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STATE BANK OF INDIA - BUY

CMP: Rs2556; Target Price: Rs. 3140; Upside: 22.80%; Investment Period: 1YR

Stock Information - Sector Banking Market cap Rs. 162327Cr

Face value Rs. 10

Book Value Rs. 1309.47

EPS (ttm basis) Rs. 184.16

52 week H/L Rs. 3515/1863

Avg. Daily Vol (2wk) 5.07/9.05 lacs

Credit-Deposit 76.11%

Dividend 16.29%

Managing Director R Shridharan

Listed At NSE/BSE

Equity capital Rs. 634.88cr

Shareholding Pattern as on 30th Sep 2010

Promoter Holding 59.40% FIIs 13.99 % DIIs 15.54 % Public & Others 11.07%

State Bank of India is the country’s largest commercial bank in term of profit, assets, advances, deposits, branches and employee. SBI played a extremely important role in developing India, providing the financing needed to modernize the country’s agriculture industry and develop new irrigation method and backing the creation of dairy farming as well as pork and poultry industry. The Bank also provides the backing for the development of country’s infrastructure. Robust operating performance During the quarter, advances of the bank increased by 4.2% qoq and 15.87% YOY. Deposits grew by 4.9% qoq and 10.7% YOY on the back of healthy 27.7% growth in CASA deposits. The CASA ratio of the Bank increased by 30bp to 47.8% as on the quarter ended September 30, 2010. Comfortable capital adequacy Capital adequacy ratio as per the Basel ii norms of the bank is 13.39% at the end of the March 2010 with Tier-I at 9.45%. The capital adequacy of the bank is high as compare to the minimum mandatory requirement of 9%. The SBI is planning to raise Rs.20000cr through a right issue in last quarter of this fiscal. It would be increase the capital adequacy of the Bank. VALUATION At the current price of Rs. 2556, the stock is trading at just 12.18x and 8.85x times of our estimated FY11E & FY12E earning. We thus recommend a “BUY” with a target price of Rs. 3140. Particulars 2010 2011 E* 2012 E*

Interest Earned (Rs. Cr) 100080.7 120357.4 143125

% change in Interest Earned - 20.26 18.92

Interest Expended (Rs. Cr) 66637.51 74468.18 92436.84

PBIDT (Rs. Cr) 24798.93 28599.63 31098.43

Profit After Tax (Rs. Cr) 12013.64 13328.1 16039.11

% change in PAT - 10.94 20.34

EPS (Rs) 184.16 209.92 252.62

PE Ratio 13.88 12.18 8.85

NIM % 2.66 3.40 3.40

NPM % 8.98 8.85 9.08

FairWealth Equity Research Desk www.fairwealth.in/research.aspx E-mail: [email protected] DirectLine: 0124-3009218/216

FairWealth Equity Research

18 January 2011

0.0020.0040.0060.0080.00100.00120.00140.00160.00

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Sensex SBI

http://www.fairwealth.in/research.aspx

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Fairwealth Research Desk

Fair Picks- Banking

2 18 January 2011

INVESTMENT ARGUMENT Nationwide distribution channel SBI provides a range of banking services through its vast network of branches in India and overseas. The State Bank group with a network of 17337 branches including 4841 branches of its six associates Banks dominates the banking industry. In addition to banking, the Group, through its various subsidiaries, provides a whole range of financial services which include life insurance, merchant banking, mutual fund, credit cards, factoring, security trading, pension fund management and primary dealership in the money market. SBI has seven associates’ banks, “State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Indore, State Bank of Mysore, State Bank of Sourashtra and State Bank of Travancore”. But now SBI has only five associate’s banks that with SBI constitute the State Bank group. Acquisition of State Bank of Indore added 470 branches to SBI’s existing network of 12448 and over 21000 ATMs. Overseas expansion The number of foreign offices increased from 92 as on 31st March 2009 to 142 as on 31st March 2010 spread across 32 countries. The offices comprised 42 branches, 8 representative offices, 2 sub offices, 2 extension counters, 82 offices of the six foreign banks subsidiaries, an associates (Bank of Bhutan), equity investments in a foreign bank (Sterling Banks, Nigeria) and 2 managed exchange companies. Advances and Deposits of the bank expected to increase from its foreign branches because SBI has opened two more branches in overseas market in current financial year. NIM continues its ride on the growth path The Bank’s reported NIM has been witnessing an upward trend since hitting a low 2.30% in 1QFY2010, from which it has improved by 113bp to 3.43% in 2QFY2011. We expect the NIM of the bank will be increase because of the increase in the interest income of the bank. Advances expected to grow because of the industrial demand and infrastructure funding Gross Advances of the bank grew by Rs. 92940cr, a growth of 16.94% from Rs. 548540cr in March 09 to Rs. 641480cr in March 2010. Consolidated advances of the bank grew by 15.88% from 750362.38cr in March 2009 to Rs. 869501.63cr. SBI advances expected to increase by 20% in financial year 2011 and 22.4% in financial year 2012 because of the industrial demand and more infrastructure funding by the bank. GOI is planning to invest around $1tr in next five year plan. Bank’s advances are highly correlated to the overall performance of the economy in tune to the industrial performance. Industrial demand for the loan will be remain high in near future because of the more industrial output and government spending. Growth in the retail loan (Auto loan, Home loan, Personal loan, Education loan) expected to increase in future. Gross advances of the Bank grew by 19.47% from Rs. 580237cr as on quarter ended September 30th 2009 to Rs. 693224cr as on quarter ended September 30th 2010.

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Advances (Cr) Growth (%)

Advances and Growth

The Bank’s reported NIM has been witnessing an upward trend since hitting a low 2.30% in 1QFY2010, from which it has improved by 113bp to 3.43% in 2QFY2011.


Fair Picks- Banking

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Deposits expected to gDeposits of the Bank went up by Rs. Rs.growth of 26.76%. 1011988.31cr as on March 31, 2009 to Rs. 116464.50cr as on March 31, 2010. Deposits of the bank expected to groin fiscal 2011of India has increased its deposits rate by 100went up from 772904cr in September 09 to Rs. 855345cr in recording a YOY growth of 10.67%. Net Interest Income increased by Net Interest Income of the bank increased by 45.59% as on quarter ended September 30, 2010 against a growth of 30, 2009. Interest expenses on deposits of the bank decreased by 4% during the quarter September 30, 2010 against a growth of 13.93% during Q2FY09, through strategic shedding of high cost bulk deposits and growth in CASA deposits. Net Interest Inco2010 over fy09. Net interest income becits base rate to 7.75% and BPLR by 25bp. It wouincome of the bank. Healthy non interest income, sTotal Noninvestments coming down by 63.82% (Rs. 348cr). Non Interest Income excluding profit on sale of investment is up by 27.80%. Fee Income of the Bank went up by 40.04% YOY in Q2FY11, commission on LC/BG and government business.

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Deposits (Cr) CD ratio (%)

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Fee Income of the Bank grew by 40.04% in Q2FY10. Total Non-Interest income of the bank up by 13.62%

Deposits expected to grow because of the soaringDeposits of the Bank went up by Rs. 62043cr, a growth of 8.36% from Rs.742043cr in March 2009 to Rs. 804116cr in March 2010 driven by CASA growth of 26.76%. Consolidated deposits of the bank grew by 1011988.31cr as on March 31, 2009 to Rs. 116464.50cr as on March 31, 2010. Deposits of the bank expected to grow by 15% in current fiscal and around 19% in fiscal 2011-12 because of the soaring deposits rate by the bank. State Bank of India has increased its deposits rate by 100-150bp. went up from 772904cr in September 09 to Rs. 855345cr in recording a YOY growth of 10.67%. Net Interest Income increased by 45.59% in Q2 Net Interest Income of the bank increased by 45.59% as on quarter ended September 30, 2010 against a growth of 4.69% as on quarter ended Se30, 2009. Interest expenses on deposits of the bank decreased by 4% during the quarter September 30, 2010 against a growth of 13.93% during Q2FY09, through strategic shedding of high cost bulk deposits and growth in CASA deposits. Net Interest Income of the bank increased by 15.16% in financial year 2010 over fy09. Net interest income of the bank will be increase in future because of the advances of the bank is rising. State Bank of India has increased its base rate to 7.75% and BPLR by 25bp. It would be increase the interest income of the bank. Healthy non interest income, supported strongly by fee incomeTotal Non-Interest income of the bank up by 13.62% despite profit on sale of investments coming down by 63.82% (Rs. 348cr). Non Interest Income excluding profit on sale of investment is up by 27.80%. Fee Income of the Bank went up by 40.04% YOY in Q2FY11, driven by robust growth in cross selling, commission on LC/BG and government business.

18 January 2011

soaring deposits rate 3cr, a growth of 8.36% from

742043cr in March 2009 to Rs. 804116cr in March 2010 driven by CASA Consolidated deposits of the bank grew by 10.32% from Rs.

1011988.31cr as on March 31, 2009 to Rs. 116464.50cr as on March 31, 2010. w by 15% in current fiscal and around 19%

12 because of the soaring deposits rate by the bank. State Bank 150bp. Deposits of the Bank

went up from 772904cr in September 09 to Rs. 855345cr in September 10

Net Interest Income of the bank increased by 45.59% as on quarter ended 4.69% as on quarter ended September

30, 2009. Interest expenses on deposits of the bank decreased by 4% during the quarter September 30, 2010 against a growth of 13.93% during Q2FY09, through strategic shedding of high cost bulk deposits and growth in CASA

me of the bank increased by 15.16% in financial year ank will be increase in future

State Bank of India has increased ld be increase the interest

upported strongly by fee income Interest income of the bank up by 13.62% despite profit on sale of

investments coming down by 63.82% (Rs. 348cr). Non Interest Income excluding profit on sale of investment is up by 27.80%. Fee Income of the Bank

driven by robust growth in cross selling,


Fair Picks- Banking

4 18 January 2011

ICICI BANK - BUY

INVESTMENT ARGUMENT

CMP: Rs. 1011; Target Price: Rs. 1230; Upside: 21.50%; Investment Period: 1YR

Stock Information - Sector Banking Market cap Rs. 116085Cr

Face value Rs. 10



52 week H/L Rs. 1277/773

Avg. Daily Vol (2wk) 7.19 lacs


Dividend 28.99%

Managing Director Chandra Kochhar

Listed At NSE/BSE


Free Float


Promoter Holding 0 FIIs 39.27 % DIIs 23.09% Public & Others 37.64%

ICICI Bank is the country’s second largest bank in term of profit, assets, advances, deposits, branches. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and assets management. Strong CASA growth CASA deposits of the ICICI Bank increased by 34.5% to Rs. 98105cr at September 30, 2010 from Rs. 72930cr at September 30, 2009 with CASA ratio stands at 44% at September 30, 2010 from 36.9% at September 30, 2009. The Bank’s CASA ratio has increased from 28.7% at March 31, 2009 to 41.7% at March 31, 2010, resulting in a significantly enhanced stable low cost deposit base. Capital adequacy of the bank in good health The bank’s capital adequacy at September 30, 2010 as per the reserve bank of India’s guidelines on Basel ii norms was 20.2% and Tier-I capital adequacy was 13.8%, well above RBI’s requirement of total capital adequacy of 9% and Tier-I capital adequacy of 6%. The bank’s capital adequacy at year ended March 31, 2010 was 19.41% well above RBI’s requirement. VALUATION At the current price of Rs. 1011, the stock is trading at just 19.37x and 14.91x times of our estimated FY11E & FY12E earning. We thus recommend a “BUY” with a target price of Rs. 1230. Particulars 2010 2011 E* 2012 E*

Interest Earned (Rs. Cr) 30153.71 36427.18 43929.44

% change in Interest Earned 21 21


PBIDT (Rs. Cr) 11900.21 13388.59 16443.42


% change in PAT 24 26

EPS (Rs) 41.93 52.17 66.26

PE Ratio 25.31 19.75 15.65

NIM % 2.60 3.00 3.00

NPM % 8 9 9


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Fair Picks- Banking

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Nationwide distribution nICICI Bankcorporate and retail customers. banking and and commission based products and services, deposits products and foreign exchange and derivative products to India’s leading corporation, middle market companies and small and medium enterservices through a varietyinternet and mobiles phones. 5665 ATMs in India at August 19, 2010. Merger of Bank of RThe Bank of Rajasthan, a listed private sector bank, merged with ICICI Bank with effect from August 12, 2010. At 463 branches and 127 ATMs. It had total assets of Rs. 173of Rs. 15060cr and total advances of Rs. 8330cralso a sponsoring entity of a regional rural bank called the MGramin Bank, with a holding of 35%. The Mewar Anchalik Gramin Bank had 58 branches end fiscal 2010. especially i Net nonNet non performing assets of the bank decreased by 30% to Rs. 3192cr at September 30, 2010 bas compare toratio computed in accordance with the RBI guidelines at September 30, 2010 was 69% compared to September 30, 2009. Profitability gets Profit after Tax (PAT) of the ICICI Bank increaseQ2 FY11 from 1040cr for Q2 FY108.3% to Rs. 2204cr for the quarter ended September 30, 2010 as against Rs. 2036cr for the14.6% to Rs. 2204cr quarter ended September 30, 2011 from Rs. 1387cr in Q22010. Net Interest Margin (NIM) of the ICICI Bank increased to 2.6% in Q2from 2.5% in Q21395cr for the quarter ended September 30, 2011 from Rs. 1145cr in Q2

Comprehensive product pICICI bank provides wide range of product to their customer which include insurance products, derivative productIncome from insurance business of the bank grew by 11.5% from Rs. 183.6bn is fiscal 2009 to Rs. 204.8bn in fiscal 2010. Income form insurance premium includes net premium income, fee income and commission income.

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CAR (%)

36.9 36.9

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CASA Ratio

CASA Ratio (%)

The Bank’s net non performing ratio decreased to 1.37% as on September 30, 2010 as compare to 2.19% at September 30, 2009.

Nationwide distribution network ICICI Bank’s primary business consists of commercial banking operation for corporate and retail customers. The bank’s provides a range of commercial banking and project finance product and services, including loan products, fee and commission based products and services, deposits products and foreign exchange and derivative products to India’s leading corporation, middle market companies and small and medium enterprises. Bank deliver its product and services through a variety of channels, including, ATMs, call cinternet and mobiles phones. The bank had a network of 2501 branches and 5665 ATMs in India at August 19, 2010. Merger of Bank of Rajasthan with ICICI Bank The Bank of Rajasthan, a listed private sector bank, merged with ICICI Bank with effect from August 12, 2010. At year end 2010, the Bank of Rajasthan had 463 branches and 127 ATMs. It had total assets of Rs. 173of Rs. 15060cr and total advances of Rs. 8330cr. The Bank of Rajasthan was also a sponsoring entity of a regional rural bank called the MGramin Bank, with a holding of 35%. The Mewar Anchalik Gramin Bank had 58 branches with total deposits of Rs. 430cr and total loans of Rs. 150crend fiscal 2010. This will enhance the ICICI Bank’s distribution network especially in rural areas of Rajasthan. Net non-performing assets decreased by 30% Net non performing assets of the bank decreased by 30% to Rs. 3192cr at September 30, 2010 as against to Rs. 4558cr at September 30, 2009. The bank’s net non performing ratio decreased to 1.37% as compare to 2.19% at September 30, 2009. The bank’s provisioning coverage ratio computed in accordance with the RBI guidelines at September 30, 2010 was 69% compared to September 30, 2009. Profitability gets better in QoQ Profit after Tax (PAT) of the ICICI Bank increased by 18.8% to Rs. 1236cr for Q2 FY11 from 1040cr for Q2 FY10. The bank net interest income increased by 8.3% to Rs. 2204cr for the quarter ended September 30, 2010 as against Rs. 2036cr for the quarter ended September 30, 2009. Fee income increased by 14.6% to Rs. 2204cr quarter ended September 30, 2011 from Rs. 1387cr in Q22010. Net Interest Margin (NIM) of the ICICI Bank increased to 2.6% in Q2from 2.5% in Q2-2010. Consolidated profit after tax increase by 21.8% to Rs. 1395cr for the quarter ended September 30, 2011 from Rs. 1145cr in Q2

Comprehensive product portfolio ICICI bank provides wide range of product to their customer which include insurance products, derivative products, fee and commission based products. Income from insurance business of the bank grew by 11.5% from Rs. 183.6bn is fiscal 2009 to Rs. 204.8bn in fiscal 2010. Income form insurance premium includes net premium income, fee income and commission income.

18 January 2011

primary business consists of commercial banking operation for ank’s provides a range of commercial

project finance product and services, including loan products, fee and commission based products and services, deposits products and foreign exchange and derivative products to India’s leading corporation, middle market

prises. Bank deliver its product and of channels, including, ATMs, call centers, the

ank had a network of 2501 branches and

The Bank of Rajasthan, a listed private sector bank, merged with ICICI Bank year end 2010, the Bank of Rajasthan had

463 branches and 127 ATMs. It had total assets of Rs. 17300cr, total deposits . The Bank of Rajasthan was

also a sponsoring entity of a regional rural bank called the Mewar Anchalik Gramin Bank, with a holding of 35%. The Mewar Anchalik Gramin Bank had 58

with total deposits of Rs. 430cr and total loans of Rs. 150cr at the year This will enhance the ICICI Bank’s distribution network

Net non performing assets of the bank decreased by 30% to Rs. 3192cr at 8cr at September 30, 2009. The

to 1.37% as on September 30, 2010 ank’s provisioning coverage

ratio computed in accordance with the RBI guidelines at September 30, 2010

d by 18.8% to Rs. 1236cr for ank net interest income increased by

8.3% to Rs. 2204cr for the quarter ended September 30, 2010 as against Rs. quarter ended September 30, 2009. Fee income increased by

14.6% to Rs. 2204cr quarter ended September 30, 2011 from Rs. 1387cr in Q2-2010. Net Interest Margin (NIM) of the ICICI Bank increased to 2.6% in Q2-2011

after tax increase by 21.8% to Rs. 1395cr for the quarter ended September 30, 2011 from Rs. 1145cr in Q2-2010.

ICICI bank provides wide range of product to their customer which include s, fee and commission based products.

Income from insurance business of the bank grew by 11.5% from Rs. 183.6bn is fiscal 2009 to Rs. 204.8bn in fiscal 2010. Income form insurance premium includes net premium income, fee income and commission income.


Fair Picks- Banking

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Advances and deposits expected to gThe bcompared to 54.2% to total liabilities at yeardecreased2415to ICICI Bank’s conscious stdecline in Bank’s repuee loan portfolio.decrease primarily due to the decrease in retail advances, which resulted in a decrease in funding requirements. We expect that the advancesbe increase by 20% in fiscal 2011 because of the increasing demand for infrastructure funding, especially for the power project, telecom sector, steel industfiscal deposits base. The bank continues to leverage its branch network to enhance its deposits franchise and create an integrated distribution network for both assets and liability product. ICICI international bThe bmeeting the foreign currency needs of our Indian corporate clients, taking select trade finance exposure linked to imports to India and achieving preferred non

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Profit Per Employee (lacs)

Continued sequential expansion in advances to 1,942.01bn at September 30, 2010 from 1,843.78bn at June 30, 2010

Advances and deposits expected to grow with branch expansionThe bank’s deposits were 49.4% of the total liabilities at yearcompared to 54.2% to total liabilities at year-end fiscal 2009.decreased by 7.7% from Rs. 261855.75cr at year241572.30cr at year-end fiscal 2010. The decrease in deposits is primarily due to ICICI Bank’s conscious strategy of reducing wholesale deposits and the decline in Bank’s repuee loan portfolio. The bdecrease primarily due to the decrease in retail advances, which resulted in a decrease in funding requirements. We expect that the advancesbe increase by 20% in fiscal 2011 because of the increasing demand for infrastructure funding, especially for the power project, telecom sector, steel industry and oil & gas industry. The bank’s deposits will be increase by 18% in fiscal 2011 because ICICI Bank has hiked their deposits rate to protect their deposits base. The bank continues to leverage its branch network to enhance its deposits franchise and create an integrated distribution network for both assets and liability product. ICICI international banking The bank’s international strategy focus on building a retail deposits franchise, meeting the foreign currency needs of our Indian corporate clients, taking select trade finance exposure linked to imports to India and achieving preferred non-resident Indian community bank in key market.

18 January 2011

row with branch expansion ank’s deposits were 49.4% of the total liabilities at year-end fiscal 2010

end fiscal 2009. Deposits at year-end fiscal 2009 to Rs.

end fiscal 2010. The decrease in deposits is primarily due rategy of reducing wholesale deposits and the

The bank’s domestic advances decrease primarily due to the decrease in retail advances, which resulted in a decrease in funding requirements. We expect that the advances of the bank will be increase by 20% in fiscal 2011 because of the increasing demand for infrastructure funding, especially for the power project, telecom sector, steel

ank’s deposits will be increase by 18% in 2011 because ICICI Bank has hiked their deposits rate to protect their

deposits base. The bank continues to leverage its branch network to enhance its deposits franchise and create an integrated distribution network for both

ank’s international strategy focus on building a retail deposits franchise, meeting the foreign currency needs of our Indian corporate clients, taking select trade finance exposure linked to imports to India and achieving the status of the

resident Indian community bank in key market.


Fair Picks- Banking

7 18 January 2011

HDFC BANK - BUY

CMP: Rs.2109; Target Price: Rs. 2470; Upside: 17%; Investment Period: 1YR

Stock Information - Sector Banking Market cap Rs. 97798 Cr

Face value Rs. 10



52 week H/L Rs. 2518/1550

Avg. Daily Vol (2wk) 0.47/0.52 lacs


Dividend 19.22%

Managing Director Aditya Puri

Listed At NSE/BSE


Free Float



Housing Development Finance Corporation (HDFC) Bank is the second largest private sector bank in India. The objective of the bank to build sound customer franchise across distinct businesses so as to be the preferred provider of banking services for target retail and whole customer segments, and to achieve healthy growth in profitability consistent with bank risk appetite. Healthy capital adequacy The bank’s capital adequacy ratio (CAR) as at March 31, 2010 (computed as per the Basel-ii guideline) stood at 17.4% as against 15.7% as of March 31, 2009. The Bank’s total capital adequacy ratio as at September 30, 2010 remained strong at 17% as against 15.7% as of September 30, 2009. On the back of this strong CAR, we expect the bank increase it advances by 30% over FY2011-12. Wide-ranging product portfolio and cross selling Apart from the traditional derivative and forex income, the bank earns substantial fee income from transaction banking, cards and third party distribution, among others. Overall, the bank’s core fee income increased by 16% on quarter ended September 30, 2009 and 5.7% on year ended March 31, 2010. It was one of the best in the sector and marked another significant competitive advantage over its peers. VALUATION At the current price of Rs. 2109, the stock is trading at just 24.18x and 18.51x times of our estimated FY11E & FY12E earning. We thus recommend a “BUY” with a target price of Rs. 2470. Particulars 2010 2011 E* 2012 E*


% change in Interest Earned - 0.29 0.18


PBIDT (Rs. Cr) 6432.73 7589.83 8959.07


% change in PAT - 0.36 0.31

EPS (Rs) 62.43 87.22 113.94

PE Ratio 33.78 24.18 18.51

NIM % 4.30 4.30 4.30

NPM % 0.15 0.16 0.18


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Fair Picks- Banking

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Nationwide distribution nHDFC Bank at present has an enviable branch network of over 1765 branches spread over Time Basis. The also has a network of around 4721 ATM’s across these cities. HDFC Bank ATM can be accessed by all domestic and International VISA/Master Card, Visa Electron/Maestro, Plus/CirCredit cardholders. The bank’s focus on semicontinued, with 68% of the bank’s branches now outside the top nine Indian cities. The average saving balance per account which is a good indicator of thestrength of the bank’s retail liability franchise grew over 30%. The Bank continues to provide unique products and services with customer centricity a key objective.

Value pHDFC Bank recognized as a leading provider of cash management and transactional banking solution to corporate customer, mutual fund, stock exchange member and banks. Bankand banking services. HDFC bank was firstinternational debit card in association with VISA (VISA Electron) and issued the Master Card (Maestro Debit Card) as well. Robust financial pThe financial performance during the fiscal year ended March 31, 2010 remained healthy. For the year ended March 31, 2010, the bank earned total income of Rs. 19980.5cr. Net revenues (Net interest income plus other income) for the year ended 10711.8cr for the year ended March 31, 2009. Net revenues were Rs. 3487cr for the quarter ended Septem3009.3cr for the corresponding quarter of the previous year. The Banet interest margin for the year ended is around 4.3%. Net interest income for the quarter ended September 30, 2010 grew by 29.2% to Rs. 2526.3cr, driven by the average assets growth of 30% and a stable net interest ma4.2%. The bankup 31.39% over the year endebank increased by 33.6% to Rs. 3003.7cr for the year ended March 31, 2010. After providing Rs. 440.5cr f912.21cr an increase of 32.7% over the corresponding quarter ended September 30, 2009.

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Net Interest Income & Margin

The Banks Capital Adequacy Ratio remained strong at 17.4% and CASA ratio was at 50% of the total deposits.

INVESTMENT ARGUMENT

Nationwide distribution network HDFC Bank at present has an enviable branch network of over 1765 branches spread over 819 cities across India. All braches are linkedTime Basis. The also has a network of around 4721 ATM’s across these cities. HDFC Bank ATM can be accessed by all domestic and International VISA/Master Card, Visa Electron/Maestro, Plus/Circus and American Express Credit cardholders. The bank’s focus on semi-urban and underbanked markets continued, with 68% of the bank’s branches now outside the top nine Indian cities. The average saving balance per account which is a good indicator of thestrength of the bank’s retail liability franchise grew over 30%. The Bank continues to provide unique products and services with customer centricity a key objective.

Value proposition HDFC Bank recognized as a leading provider of cash management and transactional banking solution to corporate customer, mutual fund, stock exchange member and banks. Bank provides a full range of financial products and banking services. HDFC bank was first bank in India to launch an international debit card in association with VISA (VISA Electron) and issued the Master Card (Maestro Debit Card) as well.

Robust financial performance The financial performance during the fiscal year ended March 31, 2010 remained healthy. For the year ended March 31, 2010, the bank earned total income of Rs. 19980.5cr. Net revenues (Net interest income plus other income) for the year ended March 31, 2010 were Rs. 12194.2cr. up by 13.8% over Rs. 10711.8cr for the year ended March 31, 2009. Net revenues were Rs. 3487cr for the quarter ended September 30, 2010, an increase of 15.9% over Rs. 3009.3cr for the corresponding quarter of the previous year. The Banet interest margin for the year ended is around 4.3%. Net interest income for the quarter ended September 30, 2010 grew by 29.2% to Rs. 2526.3cr, driven by the average assets growth of 30% and a stable net interest ma4.2%. The bank’s net Profit for year ended March 31,2010 was Rs. 2948.7cr, up 31.39% over the year ended March 31, 2009. Consolidated net pbank increased by 33.6% to Rs. 3003.7cr for the year ended March 31, 2010. After providing Rs. 440.5cr for taxation, the bank earned a net p912.21cr an increase of 32.7% over the corresponding quarter ended September 30, 2009.

18 January 2011

HDFC Bank at present has an enviable branch network of over 1765 branches 819 cities across India. All braches are linked to an Online Real-

Time Basis. The also has a network of around 4721 ATM’s across these cities. HDFC Bank ATM can be accessed by all domestic and International

cus and American Express urban and underbanked markets

continued, with 68% of the bank’s branches now outside the top nine Indian

The average saving balance per account which is a good indicator of the strength of the bank’s retail liability franchise grew over 30%. The Bank continues to provide unique products and services with customer centricity a

HDFC Bank recognized as a leading provider of cash management and transactional banking solution to corporate customer, mutual fund, stock

provides a full range of financial products bank in India to launch an

international debit card in association with VISA (VISA Electron) and issued the

The financial performance during the fiscal year ended March 31, 2010 remained healthy. For the year ended March 31, 2010, the bank earned total income of Rs. 19980.5cr. Net revenues (Net interest income plus other income)

were Rs. 12194.2cr. up by 13.8% over Rs. 10711.8cr for the year ended March 31, 2009. Net revenues were Rs. 3487cr

increase of 15.9% over Rs. 3009.3cr for the corresponding quarter of the previous year. The Bank’s core net interest margin for the year ended is around 4.3%. Net interest income for the quarter ended September 30, 2010 grew by 29.2% to Rs. 2526.3cr, driven by the average assets growth of 30% and a stable net interest margin (NIM) of

et Profit for year ended March 31,2010 was Rs. 2948.7cr, d March 31, 2009. Consolidated net profit of the

bank increased by 33.6% to Rs. 3003.7cr for the year ended March 31, 2010. the bank earned a net profit of Rs.

912.21cr an increase of 32.7% over the corresponding quarter ended


Fair Picks- Banking

9

Assets qGross non performing assets as on March 31, 2010 were at 1.43% of gross advances as against 1.98% as at the end of the previous non performing assets to net advances as on March 31, 2010 was at 0.31%, down from 0.63% as on March 31, 2009. The Bank’s provisioning policies for specific loan loss provisions remained higher than regulatory environments. The NPA 2010. Total restructured loans were at 0.3% of gross advances of which 0.1% was restructured loans classified as NPAs as on March 31, 2010. Portfolio quality as of September 30, 2010 performing assets 1.2% of gross advances and net non0.3% of net advances. The NPA coverage ratio was at 78% as of September 30, 2010 as compared to 70% as of September 30, 2009. Healthy As at March 31, 2010, the Bank’s total balance sheet increase by 21.4% to Rs. 222459cr as against Rs. 183271cr as at March 31, 2009. Total gross advances as at March 31, 2010 were Rs. 127262cr, an increase of 27% over March 31, 2009. Total de31, 2009. Rs. 49877cr, while current account deposits at Rs. 37227cr, registered a growth of 30.9% over the same period. The September 30, 2010. Total Deposits were Rs. 195321cr, up by 30.4% over September 30, 2009. CASA deposits registered a growth of 31.1% over September 30, 2009. Gross advances grew by 37.7% to Rs. 158512cr. Adjusting for onegrowth in advances was 32% as against a growth of around 19% in the banking industry. Retail loan grew by 30.8% over September 30, 2009 to Rs. 81950cr. BrHDFC Bank’s total saving account deposits grew by 42.9% over the previous year to reach Rs. 49877cr, while current account deposits at Rs. 37227cr, registered a growth of 30.9% over the same period. As a result, the core CASA raon March 31, 2009. bank’s aggressive branch expansion during FY 2010 and increasing productivity of the branch network o Value cHDFC bank operates in a highly automated environment in term of information technology and communicatadaptive authentication, RSA fraud action service, and participation in the RSA efraud network community has helped increase customer accelerate online banking feature

1.34

1.98

1.43

0.500.63

0.31

2008 2009 2010

Non Performing Assets

Gross NPA (%) Net NPA (%)

65.28

66.64

72.44

2008 2009 2010

Credit Deposit Ratio

CD Ratio (%)

The sequentially declining trend is the GNPA and NNPA continues as assets quality deterioration has peaked out for HDFC Bank.

Assets quality Gross non performing assets as on March 31, 2010 were at 1.43% of gross advances as against 1.98% as at the end of the previous non performing assets to net advances as on March 31, 2010 was at 0.31%, down from 0.63% as on March 31, 2009. The Bank’s provisioning policies for specific loan loss provisions remained higher than regulatory environments. The NPA coverage ratio based on specific provisions was at 74.8 as on March 31, 2010. Total restructured loans were at 0.3% of gross advances of which 0.1% was restructured loans classified as NPAs as on March 31, 2010. Portfolio quality as of September 30, 2010 remained healthy with gross nonperforming assets 1.2% of gross advances and net non0.3% of net advances. The NPA coverage ratio was at 78% as of September 30, 2010 as compared to 70% as of September 30, 2009. Healthy credit deposits growth As at March 31, 2010, the Bank’s total balance sheet increase by 21.4% to Rs. 222459cr as against Rs. 183271cr as at March 31, 2009. Total gross advances as at March 31, 2010 were Rs. 127262cr, an increase of 27% over March 31, 2009. Total deposits were at Rs. 167404cr, an increased by 17.2% over March 31, 2009. Saving account deposits grew 42.9% over the previous year to reach Rs. 49877cr, while current account deposits at Rs. 37227cr, registered a growth of 30.9% over the same period. The Bank’s total balance sheet size grew by 28.9% to Rs. 249983cr as on September 30, 2010. Total Deposits were Rs. 195321cr, up by 30.4% over September 30, 2009. CASA deposits registered a growth of 31.1% over September 30, 2009. Gross advances grew by 37.7% to Rs. 158512cr. Adjusting for one-off movement in wholesale loans, the core growth in advances was 32% as against a growth of around 19% in the banking industry. Retail loan grew by 30.8% over September 30, 2009 to Rs. 81950cr. Branch expansion lead to CASA HDFC Bank’s total saving account deposits grew by 42.9% over the previous year to reach Rs. 49877cr, while current account deposits at Rs. 37227cr, registered a growth of 30.9% over the same period. As a result, the core CASA ratio was at 50% of total deposits as at March 31, 2010 as compared to 45% as on March 31, 2009. The strong fraction is CASA growth can be attributed to the bank’s aggressive branch expansion during FY 2010 and increasing productivity of the branch network of Centurian Bank of Punjab (CBOP). Value configuration HDFC bank operates in a highly automated environment in term of information technology and communication system. The bank implementation of RSA adaptive authentication, RSA fraud action service, and participation in the RSA efraud network community has helped increase customer accelerate online banking feature and significantly decreasing pha

18 January 2011

Gross non performing assets as on March 31, 2010 were at 1.43% of gross advances as against 1.98% as at the end of the previous year. The ratio of net non performing assets to net advances as on March 31, 2010 was at 0.31%, down from 0.63% as on March 31, 2009. The Bank’s provisioning policies for specific loan loss provisions remained higher than regulatory environments. The

coverage ratio based on specific provisions was at 74.8 as on March 31, 2010. Total restructured loans were at 0.3% of gross advances of which 0.1% was restructured loans classified as NPAs as on March 31, 2010.

remained healthy with gross non-performing assets 1.2% of gross advances and net non-performing assets at 0.3% of net advances. The NPA coverage ratio was at 78% as of September 30, 2010 as compared to 70% as of September 30, 2009.

As at March 31, 2010, the Bank’s total balance sheet increase by 21.4% to Rs. 222459cr as against Rs. 183271cr as at March 31, 2009. Total gross advances as at March 31, 2010 were Rs. 127262cr, an increase of 27% over March 31,

posits were at Rs. 167404cr, an increased by 17.2% over March Saving account deposits grew 42.9% over the previous year to reach

Rs. 49877cr, while current account deposits at Rs. 37227cr, registered a growth

Bank’s total balance sheet size grew by 28.9% to Rs. 249983cr as on September 30, 2010. Total Deposits were Rs. 195321cr, up by 30.4% over September 30, 2009. CASA deposits registered a growth of 31.1% over September 30, 2009. Gross advances grew by 37.7% over September 30, 2009

off movement in wholesale loans, the core growth in advances was 32% as against a growth of around 19% in the banking industry. Retail loan grew by 30.8% over September 30, 2009 to Rs. 81950cr.

HDFC Bank’s total saving account deposits grew by 42.9% over the previous year to reach Rs. 49877cr, while current account deposits at Rs. 37227cr, registered a growth of 30.9% over the same period. As a result, the core CASA tio was at 50% of total deposits as at March 31, 2010 as compared to 45% as

The strong fraction is CASA growth can be attributed to the bank’s aggressive branch expansion during FY 2010 and increasing productivity

f Centurian Bank of Punjab (CBOP).

HDFC bank operates in a highly automated environment in term of information The bank implementation of RSA

adaptive authentication, RSA fraud action service, and participation in the RSA efraud network community has helped increase customer confidence;

and significantly decreasing phasing attack.


Fair Picks- Banking

10 18 January 2011

Axis Bank - BUY

CMP: Rs. 1279; Target Price: Rs. 1580; Upside: 23.50%; Investment Period: 1YR

Stock Information - Sector Banking Market cap Rs. 52434 Cr

Face value Rs. 10



52 week H/L Rs. 1608 / 919.20

Avg. Daily Vol (2wk) 1.92-2.86 lacs


Dividend 19.98%

Managing Director Shikha Sharma

Listed At NSE/BSE


Free Float



Axis Bank is the third largest private sector bank in India offering a vast spectrum of services encompassing large and Mid-corporate Banking, SME Banking, Agri-Business Banking, Retail Banking and International Banking. The Bank has well established in both retail and corporate banking and is committed to adopt the best industry practices internationally in order to achieve excellence. Healthy growth in loan book In Q2FY11 the bank's loan book grew by 36.5% (Y/Y) on account of significant growth in large and mid corporate loan book and retail advances. On sequential basis, the bank's credit book expanded merely by 1.8%; major growth drivers was larger & mid corporate. The bank’s advances expected to grow by 25% in fy11. Overseas Business The Bank has five international offices with focus of corporate lending, trade finance, syndication investment banking, risk management and liability businesses. The total assets under overseas operations amounted to US$ 3.79bn as on 30th September 2010 as compared to US$ 2.28bn as on 30th September 2009, a growth of 66% YOY. VALUATION At the current price of Rs. 1279, the stock is trading at just 16.63x and 13.02x times of our estimated FY11E & FY12E earning. We thus recommend a “BUY” with a target price of Rs. 1580. Particulars 2010 2011 E* 2012 E*


% change in Interest Earned 19.00 20.00


PBIDT (Rs. Cr) 5208.24 6186.83 6951.99


% change in PAT 25.75 27.73

EPS (Rs) 64.83 76.91 98.24

PE Ratio 19.73 16.63 13.02

NIM % 3.75 4.00 4.00

NPM % 16.00 17.88 19.29


60

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Relative Index

Sensex Axis Bank




Fair Picks- Banking

11

Countrywide dAxis Bank has a network of over 1200 branches and over 4900 ATMs across the country. The branches, spread across more than 680 cities and towns, enable the bank to reach out to a large cross section of customers with an array of products and services caterAxis bank has presence in Singapore, Hong Kong, Shanghai and Dubai, and seeks to expand further its international presence. Axis bank has the largest EDC network, the third largest ATM network in India and al Axis Bank mAxis Bank has announced an around 2067cr, all stock deal to take over the investment banking and equity business of Enam Securities Ltd. The deal comprises the investment banking business, corporate advisory services and equity distribution arm of Enam Secand Insurance unit of Enam are not part of the deal. create a complete bouquet of financial products and services for corporate, institutional and individual clients the will enhance the abibusiness to better serve client needs in a seamless manner across product categories and geographies and will help to increase the fee based income of the bank. It will also increase the profitability of the bank. Strong CASA gAxiin the total deposits of the bank on a daily average basis rose sharply by 429bp from 36.10% last year to 40.39% while the cost of term deposits fell 189bp form 9.41% last year to Robust financial pDuring the year 2010, the Bank registered a strong growth in business volumes as well as Rs. 1815.36cr last year. In fiscal 2010, total income of the Bank increased by 13.48% to Rs. 15583.30cr, while operating revenue increased by 35.96% to Rs. 8950.27cr. As on March 31,20120.38% to Rs. 141300.22cr and total advances rose by 27.94% to Rs. 104343.12cr. The Bank continued to enhance shareholder value with the diluted earning per share for the year increasing to Rs. 64.31 from Rs. 50.2As on 31395.55 from Rs. 284.50 as on March 31the capital adequacy ratio as at the end of the year at 15.80%, substantially above thReturn of Assets (ROA) and Net Interest Margin (NIM) of the bank was 1.67% and 3.75% respectively for fiscal 2010.

2006 2007 2008 2009 2010

17.4523.5

32.15

50.61

65.78

Earning Per Share (Rs)

The share of CASA deposits in the total deposits of the bank on a daily average basis rose sharply by 429bp

As on 31 March 2010, the Book value per share of the bank increase to Rs. 395.55 from Rs. 284.50 as on March 31st 2009.

INVESTMENT ARGUMENT

Countrywide distribution channel Axis Bank has a network of over 1200 branches and over 4900 ATMs across the country. The branches, spread across more than 680 cities and towns, enable the bank to reach out to a large cross section of customers with an array of products and services catering to both the retail and corporate segments. Axis bank has presence in Singapore, Hong Kong, Shanghai and Dubai, and seeks to expand further its international presence. Axis bank has the largest EDC network, the third largest ATM network in India and also has the fourth largest base of debit cards in the Country. Axis Bank merger with Enam Securities Axis Bank has announced an around 2067cr, all stock deal to take over the investment banking and equity business of Enam Securities Ltd. The deal comprises the investment banking business, corporate advisory services and equity distribution arm of Enam Securities. The Assets Management Company and Insurance unit of Enam are not part of the deal. create a complete bouquet of financial products and services for corporate, institutional and individual clients the will enhance the abibusiness to better serve client needs in a seamless manner across product categories and geographies and will help to increase the fee based income of the bank. It will also increase the profitability of the bank. Strong CASA growth Axis bank is well geared up to tap this opportunity. The share of CASA deposits in the total deposits of the bank on a daily average basis rose sharply by 429bp from 36.10% last year to 40.39% while the cost of term deposits fell 189bp form 9.41% last year to 7.52%. Robust financial performance During the year 2010, the Bank registered a strong growth in business volumes as well as profit, with the net profit increasing by 38.51% to Rs. 2514.53cr from Rs. 1815.36cr last year. In fiscal 2010, total income of the Bank increased by 13.48% to Rs. 15583.30cr, while operating revenue increased by 35.96% to Rs. 8950.27cr. As on March 31,2010, total deposits of the Bank increased by 20.38% to Rs. 141300.22cr and total advances rose by 27.94% to Rs. 104343.12cr. The Bank continued to enhance shareholder value with the diluted earning per share for the year increasing to Rs. 64.31 from Rs. 50.2As on 31st March, 2010, the book value per share of the bank increase to Rs. 395.55 from Rs. 284.50 as on March 31st 2009. The Bank is well capitalized with the capital adequacy ratio as at the end of the year at 15.80%, substantially above the benchmark requirement of 9% stipulated by Reserve Bank of India. Return of Assets (ROA) and Net Interest Margin (NIM) of the bank was 1.67% and 3.75% respectively for fiscal 2010.

18 January 2011

Axis Bank has a network of over 1200 branches and over 4900 ATMs across the country. The branches, spread across more than 680 cities and towns, enable the bank to reach out to a large cross section of customers with an array

ing to both the retail and corporate segments. Axis bank has presence in Singapore, Hong Kong, Shanghai and Dubai, and

Axis bank has the largest EDC network, the third largest ATM network in India so has the fourth largest base of debit cards in the Country.

Axis Bank has announced an around 2067cr, all stock deal to take over the investment banking and equity business of Enam Securities Ltd. The deal comprises the investment banking business, corporate advisory services and

urities. The Assets Management Company and Insurance unit of Enam are not part of the deal. The strategic objective to create a complete bouquet of financial products and services for corporate, institutional and individual clients the will enhance the ability of combined business to better serve client needs in a seamless manner across product categories and geographies and will help to increase the fee based income of the bank. It will also increase the profitability of the bank.

s bank is well geared up to tap this opportunity. The share of CASA deposits in the total deposits of the bank on a daily average basis rose sharply by 429bp from 36.10% last year to 40.39% while the cost of term deposits fell 189bp form

During the year 2010, the Bank registered a strong growth in business volumes profit, with the net profit increasing by 38.51% to Rs. 2514.53cr from

Rs. 1815.36cr last year. In fiscal 2010, total income of the Bank increased by 13.48% to Rs. 15583.30cr, while operating revenue increased by 35.96% to Rs.

0, total deposits of the Bank increased by 20.38% to Rs. 141300.22cr and total advances rose by 27.94% to Rs. 104343.12cr. The Bank continued to enhance shareholder value with the diluted earning per share for the year increasing to Rs. 64.31 from Rs. 50.27 last year.

March, 2010, the book value per share of the bank increase to Rs. 2009. The Bank is well capitalized with

the capital adequacy ratio as at the end of the year at 15.80%, substantially e benchmark requirement of 9% stipulated by Reserve Bank of India.

Return of Assets (ROA) and Net Interest Margin (NIM) of the bank was 1.67%


Fair Picks- Banking

12

Net profit of Bank during Q3FY11 rose to 891.36cr from 655.98cr in Qregistering a growth of 35.88% yoy. The yoy growth in net interest income and fee income during Q3FY11 was 28.46% and 21% respectively. Net interest margin during Q3FY11 was 3.81% compared to 3.68% in Q2FY11. Promotion (focusing on customer sIn promotional activities relating to its development programmes for new entrepreneurs, consultancy services for small and programmes designenlistment of the underprivileged. These include entrepreneurship development, self employment and wage employment in the industrial sector for the weaker section of society through voluntary agencies, Technology Entrepreneurs ‘parks, Energy conservation, common quality testing centre for small industries. Assets qThe Non Performing Assets of the bank decreased to 0.34% as on 302010 compared to 0.35% as on 302009. Gross Non Performing Assets of the Bank stood at 1.12% as on 30September 2010, compared to 1.13% as on 3030Se Financial inclusion pAxis Bank, Indian’s third largest private sector bank has begun implementing it’s rural expansion plans and intends to cover 5500 villages for financial inclusion by March 2011 and scale it up to 12000 villages in five year time. The bank has started its fstate of Maharashtra and Darjeeling in West Bangal. made it mandatory for private sector banks to implement a financial inclusion plans.

Peers Group Analysis

Particulars HDFC

Interest Income 16172.90

Interest Expended 7786.30

Net Interest Income 8386.60

Net Profit 2948.70

CAR 17.44

NNPA

CD Ratio 75.17

NIM

11.08 11.5713.73 13.69

15.8

2006 2007 2008 2009 2010

Capital Adequacy Ratio (%)

The bank has started its financial inclusion initiatives in villages located near Nashik in the state of Maharashtra and Darjeeling in West Bangal.

Net profit of Bank during Q3FY11 rose to 891.36cr from 655.98cr in Qregistering a growth of 35.88% yoy. The yoy growth in net interest income and fee income during Q3FY11 was 28.46% and 21% respectively. Net interest margin during Q3FY11 was 3.81% compared to 3.68% in Q2FY11. Promotion (focusing on customer satisfaction) In fulfillment of its development role, the bank continues perform a wide range of promotional activities relating to its development programmes for new entrepreneurs, consultancy services for small and programmes designed for accredited voluntary agencies for the economic enlistment of the underprivileged. These include entrepreneurship development, self employment and wage employment in the industrial sector for the weaker section of society through voluntary agencies, Technology Entrepreneurs ‘parks, Energy conservation, common quality testing centre for small industries.

Assets quality The Non Performing Assets of the bank decreased to 0.34% as on 302010 compared to 0.35% as on 30th June, 2010 and 0.45% as on 302009. Gross Non Performing Assets of the Bank stood at 1.12% as on 30September 2010, compared to 1.13% as on 30th June 201030th September 2009. The Bank has provision coverage of 90.45% as on 30September 2010. Financial inclusion plan of bank Axis Bank, Indian’s third largest private sector bank has begun implementing it’s rural expansion plans and intends to cover 5500 villages for financial inclusion by March 2011 and scale it up to 12000 villages in five year time. The bank has started its financial inclusion initiatives in villages located near Nashik in the state of Maharashtra and Darjeeling in West Bangal. made it mandatory for private sector banks to implement a financial inclusion plans.

HDFC ICICI SBI

16172.90 25706.93 70993.92 21466.91

7786.30 17592.57 47322.48 12944.02

8386.60 8114.36 23671.44 8522.89

2948.70 4024.98 18321.25 7326.28

17.44 19.41 13.39 14.16

0.31 2.12 1.72

75.17 89.70 78.60 74.84

4.30 2.50 2.66

18 January 2011

Net profit of Bank during Q3FY11 rose to 891.36cr from 655.98cr in Q3FY10, registering a growth of 35.88% yoy. The yoy growth in net interest income and fee income during Q3FY11 was 28.46% and 21% respectively. Net interest margin during Q3FY11 was 3.81% compared to 3.68% in Q2FY11.

fulfillment of its development role, the bank continues perform a wide range of promotional activities relating to its development programmes for new entrepreneurs, consultancy services for small and medium enterprises and

ed for accredited voluntary agencies for the economic enlistment of the underprivileged. These include entrepreneurship development, self employment and wage employment in the industrial sector for the weaker section of society through voluntary agencies, support to science and Technology Entrepreneurs ‘parks, Energy conservation, common quality testing

The Non Performing Assets of the bank decreased to 0.34% as on 30th Sep, June, 2010 and 0.45% as on 30th Sep

2009. Gross Non Performing Assets of the Bank stood at 1.12% as on 30th June 2010 and 1.21% as on

September 2009. The Bank has provision coverage of 90.45% as on 30th

Axis Bank, Indian’s third largest private sector bank has begun implementing it’s rural expansion plans and intends to cover 5500 villages for financial inclusion by March 2011 and scale it up to 12000 villages in five year time. The bank has

inancial inclusion initiatives in villages located near Nashik in the state of Maharashtra and Darjeeling in West Bangal. The RBI and GOI have made it mandatory for private sector banks to implement a financial inclusion

PNB Axis

21466.91 11638.02

12944.02 6633.53

8522.89 5004.50

7326.28 2514.53

14.16 15.80

0.53 0.40

74.84 68.68

3.99 3.75


Fair Picks- Banking

13 18 January 2011

Issues and Concern Assets Liability Mismatch If Banks mobilize short term deposits to provide short term loan and mobilize long term deposits to provide long term loan, it is an ideal situation. But it banks mobilize short term deposits and lend loan on longer terms, that results in an assets liability mismatch situation. Macroeconomic risk Rising inflationary pressure and a pick up in manufactured goods inflation in particular, pose a risk to the revival in domestic consumption. Further, with growth gathering momentum and the return of leverage into the economy, monetary policy responses are likely to play afar more crucial role in shaping growth dynamics. The risk is that persistent inflationary pressure may drive the central bank to tighten interest rates to a level that could constraint future growth. Competitive pressure Sustaining current business parameter with increase competitive pressures would be a key risk. Many private and foreign banks have entered in banking industry to increase competition and NBFCs is also in line to take approval from the Reserve Bank of India (RBI) to accept deposits directly from the public. Operational risk Banks and financial institutions are undergoing a sea change and today face an environment marked by growing consolidation, rising customer expectation, increasing regulatory requirements, proliferating financial engineering, uprising technology innovation and mounting competition. This has increased the probability of failure or mistakes from the operation resulting in increased focus on managing operational risk. A significant increase in the price of crude oil India imports over 75.0% of its requirements for crude oil, which were over 30% of total imports in fiscal 2010. While oil prices have declined sharply from their peak levels, any sharp increases or volatility in oil prices and the pass-through of such increases to Indian consumers could have a material negative impact on the Indian economy and the Indian banking and financial system in particular, including through a rise in inflation and market interest rates and a higher trade deficit. Turn down in non Interest income Bank earn commission, exchange and brokerage income from a variety of activities, including syndication and advisory services for corporate client in respect of their acquisition and project financing, distribution of retail investment and insurance product. Commission, exchange and brokerage income and profit on foreign exchange rate transaction have become important element of Bank’s profitability. Any decline in non-interest income can hit the profitability of the bank.


Fair Picks- Banking

14 18 January 2011

Disclaimer: This publication has been solely prepared for the information purpose and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed reliable investors are advised to satisfy themselves before making any investments. Fairwealth Securities Ltd does not bear any responsibility for authentication of the information contained in the reports and consequently is not liable for any decision taken based on the same. Further Fairwealth Research report only provides information updates and analysis. All opinions for buying and selling are available to investors when they are registered clients of Fairwealth Investment advisory services. As a matter of practice, Fairwealth refrains from publishing any individual names with its reports. As per SEBI requirements it is stated that, Fairwealth securities Ltd, and/or individuals thereof may have positions in securities referred herein and may make purchases or sale while this report is in circulation.

Stock Ratings

BUY The stock's total return is expected to exceed 20% over the next 12 months

ACCUMULATE The stock's total return is expected to be within 10-15% over the next 12 months

REDUCE The stock's total return is expected to be within 0-10% over the next 12 months

SELL The stock's total return is expected to give negative returns over the next 12 months

NOT RATED The Analyst has no recommendation on the stock under review

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