axis bank (axiban) 726 865 buy 1901 3.3 2.4 0.0 0.8 1.0 0...
TRANSCRIPT
ICIC
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September 23, 2019
Banking
Tax cut steals the show – growth & earnings see light
Corporate banks had been the theme in the last two quarters while the
corporate tax cut by the GoI has further led to impetus. Corporate as well as
retail banks where a slowdown was being built-up got a renewed positive
outlook. From the perspective of banks and NBFCs, a reduction in tax rates
will have two positives – higher profitability and, thereby, return ratios for
profitable lenders with capex to revive growth cycle back into action. An
improvement in corporate earnings and increased manufacturing capex is
expected to further add to banking sector’s business potential.
A net profit rise would result in higher RoA, higher capital adequacy,
improve bank’s ability to pass on rate cuts. Similarly well managed stronger
NBFCS would enjoy better availability of capital, flow of liabilities that will be
enable to face competition, especially from repo rate based loans.
Therefore, we revise our rating on Bajaj Finance from HOLD to BUY and
revise upwards target for NBFCs/HFCs in our coverage. Corporate banks
Axis Bank and SBI remain top buys. We revise HDFC Bank from Hold to Buy.
Merger of PSU banks may keep them occupied addressing merger concerns
leading to further market share gains for private banks, large retail NBFCs.
Furthermore, an anticipated recovery in two large NCLT accounts will benefit
corporate and PSU banks leading to improvement in asset quality and,
subsequently, reduce capital pressure. Few large troubled HFCs may
continue to keep banks on toes, if resolutions do not happen or fresh round
of defaults are seen. Currently, GNPA ratio of banking sector was at 9.4%.
Resolution of large NCLT cases can be brought down by ~40 bps to 9%.
Implication on IBC companies by raising valuation led by a reduction in tax
rate raises IRR, which remains positive.
Credit growth has slowed down to 10.2% in recent months from 12% in
June-July 2019. We expect credit growth to normalise again at ~10-11% in
FY20E and then inch up in FY21E with a pick-up in manufacturing capex.
Led by fiscal stimulus of | 1.45 lakh crore, decline in G-sec yield for quarter
has disappeared now. For benefits of last quarter decline in yields, banks
need to sell treasury to book profits as erstwhile provisions write-back is
already done. PSU banks being more sensitive to change in yield vs. private
banks, will remain major beneficiaries of the decline if further rate cuts lead
to a decline in G-sec yields.
We prefer SBI, Axis Bank, HDFC Bank within the banking sector coverage
and M&M Finance, Bajaj Finserv and SBI Life Insurance within non-banks.
Exhibit 1: Coverage Universe
CMP M Cap
(|) TP(|) Rating (| Bn)FY18 FY19 FY20E FY18 FY19 FY20E FY18 FY19 FY20E
Bank of Baroda (BANBAR) 101 140 Buy 387 1.2 1.0 -0.3 0.4 0.6 -5.8 9.7
SBI (STABAN) 314 400 Buy 2800 2.2 1.7 -0.2 0.0 0.7 -3.0 0.5 12.1
Indian Bank (INDIBA) 152 220 Hold 75 0.7 0.7 0.5 0.1 0.3 7.1 1.7 5.3
Axis Bank (AXIBAN) 726 865 Buy 1901 3.3 2.4 0.0 0.8 1.0 0.0 0.8 1.0
City Union Bank (CITUNI) 216 240 Buy 159 3.7 3.2 1.6 1.6 1.6 15.5 15.3 14.8
DCB Bank (DCB) 214 260 Buy 66 2.4 2.1 0.9 1.0 1.1 10.9 12.1 14.4
Federal Bank (FEDBAN) 96 125 Buy 191 1.6 1.5 0.7 0.8 1.0 8.2 9.8 12.4
HDFC Bank (HDFBAN) 1,257 1,400 Buy 6878 4.7 4.1 1.8 1.8 2.2 17.9 16.5 18.1
IndusInd Bank (INDBA) 1,512 1,605 Hold 1047 3.7 3.0 1.8 1.3 2.0 16.2 13.1 21.2
J&K Bk(JAMKAS) 35 48 Hold 20 0.6 0.5 0.2 0.5 0.5 3.4 7.3 7.7
Kotak Mahindra (KOTMAH) 1,641 1,575 Hold 3133 7.6 6.7 1.7 1.7 1.9 12.5 12.1 14.2
Yes Bank (YESBAN) 55 75 Reduce 141 0.6 0.6 1.7 0.4 0.4 17.6 5.6 5.5
Bandhan Bank (BANBAN) 527 650 Buy 629 0.6 0.5 3.6 3.9 4.6 19.5 19.0 23.9
Sector / Company
RoE (%)RoA (%)P/ABV (x)
Source: Company, ICICI Direct Research
Sector View
Overweight
Research Analyst
Kajal Gandhi
Vishal Narnolia
Harsh Shah
RATING RATIONALE
ICICI Securities | Retail Research 2
ICICI Direct Research
Sector Update | Banking
Tax reform acts as substantial relief, lifting RoAs
The government announcement on a substantial reduction in corporate tax
rate from ~34% to ~25.17% acts as a massive trigger for revving up growth
and, more importantly, resurrecting sentiments that were down in the
dumps. The immediate benefit remains increased cash flows to corporate
anticipated to be either channelised into debt reduction, incremental capex
investments and spurring beleaguered investment cycle. From the
perspective of banks and NBFCs, reduction in tax rates will have two
positives – higher profitability and thereby return ratios for profitable lenders
and corporate capex seen reviving credit growth cycle back into action.
Improvement in corporate earnings and increased manufacturing capex
would further add banking sectors’ business potential. Given accrual of twin
benefit, we upgrade lenders with strong business model and growth
potential including HDFC Bank, Bajaj Finance, Bajaj Finserv and M&M
Financial Services.
Bajaj Finance (CMP - | 3780)
Bajaj Finance has a strong business model with high focus on retail segment
entailing sustained AUM growth of ~40% for a long tenure (FY11-19). Asset
quality remained robust with GNPA ratio at 1.6%. Going ahead, moderation
is seen in AUM growth along with marginal deterioration in asset quality.
Higher growth in low yield home loan business is seen paring down
margins. Decline in tax rate is seen providing a boost to earnings ahead.
Also, recently announced capital raising at higher price would lead to book
value accretion. Hence, we revise our PAT estimate upwards by ~13-14%
in FY20-21E, increasing at 37.5% CAGR. Consequently, we upgrade our
target price from | 3535 to | 4350 per share, valuing the stock at ~6.5x
FY21E BV. Accordingly, we upgrade our rating to BUY.
Exhibit 1: Key financials & valuation
Financial Performance FY18 FY19 FY20E FY21E
NII (| crore) 8126 11862 14808 19143
PPP (| crore) 4878 7681 9330 12204
PAT (| crore) 2393 3996 5681 7553
ABV (|) 247 313 528 609
P/E 85 55 40 30
P/ABV 15.3 12.1 7.2 6.2
RoA 2.9 3.6 3.9 4.0
RoE 18.7 22.4 21.6 20.8
Source: Company, ICICI Direct Research
Bajaj Finserv (CMP - | 7800)
Bajaj Finserv continued to deliver a robust performance with an assertive
outlook. Strong parentage and focus on productivity enabled it to tide over
marketwide liquidity concerns. We remain positive on insurance business
led by strong growth in GI coupled with focus on productivity and continued
pick-up in premium accretion in life insurance with earlier investment
starting to yielding business. Given cut in corporate tax rate, we revise
upwards earnings estimates by ~13% in FY20-21E. Hence, we upgrade our
target to | 8800 (earlier | 8215) and subsequently rating from HOLD to BUY.
Exhibit 2: Key financials & valuation
| crore FY17 FY18 FY19 FY20E FY21E
Revenue 24,508.5 32,457.4 42,608.2 50,830.4 61,713.3
PBT 4,924.5 6,057.3 8,069.5 10,035.6 12,917.1
PAT 2261.9 2608.8 3133.5 4554.3 5887.6
EPS (|) 142.2 164.0 196.9 286.2 370.0
BV (|) 994.0 1302.1 1497.3 1781.7 2150.0
P/E 54.9 47.6 39.6 27.3 21.1
P/BV 7.8 6.0 5.2 4.4 3.6
RoA 1.9 1.8 1.6 1.9 2.0
RoE 15.5 14.3 14.1 17.5 18.8
Source: Company, ICICI Direct Research
Bajaj Finance
Bajaj Finserv
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Sep-1
9
May-19
Jan-19
Sep-1
8
May-18
Jan-18
Sep-1
7
Jun-17
Feb-17
Oct-16
Bajaj Fin (R.H.S) Nifty (L.H.S)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Sep-1
9
May-19
Jan-19
Sep-1
8
May-18
Jan-18
Sep-1
7
Jun-17
Feb-17
Oct-16
Bajaj Finserv (R.H.S) Nifty (L.H.S)
ICICI Securities | Retail Research 3
ICICI Direct Research
Sector Update | Banking
LIC Housing Finance (CMP - | 420)
Being a superior franchise, LICHF is expected to report a healthy
performance but impact in terms of slower growth and marginal asset
quality pain cannot be ruled out. A strong parentage remains a positive
support, especially from a liabilities perspective. Moving towards external
benchmark rates is seen impacting margins and thereby profitability of HFCs
owing to passing of benefit to customers on asset side without
commensurate benefit on the liabilities side. However, a decline in corporate
tax rates is seen boosting profitability. Therefore, we revise our PAT
estimates by ~15% for FY20-21E. Accordingly, we upgrade our target price
to | 440 per share (earlier | 360) and rating from Reduce to HOLD.
Exhibit 3: Key financials & valuation
| crore FY17 FY18 FY19 FY20E FY21E
NII 3645 3701 4463 4657 5512
PPP 3237 3301 3998 4288 5084
PAT 1931 2013 2431 2725 3213
ABV (|) 215.1 237.2 275.7 326.5 387.4
P/E 10.7 10.3 8.9 7.6 6.5
P/ABV 1.9 1.7 1.5 1.3 1.1
RoA 1.4 1.2 1.3 1.3 1.3
RoE 19.1 16.9 16.3 15.9 16.2
Source: Company, ICICI Direct Research
HDFC Bank (CMP - | 1200)
The recent announcement by the government to cut corporate tax to
25.17% from 34% earlier is seen as a key trigger to revive capex in economy
thereby leading to higher credit growth, going ahead. Factoring in the tax
cut, earning estimate is revised by ~12-13% in FY20-21E. Approaching the
festive season and bank’s proposed plan to organise 1000 Grameen loan
mela in the next six month is expected to speed up bank’s credit growth.
Hence, we upgrade our ratings from HOLD to BUY with a target price of
| 1400 (earlier | 1230) valuing core bank at ~3.7x FY21E ABV (earlier
3.2xFY21ABV) and | 75 per share for HDB Financial Services.
Exhibit 1: Key Financial & Valuation
Source: Company, ICICI Direct Research
M&M Financials (CMP - | 360)
In our previous update, we had cut our earnings estimates on the back of
subdued demand in the auto sector & asset quality pressure. However, on
the back of strong management, widespread presence in rural region and
adequate risk management, we maintain our BUY rating. Though revival in
auto volumes and thereby credit growth is seen remaining gradual, recent
tax sops by GoI are seen being earnings accretive by ~15% in FY20-21E.
Accordingly, we upgrade our target price to | 425 (earlier | 360), valuing
core auto business at 2.4x FY21E ABV (earlier 2.1x FY21ABV) and ~| 44 as
value for subsidiaries with 20% holding company discount. Consequently,
we maintain our BUY recommendation.
LIC Housing
HDFC Bank
M&M Finance
0
2000
4000
6000
8000
10000
12000
14000
0
100
200
300
400
500
600
700
800
900
Aug-16
Feb-17
Aug-17
Feb-18
Aug-18
Feb-19
Aug-19
LIC Housing NIFTY Index
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
0
200
400
600
800
1,000
1,200
1,400
Sep-1
9
May-19
Jan-19
Sep-1
8
May-18
Jan-18
Sep-1
7
Jun-17
Feb-17
Oct-16
HDFC Bank(R.H.S) Nifty (L.H.S)
0
2000
4000
6000
8000
10000
12000
14000
0
100
200
300
400
500
600
Aug-16
Feb-17
Aug-17
Feb-18
Aug-18
Feb-19
Aug-19
M&M Finance NIFTY Index
ICICI Securities | Retail Research 4
ICICI Direct Research
Sector Update | Banking
Exhibit 2: Key Financial & Valuation
Source: Company, ICICI Direct Research
External benchmarking: Lands faster than expected
In a move to improve interest rate transmission, RBI has mandated banks to
link their lending rates for retail, MSE, personal segment to external
benchmark from October 1, 2019. Other key highlights of the circular are:
External benchmark such as repo rate, three & six month treasury bills &
any other Financial Benchmarks India Pvt Ltd (FBIL) to be allowed
Banks free to offer external benchmark linked loan to other borrowers
Banks free to decide spread but risk premium to change only if credit
assessment deteriorates
Interest rates to be reset at least once in three months
Existing loans and credit limits linked to the MCLR/base rate/BPLR shall
continue till repayment or renewal
Existing floating rate loans eligible for pre-payment without charges
could migrate to external linked loan
Exhibit 3: Anticipated impact of shift to external benchmarking
FY19
Total Loans
(TL) (|
crore)
Retail
Loans
(RL) (|
crore)
RL as %
of TL
Home
Loans (HL)
(| crore)
HL as
% of TL
Existing
NIM
FY19
Impact of 30
bps cut in HL
on margins
(bps)
Kotak Mahindra Bk 205695 73,886 35.9% 40,722 19.8% 4.5% 6
Axis Bk 494798 245,812 49.7% 93,409 18.9% 3.6% 6
State Bk of India 2293454 647,844 28.2% 400,377 17.5% 3.0% 5
Federal Bk 110223 52,734 47.8% 15,394 14.0% 3.1% 4
HDFC Bk 819401 442,477 54.0% 51,359 6.3% 4.4% 2
Indusind Bk 186394 72,684 39.0% NA NA 3.8% NA
Bk of Baroda 396687 85,390 21.5% 54,612 13.8% 1.7% 4
Bk of Maharashtra 93467 18,805 20.1% 12,052 12.9% 2.6% 4
Andhra Bk 178690 40,985 22.9% 20,105 11.3% 3.5% 3
Punjab National Bk 490975 92,727 18.9% 51,980 10.6% 2.6% 3
Syndicate Bk 174822 37,642 21.5% 18,213 10.4% 3.2% 3
Allahabad Bk 163552 20,150 12.3% 14,757 9.0% 2.4% 3
Source: Company, ICICI Direct Research TL- Total Loans, RL – Retail Loans, HL- Home Loans
ICICI Securities | Retail Research 5
ICICI Direct Research
Sector Update | Banking
Our view
Banks with larger proportion of floating rate retail & MSE loans are likely to
be impacted. Housing loans segment is particularly the most impacted as
they are floating rate and have no prepayment charges. Largely, private
banks are to be most impacted as transmission by private lenders was
limited. Axis Bank, SBI, which have significant housing portfolio and existing
book conversion can impact margins (refer Exhibit above). This will lead to
overall pressure on margins for banks with high retail floating loans. Kotak
Mahindra Bank, IndusInd Bank and HDFC Bank have higher non-housing
retail portfolio, where floating proportion will be lower.
On the liabilities side, banks will likely link saving/bulk term deposit with
external benchmark (repo rate) to address pressure on margins thereby
matching interest rate risk on asset side.
HFCs will be more impacted as we expect HFCs to match the bank under
competitive pressure. Their costs will not be declining in line with loan rates
and thereby margins can be in pressure for both LIC Housing Finance (retail
loans-93%) and HDFC (71%).
PSBs consolidation - Reorganised in one shot
In a move towards consolidation in the Indian banking sector, Finance
Minister Nirmala Sitharaman announced a big bang move with second
course of amalgamation among PSU banks. According to the
announcement, PNB is to merge OBC, United Bank of India while Canara
Bank will consolidate Syndicate Bank. In another instance, Union Bank of
India is to merge Andhra Bank, Corporation Bank while Indian Bank,
Allahabad Bank are to amalgamate together. Capital adequacy, geography,
technology are factors at the core of the decision on selection of banks.
Post the three-way merger viz. Bank of Baroda, Vijaya Bank and Dena Bank,
GoI has gone ahead full steam with more amalgamations downsizing 10
PSU banks into four larger players. On an overall basis, the number of PSU
banks will reduce from 18 to 11. Other PSU banks comprising Uco Bank,
Bank of Maharashtra, IoB, Punjab & Sind Bank, Central Bank of India, Bank
of India will continue to operate as independent regional entities.
Overall, merger seems positive in long term. The respective boards of
banks will need to approve and then decide the contours of the swap ratio
along with the timeline for completion of merger, record date, etc.
Source: GoI, ICICI Direct Research
Our view
Broad calculations indicate dilution for anchor banks, which is to moderate
post fresh capital allocation. In case of 1) Indian Bank + Allahabad bank & 2)
Canara + Syndicate Bank, anchor banks are expected to witness 15-20%
impact on ABV. Therefore, Canara Bank (15% impact on ABV) and Indian
Bank (18% impact on ABV) are expected to witness negative pressure.
These are estimated after factoring fresh in capital infusion of | 2500 crore
and | 6500 crore, respectively, for merged entities. In case of amalgamation
with PNB and Union Bank, dilution due to merger has not impacted ABV.
Anchor Bank Amalgamating BanksBusiness Size
(| lakh crore)
PSB rank by size CBS NNPA (%) CRAR (%)
Punjab National Bank
Oriental Bank of Commerce
& United Bank of India17.94 2 Finacle 6.61 10.77
Canara Bank Syndicate Bank 15.2 4 Iflex 5.62 12.63
Union Bank of IndiaAndhra Bank & Corporation
Bank
14.59 5 Finacle 6.3 12.39
Indian Bank Allahabad Bank 8.08 7 BaNCS 4.39 12.89
Exhibit 1: Announced mergers of PSU banks
ICICI Securities | Retail Research 6
ICICI Direct Research
Sector Update | Banking
However, fresh capital infusion is seen leading to substantial positive
revision in ABV by ~20% for PNB and over ~40% for Union Bank. NPA
concerns in merged bank may rise in future and result in different estimates.
The banks getting acquired are expected to remain positive considering
amalgamation in large bank. The recent correction in PSU banks has largely
captured the pain though continuous dilution remains an overhang. Uco,
IOB, Central Bank of India and BoM, with high NPAs and left unmerged can
see a negative reaction.
Swap ratio based on current market price is expected as follows (broad
estimations- final ratios can differ basis market price changes ahead)
1. Allahabad Bank shareholders to get 176 shares of Indian Bank for
every 1000 shares of Allahabad Bank
2. Syndicate Bank shareholders to get 140 shares of Canara Bank for
every 1000 shares of Syndicate Bank
3. Oriental Bank (OBC) shareholders to get 1130 shares of PNB for
every 1000 shares of OBC and United Bank shareholders to get 160
shares of PNB for every 1000 shares of United Bank
4. Andhra Bank shareholders to get 330 shares of Union Bank for every
1000 shares of Andhra Bank and Corporation Bank shareholders to
get 320 shares of Union Bank for every 1000 shares of Corporation
Bank
On capital allocation, the FM has announced infusion of | 16,000 crore in
PNB, | 11,700 crore to Union Bank of India, | 7,000 crore in BoB, | 6,500
crore in Canara Bank and | 2,500 crore in Indian Bank. However, this
allocation is on a preliminary basis.
PNB has become a northern region leader, Canara a southern one while BoB
is already a western region leader. SBI remains a pan-India leader. Eastern
regional banks have been allowed to operate independently.
Source: GoI, ICICI Direct Research
Bank of Baroda Capital Allocated (| crore)
Punjab National Bank 16000
Union Bank of India 11700
Bank of Baroda 7000
Canara Bank 6500
Indian Bank 2500
IoB 3800
CBoI 3300
UCO Bank 2100
United Bank of India 1600
Punjab & Sind Bank 750
Total 55250
Exhibit 1: Announced capital allocation
ICICI Securities | Retail Research 7
ICICI Direct Research
Sector Update | Banking
Exhibit 4: PNB + OBC + United Bank
Source: GOI, ICICI Direct Research
Exhibit 5: Canara + Syndicate Bank
Source: GOI, ICICI Direct Research
Exhibit 6: Union + Andhra + Corporation Bank
Source: GOI, ICICI Direct Research
ICICI Securities | Retail Research 8
ICICI Direct Research
Sector Update | Banking
Exhibit 7: Indian + Allahabad Bank
Source: GOI, ICICI Direct Research
Fiscal stimulus erases gain; rate cut may still benefit
Starting the quarter at ~6.88%, G-sec yields moved southwards to 6.25%
led by anticipation of further rate cut owing to slowing economy and low
inflation. However, recent announcement offering tax sops of ~| 1.45 lakh
crore is seen exerting pressure on fiscal maths and, thus, a reversal in yield
in opposite direction to 6.8% with resultant disappearance of treasury gains.
For benefits of last quarter’s decline in yields, banks need to sell treasury to
book profits as erstwhile provisions write-back is already done. PSU banks
being more sensitive to change in yield vs. private banks, will remain major
beneficiaries of the decline if further rate cuts lead to decline in G-sec yields.
Exhibit 8: No major treasury gains seen in Q2FY20E
Q1FY20
| crore
H
T
M
30 bps 50 bps 30 bps 50 bps 30 bps 50 bps 30 bps 50 bps
Public sector banks
Bank of India* 143,760 42,765 2.3 299 498 896,019 3.3 3.9 8.6% 14.3% 46000 0.6% 1.1%
Bank of Baroda 245,687 78,735 1.3 307 512 1,547,633 2.0 2.3 3.3% 5.5% 72634 0.4% 0.7%
PNB* 205,619 67,113 3.4 693 1,154 1,161,562 6.0 7.0 15.8% 26.4% 37390 1.9% 3.1%
SBI 902,337 376,275 2.6 2,912 4,854 4,962,550 5.9 6.8 7.8% 13.1% 232800 1.3% 2.1%
Indian Bank 68,693 21,418 2.8 179 299 427,883 4.2 4.9 10.4% 17.3% 20216 0.9% 1.5%
Private sector banks
Axis Bank 175,792 58,011 NA NA NA 1,040,612 NA NA NA NA 79168 NA NA
City Union Bank 8,626 2,099 0.9 5 9 71,214 0.8 0.9 0.5% 0.8% 5576 0.1% 0.2%
DCB 7,995 2,094 0.7 4 7 52,418 0.8 0.9 0.7% 1.2% 3531 0.1% 0.2%
J&K Bank 21,612 4,402 0.9 11 19 156,412 0.7 0.9 1.0% 1.6% 7249 0.2% 0.3%
Impact on PAT
due to decline in
yield
Networth
(FY20E)
Impact on NW due
to decline in yield
Investment
book
AFS Duration
(yrs)
Absolute Impact
due to decline in
Yield
Average asset Impact on RoA due
to decline in yield
Source: Company, ICICI Direct Research, *FY19E is from Bloomberg for non-coverage
ICICI Securities | Retail Research 9
ICICI Direct Research
Sector Update | Banking
Credit growth steady; revival in industry seen
A pick-up in infrastructure segment, which was reeling under pressure
in previous fiscals, led to growth in the industry segment. Infrastructure
formed ~88% in FY19 (| 164984 crore) of incremental credit in industry
segment (| 186510 crore).
Due to issues within power & telecom, overall infrastructure growth
remained muted in the past. Going ahead, with government focus on
infrastructure, credit growth is expected to improve gradually.
Moderation in incremental slippages would result in an improvement in
GNPA. Resolution of large stressed IBC cases would provide further
improvement.
Exhibit 9: Retail growth remains steady; revival in industry witnessed
| crores FY17 FY18 FY19 May-19 Jun-19 Jul-19
Non-Food Credit 7094490 7688423 8633418 8451239 8476377 8495759
Agriculture & Allied Activities 992386 1030215 1111300 1107883 1125788 1108988
Industry 2679831 2699268 2885778 2814039 2812034 2798360
Large 2205296 2222589 2403878 2343332 2340677 2331538
Services 1802237 2050472 2415609 2287877 2284715 2312871
NBFCs 391032 496393 641208 623527 635098 636733
Personal Loans 1620034 1908469 2220732 2241441 2253843 2275540
Housing (Including Priority Sector Housing) 860086 974565 1160111 1176926 1187027 1199806
Credit Card Outstanding 52132 68628 88262 93643 94890 93974
Vehicle Loans 170525 189786 202154 201894 200419 201318
YOY growth (%)
Non-Food Credit 8.4% 8.4% 12.3% 11.4% 11.1% 11.4%
Agriculture & Allied Activities 12.4% 3.8% 7.9% 7.8% 8.7% 6.8%
Industry -1.9% 0.7% 6.9% 6.4% 6.4% 6.1%
Large -1.7% 0.8% 8.2% 7.4% 7.6% 7.2%
Services 16.9% 13.8% 17.8% 14.8% 13.0% 15.2%
NBFCs 10.9% 26.9% 29.2% 40.5% 37.6% 34.5%
Personal Loans 16.4% 17.8% 16.4% 16.9% 16.6% 17.0%
Housing (Including Priority Sector Housing) 15.2% 13.3% 19.0% 18.7% 18.9% 19.2%
Credit Card Outstanding 38.4% 31.6% 28.6% 26.1% 27.5% 26.5%
Vehicle Loans 11.5% 11.3% 6.5% 5.7% 5.1% 4.9%
Proportion (%)
Agriculture & Allied Activities 14.0% 13.4% 12.9% 13.1% 13.3% 13.1%
Industry 37.8% 35.1% 33.4% 33.3% 33.2% 32.9%
Large 31.1% 28.9% 27.8% 27.7% 27.6% 27.4%
Services 25.4% 26.7% 28.0% 27.1% 27.0% 27.2%
NBFCs 5.5% 6.5% 7.4% 7.4% 7.5% 7.5%
Personal Loans 22.8% 24.8% 25.7% 26.5% 26.6% 26.8%
Housing (Including Priority Sector Housing) 12.1% 12.7% 13.4% 13.9% 14.0% 14.1%
Credit Card Outstanding 0.7% 0.9% 1.0% 1.1% 1.1% 1.1%
Vehicle Loans 2.4% 2.5% 2.3% 2.4% 2.4% 2.4%
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 10
ICICI Direct Research
Sector Update | Banking
Large resolution to keep NPA broadly steady
In the absence of any large resolution or slippages, GNPA ratio broadly
remained stable at 9.4% during the quarter. Resolution of large NCLT cases
(Bhushan Power & Alok Industries) during the quarter is expected to provide
some respite, though concerns over resolution of recently recognised
stressed companies could remain as a dragger. Overall we expect asset
quality to broadly remain stable.
Exhibit 10: Asset quality continues to improve
FY16 FY17 FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20
GNPA 575313 776835 1024586 1002682 997247 961129 920300 924271
NNPA 331340 430173 517775 485181 463082 417837 354507 353766
GNPA ratio 7.6 9.6 11.6 11.3 10.8 10.2 9.2 9.4
NNPA ratio 5.1 5.3 5.8 5.5 5.0 4.4 3.6 3.6
GNPA of PSU banks 523398 684733 896601 874071 868812 829745 789016 788087
GNPA of Private banks 51915 92102 127985 128611 128435 131384 131284 136184
Source: Company, ICICI Direct Research
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Annexure
Exhibit 11: Asset quality trend
Asset quality trend Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY19 Q3FY19 Q4FY19 Q1FY20
PSU coverage
Bank of Baroda 55,121 53,184 48,233 78,681 21,059 19,131 15,610 35,886
Indian Bank 12,334 13,198 13,353 13,453 7,060 7,571 6,793 6,854
SBI 2,05,864 1,87,765 1,72,750 1,68,494 94,810 80,944 65,895 65,624
Private coverage
Axis Bank 30,938 30,855 29,789 29,405 12,716 12,233 11,276 11,037
Bandhan Bank 413 831 820 861 220 237 228 240
City Union Bank 848 892 977 1,026 498 528 591 621
Development Credit Bank 410 445 439 470 155 163 154 163
Federal Bank 3,185 3,361 3,261 3,424 1,796 1,817 1,626 1,732
HDFC Bank 10,098 10,903 11,224 11,769 3,028 3,302 3,215 3,567
IndusInd Bank 1,781 1,968 3,947 4,200 788 1,029 2,248 2,381
Jammu & Kashmir Bank 6,068 6,860 6,221 6,252 2,489 3,049 3,240 3,382
Kotak Mahindra Bank 4,033 4,129 4,468 4,614 1,501 1,397 1,544 1,524
Yes Bank 3,866 5,159 7,883 12,092 2,020 2,876 4,485 6,883
GNPA (| crore) NNPA (| crore)
Source: Company, ICICI Direct Research
Exhibit 12: Quarterly margin trend
NIM (%) Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20
PSU coverage
Bank of Baroda 2.7 2.5 2.7 2.6 2.7 2.9 2.6
Indian Bank 2.9 2.9 3.1 3.0 2.9 3.0 2.9
SBI 2.5 2.5 2.8 2.7 2.8 2.8 2.8
Private coverage
Axis Bank 3.4 3.3 3.5 3.4 3.5 3.4 3.4
Bandhan Bank 9.6 9.3 10.3 10.3 10.5 10.7 10.5
City Union Bank 4.4 4.4 4.2 4.3 4.4 4.4 4.1
Development Credit Bank 4.1 4.1 3.9 3.8 3.8 3.8 3.7
Federal Bank 3.3 3.1 3.1 3.2 3.2 3.2 3.2
HDFC Bank 4.3 4.3 4.2 4.3 4.3 4.4 4.3
IndusInd Bank 4.0 4.0 3.9 3.8 3.8 3.6 4.1
Jammu & Kashmir Bank 4.0 3.2 3.7 3.7 3.9 4.1 3.9
Kotak Mahindra Bank 4.2 4.4 4.3 4.2 4.3 4.5 4.5
Yes Bank 3.5 3.4 3.3 3.3 3.3 3.1 2.8
Source: Company, ICICI Direct Research
Exhibit 13: Key financial of industry as of Q1FY20
(| crore) Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20
NII 85714 84835 94144 92132 99136 104651 102336
Growth YoY 14.8 1.3 27.4 11.3 15.7 23.4 8.7
Other income 38218 47391 37110 37019 41299 49070 42666
Growth YoY -16.7 0.7 -11.4 -29.1 8.1 3.5 15.0
Total operating exp. 61162 69366 64525 64068 71463 77857 71040
Staff cost 30128 34342 32053 32749 35995 36478 36200
Operating profit 62771 62860 66730 65084 68973 75864 73962
Growth YoY 1.6 -13.0 8.1 -13.8 9.9 20.7 10.8
Provision 76618 148276 77236 70471 65837 107142 56111
PBT -13888 -85460 -10552 -5437 3136 -31719 17773
PAT -6943 -55648 -7130 -4404 -197 -21535 11209
Growth YoY NM NM NM NM NM NM NM
GNPA 885788 1024586 1002682 997247 961129 920300 924271
Growth YoY 20.9 31.9 20.9 18.7 8.5 -10.2 -7.8
NNPA 469278 517775 485181 463082 417837 354507 353766
Growth YoY 12.4 20.4 3.9 2.3 -11.0 -31.5 -27.1
Source: Capitaline, Company, ICICI Direct Research
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ICICI Direct Research coverage universe (BFSI)
CMP M Cap
(|) TP(|) Rating (| Cr) FY18 FY19FY20E FY18 FY19FY20E FY18 FY19FY20E FY18 FY19FY20E FY18 FY19FY20E
Bank of Baroda (BANBAR) 101 140 Buy 38,737 -9.2 7.7 18.5 -10.9 13.1 5.4 0.8 1.2 1.0 -0.3 0.4 0.6 -5.8 9.7
State Bank of India (STABAN) 314 400 Buy 2,80,010 -7.3 1.0 26.7 -43.0 323 11.7 2.6 2.2 1.7 -0.2 0.0 0.7 -3.0 0.5 12.1
Indian Bank (INDIBA) 152 220 Hold 7,471 26.2 6.7 21.7 5.8 22.7 7.0 0.6 0.7 0.7 0.5 0.1 0.3 7.1 1.7 5.3
Axis Bank (AXIBAN) 726 865 Buy 1,90,098 -1.0 22.2 31.7 -708.7 32.8 22.9 4.0 3.3 2.4 0.0 0.8 1.0 0.0 0.8 1.0
City Union Bank (CITUNI) 216 240 Buy 15,882 8.9 9.3 10.4 24.2 23.2 20.8 3.9 3.7 3.2 1.6 1.6 1.6 15.5 15.3 14.8
DCB Bank (DCB) 214 260 Buy 6,638 7.8 10.5 14.1 27.3 20.3 15.2 2.7 2.4 2.1 0.9 1.0 1.1 10.9 12.1 14.4
Federal Bank (FEDBAN) 96 125 Buy 19,059 4.5 6.3 8.7 21.5 15.3 11.0 1.8 1.6 1.5 0.7 0.8 1.0 8.2 9.8 12.4
HDFC Bank (HDFBAN) 1,257 1,400 Buy 6,87,812 33.7 38.7 53.3 37.3 32.5 23.6 6.3 4.7 4.1 1.8 1.8 2.2 17.9 16.5 18.1
IndusInd Bank (INDBA) 1,512 1,605 Hold 1,04,739 60.1 55.0 104.0 25.2 27.5 14.5 3.9 3.7 3.0 1.8 1.3 2.0 16.2 13.1 21.2
Jammu & Kashmir Bk(JAMKAS) 35 48 Hold 1,952 3.6 8.3 9.4 9.6 4.2 3.7 0.6 0.6 0.5 0.2 0.5 0.5 3.4 7.3 7.7
Kotak Mahindra Bank (KOTMAH)1,641 1,575 Hold 3,13,324 21.4 25.5 34.1 76.5 64.4 48.0 8.7 7.6 6.7 1.7 1.7 1.9 12.5 12.1 14.2
Yes Bank (YESBAN) 55 75 Reduce 14,141 18.3 6.4 5.8 3.0 8.7 9.6 0.5 0.6 0.6 1.7 0.4 0.4 17.6 5.6 5.5
Bandhan Bank (BANBAN) 527 650 Buy 62,907 11.3 16.4 25.2 4.9 3.4 2.2 0.7 0.6 0.5 3.6 3.9 4.6 19.5 19.0 23.9
Sector / Company
RoE (%)RoA (%)EPS (|) P/E (x) P/ABV (x)
Source: Bloomberg, ICICI Direct Research
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Sector Update | Banking
RATING RATIONALE
ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined
as the analysts' valuation for a stock
Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%
Pankaj Pandey Head – Research [email protected]
ICICI Direct Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
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Sector Update | Banking
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