banking - dolat

8/10/2019 Banking - Dolat

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Financials Sector Q1FY13 Overview

In Q1 FY13, private sector banks demonstrated better performance on balance-sheet expansion,stability of margin and asset quality fronts. On deposit mobilization front, each of the private sector

banks under coverage (barring ICICI Bank) recorded higher deposit growth than the industry and

s a e-owne an s. ma er pr va e sec or pos e muc g er expans on n epos ase; among

state-owned banks, IOB, PNB and Andhra Bank were ahead of its peers

Overall, banks deposit profile demonstrated weakening with decrease in CASA share. KVB and

Andhra Bank surprised with increase in CASA share even in such tight liquidity condition; in case of

KVB, current deposit mobilization significantly aided CASA share

-

disbursements. Smaller private sector banks under coverage were better off due to their lowerbases. State-owned banks (under coverage) recorded lesser credit book expansion than the

industry overall. Canara Bank moderated its credit growth to further reduce dependence on

w o esa e a vances an s or - erm corpora e oans on unsecure as s

On asset quality front, PSU banks performance was quite dismal with sharp jump in gross slippage

ratio. SBI, UBI, Andhra Bank and BoI posted highest increase in slippages ratio on sequential basis.

IOB and OBC recorded sequential decline with higher base in Q4 FY12. Private sector banks were

better off on this front as well in our coverage universe

-,basis but not enough to maintain PCR. Most of banks under coverage reported sequential decrease

in PCR except for OBC, Syndicate Bank and ICICI Bank


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Financials Sector Overview (Contd..)

Most of banks under coverage posted further increase in outstanding restructured loan book exceptSBI, HDBK, ICICI Bank and KVB. Overall, on asset quality fronts, incrementally PSU banks were

further hit with increase in gross slippage ratio, outstanding restructured loan book and decrease in

On margin front, most of banks witnessed sequential fall in margin except for OBC and PNB.

Syndicate Bank and BoI reported biggest fall in margin on sequential basis mainly due to larger fall

in credit yield on the back of downward revision in rates, much higher slippages and loan

restructuring at lesser rates

- , -

a lag had negative impact on banks margin. Among PSU Banks, Syndicate Bank and Andhra Bankrecorded sequential increase in C-D ratio and among private sector banks, HDBK and ICICI Bank

posted further expansion in C-D ratio

On fee income front, most of banks recorded healthy growth on YoY basis; SBI, Syndicate Bank and

ICICI Bank were outliers with relatively lesser traction in our coverage universe

Overall, banks under our coverage took a beating on profitability level on sequential basis. OBC,

Syndicate Bank, SBI and Andhra Bank recorded improvement in RoA on sequential basis. OBCs

performance was robust all along and could report better performance, but in case of SBI and

, ,and took a dent on their PCR. In case of Syndicate Bank, high tax credit succored the profitability


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Financials - TOP PICKS

ICICI Bank (CMP:

956, TP :`

1,323, Buy)

ICICI Banks traction in business expansion, improvement in margin, reduction in credit cost

and decrease in leverage (with expansion in balance-sheet size) would yield higher return

ratios going forward

We ex ect credit book to ex and in hi h teens 20% CAGR durin FY12-14E driven b SME

retail & working capital requirements

The bank would record NIM in a range of 2.8-2.9% on the back of higher yield on

, ,

stability in CASA deposit share

We expect that the banks other income to grow by 17% CAGR over FY12-14E on the back of

healthy core fee income

With tier I capital of 12.8% (as on end-June12), the bank is adequately capitalized. The bankwould not be re uired to raise e uit ca ital in near future

The bank quotes at cheap valuations, hence offer an opportunity to add to the positions. At

current price, the stock quotes at 1.8x and 1.7x adjusted book value (ABV) FY13 and FY14

. , , . .FY13 and FY14 respectively


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HDFC Bank (CMP:

596, TP :

627, ACC)

HDBKs diversified credit book with prudent expansion strategy has led to healthy yield and

m n ma e nquenc es. g ow-cost epos ts s are conta n eros on n marg n an a so a es

the bank to cross-sale its other products to huge low-cost depositors base. We expect credit

to expand faster than the system at CAGR of 21% over FY12-14

Slight re-balancing in credit book in favor of high-yielding assets aided yield on advances

(mainly due to higher composition of retail loan book). Higher asset yield and expansion in C-

D ratio aided margin. Going forward, we expect NIM to stabilize at 4.2% on yearly average

Majority of fee income comes from various retail segment and is quite diversified. Incremental

adverse impact on the banks fee income would be muted

HDBK demonstrated robust performance on asset quality front; GNPA & restructured loan

book remained almost stagnant. The bank has been maintaining most comfortable assetquality amongst the peer group with GNPA at 0.97% and NNPA at 0.2%. Total restructured

assets were 0.3% of the banks gross advances as of Q1 FY13

At current price, the stock quotes at 4.0x and 3.4x adjusted book value (ABV) FY13E and

FY14E res ectivel . Based on our tar et rice of`627, the stock would trade at 4.2x and 3.6x

ABV FY13E and FY14E respectively


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Karur Vysya Bank (CMP:

401, TP :

512, Buy)

Karur Vysya Banks better understanding of clienteles business domain and widespread

regional presence are the key strengths. Continued robust credit book expansion and

contained delinquencies have been key outcomes of the banks strengths

We ex ect the banks credit book to ex and b 28% ca r in FY12-14 much hi her than the

industry. Key focus area would be retail trade, SME and agriculture sectors

In Q1 FY13, KVBs margin drifted by 22bps QoQ to 2.82% on higher cost of funds, however

, -

erosion in margin. Though, the decline in CASA share remain our near term concern. Wefactor margin to drift by 26bps to 2.62% (on yearly average basis), as a conservative stance

We expect GNPA to hold in the current level even as the marginal pressure on asset quality

would be mitigated by higher recoveries and upgradations

At current rice, the stock uotes at 1.4x and 1.3x ad usted book value ABV FY13 and FY14

respectively. Based on our price target of `512, the stock will trade at 1.8x and 1.6x ABV

FY13 and FY14 respectively


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Syndicate Bank (CMP:

95, TP :

145, Buy)

Syndicate Banks management plans to expand credit book faster than the industry, in the range of

18-19% and retail credit book would grow at even faster pace of 22%. Key focus area for credit

growth would be retail, MSME and mid-corporate. We expect credit book to grow 17.4% CAGR in

FY12-14. Faster expansion in retail and MSME books would aid asset yield and margin

The bank plans to increase its CASA share by 100-125 bps to 32% mark. Also, re-pricing of bulk

deposits and CD at lesser rated would aid margin erosion in declining interest rate scenario.

The banks mana ement ex ects 15b s decline in mar in to 3.25% from 3.4% in FY12. We factor in

10 bps decline in margin to 2.96% (on yearly average basis) primarily due to decline in interest ratesand re-pricing lag of liabilities

On the back of hi her loan rowth and ali nment of rocessin char es with eers fee income is

expected to revive. We expect the banks other income to grow by 13% YoY in FY13

As on June12, the banks asset quality improved on sequential basis; further higher PCR provides.

in FY13

At current price, the stock quotes at 0.65x and 0.56x adjusted book value (ABV) FY13 and FY14

. , . .FY14 respectively


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Financials- Q1FY13 Result Analysis

In Q1FY13, Majority of state-owned banks under coverage recorded healthy credit book expansion.They grew higher than industry barring few names likes OBC, Syndicate Bank, Andhra Bank and

Canara Bank. Canara Bank decided to moderate its pace in order to reduce the dependence for

growth on wholesale advances and short-term corporate loans on unsecured basis and thereby

maintain its asset quality

n e quar er, s nves men expan e a a pace o . o , w e our coverage un verse

reported 13.6% growth on an average. Majority of growth was contributed by addition of N-SLR

investments.

In the quarter, most of banks under coverage recorded much higher traction barring BoI. Slacknessin credit demand and banks higher base rate led corporates to go for investments. With continuous

rise in NPLs, banks are finding investments instruments relatively safer asset on risk-adjusted basis.

In Q1FY13, SCBs deposits base expanded by 16.1% YoY and our coverage universe grew at

16.6% on an average. Majority of banks under coverage recorded higher growth than industrybarrin OBC Canara Bank Union Bank and BOI. Smaller rivate sector banks could re ort better

traction due to base effect. Majority of banks under coverage witnessed sequential decline in their

CASA deposits; whereas on YoY basis, most the of banks reported 10-18% growth. On CASA ratio

front, all banks under coverage witnessed sequential decline in their CASA ratio except KVB and


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Financials- Q1FY13 Result Analysis (Contd..)

In Q1FY13, considering lack of genuine credit demand, majority of banks was not able to deploytheir incremental funds towards credit. Consequently banks incremental creditdeposit ratio

declined on sequential basis. Few banks like OBC, Axis Bank, CUB, PNB, and ICICI Bank recorded

expans on n ncremen a ra o. g er epos ra e, su ue cre eman an vers on o

banks assets towards investments reflected into slight moderation or decline in CD ratio in majority

of the banks

Majority of the banks under coverage recorded robust growth on NII front on yearly basis barring

Andhra Bank and Canara Bank which reported single digit growth. Andhra Bank reported merely 3%

YoY growth in NII which was mainly due to interest income losses due to restructuring and high

. -

expansion and difficulty in passing on higher liabilities cost.

On mar in front ma orit of banks under covera e re orted decrease in mar in. OBC and PNB

recorded improvement in margin on QoQ basis. On YoY basis, most of banks under coverage

reported decline in margin except for ICICI Bank, Axis Bank, BOI, HDBK and Syndicate Bank

On fee income front, banks under coverage recorded healthy growth on YoY basis barring SBI

whereas on QoQ basis all banks except KVB reported decline in fee income. On capital gains front,

most of the banks reported poor show due to volatility on bond yield across the tenures except for

the few ones like SBI S ndicate Bank HDBK and BoI


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Financials- Q1FY13 Result Analysis (Contd..)

In Q1FY13, in case of state-owned banks, employees expenses rose at healthy pace on YoY basismainly due to fresh recruitments and wage revisions. All the private sector banks under coverage,

employees expenses reported much higher increase due to branch expansion and wage revision

IOB and Union Bank reported increase in cost-income ratio (C-I ratio) on QoQ basis on the back of

weak NII growth and higher operating overheads

Majority of state-owned banks under coverage except for PNB, Syndicate Bank IOB and OBC

reported increase (on QoQ basis) in gross slippages ratio. Slippages from restructured loan book

also added to increase in slippages ratio; PSU banks with higher delinquency rates in previous

quarters were better off in the Q1. OBC and IOB managed to reduce their gross slippages onsequential basis; a positive surprise

n case o s a e-owne an s, core pro a y oo a ea ng ue o pressure on marg n oug ee

income remained strong. For majority of state-owned banks, gross slippages ratio also increased

due to slippages from restructured loan book. Overall, PSU banks earning quality was subdued. Onother hand, private sector banks were better off on the back of better margin, healthy fee income

and lesser slippages ratio

Further decline in provision coverage ratio (including technical write-offs) on QoQ basis across

- .coverage reported fall in PCR. Banks managed to show up good bottom-line though with a

compromise on buffer


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Conclusion

Overall, in Q1FY13, private sector banks outshined state-owned banks qualitatively and

(barring CUB & KVB). Asset quality also remained under control with some additions in

restructured loan book in CUB and Axis Bank. Overall, private banks performance remained

strong on CASA deposit, incremental gross slippages & provision coverage on balance-sheets e.

Majority of the state-owned banks performance was poor mainly due to strain on margin and

.

lesser credit costs and also reflecting banks efforts to push bottom-line at a cost on theirbuffer


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Financials Annual Estimates

Particulars RecoCMP

`

Target

Price

Upside/Down-

side

NII (`

mn) Net Profit (`

mn) P/ABV (x)

FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E

Andhra Bank BUY 95 145 52 37,593 40,377 46,921 13,447 12,933 14,703 0.8 0.7 0.6

Axis Bank BUY 1,076 1,582 47 80,177 97,289 114,277 42,422 50,797 58,961 2.0 1.7 1.4

BoI Reduce 273 250 (9) 83,134 88,731 100,918 26,775 21,113 20,993 1.0 0.9 0.8

Canara Bank BUY 333 496 49 76,893 82,397 95,487 32,827 32,833 36,232 0.9 0.8 0.7

City Union Bank BUY 51 68 33 4,998 5,989 7,335 2,803 3,161 3,751 1.7 1.4 1.2

* , , , , , , . . .

ICICI Bank BUY 956 1,323 38 107,342 139,453 165,617 64,653 81,838 92,111 2.0 1.8 1.7

IOB ACC 71 83 17 50,162 54,905 61,526 10,502 9,618 10,537 0.6 0.6 0.6

KVB BUY 401 512 28 9,171 10,710 13,635 5,017 5,324 6,640 1.6 1.4 1.3

OBC BUY 231 325 41 42,158 45,609 52,725 11,416 11,495 15,440 0.7 0.7 0.6

PNB BUY 712 912 28 134,144 145,683 170,574 48,842 46,585 58,184 1.0 0.9 0.8

SBI Reduce 1,895 1,810 (4) 432,911 452,900 515,503 117,073 126,121 155,791 1.7 1.7 1.4

Syndicate Bank BUY 95 145 53 50,850 56,932 65,296 13,134 16,377 17,257 0.8 0.6 0.6

, , , , , , . . .

*

Revised


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Net Advances

During the quarter, SCBs aggregatecredit book grew by 18.7% YoY, while

our coverage universe on an average

reported credit expansion of 19.6% YoY

Majority of state-owned banks under

barring few names likes OBC,

Syndicate Bank, Andhra Bank and

Canara Bank

Canara Bank decided to moderate its

pace to reduce the dependence for

short-term corporate loans on

unsecured basis

Bigger private sector banks credit book

grew at 22-30% rate. Old-generation

private sector banks recorded much

smaller bases


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C-D ratio (%)

In Q1FY13, considering lack ofgenuine credit demand, majority of

incremental funds towards credit.

Consequently banks incremental

credit-deposit ratio declined onsequential basis. Few banks like

OBC, Axis Bank, CUB, PNB, and

ICICI Bank recorded expansion in

Higher deposit rate, subdued credit

assets towards investments reflected

into slight moderation or decline in C-

D ratio in majority of the banks


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YoA (%)

In Q1FY13, majority of banks undercoverage recorded improvement in

YoA on YoY basis on the back of

increased exposure to high-yielding

credit portfolio

Though, some of the banks YoA

went for toss mainly due to high

slippages and sharp additions to

Some of the banks like BOI, OBC,

recorded higher drift in YoA on QoQ

basis mainly due to much higher

incremental loan restructuring

*

Ratios

are

calculated


16/37

Investments

In the quarter, SCBs investmentexpanded at a pace of 16.7% Y/Y,

13.6% growth on an average

recorded much higher traction barring

BoI

Slackness in credit demand andbanks higher base rate led

corporates to go for investments.

t cont nuous r se n s, an s

are finding investments instruments

relatively safer asset on risk-adjusted

Canara Bank, Syndicate Bank,

HDBK Andhra Bank re orted hi her

growth in investment book

Y I (%)


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YoI (%)

In the quarter, majority of banksunder coverage witnessed

mainly on the back of banks

investment into high-yielding

investments

SBI and IOB recorded highest drift in

YoI on sequential basis

*

Ratios

are

calculated

D it


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Deposits

In Q1FY13, SCBs deposits baseexpanded by 16.1% Y/Y and our

coverage un verse grew a .

on an average

recorded higher growth than

industry barring OBC, Canara

Bank, Union Bank and BOI.

Smaller private sector banks couldreport better traction due to base

effect

On sequential basis, only Union

Bank & Syndicate Bank recorded-

Higher retail term deposit rates

in most of the banks

C D (%)


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CoD (%)

In Q1FY13, each of the banks undercoverage reported uptick in cost of

BOI mainly on the back of

continuous re-pricing of deposits

Banks with higher dependence on

whole-sale deposits and faster

deposit mobilization reported slightly

higher increase in cost of deposits

Canara Bank, HDBK and KVB

reporte g er expans on n o

on QoQ basis

*

Ratios

are

calculated

(Cost

of

funds)

CASA D it & CASA R ti


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CASA Deposits & CASA Ratio

All banks under coverage witnessed

sequential decline in their CASA ratio except

KVB and Andhra Bank

Majority of banks under coverage witnessed

sequential decline in their CASA deposits;

whereas on YoY basis, most the of banks

reported 10-18% growth

NII


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NII

Majority of the banks under coverage

recorded robust growth on NII front

barring Andhra Bank and Canara Bank

which reported single digit growth (on

yearly basis)

Canara Bank reported lesser growth in

NII mainly due to moderation in

- . ,

yield on advances and funds went upby 62bps and 48bps on YoY basis;

whereas its cost of deposits and funds

expanded by 84bps and 63bps YoY

leading to de-growth in NII

n ra an repor e mere y o

growth in NII which was mainly due to

interest income losses due to

restructurin and hi h sli a es

NIM (%)


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NIM (%)

On margin front, majority of banksunder coverage reported decrease in

on advances and almost flat liabilities

cost

OBC and PNB recorded improvement

in margin on QoQ basis

On YoY basis, most of banks undercoverage reported decline in margin

except for ICICI Bank, Axis Bank, BOI,

Fee & Treasury Income


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Fee & Treasury Income

On fee income front, banks under coverage

recorded healthy growth on YoY basis barring

KVB reported decline in fee income

On capital gains front, most of the banks

yield across the tenures except for the few

ones like SBI, Syndicate Bank, HDBK and BoI

Employee Expenses


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Employee Expenses

In Q1FY13, in case of state-ownedbanks, employees expenses rose at

All the private sector banks under

,

reported much higher increase due to

branch expansion and wage revision

On QoQ basis, PNBs employeeexpenses grew at a robust pace as it

provided more for employee

expenses ue to c ange n actuar a

valuation of employees expenses

liabilities

C I Ratio (%)


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C-I Ratio (%)

IOB and Union Bank reported

increase in cost-income ratio C-I

ratio) on QoQ basis on the back of

weak NII growth and higher operating

overheads

Andhra Bank, BoI, OBC and PNB

were on lower side on C-I ratio at

-

banks were on higher side in a rangeof 42-49%

Branches


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Branches

Over the past one year, privatesector banks expanded their

networks at faster ace

Axis Bank, CUB, HDBK and KVB

recorded 17-22% YoY incrementaladdition to their branch networks;

ICICI Banks branch network reported

9% expansion

Among state-owned banks, BoI and

IOB recorded 20% YoY incremental

,

banks branch addition took place at

slightly moderate pace

Gross slippage ratio (%)


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Gross slippage ratio (%)

Majority of state-owned banks undercoverage except for PNB, Syndicate

(on QoQ basis) in gross slippages

ratio

Slippages from restructured loan book

also added to increase in slippages

ratio; PSU banks with higher

delinquency rates in previous quarters

were better off in the Q1

an manage to re uce

their gross slippages on sequential

basis; a positive surprise

Credit Cost (%)


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Credit Cost (%)

Against the sequential rise in gross

slippages ratio, some of the state-

owned banks made lesser NPA

provisions in order to enhance their

profitability and core capital

PNB, SBI, Syndicate Bank and

OBC made lesser provisions

Net Profit


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Net Profit

In terms of growth and quality inbottom-line, private sector banks

ou per orme s a e-owne an s;

latters performance could have been

impacted even more if one factors in

higher credit cost considering surge ingross slippages ratio

Quality of bottom-line deteriorated in

- .

yearly basis, all banks under coverageexcept Andhra Bank reported increase

in net profit growth

Majority of the state owned banks

incremental gross slippages ratios were

restructured loan book were also

elevated. PSU banks lesser NPA

provision reflected into reduced

prov s on coverage rat o an t ere yincrease in their profitability

RoA (%)


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RoA (%)

Among the state-owned banks,majority of banks reported flat or

decline in RoA sequentially owing to

lesser margin, moderation in core fee

income and requirements of NPA

OBC, Syndicate Bank and SBI

recorded rise in RoA on se uential

basis

ICICI Bank recorded shar um in

return ratio on YoY basis mainly due

to higher margin and much lesser

NPL provision

On sequential basis, Union Bank,

IOB and PNB reported sharp decline

deterioration

RoAE (%)


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RoAE (%)

On return ratio level, relatively mostof private sector performed well on

yearly basis

Among state-owned banks, OBC wase er o ma n y ue o e er

performance on margin and lesser

NPL provisioning on sequential basis

Asset Quality


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Asset Quality

Barring few banks, most of the banks under coverage reported increase in gross and net NPA levels

gross NPA level on QoQ basis

Provision Coverage Ratio (incl tech w/off)


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Provision Coverage Ratio (incl tech w/off)

OBC, Syndicate Bank, ICICI Bank,PNB and KVB recorded improvement in

,

though Andhra Bank and SBIs

provision coverage came down sharply

due to lesser provisioning

Majority of banks under coverage

reported fall in PCR. Banks managed to

show up good bottom-line though witha compromise on buffer

Restructured Assets as % to Net Advances


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%

On restructuring front, state-ownedbanks witnessed further deterioration

with um in restructured loan book.

Particulars Q1FY13 Q4FY12 Q1FY12

Andhra Bank 7.9 7.1 3.7

Barring few PSU banks (likes SBI and

IOB) all other banks under coverage

saw their loan restructuring increasing

Axis Bank 2.2 1.8 1.6

BoI 7.8 5.7 5.2

Canara Bank 6.2 3.4 4.0 s arp y

Private sector banks were better off

CUB 2.3 2.2 2.8

HDBK 0.3 0.4 0.4

ICICI Bank 1.6 1.7 0.9

Bank witnessed increase in itsrestructured loan book

IOB 9.1 9.0 5.8

KVB 2.6 2.7 2.6

OBC 9.6 8.5 3.8

PNB 8.7 8.5 6.4

SBI 4.0 4.3 4.5

S ndicate Bank 7.0 4.9 4.2

Union Bank 7.8 6.7 4.0

Dolat Universe 5.3 4.7 3.9

GNPA

&Restructured

Assets

as

%

to

Gross

Advances


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`

Q1FY13

O/S Particulars ` mnGNPA %

Restructured Aseets

% to Gross Advances `

NPAsRestructured

assets

Advances

Andhra Bank 23,583 67,690 10.5

FY13E FY14E FY13E FY14E

Andhra Bank 2.5 2.5 9.0 8.1

Axis Bank 1.2 1.2 2.2 2.1 , , .

BoI 67,518 205,894 10.3

Canara Bank 44,966 140,559 8.2

CUB 1,372 2,908 3.4

BoI 2.6 2.5 8.7 8.0

Canara Bank 1.9 1.9 5.7 5.5

CUB 1.0 0.9 2.1 1.8

HDBK 20,863 6,451 1.3

ICICI Bank 98,166 41,720 5.1

IOB 44,097 133,680 12.0

ICICI Bank 3.2 2.9 1.9 1.9

IOB 3.0 2.9 10.0 9.5

KVB 3,769 6,474 4.1

OBC 33,776 109,538 12.6

PNB 99,882 255,190 11.9

. . . .

OBC 3.0 2.7 9.4 9.0

PNB 3.5 3.5 9.4 8.5

SBI 471,564 369,040 8.9

Syndicate Bank 30,768 88,800 9.3

Union Bank 65,415 135,210 11.4

. . . .

Syndicate Bank 2.6 2.5 6.8 6.7

Union Bank 3.7 3.9 7.4 6.7

Capital Adequacy Ratio (%)


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Capital Adequacy Ratio (%)

On core capital front, among private sector banks under coverage, Axis Bank was slightly on

lesser side at 9%. Other private sector banks under coverage had tier I capital in double digit

mong s a e-owne an s, o , an n on an a er cap a n a range o - . ,

other PSU banks were relatively comfortable


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