India Banking Trends

INSTITUTIONAL EQUITY RESEARCH

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker‐dealer unregistered in the USA. PHILLIPCAP research is prepared by research analysts who are not registered in the USA.PHILLIPCAP research is distributed in the USA pursuant to Rule 15a‐6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities Inc, an SEC registered and FINRA‐member broker‐dealer.

India Banking Trends Q3FY19 results review: A step forward towards normalized credit cost INDIA | FINANCIAL | QUARTERLY UPDATE

11 February 2019

• Strong recovery during the quarter (+42% qoq) endorses our view that the asset‐quality cycle is transitioning from decline to an early phase of recovery (Click here). Recoveries were primarily granular in nature despite the absence of any major resolution under NCLT (except for Uttam Galva and Binani Cement). Slippages declined qoq by 7% and 12% below our estimate, including slippage of IL&FS accounts. As most banks have already classified holdco exposure of IL&FS as NPAs, we would expect slippages to continue falling. Credit cost declined by 100bps qoq to 1.72% that too after banks increased their provisions coverage and accelerated provisioning. Going forward, we would expect credit cost to continue normalizing as slippages decline and as most banks have comfortable provision coverage. We would expect strong recovery as a few major accounts are in the last stages of resolution.

• Better performance by public banks: Banks' earnings under our coverage outperformed by 9% mainly because of higher NIIs (better NIMs) and lower provisions (lower slippages). This was slightly offset by higher opex (employee cost on higher retirement benefits). The outperformance was predominant in public banks, which reported 27% better profit compared to our estimates. This was mainly due to lower provisions on lower slippages and writeback of investment provisions (lower GSec yields). Corporate banks saw 17% better PAT vs. our estimates, mainly due to strong performance by public banks (+27% vs. our estimates) on strong NII and lower provisions. Retail banks’ PAT was in line with our estimates.

• NBFC: The operating performance for most of the NBFCs under coverage remains weak (except Mahindra Finance/Cholamandalam Finance‐AUM growth at 6% qoq vs. decline for other NBFCs) as they curtailed growth so as to maintain sufficient liquidity position. While some of the NBFCs were not able to borrow from the markets post September but the one with strong parentage were able to borrow albeit at a higher cost, which impacted margins. While liquidity situation has eased out over the last 2 months, smaller NBFCs are still finding it difficult to raise resources, hence giving away market share to stronger NBFCs like Cholamandalam, and Mahindra Finance. While underlying vehicle demand across categories like two wheeler, Cars, Utility vehicles, Commercial vehicles remain subdued, we believe market share gain will help to support growth in the near term. Cholamandalam Finance remains our preferred pick.

• Key catalyst for 4QFY19: We believe these would be: (1) Details about IL&FS’ resolution, (2) Recoveries in NCLT cases as quite a number of cases are at the last stages of resolution, (3) fresh round of stress from some of the large corporate accounts such as DHFL, Jet Airways, Reliance Infra and Reliance Power, and (4) last tranche of government’s capital infusion into PSUs.

• Top picks in banking: We prefer banks with high CASA and strong liquidity positions. ICICI Bank, IndusInd, SBI, DCB, HDFC Bank, Axis and Kotak Mahindra Bank provide a strong liability franchise with sturdy LCRs.

Profit for the banks under our coverage were better than expectation on higher NII and lower provisions slightly offset by higher opex

Source: PhillipCapital India Research;

Manish Agarwalla (+ 9122 6246 4125) [email protected] Sujal Kumar (+ 9122 6246 4114) [email protected] Pradeep Agrawal (+ 9122 6246 4113) [email protected]

100% 109%11% 1%

18%

22%

8%

0%

50%

100%

150%

PAT‐3Q19E NII Non NII Opex Provision Tax PAT‐3Q19A

Page | 2 | PHILLIPCAPITAL INDIA RESEARCH

BANKING AND FINANCIAL SECTOR UPDATE

Public banks outperformed vs. estimates on lower provisions. Retail/Private banks were in line Corporate banks’ PAT was 17% better than our estimate on better NIIs (strong credit growth and higher NIMs) and lower provisions, partly offset by higher opex (employee expenses on higher retirement benefits). Retail banks’ PAT was in line with estimates

Corporate Retail

Private banks under our coverage reported 4% better PAT compared to our estimates on higher trading income. Public banks under our coverage reported strong performance with 27% better PAT vs. our estimates. Higher NII and lower provisions were partly offset by higher opex and lower non‐NII income

Private Public

Source: PhillipCapital India Research

100%

117%24%

7%

30%

43% 14%

0%

20%

40%

60%

80%

100%

120%

140%

PAT‐ 3Q19E NII Non NII Opex Provision Tax PAT‐3Q19A

100% 100.3%1.9% 9.6%

5.1%0.3% 2.6%

0%

20%

40%

60%

80%

100%

120%

140%


100% 104%3% 14%

8%5%

0%

40%

80%

120%

160%

PAT‐3Q19E NII Non NII Opex Provision PAT‐3Q19A

100%

127%35%

36%

46%

101%

27%

0%

40%

80%

120%

160%




Year on Year: Retail banks continue to show stable growth; corporate banks grew on lower base Retail banks under our coverage reported 19% yoy growth in PAT, while corporate banks saw 522% increase PAT on lower base

Corporate Retail

Private banks saw 21% PAT growth yoy mainly on higher NII (strong credit growth and stable NIMs). Within private banks, retail banks saw 19% PAT growth (higher income offset by higher provisions and opex). Public banks reported stable operating profit growth as higher NII was offset by lower other income and higher opex

Private Public (Pre‐Provision operating profit)


100%

522%426%

6%

319%

822%

501%

0%

200%

400%

600%

800%

1000%

1200%

PAT‐ 2Q18 NII Non NII Opex Provision Tax PAT‐3Q19

100%

119%

49%

19%

24%15%

10%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

PAT‐3Q18 NII Non NII Opex Provision Tax PAT‐3Q19

100% 121%

60%

28%

32%20%

15%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

PAT‐3Q18 NII Non NII Opex Provision Tax PAT‐3Q19

100% 103%

21%

7%

17%

0%

20%

40%

60%

80%

100%

120%

140%

PPOP‐3Q18 NII Non NII Opex PPOP‐3Q19



Sector Trend Credit growth: Credit growth for both private and public banks continued to remain stable. Growth mainly came from services (NBFCs), retail, and MSME corporate loans continued to remain weak although better than previous quarters mainly driven by loans to PSUs

Deposit growth: Private banks reported strong deposit growth (driven by term deposits). Deposit growth for public banks remained stable

Advances Growth Deposit Growth

Net interest margins of both public and private banks increased, as benefits of higher MCLR started coming in, resulting in higher loan yields. NIMs for public banks increased mainly because of recoveries, resulting in interest reversal. Cost‐to‐income ratio remained stable

NIM (NII / average interest‐earning asset) Cost‐to‐income ratio


‐5%

0%

5%

10%

15%

20%

25%

Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19

Private Public

0%

5%

10%

15%

20%

25%


Private Public

4.0%

2.7%3.2%

4.1%

2.9%3.4%

0%

1%

2%

3%

4%

5%

Private Public Overall

Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19

30%

35%

40%

45%

50%

55%

60%

65%

70%





Credit cost, GNPA ratio, and slippages continue to decline, showing early signs of the credit‐cost cycle normalising

Credit cost (provisions/average loan) GNPA ratio Slippages as a % of average loans


PNB, Union, and Syndicate have highest GNPA and NNPA ratios while IndusInd, HDFC, and RBL have lower ones

Bank‐wise GNPA ratio (3QFY19) Bank‐wise NNPA ratios (3QFY19)

Source: Company Reports, PhillipCapital India Research

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Q1FY17 Q3FY17 Q1FY18 Q3FY18 Q1FY19 Q3FY19


2.9%

9.3%

7.1%

4.4%

10.9%

8.2%

0%

2%

4%

6%

8%

10%

12%

14%


Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18

Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Q1FY17 Q3FY17 Q1FY18 Q3FY18 Q1FY19 Q3FY19Private Public Overall

0%

4%

8%

12%

16%

20%

PNB

Union

Synd

icate

BOB

Canara SBI

ICICI

Indian

Vijaya

Axis

Karnataka

Fede

ral

Band

han

Yes

Kotak

DCB

RBL

HDFC

Indu

sInd

0%

2%

4%

6%

8%

10%

Union

PNB

Synd

icate

Canara

Indian

BOB

Vijaya SBI

Karnataka

ICICI

Axis

Fede

ral

Yes

RBL

Kotak

DCB

Band

han

Indu

sInd

HDFC



IL&FS exposure NBFC exposure Private banks

Axis Total Rs 8.0bn exposure (Fund Based: Rs 2.5bn is NPA); provided 20% for fund‐based exposure. Rs 5.5bn non fund based exposure is part of BB and below vulnerable book.

ICICI Primarily to EPC company and non fund in nature. Account is already downgraded to BB and below.

IndusInd Exposure to holding entity: Rs 20bn. Operating entity: Rs 10bn. Holdco exposure is 30% provided and plan to take this to 50% by 4Q19

Yes Total exposure of Rs25.2bn towards IL&FS of which banks has recognized Rs19.1bn as NPA (25% provided) on remaining Rs6.2bn bank has provided 15% standard provisioning

Public banks

BoB Total exposure of Rs 46.7bn. Exposure to Parent (Rs 11.6bn) slipped to NPA in 3Q19. Provision is as per IRAC norms (20%)

Canara Rs 25bn spread over 13 accounts; out of this Rs 19bn has slipped in to NPATotal provision on these are Rs 4.1bn

Indian Total exposure Rs 17.1bn (NPA: Rs 0.9bn; standard: Rs 7.6bn); provided Rs2.5bn.

SBI Total exposure Rs 40bn (holdco Rs 0.9bn; ITNL Rs 1.5bn; balance to SPVs).Holdco exposure has slipped to NPA with 50% provided

Key Catalyst for 4QFY19 IL&FS: Most of the banks have recognised holdco exposure of IL&FS as NPA, SPVs exposure are still standard. If no resolution is reached these exposure will also slip to NPA Capital infusion: Final round of capital infusion is expected to finalise in 4QFY19. Banks are likely to get growth capital in this round for expanding their lending, particularly MSMEs. The government had announced Rs 2.11tn of capital infusion in October 2017. According to the plan, PSBs were to get Rs 1.35tn through re‐capitalisation bonds and the rest Rs 580 bn by raising capital from the market. Recoveries: Resolution of some of the large accounts under NCLT and Samadhan (power) could result in higher recovery in 4QFY19. Some of the major accounts, which are at the last stage of resolution under NCLT are Essar Steel and Bhusan Power & Steel. Some of the power accounts that could see recovery are SKS power and Prayagraj

0%

5%

10%

15%

20%

25%

BOB

Karnataka

Union

Canara

Indian SBI

ICICI

Yes

HDFC

Kotak

Indu

sInd Axis

RBL

NBFC HFC



Bank‐wise performance vs. estimates NII Non NII Total Operating Income

Opex Pre Provision Profit Provision

Source: Company reports, PhillipCapital India Research; *excluding stake sale by SBI

‐8%

‐6%

‐4%

‐2%

0%

2%

4%

6%

8%

10%

12%

Canara

BOB

PNB

Axis

Yes

SBI

Kotak

ICICI

DCB

HDFC

Indu

sInd

Indian

MissBeat

‐40%

‐30%

‐20%

‐10%

0%

10%

20%

30%

40%

Axis

HDFC

DCB

Indu

sInd

BOB

ICICI

PNB

Indian SBI

Canara

Kotak

Yes

MissBeat

‐15%

‐10%

‐5%

0%

5%

10%

15%

20%

Axis

BOB

ICICI

DCB

HDFC

PNB

Indu

sInd

Canara SBI

Kotak

Indian Yes

MissBeat

‐6%

‐4%

‐2%

0%

2%

4%

6%

8%

10%

SBI

ICICI

Axis

Indu

sInd

Kotak

PNB

Canara

BOB

HDFC

Indian

DCB

Yes

Miss Beat

‐20%

‐15%

‐10%

‐5%

0%

5%

10%

15%

20%

25%

30%Ax

is

DCB

BOB

HDFC

ICICI

PNB

Canara

Indu

sInd Yes

Indian SBI

Kotak

MissBeat

‐120%

‐100%

‐80%

‐60%

‐40%

‐20%

0%

20%

40%

BOB

HDFC

ICICI

DCB

Axis

Indian

Canara

PNB

Indu

sInd SBI

Yes

Kotak

Miss Beat



PBT PAT NIM

GNPA NNPA Slippages

Source: Company reports, PhillipCapital India Research

‐60%

‐40%

‐20%

0%

20%

40%

60%

Axis

SBI

DCB

Indu

sInd Yes

Canara

HDFC

Kotak

BOB

ICICI

Indian

MissBeat

‐80%

‐60%

‐40%

‐20%

0%

20%

40%

60%

Axis

SBI

Canara

DCB

Yes

Indu

sInd

HDFC

Kotak

ICICI

BOB

Indian

MissBeat

‐4

‐2

0

2

4

6

8

10

12

Canara

Kotak

Axis

BOB

PNB

DCB

SBI

ICICI

Yes

HDFC

Indian

Indu

sInd

MissBeat

‐8%

‐6%

‐4%

‐2%

0%

2%

4%

6%

Indian

Indu

sInd

DCB

HDFC

PNB

Axis

BOB

Kotak

Canara

ICICI

SBI

Miss Beat

‐50%

‐40%

‐30%

‐20%

‐10%

0%

10%

20%

30%

40%

Indu

sInd

Indian

Axis

PNB

Canara

HDFC

DCB

SBI

BOB

Kotak

ICICI

Yes

Miss Beat

‐60%

‐40%

‐20%

0%

20%

40%

60%

80%

Indu

sInd

Canara

DCB

Axis

Indian

HDFC

BOB

PNB

ICICI

SBI

Yes

Miss Beat



Advance Deposit


‐4%

‐2%

0%

2%

4%

Indu

sInd Axis

SBI

Kotak

HDFC

Indian

ICICI

BOB

Canara

Yes

DCB

PNB

MissBeat

‐6%‐4%‐2%0%2%4%6%8%10%12%14%16%

Axis

ICICI

Indu

sInd

PNB

Indian

Canara

HDFC

DCB

SBI

Kotak

BOB

Yes

MissBeat



Bank‐wise sequential performance (qoq) NII Non NII Total Operating Income



‐15%

‐10%

‐5%

0%

5%

10%

15%

20%

Canara

RBL

Yes

Kotak SBI

PNB

ICICI

Axis

HDFC

BOB

Fede

ral

Karnataka

Band

han

DCB

Indu

sInd

Synd

icate

Vijaya

Indian

Union

‐50%‐40%‐30%‐20%‐10%0%10%20%30%40%50%60%

Karnataka

Axis

DCB

Synd

icate

ICICI

HDFC

Union

BOB

RBL

Indu

sInd

Fede

ral

PNB

Indian

Band

han

Vijaya SBI

Canara

Kotak

Yes

‐15%

‐10%

‐5%

0%

5%

10%

15%

20%

25%

Axis

Karnataka

ICICI

RBL

HDFC

DCB

BOB

Synd

icate

PNB

Indu

sInd

Canara

Fede

ral

Band

han

SBI

Kotak

Indian

Vijaya

Union Yes

‐5%

0%

5%

10%

15%

20%

25%

30%

Karnataka

Union RBL

Canara SBI

Fede

ral

Kotak

Synd

icate

Indu

sInd Axis

HDFC

ICICI

PNB

Band

han

Indian Yes

DCB

BOB

Vijaya

‐20%

‐10%

0%

10%

20%

30%

40%Ax

isDC

BICICI

BOB

HDFC

Karnataka

Synd

icate

RBL

PNB

Indu

sInd

Band

han

Fede

ral

Canara

Vijaya

Indian

Kotak SBI

Union Yes

204%

‐150%

‐100%

‐50%

0%

50%

100%

150%

Band

han

DCB

HDFC RBL

BOB

Karnataka

ICICI

Axis

Indu

sInd

Vijaya

Union

Indian

Canara

Fede

ral

Yes

SBI

PNB

Synd

icate

Kotak



PBT PAT NIM

GNPA NNPA Slippages

Source: Company reports, PhillipCapital India Research;

165%

‐10%

10%

30%

50%

70%

90%

110%

130%

150%

SBI

Axis

ICICI

Fede

ral

Indian

Karnataka

DCB

BOB

Kotak

HDFC RBL

Indu

sInd

Vijaya

Yes

319%

‐10%

10%

30%

50%

70%

90%

110%

130%

150%

SBI

Axis

ICICI

RBL

Karnataka

Fede

ral

DCB

Kotak

HDFC

BOB

Indu

sInd

Canara

Yes

Vijaya

‐15

‐10

‐5

0

5

10

15

20

25

Band

han

PNB

Kotak

Canara

Synd

icate

Axis

BOB

RBL

Karnataka

SBI

ICICI

Fede

ral

DCB

Yes

Union

HDFC

Indu

sInd

Vijaya

Indian

101%

‐20%

‐10%

0%

10%

20%

30%

40%

Band

han

Yes

Indu

sInd

DCB

HDFC RBL

Vijaya

Indian

Fede

ral

Kotak

Axis

Union

Karnataka

Canara

Synd

icate

BOB

PNB

ICICI

SBI ‐30%

‐20%

‐10%

0%

10%

20%

30%

40%

50%

Yes

Indu

sInd

Vijaya

HDFC

Band

han

Indian RBL

DCB

Karnataka

Fede

ral

Canara

Synd

icate

Union Axis

PNB

Kotak

BOB

SBI

ICICI ‐60%

‐40%

‐20%

0%

20%

40%

60%

80%

100%

Indu

sInd

Vijaya RBL

Canara

Yes

Axis

HDFC

DCB

Union

Karnataka

Kotak

BOB

Fede

ral

Synd

icate

Indian

PNB

ICICI

SBI



Advance Deposit


‐8%

‐6%

‐4%

‐2%

0%

2%

4%

6%

8%

RBL

Band

han

Kotak

Indu

sInd SBI

Fede

ral

Axis

HDFC

Karnataka

DCB

ICICI

BOB

Vijaya

Indian

Canara

Yes

PNB

Union

Synd

icate

‐6%

‐4%

‐2%

0%

2%

4%

6%

8%

10%

RBL

ICICI

Axis

DCB

Band

han

Fede

ral

Indu

sInd

Canara

Vijaya

Kotak

Indian

HDFC

Karnataka

SBI

Union

BOB

PNB

Yes

Synd

icate



Bank‐wise year‐on‐year performance (yoy) NII Non NII Total Operating Income



‐20%

‐10%

0%

10%

20%

30%

40%

50%

60%

Band

han

Yes

RBL

Kotak

HDFC SBI

Indu

sInd

ICICI

Axis

DCB

Fede

ral

Karnataka

BOB

PNB

Indian

Canara

Vijay

Synd

icate

Union

‐60%

‐40%

‐20%

0%

20%

40%

60%

Karnataka

Axis

Fede

ral

Band

han

RBL

HDFC

DCB

Union

Indu

sInd

ICICI

Synd

icate

SBI

BOB

Kotak

Canara

Vijay

Indian Yes

PNB

‐20%

‐10%

0%

10%

20%

30%

40%

50%

60%

Band

han

RBL

Axis

HDFC

Karnataka

Indu

sInd

ICICI

Fede

ral

DCB

SBI

Kotak

Yes

BOB

Synd

icate

Indian

Vijay

Canara

Union

PNB

‐10%

0%

10%

20%

30%

40%

50%

Band

han

RBL

Kotak

ICICI

SBI

Karnataka

Yes

Axis

HDFC

BOB

Fede

ral

Indu

sInd

Canara

Synd

icate

PNB

DCB

Indian

Union

Vijay

‐40%‐30%‐20%‐10%0%

10%20%30%40%50%60%70%

Band

han

RBL

Axis

DCB

HDFC

Indu

sInd

Fede

ral

Karnataka

ICICI

SBI

Kotak

Yes

Vijay

BOB

Indian

Union

Canara

Synd

icate

PNB

‐150%

‐100%

‐50%

0%

50%

100%

150%

200%

250%

Band

han

Indu

sInd RBL

HDFC Yes

ICICI

DCB

Fede

ral

Axis

Karnataka

Indian

Vijay

BOB

Canara

PNB

Union SBI

Synd

icate

Kotak



PBT PAT NIM

GNPA NNPA Slippages

Source: Company reports, PhillipCapital India Research; *excluding stake sale by SBI

‐50%

0%

50%

100%

150%

200%

250%

BOB

Canara

Axis

Vijay

DCB

Karnataka

RBL

Fede

ral

ICICI

Kotak

HDFC

Band

han

Indu

sInd Yes

Indian

‐100%

‐50%

0%

50%

100%

150%

200%

250%

300%

350%

BOB

Canara

Axis

RBL

Vijay

Karnataka

DCB

Fede

ral

Kotak

HDFC

Band

han

PNB

Indu

sInd

ICICI

Yes

Indian

‐70‐60‐50‐40‐30‐20‐10010203040

SBI

Canara

RBL

Kotak

Axis

PNB

Synd

icate

Indian

ICICI

Union

HDFC

BOB

Karnataka

Fede

ral

Indu

sInd Yes

DCB

Vijay

‐20%

0%

20%

40%

60%

80%

100%

120%

140%

Band

han

Yes

Fede

ral

Indian

PNB

HDFC

Karnataka

Indu

sInd

DCB

Synd

icate

Axis

Union RBL

Vijay

ICICI

Kotak

Canara

BOB

SBI ‐40%

‐20%

0%

20%

40%

60%

80%

100%

Yes

Indu

sInd

Fede

ral

Indian

Band

han

Karnataka

Vijay

HDFC

Union

Synd

icate

Canara

PNB

Axis

DCB

RBL

BOB

Kotak SBI

ICICI ‐100%

‐50%

0%

50%

100%

150%

Yes

Vijay

Indu

sInd

Canara

Karnataka

Indian

PNB

Synd

icate

DCB

Fede

ral

RBL

Kotak

HDFC

Axis

Union

BOB

ICICI

SBI



Advance Deposit


‐10%

0%

10%

20%

30%

40%

50%

60%

Band

han

Yes

Indu

sInd RBL

Fede

ral

HDFC

Kotak

DCB

Vijay

Karnataka

Indian

Axis

BOB

SBI

Canara

ICICI

Union

PNB

Synd

icate

‐10%

0%

10%

20%

30%

40%

50%

60%

Band

han

RBL

Yes

DCB

Vijay

Axis

Fede

ral

HDFC

Indu

sInd

Kotak

ICICI

Canara

Karnataka

Indian SBI

BOB

Union

PNB

Synd

icate



NBFCs



NBFC performance vs. estimates NII Operating profit PAT

NBFC’s year‐on‐year performance (yoy growth) NII growth Operating profit PAT growth


‐10

‐8

‐6

‐4

‐2

0

2

4

6

CIFC STFC MMFS SCUF MGMA‐20

‐15

‐10

‐5

0

5

CIFC STFC MMFS SCUF MGMA ‐25

‐20

‐15

‐10

‐5

0

5

10

15

20

25

30

SCUF STFC CIFC MGMA MMFS

(5.0)

‐

5.0

10.0

15.0

20.0

25.0

CIFC MMFS STFC MGMA SCUF(10.0)

(5.0)

‐

5.0

10.0

15.0

20.0

25.0

30.0

35.0

CIFC STFC MGMA MMFS SCUF(30.0)

(20.0)

(10.0)

‐

10.0

20.0

30.0

40.0

50.0

60.0

70.0

MGMA CIFC STFC SCUF MMFS



NBFCs: Key indicators GNPA AUM growth(yoy) Two ‐wheeler sales

Tractor sales Cars and utility vehicle sales MHCV and LCV sales


9.0

2.7

7.7

8.7

6.36.9

8.8

2.8

9.0 8.99.5

7.8

0

2

4

6

8

10

STFC CIFC MMFS SCUF MGMA Total

Dec‐18 Sep‐18

15.3

29.0 30.5

10.4

8.2

20.0

0

5

10

15

20

25

30

35

STFC CIFC MMFS SCUF MGMA Total

‐10

0

10

20

30

40

50

60

Apr‐17

May‐17

Jun‐17

Jul‐1

7Au

g‐17

Sep‐17

Oct‐17

Nov

‐17

Dec‐17

Jan‐18

Feb‐18

Mar‐18

Apr‐18

May‐18

Jun‐18

Jul‐1

8Au

g‐18

Sep‐18

Oct‐18

Nov

‐18

Dec‐18

Two Wheeler Scooters

‐20

‐10

0

10

20

30

40

50

60

Apr‐17

May‐17

Jun‐17

Jul‐1

7Au

g‐17

Sep‐17

Oct‐17

Nov

‐17

Dec‐17

Jan‐18

Feb‐18

Mar‐18

Apr‐18

May‐18

Jun‐18

Jul‐1

8Au

g‐18

Sep‐18

Oct‐18

Nov

‐18

Dec‐18

‐40

‐30

‐20

‐10

0

10

20

30

40

50

60

Apr‐17

May‐17

Jun‐17

Jul‐1

7Au

g‐17

Sep‐17

Oct‐17

Nov

‐17

Dec‐17

Jan‐18

Feb‐18

Mar‐18

Apr‐18

May‐18

Jun‐18

Jul‐1

8Au

g‐18

Sep‐18

Oct‐18

Nov

‐18

Dec‐18

Cars Utility Vehicles

‐100

‐50

0

50

100

150

200

Apr‐17

May‐17

Jun‐17

Jul‐1

7Au

g‐17

Sep‐17

Oct‐17

Nov

‐17

Dec‐17

Jan‐18

Feb‐18

Mar‐18

Apr‐18

May‐18

Jun‐18

Jul‐1

8Au

g‐18

Sep‐18

Oct‐18

Nov

‐18

Dec‐18

MHCV LCV



Banking & Financial Services Trends



Credit and deposit growth Credit and deposit growth (yoy) Credit growth by sector (yoy)

Rates 10‐year GSec rate SBI one‐year MCLR

Source: RBI, SBI, PhillipCapital India Research

64

66

68

70

72

74

76

78

80

0

5

10

15

20

25

30

Dec‐12

Mar‐13

Jun‐13

Sep‐13

Dec‐13

Mar‐14

Jun‐14

Sep‐14

Dec‐14

Mar‐15

Jun‐15

Sep‐15

Dec‐15

Mar‐16

Jun‐16

Sep‐16

Dec‐16

Mar‐17

Jun‐17

Sep‐17

Dec‐17

Mar‐18

Jun‐18

Sep‐18

Dec‐18

Deposit (%) Credit (%) CD ratio (rhs)

‐10

‐5

0

5

10

15

20

25

30

35

Dec‐12

Mar‐13

Jun‐13

Sep‐13

Dec‐13

Mar‐14

Jun‐14

Sep‐14

Dec‐14

Mar‐15

Jun‐15

Sep‐15

Dec‐15

Mar‐16

Jun‐16

Sep‐16

Dec‐16

Mar‐17

Jun‐17

Sep‐17

Dec‐17

Mar‐18

Jun‐18

Sep‐18

Dec‐18

Agriculture Industry Retail Services

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

Mar‐16

May‐16

Jul‐1

6

Sep‐16

Nov

‐16

Jan‐17

Mar‐17

May‐17

Jul‐1

7

Sep‐17

Nov

‐17

Jan‐18

Mar‐18

May‐18

Jul‐1

8

Sep‐18

Nov

‐18

Jan‐19

7.5%

7.7%

7.9%

8.1%

8.3%

8.5%

8.7%

8.9%

9.1%

9.3%

Apr‐16

Jun‐16

Aug‐16

Oct‐16

Dec‐16

Feb‐17

Apr‐17

Jun‐17

Aug‐17

Oct‐17

Dec‐17

Feb‐18

Apr‐18

Jun‐18

Aug‐18

Oct‐18

Dec‐18



Bank liquidity Liquidity coverage ratio (LCR) (Sep 2018) Excess liquidity as a % of advance (Sep 2018)

*March 2018

Bank liquidity and exposure Excess liquidity/advances (bank group‐wise) Banks’ exposure to NBFC

Source: Company, PhillipCapital India Research

0%

40%

80%

120%

160%

200%

0%

5%

10%

15%

20%

25%

7%

5%

1%

0%

1%

2%

3%

4%

5%

6%

7%

PSU Bank (Ex PCA) PCA Banks Private Banks

0%

5%

10%

15%

20%

25%

BOB

Karnataka

Union

Canara

Indian SBI

ICICI

Yes

HDFC

Kotak

Indu

sInd Axis

RBL

NBFC HFC



Mutual fund exposure to NBFCs Portfolio breakup of debt mutual funds CPs and CDs outstanding (Rs bn)

Maturity and rating profile Maturity profile of commercial papers Rating profile of debt mutual fund investments

Source: SEBI, RBI, PhillipCapital India Research

15.323.2 24.1 30.2 33.3 31.0 28.7

8.07.5 11.8

9.3 8.0 8.2 10.433.2

38.038.1 33.7 30.0 32.4 33.7

14.2

10.511.0 10.1 9.1 9.6 10.120.1

12.5 7.3 8.1 8.3 7.1 7.29.3 8.3 7.7 8.6 11.3 11.7 9.9

0%

20%

40%

60%

80%

100%

Sep‐17 Dec‐17 Mar‐18 Jun‐18 Aug‐18 Sep‐18 Dec‐18

CP CDs Corporate Debt PSU Bonds Gov Securities & T Bills Others

‐

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Apr‐16

Jul‐1

6

Oct‐16

Jan‐17

Apr‐17

Jul‐1

7

Oct‐17

Jan‐18

Apr‐18

Jul‐1

8

Oct‐18

Jan‐19

CP Outstanding CD Outstanding

Less than 90 days, 89%

90 days to 182 days, 10%

182 days to 1 year, 1%

G Secs & Tbills, 8%A1 (CPs), 33%

A1 (CDs), 8%

AAA (Bonds), 23% AA (Bonds), 13%

A (Bonds), 4%

Others, 11%



Valuation Metrics P/B vs. RoE P/B vs. RoA

Relative price performance Weekly performance Monthly performance


Axis

DCBICICI

IIB

HDFCKotak

BOB

CBK

INBKPNB SBI

Yes

‐

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

‐ 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0

P/Ad

j BV

RoE

Axis

DCB

ICICI

IIB

HDFCKotak

BOBCBK

INBK

PNB

SBI

Yes

‐

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

‐ 0.5 1.0 1.5 2.0 2.5

P/Ad

j BV

RoA

‐12%‐11%

‐7%‐5%‐5%‐5%‐4%‐4%

‐3%‐2%‐1%‐1%0%

0%0%1%

5%6%

11%

‐15.0% ‐10.0% ‐5.0% 0.0% 5.0% 10.0% 15.0%

SCUFYESCBKBOBINBKPNBSBI

ICICIMGMA

IIBAxisDCB

HDFCKMB

MMFSMUTHCIFCSHTFMGFL

‐19%‐16%

‐14%‐14%‐14%

‐10%‐10%

‐9%‐7%‐6%‐5%‐5%

‐3%0%0%

0%1%

6%15%

‐25.0% ‐20.0% ‐15.0% ‐10.0% ‐5.0% 0.0% 5.0% 10.0% 15.0% 20.0%

CBKINBK

MGMAMMFSBOBPNBYES

SHTFSBI

SCUFIIB

ICICIHDFCMUTHKMBCIFCDCB

MGFLAxis



Valuation table Reco M.Cap

(Rs bn) CMP (Rs)

TP Upside (%)

P/BV EPS BV

FY18 FY19 FY20 FY18 FY19 FY20 FY18 FY19 FY20 Private Banks Axis Bank BUY 1,827 711 765 8% 3.3 2.8 2.5 15.4 15.6 39.7 202 236 269 DCB Bank BUY 55 176 205 16% 2.3 2.0 1.6 8.0 9.8 12.4 78 88 108 ICICI Bank BUY 2,255 350 450 29% 1.9 1.6 1.4 10.5 7.0 23.0 133 151 170 IndusInd Bank BUY 897 1,489 2,000 34% 3.9 3.5 2.8 60.1 68.7 93.6 379 428 531 HDFC Bank BUY 5,799 2,132 2,524 18% 4.9 3.7 3.3 67.4 77.5 93.4 403 532 600 Kotak Bank BUY 2,490 1,305 1,450 11% 4.6 4.1 3.6 21.5 26.8 33.0 191 216 247 Yes Bank BUY 510 171 300 75% 1.6 1.6 1.4 18.1 17.9 17.7 108 110 126

PSU Banks Bank of Baroda BUY 273 103 145 41% 1.2 0.9 0.7 ‐9.2 8.4 27.9 89 114 145 Canara Bank Sell 165 225 210 ‐7% 1.8 1.2 0.9 ‐57.6 12.5 27.6 124 195 251 Indian Bank BUY 100 209 280 34% 0.9 0.9 0.7 26.2 17.0 38.7 243 232 280 Punjab National Bank Neutral 269 71 UR NA 5.9 1.5 1.0 ‐44.5 ‐3.0 7.1 12 47 68 State Bank of India BUY 2,522 283 370 31% 1.6 1.3 1.0 ‐7.3 6.5 29.5 131 158 202

NBFCs Cholamandalam BUY 190 1,218 1,435 18% 4.2 3.6 2.6 62.3 75.4 81.9 290 339 475 Mahindra Finance Neutral 240 388 425 9% 3.3 3.3 2.9 13.8 22.2 26.7 119 119 134 Shriram City Union Finance BUY 103 1,557 1,905 22% 2.2 1.8 1.5 100.8 147.3 156.6 711 852 1,006 Shriram Transport Finance BUY 240 1,058 1,200 13% 2.3 1.8 1.5 65.0 103.7 120.7 460 595 721 Manappuram Finance BUY 85 101 110 8% 2.3 1.9 1.7 8.3 9.4 10.9 45 52 61 Magmafincorp BUY 25 92 150 64% 1.3 1.2 1.0 9.7 11.2 14.3 71 79 92 Muthooth Finance BUY 206 514 550 7% 3.4 2.3 1.9 43.0 49.3 55.3 149 224 268

HFCs HDFC Ltd. BUY 2,915 1,951 2,192 12% 4.9 4.0 3.5 72.6 63.5 62.2 267 307 344 Repco Home Finance Neutral 23 362 424 17% 1.9 1.6 1.4 33.2 36.1 40.9 192 221 256 LIC Housing Finance BUY 203 458 520 14% 1.9 1.6 1.5 39.4 43.4 49.4 237 278 312 Indiabulls Housing BUY 406 581 1,217 110% 1.9 1.7 1.4 84.1 100.1 122.8 308 339 401 Source: PhillipCapital India Research Estimates



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India Banking Trends

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