Banking and Financial Services

October 4, 2020
Moratorium, restructuring, NPA - overhangs continue Sector View
Banks & NBFCs –Neutral
In Q1FY21, unlocking of the economy and improvement in repayment trend
amid reducing moratorium book remained positive for the banking sector. Insurance – Overweight
Prudent restructuring norms announced by the RBI with inclusion of retail

Sector Update
AMC – Overweight
loans added strength to effort in faster economic revival. However,
uncertainty looming around the extent of moratorium and anticipation of Exchanges- Overweight
elevated credit cost keeping earning muted acted as deterrents.
Post RBI’s announcement on restructuring on August 6, 2020, the KV
Recommend business without asset quality risk
Kamath Committee submitted its recommendations on financial parameters
to be factored in for restructuring of Covid-19 corporate stress. The report SBI Life Insurance
indicates sector specific leverage and debt servicing metrics to be gauged
Multi Commodity Exchange Ltd
by lenders in lieu of restructured accounts by FY22, FY23E. As per
guidelines, borrowers that were classified as standard or SMA-0 (less than Selective in banking space
30 days default) with the lending institution as on March 1, 2020, would be
HDFC Bank
eligible for resolution. Such stricter norms for restructuring, coupled with
limiting the maximum restructuring tenure at two years for the residual Kotak Mahindra Bank
tenure, would ensure only eligible businesses get restructured. Thus,
IDFC First Bank
restructuring norms are seen providing support to eligible borrowers and
provide the needed breather to lenders.
With a gradual revival in business and regulatory development undertaken
during the quarter, our outlook on the banking sector remains as under;

ICICI Securities – Retail Equity Research

 Recently, managements suggest restructuring to be in single digit.
Incremental stress (restructuring, slippage of unviable or ineligible
accounts) are seen at 6-8% of advances, with PSU banks under pressure
Research Analyst
with higher quantum of stress. Stress accretion amid Covid and ageing
NPA is seen keeping credit cost elevated at ~200-225 bps ahead Kajal Gandhi
kajal.gandhi@icicisecurities.com
 Standstill classification extended by Supreme Court and restructuring are
Vishal Narnolia
seen keeping broad NPA numbers stable vishal.narnoliai@icicisecurities.com
 Advances growth to stay muted in single digits for FY21E. MSME Yash Batra
segment to see traction as banks are disbursing loans under credit yash.batra@icicisecurities.com
guarantee scheme, followed by traction in retail segment with gold
finance continuing to remain in focus. Disbursement to corporate sector
is expected to remain benign
RATING RATIONALE
 The gap between lending and deposits rates at peak warrant marginal
pressure on margins in the near term
 The Supreme Court case to waive interest on interest expected to provide
respite to moratorium borrowers is underway. Government support is
expected to safeguard lenders against NPV loss
Post de-growth in initial months amid pandemic, life insurance has seen
healthy revival with new business accretion at ~12% YoY in August 2020.
Such revival is due to robust traction in group single premium across players.
Higher awareness amid Covid bodes well for term insurance demand
offsetting credit life business slowdown. Low interest rates lead to some
volatility in guaranteed products. With premium accretion seen continuing to
improve in H2FY21E, we expect premium at 8-10% YoY in FY21E.
Given uncertainty on restructuring, we expect the stock price of lenders
(banks, NBFCs) to remain volatile in the near term. However, we continue to
expect positive impact of structural changes undertaken in the long run.
Decline in moratoriums and unlocking is seen enabling normalisation
leading to gradual revival in business momentum. Restructuring is seen at
6-8% of advances with private banks relatively better at 2-5%. NBFCs, HFCs
are expected to restructure around <10% of book. Near term bank earnings
may stay muted led by elevated credit cost. Prefer large private banks like
HDFC Bank, Kotak Bank and non-lenders like MCX, SBI Life for investments.
 Sector Update | Banking and Financial Services ICICI Direct Research

Focus on restructuring anticipated at 6-8% of advances

RBI permitted all banks/NBFCs to allow a moratorium up to August 2020 for
payments of all term loan instalments outstanding on March 1, 2020. During
this period, NPA levels stayed broadly flattish on account of standstill asset
classification norms. Initial moratorium at industry level was seen above
50%. However, gradual unlocking and lenders effort led moratorium to
reduce to ~25% in June 2020.
Extension of moratorium and subsequent postponing of interest payment
gave rise to the question of interest on interest for loans under moratorium.
However, a Supreme Court (SC) decision regarding interest on interest for
moratorium loans is still awaited. The SC has postponed its hearing for the
same to October 5, 2020 and directed banks to not classify any account as
NPAs until further notice. Hence, we expect continuation of moratorium
period to lead to broadly flattish NPA levels in Q2FY21. As per media
sources, the central government is expected to take the burden of providing
interest on interest during the moratorium period thereby safeguarding
lenders as well as providing respite to borrowers in the current difficult
times. The payout for interest on interest is estimated at ~| 15000-20000
crore.
Exhibit 1: Moratorium book reduces from March 2020 to June 2020
Advances Moratorium Moratorium O/s provision/
Lender
(| crore) (March 2020) (June 2020) Advances
HDFC Bank 1003291 5% 9% 0.5%
Axis Bank 561341 28% 10% 1.2%
IndusInd Bank 198069 5% 16% 1.3%
SBI Cards 21921 29% 7% 2.2%
Kotak Bank 216819 26% 10% 1.6%

Bandhan Bank 74331 71% 24% 2.4%

MMFS 63840 75% 48% 2.5%
Bajaj Finance 138055 22% 16% 2.2%
IDFC First Bank 104050 35% 28% 0.6%
Federal Bank 123000 35% 24% 0.2%
BoB 736547 65% 21% 0.2%
DCB Bank 25058 60% 26% 0.8%
Source: Company, ICICI Direct Research

Q1FY21 numbers were characterised by lower slippages on the back of

standstill asset classification norms. In terms of recovery, suspension of the
IBC stalled the recovery pace. In addition, extension of the IBC suspension
till December 24, 2020 would keep recovery pace benign, thus delaying the
required breather to major banks. Lower slippages were offset by a muted
recovery pace, which led GNPA to inch up 4.5% QoQ to | 947583 crore.
Subsequently, GNPA ratio increased 170 bps QoQ to 10.4%. With provision
continuing to remain elevated, NNPA came in a tad lower by 2.6% QoQ to
| 314378 crore (Covid related provision not included in calculation of NNPA),
with PCR witnessing an improvement.
Exhibit 2: Asset quality of Indian banking system as of June 2020
F Y17 F Y18 Q 2F Y19 Q 3F Y19 Q 4F Y19 Q 1F Y20 Q 2F Y20 Q 3F Y20 Q 4F Y20 Q 1F Y21
G NP A 776835 1021959 993381 955970 912179 912179 904777 895706 939651 980285
NNP A 430173 516462 461063 414961 350022 346883 332139 326900 322653 322535
G NP A R a tio 9.6 11.6 10.7 10.2 9.1 9.3 9.3 8.9 9.1 9.6
NNP A R a tio 5.3 5.8 5.0 4.4 3.5 8.5 3.4 3.3 3.1 3.2
G NP A of P S B 648733 896601 868812 829745 789016 788087 778310 766154 790398 861130
G NP A of P vt B a nks 92102 125358 124569 126226 123401 124092 126467 129552 149253 119155
w/off 108374.0 161328.0 197705.0
Source: Company, Capitaline, ICICI Direct Research

ICICI Securities |Retail Research 2

 Sector Update | Banking and Financial Services ICICI Direct Research

Restructuring of NPA accounts to be watched

On August 6, 2020, RBI announced a framework, which allowed lenders to
restructure corporate and personal loans. As per these guidelines, only
those borrowers would be eligible for resolution, which were classified as
standard or SMA-0 (less than 30 days default) with the lending institution as
on March 1, 2020. The KV Kamath committee noted that ~70% of banking
system credit was impacted by Covid-19 in varying degree. Thus, it
recommended financial parameters for restructuring for 26 sectors (~29%
of banking system corporate loans) with its major focus on power,
construction, iron & steel, roads, real estate, wholesale trading, textiles,
consumer durables, aviation, logistics, hotels, restaurants & tourism, mining,
which would require restructuring. These guidelines exclude MSME
borrowers with less than | 25 crore exposure as on March 1, 2020, farm
credit, credit to financial institutions, credit to any state or central
government bodies and loan to own staff. For the first time, the restructuring
framework is on the basis of sectors and more detailed. Hence, the
invocation should be more constructive. This move is positive for the
banking sector as it enables restructuring of standard assets under stress
amid Covid. Stricter norms for restructuring coupled with limiting the
maximum restructuring tenure at two years for the residual tenure would
ensure only eligible businesses get restructured.
Given the current scenario, ~5-6% (| 5-6 lakh crore) of overall advances is
seen being restructured; with PSU banks bearing a larger share. Fresh
slippages (accounts not eligible for restructuring or unviable accounts) are
expected to contribute ~| 1-2 lakh crore of incremental stress (1-2% of
advances). HFCs are expected to witness restructuring below 10% primarily
from wholesale exposure.
Incremental stress amid Covid and ageing NPA are seen keeping credit cost
elevated in the near term. Credit cost is expected to be at | 4-4.5 lakh crore
in the next two years i.e. ~200-225 bps in FY21-22E. Hence, the earnings
trajectory is expected to remain moderate ahead. Consequently, we prefer
large banks with low moratorium and limited exposure to troubled sectors,
efficient business model, adequate provision buffer and capital for
bolstering future balance sheet growth. Furthermore, we expect
restructuring demand from large corporates to remain benign. As per Icra,
corporates (including mid-size borrowers) are expected to contribute ~ | 6
lakh crore while non-corporate (MSME and retail) would form ~ | 2 lakh
crore of restructuring. HDFC Bank, SBI & SBI Cards have already rolled out
the option of restructuring to their retail clients.
Exhibit 3: Credit cost seen at 200-225 bps of advances
Rs lakh crore Advances Slippages Provision
Covid related stress
Restructuring 6 1.8 0.9
NPA accretion 2 2 1
Total 8 3.8 1.9

Exisiting NNPA 3.2 3.2 2.6

Total 100 4.5

Annual credit cost 2.2
Credit cost (%) 2.2%
Source: Company, ICICI Direct Research

ICICI Securities |Retail Research 3

 Sector Update | Banking and Financial Services ICICI Direct Research

Exhibit 4: Management commentary on restructuring

Anticipated Market share in advances
Lenders/ Rating Agencies
restrcuturing (%) (%)
SBI 2-5% 23.9%
PNB 5-7% 7.2%
Union Bank 6-7% 6.5%
City Union Bank 5-6% 0.4%
MMFS 4-5% 0.7%

ICRA 5-8%
India Rating 7-8%
Source: Company, Media Articles, ICICI Direct Research

Credit growth to be muted; large banks to gain market share

Post the economic standstill amid Covid, the pace of revival in credit offtake
is expected to be gradual. Growth in advances was reported in single digits
at 6% in August 2020 to | 90.5 lakh crore. On a YTD basis, absolute credit
growth is lower by ~| 2 lakh crore. Slowdown in economic activity in the
second half of last fiscal was been accentuated by outbreak of Covid-19. The
six-month lockdown and falling confidence level of consumers is expected
to lead to contraction in GDP in FY21E. Thus, advances growth is expected
to remain moderate in low single digit in FY21E.
 The corporate segment is expected to bear the brunt led by a
gradual uptick in capacity utilisation and absence of large capex
plans in the near term
 Retail is seen as the segment to witness early and fast revival.
However, job losses, pay cuts, reduction in discretionary spending
and increasing caution of lenders on unsecured lending are seen
keeping retail growth in single digits ahead
 While corporate segment is expected to remain weak, agriculture
and MSME segment may witness relatively better growth. Pick up of
the rural economy coupled with adequate monsoon is expected to
lead to a relatively better credit growth for the agriculture segment
 Growth in MSME segment is expected to scale up at 6-7% YoY,
given disbursements related to government’s | 3 lakh crore
Emergency Credit Line Guarantee Scheme (ECLGS). Banks have
sanctioned MSME loans worth | 1.77 lakh crore under the ECLGS
scheme as on 21st September 2020. Disbursements during the
same period were at | 1.25 lakh crore. Loans sanctioned by PSBs &
private banks were at | 79348 crore and | 88155 crore, respectively
Industry growth remained broadly flattish at 0.5% in August 2020, mainly
due to decelerated growth in the infrastructure sector. However, growth in
the food processing sector provided some respite. Infrastructure sector
grew at 1.8% YoY to | 10.2 lakh crore, while metal sector de-grew 1.3% YoY
to | 3.4 lakh crore. In the infrastructure segment, telecom remained the odd
one out with ~14.2% YoY growth in advances.
Services segment, on the other hand, grew faster at 8.6% YoY, primarily led
by traction in the NBFCs segment at 17.1%, which was at ~ | 8 lakh crore in
August 2020 vs.| 6.8 lakh crore in August 2019. Retail loan segment
continued to remain stable at 10.6% YoY in August 2020 with major traction
towards housing loans at ~| 13.5 lakh crore.

ICICI Securities |Retail Research 4

 Sector Update | Banking and Financial Services ICICI Direct Research

Exhibit 5: Muted credit growth trend

|cro res F Y18 F Y19 F Y20 Ju n -20 Ju l-20 Au g -20
Non-F ood C redit 76,88,424 86,33,418 92,11,544 90,47,014.0 90,69,051.0 90,46,327.0
Agriculture & Allied Activities 10,30,215 11,11,300 11,57,796 11,52,934 11,69,273 11,68,075.0
Industry 26,99,268 28,85,778 29,05,151 28,75,210 28,21,316 27,78,672.0
L arge 22,22,589 24,03,878 24,17,728 24,26,844 23,64,594 23,16,740.0
S ervices 20,50,472 24,15,609 25,94,945 25,28,489 25,47,228 25,51,467.0
NB F C s 4,96,393 6,41,208 8,07,383 7,98,514 7,93,451 7,96,763.0
P ersonal L oans 19,08,469 22,20,731 25,53,652 24,90,381 25,31,234 25,48,113.0
Housing (Including P riority S ector
9,74,565
Housing)11,60,111 13,38,964 13,35,902 13,47,565 13,49,501.0
C redit C ard O utstanding 68,628 88,262 1,08,094 97,586 1,01,391 1,04,833.0
V ehicle L oans 1,89,786 2,02,154 2,20,609 2,14,602 2,17,697 2,19,769.0

YO Y g ro wth (% )
Non-F ood C redit 8.4% 12.3% 6.7% 6.7% 6.7% 6.0%
Agriculture & Allied Activities 3.8% 7.9% 4.2% 2.4% 5.4% 4.9%
Industry 0.7% 6.9% 0.7% 2.2% 0.8% 0.5%
L arge 0.8% 8.2% 0.6% 3.7% 1.4% 0.6%
S ervices 13.8% 17.8% 7.4% 10.7% 10.1% 8.6%
NB F C s 26.9% 29.2% 25.9% 25.7% 24.6% 17.1%
P ersonal L oans 17.8% 16.4% 15.0% 10.5% 11.2% 10.6%
Housing (Including P riority S ector Housing)
13.3% 19.0% 15.4% 12.5% 12.3% 11.1%
C redit C ard O utstanding 31.6% 28.6% 22.5% 2.8% 7.9% 7.4%
V ehicle L oans 11.3% 6.5% 9.1% 7.1% 8.1% 8.4%

P ro p o rtio n (% )
Agriculture & Allied Activities 13.4% 12.9% 13.4% 12.7% 12.9% 12.9%
Industry 35.1% 33.4% 33.5% 31.8% 31.1% 30.7%
L arge 28.9% 27.8% 26.2% 26.8% 26.1% 25.6%
S ervices 26.7% 28.0% 30.0% 27.9% 28.1% 28.2%
NB F C s 6.5% 7.4% 8.8% 8.8% 8.7% 8.8%
P ersonal L oans 24.8% 25.7% 29.5% 27.5% 27.9% 28.2%
Housing (Including P riority S ector Housing)
12.7% 13.4% 14.5% 14.8% 14.9% 14.9%
C redit C ard O utstanding 0.9% 1.0% 1.2% 1.1% 1.1% 1.2%
V ehicle L oans 2.5% 2.3% 2.4% 2.4% 2.4% 2.4%
Source: RBI, ICICI Direct Research

ICICI Securities |Retail Research 5

 Sector Update | Banking and Financial Services ICICI Direct Research

Exhibit 6: Industry wise credit deployment data

|cro res F Y18 F Y19 F Y20 Ju n -20 Ju l-20 Au g -20
F ood P rocessing 1,55,358 1,57,058 1,54,146 1,57,937 1,59,112 1,55,228
Textiles 2,09,902 2,03,549 1,92,424 1,89,236 1,88,874 1,88,159
B a sic Meta l & Meta l P roduct 4,16,018 3,71,564 3,50,325 3,50,359 3,38,908 3,44,005
All E ngineering 1,55,320 1,68,621 1,57,259 1,47,283 1,41,558 1,39,390
Infra structure 8,90,937 10,55,921 10,53,913 10,69,160 10,54,581 10,23,148
P ower 5,19,619 5,68,966 5,59,774 5,68,950 5,66,977 5,49,080
Telecommunica tions 84,560 1,15,585 1,43,760 1,46,173 1,32,283 1,25,386
R oa ds 1,66,540 1,86,852 1,90,676 1,94,921 1,96,306 1,96,875
Industry 26,99,268 28,85,778 29,05,151 28,75,210 28,21,316 27,78,672
Non-F ood C redit 76,88,424 86,33,418 92,11,544 90,47,014 90,69,051 90,46,327

Yo Y g ro wth (% ) F Y18 F Y19 F Y20 Ju n -20 Ju l-20 Au g -20

F ood P rocessing 6.8% 1.1% -1.9% 4.2% 6.0% 6.9%
Textiles 6.9% -3.0% -5.5% -2.3% -1.3% 1.0%
B a sic Meta l & Meta l P roduct -1.2% -10.7% -5.7% -0.5% -2.6% -1.3%
All E ngineering 3.8% 8.6% -6.7% -10.5% -14.2% -16.3%
Infra structure -1.7% 18.5% -0.2% 4.2% 1.9% 1.8%
P ower -1.1% 9.5% -1.6% 0.9% -0.2% -1.8%
Telecommunica tions -0.6% 36.7% 24.4% 36.8% 17.9% 14.2%
R oa ds -7.5% 12.2% 2.0% 4.7% 4.2% 3.1%
Industry 0.7% 6.9% 0.7% 2.2% 0.8% 0.5%
Non-F ood C redit 8.4% 12.3% 6.7% 6.7% 6.7% 6.0%

P ro p o rtio n o f n o n -fo o d cred it(% )

Infra structure 11.6% 12.2% 11.4% 11.8% 11.6% 11.3%
P ower 6.8% 6.6% 6.1% 6.3% 6.3% 6.1%
Telecommunica tions 1.1% 1.3% 1.6% 1.6% 1.5% 1.4%
R oa ds 2.2% 2.2% 2.1% 2.2% 2.2% 2.2%
Industry 35.1% 33.4% 31.5% 31.8% 31.1% 30.7%
Non-F ood C redit 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Source: RBI, ICICI Direct Research

Credit support to MSME on track, large bank play major role

As per media sources, as on September 21, 2020, banks and NBFCs
sanctioned ~| 1.77 lakh crore to ~25 lakh MSME borrowers under the
Emergency Credit Line Guarantee Scheme (ECLGS) scheme. Out of this, ~|
1.25 lakh crore (~70.6%) has been disbursed. Loans sanctioned by PSBs &
private banks were at | 79348 crore and | 88155 crore, respectively. Micro
enterprises have emerged as the biggest beneficiaries so far for the ECLGS
scheme as they received ~87.3% of private banks MSME loans and ~65.4%
share in NBFC loans.
Given the emergence of Covid and its impact on medium, small and micro
enterprises segment (MSMEs), the government announced the | 3 lakh
crore ECLGS for MSME segment under Atmanirbhar Bharat Abhiyan. This
scheme aims to provide liquidity to MSMEs to fight economic distress being
faced due to Covid-19 pandemic and related lockdown. Such incremental
disbursement up to | 3 lakh crore will be fully guaranteed by the
Government of India.
Under this scheme, MSME borrowers with outstanding borrowing up to
| 25 crore and standard (i.e. not default) are eligible to avail an additional
20% of funding from banks, NBFCs and other financial institutions. As per
the scheme, incremental loans will have a one-year moratorium with
maximum permissible interest rate that can be charged capped at 9.25% by
banks and 14% by NBFCs.

ICICI Securities |Retail Research 6

 Sector Update | Banking and Financial Services ICICI Direct Research

Exhibit 7: Sanctions to MSME segment at a healthy rate

|cro re 22 Ju n e 2020 21 S ep tem b er 2020 L ates t ach ievem en t
S a nction 75,426 1,77,353 59%
D isburse me nt 32,894 1,25,425 42%
Source: Media sources, ICICI Direct Research

Exhibit 8: Share in sanctions to MSME segment Exhibit 9: PSBs lead in disbursements of MSME loans
Am o u n t (|cro re) S h are (% ) Am o u n t (|cro re) S h are (% )
PSB 79,348 45% PSB 65,052 52%
P riva te 88,155 50% P riva te 57,756 46%
T o tal 1,77,353 100% T o tal 1,25,425 100%
Source: Media sources, ICICI Direct Research Source: Media sources, ICICI Direct Research

Yield remain in narrow range; treasury to remain neutral

A gradual slowdown in economic activity warranted continued cooling off
in G-sec yield in the past, which led to a healthy treasury performance for
banks in the past. Post January 2020, concerns related to spread of
Coronavirus and its impact on economic activity have led global central
banks to cut down their benchmark rates.
To curb the impact of lockdown amid emergence of Covid, RBI has
announced a slew of actions including massive rate cuts and introduction of
LTROs. This has led to a decline in G-sec yields from 6.54% on December
30, 2019 to 6.14% on March 31, 2020 and further to 5.9% in June 2020. Such
a decline in interest rates has favoured the treasury performance of banks,
which has supported the overall operational performance, especially PSBs
in Q1FY21.
Interest rates have continued to remain low, though the declining trend seen
earlier is getting pared down. Yields in Q2FY21 have remained in a narrow
band settling at ~6% in September 2020. Therefore, expect treasury to
remain neutral with no substantial benefits in Q2FY21E.
Exhibit 10: Impact of movement of G-sec yields
Q 1F Y21 In ves tm en t AF S D u ratio n Ab s o lu te Im p act Averag e Im p act o n R o A Im p act o n P AT Netwo rth Im p act o n NW
book (yrs ) d u e to d eclin e in as s et d u e to d eclin e in d u e to d eclin e in d u e to d eclin e in
Yield yield yield yield
H 30 b p s 50 b p s 30 b p s 50 b p s 30 b p s 50 b p s 30 b p s 50 b p s
|cro re T
M
P ublic sector ba nks
B a nk of B a roda 2,62,307 1,13,140 1.8 594 990 8,32,726 7.1 8.3 6.4% 10.7% 75799 0.8% 1.3%
P NB * 3,88,529 1,27,997 3.2 1,217 2,029 8,65,557 14.1 16.4 27.8% 46.4% 86289 1.4% 2.4%
SBI 11,93,601 4,50,727 2.1 2,772 4,620 28,58,855 9.7 11.3 7.5% 12.4% 241655 1.1% 1.9%
India n B a nk 1,63,420 67,259 3.6 730 1,217 4,28,635 17.0 19.9 42.2% 70.3% 36053 2.0% 3.4%

P riva te sector ba nks

Axis B a nk 1,87,323 46,831 NA NA NA 5,29,309 NA NA NA NA 86071 NA NA
C ity Union B a nk 9,729 1,887 1.1 6 11 37,781 1.7 2.0 0.6% 1.0% 5296 0.1% 0.2%
DCB 7,727 1,563 1.1 5 9 27,245 1.9 2.2 0.9% 1.5% 3502 0.1% 0.2%
Source: Company, ICICI Direct Research

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 Sector Update | Banking and Financial Services ICICI Direct Research

Healthy revival witnessed in life insurance premium accretion

The Covid-19 led lockdown marred the premium growth for the life
insurance sector. However, gradual unlocking of the economy in phases has
led to a healthy revival in premium growth. Subsequently, premium
accretion in August 2020 was at | 27040 crore, up 14.8% YoY, compared to
de-growth in April and May 2020. In terms of premium break-up as on
August 2020, individual premiums witnessed regressive growth with
individual single premium declining 9.7%. On the other hand, growth in
group single premium remained strong at | 14590 crore, up 46.6% YoY.
Private insurers premium growth decelerated to 13.7% YoY in August 2020
(vs. 26.1% in July 2020) to come in at | 7326 crore while LIC’s premium
growth was strong at | 19714 crore, up 15.2% YoY. During the same period,
market share of private players, LIC was at 28.1%, 71.9%, respectively.
Struck by the sudden lockdown and its impact on insurance accretion,
annualised premium equivalent (APE) witnessed a decline in the initial
months. Incremental accretion seen in single premium products, especially
group single premium across LIC as well as private insurers, has led to
growth in overall premium but kept APE traction slower. In July 2020, APE
for the sector remained in negative territory at 33.8% YoY (| 7626 crore). A
gradual pick-up in the economy has led to a revival in APE at 2.2% YoY in
August 2020. During August 2020, APE for private insurers declined 2.9%
YoY to | 3524 crore while LIC witnessed growth of 7% YoY to | 4204 crore,
led by robust traction in group single premium.
Business growth at the start of the current fiscal remained under pressure,
though revival continues to remain strong across players. Going ahead,
credit life business is seen witnessing a slowdown owing to moderation in
credit offtake but increased awareness is expected to keep traction in
demand for term insurance products, thereby supporting protection
business. Given the low interest rate environment, competitiveness of life
insurance industry has improved thereby supporting growth in guaranteed
products. As Q3 & Q4 remain business accretive for the life insurance sector,
we estimate premium growth at 8-10% for FY21E, post factoring in the 5-
10% decline due to lockdown.
Exhibit 11: Performance comparison of private life insurance peers (YTD FY21 – April to August 2020)
S B I L ife H D F C L ife IC IC I P ru d en tial L ife P NB Met L ife Max L ife B ajaj Allian z L ife
Individua l P re mium 3,166.5 3,314.9 2,049.7 411.9 1,783.9 523.5
G roup P re mium 3,606.6 3,218.0 1,190.8 82.3 441.3 820.9
Tota l P re mium 6,773.1 6,532.9 3,240.5 494.2 2,225.2 1,344.4
YoY growth 14.2% 2196.3% -51.6% -72.4% 31.8% -1.6%
AP E 2,840.2 2,516.1 1,485.0 390.1 1,374.3 775.7
YoY growth -19.0% 2108.1% -43.6% -70.8% 179.2% 255.0
Ma rke t S ha re 6.8% 6.6% 3.3% 0.5% 2.2% 1.4%
Source: Company, ICICI Direct Research

ICICI Securities |Retail Research 8

 Sector Update | Banking and Financial Services ICICI Direct Research

Exhibit 12: Life Insurance premium growth & APE trend

P riv ate T o tal Ap r-20 May -20 Ju n -20 Ju l-20 Au g -20 F Y19 F Y20
T o tal P rem iu m 3,146 3,527 6,132 7,815 7,326 72,481 80,919
Yo Y % -33.3% -28.3% -1.3% 26.1% 13.7% 22.2% 11.6%
Individua l S ingle P re mium 307 583 1,105 1,136 1,098 7,274 9,170
Yo Y % -29.9% -14.5% 47.8% 50.0% 59.5% 39.4% 26.1%
Individua l No n-S ingle P re mium 1,023 1,638 2,937 3,094 3,121 39,397 41,114
Yo Y % -40.5% -32.6% -8.3% -8.4% -7.1% 12.1% 4.4%
G ro up S ingle P re mium 1,671 791 1,738 3,119 2,860 21,881 24,675
Yo Y % -23.2% -45.8% -5.2% 81.8% 49.8% 43.2% 12.8%
G ro up No n-S ingle P re mium 11 15 5 9 8 399 259
Yo Y % 55.3% 82.8% -41.9% -9.0% -28.2% -42.3% -35.2%
G ro up Ye a rly R e ne wa ble P re mium 134 499 347 456 240 3,529 5,701
Yo Y % -63.9% 49.0% -17.1% 35.9% -49.3% 18.4% 61.5%
AP E 1,232 1,791 3,227 3,529 3,524 42,712 44,758
Yo Y % -38.1% -32.5% -7.0% -2.9% -2.9% 12.7% 4.8%
Market s h are % 46.8 32.6 26.0 28.5 28.1 33.8 31.3
L IC o f In d ia Ap r-20 May -20 Ju n -20 Ju l-20 Au g -20 F Y19 F Y20
T o tal P rem iu m 3,582 10,212 22,737 15,171 19,714 1,42,192 1,77,977
Yo Y % -32.0% -24.3% -12.7% -0.9% 15.2% 5.7% 25.2%
Individua l S ingle P re mium 332 1,127 2,197 3,306 5,430 24,394 21,967
Yo Y % -70.0% -19.6% 31.8% 68.6% -17.0% -8.3% -9.9%
Individua l No n-S ingle P re mium 732 1,668 2,021 2,274 2,170 26,619 29,260
Yo Y % -46.1% -1.8% 5.4% 4.3% 8.4% 5.9% 9.9%
G ro up S ingle P re mium 1,984 5,860 18,044 8,985 11,730 86,527 98,248
Yo Y % -24.9% -23.1% 58.9% 43.7% 45.8% 8.4% 13.5%
G ro up No n-S ingle P re mium 524 1,525 460 594 318 3,465 27,848
Yo Y % 251.1% -44.8% -95.8% -87.8% -32.2% 66.3% 703.7%
G ro up Ye a rly R e ne wa ble P re mium 10 32 15 12 66 1,187 653
Yo Y % -22.3% 175.4% -44.7% -72.1% 20.3% 35.9% -45.0%
AP E 1,488 3,892 4,505 4,097 4,204 41,176 69,130
Yo Y % -21.0% -27.5% -68.5% -48.0% 7.0% 8.7% 67.9%
Market s h are % 53.2 67.4 74.0 71.5 71.9 66.2 68.7
G ran d T o tal Ap r-20 May -20 Ju n -20 Ju l-20 Au g -20 F Y19 F Y20
T o tal P rem iu m 6,728 13,739 28,869 22,986 27,040 2,14,673 2,58,896
Yo Y % -32.6% -25.4% -10.5% 6.9% 14.8% 10.7% 20.6%
Individua l S ingle P re mium 639 1,710 3,302 4,442 6,527 31,667 31,138
Yo Y % -58.6% -17.9% 36.8% 63.4% -9.7% -0.5% -1.7%
Individua l No n-S ingle P re mium 1,755 3,307 4,958 5,368 5,291 66,016 70,375
Yo Y % -43.0% -19.9% -3.1% -3.4% -1.3% 9.5% 6.6%
G ro up S ingle P re mium 3,654 6,651 19,782 12,104 14,590 1,08,409 1,22,922
Yo Y % -24.1% -26.8% 50.0% 51.9% 46.6% 14.0% 13.4%
G ro up No n-S ingle P re mium 535 1,540 466 603 326 3,864 28,107
Yo Y % 242.3% -44.4% -95.8% -87.7% -32.1% 39.2% 627.3%
G ro up Ye a rly R e ne wa ble P re mium 145 531 361 468 306 4,716 6,354
Yo Y % -62.5% 53.2% -18.8% 23.7% -42.0% 22.4% 34.7%
AP E 2,719 5,683 7,732 7,626 7,728 83,888 1,13,888
Yo Y % -29.8% -29.1% -56.4% -33.8% 2.2% 10.7% 35.8%
Market s h are % 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: Company, ICICI Direct Research

ICICI Securities |Retail Research 9

 Sector Update | Banking and Financial Services ICICI Direct Research

Annexure
Exhibit 13: Asset quality trend
As s et q u ality tren d G NP A (|cro re) NNP A (|cro re)
Q 1F Y20 Q 2F Y20 Q 3F Y20 Q 4F Y20 Q 1F Y21 Q 1F Y20 Q 2F Y20 Q 3F Y20 Q 4F Y20 Q 1F Y21
P S U cove ra ge
B a nk of B a roda 69,714 69,969 73,140 69,381 69,132 25,030 24,894 26,504 21,576 19,450
SBI 1,68,494 1,61,636 1,59,660 1,49,089 1,29,661 65,624 59,939 58,248 51,871 42,704

P riva te cove ra ge
Axis B a nk 29,405 29,071 30,073 30,234 29,560 11,037 11,138 12,160 9,360 7,448
D C B B a nk 476 523 552 632 622 196 238 261 294 249
IndusInd B a nk 4,200 4,370 4,578 5,147 5,099 2,381 2,203 2,173 1,887 1,703
H D F C B a nk 11,769 12,508 13,427 12,650 13,774 3,567 3,791 4,468 3,542 3,280
F e de ra l B a nk 3,395 3,612 3,612 3,531 3,712 1,673 1,844 1,941 1,607 1,526
K ota k B a nk 4,614 5,034 5,413 5,027 6,293 1,524 1,811 1,925 1,558 2,065
B a ndha n B a nk 1,020 1,064 1,182 993 1,007 348 337 491 389 336
ID F C F irst 2,419 2,306 2,511 2,280 1,742 1,216 1,012 1,071 808 437
Source: Company, ICICI Direct Research

Exhibit 14: Quarterly margin trend

NIM (% ) Q 3F Y19 Q 4F Y19 Q 1F Y20 Q 2F Y20 Q 3F Y20 Q 4F Y20 Q 1F Y21
P S U cove ra ge
B a nk of B a roda 2.7 2.9 2.6 2.8 2.8 2.7 2.6
SBI 2.8 2.8 2.8 2.9 3.1 3.0 3.0

P riva te cove ra ge
Axis B a nk 3.5 3.4 3.4 3.5 3.6 3.6 3.4
B a ndha n B a nk 10.5 10.7 10.5 8.2 7.9 8.1 8.2
D C B B a nk 3.8 3.8 3.7 3.7 3.7 3.7 3.4
F e de ra l B a nk 3.2 3.2 3.2 3.0 3.0 0.0 3.0
H D F C B a nk 4.3 4.4 4.3 4.2 4.2 4.3 4.3
IndusInd B a nk 3.8 3.6 4.1 4.1 4.2 4.3 4.3
K ota k Ma hindra B a nk 4.3 4.5 4.5 4.6 4.7 4.7 4.4
ID F C F irst B a nk 2.9 3.0 3.0 3.4 3.9 4.2 4.4
Source: Company, ICICI Direct Research

Exhibit 15: Key financial of industry as of Q1FY21

Q 1F Y20 Q 2F Y20 Q 3F Y20 Q 4F Y20 Q 1F Y21
NII 100055.0 103916.0 11960.0 111298.5 109272.3
G ro wth Yo Y 8.8 15.8 15.0 11.5 9.2
O the r Income 41393.0 49408.0 51938.0 67162.1 38675.0
G rowth YoY 16.9 39.0 28.5 39.6 -6.6
Tota l O pe ra ting E xpe nse 69446.0 73395.0 75838.0 86326.5 44790.7
S ta ff C ost 35539.0 37144.0 38041.0 41760.8 49338.3
O pe ra ting P rofit 72002.0 79929.0 87061.0 92134.2 103156.6
G rowth YoY 12.0 27.4 30.0 24.3 43.3
P rovsions 54326.0 59165.0 62698.0 90674.8 72895.3
P BT 17598.0 20691.0 24136.0 1459.4 30261.3
P AT 11095.0 7245.0 6867.0 -2113.2 20012.3
G ro wth Yo Y NM NM NM NM NM
G NP A 912179.0 904777.0 895706.0 939651.2 980285.4
G ro wth Yo Y -8.8 -8.9 -6.3 3.0 7.5
NNP A 346883.0 332139.0 326900.0 324865.3 322535.5
G ro wth Yo Y -28.3 -28.0 -21.2 -7.2 -7.0
Source: Capital-line, Company, ICICI Direct Research

ICICI Securities |Retail Research 10

 Sector Update | Banking and Financial Services ICICI Direct Research

Bank of Baroda price chart State Bank of India price chart Indian Bank price chart

250 14000 400 14000 450 14000

12000 350 12000 400 12000
200 300 350
10000 10000 10000
250 300
150 8000 8000 250 8000
200
100 6000 6000 200 6000
150 150
4000 100 4000 4000
50 100
2000 50 2000 50 2000
0 0 0 0 0 0

Mar-18

Mar-19

Mar-20
Sep-17

Sep-18

Sep-19

Sep-20

Mar-19
Mar-18

Mar-19

Sep-19

Mar-20

Mar-18

Mar-20
Sep-17

Sep-18

Sep-20

Sep-17

Sep-18

Sep-19

Sep-20
Bank of Baroda Nifty Index SBI Nifty Index Indian Bank Nifty Index

Axis Bank price chart City Union price chart DCB Bank price chart
900 14000 300 14000 300 14000
800 12000 250 12000 250 12000
700
600 10000 10000 10000
200 200
500 8000 8000 8000
400 6000 150 150
6000 6000
300 4000 100 100
200 4000 4000
100 2000 50 2000 50 2000
0 0 0 0 0 0
Mar-18

Mar-19

Mar-20
Sep-17

Sep-18

Sep-19

Sep-20

Mar-18

Mar-19

Mar-20
Sep-17

Sep-18

Sep-19

Sep-20
Sep-17

Mar-18

Mar-19

Mar-20
Sep-18

Sep-19

Sep-20

Axis Bank Nifty Index City Union Bank Nifty Index DCB Bank Nifty Index

Federal Bank price chart HDFC Bank price chart Bandhan Bank price chart

140 14000 1400 14000 800 12000

120 12000 1200 12000 700 10000
100 10000 600
1000 10000 8000
500
80 8000 800 8000 400 6000
60 6000 600 6000 300 4000
40 4000 400 4000 200
20 2000 200 2000 100 2000
0 0 0 0 0 0
Mar-17

Nov-17
Mar-18

Nov-18
Mar-19

Nov-19
Mar-20
Jul-17

Jul-18

Jul-19

Jul-20
Mar-18

Mar-19

Mar-20
Sep-17

Sep-18

Sep-19

Sep-20

Mar-18

Mar-19

Mar-20
Sep-17

Sep-18

Sep-19

Sep-20

Federal Bank Nifty Index HDFC Bank Nifty Index Bandhan Bank NSE500 Index

Jammu & Kashmir Bank price chart Kotak Mahindra

Bank priceBank
chartprice chart Indusind Bank price chart

100 14000 2000 14000 2500 14000

90 12000 1800 12000
80 1600 12000 2000
70 10000 1500
1400 10000 10000
60 8000 1200 8000
8000 1500 8000
50 1000
1000
40 6000 800 6000
6000 1000 6000
30 4000 600 4000
4000 4000
20 500
400 500
10 2000 200 2000
2000 2000
0 0 00 00 0 0
Mar-19
Mar-18

Mar-19

Mar-20

Mar-18

Mar-19

Mar-20

Mar-18

Sep-18

Mar-20
Sep-17

Sep-18

Sep-19

Sep-20

Sep-17

Sep-18

Sep-19

Sep-20

Sep-17

Sep-19

Sep-20
Mar-17

Mar-18

Mar-19

Mar-20
Sep-17

Sep-18

Sep-19

J&K Bank Nifty Index Kotak Bank Nifty Index Indusind Bank Nifty Index

Kotak Bank Nifty Index

ICICI Securities |Retail Research 11

 Sector Update | Banking and Financial Services ICICI Direct Research

IDFC First Bank price chart KotakFinserv

Bajaj Bank price
Bankchart
price chart SBI Life price chart

80 14000 12000 14000 1200 12000

70 12000 10000 12000 1000 10000
60 10000 10000
50 8000 800 8000
8000 8000
40 6000 600 6000
6000 6000
30 4000 400 4000
20 4000 4000
10 2000 2000 2000 200 2000
0 0 0 0 0 0
Mar-20

Mar-18
Mar-18

Mar-19

Mar-19

Mar-20

Mar-17

Nov-17
Mar-18

Nov-18
Mar-19

Nov-19
Mar-20
Sep-17

Sep-18

Sep-19

Sep-20

Sep-17

Sep-18

Sep-19

Sep-20

Jul-17

Jul-18

Jul-19

Jul-20
IDFC First Nifty Index Bajaj Finserv Nifty Index SBI Life NSE500 Index

HDFC AMC price chart HDFC Ltd price chart

Nippon Life AMC price chart
4000 14000 3000 14000
500 14000
450 3500 12000 2500 12000
12000 3000
400 10000 2000 10000
350 10000 2500
8000 8000
300 8000 2000 1500
250 6000 6000
200 6000 1500 1000
4000 4000
150 4000 1000
100 2000 500 2000
2000 500
50 0 0 0 0
0 0

Mar-18

Mar-19

Mar-20
Sep-17

Sep-18

Sep-19

Sep-20
Oct-19
Jun-19
Aug-19

Apr-20
Jun-20
Aug-20
Apr-19

Dec-19
Feb-20
Jun-18

Jun-19

Jun-20
Dec-18

Dec-19

HDFC Nifty Index

HDFC AMC Nifty Index
Nippon Life India Nifty Index

ICICI Securities |Retail Research 12

 Sector Update | Banking and Financial Services ICICI Direct Research

RATING RATIONALE
ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined
as the analysts' valuation for a stock

Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICI Direct Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com

ICICI Securities |Retail Research 13

 Sector Update | Banking and Financial Services ICICI Direct Research

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ICICI Securities |Retail Research 14