remain upbeat on the value migration story from PSU to private banks. Within private banks too, emerging private banks are likely to be the major beneficiaries. Within state-owned banks, we like SBIN, BOB and PNB. Among private banks, our key picks are HDFCB, ICICIBC and YES. Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com); Subham Banka (Subham.Banka@MotilalOswal.com); Investors are advised to refer through important disclosures made at the last page of the Research Report. July Motilal Oswal research is available on Bloomberg, Thomson Reuters, Factset and S&P Capital.

2 RBI mandate on provisioning a key focus area for earnings The RBI has mandated corporate lenders to provision for 50%/100% for secured/unsecured exposures accounts, which have been referred under IBC Further, banks would continue witnessing ageing-related NPA provisions (RBI AQR led to bulk of NPAs in 2HFY16). Hence, overall provisions would continue to dent earnings. Our interactions with banks suggest that most of them are carrying 35%+ provisioning, and normal ageing-related provisioning on such accounts in FY18 would have made overall provisioning similar to the RBI mandate. Hence, it should not impact overall earnings for FY18. A key thing to watch out would be banks provisioning policy whether to amortize during the year or take it upfront in the quarter. Business growth remains moderate SME and retail remain growth drivers Loan growth at the system level has remained low at ~6% (slightly better than post-demon levels) due to (a) collapse in corporate loan growth on weak investment sentiment and excess capacity, (b) weak demand for working capital loans, (c) weak resolutions to NPA accounts, (d) higher repayments from loans completing the restructuring moratorium and (e) shift from loan market to bond market. Improvement in sentiment (led by better liquidity at the ground level) and fiscal/monetary policies hold the key to loan growth improvement. We expect retail growth to show better traction for private banks sequentially due to pentup demand of demonetization period and the Supreme Court s ruling on BS-III. We expect mid-sized private banks to grow at 4-5x system during the quarter. Backed by significant cost of funds advantage, demonetization and excess liquidity, large private banks are expected to show strong growth led by refinancing. Mid-sized PSBs would continue losing market share due to capitalization and asset quality issues, in our view. We expect retail-focused banks like HDFCB and KMB to also report strong growth in the corporate segment. Yields under significant pressure cost of funds to negate margins pressure We expect NII to grow ~5% QoQ (interest reversals on SDR guidelines) for stateowned banks. For private banks, we expect NII to grow 11% YoY (+3% QoQ) among these, mid-sized private banks are expected to report 22% YoY growth. Weak loan growth would be the key reason for moderate revenue growth at the sector level. Sharp cut in MCLR over 2HFY17 would impact yields on the existing portfolio with a lag, while hyper competition in the refinancing and retail markets continue to exert pressure on blended yields. Excess liquidity and a sharp rise in the CASA ratio (though moderated from 4Q levels) post demonetization would help to reduce cost of funds, marginally offsetting the impact on NIMs. Asset quality stress to stay elevated, but resolutions underway Factors likely to continue weighing on performance include (a) the RBI s enhanced efforts toward large NPA accounts resolution and same asset classification on such accounts across system, (b) banks clean-up exercise (expect largely from restructured loans and watch-list), (c) non-fund-based July

3 exposure turning into NPAs for some stressed corporates, and (d) impact on the supply chain of stressed large corporates. Farm loan waivers in key states such as UP, Maharashtra, Karnataka and Punjab may provide asset quality relief in the near term, we see it as a moral hazard concern, but could impact credit behavior and asset quality going ahead, especially for PSU banks. Performance of the SME and agriculture portfolio would be the key thing to watch out for, considering the lagged impact of demonetization and loan waivers/drought in some large states. We factor in a net slippage ratio of 1.9% (2.8% in 4QFY17) and provision-to-operating profits of 66% (82% in 4QFY17) for state-owned banks and 30% (33% in 4QFY17) for private sector banks. Bulk of the slippages happened in 2HFY16 due to RBI AQR and ageing of NPAs, which would lead to higher provisioning charge. Profit on sale of investments to support earnings During the quarter, bond yields increased ~30bp in the first month, but declined 30bp+ thereafter to end the quarter with overall flat QoQ yields. We expect high trading gains, led by both debt and equity portfolios of the banks. We expect it to remain more or less flat QoQ. During the last quarter, CBK had booked gains on housing finance stake sale. In this quarter, the bank sold its stake in CARE, which should buffer against the expected decline in QoQ investment sale gains. SBIN/BoB booked gains on the stake sale in CDSL in IPO. ICICIBC, HDFCB and SBIN amongst our top picks Delayed resolution of stress assets, lack of growth capital and increasing competition from private banks continue to mar performance of PSBs. Further progress in steps by the RBI/GoI to resolve stress loans (such as targeting large accounts for resolution under IBC 2016) would be the key to the stock performance of corporate lenders. Meanwhile, mid-sized private banks with excess capacity would continue reporting strong core earnings growth. We expect market share gains to accelerate for them. We have tweaked earnings for DCBB, FB and KMB to factor in capital raise during the quarter. Our top picks are HDFCB, ICICIBC and SBIN among the large banks. We like YES and Equitas among the emerging names. Exhibit 1: State-owned banks one-year forward P/BV PSU Banks Sector PB (x) LPA (x) Exhibit 2: Private sector banks one-year forward P/BV Pvt Banks Sector PB (x) LPA (x) Jun-07 Sep-08 Dec-09 Mar-11 Jun-12 Sep-13 Dec-14 Mar-16 Jun-17 Jun-07 Sep-08 Dec-09 Mar-11 Jun-12 Sep-13 Dec-14 Mar-16 Jun-17 July

4 Exhibit 3: Expected quarterly performance (INR m) Sector Sales (INR M) EBDITA (INR M) Net Profit (INR M) CMP Var % Var % Var % Var % Var % Var % RECO Jun-17 Jun-17 Jun-17 (INR) YoY QoQ YoY QoQ YoY QoQ Private Banks Axis Bank 509 Neutral 47, , , DCB Bank 193 Neutral 2, , Equitas Holdings 151 Buy 2, Federal Bank 112 Buy 8, , , HDFC Bank 1,652 Buy 92, , , ICICI Bank 289 Buy 59, , , IDFC Bank 57 Neutral 5, , , IndusInd Bank 1,498 Buy 16, , , Kotak Mahindra Bank 959 Buy 22, , , RBL Bank 522 Under Review 3, , , Yes Bank 1,485 Buy 17, , , Pvt Banking Sector Aggregate 279, , , PSU Banks Bank of Baroda 159 Buy 35, , , LP Bank of India 137 Neutral 32, , ,075 LP LP Canara Bank 332 Neutral 25, , , Indian Bank 283 Buy 13, , , Punjab National Bank 137 Buy 39, , , State Bank 273 Buy 197, , , LP Union Bank 146 Neutral 24, , , PSU Banking Sector Aggregate 367, , , LP Financials Sector Aggregate 769, , , Exhibit 4: Financials - valuations Sector / Companies CMP EPS (INR) PE (x) PB (x) ROE (%) (INR) Reco FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E Banks-Private Axis Bank 509 Neutral DCB Bank 193 Neutral Equitas Holdings 151 Buy Federal Bank 112 Buy HDFC Bank 1,652 Buy ICICI Bank 289 Buy IDFC Bank 57 Neutral IndusInd Bank 1,498 Buy J&K Bank 85 Neutral Kotak Mahindra Bank 959 Buy RBL Bank 522 Under Review South Indian Bank 28 Buy Yes Bank 1,485 Buy Private Bank Aggregate Banks-PSU Bank of Baroda 159 Buy Bank of India 137 Neutral Canara Bank 332 Neutral Indian Bank 283 Buy Punjab National Bank 137 Buy State Bank 273 Buy Union Bank 146 Neutral PSU Bank Aggregate July

5 Exhibit 5: Loan growth remains moderate in 1Q Loans (INR t) Chg YoY (%) Exhibit 6: Deposit growth remains healthy Deposits (INR t) Chg YoY (%) 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY Exhibit 7: 10-year g-sec yields show volatility QoQ (%) Exhibit 8: NIMs to remain largely stable QoQ (%) 10.0 PSU Private Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 Exhibit 9: State-owned banks net slippage ratio expected to come down (%, annualized) Net Slippage Ratio Exhibit 11: Relative performance 3 months (%) Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Source: MOSL, Company Exhibit 10: Provisions to PPoP (%) to reduce for state-owned banks PBs PSBs Exhibit 12: Relative performance 1 year (%) Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Source: MOSL, Company 138 Sensex Index MOSL Financials Index 111 Sensex Index MOSL Financials Index Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Mar-17 Apr-17 May-17 Jun-17 Source: Bloomberg, MOSL Source: Bloomberg, MOSL July

6 AXSB IN Equity Shares (m) M. Cap. (INR b)/(usd b) 1219 / Week Range (INR) 638 / 425 1,6,12 Rel Perf. (%) 0 / -5 / -21 NII OP NP NIM (%) EPS (INR) EPS Gr. (%) BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) Payout (%) P/E(X) P/BV (X) P/ABV (X) Div. Yield (%) June July December 2017 Results 2015 Results Preview Preview Sector: Sector: Financials Financials - Banks Axis Bank CMP: INR509 TP: INR500 (-2%) Neutral We expect AXSB to report ~10% loan growth, driven by continued strong growth in the retail and SME segments. Overall deposit growth will continue to be strong at 19%, given a relatively low base of 1QFY17 (pre-demon). Yield on loans would remain under pressure following MCLR cuts/aggressive competition in the refinance market. Margins are expected to moderate marginally by ~10bp QoQ to 3.6%, coming off a strong 4Q when margins had expanded 25bp QoQ. Margins will also be impacted by stress additions. Current watch-list stands at INR112b (2.2% of customer assets) and is expected to be done away with completely in FY18. While slippages should moderate in 1Q, we expect them to remain at elevated levels (4.5% annualized slippage ratio), leading to high credit costs. We estimate PAT at INR12.4b v/s INR15.6b in 1QFY17 (v/s INR12.3b in 4Q), subdued on a YoY basis owing to high NPA provisioning. AXSB trades at 1.8x FY19E BV and 12.6x FY19E EPS. Neutral. Quantum of corporate slippages from watch-list and any revision in the size of the same. Quantum of loans rescheduled under 5:25, SDR and S4A. FY17 FY18 FY17 FY18 Net Interest Income 45,169 45,139 43,337 47,286 47,965 48,918 50,107 52, , ,444 % Change (Y-o-Y) Other Income 27,383 25,397 34,002 30,132 26,145 28,432 30,430 35, , ,567 Net Income 72,552 70,535 77,339 77,418 74,110 77,350 80,537 88, , ,011 Operating Expenses 27,858 29,534 30,937 33,670 32,421 34,606 35,810 39, , ,791 Operating Profit 44,694 41,002 46,402 43,747 41,689 42,745 44,728 48, , ,220 % Change (Y-o-Y) Other Provisions 21,172 36,227 37,958 25,813 23,000 23,000 23,000 22, ,170 91,537 Profit before Tax 23,522 4,774 8,444 17,935 18,689 19,745 21,728 25,522 54,676 85,683 Tax Provisions 7,967 1,584 2,649 5,684 6,261 6,614 7,279 8,550 17,883 28,704 Net Profit 15,555 3,191 5,796 12,251 12,428 13,130 14,449 16,972 36,793 56,979 % Change (Y-o-Y) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) Tax Rate (%) Gross NPA (INR b) Gross NPA (on cust. assets, %) July

7 BOB IN Equity Shares (m) M. Cap. (INR b)/(usd b) 368 / 6 52-Week Range (INR) 202 / 136 1,6,12 Rel Perf. (%) -11 / -9 / -15 NII OP NP NIM (%) EPS (INR) EPS Gr. (%) NA BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) Div. Payout (%) P/E(X) P/BV (X) P/ABV (X) Div. Yield (%) Bank of Baroda CMP: INR159 TP: INR212 (+33%) Buy After several quarters of decline in loan growth, 1QFY18 should register 6% YoY loan growth (flat QoQ). Balance sheet recalibration will continue, led by the focus on granular retail loans. We expect drill-down in the international book to continue. We expect BOB to show 7% YoY (flat QoQ) increase in deposits, given the low base. We expect margins to improve ~10bp QoQ (flat YoY) to 2.2% from very low levels, as previous quarters were impacted by interest income reversals. We expect slippages to remain elevated. However, higher recoveries are expected to provide some cushion to asset quality. We expect only a marginal increase in absolute GNPAs in 1QFY18. Muted fee income growth and significantly lower non-core income could see non-interest income (including INR320m from stake sale in CDSL) falling from the highs of 4Q. Overall, non-interest income growth should be flat YoY. PAT should increase ~90% YoY, led by lower provisions. Return ratios would still remain sub-optimal. The stock trades at 0.9x FY19E BV and 7.1x FY19 EPS. Buy. Stress addition, mainly from the international book. Guidance on loan growth, margins and operating expenses. FY17 FY18 FY17 FY18 Net Interest Income 33,711 34,261 31,344 33,283 35,414 37,096 39,140 42, , ,028 % Change (YoY) Other Income 14,444 15,614 17,750 19,773 14,667 16,573 16,112 19,822 67,581 67,174 Net Income 48,155 49,875 49,093 53,056 50,081 53,669 55,252 62, , ,203 Operating Expenses 21,460 22,973 23,141 25,390 23,923 25,894 25,928 27,968 92, ,713 Operating Profit 26,695 26,902 25,952 27,666 26,158 27,775 29,324 34, , ,490 % Change (YoY) Other Provisions 20,041 17,958 20,795 26,230 15,000 14,000 14,000 15,372 85,024 58,372 Profit before Tax 6,654 8,944 5,157 1,436 11,158 13,775 15,324 18,861 24,727 59,117 Tax Provisions 2,418 3,422 2,630 2,425 3,124 3,857 4,291 5,281 10,896 16,553 Net Profit 4,236 5,521 2, ,034 9,918 11,033 13,580 13,831 42,565 % Change (YoY) NA NA NA NA NIM (Calculated, %) Deposit Growth (%) Loan Growth (%) Tax Rate (%) Gross NPA (INR B) Gross NPA (%) July

8 BOI IN Equity Shares (m) M. Cap. (INR b)/(usd b) 144 / 2 52-Week Range (INR) 197 / 100 1,6,12 Rel Perf. (%) -6 / 10 / 11 NII OP NP NIM (%) EPS (INR) EPS Gr. (%) NM NM ROE (%) ROA (%) BV/Sh. (INR) ABV/Sh. (INR) Div. Payout (%) P/E(X) P/BV (X) P/ABV (X) Bank of India CMP: INR137 TP: INR147 (+7%) Neutral Continued asset quality strain and capital conservation efforts have led to multiple quarters of muted loan growth. We expect 1QFY18 loan growth to be 2% QoQ (+3% YoY). Deposit growth is expected to come in strong at 9.5% YoY (+1% QoQ) owing to strong CASA inflows over the last two quarters. We expect NIM to improve ~22bp YoY to ~2.3%, given that 1QFY17 was impacted by interest income reversals; however, NIMs will contract ~18bp QoQ as 4QFY17 had a large one-off component (IT refund). Overall NII is expected to grow 16% YoY. Contribution of non-interest income is likely to fall sharply from previous quarters, given lower trading gains. Fee income is expected to remain muted. We expect stress additions to moderate, but remain high during the quarter (slippage ratio ~4%), leading to elevated provisioning. We expect operating profit to increase sharply to 13% YoY, led by strong NII growth and controlled opex performance. BOI trades at 0.5x FY19E BV and 6.2x FY19E EPS. Neutral. Stress addition trends and outlook for FY18. Upgrade/recovery trends. Outlook on balance sheet growth and further capital infusion. FY17 FY18E FY17 FY18E Net Interest Income 27,752 27,197 28,626 34,686 32,181 32,185 32,551 33, , ,081 % Change (Y-o-Y) Other Income 12,384 20,106 17,693 17,540 13,065 13,614 12,815 15,054 67,723 54,548 Net Income 40,136 47,304 46,319 52,226 45,246 45,799 45,366 48, , ,628 Operating Expenses 23,597 22,375 21,734 20,951 24,052 24,342 24,242 23,571 88,658 96,206 Operating Profit 16,539 24,928 24,584 31,275 21,194 21,457 21,124 24,647 97,326 88,422 % Change (Y-o-Y) Other Provisions 27,702 22,962 23,026 47,362 16,500 16,500 16,500 16, ,052 66,333 Profit before Tax -11,163 1,966 1,559-16,087 4,694 4,957 4,624 7,814-23,726 22,089 Tax Provisions -3, ,632 1,619 1,710 1,595 2,696-8,142 7,621 Net Profit -7,414 1,268 1,017-10,455 3,075 3,247 3,029 5,118-15,584 14,468 % Change (Y-o-Y) NM NM NM NM NM NM NM NM NIM (Cal, %) Deposit Growth (%) Loan Growth (%) Tax Rate (%) Gross NPA (INR b) Gross NPA (%) July

9 CBK IN Equity Shares (m) M. Cap. (INR b)/(usd b) 180 / 3 52-Week Range (INR) 415 / 211 1,6,12 Rel Perf. (%) -8 / 12 / 37 NII OP NP NIM (%) EPS (INR) EPS Gr. (%) NM BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) Div. Payout (%) P/E (x) P/BV (x) P/ABV (x) Div. Yield (%) Canara Bank CMP: INR332 TP: INR362 (+9%) Neutral We expect slippages to remain at elevated levels (3.5% of loans). Continued fresh slippages and ageing of NPLs are expected to keep credit costs high (we factor in ~1.5% credit costs in 1QFY18). We expect loan growth to pick up to 9% YoY (+3% QoQ) v/s 5% YoY (-3% QoQ) in 4QFY17. Deposit growth is expected to remain healthy at 10% YoY (+2% QoQ), helped by strong CASA inflows in recent quarters. We expect NIMs to remain under pressure and shrink ~12bp QoQ and ~5bp YoY to 1.9%. Overall NII should grow ~12% YoY, led by a revival in loan growth. Fee income growth is expected to be ~34% on a low base. Non-core income is expected to come in strong YoY after factoring in ~INR2.5b gain on stake sale in CARE. However, investment sale gains are likely to decline QoQ, as 4QFY17 had ~INR7b from stake sale in Canfin Homes. We expect PAT to increase to INR5.8b v/s INR2.3b in 1QFY17. The banking business trades at 0.6x FY19E BV and 6.7x FY19E EPS. Maintain Neutral. Quantum of loans rescheduled under 5:25, SDR and S4A. Outlook on balance sheet growth. FY17 FY18E FY17 FY18E Net Interest Income 23,074 24,424 24,138 27,082 25,759 26,671 27,280 27,832 98, ,541 % Change (Y-o-Y) Other Income 15,847 17,818 17,917 23,963 19,442 18,361 17,997 18,086 75,544 73,885 Net Income 38,921 42,241 42,055 51,045 45,200 45,032 45,277 45, , ,427 Operating Expenses 20,732 20,834 22,242 21,316 22,708 22,969 24,111 23,742 85,123 93,531 Operating Profit 18,189 21,408 19,813 29,729 22,492 22,063 21,166 22,175 89,139 87,895 % Change (Y-o-Y) Other Provisions 14,929 15,857 14,846 27,087 14,000 14,000 13,000 15,584 72,720 56,584 Profit before Tax 3,260 5,550 4,968 2,642 8,492 8,063 8,166 6,590 16,419 31,311 Tax Provisions 970 1,981 1, ,632 2,500 2,531 2,043 5,200 9,706 Net Profit 2,290 3,569 3,219 2,142 5,859 5,564 5,634 4,547 11,219 21,605 % Change (Y-o-Y) NA NIM (Cal, %) Deposit Growth (%) Loan Growth (%) Tax Rate (%) Gross NPA (INR b) Gross NPA (%) July

10 DCBB IN Equity Shares (m) M. Cap. (INR b)/(usd b) 55 / 1 52-Week Range (INR) 213 / 97 1,6,12 Rel Perf. (%) -4 / 55 / 72 Y/E MARCH E 2019E 2020E NII OP NP EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoA (%) P/E (x) P/BV (x) DCB Bank CMP: INR193 TP: INR182 (-6%) Neutral Loan growth (22% YoY) and deposit growth (25% YoY) are expected to be significantly above industry average. Growth will be driven by retail; management intends to curb corporate growth below 20%. We expect NII to grow 31% YoY, led by strong loan growth and margin expansion of ~7/14bp QoQ/YoY owing to lower cost of funds from reduced leverage as the bank has raised INR3.8b through a QIP in 1QFY18. Non-interest income is expected to grow ~10% YoY. While fee income is expected to remain healthy, trading gains are expected to be lower as 1QFY17 had one-off treasury gains of ~INR100m. Overall, we expect PPP growth to be 30% YoY. We model opex growth of 23% YoY, led by branch expansion strategy (300+ targeted by 2Q/3QFY18). Credit costs may be elevated owing to potential stress in the retail and SME segments (we factor in 1.8% slippage ratio). We expect PBT growth of 25% YoY. DCBB trades at 2.1x FY19E BV and 18.7x FY19E EPS. Expensive valuations leave room for limited upside. Maintain Neutral. Management commentary on slippages in SME segment. Update and commentary on balance sheet growth strategy. CASA ratio and NIM performance. FY17 FY18E FY17 FY18E Net Interest Income 1,770 1,903 2,095 2,203 2,318 2,360 2,475 2,596 7,971 9,749 % Change (Y-o-Y) Other Income ,495 2,935 Net Income 2,372 2,519 2,736 2,839 2,978 3,098 3,218 3,390 10,465 12,684 Operating Expenses 1,444 1,511 1,643 1,685 1,776 1,858 1,972 2,123 6,283 7,730 Operating Profit 927 1,009 1,093 1,153 1,202 1,240 1,246 1,267 4,182 4,954 % Change (Y-o-Y) Other Provisions ,115 1,226 Profit before Tax ,067 3,729 Tax Provisions ,070 1,268 Net Profit ,997 2,461 % Change (Y-o-Y) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) Tax Rate (%) Gross NPA (INR B) Gross NPA (%) July

11 EQUITAS IN Equity Shares (m) M. Cap. (INR b)/(usd b) 51 / 1 52-Week Range (INR) 206 / 139 1,6,12 Rel Perf. (%) -6 / -16 / -35 NII OP NP EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoA (%) P/E(X) P/BV (X) Equitas Holdings CMP: INR151 TP: 210 (+39%) Buy We expect NII growth of 10% YoY due to moderation in loan growth as the company slows down its MFI book, and recalibration in liability side (sufficient availability of funds). Loan growth is expected to be moderate at ~3% YoY. NIM is expected to contract ~60bp QoQ, driven by shift from higher-yielding MFI loans to lower-yielding secured products. Also, interest reversals on the delinquent MFI portfolio could impact margins. This would be negated partly by a fall in CoF, with bank borrowings to be grandfathered and largely replaced by bulk deposits. Opex is expected to grow by ~78% YoY (v/s 12% YoY growth in total income), driven by greater employee and other expenses as a result of liability-side branch set-up and hiring. Collection trends in Tamil Nadu, Maharashtra and Karnataka remain a key monitorable. We factor in provisions of INR250m during the quarter. The stock trades at 2x FY19E BV. Maintain Buy Update on the transition progress. Commentary on growth and asset quality in MFI. FY17 FY18 FY17 FY18 Net Interest Income 2,043 2,006 2,291 2,214 2,236 2,343 2,500 2,663 8,555 9,742 % Change (Y-o-Y) Other Income ,140 1,696 Net Income 2,273 2,293 2,709 2,419 2,547 2,701 3,001 3,189 9,695 11,438 Operating Expenses 1,134 1,408 1,663 1,945 2,018 2,042 2,066 2,085 6,150 8,211 Operating Profit 1, , ,104 3,545 3,227 % Change (Y-o-Y) Other Provisions , Profit before Tax ,516 2,491 Tax Provisions Net Profit ,594 1,631 % Change (Y-o-Y) NIM (Cal, %) Loan Growth (%) Tax Rate (%) Gross NPA (INR b) ,437 1,450 2,060 2,210 2,360 2,510 2,643 2,060 2,643 Gross NPA (on customer assets, %) July

12 FB IN Equity Shares (m) M. Cap. (INR b)/(usd b) 193 / 3 52-Week Range (INR) 122 / 58 1,6,12 Rel Perf. (%) -2 / 53 / 70 Y/E Mar E 2019E 2020E NII OP NP NIM (%) EPS (INR) EPS Gr. (%) BV/Sh. (INR) ABV/Sh. (INR) ROE (%) ROA (%) Payout (%) P/E(X) P/BV (X) P/ABV (X) Div. Yield (%) Federal Bank CMP: INR112 TP: INR134 (+19%) Buy We expect FB to report ~27% YoY (2.5% QoQ) loan growth, aided by a renewed focus on corporate growth. Traction in SME and retail loans would be maintained. We expect NIM to contract marginally by 8bp QoQ led by lower yields. Other income growth is likely to moderate to 8% YoY owing to lower trading gains. Fee income growth would continue to remain healthy. Overall PPoP growth is expected to be strong at 28% YoY, led by strong revenue growth and controlled opex (+13% YoY). We expect slippages to increase to INR3.3b (at ~1.8% annualized slippage ratio) v/s INR2.4b in 4Q owing to potential stress in SME. GNPA in % terms is expected to remain largely stable at ~2.2%. We have revised our FY18E/FY19E PAT 7%/6% upward to factor in lower leverage benefit from QIP of INR25b in 1QFY18. We expect PAT of INR2.4b v/s INR1.7b in 1QFY17 and ~INR2.6b in 4QFY17. FB trades at 1.7x FY19E BV and 16.5x FY19E EPS. Buy. Outlook on asset quality. Strategy on balance sheet growth, particularly corporate growth. FY17 FY18E FY17 FY18E Net Interest Income 6,927 7,262 7,914 8,424 8,591 9,330 9,460 9,899 30,526 37,279 % Change (YoY) Other Income 2,370 2,616 2,747 2,821 2,571 2,667 3,047 3,595 10,818 11,880 Net Income 9,297 9,878 10,661 11,245 11,161 11,997 12,507 13,495 41,345 49,159 Operating Expenses 5,039 5,128 5,912 5,753 5,714 6,107 6,742 7,370 22,095 25,933 Operating Profit 4,259 4,750 4,749 5,492 5,448 5,890 5,764 6,125 19,249 23,227 % Change (YoY) Other Provisions 1,685 1,684 1,588 1,227 1,750 1,850 1,650 1,671 6,184 6,921 Profit before Tax 2,574 3,066 3,161 4,265 3,698 4,040 4,114 4,453 13,065 16,306 Tax Provisions 901 1,053 1,104 1,699 1,294 1,414 1,440 1,559 4,757 5,707 Net Profit 1,673 2,013 2,057 2,566 2,404 2,626 2,674 2,895 8,308 10,599 % Change (YoY) , NIM (Cal, %) Deposit Growth (%) Loan Growth (%) Tax Rate (%) Gross NPA (INR b) Gross NPA (%) July

13 HDFCB IN Equity Shares (m) M. Cap. (INR b)/(usd b) 4233 / Week Range (INR) 1716 / ,6,12 Rel Perf. (%) 1 / 22 / 27 Y/E MARCH E 2019E 2020E NII OP NP NIM (%) EPS (INR) EPS Gr. (%) BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) Payout (%) P/E(X) P/BV (X) P/ABV (X) Div. Yield (%) HDFC Bank CMP: INR1,652 TP: INR1,885 (+15%) Buy Loan growth will be strong at 21% YoY (at least ~2x system growth). Deposit growth will be healthy at ~18% YoY, led by CASA inflows. COF decline would help to negate the impact of declining yields environment, and we expect HDFCB to report only a marginal contraction in margins of ~9bp and report strong NIM of 4.7%. NII is expected to grow at 19% YoY. Other income is expected to moderate to ~12% YoY, factoring in lower trading gains. Fee income is expected to remain healthy. Tieup with new banca partners will drive fee income growth. Opex growth would be lower than total income growth at ~14% YoY, aided by strong digital initiatives of the bank and the focus on cutting excess flab (headcount reduced by ~10k in 2HFY17). Healthy PPoP growth would lead to 19% YoY PAT growth, largely in line with 20% growth trend exhibited by the bank in the last few years. Asset quality is expected to remain stable with GNPA at ~1.1. HDFCB trades at 3.7x FY19E BV and 20.8x FY19E EPS. Comfort on earnings (~18% CAGR over FY17-20) remains high. Maintain Buy. Performance in retail loan/sme portfolio, especially in CV/CE. Trends in digital banking/payments and various initiatives; overall B/S growth outlook and economic recovery. FY17 FY18E FY17 FY18 Net Interest Income 77,814 79,936 83,091 90,551 92,916 94,860 97, , , ,578 % Change (Y-o-Y) Other Income 28,066 29,010 31,427 34,463 31,491 33,208 35,275 40, , ,465 Net Income 105, , , , , , , , , ,042 Operating Expenses 47,689 48,700 48,425 52,220 54,478 56,373 56,358 61, , ,559 Operating Profit 58,192 60,246 66,093 72,794 69,929 71,695 76,628 82, , ,484 % Change (Y-o-Y) Other Provisions 8,667 7,490 7,158 12,618 12,200 10,200 8,000 11,414 35,933 41,814 Profit before Tax 49,525 52,756 58,935 60,176 57,729 61,495 68,628 70, , ,669 Tax Provisions 17,136 18,202 20,281 20,275 19,339 20,601 22,990 23,724 75,894 86,654 Net Profit 32,389 34,553 38,653 39,901 38,389 40,894 45,637 47, , ,015 % Change (Y-o-Y) NIM (Cal, %)# Deposit Growth (%) Loan Growth (%) Tax Rate (%) Gross NPA (INR B) Gross NPA (%) ; * Reported on total assets; # Cal. on interest earning assets July

14 ICICIBC IN Equity Shares (m) M. Cap. (INR b)/(usd b) 1855 / Week Range (INR) 298 / 215 1,6,12 Rel Perf. (%) 0 / 10 / 14 NII OP NP NIM (%) EPS (INR) EPS Gr (%) BV/Sh (INR)* ABV/Sh (INR)* RoE (%) RoA (%) AP/E (x) AP/BV (x) AP/ABV (x) * BV adj for invt in subsidiaries ICICI Bank CMP: INR289 TP: INR340 (+17%) Buy We expect loan growth to moderate to ~5% YoY (+1.5% QoQ): corporate loan growth would be moderate and international loan exposure would continue to decline. Retail loans should continue to exhibit healthy growth. NIMs are expected to expand sharply by ~20bp to 3.5% (although decline ~8bp QoQ), as 1QFY17 was impacted by interest income reversals. Resultantly, NII should increase ~15% YoY. Fee income growth is expected to remain moderate at ~10% YoY. Moderate trading gains, coupled with one-off stake sale and repatriation gains (both totaling ~24b) in 1QFY17, would reflect in muted non-interest income growth (-1% YoY). Gross slippages are expected to remain high in 1QFY18 (4.5% slippage ratio). O/s watch-list stood at INR190b (~3.7% of customer assets). Recoveries from the cement account recognized as NPL in 4QFY17 could lead to reversal of provisions. We expect PBT growth of 22% YoY, despite ~6% growth in PPoP, as 1QFY17 was impacted by higher credit costs. ICICIBC trades at 1.2x FY19E core BV and 10.5x FY19E EPS. Buy. Movement of watch-list accounts. Plans on monetization of stakes in various ventures. Outlook on asset quality and trend on further relapse from RL. (INR million) FY17 FY18E FY17 FY18E Net Interest Income 51,585 52,533 53,634 59,622 59,107 59,457 61,337 63, , ,793 % Change (YoY) Other Income 34,293 91,197 39,383 30,172 33,819 37,216 38,789 39, , ,712 Net Income 85, ,730 93,017 89,794 92,926 96, , , , ,505 Operating Expenses 33,731 37,369 37,777 38,674 37,863 41,774 42,698 43, , ,994 Operating Profit 52, ,361 55,239 51,120 55,064 54,899 57,427 60, , ,511 % Change (YoY) Other Provisions 25,145 70,827 27,127 28,982 22,000 22,000 22,000 22, ,081 88,269 Profit before Tax 27,002 35,534 28,112 22,138 33,064 32,899 35,427 37, , ,241 Tax Provisions 4,679 4,511 3,694 1,892 9,258 9,212 9,920 10,598 14,775 38,988 Net Profit 22,324 31,023 24,418 20,246 23,806 23,687 25,508 27,253 98, ,254 % Change (YoY) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) Tax Rate (%) Gross NPA (INR b) Gross NPA (%) July

15 IDFCBK IN Equity Shares (m) M. Cap. (INR b)/(usd b) 192 / 3 52-Week Range (INR) 83 / 45 1,6,12 Rel Perf. (%) -3 / -23 / 8 NII OP NP NIM (%) EPS (INR) EPS Gr. (%) BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) P/E(X) P/BV (X) IDFC Bank CMP: INR57 TP: INR56 (-1%) Neutral We expect loan growth to pick-up to 12% YoY (+4% QoQ), with incremental growth to be driven by the retail segment, as the bank is conservative on corporate growth. Yields are expected to remain under pressure and we factor in ~15bp QoQ improvement in margins on a very low base to ~2.1% (~30bp decline on a YoY basis). Overall NII is expected to grow ~10% YoY. Non-interest income is likely to increase ~29% YoY to INR2.75b, largely driven by a sharp increase in trading gains. Fee income is expected to remain moderate. Opex is likely to grow 28% YoY, driven by costs associated with expansion of retail and rural banking franchise. Overall PPoP is expected to grow ~8% YoY. Stress additions would keep credit costs elevated, and we expect high provisioning at INR550m. We expect PAT growth of ~9% YoY to INR2.9b. The stock trades at 1.2x FY19E BV and 13.6x FY19E EPS. Neutral. Outlook on balance sheet growth and costs. Retail franchise building plans and update. FY17 FY18E FY17 FY18E Net Interest Income 4,989 4,956 5,208 5,021 5,485 5,822 6,166 6,507 20,173 23,979 % Change (Y-o-Y) NA 18.9 Other Income 2,128 4,101 3, ,750 2,700 3,150 3,471 10,131 12,071 Net Income 7,117 9,057 8,558 5,584 8,235 8,522 9,316 9,978 30,304 36,050 Operating Expenses 2,768 3,234 3,798 2,981 3,550 3,814 4,524 4,815 12,770 16,703 Operating Profit 4,349 5,823 4,760 2,602 4,686 4,708 4,792 5,163 17,535 19,348 % Change (Y-o-Y) NA 10.3 Other Provisions , ,825 2,293 Profit before Tax 4,113 5,600 2,443 2,555 4,136 4,158 4,242 4,520 14,710 17,055 Tax Provisions 1,465 1, ,241 1,247 1,272 1,356 4,512 5,116 Net Profit 2,648 3,878 1,913 1,760 2,895 2,910 2,969 3,164 10,197 11,938 % Change (Y-o-Y) NA NA NA 17.1 NIM (Cal, %) Loan Growth (%) Tax Rate (%) Gross NPA (INR b) Gross NPA (on customer assets, %) July

16 INBK IN Equity Shares (m) M. Cap. (INR b)/(usd b) 136 / 2 52-Week Range (INR) 365 / 140 1,6,12 Rel Perf. (%) -11 / 8 / 72 NII OP NP EPS (INR) EPS Gr. (%) BV/Sh. (INR) ABV/Sh (INR) RoE (%) RoA (%) Div. Payout (%) P/E (x) P/ BV (x) P/ABV (x) Div. Yield (%) Indian Bank CMP: INR283 TP: INR357 (+26%) Buy Loan growth is expected to be muted at ~5% YoY (+2% QoQ), led by balance sheet recalibration. Deposit growth is expected be in line with loan growth (+2% QoQ, +5% YoY). Calculated NIMs are expected to shrink ~18bp QoQ (-5bp YoY). 4QFY17 had interest on IT refund of INR1.3b. NII will grow ~9% YoY, but decline ~3% QoQ. Overall non-interest income is expected to grow 22%, led by strong fee income growth of 20% (on a low base) and higher recoveries. Trading gains are expected to increase 11% on a YoY basis. We expect slippage ratio to remain elevated at 2.8% and credit costs to remain high at 1.5% (1.3% in 1QFY17), as INBK looks to improve provision coverage. INBK trades at 0.8x FY19E BV and 7.4x FY19E EPS. Maintain Buy. Outlook on business growth and asset quality remains the key factor to monitor. Quantum of loans rescheduled under the 5/25 scheme. View on margins with an improvement in liquidity and lower interest rates. FY17 FY18E FY17 FY18E Net Interest Income 12,363 12,783 12,466 13,849 13,421 13,837 13,919 14,051 51,461 55,230 % Change (Y-o-Y) Other Income 4,417 5,846 5,997 5,854 5,452 6,192 6,607 6,053 22,114 24,304 Net Income 16,780 18,629 18,463 19,703 18,873 20,030 20,526 20,104 73,574 79,534 Operating Expenses 7,748 8,567 8,251 9,001 8,595 9,531 9,907 9,278 33,567 37,311 Operating Profit 9,032 10,062 10,212 10,701 10,277 10,498 10,619 10,826 40,007 42,222 % Change (Y-o-Y) Other Provisions 4,170 4,783 5,403 8,069 4,700 4,700 4,700 4,640 22,425 18,740 Profit before Tax 4,862 5,279 4,809 2,632 5,577 5,798 5,919 6,187 17,582 23,482 Tax Provisions 1,788 1,228 1, ,785 1,855 1,894 1,980 3,526 7,514 Net Profit 3,074 4,051 3,735 3,197 3,792 3,943 4,025 4,207 14,057 15,968 % Change (Y-o-Y) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) Tax Rate (%) Gross NPA (INR b) Gross NPA (%) July

17 IIB IN Equity Shares (m) M. Cap. (INR b)/(usd b) 891 / Week Range (INR) 1537 / ,6,12 Rel Perf. (%) -1 / 19 / 21 Financial Snapshot (INR Billion) Y/E MARCH E 2019E 2020E NII OP NP NIM (%) EPS (INR) EPS Gr. (%) BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) Payout (%) P/E (X) P/BV (X) P/ABV (X) Div. Yield (%) IndusInd Bank CMP: INR1,498 TP: INR1,716 (+15%) Buy We expect strong loan growth of ~25% in 1QFY18, significantly ahead of system loan growth. Deposit growth should be strong at 29% YoY. Continued market share gains in VF would remain a key factor to monitor. NIM is likely to decline marginally (by ~10bp QoQ) to ~3.7%. The quantum of CASA retained would be a key factor. We expect non-interest income to grow ~17%, supported by healthy fee income growth of ~21%. Stronger contribution of thirdparty distribution fees owing to increased inflows into MFs and insurance industry should continue to support higher third-party distribution fees. Opex growth would remain high at ~20%+ YoY v/s 22% growth in total income. Healthy PPP growth (+23% YoY) and controlled credit costs would keep earnings growth strong at 24%+ YoY. IIB trades at 3.3x FY19E BV and 20.2x FY19E EPS, with best-in-class RoA of ~1.9% and RoE of 17-18%. Buy. Continued CV/CE growth would be the key for CFD growth. Corporate asset quality a key monitorable. Traction in the non-vehicle consumer lending portfolio. FY17 FY18E FY17 FY18E Net Interest Income 13,564 14,603 15,784 16,675 16,962 17,755 18,797 19,975 60,626 73,489 % Change (YoY) Other Income 9,730 9,704 10,168 12,113 11,340 11,762 12,605 13,800 41,715 49,507 Net Income 23,294 24,307 25,952 28,788 28,302 29,517 31,403 33, , ,996 Operating Expenses 10,956 11,491 12,319 13,065 13,097 13,749 14,827 15,724 47,831 57,397 Operating Profit 12,338 12,816 13,633 15,722 15,205 15,768 16,576 18,050 54,510 65,599 % Change (YoY) Other Provisions 2,305 2,139 2,169 4,301 2,800 2,600 2,400 3,355 10,913 11,155 Profit before Tax 10,033 10,677 11,465 11,421 12,405 13,168 14,176 14,695 43,597 54,444 Tax Provisions 3,419 3,635 3,959 3,905 4,218 4,477 4,820 4,996 14,918 18,511 Net Profit 6,614 7,042 7,506 7,516 8,187 8,691 9,356 9,699 28,679 35,933 % Change (YoY) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) Tax Rate (%) Gross NPA (INR b) Gross NPA (%) July

18 KMB IN Equity Shares (m) M. Cap. (INR b)/(usd b) 1759 / Week Range (INR) 1005 / 692 1,6,12 Rel Perf. (%) 0 / 21 / 14 Y/E MARCH E 2019E 2020E NII 81.3 E OP NP Cons. NP NIM (%) Cons. EPS (INR) EPS Gr. (%) Cons. BV. (INR) Cons. RoE (%) RoA (%) Payout (%) P/E(X) (Cons.) P/BV (X) (Cons.) Div. Yield (%) Kotak Mahindra Bank CMP: INR959 TP: INR1,146 (+19%) Buy We expect the standalone bank to report 16% loan growth and 17% deposit growth in 1QFY18. NIM is likely to shrink ~5bp QoQ, but improve 5bp YoY. Overall, we expect NII growth of 16% YoY. CASA retention would be a key driver of NII and NIM. We estimate a 5bp benefit to NIM (4.5% in 1QFY18) from the QIP. With strong digital initiatives, fast-paced customer acquisition and merger synergies from eivbl, fee income would be a key growth driver for the bank. We factor in other income growth of 16% in 1Q, driven mostly by healthy fee traction and expect an improving trend in the coming quarters. We expect asset quality to remain stable, with GNPA at ~2.65% and NNPA at 1.2%, led by a high provision coverage ratio. We revise FY18E/FY19E PAT upwards by 4.6%/4.3% to account for capital raise of INR58b. On a reported basis, we expect standalone bank earnings to grow 24% YoY. The stock trades at 3.5x FY19E consolidated BV and 23.8x FY19E consolidated EPS. Maintain Buy. Guidance on balance sheet growth. Performance on CASA, fees and growth Performance of non-banking subsidiaries and their contribution to overall profit. Y/E March FY17 FY18E FY17 FY18E Kotak Bank (standalone) Net Interest Income 19,191 19,954 20,503 21,614 22,241 23,038 23,386 23,974 81,262 92,640 % Change (Y-o-Y) Operating Profit 13,150 14,401 15,277 17,020 15,824 17,578 18,497 19,962 59,848 71,861 % Change (Y-o-Y) Net Profit 7,420 8,133 8,798 9,765 9,190 10,083 10,888 11,997 34,115 42,159 % Change (Y-o-Y) Other Businesses Kotak Prime 1,200 1,300 1,330 1,330 1,400 1,470 1,544 1,601 5,150 6,014 Kotak Mah. Investments ,960 2,629 Kotak Mah. Capital Co Kotak Securities ,210 1,020 1,061 1,103 1,149 3,610 4,333 International subs ,118 Kotak Mah. AMC & Trustee Co ,042 Kotak Investment Advisors Kotak OM Life Insurance , ,222 3,030 3,485 Con.adj and MI Conso. PAT 10,750 12,023 12,668 14,045 13,505 14,608 15,676 17,528 49,485 61,318 % Change (Y-o-Y) July

19 PNB IN Equity Shares (m) M. Cap. (INR b)/(usd b) 291 / 4 52-Week Range (INR) 186 / 105 1,6,12 Rel Perf. (%) -10 / 1 / 7 NII OP NP NIM (%) EPS (INR) EPS Gr. (%) NM BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) Payout (%) P/E(X) P/BV (X) P/ABV (X) Div. Yield (%) Punjab National Bank CMP: INR137 TP: INR184 (+35%) Buy We expect loan growth to pick up gradually (+10.3% YoY/+3% QoQ). Deposits should grow 14.5%+ YoY, reflecting some stickiness in CASA post inflows in 3Q after demonetization. NII is likely to grow 6.8% QoQ owing to ~11bp QoQ improvement in NIMs. Fee income growth is likely to be 11%/19% QoQ/YoY; overall noninterest income is expected to grow 4.8% YoY. Stress addition is likely to be elevated, but recoveries could surprise positively with intense efforts. We expect credit cost to moderate to ~200bp. Resolutions in key accounts remain a key trigger. The stock trades at 0.7x FY19E BV and 9.4x FY19E EPS. Maintain Buy. Outlook on asset quality, as net stressed loans remain one of the highest in the industry. Capital raising plans via fresh issue and sale of non-core assets. Trend in loan growth and fee income. NIMs and CASA performance. (INR million) Y/E March FY17 FY18E FY17 FY18E Net Interest Income 36,990 38,799 37,308 36,835 39,335 41,806 44,401 45, , ,388 % Change (YoY) Other Income 23,551 23,879 25,135 31,028 24,683 24,272 23,861 24,203 89,514 97,018 Net Income 60,541 62,678 62,443 67,863 64,018 66,078 68,262 70, , ,406 Operating Expenses 27,794 29,557 30,897 5,545 32,254 34,055 33,154 34,928 93, ,391 Operating Profit 32,746 33,120 31,546 62,318 31,764 32,023 35,108 35, , ,015 % Change (YoY) Other Provisions 27,384 25,338 29,359 57,535 25,000 25,000 26,000 24, , ,946 Profit before Tax 5,362 7,783 2,187 4,783 6,764 7,023 9,108 10,175 20,115 33,069 Tax Provisions 2,299 2, ,164 2,300 2,388 3,097 3,459 6,867 11,244 Net Profit 3,064 5,494 2,072 2,619 4,464 4,635 6,011 6,715 13,248 21,826 % Change (YoY) NM NM NM NIM (Cal, %) Deposit Growth (%) Loan Growth (%) Tax Rate (%) Gross NPA (INR B) Gross NPA (%) July

20 RBK IN Equity Shares (m) M. Cap. (INR b)/(usd b) 196 / 3 52-Week Range (INR) 600 / 274 1,6,12 Rel Perf. (%) 13/69/- NII OP NP NIM (%) EPS (INR) EPS Gr. (%) BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) P/E(X) P/BV (X) P/ABV (X) Div. Yield (%) CMP: INR522 RBL Bank Under Review Loan growth (+43% YoY) and deposit growth (+45% YoY) would be significantly above industry average. We expect NII to grow 53% YoY, led by strong loan growth and stable to slightly improving NIMs, and helped by strong CASA inflows and fall in bulk deposit rates. Overall non-interest income is expected to grow by ~27% YoY, led by strong growth in fee income and digital initiatives. We expect opex growth of 34%, led by continued capacity expansion. However, opex is expected to trail total income growth of 43%, driving 54% YoY increase in PPoP. Asset quality is expected to remain largely stable in 4QFY17, though some stress could materialize, particularly in the MFI segment. Credit costs would largely be under control. We expect PAT growth of 9% QoQ and 46% YoY. RBK trades at 3.5x FY19E BV and 21.6x FY19E EPS. We await management commentary on asset quality and growth outlook, and maintain our rating at Under Review. Management commentary on slippages in SME segment. Update and commentary on balance sheet growth strategy. CASA ratio and traction on NIMs. FY17 FY18 FY17 FY18 Net Interest Income 2,447 3,029 3,216 3,522 3,748 3,888 4,045 4,288 12,213 15,969 % Change (Y-o-Y) Other Income 1,675 1,691 1,823 2,366 2,128 2,498 2,602 3,088 7,555 10,315 Net Income 4,122 4,721 5,038 5,887 5,876 6,386 6,647 7,376 19,768 26,285 Operating Expenses 2,277 2,530 2,687 3,070 3,041 3,233 3,468 4,073 10,564 13,815 Operating Profit 1,845 2,191 2,351 2,818 2,835 3,153 3,179 3,303 9,204 12,470 % Change (Y-o-Y) Other Provisions ,389 2,315 Profit before Tax 1,419 1,410 1,989 1,997 2,135 2,553 2,679 2,787 6,815 10,154 Tax Provisions ,354 3,402 Net Profit ,287 1,301 1,420 1,698 1,781 1,853 4,461 6,752 % Change (Y-o-Y) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) Tax Rate (%) Gross NPA (INR b) Gross NPA (%) July

21 SBIN IN Equity Shares (m) M. Cap. (INR b)/(usd b) 2357 / Week Range (INR) 315 / 217 1,6,12 Rel Perf. (%) -5 / -5 / 8 NII ,032.9 OP NP NIM (%) EPS (INR) EPS Gr. (%) , Cons. BV (INR) Cons. ABV (INR) RoE (%) RoA (%) Div. Payout (%) Cons. P/E (x) Cons. P/BV (x) Cons P/ABV (x) Div. Yield (%) State Bank of India CMP: INR273 TP: INR362 (+33%) Buy We have done the line-by-line consolidation for the banking business with associate banks for comparison purpose. Hence, reported numbers will not be strictly comparable. We expect loan growth to be muted as consolidation with subsidiaries is expected to result in an overall muted quarter. NII is expected to decline 7% QoQ (+8% YoY) as 4QFY17 had a oneoff component of ~INR20b. Decline in yields owing to MCLR cuts and lowering of base rate will be offset by strong CASA accretion. Stress additions should continue to be high, but come down from 4QFY17 levels. Commentary on RBI resolution with respect to large accounts is a key monitorable. Non-interest income could decline 26% YoY owing to one-off gains of INR17.6b in 4QFY17 from stake sale in SBI Life. Fee income growth is expected to decline and cost pressure would remain high (+9% YoY v/s 6% total income growth) owing to consolidation. We expect credit cost to remain elevated, led by continued stress additions and focus on shoring up PCR. The stock trades at 0.9x FY19E consolidated BV and 9.4x FY19E consolidated EPS. Buy. Performance and guidance on asset quality. Outlook and update on non-core stake sales and ABs merger. Quarterly performance Y/E March FY17 FY18 FY17 FY18 Interest Income 544, , , , , , , ,084 2,243,152 2,418,218 Interest Expense 362, , , , , , , ,480 1,489,669 1,591,511 Net Interest Income 182, , , , , , , , , ,706 % Change (YoY) Other Income 88, , , ,275 91, , , , , ,971 Net Income 271, , , , , , , ,592 1,182,110 1,247,677 Operating Expenses 132, , , , , , , , , ,020 Operating Profit 138, , , , , , , , , ,657 % Change (YoY) Other Provisions 130, , , , , ,250 94, , , ,613 Profit before Tax 8,544-5,949 25,118-40,597 43,397 51,868 54,810 60,969-12, ,043 Tax Provisions 3, ,906-2,717 13,019 15,560 16,443 18,291 7,355 63,313 Net Profit 5,029-5,600 18,212-37,880 30,378 36,307 38,367 42,678-20, ,730 % Change (YoY) Note: We have done the line by line consolidation of standalone bank with associate bank earnings. For 4QFY17, since associate banks earnings were not reported it is our estimated numbers for based on FY17 reporting. Due to lack of information, intra-group transactions of parent with associate banks are not factored in. July

22 UNBK IN Equity Shares (m) M. Cap. (INR b)/(usd b) 101 / 2 52-Week Range (INR) 205 / 116 1,6,12 Rel Perf. (%) -9 / -1 / -6 NII OP NP NIM (%) EPS (INR) EPS Gr. (%) BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) Div. Payout (%) P/E(X) P/BV (X) P/ABV (X) Div. Yield (%) Union Bank of India CMP: INR146 TP: INR162 (+11%) Neutral Muted growth environment, capital constraints and low risk appetite would lead to +2%/14% QoQ/YoY growth in advances(annual growth driven by a low base). Deposit growth is expected to be healthy at ~15% YoY. NIM is expected to stay flat QoQ. NII growth is expected to be healthy at ~15% YoY. Other income is likely to grow ~3% YoY, although trading gains would be lower than in 4QFY17. Opex growth of 9% would trail total income growth of 11%, driving strong PPoP growth of 13%. Slippages are expected to moderate, but remain at elevated levels at 3%. Healthy recoveries should keep net slippages under control at ~1.9%. As a result, total credit costs are expected to moderate to 1.6% (similar to previous quarter). Overall, we expect PAT growth to be high QoQ/YoY on a low base. The stock trades at 0.4x FY19E BV and 4.2x FY19E EPS. Maintain Neutral. Performance on asset quality slippage from restructured loans, going forward. Trends and efforts to improve CASA ratio and NIM. Update and trends on balance sheet growth. FY17 FY18E FY17 FY18E Net Interest Income 21,023 22,774 21,366 23,870 24,120 24,688 25,441 26,190 89, ,439 % Change (YoY) Other Income 10,399 11,394 13,397 14,456 10,679 11,590 11,710 14,179 49,646 48,158 Net Income 31,421 34,169 34,763 38,326 34,799 36,278 37,151 40, , ,597 Operating Expenses 15,171 15,972 16,250 16,986 16,481 17,542 17,888 19,639 64,378 71,551 Operating Profit 16,251 18,197 18,513 21,341 18,317 18,736 19,263 20,730 74,301 77,046 % Change (YoY) Other Provisions 13,530 16,203 16,701 24,441 11,500 12,000 12,500 13,991 70,875 49,991 Profit before Tax 2,721 1,994 1,811-3,101 6,817 6,736 6,763 6,739 3,426 27,055 Tax Provisions 1, ,183 2,318 2,290 2,300 2,291-2,126 9,199 Net Profit 1,663 1,767 1,040 1,082 4,499 4,446 4,464 4,447 5,552 17,856 % Change (YoY) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) Tax Rate (%) Gross NPA (INR b) Gross NPA (%) July

23 YES IN Equity Shares (m) M. Cap. (INR b)/(usd b) 678 / Week Range (INR) 1653 / ,6,12 Rel Perf. (%) 0 / 10 / 18 NII OP NP NIM (%) EPS (INR) EPS Gr. (%) BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) P/E(X) P/BV (X) P/ABV (X) Div. Yield (%) Yes Bank CMP: INR1,485 TP: INR2,110 (+42%) Buy We expect loan growth to be significantly ahead of system average at 32% YoY (> 5x industry growth rate) on the back of refinancing opportunities and strong growth in retail banking. We expect NIM to improve YoY, helped by lower cost of funds on account of CASA inflows post demonetization and re-pricing of bulk deposits. Consequently, NII growth is expected to be healthy at 40% YoY, one of the best among peers. NIM is expected to expand 39bp YoY to 3.74% with reduction in leverage from capital from QIP at the end of FY17. Non-interest income growth is likely to be ~4% YoY, led by strong growth from third-party distribution and processing fees. We expect opex growth be controlled due to digitization (26%+ YoY). Asset quality performance so far has been significantly better than industry; we expect this trend to continue. YES trades at 2.3x FY19E BV and 13x FY19E EPS. Return ratios also remain strong (RoA of 1.8% and RoE of 19.5%). Maintain Buy. Implementation of retail strategy on assets and liabilities sides. Performance on asset quality and quantum of loans rescheduled under 5:25 scheme/sale to ARCs. FY17 FY18E FY17 FY18E Net Interest Income 12,516 14,122 14,893 16,397 17,505 18,258 18,875 20,286 57,973 74,925 % Change (Y-o-Y) Other Income 9,655 9,219 10,165 12,574 10,050 10,950 11,450 13,957 41,568 46,407 Net Income 22,171 23,340 25,059 28,971 27,555 29,208 30,325 34,243 99, ,332 Operating Expenses 9,103 9,481 10,520 12,061 11,433 11,916 12,639 15,469 41,165 51,457 Operating Profit 13,068 13,860 14,538 16,910 16,122 17,292 17,687 18,774 58,375 69,875 % Change (Y-o-Y) Other Provisions 2,066 1,617 1,154 3,097 2,500 2,500 1,500 2,028 7,934 8,528 Profit before Tax 11,001 12,243 13,384 13,813 13,622 14,792 16,187 16,746 50,441 61,347 Tax Provisions 3,683 4,228 4,558 4,671 4,427 4,807 5,261 5,443 17,140 19,938 Net Profit 7,318 8,015 8,826 9,141 9,195 9,984 10,926 11,304 33,301 41,409 % Change (Y-o-Y) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) Tax Rate (%) Gross NPA (INR B) Gross NPA (%) July