4QFY2012 Result Review | Banking

May 23, 2012

Banking
Valuations attractive
4QFY2012 snapshot Asset-quality woes: Asset-quality issues remained the key focus in 4QFY2012, with 18 out of the 27 banks under our coverage reporting higher slippages sequentially. Even after a significant 37.7% yoy increase in provisioning costs for PSU banks (excluding SBI), 13 banks had to let their PCR deteriorate sequentially. Several PSU banks also witnessed a decline in their margins on account of interest and FITL reversals during the quarter. Higher restructuring during 4QFY2012 was largely attributable to Air India and SEB loans. At the PBT level, mid-PSU banks posted a decline of 8.2% yoy due to higher provisioning and muted growth in operating income. However, benefits from tax rulings propped up profitability in case of PSU banks. Large private banks continued their impressive performance, with robust earnings growth of 27.5% yoy. The older private banks reported moderate growth at the operating level; however, on account of lower provisioning and tax expenses, these banks managed healthy earnings growth of 18.9% yoy. NIM outlook healthy; Asset-quality issues manageable: Going ahead, with inflation levels expected to ease, financial savings should strengthen leading to higher deposit accretion, allowing banks to reduce their deposit rates. Further, with proposed Basel-III norms making capital requirements stricter, banks are expected to continue focusing on margins rather than balance sheet growth. Hence, notwithstanding any short-term repricing-related NIM impact, overall we have a positive outlook on the sectors margins. We also believe that respite from pressures on the asset side of the business is likely to emerge from these positive developments on the liability side due to lower interest rates as well as disciplined balance sheet growth. Moreover, in our view, credit costs in this cycle (already at 64bp in FY2012 as a percentage of assets) are expected to be lower than the earlier 97bp peak experienced by PSU banks in FY2004 due to better recovery mechanisms and higher recoveries from substantial technically slipped accounts over the last year. At the sectoral level, we do not expect more than a 10bp increase in credit costs (as a percentage of assets), though we continue to prefer stocks that have relatively more conservative asset-quality outlook. Valuations cheap; Prefer structurally and cyclically strong large banks: Considering the recent sharp decline in the markets, the banking sectors valuations have become cheap. Even structurally stronger banks and those having a cyclically better asset quality profile and strong earnings trajectory are available at cheap valuations in our view and, hence, we retain them as top picks viz., Axis Bank, ICICI Bank amongst large private banks, Yes Bank amongst mid-size banks (an alpha stock in our view), SBI and BOB amongst large PSU banks and Syndicate Bank amongst mid-size PSU banks. We also recommend Buy on PNB, post the sharp correction in the stock, which we believe provides adequate margin of safety from asset-quality concerns.
Please refer to important disclosures at the end of this report Vaibhav Agrawal
022 3935 7800 Ext: 6808 vaibhav.agrawal@angelbroking.com

Banking indicators
Particulars* Latest yoy credit growth Latest yoy deposit growth Latest credit-to-deposit ratio Monthly Avg. LAF (` cr) Monthly Avg. 1 yr G-Sec yield Monthly Avg. 10 yr G-Sec yield Monthly Avg. 3M CP Monthly Avg. 12M CP (%) 15.7 11.9 76.6 106,535 8.1 8.6 9.6 9.9

Source: RBI, Bloomberg, Angel Research; Note*: Monthly averages are on preceding 30 day basis

Policy rates
Particulars Repo rate Reverse repo rate MSF rate Cash reserve ratio (CRR) Statutory liquidity ratio (SLR)
Source: RBI, Angel Research

(%) 8.0 7.0 9.0 4.75 24.00

Varun Varma
022 3935 7800 Ext: 6847 varun.varma@angelbroking.com

Sourabh Taparia
022 3935 7800 Ext: 6872 sourabh.taparia@angelbroking.com

Banking | 4QFY2012 Results Review

Net interest income registers moderate growth

Most banks witnessed a decline in their margins on account of interest and FITL reversals during the quarter. The trend in margin decline was more evident across PSU banks, with some exceptions such as Bank of India (significant improvement in asset quality), IDBI Bank (higher CA floats and traction in savings account deposits), Syndicate Bank (sharp rise on yield on investments qoq) as well as Central Bank and Indian Overseas Bank (low bases due to sharp asset-quality deterioration in 3QFY2012). Other aspects, which weighed on margins during the quarter, were moderation in savings deposits growth (due to high interest rate differential), higher cost of funding bulk deposits (1M/3M CD rates as high as 11.9%/11.5% during 4QFY2012) and priority sector lending to meet year-end targets. Private sector banks fared better on the margin front, with only Axis Bank and Federal Bank within our coverage reporting a decline in their margins. Priority sector lending in case of Axis Bank increased by 62.1% qoq, which led to lower yields for the bank, while higher costs on deposits owing to NRE deposits deregulation (on top of interest reversals) led to lower NIM for Federal Bank. South Indian Bank also witnessed cost pressures owing to NRE rates de-regulation; however, higher yields on its gold loans (~25% of its loan book) and increased risk taking on the asset side compensated for the higher cost on the liability front.

Exhibit 1: BOI leads in margin* qoq improvement during 4QFY12

50.0 40.0 30.0 20.0 10.0 (10.0) (20.0) (30.0) (40.0) (50.0) (60.0)

Exhibit 2: Pvt. banks* and SBI outperform on NII front yoy

25.0 20.0 15.0 10.0
22.5 20.3 (0.4) 8.4 17.1 2.5 8.0 2.7

5.0
BOI ICICIBK J&KBK IDBI SYNBK IOB HDFCBK CENTBK SIB YESBK VIJAYA CANBK UNBK BOB SBI BOM DENABK UCOBK AXSB OBC CRPBK UTDBK FEDBK PNB INDBK ANDBK ALLBK

0.0 (5.0)

Large Pvt

Other Pvt % chg (yoy)

PSU % chg (qoq)

PSU (excl. SBI)

Source: Company, Angel Research, Note:*Domestic NIMs for SBI, BOB and BOI

Source: Company, Angel Research, Note:*For banks under our coverage

Yes Bank witnessed strong traction in its savings deposits, with SA deposits more than doubling sequentially and almost tripling on an absolute basis since the savings rate deregulation in October 2011, leading to NIM remaining stable for the bank despite additional borrowings and higher cost on bulk deposits during the quarter. ICICI Banks NIM increased on account of no securitization losses during the quarter, while HDFC Bank witnessed higher CA floats (was the collecting banker for issuance of tax-free bonds for some of the issuers in 4QFY2012), leading to NIM expansion for the bank.

May 23, 2012

Banking | 4QFY2012 Results Review

Exhibit 3: CASA yearly growth rate trends

Bank YESBK IDBI AXSB J&KBK FEDBK HDFCBK BOB UTDBK OBC INDBK ICICIBK SIB BOM BOI PNB UNIONBK ALLBK DENABK SBI CANBK CENTBK ANDHBK SYNBK CORPBK IOB UCOBK VIJBK SA 4QFY12 2,501 19,002 51,668 15,981 10,930 73,998 74,580 26,589 28,253 29,942 76,046 5,917 23,180 66,387 105,657 50,429 39,130 19,317 359,847 64,792 52,595 21,578 34,295 17,808 34,862 26,267 13,604 SA 4QFY11 817 13,936 40,850 12,727 9,148 63,448 64,454 23,217 24,750 26,271 66,869 5,203 20,433 58,722 93,487 44,689 35,000 17,324 323,394 58,617 47,645 19,619 31,207 16,226 32,056 24,308 13,330 yoy growth 206.0 36.4 26.5 25.6 19.5 16.6 15.7 14.5 14.2 14.0 13.7 13.7 13.4 13.1 13.0 12.8 11.8 11.5 11.3 10.5 10.4 10.0 9.9 9.7 8.8 8.1 2.1 CA 4QFY12 4,891 31,722 39,754 5,734 2,546 45,408 28,944 9,741 9,375 6,924 34,973 1,262 8,452 14,965 28,472 19,276 9,538 7,273 98,273 14,819 12,680 6,369 12,129 12,305 12,287 7,685 4,683 CA 4QFY11 3,933 23,742 36,917 5,360 2,157 46,460 23,135 8,529 9,398 6,368 34,878 1,201 6,599 14,417 26,838 19,618 9,156 5,418 107,059 24,500 15,431 7,160 10,739 14,071 11,806 7,360 5,165 yoy growth 24.3 33.6 7.7 7.0 18.0 (2.3) 25.1 14.2 (0.2) 8.7 0.3 5.1 28.1 3.8 6.1 (1.7) 4.2 34.2 (8.2) (39.5) (17.8) (11.0) 12.9 (12.5) 4.1 4.4 (9.3) CASA 4QFY12 7,392 50,724 91,422 21,715 13,476 119,406 103,524 36,330 37,628 36,866 111,019 7,179 31,632 81,352 134,129 69,705 48,668 26,590 458,120 79,611 65,275 27,947 46,424 30,113 47,149 33,952 18,287 CASA 4QFY11 4,751 37,678 77,767 18,087 11,305 109,908 87,589 31,746 34,148 32,639 101,747 6,404 27,032 73,139 120,325 64,307 44,156 22,742 430,453 83,117 63,076 26,779 41,946 30,297 43,861 31,668 18,495 yoy growth 55.6 34.6 17.6 20.1 19.2 8.6 18.2 14.4 10.2 13.0 9.1 12.1 17.0 11.2 11.5 8.4 10.2 16.9 6.4 (4.2) 3.5 4.4 10.7 (0.6) 7.5 7.2 (1.1) CASA Ratio 15.0 24.1 41.5 40.7 27.5 48.4 33.2 40.8 24.1 30.5 43.5 19.7 41.3 32.8 35.3 31.3 30.5 34.5 46.6 24.3 33.3 26.4 29.4 22.1 26.4 22.0 22.0

Source: Company, Angel Research

Banks that have a significant overseas presence witnessed improvement in their overseas NIM on account of higher pricing power due to the ongoing liquidity crunch globally (ICICI Bank, Axis Bank, BOI and BOB witnessed improvement in their overseas NIMs). Gold loans as an asset segment have become attractive for banks post the clamp down by RBI on the run-a-way growth of gold loan NBFCs (LTV cap of 60%). Moreover, with risk weightings being assigned to gold loans at near zero levels (in case of LTV lower than 70%), mid-size south-based banks such as SIB, Federal Bank, UCO Bank and Indian Bank are expected to further build up their gold loan portfolios to prop up their yields.

May 23, 2012

Banking | 4QFY2012 Results Review

Exhibit 4: Yield on advances for banks under our coverage

Bank YESBK FEDBK SIB ANDBK OBC HDFCBK JKBK ALBK INDBK VIJBK IOB SYNDBK BOM IDBI YoA - FY2012 12.2 12.0 12.0 12.0 11.6 11.6 11.5 11.4 11.4 11.3 10.8 10.7 10.7 10.6 YoA FY2011 10.6 10.8 10.5 10.5 9.9 10.6 10.7 10.0 10.3 9.3 9.3 9.3 9.2 9.3 Chg (bps) 167 126 146 148 167 100 77 138 109 206 149 141 148 131 Bank PNB UCOBK CANBK CNTBK UTDBK CRPBK DENABK SBI AXSB UNBK ICICIBK BOI BOB YoA - FY2012 10.6 10.6 10.5 10.4 10.4 10.2 10.2 10.0 9.9 9.7 9.4 8.8 8.7 YoA FY2011 9.8 9.3 8.9 9.6 9.7 8.6 9.5 8.6 8.4 8.9 8.3 8.1 8.0 Chg (bps) 77 128 161 83 68 158 65 134 142 84 115 64 64

Source: Company, Angel Research

NIM outlook positive: The Reserve Bank of India (RBI) reduced repo rate by 50bp in its monetary policy review on April 18, 2012, leading to banks decreasing their base rates by 25bp, while simultaneously reducing their deposit rates by 25-50bp across maturities. Considering that deposit re-pricing occurs with a lag as against changes in base rate, which come into effect immediately, banks could witness a marginal decline in their NIMs in the next few quarters. However, with inflation levels expected to ease going ahead, financial savings are expected to strengthen leading to higher deposit accretion, allowing banks to reduce their deposit rates. Further, with Basel-III norms making capital requirements stricter, banks are expected to continue focusing on managing profitability rather than balance sheet growth, keeping margins at healthy levels for the industry, in our view. Hence, for the year as a whole, banks should benefit from lower competitive intensity due to ongoing capital shortage as well as declining cost of funds as liquidity improves, leading to positive effect on NIMs. We also believe that respite from pressures on the asset side of the business are likely to emerge from these positive developments on the liability side due to lower interest rates as well as disciplined balance sheet growth.

Fee income strong sequentially, but muted on a yoy basis

Fee income performance for banks under our coverage was healthy on a sequential basis (up 24.7% qoq), in-line with the year-end push in credit offtake during 4QFY2012. Higher recoveries from written-off accounts sequentially and pending fee accruals (processing fees and locker charges concentrated in 4Q) that got charged in 4QFY2012 led to the qoq jump in fee income during 4QFY2012. Banks also witnessed traction in income on forex transactions on account of renewed rupee volatility. On a yoy basis, fee income, however, managed to grow by 10.4% yoy in 4QFY2012. However, 19 out of the 27 banks under our coverage reported lower fee income to average assets in FY2012 compared to FY2011.

May 23, 2012

Banking | 4QFY2012 Results Review

Private banks continued to fare better on the fee income front, with Axis Bank having the highest percentage of fee income to ATA as of FY2012 (1.9%), followed by HDFC Bank (1.8%), ICICI Bank (1.7%) and Yes Bank (1.3%). SBI tops the list amongst PSU banks with fee income of 1.1% to ATA as of FY2012. Only three banks (Central Bank, Vijaya Bank and UCO Bank) within the PSU segment have fee income to ATA lower than 0.5% (we have a Neutral/Reduce rating on all the three banks).

Exhibit 5: Other income (excl. treasury) performance for banks under our coverage
% to average assets Bank AXSB HDFCBK ICICIBK YESBK SBI PNB FEDBK INDBK BOI CRPBK BOM IOB CANBK IDBI ALLBK BOB DENABK UNBK ANDHBK OBC SYNBK SIB J&KBK UTDBK CENTBK VIJAYA UCOBK 4QFY12 1,442 1,563 2,070 266 5,290 1,111 124 280 894 327 177 437 674 738 296 761 191 628 207 301 286 74 114 180 334 114 219 3QFY12 1,312 1,502 1,957 211 3,216 859 122 263 781 330 140 376 622 384 327 764 124 491 219 259 235 54 65 118 284 102 198 % chg (qoq) 9.9 4.1 5.8 26.0 64.5 29.3 1.6 6.4 14.4 (0.8) 26.5 16.1 8.4 92.3 (9.6) (0.4) 54.2 28.0 (5.6) 16.3 21.6 35.5 75.6 52.4 17.3 12.2 10.4 4QFY2011 1,392 1,247 1,837 187 4,481 972 134 266 697 409 150 354 951 628 456 714 180 489 234 274 247 47 96 129 357 115 265 % chg (yoy) 3.5 25.4 12.7 42.6 18.1 14.3 (7.5) 5.1 28.3 (19.9) 18.3 23.3 (29.1) 17.6 (35.1) 6.6 5.9 28.6 (11.6) 10.0 16.1 57.8 18.2 39 (6.5) (0.7) (17.4) FY2011 2.02 1.77 1.74 1.40 1.28 0.98 0.99 0.93 0.74 0.87 0.63 0.72 0.82 0.81 0.89 0.74 0.79 0.73 0.76 0.59 0.60 0.54 0.59 0.53 0.49 0.55 0.55 FY2012 1.91 1.77 1.66 1.25 1.06 0.92 0.85 0.81 0.79 0.77 0.76 0.76 0.73 0.72 0.71 0.70 0.69 0.65 0.63 0.63 0.58 0.56 0.54 0.54 0.49 0.48 0.45 Diff. (0.10) 0.00 (0.08) (0.16) (0.23) (0.06) (0.14) (0.12) 0.05 (0.10) 0.13 0.04 (0.09) (0.08) (0.18) (0.04) (0.10) (0.08) (0.13) 0.04 (0.01) 0.02 (0.05) 0.01 0.00 (0.06) (0.11)

Source: Company, Angel Research

May 23, 2012

Banking | 4QFY2012 Results Review

Staff expenses higher sequentially due to actuarial provisioning; but decline on a yoy basis due to high base in 4QFY2011
During the quarter, seven banks reported an increase of more than 25% sequentially in their staff expenses, mostly on account of year-end revisions in actuarial provisioning for gratuity and pension. Expectedly, on a yoy basis, staff expenses were far lower for PSU banks on account of high base due to one-off pension provisioning for retired employees in 4QFY2011. Comparing the operating expenses to average assets of different banks, SBI and BOM continue to have the highest opex amongst the large PSUs and mid-PSUs pack, respectively, as both registered opex-to-average assets ratio of 2.0% in FY2012.

Exhibit 6: Operating expenses trends

Bank SBI BOM CENTBK PNB INDBK SYNBK ALLBK UNBK IOB ANDHBK DENABK J&KBK UTDBK OBC VIJAYA BOI CANBK BOB UCOBK CRPBK IDBI Staff expenses 4QFY12 5,431 423 631 1,007 386 594 495 595 508 319 213 137 234 396 235 867 826 1,020 369 216 383 3QFY12 3,911 233 641 1,264 372 394 490 701 546 285 171 131 226 363 170 759 713 674 348 247 294 4QFY11 4,219 530 1,320 1,129 309 521 602 1,053 363 298 200 167 218 242 387 1,462 783 990 381 300 305 % (qoq) 38.9 81.0 (1.5) (20.3) 3.9 50.7 1.1 (15.2) (6.9) 11.9 24.7 5.0 3.5 8.9 37.8 14.2 15.9 51.3 5.9 (12.6) 30.3 % (yoy) 28.7 (20.2) (52.2) (10.8) 25.0 14.1 (17.8) (43.5) 40.1 7.0 6.4 (17.9) 7.3 63.6 (39.3) (40.7) 5.6 3.0 (3.2) (27.9) 25.9 4QFY12 1,940 148 451 643 206 252 247 438 334 164 120 83 146 262 132 587 493 625 206 227 410 Other opex 3QFY12 2,420 136 281 551 168 248 209 388 264 167 111 70 122 245 118 429 408 523 159 230 373 4QFY11 2,575 137 300 538 170 223 238 395 260 151 109 72 151 228 124 464 428 513 175 206 313 % (qoq) (19.9) 8.3 60.5 16.8 22.8 1.3 18.3 13.1 26.1 (1.5) 8.2 19.1 19.5 7.1 12.1 36.7 20.7 19.5 29.6 (1.4) 10.0 % (yoy) (24.7) 8.1 50.3 19.6 20.8 12.9 3.8 11.0 28.2 8.5 10.8 16.7 (3.8) 14.8 6.6 26.5 15.0 21.8 17.3 10.1 31.1 Opex-to-avg. assets FY2011 2.0 2.2 2.0 1.9 1.7 1.7 1.7 1.8 1.7 1.7 1.7 1.6 1.6 1.3 1.9 1.6 1.5 1.5 1.4 1.3 0.9 FY2012 2.0 2.0 1.7 1.7 1.7 1.7 1.6 1.6 1.6 1.5 1.5 1.4 1.4 1.4 1.4 1.3 1.3 1.3 1.2 1.2 1.0

Source: Company, Angel Research

May 23, 2012

Banking | 4QFY2012 Results Review

PSU banks witnessed renewed bout of high slippages

Asset-quality issues continued to trouble the sector and hamper profitability as fresh slippages led to higher provisioning expenses for banks during 4QFY2012. Out of the 27 banks under our coverage, 18 reported higher slippages sequentially. Banks that witnessed the highest asset-quality deterioration were Indian Bank (GNPA up 55.5% qoq), Central Bank (up 47.8% qoq) and PNB (up 35.4% qoq). Even after a significant 37.7% yoy increase in provisioning costs for PSU banks (excluding SBI), 13 banks had to also let their PCR deteriorate sequentially. Most PSU banks (14 out of 22) ended 4QFY2012 with lower provisioning coverage ratio than 70%, thus leading to further negative impact on adjusted book values.

Exhibit 7: Gross NPA trends (%) Pvt. vs. PSU

3.60 3.30 3.00 2.70 2.40 2.10 1.80 1.50 2.33 2.24 2.34 2.42 2.35 2.47 2.25 2.24 2.17 3.02 2.87 2.80 2.70 2.87 2.57 2.36 2.33 3.04 3.00

Exhibit 8: Net NPA trends (%) Pvt. vs. PSU

1.80 1.60 1.40 1.20 1.00 0.80 0.60 2.00 0.40 0.20 1.12 1.31 1.06 1.10 1.13 0.92 1.12 0.79 0.69 0.45 0.54 0.54 1.07 1.08 1.16 1.48 1.56 1.51

0.55

0.56

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12
1.36

Pvt Banks

PSU Banks

Pvt Banks

PSU Banks

Source: Company, Angel Research

Source: Company, Angel Research

Exhibit 9: Gross NPA trend (%) for the banking industry

3.10 2.90 2.70 2.50 2.30 2.10 2.36 2.43 2.47 2.40 2.27 2.43 2.85 2.73 2.80

Exhibit 10: Net NPA trend (%) for the banking industry
1.50 1.40 1.30 1.20 1.10 1.00 0.90 1.09 1.08 1.28 1.30

1.07 1.00 0.98

1.04

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

Source: Company, Angel Research

Source: Company, Angel Research

On the contrary, private banks that have sharply improved their asset quality over the past two years saw their provisioning costs decline by 16.7% qoq (down 17.0% qoq for new private banks and 15.3% qoq for old private banks). Consequently, while PSU banks witnessed a 7.1% qoq and 4.4% qoq increase in their gross and net NPA levels (PSUs excluding SBI witnessed 7.5% qoq and 10.1% qoq increase), private banks witnessed a decline of 2.6% qoq and 10.9% qoq in their gross and net NPA levels, respectively.

May 23, 2012

4QFY12

4QFY12

Banking | 4QFY2012 Results Review

Asset-quality issues manageable: Notwithstanding the throes of asset-quality pressures being experienced by PSU banks currently, we believe credit costs for PSU banks are close to peak levels on the basis of the following two reasons. Firstly, we expect peak credit costs (provisioning for NPAs) in this cycle to be 10-15bp lower than the earlier 97bp peak (as a percentage of assets) experienced by PSU banks in FY2004, considering improvements in recovery mechanisms since then. In this cycle (FY2006-12), credit costs were as low as 24bp, but they have already increased to 64bp in FY2012. Moreover, current credit costs include 10-15bp buffer due to (a) RBI's prudent countercyclical provisioning norm (which banks are already using; and (b) substantial technical NPAs in PSU banks due to adoption of the computerized NPA recognition system. These buffers should partially offset higher NPAs in FY2013E. Hence, we do not expect more than a 10bp net increase in credit costs from here on. Considering private banks focus on quality growth in balance sheet post the Lehman period, credit costs in their case peaked out in FY2010 at 100bp in this cycle and is currently at a low of 36bp; and from here as well, we do not expect more than a 5-10bp increase in credit costs. Secondly, we also believe that respite from pressures on the asset side of the business is likely to emerge from these positive developments on the liability side due to lower interest rates as well as disciplined balance sheet growth. Inflation levels have come off considerably over the past six months and are expected to cool off further as demand remains weak and policy effects further kick in. Moreover, oil prices are cooling and domestic MSP prices are already amongst the highest in the world for food grains such as rice. With inflation and consequently interest rates having a downward trajectory going ahead, we expect lower defaults, which coupled with higher recoveries (from higher delinquencies during the last two years) should lead to asset-quality improvement for the banking sector.

Exhibit 11: Credit costs as % to total assets for PSU* banks

(%) 1.20 1.00 0.80 0.60 0.40 0.20 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 0.53 0.42 0.24 0.29 0.31 0.28 0.67 0.70 0.57 0.46 0.97

Exhibit 12: Slippages as % of advances for PSU* banks

(%) 3.00 2.70 2.67 2.46 2.49 2.49 2.26 1.96 1.85 1.80 1.50 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 1.74 1.84 2.02 2.17 2.83

0.64

2.40 2.10

Source: Company, Angel Research; Note: *for our coverage universe only

Source: Company, Angel Research; Note:* for our coverage universe only

May 23, 2012

Banking | 4QFY2012 Results Review

Exhibit 13: Aggregate gross NPA levels Pvt. banks

Bank Pvt. New Pvt. Old Total 4QFY12 14,326 3,802 18,129 3QFY12 14,674 3,944 18,618 4QFY11 14,278 3,463 17,741 %yoy 0.3 9.8 2.2 %qoq (2.4) (3.6) (2.6)

Exhibit 14: Aggregate gross NPA levels PSU banks

Bank PSU Large PSU Med Total 4QFY12 72,788 36,453 109,241 3QFY12 70,669 31,333 102,001 4QFY11 47,215 22,902 70,117 %yoy 54.2 59.2 55.8 %qoq 3.0 16.3 7.1

Source: Company, Angel Research

Source: Company, Angel Research

Exhibit 15: Aggregate net NPA levels Pvt. banks

Bank Pvt. New Pvt. Old Total 4QFY12 3,035 1,059 4,095 3QFY12 3,460 1,134 4,594 4QFY11 3,407 827 4,234 %yoy (10.9) 28.2 (3.3) %qoq (12.3) (6.5) (10.9)

Exhibit 16: Aggregate net NPA levels PSU banks

Bank PSU Large PSU Med Total 4QFY12 34,795 19,998 54,794 3QFY12 36,325 16,166 52,491 4QFY11 22,933 10,732 33,664 %yoy 51.7 86.3 62.8 %qoq (4.2) 23.7 4.4

Source: Company, Angel Research

Source: Company, Angel Research

Exhibit 17: Asset quality continued to weaken during 4QFY2012

Bank CENTBK(full names) INDBK BOM OBC SYNBK PNB UTDBK J&KBK ALLBK UCOBK IOB BOB DENABK SIB ANDHBK CANBK ICICIBK UNBK AXSB BOI FEDBK CRPBK SBI IDBI VIJAYA
Source: Company, Angel Research

Slippages (%) 4QFY012 10.9 5.5 3.9 5.5 4.0 4.7 4.4 2.4 4.1 3.4 3.6 2.3 2.2 1.3 2.6 2.1 1.6 1.6 1.4 0.7 3.4 0.8 2.4 1.0 2.8

Slippages (%) 3QFY2012 4.5 1.6 1.1 2.9 1.9 2.8 2.7 0.7 2.5 2.2 2.5 1.7 1.5 0.7 2.1 1.6 1.5 1.5 1.5 1.0 4.1 1.7 4.3 3.1 5.3

change (bps) 641 397 280 258 209 188 171 164 157 123 118 65 63 63 51 49 17 11 (6) (27) (76) (97) (194) (218) (250)

qoq (%) GNPA 47.8 55.5 24.1 10.8 19.0 35.4 12.2 (5.2) 9.1 10.6 (1.3) 14.6 8.0 14.1 (4.6) 0.8 (2.5) 4.6 (5.7) (7.7) (4.6) 2.0 (1.1) (1.9) 3.1

qoq (%) NNPA 70.7 72.1 72.8 19.3 19.4 53.5 (8.7) 5.1 37.2 6.2 19.2 14.6 9.1 31.6 (19.9) 3.7 (9.1) 5.1 (30.8) (10.7) (18.3) (1.8) (15.9) (4.8) 0.1

PCR 4QFY12 (%) 40.6 70.1 80.4 61.5 80.1 62.7 69.2 93.8 74.0 54.4 67.7 80.1 75.5 71.4 71.1 67.6 80.4 62.2 81.0 64.2 84.7 65.3 68.1 68.3 62.4

PCR 3QFY12 (%) 48.1 76.5 87.0 63.3 78.5 70.0 66.5 94.1 78.0 52.0 71.7 80.5 76.6 75.2 65.4 67.9 78.9 63.1 75.3 60.9 82.1 62.9 62.5 69.1 61.4

change (ppt) (7.4) (6.4) (6.6) (1.7) 1.6 (7.3) 2.7 (0.3) (4.0) 2.4 (4.0) (0.5) (1.0) (3.8) 5.7 (0.3) 1.5 (0.9) 5.7 3.3 2.6 2.4 5.6 (0.8) 1.0

May 23, 2012

Banking | 4QFY2012 Results Review

Exhibit 18: Asset quality performance in FY2012

Bank CENTBK OBC ANDHBK UTDBK INDBK VIJAYA SYNBK BOI SBI IDBI FEDBK PNB BOB SIB BOM IOB CRPBK CANBK UNBK YESBK ALLBK J&KBK AXSB HDFCBK ICICIBK DENABK UCOBK
Source: Company, Angel Research

Slippage FY12 5.2 4.0 3.0 3.6 2.5 4.2 2.7 2.5 3.5 2.0 3.6 2.7 1.5 0.8 1.8 2.8 1.4 2.1 2.5 0.3 2.4 1.2 1.3 1.0 1.4 1.6 2.4

Slippage FY11 1.3 1.8 1.4 2.3 1.5 3.2 1.7 1.7 2.8 1.4 3.2 2.3 1.1 0.7 1.7 2.7 1.3 2.1 2.4 0.2 2.4 1.2 1.4 1.1 1.5 2.1 3.3

Bp change 390.2 217.5 162.7 133.8 96.0 92.9 91.8 80.4 64.1 56.5 43.8 43.3 41.8 16.3 13.5 11.2 10.2 8.6 4.5 2.6 (5.2) (5.2) (9.5) (14.2) (17.2) (52.6) (89.0)

yoy (%) GNPA 203.8 86.4 80.6 60.5 150.0 36.5 22.5 22.5 56.7 63.4 13.3 99.1 41.6 16.0 10.5 26.9 61.2 30.5 50.4 4.1 24.9 (0.4) 12.9 18.0 (5.6) 13.6 29.7

yoy (%) NNPA 437.8 162.1 176.2 42.0 201.4 34.7 15.0 88.0 28.1 73.5 4.4 118.5 41.6 27.5 (24.1) 43.6 118.6 44.3 67.7 90.8 48.3 (7.3) 15.2 18.9 (22.7) 4.1 24.1

PCR FY2012 40.6 61.5 71.1 69.2 70.1 62.4 80.1 64.2 68.1 68.3 84.7 62.7 80.1 71.4 80.4 67.7 65.3 67.6 62.2 79.2 74.0 93.8 81.0 82.4 80.4 75.5 54.4

PCR FY2011 67.6 76.8 83.9 72.1 84.3 63.7 77.2 72.2 65.0 74.7 83.4 73.2 85.0 73.9 65.6 70.5 74.7 73.0 67.6 88.6 75.7 92.7 80.9 82.5 76.0 74.6 51.6

Change (PPT) (27.0) (15.3) (12.8) (3.0) (14.2) (1.3) 2.9 (8.0) 3.1 (6.4) 1.3 (10.5) (5.0) (2.6) 14.8 (2.8) (9.4) (5.4) (5.4) (9.5) (1.7) 1.1 0.1 (0.1) 4.4 0.9 2.8

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Banking | 4QFY2012 Results Review

Substantial restructuring witnessed; SEBs and Air India the primary contributors
Almost all banks resorted to higher restructuring during 4QFY2012, similar to the last quarter, with loans to Air India and SEBs being the primary contributors. Dena Bank (up 89.4% qoq) and Central Bank (up 75.6% qoq) witnessed the highest sequential rise in their restructured book. Most banks have restructured a majority of their SEB loan book during the past two quarters (restructured books of six PSU banks Central Bank, OBC, Allahabad Bank, Andhra Bank, Vijaya Bank and Dena Bank more than doubled on an absolute basis during 2HFY2012), however some banks are expected to see further SEB restructuring in the coming quarters on account of UP and Punjab SEBs. Most banks also restructured Air India (except BOI and UCO Bank, which would restructure in 1QFY2013), which further fattened the already heavily burdened restructuring books of the banks. On the positive front, banks did not witness any NPV losses on SEBs, while the NPV hit on Air India (to the tune of 8-10% of outstanding loans) would be amortized over the next eight quarters, beginning from 1QFY2013. The total cases referred through CDR during 4QFY2012 stand at ~`23,000cr (~`68,000cr during FY2012), of which ~`8,000cr have been approved during the quarter. Further, pending approvals of ~`35,000cr (of which ~`12,000cr due to referrals in 4QFY2012 alone) under the CDR mechanism along with bank-specific exposures are expected to lead to higher restructuring for banks in the coming quarters.

Exhibit 19: CDR snapshot

Year (` cr) FY2010 FY2011 1QFY2012 2QFY2012 3QFY2012 4QFY2012 FY2012 Outstanding
Source: Company, Angel Research

Referred No. of cases 31 49 18 18 23 28 87 392 Additions 20,175 22,614 4,595 21,095 19,187 23,012 67,889 206,493

Approved No. of cases 31 27 10 7 17 16 50 292 Additions 17,763 6,615 8,141 2,095 21,364 8,001 39,601 150,515

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Banking | 4QFY2012 Results Review

Exhibit 20: Restructuring book as of 4QFY2012 (` cr)

Bank CENTBK IOB UCOBK INDBK PNB UNBK CRPBK BOI BOM OBC DENABK ANDHBK VIJAYA UTDBK SYNBK ALLBK IDBI SBI BOB SIB CANBK FEDBK AXSB ICICIBK YESBK HDFCBK 4QFY12 17,347 12,641 7,300 8,902 25,009 11,879 7,539 17,574 3,227 9,510 3,410 5,955 2,939 3,106 6,200 6,353 10,037 42,744 15,084 1,021 7,896 2,036 3,060 4,256 201 782 3QFY12 9,880 10,082 7,100 5,573 16,888 8,643 4,539 13,674 3,100 6,086 1,800 3,676 1,635 2,255 4,966 3,823 9,522 37,610 9,945 621 9,555 1,438 2,701 3,070 176 777 Ch.qoq (%) 75.6 25.4 2.8 59.7 48.1 37.4 66.1 28.5 4.1 56.3 89.4 62.0 79.8 37.7 24.8 66.2 5.4 13.7 51.7 64.4 (17.4) 41.6 13.3 38.6 14.6 0.6 % of advances 11.8 9.0 6.3 9.9 8.5 6.7 7.5 7.1 5.8 8.5 6.0 7.1 5.1 4.9 5.0 5.7 5.5 4.9 5.2 3.7 3.4 5.4 1.8 1.7 0.5 0.4 % of NW 194.8 117.4 115.1 96.7 94.9 91.7 91.1 89.5 87.4 86.0 79.7 79.6 78.2 75.4 71.7 65.9 57.3 55.4 54.9 50.6 38.3 35.7 13.4 8.9 4.3 2.7

Source: Company, Angel Research

May 23, 2012

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Banking | 4QFY2012 Results Review

Effective tax rate lower in 4QFY2012 on favorable verdicts

Exhibit 21: Effective tax rate comparison sequentially
Bank IOB SIB ANDHBK UNBK PNB UTDBK BOM BOI YESBK FEDBK AXSB CANBK HDFCBK 4QFY2012 14 19 19 29 25 13 31 27 32 33 33 19 31 3QFY2012 30 35 34 37 34 20 37 31 33 33 33 19 30 Bank ICICIBK ALLBK CRPBK SBI UCOBK JKBK IDBI INDBK DENABK BOB OBC SYNBK VIJAYA 4QFY2012 28 10 26 37 7 38 16 (47) (38) (27) (21) (25) (2) 3QFY2012 26 8 23 33 2 30 2 22 31 27 21 11 8

Source: Company, Angel Research

During the quarter, eight PSU banks witnessed sequentially lower effective tax rates, while six others reported negative tax expenses, mainly on account of write-off of extra tax provisions made earlier due to general and bank-specific favorable tax verdicts passed during the quarter. One such notable verdict, which many banks took advantage of, was in the case of Catholic Syrian Bank, where the Supreme Court adjudged that the scheduled commercial banks would get full tax deduction of bad debt written-off under Sec. 36(1)(vii) for urban advances in addition to the benefit of deduction for the specific provision made for bad and doubtful debt under Sec. 36(1)(viia) for rural advances. Dena Bank, in particular, also took benefit of specific verdicts passed in its favor, while few others took credit for deferred tax and showed lower (even negative) tax expense during the quarter.

May 23, 2012

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Banking | 4QFY2012 Results Review

Larger banks perform better on the earnings front

Public sector banks posted a weak to moderate set of results in 4QFY2012, with larger banks performing better than smaller banks. On the operating income front, large PSU banks excluding SBI registered moderate growth of 8.0% yoy (including SBI, growth was 18.0% yoy), while growth in the mid-PSU segment was slightly subdued at 5.8% yoy.

Exhibit 22: Large PSU P&L (excl. SBI)

Parameter NII Other Income Operating Income Operating Expenses Pre provision profit Provisions PBT Tax Net Profit % chg % chg 4QFY12 3QFY12 4QFY11 (qoq) (yoy)

Exhibit 23: Mid PSU P&L

Parameter NII Other Income Operating Income Operating Expenses Pre provision profit Provisions PBT Tax 4QFY12 3QFY12 13,470 4,153 17,623 8,439 9,184 5,357 3,826 125 3,701 13,449 3,688 17,137 7,430 9,706 4,514
% chg 4QFY11 (qoq) % chg (yoy)

13,736 5,442 19,179 7,904 11,275 3,825 7,450 1,182 6,268

13,019 4,759 17,777 7,088 10,689 6,332 4,638

5.5 14.4 7.9 11.5 5.5 17.6 35.1

12,717 5,043 17,760 8,370 9,390 2,777 6,613 5,002

8.0 7.9 8.0 (5.6) 20.1 37.7 12.7 25.3

0.2 12.6 2.8 13.6 (5.4) 18.7

12,457 4,207 16,664 8,606 8,057 3,890 4,168 3,463

8.1 (1.3) 5.8 (1.9) 14.0 37.7 (8.2) 6.9

4,356 (12.2) 1,694 (30.2)

5,192 (26.3) 1,177 (89.3) 4,015 (7.8)

1,611 (26.7)

704 (82.2)

Net Profit

Source: Company, Angel Research

Source: Company, Angel Research

Exhibit 24: New pvt. P&L

Parameter NII Other Income Operating Income Operating Expenses Pre provision profit Provisions PBT Tax Net Profit % chg % chg 4QFY12 3QFY12 4QFY11 (qoq) (yoy)

Exhibit 25: Old pvt. P&L

Parameter
NII Other Income Operating Income Operating Expenses Pre provision profit Provisions PBT Tax Net Profit

4QFY12 3QFY12 1,899 769 2,669 1,391 1,278 252 1,026 250 776 1,883 681 2,564 1,322 1,242 297 945 245 700

% chg 4QFY11 (qoq)

% chg (yoy)

10,240 6,121 16,360 7,543 8,817 986 7,831 2,407 5,424

9,478 5,500 14,978 6,662 8,316 7,127 2,131 4,996

8.0 11.3 9.2 13.2 6.0 9.9 12.9 8.6

8,352 4,963 13,315 6,078 7,237 6,092 1,881 4,211

22.6 23.3 22.9 24.1 21.8 28.6 28.0 28.8

0.8 13.0 4.1 5.2 2.9 (15.3) 8.6 2.2 10.8

1,713 687 2,400 1,279 1,121 218 903 251 652

10.9 12.0 11.2 8.8 14.0 15.4 13.6 (0.2) 18.9

1,189 (17.0)

1,146 (13.9)

Source: Company, Angel Research

Source: Company, Angel Research

Provisioning expenses significantly increased in 4QFY2012 across all PSU banks on the back of continued fresh slippages leading to lower PBT levels (decline of 8.2% yoy for the mid-PSU segment). Tax benefits on account of favorable verdicts during 4QFY2012 (six PSU banks reported negative tax expenses during 4QFY2012, while eight others witnessed lower effective tax rates) eventually propped up profitability in case of larger PSU banks (growth of 25.3% yoy) and enabled the smaller ones to post positive earnings growth for 4QFY2012 (growth of 6.9% yoy). Private banks continued their impressive performance with robust earnings growth of 27.5% yoy in 4QFY2012. The positive performance was led by new private banks (including our top picks ICICI Banks, Axis Bank and Yes Bank), with strong performance on the operating as well as asset-quality front.
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Banking | 4QFY2012 Results Review

The older private banks reported moderate growth in operating levels, more in-line with larger PSU banks; however, on account of lower provisioning and tax expenses, older private banks also managed healthy earnings growth of 18.9% on a yoy basis.

Exhibit 26: Large PSU P&L (excl. SBI)

Parameter NII Other Income Operating Income Operating Expenses Pre provision profit Provisions PBT Tax Net Profit Source: Company, Angel Research FY2012 FY2011 % chg yoy

Exhibit 27: Mid-PSU P&L

Parameter NII Other Income Operating Income Operating Expenses Pre provision profit Provisions PBT Tax
FY2012 FY2011 % chg yoy

51,212 18,301 69,513 28,371 41,142 15,076 26,066 6,395 19,670

46,789 15,889 62,678 23,228 39,450 13,478 25,972 7,050 18,922

9.5 15.2 10.9 22.1 4.3 11.9 0.4 (9.3) 4.0

52,215 14,597 66,812 29,906 36,906 17,803 19,103 3,789 15,313

47,110 13,101 60,211 24,812 35,399 15,379 20,020 5,289 14,731

10.8 11.4 11.0 20.5 4.3 15.8 (4.6) (28.4) 4.0

Net Profit
Source: Company, Angel Research

Exhibit 28: New pvt. P&L

Parameter NII Other Income Operating Income Operating Expenses Pre provision profit Provisions PBT Tax Net Profit Source: Company, Angel Research FY2012 FY2011 % chg yoy

Exhibit 29: Old pvt. P&L

Parameter
NII Other Income Operating Income Operating Expenses Pre provision profit Provisions PBT Tax Net Profit Source: Company, Angel Research FY2012 FY2011 % chg yoy

36,881 21,013 57,894 26,558 31,336 4,489 26,847 8,108 18,739

30,992 17,585 48,577 16,957 31,619 10,748 20,871 6,282 14,589

19.0 19.5 19.2 56.6 (0.9) (58.2) 28.6 29.1 28.4

7,176 2,710 9,885 5,066 4,819 1,094 3,725 985 2,740

6,163 2,478 8,641 3,673 4,968 1,866 3,102 920 2,182

16.4 9.4 14.4 37.9 (3.0) (41.4) 20.1 7.0 25.6

Exhibit 30: Advances growth (%)

Banks-Type Large PSU Mid PSU New Pvt Old Pvt Grand Total 4QFY12 % chg 3QFY12 (qoq) 4QFY11 % chg (qoq)

Exhibit 31: Deposits growth (%)

Banks-Type Large PSU Mid PSU New Pvt Old Pvt Grand Total 4QFY12 3QFY12 % chg (qoq) 4QFY11 % chg (qoq)

2,294,904 1,352,120 731,040 173,961 4,552,024

2,134,319 1,246,167 698,750 161,210 4,240,446

7.5 8.5 4.6 7.9 7.3

1,965,045 1,145,084 608,616 142,983 3,861,727

16.8 18.1 20.1 21.7 17.9

2,886,738 1,807,245 852,361 231,712 5,778,055

2,711,836 1,698,085 827,662 220,412 5,457,996

6.4 6.4 3.0 5.1 5.9

2,527,541 1,577,655 732,991 197,192 5,035,379

14.2 14.6 16.3 17.5 14.7

Source: Company, Angel Research

Source: Company, Angel Research

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Banking | 4QFY2012 Results Review

Exhibit 32: DuPont analysis

Pvt. New* Parameter NII (-) Prov. Exp. Adj NII Treasury FY11 3.1 0.6 2.5 (0.0) 2.5 1.8 4.3 2.2 2.1 0.6 1.5 10.4 15.1 FY12 3.1 0.4 2.7 0.0 2.7 1.7 4.4 2.2 2.2 0.7 1.5 10.9 16.9 FY13E 3.1 0.4 2.8 0.0 2.8 1.7 4.5 2.2 2.3 0.7 1.6 11.4 18.0 FY14E 3.2 0.4 2.8 0.0 2.8 1.8 4.6 2.3 2.3 0.8 1.6 12.1 19.1 FY11 2.8 0.7 2.1 0.1 2.2 1.0 3.2 1.8 1.4 0.5 0.9 18.2 16.9 PSU Large FY12 2.8 0.9 2.0 0.1 2.0 0.9 3.0 1.6 1.3 0.4 0.9 18.6 17.3 FY13E 2.9 0.8 2.1 0.0 2.2 0.9 3.1 1.6 1.4 0.5 1.0 17.8 17.6 FY14E 2.9 0.8 2.1 0.0 2.2 0.9 3.1 1.6 1.5 0.5 1.0 18.3 18.0 FY11 2.8 0.8 2.1 0.1 2.2 0.7 2.8 1.7 1.2 0.3 0.9 21.5 18.4 PSU Mid* FY12 2.7 0.9 1.7 0.1 1.8 0.6 2.5 1.5 1.0 0.2 0.8 20.9 15.9 FY13E 2.7 0.7 1.9 0.0 2.0 0.6 2.6 1.5 1.1 0.3 0.8 20.5 15.8 FY14E 2.6 0.7 2.0 0.0 2.0 0.6 2.6 1.5 1.2 0.4 0.8 21.0 16.0

Int. Sens. Inc.

Other Inc. Op. Inc. Opex PBT Taxes ROA Leverage ROE

Source: Company, Angel Research, Note: *our coverage universe only

Leverage, expected to be lower going forward, to result in margin and RoA discipline Favorable for incumbents with high capital adequacy
Indian banks started increasing capital adequacy (lowering leverage) right from FY2004 up to FY2008, in response to Basel-II requirements, (which were announced globally some time in 2005; but draft finalized in India only in 2007). However, it appears that current leverage (FY2012E after factoring PSU banks capital infusion) is at similar levels as pre-Lehman Basel-II levels. If the objective of Basel-III is to reduce leverage somewhat below pre-Lehman level, then it is likely that Indian banks would face some degree of capital shortage in the coming years, even after new bank license winners bring more capital into the sector. If we factor in 10% CET1 comfort level, leverage would be about 14.3x by FY2018 versus around 16.3x currently (ideal leverage works out to 15.9x at 9% CET1, which is still marginally lower than current levels). In our view, this capital shortage will be good for margin and ROA discipline in the sector and favorable for incumbents with high capital adequacy, as current ROEs post dividend can support only about 15-15.5% growth versus 17-18% demand. Also, especially for well-capitalized private banks trading at 2-3x book value, this should help in accelerate market share gains.

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Banking | 4QFY2012 Results Review

Exhibit 33: Equity leverage

25.0 22.0 19.0 16.0 13.0 10.0 23.4 21.3 19.8 18.2 16.8 18.3 15.6 16.4 16.1 16.7 16.3 14.3

FY2012E

Source: Company, Angel Research; Note: Data is for 24 coverage banks, comprising 85% of sector assets

Equity capital raising, which usually was 0.1-0.5% of GDP earlier, could be 0.3-0.4% going forward, with a larger share for private banks
Going forward, at 10% CET1, equity capital required each year would be about 0.3-0.4% of GDP. The data below shows that except in FY2008 (CY2007), equity raised was in the range of 0.1-0.5% of GDP. Excluding FY2008, the average works out to 0.2% of GDP. [In FY2008/CY2007, lot of equity was raised at euphoric valuations, a big chunk of which (`20,000cr) was to fund insurance and overseas operations by ICICI Bank]. Out of capital-raising requirements, a larger share can be expected for private banks. But for that to happen, a virtuous environment of high growth and high ROE opportunity seen by investors, on the one hand, as well as book accretive premiums simultaneously seen by private banks, on the other hand, is required i.e., if ROEs are not good, forthcoming private capital will not be at book-accretive premiums. Also, GOI, with its fiscal consolidation targets, could possibly find it difficult and unnecessary to raise budgetary allocations from `16,000cr levels to `30,000cr levels, when private capital can step in.

May 23, 2012

FY2018E

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY2010

FY2011

17

Banking | 4QFY2012 Results Review

Exhibit 34: Equity capital raising trends of banks

Equity Raised FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 423 2,785 2,031 1,302 8,622 15,356 1,993 51,977 1,240 11,178 23,546 25,416 37,917 40,083 42,250 44,417 46,583 48,750 Nominal GDP 1,925,017 2,097,726 2,261,415 2,538,170 2,971,464 3,389,621 3,952,241 4,581,422 5,282,086 6,133,230 7,306,990 8,279,976 9,439,173 10,760,657 12,267,149 13,984,550 15,942,387 18,174,321 as % to GDP 0.0% 0.1% 0.1% 0.1% 0.3% 0.5% 0.1% 1.1% 0.0% 0.2% 0.3% 0.3% 0.4% 0.4% 0.3% 0.3% 0.3% 0.3% Pvt 109 1,026 669 350 6,262 9,476 1,609 33,105 677 11,176 4,965 1,174 PSU 314 1,760 1,362 952 2,360 5,879 385 18,872 562 1 18,581 24,242 Pvt % PSU % 26% 37% 33% 27% 73% 62% 81% 64% 55% 100% 21% 5% 74% 63% 67% 73% 27% 38% 19% 36% 45% 0% 79% 95%

Source: Company, Angel Research

Valuations cheap; Prefer structurally and cyclically strong large banks

Considering the recent sharp decline in the markets, the banking sectors valuations have become cheaper. Even structurally stronger banks and those having a cyclically better asset-quality profile and strong earnings trajectory are available at cheap valuations in our view and, hence, we retain them as top picks viz., Axis Bank, ICICI Bank amongst large private banks, Yes Bank amongst mid-size banks (an alpha stock in our view) as well as SBI and BOB amongst large PSU banks. We also recommend Buy on PNB, post the sharp correction in the stock, which we believe provides adequate margin of safety from asset-quality concerns. Among other banks, we believe valuations of few banks, such as Andhra Bank, UCO Bank, Central Bank, Allahabad Bank and Vijaya Bank, still do not provide adequate margin of safety from asset-quality risks, warranting a switch in our view to Syndicate Bank, Dena Bank and United Bank, which have superior earnings quality outlook and cheaper valuations.

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Banking | 4QFY2012 Results Review

Exhibit 35: Recommendation summary

Company AxisBk FedBk HDFCBk ICICIBk* SIB YesBk AllBk AndhBk BOB BOI BOM CanBk CentBk CorpBk DenaBk IDBI# IndBk IOB J&KBk OBC PNB SBI* SynBk UcoBk UnionBk UtdBk VijBk Reco. Buy Neutral Buy Buy Neutral Buy Accumulate Neutral Buy Buy Accumulate Buy Neutral Buy Buy Buy Accumulate Buy Accumulate Buy Buy Buy Buy Neutral Buy Buy Neutral CMP (`) 964 401 487 796 22 320 140 102 657 353 47 385 73 401 84 86 177 78 903 220 708 1,956 86 66 201 55 52 Tgt. price (`) 1,476 567 1,174 450 158 925 411 53 522 486 111 117 197 96 952 274 1,015 2,486 131 276 78 Upside (%) 53.1 16.4 47.5 40.8 12.9 40.8 16.3 13.2 35.6 21.2 32.1 36.4 11.2 23.3 5.4 24.3 43.3 27.0 51.8 37.4 42.3 FY2014E P/ABV (x) 1.3 1.0 2.8 1.3 1.0 1.6 0.5 0.6 0.7 0.7 0.6 0.7 0.7 0.5 0.5 0.5 0.7 0.5 0.8 0.5 0.7 1.2 0.5 0.6 0.7 0.4 0.6 FY2014E Tgt. P/ABV (x) 2.0 3.3 1.9 2.3 0.7 1.1 1.0 0.7 0.9 0.7 0.7 0.7 0.7 0.6 0.9 0.6 1.0 1.5 0.7 0.9 0.6 FY2014E P/E (x) 6.9 7.0 13.7 9.8 5.7 7.7 3.3 4.0 4.4 4.4 3.6 4.2 3.6 3.6 3.2 3.6 4.0 3.6 4.9 3.5 4.0 6.9 2.9 3.7 4.0 2.4 4.3 FY2012-14E EPS CAGR (%) 16.4 12.5 27.0 20.4 4.5 22.5 6.2 3.3 11.1 23.3 45.3 11.8 100.1 5.3 6.6 22.7 4.8 28.3 5.5 27.7 10.3 27.3 17.3 13.0 24.8 22.5 13.5
#

FY2014E RoA (%) 1.5 1.3 1.7 1.5 0.8 1.4 0.9 0.9 1.1 0.8 0.7 0.9 0.5 0.8 0.9 0.9 1.1 0.6 1.2 0.8 1.0 1.1 0.8 0.6 0.8 0.7 0.5

FY2014E RoE (%) 20.3 14.5 22.1 16.0 17.5 23.3 17.6 16.0 18.2 16.9 17.2 16.4 14.4 16.5 17.0 14.8 16.9 13.9 17.6 14.3 18.1 19.3 17.1 15.4 17.5 16.5 13.7

Source: Company, Angel Research; Note:*Target multiples=SOTP Target Price/ABV (including subsidiaries), CMP as of May 23, 2012.

Without adjusting for SASF,

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Banking | 4QFY2012 Results Review

Banking indicators watch

Exhibit 36: Credit and deposit growth trends
Credit growth (%) 35.0 30.0 25.0 20.0 15.0 10.0 5.0 72.0 74.0 29.0 28.0 27.0 76.0 Deposit growth (%) 78.0

Exhibit 37: Investment-Deposit ratio

Credit-to-Deposit ratio (%) Inv-to-Dep ratio (% , RHS) 32.0 31.0 30.0

Dec-08

Jun-06

Mar-10

Aug-10

Apr-07

Jan-11

Jun-11

Nov-06

May-09

Nov-11

Sep-07

Feb-08

Oct-09

Apr-12

Jul-08

70.0

Sep-11

Feb-12

Jul-11

Source: RBI, Angel Research

Source: RBI, Angel Research

Exhibit 38: CP rates remain steady

(%) 13.0 12.0 11.0 10.0 9.0 8.0 7.0 6.0 CP 3M CP 12M

Exhibit 39: ...so do CDs

(%) 12.0 11.0 10.0 9.0 8.0 7.0 6.0 CD 3M CD 12M

Dec-11

Dec-11

Jun-11

Jan-12

Jun-11

Aug-11

Aug-11

Apr-12

Jan-12

Mar-12

Nov-11

May-11

May-12

May-11

Nov-11

Mar-12

Oct-11

Feb-12

Oct-11

Sep-11

Sep-11

Feb-12

Apr-12
Mar-12 Apr-12

Jul-11

Jul-11

May-12 May-12
May-12

Dec-11

Dec-11

Aug-11

Aug-11

Jan-12

Mar-12

Source: RBI, Angel Research

Source: Bloomberg, Angel Research

Exhibit 40: LAF borrowings

(` bn) 500 (500) (1,000) (1,500) (2,000) (2,500)
Dec-11 Aug-11 Nov-11 Mar-12 Oct-11 Feb-12 Sep-11 Apr-12 Jul-11 May-12 Jun-11 Jan-12

Exhibit 41: Forex reserves depleting on adverse BOP situation

US$ Bns 340 320 300 280 260 240

Nov-11

Dec-11

Dec-11

Aug-11

Aug-11

Feb-12

Jul-11

Sep-11

Jun-11

Jun-11

Jan-12

Mar-12

Oct-11

Oct-11

Source: RBI, Angel Research

Source: RBI, Angel Research

May 23, 2012

Nov-11

Mar-12

Oct-11

Oct-11

Apr-12

20

Banking | 4QFY2012 Results Review

Exhibit 42: Corporate and government bond yields

(%) 10.0 9.5 9.0 8.5 8.0 21-Feb-12 21-May-12

Exhibit 43: G-Sec yields spread vs. repo rate

4.0 3.0 2.0 1.0 G-Sec 1Yr and 10Yr Spread (%) Repo Rate (%, RHS) 9.5 8.5 7.5 6.5 5.5 4.5
Feb-07 Jul-06 Sep-07 May-12 Dec-05 Jun-09 Jan-10 Aug-10 Nov-08 Mar-11 Apr-08 Oct-11

9.56 9.75

9.47 9.54

9.32 9.42

9.24 9.38

8.48 8.25

8.19 8.21

8.29 8.38

7.5 7.0

8.17 8.54

(1.0)

AAA 1 YrAAA 3 YrAAA 5 Yr AA 10 Yr sec 1YrGsec 3YrGsec 5Yr sec 10Yr A G G

Source: Bloomberg, Angel Research

Source: Bloomberg, Angel Research

Sectoral and industry-wise distribution of credit

Exhibit 44: Credit growth driven by the industry sector
Sector Agriculture Industry - Micro & Small - Medium - Large Services Personal Loans - Housing - Vehicle Non-food Credit
Source: RBI, Angel Research

March 2011 (` cr) 460,333 1,620,849 229,101 184,599 1,207,148 900,801 685,372 346,110 79,314 3,667,354 % of total 12.6 44.2 6.2 5.0 32.9 24.6 18.7 9.4 2.2 100.0 (` cr) 522,623 1,965,874 259,191 205,642 1,501,041 1,032,992 768,256 388,017 94,904 4,289,744

March 2012 % of total 12.2 45.8 6.0 4.8 35.0 24.1 17.9 9.0 2.2 100.0 % chg (yoy) 13.5 21.3 13.1 11.4 24.3 14.7 12.1 12.1 19.7 17.0

May 23, 2012

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Banking | 4QFY2012 Results Review

Exhibit 45: Strong growth being witnessed in metals and engineering

Industry Infrastructure Metals Textiles Engineering Chemicals Food Processing Oil and Gas Construction Vehicles Gems & Jewellery Other Industries Total
Source: RBI, Angel Research

March 2011 (` cr) 526,655 209,894 144,738 93,239 94,527 84,931 57,652 50,135 44,491 39,427 275,159 1,620,848 % of total 32.5 12.9 8.9 5.8 5.8 5.2 3.6 3.1 2.7 2.4 17.0 100.0 (` cr) 619,086 255,630 159,850 113,567 112,503 102,411 70,055 56,604 51,610 50,366 374,193 1,965,875

March 2012 % of total 31.5 13.0 8.1 5.8 5.7 5.2 3.6 2.9 2.6 2.6 19.0 100.0 % chg (yoy) 17.6 21.8 10.4 21.8 19.0 20.6 21.5 12.9 16.0 27.7 36.0 21.3

Valuation watch
Exhibit 46: Private banks* P/ABV trends
P/ABV 3.40 3.00 2.60 2.20 1.80 1.40 1.00 0.60 Median 15th percentile 85th percentile 2.00 1.75 1.50 1.25 1.00 0.75 0.50

Exhibit 47: Public sector banks P/ABV trends

P/ABV Median 15th percentile 85th percentile

Dec-08

Dec-08

Jun-06

Jun-11

Jun-06

Jan-06

Jan-11

Jan-06

Aug-05

Aug-10

Aug-05

Aug-10

Mar-05

Apr-07

Mar-10

Apr-12

Mar-05

Apr-07

Mar-10

Jan-11

Jun-11

Oct-09

Feb-08

Nov-06

Nov-11

Nov-06

Feb-08

Oct-09

May-09

Source: Company, Angel Research; Note: *pvt. banks under our coverage

Source: Company, Angel Research

Exhibit 48: Large private banks P/ABV trends

P/ABV 3.40 3.00 2.60 2.20 1.80 1.40 1.00 0.60 Median 15th percentile 85th percentile

Exhibit 49: Large public sector banks P/ABV trends

P/ABV 2.30 2.00 1.70 1.40 1.10 0.80 0.50 Median 15th percentile 85th percentile

Dec-08

Dec-08

Jun-06

Jun-11

Jun-06

May-09

Jan-06

Jan-11

Jan-06

Aug-05

Aug-10

Aug-05

Aug-10

Mar-05

Apr-07

Mar-10

Apr-12

Mar-05

Apr-07

Mar-10

Jan-11

Jun-11

Nov-11 Nov-11

Sep-07

Sep-07

Oct-09

Feb-08

Nov-06

Nov-11

Nov-06

Feb-08

Sep-07

May-09

Sep-07

Source: Company, Angel Research

Source: Company, Angel Research

May 23, 2012

May-09

Oct-09

22

Apr-12

Jul-08

Jul-08

Apr-12

Jul-08

Jul-08

Banking | 4QFY2012 Results Review

Exhibit 50: Small private* banks P/ABV trends

P/ABV 2.30 1.90 1.50 1.10 0.70 0.30 Median 15th percentile 85th percentile

Exhibit 51: Mid-cap* public sector banks P/ABV trends

P/ABV 1.80 1.50 1.20 0.90 0.60 0.30 Median 15th percentile 85th percentile

Dec-08

Dec-08

Jun-06

Jun-11

Jun-06

Jan-06

Jan-11

Jan-06

Aug-05

Aug-10

Aug-05

Aug-10

Mar-05

Apr-07

Mar-10

Apr-12

Mar-05

Apr-07

Mar-10

Jan-11

Jun-11

Oct-09

Feb-08

Nov-06

Nov-11

Nov-06

Feb-08

Oct-09

May-09

Source: Company, Angel Research; Note: *Small pvt. banks under our coverage

Source: Company, Angel Research, Note:*Mid and small PSU banks

May 23, 2012

May-09

Nov-11

Sep-07

Sep-07

23

Apr-12

Jul-08

Jul-08

Banking | 4QFY2012 Results Review

Economy watch
Exhibit 52: Quarterly GDP trends
(%) 10.0 9.0 8.0 7.0 6.0 5.0 5.8 5.9 7.5 7.4 9.8 9.4 8.5 7.6 8.3 7.8 7.7 6.9 6.1

Exhibit 53: IIP trends

(%) 12.0 10.0 8.0 6.0 4.0 2.0 5.3 6.2 3.7 3.4 2.5 9.5 6.0 4.1 2.7 1.1

Dec-11

Jun-11

Aug-11

Apr-11

Jan-12

Nov-11

(2.0)

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

(4.0) (6.0)

May-11

(3.5)

(5.0)

Source: CSO, Angel Research

Source: MOSPI, Angel Research

Exhibit 54: Monthly WPI inflation trends

(%) 12.0 10.0 8.0 6.0 4.0 2.0 0.0 9.6 9.5 9.4 9.8 10.0 9.9 9.5 7.7 6.9 7.4 6.9 7.2

Exhibit 55: Manufacturing and services PMI

60.0 58.0 56.0 54.0 52.0 50.0 48.0 Mfg. PMI Services PMI

May-11

Dec-11

Aug-11

Feb-12

Jul-11

Sep-11

Jun-11

Jan-12

Mar-12

Apr-12

Nov-11

Dec-11

Oct-11

Jun-11

Aug-11

Jan-12

Nov-11

Source: MOSPI, Angel Research

Source: Markit, Angel Research

Exhibit 56: Exports and imports growth trends

(%) 75 60 45 30 15 0 Exports yoy growth Imports yoy growth

Exhibit 57: Eight core industry growth rates for March 2012
(%) 10.0 5.0 0.0 (5.0) (10.0) (2.9) (10.1) 2.0 6.8 1.6 1.5 2.3 7.1 2.1

Sep-11

May-11

Dec-11

Aug-11

Feb-12

Jun-11

Jul-11

Apr-11

Jan-12

Nov-11

Mar-12

Oct-11

(15.0)

May-11

Steel

Overall Index

Natural Gas

Fertilizers

Refinery Products

Cement

Coal

Crude Oil

(15)

Source: Bloomberg, Angel Research

Source: Office of the Economic Adviser, Angel Research

May 23, 2012

Electricity

Mar-12

Apr-11

Oct-11

Sep-11

Feb-12

Apr-12

Jul-11

Mar-12

Oct-11

Sep-11

Feb-12

Jul-11

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Banking | 4QFY2012 Results Review

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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

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Banking | 4QFY2012 Results Review

Disclosure of Interest Statement

Analyst ownership of the stock AxisBk FedBk HDFCBk ICICIBk SIB YesBk AllBk AndhBk BOB BOI BOM CanBk CentBk CorpBk DenaBk IDBI IndBk IOB J&KBk OBC PNB SBI SynBk UcoBk UnionBk UtdBk VijBk No No No No No No No No No No No No No No No No No No No No No No No No No No No Angel and its Group companies ownership of the stock Yes No No No No No No No No No No No No No No No No No No No No No No No No No No Angel and its Group companies' Directors ownership of the stock Yes No No No No No No No No No No No No No No No No No No No No Yes No No No No No Broking relationship with company covered No No No No No No No No No No No No No No No No No No No No No No No No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

May 23, 2012

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Banking | 4QFY2012 Results Review

6th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai- 400 093. Tel: (022) 39357800
Research Team Fundamental: Sarabjit Kour Nangra Vaibhav Agrawal Bhavesh Chauhan Sharan Lillaney V Srinivasan Yaresh Kothari Nitin Arora Ankita Somani Varun Varma Saurabh Taparia Rahul Kaul Vinay Rachh Amit Patil Shareen Batatawala Twinkle Gosar Tejashwini Kumari Technicals: Shardul Kulkarni Sameet Chavan Sacchitanand Uttekar Derivatives: Siddarth Bhamre Institutional Sales Team: Mayuresh Joshi Hiten Sampat Meenakshi Chavan Gaurang Tisani Akshay Shah Production Team: Simran Kaur Dilip Patel Research Editor Production simran.kaur@angelbroking.com dilipm.patel@angelbroking.com VP - Institutional Sales Sr. A.V.P- Institution sales Dealer Dealer Sr. Executive mayuresh.joshi@angelbroking.com hiten.sampat@angelbroking.com meenakshis.chavan@angelbroking.com gaurangp.tisani@angelbroking.com akshayr.shah@angelbroking.com Head - Derivatives siddarth.bhamre@angelbroking.com Sr. Technical Analyst Technical Analyst Technical Analyst shardul.kulkarni@angelbroking.com sameet.chavan@angelbroking.com sacchitanand.uttekar@angelbroking.com VP-Research, Pharmaceutical VP-Research, Banking Sr. Analyst (Metals & Mining) Analyst (Mid-cap) Analyst (Cement, Power, FMCG) Analyst (Automobile) Analyst (Infra) Analyst (IT, Telecom) Analyst (Banking) Analyst (Banking, Media) Analyst (Cap Goods, Real Estate) Research Associate Research Associate Research Associate Research Associate Research Associate sarabjit@angelbroking.com vaibhav.agrawal@angelbroking.com bhaveshu.chauhan@angelbroking.com sharanb.lillaney@angelbroking.com v.srinivasan@angelbroking.com yareshb.kothari@angelbroking.com nitin.arora@angelbroking.com ankita.somani@angelbroking.com varun.varma@angelbroking.com sourabh.taparia@angelbroking.com rahul.kaul@angelbroking.com vinay.rachh@angelbroking.com amit.patil@angelbroking.com shareen.batatawala@angelbroking.com gosar.twinkle@angelbroking.com tejashwini.kumari@angelbroking.com

Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE: INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946 Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302

May 23, 2012

27