Banking Weekly - Update for the week ended Jan 08, 2016

-2% -2% -2% -3% -3% -4% -4% -5% -6% -6% -6% -7% -8% -9% -10% -3% -4% -5% -6% -6% -1% -2% -3% 2% 1% 1% 0% JKBK SIB HDFCB KVB IIB CUBK KMB BOI YES DCBB CBK FB ICICIBC SBIN AXSB PNB BOB CIFC SUF LICHF SHTF MMFS IDFC SCUF REC PFC REPCO Banking Weekly - Update for the week ended Jan 08, 2016 Sensex DOWN 4.53% ending at 24934 wow; Bankex DOWN 4.97% to 18368 The BSE Sensex was DOWN 4.53% for the week ending at 24934, a decrease of 1183points while the BSE Bankex was DOWN 4.97% (DOWN 960 points) over the previous week to end at 18368. The Spark NBFC Index was DOWN 6.16% to close at 207.64 from the previous week's close of 221.27 (Index value: 100 on 01/01/2012). Date 12 Jan, 2016 BSE SENSEX 24934 NIFTY 7601 BSE BANKEX 18368 CRR % 4.00 4% 2% 0% -2% -4% -6% -8% -10% -12% Key Takeaways Stock price movement (wow) The 10Y G-Sec yield was UP 1bps wow ending at 7.74% and the 5Y yield was DOWN 3bps wow ending at 7.62%. Spread between 10Y and 6M G-sec yields moved DOWN to 55bps, with the long term 10Y yield trending higher than the 6M yield. The 10Y bond yields was DOWN 15bps in US (2.12%), DOWN 19bps in UK (1.77%), DOWN 34bps in Brazil (6.85%) and UP 1bps in China (2.87%). For the fortnight ended Dec 25, credit grew 11.2% yoy while the deposits grew by 10.88% yoy. During the fortnight, banks credit off take was UP by Rs.493bn, while deposits were DOWN by Rs.3bn, with the CD ratio at 74.6%. ICICIBC CDS rate was UP 6bps wow to 182bps while SBI CDS rate was UP 1bps wow to 163bps. The 10Y AAA spread was DOWN 0bps to 0.65% and the 5Y AAA spread was UP 4bps to 0.75%. 3M CD rates were DOWN 0bps to 7.26%, 6M rates were DOWN 0bps to 7.46%, 12M rates were DOWN 0bps to 7.62%. Spread between overnight rate and 12M OIS rate trended lower to 6bps, suggesting that the market is expecting rates to decrease by ~6bps from 7.02% in the next 12 months. Call money rate was UP 39bps to 6.84%, from the 6.45% levels seen during the past week. INR depreciated by 0.37% wow, against the USD, closing at 66.64 in the spot markets, while the USD/INR forward rates were higher across tenors by ~1.01% wow. Gold price was UP 3.26% wow at INR 25858 per 10gm in INR terms and UP in USD terms by 4.02% wow and closed at USD 1104 per troy ounce. Crude oil prices were DOWN in USD terms by 10.18%, closing at USD 33.3. SLR % 21.50 Reverse Repo % 5.75 Repo % 6.75 MSF% 7.75 Base Rate % 9.30/9.70 Deposit Rate % 7.00/7.90 INR/ US$ 66.64 WPI% -1.99 CPI% 5.41 Abhinesh Vijayaraj abhinesh@sparkcapital.in +91 44 4344 0006 Nishant Rungta nishant@sparkcapital.in +91 44 4344 0033 Navin Babu navin@sparkcapital.in +91 44 4344 0065 1

News and RBI tifications during the week News during the week Management Updates: Reserve Bank of India: The government re-appointed Mr. Urjit R. Patel as the Deputy Governor of the Reserve Bank of India for a further period of three years with effect from taking charge of the post on or after January 11, 2016. IDBI to raise funds via QIP: IDBI Bank has hired seven banks to raise Rs.37.7 bn through a qualified institutional placement issuance. At its current market capitalization, the QIP will result in a dilution of around 15-20% in the government s shareholding in the bank. CUB opens a new branch: CUB informed the markets that it has opened a new branch in Madanapalle, in the Chittoor district. With this the total tally of the bank s branches is up to 492. Banks may sell Rs.3 trillion to ARCs: Vinayak Bahuguna, MD and CEO, Asset Reconstruction Company of India Ltd indicated that the next 6-12 months could see intense acceleration in the sell down of loans by banks. Once the Insolvency and Bankruptcy Bill is passed, the banks may put bad loans aggregating Rs.3.0 trillion on the block in calendar 2017. Federal Bank introduces fund transfer through missed call: Federal Bank introduced a funds transfer facility for its customers by the use of a missed call to the bank s dedicated number. The daily transaction limit for this service is Rs.5,000 with a monthly cap of Rs.25,000. The service is available 24X7 and has been offered free of charges. Bandhan s deposit growth: According to Chandra Shekhar Ghosh, Founder-MD and CEO of Bandhan Bank, deposits have grown to nearly Rs.50 bn in a little over four months of its existence. The bank, which started operations in August 2015,, has opened 605 branches across 27 states. NHB for further disclosure on default accounts: National Housing Bank has asked mortgage firms to share information on default of Rs 2.5mn and above by wilful defaulters so that further credit to such borrowers is halted. SDRs to defer NPA recognition: According to a report, the strategic debt restructuring route introduced by the RBI will defer recognition of loans worth Rs.1.5 trillion as non-performing assets, without solving the core bad asset problem. Govt. may sell stake in Axis Bank: The Government is considering selling part of its stake in Axis Bank. At the current market price, the Government's stake of 11.6 per cent in the bank is worth about $1.8 billion. SBI to set up special branch for start-ups: SBI announced that it will soon set up a first-of-its-kind branch in Bangalore to cater exclusively to the growing banking needs of start-ups. The new branch will be set up to give banking and other services to start-ups. This branch will give start-ups the necessary infrastructure and facilities for meeting their banking needs. RBI tifications RBI releases Primary (Urban) Co-operative Banks Outlook 2014-15: The Reserve Bank of India today released the 2nd volume of the annual publication titled Primary (Urban) Co-operative Banks Outlook 2014-15. [LINK] 2 2

Key Industry Trends 10Y G-Sec yield was UP 1bps wow and 5Y yield was DOWN 3bps wow 7.80% 7.76% 7.73% 7.74% 7.72% 7.68% 7.64% 7.60% 7.65% 7.62% 7.56% 7.52% Spread between 10Y and 6M bond yields moved UP to 55bps 0.60% 0.58% 0.56% 0.56% 0.54% 7.20% 0.55% 0.52% 0.50% 7.18% 0.48% 0.46% 10Y G-Sec Yield 5Y G-Sec Yield 6M G-Sec yield Spread between 10Y and 6M yields (RHS) The yield curve shifted downwards for select tenors wow 10Y bond yields DOWN in US, UK & Brazil and UP in China 9.00% 8.00% 7.00% 6.00% 3M 6M 1Y 2Y 3Y 5Y 6Y 7Y 8Y 9Y 10Y 11Y 12Y 13Y 14Y, 8.0% 7.19% 6.85% 7.0% 6.0% 5.0% 4.0% 2.86% 2.87% 3.0% 2.27% 2.12% 2.0% 1.0% 1.96% 1.77% 0.0% 28-Sep-10 15-Jul-13 01-Jan-16 08-Jan-16 US UK China Brazil 3 3

Key Industry Trends 5-year CDS rates UP 6bps wow for ICICI and UP 1bps for SBI e 190 180 182 177 176 180 170 163 160 150 158 160 163 162 163 140 130 120 10Y AAA bond spread FLAT wow, 5Y spread UP 4bps wow 0.8% 0.69% 0.68% 0.7% 0.66% 0.65% 0.75% 0.71% 0.71% 0.6% 0.64% 0.51% 0.5% 0.56% 0.4% 10/Dec 17/Dec 24/Dec 31/Dec 7/Jan ICICI Bank CDS (bps) SBI CDS (bps) (RHS) 10Y Corporate AAA Spreads 5Y Corporate AAA Spreads CD rates remained FLAT wow across tenors 7.8% 7.6% 7.4% 2 7.0% 3M 6M 12M TED spread expands to 43bps wow 0.75% 0.59% 0.60% 0.62% 0.65% 0.51% 0.55% 0.45% 0.35% 0.26% 0.25% 0.15% 0.25% 0.21% 0.05% 0.13% 0.17% 0.19% -0.05% 3-month LIBOR % (RHS) 3-month US T-Bill% (RHS) 4 4

Key Industry Trends 1Y FW OIS and overnight rate spread moved to negative 6bps 7.1% 7.0% 6.9% 6.8% 6.7% 6.6% 34 6 6.5% 0 Overnight rate 12M OIS Spread (bps) (RHS) 9-6 40 35 30 25 20 15 10 5 - (5) (10) Call money rates UP wow to 6.84% 7.0% 6.84% 6.8% 6.57% 6.6% 6.35% 6.45% 6.4% 6.2% 6.0% 5.78% 5.8% 5.6% 5.4% 5.2% Forward USD/INR rates ended HIGHER across tenors 72 70.79 70.02 70 68.81 68.11 68 67.82 66 67.14 64 Gold in INR terms UP 3.3% wow and UP 4.0% in US$ terms 26,000 25,8581,110 25,800 1,100 25,600 1,090 25,40025,231 25,148 1,1041,080 25,200 25,042 1,070 1,075 24,954 25,000 1,071 1,060 1,066 24,800 1,061 1,050 24,600 1,040 24,400 1,030 3M forward rate 6M forward rate 12M forward rate Gold Price in Rs. per 10g. Gold Price in US$ per troy ounce (RHS) 5 5

P/ABV Valuation Return on Assets Vs. P/ABV dispersion 5.0 4.0 KMB REPCO HDFC SUF 3.0 MMFS CIFC HDFCB IIB LICHF Private Banks SCUF 2.0 1.0 BOI DCBB PSU Banks BOB Old-gen SBIN Banks PNB CBK SIB AXSB SHTF Coverage Uni. YES CUBK FB KVB JKBK ICICIBC POWF RECL 0.0 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Return on Assets % 6

P/ABV Valuation Return on Equity Vs. P/ABV dispersion 5.0 4.0 KMB SUF REPCO HDFC 3.0 MMFS CIFC IIB HDFCB 2.0 1.0 DCBB PSU Banks SCUF Private Banks SHTF Coverage Uni. SBIN FB ICICIBC BOB KVB Old-gen Banks LICHF AXSB CUBK YES PNB CBK SIB JKBK POWF RECL 0.0 5.0% 7.0% 9.0% 11.0% 13.0% 15.0% 17.0% 19.0% 21.0% 23.0% Return on Equity % 7

Valuation Matrix Banks Bank Net Interest Income, Rs. bn Operating Profits, Rs. bn PAT, Rs. bn Gross NPA FY15-17E CAGR NIM FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E NII PAT ABV FY15 FY16E FY17E AXSB 142.2 166.7 191.9 133.9 157.7 180.7 73.6 84.3 95.9 1.5% 1.5% 1.5% 16% 14% 15% 3.6% 3.7% 3.7% BOB 131.9 136.8 159.5 99.2 98.1 117.8 34.0 31.9 52.1 3.8% 5.6% 5.3% 10% 24% 1% 2.0% 2.0% 2.1% BOI 113.4 124.5 141.0 74.9 71.6 85.7 17.1-9.4 11.0 5.5% 7.8% 8.2% 11% -20% -20% 2.1% 2.1% 2.2% CBK 96.6 106.8 120.3 69.5 81.4 91.9 27.0 28.3 38.9 4.0% 4.2% 4.3% 12% 20% 5% 2.0% 2.0% 2.0% CUBK 8.1 9.5 10.8 6.9 8.4 9.8 3.9 4.5 5.8 1.9% 2.1% 2.1% 16% 21% 15% 3.3% 3.5% 3.4% DCBB 5.1 6.0 7.1 2.8 3.3 3.2 1.9 1.7 1.7 1.8% 1.9% 1.8% 18% -5% 9% 3.8% 3.6% 3.5% FB 23.8 25.1 28.6 16.3 14.9 18.6 10.1 7.4 11.4 2.1% 2.8% 2.7% 10% 6% 5% 3.3% 3.1% 3.2% HDFCB 224.0 274.9 338.3 174.0 213.3 265.7 102.2 123.5 160.9 0.9% 0.9% 0.9% 23% 26% 18% 4.6% 4.6% 4.6% ICICIBC 190.4 212.3 236.3 197.2 214.8 241.1 111.8 125.3 138.2 3.9% 3.8% 3.7% 11% 11% 15% 3.4% 3.5% 3.5% IIB 34.2 44.7 58.8 31.0 40.1 51.7 17.9 23.0 30.2 0.8% 0.8% 0.8% 31% 30% 33% 3.8% 3.9% 4.1% JKBK 26.5 27.9 30.5 18.4 17.9 19.3 5.1 7.8 9.6 6.2% 6.7% 6.5% 7% 38% 13% 3.7% 3.9% 4.0% KMB 42.2 69.1 80.7 29.9 41.1 55.8 18.6 21.2 32.0 1.9% 2.7% 2.4% 38% 31% -11% 4.7% 4.1% 4.2% KVB 14.7 17.4 19.6 9.4 12.4 14.1 4.6 5.9 7.1 1.9% 2.0% 1.9% 16% 25% 10% 3.0% 3.4% 3.3% PNB 165.6 172.2 184.5 119.6 123.4 130.8 30.6 31.7 44.7 6.8% 6.6% 6.4% 6% 21% 10% 3.1% 2.9% 2.9% SBIN 550.2 576.5 655.3 389.1 413.3 486.5 131.0 159.3 213.1 4.3% 4.2% 4.1% 9% 28% 12% 3.1% 2.9% 3.0% SIB 13.7 15.2 17.3 8.8 8.6 9.7 3.1 3.6 4.7 1.7% 2.3% 2.2% 12% 23% 8% 2.6% 2.7% 2.8% YES 34.9 46.3 58.5 32.5 42.3 53.8 20.1 25.4 33.0 0.4% 0.6% 0.6% 30% 28% 19% 3.1% 3.4% 3.4% 8

Valuation Matrix Banks (Cont d) Bank RoE RoA ABV/share Rs. P/ABV (x) CMP Shares M.Cap Target FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY16E FY17E (Rs.) (mn) Rs. Bn P/ABV(x) Price (Rs.) Rating AXSB 17.8% 17.4% 17.1% 1.7% 1.7% 1.6% 183 212 244 2.0 1.7 414 2371 981 1.8 442 SELL BOB 9.2% 7.8% 11.5% 0.5% 0.4% 0.6% 139 126 141 1.1 1.0 140 2218 311 0.9 128 SELL BOI 6.3% -3.3% 3.7% 0.3% -0.1% 0.2% 216 146 137 0.8 0.8 110 666 73 0.7 94 SELL CBK 10.7% 9.9% 12.0% 0.5% 0.5% 0.6% 373 378 409 0.6 0.5 220 475 104 0.6 246 SELL CUBK 16.7% 15.8% 17.5% 1.5% 1.5% 1.7% 41 47 55 1.9 1.6 90 597 54 2.1 116 BUY DCBB 14.5% 10.2% 9.7% 1.3% 0.9% 0.8% 51 55 61 1.4 1.3 77 282 22 1.1 66 SELL FB 13.7% 9.4% 13.5% 1.3% 0.8% 1.1% 43 43 47 1.2 1.1 53 1713 90 1.3 62 BUY HDFCB 19.4% 18.4% 20.3% 1.9% 1.9% 2.0% 244 284 337 3.7 3.2 1062 2506 2663 3.8 1274 BUY ICICIBC 14.5% 14.5% 14.0% 1.8% 1.8% 1.8% 128 147 169 1.3 1.1 245 5798 1421 1.9 364 BUY IIB 19.0% 16.7% 16.1% 1.8% 1.8% 1.9% 190 288 334 3.3 2.8 947 529 501 3.3 1115 BUY JKBK 8.6% 12.2% 13.4% 0.7% 1.0% 1.1% 101 111 127 0.8 0.7 84 485 41 1.0 129 BUY KMB 14.0% 9.4% 12.7% 1.9% 1.2% 1.5% 175 122 138 4.6 3.9 695 1821 1266 3.0 576 SELL KVB 12.1% 13.3% 14.5% 0.9% 1.0% 1.1% 326 353 395 1.4 1.2 481 122 58 1.5 593 BUY PNB 8.5% 8.0% 10.3% 0.5% 0.5% 0.6% 120 129 145 0.8 0.7 105 1855 195 0.8 116 SELL SBIN 10.6% 11.4% 13.5% 0.7% 0.7% 0.9% 135 153 168 1.1 0.9 209 7466 1560 1.5 297 BUY SIB 9.2% 10.2% 12.0% 0.5% 0.6% 0.7% 23 24 27 0.8 0.7 20 1350 26 1.0 27 BUY YES 21.3% 20.0% 21.8% 1.6% 1.7% 1.7% 278 326 392 2.1 1.8 694 418 290 2.5 980 BUY * ICICIBC, KMB & SBIN - P/ABV adjusted for subsidiaries 9

Valuation Matrix NBFCs NBFC Net Interest Income, Rs. bn Operating Profits, Rs. bn PAT, Rs. bn Gross NPA FY15-17E CAGR NIM FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E NII PAT ABV FY15 FY16E FY17E CIFC 17.3 20.4 23.7 9.8 11.8 14.0 4.4 5.2 6.2 3.1% 4.6% 5.8% 17% 19% 10% 7.1% 7.5% 7.5% HDFC 80.0 86.7 96.1 87.9 93.9 104.3 59.9 63.5 70.1 0.7% 0.7% 0.7% 10% 8% 11% 3.3% 3.1% 3.1% LICHF 22.4 28.9 32.5 21.1 26.9 30.3 13.9 16.7 18.2 0.5% 0.6% 0.9% 21% 15% 15% 2.2% 2.5% 2.4% MMFS 30.4 31.0 35.7 20.8 20.0 22.8 8.3 7.1 8.7 5.9% 8.9% 10.0% 8% 2% -2% 8.6% 8.0% 8.1% POWF 98.4 117.2 127.6 92.3 110.4 118.1 59.6 69.1 76.2 1.1% 1.4% 1.7% 14% 13% 14% 4.8% 5.0% 4.8% RECL 86.4 94.9 112.0 82.4 95.2 112.6 52.6 62.0 72.2 0.7% 1.2% 1.6% 14% 17% 17% 5.2% 4.8% 4.8% REPCO 2.4 3.0 3.8 0.2 0.2 0.3 1.2 1.5 1.9 1.3% 1.7% 1.6% 26% 24% 18% 4.4% 4.4% 4.3% SCUF 21.4 24.2 27.6 12.9 14.2 16.1 5.6 5.8 6.2 3.1% 6.0% 7.3% 14% 6% 6% 13.6% 13.4% 13.0% SHTF 42.5 47.8 53.8 31.3 35.5 39.0 12.4 12.9 14.1 3.8% 5.5% 6.6% 13% 7% 7% 7.6% 7.5% 7.4% SUF 10.9 11.4 13.1 7.5 8.2 9.2 4.5 5.0 5.2 1.5% 1.6% 2.5% 10% 7% 11% 6.8% 6.6% 6.6% NBFC RoE RoA ABV/share Rs. P/ABV (x) CMP Shares M.Cap Target FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY16E FY17E (Rs.) (mn) Rs. bn P/ABV(x) Price (Rs.) CIFC 17.5% 16.6% 15.8% 1.9% 2.0% 2.1% 170 191 207 3.4 3.1 649 144 94 3.3 686 BUY HDFC 20.3% 19.4% 19.3% 2.3% 2.1% 2.1% 190 210 233 4.1 3.6 1174 1575 1849 3.6 1168 SELL LICHF 18.1% 19.7% 18.4% 1.3% 1.4% 1.3% 150 173 197 2.9 2.6 505 505 255 2.1 408 SELL MMFS 15.5% 12.0% 13.6% 2.1% 1.7% 1.9% 86 80 83 2.9 2.8 236 564 133 2.3 192 SELL POWF 20.0% 19.8% 18.8% 2.8% 2.9% 2.8% 230 262 300 0.7 0.6 190 1320 251 1.0 299 BUY RECL 23.1% 22.8% 22.2% 3.1% 3.0% 2.9% 242 281 329 0.8 0.7 215 987 212 1.0 329 BUY REPCO 15.8% 16.8% 18.0% 2.3% 2.1% 2.1% 125 146 173 4.5 3.8 649 62 40 4.6 796 BUY SCUF 15.9% 13.5% 13.1% 3.2% 2.9% 2.7% 606 627 679 2.4 2.3 1528 66 101 3.0 2035 BUY SHTF 14.1% 13.2% 13.0% 1.8% 1.7% 1.6% 390 417 446 2.0 1.9 842 227 191 1.7 757 SELL SUF 16.9% 15.6% 14.6% 2.4% 2.5% 2.3% 262 298 324 4.1 3.7 1384 111 154 4.7 1640 BUY Source: Spark Capital Research Prices as of Jan 08, 2016 Rating 10

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