indian banking sector - industry update report - feb 2011

8/6/2019 Indian Banking Sector - Industry Update Report - Feb 2011

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Indian Banking SectorIndustry Update

Prepared by:

AUM Capital Market Private Ltd.

Feb 2011


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AUM Capital Market Private LimitedIndian Banking Sector

Indian banking system remains the most dominant segment of the financialsector. As compared to the global peers, Indian banks continue to be well-regulated and have emerged stronger over the period of time. Setting anexample, State Bank of India (SBI) has become the first Indian bank to be rankedamong the Top 50 banks in the world, capturing 36th rank. The brand value of SBI increased from USD1.5 bln in 2009 to USD4.6 bln in 2010. ICICI Bank also

made it to the Top 100 list with a brand value of USD 2.2 bln.

In regards to the ratios as well, the Indian banking Industry stands at par withthe developed economies of the world and in line with the emerging ones. Itenjoys an above average Return on Equity of 15.1% (China 18.4%), Weak non-performing Loans as a ratio to loans of 9.7% (China 2.3%) and Strong CapitalAdequacy ratio of 13.2% (China 11.4%).

Table 1: Indian Banking Industry vis-a-vis Other Geographies Dec 2009 Particular ROE (%) NPL (%) CAR (%)

US 0.9 5.4 14.3UK 2.6 3.5 14.8Japan 4.7 NA 15.8France 8.2 3.6 12.4Germany 6.6 3.3 14.8Portugal 3.6 3.2 10.5Italy 1.5 7.0 12.1Greece 9.3 7.7 11.7Spain 20.4 5.1 12.2Brazil 4.9 9.0 18.8Russia 12.3 4.2 20.9India 15.1 9.7 13.2China 18.4 2.3 11.4

Indonesia 16.1 3.3 17.6Malaysia 10.8 3.7 15.4Philippines 9.5 4.1 15.8Thailand 12.8 5.3 15.8Mexico 0.9 3.1 15.9Source:RBI

Amit Baheti Industry Structure:Research Analyst Indian banking industry can be categorized into scheduled and non-scheduled

banks. Scheduled banks are the banks covered under the Reserve Bank of IndiaAct, 1934 and have a network of more than 65,000 branches. Scheduled banks

can further be segregated into other banks with Public, Private and Foreignbanks forming the major chunk of the industry. Public Sector Banks (PSBs)dominates the industry, accounting for ~75% of the total industry assets.Private Sector Banks and Foreign Banks contribute 18% and 7% respectively.

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Ajay BinaniResearch [email protected] + 91 98312 52939


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TaPaToPuNeOl

FoReLoCoSoTaInCaR&De

BoInAdSoFig

So FoWisse

CASA for SCBs stood ~35% in FY10 where as Advances to Deposits for the same stood at

74%

Public banks account for ~80% and ~75% of

the total scheduled banks deposits and

advances resp.

FDI in Public sector and Private sector banking

is capped at 20% and

74% resp.

AUM Cap

le 2: Total Banks in Indiarticulartalblic Sector Banksw Private Sector Banks

Private Sector Banks

eign Banksgional Rural Banksal Area Banks

-operative Banksrce: Business Standard le 3: Indian Banks Balance Sheet Snapshot (Marc

Rs. Cr. Public Banks Private Banks Forpital 13,544 4,549S 227,458 115,435posits 3,691,802 822,801emand 368,528 134,589aving 887,267 186,220erm 2,436,006 501,992

rrowings 313,814 148,803estments 1,205,783 354,117vances 2,701,300 632,494rce: RBI

ure 1: SCB Deposits & AdvancesSCB Deposits

rce: RBI

eign Direct Regulations:ile foreign investment in the public sector banks i

allowed up to 74% in the private sector. Howetor are subject to the following constraints: Limit of 10% for individual FII investment with

FIIs restricted to 24% - can be raised to 49%board or general body.

Limit of 5% for individual NRI portfolio inveslimit for all NRIs restricted to 10% - can bapproval of the board or general body.

Banking Regulation Act, 1949, states that noprivate banks is entitled to exercise voting rigtotal voting rights of all the shareholders of th

81%

18%1%

Public Private Foreign

18%

Publi

ital Market Private LimitedIndian Banking Sector

Number2,292

277

15

31854

2,123

2010)eign Banks SCBs

30,555 48,64838,584 381,477

237,853 4,752,45667,902 571,01936,427 1,109,914

133,524 3,071,52262,416 525,033

159,286 1,719,186163,260 3,497,054

SCB Advances

capped at 20%, the sameer, investment in private

the aggregate limit for allwith the approval of the

tment with the aggregateraised to 24% with the

person holding shares ints in excess of 10% of the

e bank.

75%

7%

Private Foreign


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Current environment -From Base rate to Benchmark Prime Lending Rate:The base rate is the lowest rate below which banks cannot offer loans. In orderto bring in more transparency, the base rate was introduced as a replacementfor the Benchmark Prime Lending Rate (BPLR) from July 1, 2010. Base Rates of scheduled commercial banks (SCBs) were fixed in the range of 5.50-9.00%.

Subsequently, several banks reviewed and increased their Base Rates in therange of 1050 basis points by October 2010. Base Rates of major banks,accounting for over 94% in total bank credit, are in the range of 7.50-8.50%.Banks have also raised their BPLRs in the range of 25-75 basis points for theirold loans.

The Cabinet, on December 1, 2010 approved to provide an additional amount of USD1.33 bln, in addition to the USD3.32 bln already provided in the Budget2010-11, to ensure Tier I CRAR (Capital to Risk Weighted Assets) of all PublicSector Banks (PSBs) at 7% and also to raise Government of India holding in allPSBs to 58%. The proposed capital infusion would enhance the lending capacityof the PSBs to meet the credit requirement of the economy in order to maintainand accelerate the economic growth momentum.

Figure 2: Banks Base Rate

Source: Company Report, As on Feb 02, 2011

9.50% 9.50%

9.00% 9.00%

8.50%8.25% 8.25% 8.25%

8.00%7.75%

7.00%

7.50%

8.00%

8.50%

9.00%

9.50%

10.00%

BOI PNB BOB Canara Fed AXIS ICICI Kotak SBI HDFC

The Base Rate systemreplaced the

Benchmark PrimeLending Rate (BPLR)system with effect from July 1, 2010.

The Cabinet, in Dec2010 provided an

additional amount of USD1.33 bln, inaddition to the

USD3.32 bln already provided in the Budget

2010-11, to ensure

Tier I CRAR of all Public Sector Banks(PSBs) at 7% and alsoto raise Government of India holding in all

PSBs to 58%.


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New Banking License: In a step towards strengthening and broadening of Indian Banking System,Finance Minister Pranab Mukherjee, in his Budget Speech for FY 2011,announced issuances of new banking licenses to private payers as well asNBFCs. India has 80 scheduled commercial banks (SCBs)27 public sectorbanks, 22 private banks and 31 foreign banks with a combined network of

over 65,000 branches.

With regard to the new licenses, RBI has recently published a paper on thediscussion of the same. Areas of concern thrown up for discussion are - theminimum capital requirements, promoter contributions, caps on promotershareholding, foreign equity participation, conversion of NBFC into Banks andfinally the business model for new banks. Below are the details regarding thesame:

Minimum Capital Requirement: Financial stability is the core requirement froma bank and so the new banks may need to have a capital base of more than Rs1,000 Cr. to meet the high investments in technology, operations and ensuringserines regarding the industry. On the other hand, NBFC/MFI sector may get apreferred lower start-up with capital of Rs 300 to Rs 500 Cr. RBI may alsoconsider giving restricted (traditional) banking licenses to about 20 new bankswith minimum capital of Rs. 50 Cr. and a capital to asset ratio of not less than15%.

Promoter Holdings: Promoters shareholding in the new banks may range fromas low as 30% to complete shareholding of 100%. Also, in order to ensure longterm interest and commitment from the promoters, the promoter may berequired to retain 5%-26% of the stake over a period of 5-10 years even afterdilution. Few other suggestions regarding promoters contribution includes

relating promoter contribution to capital (higher the capital higher promotercontribution) or promoters contribution with restrictions on voting rights.

Foreign shareholdings: As per the existing norms of foreign investments in thebanking sector, investments up to an extent of 74% are allowed collectivelyfrom FDI and FII. RBI is considering whether to continue the same norms for thenew banks.

Permitting conversion of NBFC into banks or promoting new banks: There hasbeen discussion on whether conversion from NBFC to Bank permission shouldbe given to NBFCs or should they be asked to promote new banks. While few

believe that NBFC should not be permitted due to difficulty in aligning itsbusiness model to banking or be asked to wind up the activities which banks cando, in a phased manner in order to eliminate the arbitrage opportunities due tothe lighter regulations in the NBFC sector, other industry associations weregenerally in favor of conversion or promotion of new banks by NBFCs.

In a step towards

strengthening and broadening of Indian

Banking System,Finance Minister

Pranab Mukherjee, inhis Budget Speech for

FY11, announced issuances of new

banking licenses to private players and

NBFCs.

Issues to discuss on

new licences (RBI):Minimum Capital

Requirement,Promoter Holding,

Foreign Shareholding, Conversion of NBFC

into banks, Industrial hand in banking

industry, Businessmodel.


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Inindbaa sof m

thhoof exotse

BuvieindRutrafur

RaSRliccoKoBa

Implamincstrbe

NBFCs like Indiabulls,Reliance Capital,

Religare, IL&FS, IDFC,SREI Group and AdityaBirla Financial Servicesare likely to apply for

bank licences after the

RBI norms are in place.

RBI has been cautious

about entry of industrial houses intobanking industry and is reluctant to issue

unrestricted banking

license to them.

AUM Cap

ustrial hand in banking industry: RBI has beenustrial houses into banking industry and is reluc

nking license to them. Supporting them are otherignificant capital base, financial license and industconnected lending. Self controlled banks may ltives of the respective industries and individual ins

banking sector. Not only this, issue of licenseuses may lead to further wealth concentration in f concern with the country). Allowing industrial hcerbate the concentration of economic power ander hand, pros from inclusion of industrial housesof players, established scale of operations and lar

siness Model: In regard to the business model, indw to grant licenses to new players without austries (be it real estate or telecommunication)ral). Another interesting discussion was to issueditional banking for the initial phase (say 3-5 yearther based on the performance and scenario.

ce participants: NBFCs like Indiabulls, Reliance CaEI Group and Aditya Birla Financial Services arences after the RBI norms are in place. NBFCs thatverted into banks were Kotak Mahindra Finance

tak has diversified into financial services, 20th Cnk; it was taken over by PE investors and eventuall

pact on industry & common man: As in any othyers shall lead to decreased cost of funds for crgins for banks. In order to maintain the marketrease the deposit rates or need to capture markeategy such as giving more & better services thenmade regarding the consolidation in the banking in

Positives Neg

Unhap

ConnLen

Wecreatfew

SignificantCapital Base

ExperiencedPlayers

Eashtablishedset of

Operations

ital Market Private LimitedIndian Banking Sector

cautious about entry of tant to issue unrestrictedanks of the country. With

rial activity can lead to lotead to concentration ontead of required growth in

s to established industryw hands (already an areaouses to own banks willpolitical influence. On theay mean an experienced

e capital base.

stry association are of theny restriction to specificor geography (Metros orlicense to banks only fors), and relaxing the norms

ital, Religare, IL&FS, IDFClikely to apply for bankere earlier allowed to be

nd 20th Century Finance.entury became Centurionmerged with HDFC Bank.

er business, entry of newnsumers and diminishing

share, companies have tot with different marketingbefore. No comments candustry.

tives

py Past

ectinging

althon inands


7/17


Teaser Loans tweaksTeaser loans are the loans in which Interest rate is lower for the initial periodand rises gradually after a stipulated period of time. Banks have recently usedthis technique to increase its home/auto loan credit portfolio. However, themove is restricted by RBI suspecting a risk in the increase in defaults bycustomer when exercised by the increase in interest rates at later part of the

loan payment schedule. (Quite similar to the reasons behind recent Crisis in US).RBI has put the following limitations on the home loans and teaser ratesborrowing:

Loan-To-Value (LTV) Ratio Cap: LTV ratio is the ratio to which loans are allowedas a percentage of property value to the customers. Banks and housing financecompanies are financing loans for more than 90% with minimum equity fromthe customers side. RBI has caped this rate at 80% for the buyers. Similarly, LTVfor loans with a value less than Rs 20 lakhs has been capped at 90%.

Impact on banks: While a feeling of losing the customer base may be inthe air, but not much impact is expected as the equity portion willincrease by 5-10% only.

Impact on consumers: Property buyers need to pay more as downpayment than before in case of buying their dream home. However, theidea may postpone, but not eliminate.

Increase in risk weight: In addition to the above mentioned increase in LTVRatio, risk weight for loans above Rs 75 lakhs has been increased by 25% to125% (100% previously).

Impact on banks: Banks will now have to increase their CAR in terms of value. Banks which were giving a weight of 100% to the loans above Rs75 lakhs (say 1 Cr.), had to keep Rs. 9 lakhs as value in CAR in order tomaintain the 9% CAR requirement by RBI. The same banks will have to

keep Rs 11.25 lakhs as a result of increase in the risk weight to 125% byRBI.

Impact on consumers: Consumers may have to shell more as marginmoney and also on the interest rate as increase in the risk weight maylead banks to charge higher interest rates than earlier.

Teaser Loan Provisioning: Standard asset provisioning for teaser loans has beenincreased to 2% by the RBI.

Teaser loans are theloans in which Interest

rate is lower for theinitial period and rises

gradually after astipulated period of

time.

Changes in the Loan-To-Value (LTV) RatioCap, Increase in risk Weight and Teaser

Loan Provisioning by RBI


8/17


Deregularation of Savings Account to be or not to beIn another step towards the banking sector reforms in the country, RBI recentlyopened door for discussion on deregulation of interest rates on savings bank (SB)account. Interest rate on savings bank deposits has remained unchanged at 3.5%p.a since March 2003 and is as on date regulated by RBI. Once deregulated, the SBrates could fluctuate wildly, depending on the liquidity situation. If call money

rates shoot up, SB rates would go up, and vice versa. The ostensible reason for RBIcontrol was that that the SB deposit rate would be a signaling rate. Anotherreason was that the rate SB accounts account for one-fourth of total deposits andany increase in the deposit rate could adversely affect the bottom-line of banks.With the Consumer Price Index (CPI) showing a year-on-year increase of 13-14%and the Wholesale Price Index (WPI) an increase of more than 10%, a 3.5%interest rate on SB accounts seems to meagre.

Few of the options in news for RBI to initiate a change in the SB accounts rate are: The present daily product basis for calculating the interest on savings bank

accounts should be limited to Rs 2 lakh on any single day. In order to encourage movement to current account from savings

account, the total debits and credits in SB account can be limited to 52entries p.a and excess entries subject to heavy charges.

Let 3.5% be the minimum rate rather then it being a fixed rate. Freedom with the banks to offer higher rates with tight and regular

handling from RBI

Impact on banks Current account and Savings account (CASA) form integral partof the banking industry. It represents the banks ability to generate funds at alower costs (as very less interest is paid on savings account i.e. 3.5% and nointerest on current accounts) resulting into higher interest margins. Withdegulation in almost all the interest rate instruments, banks may not be happy

with the RBI move on Savings account interest deregulation. This may generateunhealthy competition in the industry resulting into lower margins andprofitability. Bankers, especially from the public sector, are against deregulation of savings bank (SB) deposit rates.

However, all banks will not be affected with this deregulation. Banks like Axis Bankand HDFC Bank which have higher current account deposits (Rs 37,227 Cr and Rs32,168 Cr resp.), will not have an affect on their margins as such. Where as otherbanks such as Bank of India and Canara Bank which already have a lower currentaccount deposits (Rs 18,386 Cr and Rs 15,887 Cr resp.) shall get maximum hit.

Also, Foreign banks, due to limited branch network, rely heavily on the call moneymarket to lend. Bankers say these banks could go overboard by quoting higherinterest rates on SB deposits once the rate is deregulated.

Impact on consumers While the chances of decrease in the interest rates in SBaccount exists, the probability seems low with the rising competition from privateand especially foreign banks. This may lead to better then previous interestearnings to the consumers at the cost of instability and uncertainty over longterm.

Interest rate onsavings bank deposits

has remained

unchanged at 3.5% p.a since March 2003

and is as on date

regulated by RBI.

Deregulation of Savings Account will not have significant

impact on bankswhich have higher

percentage allocationto Current account

such as HDFC and Axis

Bank


9/17


Table 4: Comparison of Saving and Current account deposits of banks March 2010Banks (Rs. Cr.) Deposits Savings Current CASA Term

SBI 804,116 257,460 122,579 380,040 424,076ICICI 202,017 53,218 30,998 84,216 117,801HDFC 167,404 49,877 37,227 87,104 80,301

AXIS 141,300 33,862 32,168 66,030 75,271Fed 36,058 7,611 1,602 9,213 26,616PNB 249,329 78,132 23,718 101,850 147,479Canara 234,651 49,875 18,386 68,261 166,390Kotak 23,886 2,471 4,992 7,463 16,423

% Data Deposits Savings Current CASA TermSBI 100% 32% 15% 47% 53%ICICI 100% 26% 15% 42% 58%HDFC 100% 30% 22% 52% 48%AXIS 100% 24% 23% 47% 53%Fed 100% 21% 4% 26% 74%PNB 100% 31% 10% 41% 59%Canara 100% 21% 8% 29% 71%Kotak 100% 10% 21% 31% 69%

Source: Company Filings


10/17


Increase in Fee-Based Income In order to maintain the profit margins at the time of intense competition and aslow growth market, banks have gone thinking out of the box and focused onother income considering fee income and cross-selling opportunities. Fee Basedincome of banks includes:

Brokerage business

Insurance sales Asset management services Trust services ATM use and electronic services

Marketing products like mutual funds and insurance policies, offering credit cardsto suit different categories of customers and services such as wealth managementand equity trading, are proving to be more profitable for banks than plain vanillalending and borrowing. As retail income continues to grow, there is immenseopportunity for banks to raise fee-based income. Private banks are leading therace in the Fee Income. Axis bank and ICICI bank generates almost one fourth of their total income from fee business.

Figure 3: Composition of Fee Income in Total Income March 2010


As lending and deposit-gathering have grown increasingly competitive, profitmargins have narrowed. Banks like the reliable (and profitable) streams of feeincome that nontraditional banking activities such as money management andinsurance product sales generate. Going further, banks are set to see a rise in fee-based income, as interest income continues to be under pressure and profits fromtrading keep declining.

25%

23%

19%17%

16%14% 14%

13% 13% 13%

0%

5%

10%

15%

20%

25%

30%

AXIS ICICI HDFC SBI Kotak BOB PNB Canara BOI Fed

In order to maintainthe profit margins at the time of intense

competition and aslow growth market,

banks are focusingmore other incomeconsidering Fee-

based income

Axis bank and ICICIbank generates almost

one fourth of their total income from fee

business


11/17


RBI Monetary PolicyIn a move to control the unabated Inflation, RBI, though slowly but constantly hasbeen trying to tighten its monetary policy through fluctuations in the lending anddeposit rates i.e. repo and reverse repo rates and other regulatory requirementsi.e. CRR and SLR. Repo rate is the rate at which RBI lends money to commercial

banks and Reverse Repo is the rate at which RBI borrows money from them, whileCRR is the minimum cash balance to be deposited by banks with RBI and SLR isthe minimum required investment in the government securities by banks. Inorder to tame inflation, RBI had raised the repo rate, reverse repo rate by 175 bpsand 225 bps respectively in the past 11 months. Nevertheless, unable to tameinflation, RBI in its Third Quarter Review of Monetary Policy 2011 increased thetargeted inflation for FY 11 from 5.5% to 7.0%. RBI has maintained the real GDPgrowth rate forecast for FY 11 at 8.5%.

Figure 4: Projection of GDP Growth for 2010-11

Figure 4: Projection Path of Y-o-Y Inflation

Source: RBI

As a result of the above, loans seekers may have to pay higher EMIs anddepositors can earn a better interest on their savings. The interest rates on home,auto and corporate loans have gone up by about 2 % during the course of theyear. The increase in lending rate was matched by a similar increase in interestrate on fixed deposit. While interest rate on auto and home loans ranges between8 to 11 %, the depositors can earn up to 8-9 %.

RBI had raised therepo rate, reverse repo

rate by 175 bps and 225 bps respectively in

the past 11 months

Loans seekers may have to pay higher

EMIs and depositorscan earn a better

interest on their savings.


12/17


Banks on the other hand were initially silent and reluctant to increase theirdeposit / interest rates with a fear of losing the market share, but had tosurrender after further hardening of interest rates by RBI. Most of the banksincluding HDFC Bank, State Bank of India, Punjab National Bank, Bank of Baroda,Bank of India, Oriental Bank of Commerce and Canara Bank raised their interestrates as well as lending rates accordingly. Upward movement in the interest rates

still continues as many banks have further raised deposit and lending rates in lateDecember as well. Interest rates are expected to harden further in the comingyear as there seems to be mismatch between credit and deposit growth.

Figure 6 : Repo and Reverse Repo Rate for period June 2008Dec 2010

Source: RBI

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

Repo rate Reverse Repo rate

Most of the banksincluding HDFC Bank,State Bank of India,

Punjab National Bank,Bank of Baroda, Bank of India, Oriental Bank

of Commerce and Canara Bank raised their interest rates

recently.


13/17


Outlook:Strong loan growth expected to continue:Banking sector has witnessed a commendable loan growth (~20%) for the recentperiod. This momentum is expected to continue on the basis of increasing capitalrequirement from corporates both due to higher inflation and increasingeconomy environment leading to production demand.

Stable economy, but rising inflation:While the economy has been growing notably, same is the prices for goods andcommodities. Unable to peg the inflation, RBI in its third quarter review formonetary policy in Feb 2011, revised its WPI inflation targets for FY 2011 from5.5% to 7.0%.Deposit growth The core area of concern:Interest rate, Inflation, RBI policies etc have always been an area of concern forbanks. But this time the focus needs to be changed. While banks have beensuccessful in maintaining the credit growth rate, where they need to look forwardis the the widening gap between the loan and deposit rates. The FY11 9 monthdata for banks show that loan to deposit ratio for banks have been quite highrecently.

Adding to this is the tenure gap between the tenure of loans and deposits. Whilethe maturity of deposits has come down substantially, tenure for lending needsfinancing for a longer term (say infrastructure projects). Depositors are parkingmoney for a shorter tenure of less than two years while average maturity of infraand home loans is 5-10 years. Banks with higher CASA such as HDFC Bank and SBIbank, have a negative ranking here as CASA depositers are for a shorter period of time and money can be withdrawn anytime.

Q4 11 will be the period for banking to redress their balance sheets. Banks y-o-yloan growth was 24% in 2010 as against 20% projected by RBI for FY2011, while

deposits lagged behind at 16.5% versus a projection of 18%. Banks may dress upbooks by attracting short-term bulk deposits matching the maintained loangrowth rates, depositors can look forward for another good quarter with fewbasis points increase in the deposit rates.

RBI in its third quarter review for monetary policy in Feb 2011,

revised its WPIinflation targets for FY

2011 from 5.5% to

7.0%.

Banks y-o-y loangrowth was 24% in

2010 as against 20% projected by RBI for

FY2011, while depositslagged behind at

16.5% versus a projection of 18%.


14/17


Comparison of Q3 2011 results with Q3 2010 results

Table 5: 2011 Third Quarter ResultsState Bank of India ICICI Bank

Particular (Rs Cr.) Q3 2010 Q3 2011 Particular (Rs Cr.) Q3 2010 Q3 2011Borrowings NA NA Borrowings 91,829 105,327

Deposits 770,985 878,979 Deposits 197,653 217,747Investments NA NA Investments 123,409 133,703Advances 607,154 739,971 Advances 179,269 206,692Total Income 21,145 24,726 Total Income 3,731 4,061NII* 6,316 9,050 NII* 2,058 2,312Net Profit 2,479 2,828 Net Profit 1,101 1,437EPS (Rs) 39.05 44.54 EPS (Rs) 9.84 12.48Ratios (%) Ratios (%)Net NPA 1.8% 1.6% Net NPA 2.1% 1.1%CAR 13.7% 13.1% CAR 19.4% 19.9%

Bank of Baroda Bank of IndiaParticular (Rs Cr.) Q3 2010 Q3 2011 Particular (Rs Cr.) Q3 2010 Q3 2011Borrowings 12,296 18,815 Borrowings NA NADeposits 215,117 281,511 Deposits 206,001 252,525Investments 57,490 71,837 Investments 645,214 672,539Advances 156,171 207,208 Advances 156,953 192,753Total Income 4,836 6,342 Total Income 5,057 6,115NII* 1,601 2,292 NII* 1,494 1,986Net Profit 832 1,068 Net Profit 405 653EPS (Rs) 22.85 29.34 EPS (Rs) 7.72 12.44Ratios (%) Ratios (%)Net NPA 0.3% 0.3% Net NPA 1.0% 0.8%CAR 14.6% 12.4% CAR 13.6% 12.4%

HDFC Bank Axis Bank Particular (Rs Cr.) Q3 2010 Q3 2011 Particular (Rs Cr.) Q3 2010 Q3 2011Borrowings 14,008 13,435 Borrowings 16,010 25,595Deposits 154,788 192,201 Deposits 113,853 155,811Investments 64,082 63,013 Investments 49,273 596,22Advances 119,613 159,183 Advances 84,769 123,547Total Income 4,933 6,357 Total Income 3,871 4,986NII* 2,223 2,776 NII* 1,349 1,733Net Profit 818 1,087 Net Profit 656 891EPS (Rs) 18.70 23.50 EPS (Rs) 16.29 21.77Ratios (%) Ratios (%)

Net NPA 0.5% 0.2% Net NPA 0.4% 0.2%CAR 18.3% 16.3% CAR 16.8% 12.4%*NII is Net Interest Income


15/17


Table 6: 2011 Third Quarter ResultsFederal Bank Punjab National Bank

Particular (Rs Cr.) Q3 2010 Q3 2011 Particular (Rs Cr.) Q3 2010 Q3 2011Borrowings 584 2,166 Borrowings NA NADeposits 34,587 36,913 Deposits 233,946 288,873

Investments 12,521 13,146 Investments 739,98 883,78Advances 26,029 28,240 Advances 170,427 186,601Total Income 1,061 1,143 Total Income 6,236 7,976NII* 381 447 NII* 2,212 3,203Net Profit 110 143 Net Profit 1,011 1,089EPS (Rs) 25.78 33.47 EPS (Rs) 32.07 34.56Ratios (%) Ratios (%)Net NPA 0.5% 0.8% Net NPA 0.4% 0.7%CAR 18.5% 16.4% CAR 14.5% 11.9%

Canara Bank Kotak bankParticular (Rs Cr.) Q3 2010 Q3 2011 Particular (Rs Cr.) Q3 2010 Q3 2011Borrowings 8,818 12,079 Borrowings 8,004 9,703Deposits 210,093 263,496 Deposits 22,200 28,300Investments 70,281 79,268 Investments 12,707 14,286Advances 147,411 189,881 Advances 21,400 28,900Total Income 5,469 6,444 Total Income 968 1,300NII* 1,477 2,119 NII* 486 571Net Profit 1,052 1,105 Net Profit 142 187EPS (Rs) 25.67 26.97 EPS (Rs) 2.05 2.56Ratios (%) Ratios (%)Net NPA 1.3% 1.0% Net NPA 2.1% 0.8%CAR 14.4% 13.0% CAR 17.0% 18.6%* NII is Net Interest income


Figure 7: Peer Group Valuation Price/Book Value Comparison

Source:Prices as on Feb 05, 2011 from NSE Book Value as on Feb 05, 2011 from Company Filings and BSE, on a standalone basis

3.7x

2.7x 2.5x 2.3x 2.2x 2.2x1.7x 1.6x 1.6x

1.2x

0.00.51.0

1.52.02.53.03.54.04.55.0

HDFC AXIS Kotak SBI ICICI BOB PNB BOI Canara Fed


16/17


Figure 8: Annual Resutls Comparison March 2010CASA Ratio (%) Net Interest Margin (%)

Capital Adequecy Ratio (%) Provision Coverage (%)

Operating Cost to Income Ratio (%) Return on Equity (%)

Non-Performing Assets* (%) Retun on Assets (%)

Operating Cost to Income (%) Yield on Advances (%)


52.046.7 46.6

41.7 40.835.6

31.7 29.826.0

20

30

40

50

60

HDFC AXIS SBI ICICI PNB BOB BOI CAN FED

4.3 3.9 3.8 3.72.8 2.7 2.6 2.5 2.5

0

2

4

6

8

HDFC PNB FED AXIS CAN BOB SBI ICICI BOI

19.417.4 17.2

15.814.1 13.4 13.3 12.9 12.9

10

12

14

16

18

20

ICICI HDFC FED AXIS PNB CAN SBI BOB BOI

86.878.4 77.7 74.9 72.3

65.559.5 59.2 58.3

50

60

70

80

90

100

PNB HDFC CAN BOB AXIS BOI ICICI SBI KOT

52.547.3 43.8 43.5 41.4 40.7 39.3 37.0 34.8

10

30

50

70

SBI HDFC BOI BOB AXIS CAN PNB ICICI FED

24.522.1

19.8 18.2 16.814.8 13.4

10.37.9

5

10

15

20

25

30

PNB BOB AXIS KOT HDFC SBI CAN FED ICICI

2.101.70

1.301.00

0.50 0.40 0.30 0.30 0.30

0.0

1.0

2.0

3.0

ICICI SBI BOI CAN PNB FED HDFC AXIS BOB

1.60 1.50 1.40 1.30 1.20 1.10 1.100.80 0.70

0.0

0.5

1.0

1.5

2.0

AXIS HDFC PNB CAN BOB FED ICICI SBI BOI

52.547.3

43.8 43.541.4 40.7 39.3

37.034.8

30

35

40

45

5055

SBI HDFC BOI BOB AXIS CAN PNB ICICI FED

10.29.6

8.7 8.5 8.47.9 7.8 7.5

6

8

10

12

FED SBI AXIS BOB BOI ICICI PNB CAN


17/17


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