Escolar Documentos
Profissional Documentos
Cultura Documentos
Banking
Sector View
Underperform
CMP
(|)
167
138
254
217
593
129
123
72
1,288
1,184
83
793
1,207
TP(|)
152
112
240
190
510
140
98
62
1,375
1,250
68
750
1,150
Rating
Hold
Hold
Hold
Hold
Hold
Buy
Hold
Hold
Buy
Buy
Hold
Hold
Hold
M Cap
EPS (|)
P/E (x)
P/ABV (x)
RoA (%)
RoE (%)
(| Cr) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E
38,489
-23
7
20 -7.1 24.0
8.5
2.0
1.9
1.4 -0.8 0.2 0.6
-13
4
11
27,000
-20
15
22 -6.8
9.3
6.3
7.5
2.5
1.3 -0.6 0.4 0.6
-10
7
10
189,966
13
18
24 19.9 14.2 10.7
2.2
2.0
1.6 0.5 0.6 0.7
7
9
11
10,398
15
22
28 14.6
9.9
7.6
1.0
1.0
0.9 0.4 0.5 0.6
5
6
8
140,810
35
35
42 17.2 17.1 14.3
2.8
2.6
2.2 1.7 1.5 1.5
17
14
15
7,797
7
8
10 17.5 15.4 12.9
2.8
2.5
2.1 1.5 1.5 1.6
16
16
16
3,183
7
7
9 18.0 17.5 13.7
2.1
1.9
1.8 1.1 1.0 1.0
12
11
13
12,365
3
4
5 26.0 18.0 13.4
1.7
1.7
1.5 0.5 0.7 0.8
6
8
10
322,113
49
59
72 26.5 22.0 18.0
4.6
3.9
3.5 1.9 1.9 1.9
18
19
20
70,466
38
49
61 30.8 23.9 19.4
4.0
3.5
3.1 1.9 2.0 2.0
16
15
17
4,033
9
13
19
9.7
6.5
4.3
1.0
1.0
0.9 0.5 0.7 1.0
7
9
13
145,029
11
16
19 69.6 50.4 41.5
6.4
5.7
5.0 1.1 1.4 1.4
9
11
12
50,675
48
60
65 25.1 20.0 18.6
3.7
2.5
2.2 1.6 1.7 1.7
21
20
17
Research Analyst
Kajal Gandhi
kajal.gandhi@icicisecurities.com
Vishal Narnolia
vishal.narnolia@icicisecurities.com
Vasant Lohiya
vasant.lohiya@icicisecurities.com
With regard to the asset quality, going ahead, credit cost is seen
remaining elevated in the near term owing to anticipated slippages from
the watchlist coupled with ageing of existing stressed assets and MTM hit
on SDR. Consequently, we expect the underperformance in the banking
sector to continue in the near term. We continue to advocate selective
stock picking. We suggest sticking with retail centric banks with prudent
asset quality like HDFC Bank and IndusInd Bank. One can also consider
State Bank of India, Axis Bank among large caps and City Union Bank in
the small cap space with a horizon of at least a year or two.
Recently, PSB stocks have seen a run up. However, earnings need to
follow to sustain current price levels. Therefore, we do not advocate
midcap PSU banks at current levels. In case of private banks, their retail
segment is performing well, helping them sail through the current
environment profitably. Hence, as and when an economic revival
happens, private banks can still outperform with stronger returns.
GNPA (%)
3.4
4.2
Mar-14
Sep-14
4.1
4.5
Mar-15
Sep-15
Mar-16
Jun-16
5.8
6.0
2.2
2.5
5.9
6.2
10.0
10.7
4.6
5.1
2.5
2.8
6.5
6.2
11.1
11.3
7.6
8.5
4.6
5.0
3.9
3.5
11.5
12.0
Among peers, corporate banks faced the brunt with PSBs getting
impacted the most. Consequently, most PSU banks, except SBI, continue
to report higher NPA stress. Within private banks, corporate focused
banks like Axis Bank reported weak asset quality trends owing to
slippages from the watch list exposure. However, private banks including
HDFC Bank and IndusInd Bank, with substantial retail exposure, remained
better off with better performance in terms of asset quality.
Exhibit 3: Stressed assets of banks (Q1FY17)
Banks
NNPA (|
crore)
NNPA (%)
Standard RA Standard RA
(| crore) (%)
Loans
refinanced
under 5:25
5:25 as % of
1Q17 loans
Net
Stressed
Assets
Stress book
as % of
1Q17 loans
Public Banks
BoB
20,784
5.7%
14,164
3.9%
2,600
0.7%
565
0.2%
38,113
10.5%
PNB
SBI
35,729
57,421
9.2%
4.1%
18,909
36,551
4.8%
2.6%
6,377
2,361
1.6%
0.2%
2,352
7,398
0.6%
0.5%
63,366
103,731
16.2%
7.3%
Axis Bank
Kotak Bank
40,102
1,565
1.1%
1.1%
73,630
160
2.1%
0.1%
35,000
-
1.0%
0.0%
8,500
-
0.3%
0.0%
155,532
1,725
4.5%
1.2%
J&K Bank
Yes Bank
30,235
302
6.2%
0.3%
32,474
523
6.7%
0.5%
11,176
-
2.3%
0.0%
9,657
32
2.0%
0.0%
83,542
857
17.1%
0.8%
Private Banks
Page 2
ageing of existing stressed assets and MTM hit on SDR. However, some
moderation in slippages compared to the surge seen in H2FY16 cannot
be ruled out. Within segments, the retail segment continues to remain the
safest bet for banks. However, concerns remain on rampant growth in
LAP, though no asset quality implication has surfaced yet. Private banks,
with a larger retail focus, are expected to fare well on asset quality
parameters ahead.
RBI proposes curbing large exposure (individual bank-wise)
In a bid to prevent concentration of exposure to single counterparty or a
group of connected borrowers, RBI has proposed draft guidelines to
curb/restrict individual banks exposure to single borrower. As per current
prudential exposure norms, exposure of banks to a single borrower is
restricted to 15% of capital funds (Tier I and Tier II capital). In case of a
group borrower, the exposure limit is restricted at 40% of capital funds
(Exhibit 5).
Exhibit 4: Individual bank exposure limit current and proposed limit
Exposure
General Limit
Extension to infrastructure projects
15%
5%
20%
5%
25%
5%
25%
General Limit
Extension to infrastructure projects
40%
10%
25%
5%
55%
Single Counterparty
25%
Page 3
Additional risk weight of 75%, over and above the applicable risk
weight for the exposure to the specified borrower
To provide a breather in the near term, banks are allowed to subscribe to
bonds issued by specified borrowers (over and above NPLL) in the first
year of this framework taking effect (FY18), subject to divestment of these
bonds in following manner;
Within the large exposure framework, bank credit for large corporate is
expected to become expensive and could constraint capex needs of
corporate until the bond market is able to gather increased participation.
In the long run, development of bond market with increased depth and
liquidity will help reduce cost of borrowings for corporate and NBFCs. On
the other hand, banks could face some pressure on margins with
replacement of loans into bonds. In addition, growth of corporate banks is
expected to be constrained in the near term. Therefore, banks need to
focus more on non-corporate segments including retail, SME and
microfinance for future balance sheet growth.
Exposure to unrated borrower to attract higher risk weight
In a bid to regularise corporate rating and banking asset quality, RBI has
mandated higher risk weights for loans to unrated corporate/AFC/NBFC
IFC from current 100% to 150%, having aggregate exposure from banking
system of more than | 200 crore. However, corporate/AFC/NBFC IFCs,
with exposure of more than | 100 crore, which were earlier rated and
subsequently have become unrated, will attract higher risk weight at
150%. This move can act as positive for rating agencies as more
corporates are expected to opt for external rating.
Initiative to revive construction sector to provide breather to lenders
Indian banks have been reeling under a large pile of bad assets being
balanced by thin balance sheet size. The reason is liquidity crunch and a
slowdown in corporate activities. The analysis of the current stress
reveals that the lions share is due to corporate delinquencies in sectors
including iron & steel, infrastructure (mainly power segment),
construction and textile. According to sources, ~| 70000 crore is tied up
in arbitration. Approximately 85% of claims raised against government
bodies remain under arbitration of which ~11% are at employer level,
~64% at arbitrators and ~8.5% in courts. Though construction sector
contributes ~1.1% of overall banking credit, a large chunk at ~27.1% is
stressed, making it second highest stressed sector after basic metals.
Page 4
80000
74538
74303
(crore)
70000
62571
60000
1.1%
1.2%
1.1%
FY14
FY15
FY16
50000
Construction
34.4
27.1
19
17.7
16.7
16.5
Food
Processing
Infrastructure
Enginerring
21.3
20
Cement
(%)
30
16.3
10
Minning
Textile
Construction
Basic Metals
Page 5
Enhancing Participation
Facilitating Greater
Market Liquidity
Page 6
Page 7
SR (| crore)
Backed by NPAs sold by the Bank
790
199
Total SR
800
199
198
214
401
214
49.5%
100.0%
5,426
1,003
5,453
1,003
99.5%
100.0%
710
980
710
980
100.0%
100.0%
Kotak Bank
IndusInd Bank
State Bank of India
Punjab National Bank
Bank of Baroda
Indian Bank
Page 8
Annexure
Exhibit 9: Sensitivity of various banks to 20 and 30 bps reduction in 10 year G-sec yields
Q4FY16
Banks
Public sector banks
Bank of India*
Bank of Baroda
PNB
SBI
OBC*
Private sector banks
Axis Bank
City Union Bank
DCB
J&K Bank
Investment book
(| crore)
AFS (| crore)
Impact of yield
movement of 10
bps (| crore)
PAT (| crore)
FY17E
105,775
132,439
154,727
590,268
65,030
24,733
41,710
53,909
129,859
23,577
4.1
3.6
4.1
2.0
4.6
306.4
446.7
664.7
779.2
325.4
102.1
148.9
221.6
259.7
108.5
NA
1,604
2,904
13,904
526
NA
19.5
16.0
3.9
43.3
NA
6.5
5.3
1.3
14.4
123276
6,843.6
4,392
21,384
40681
2,074.4
1,001
8,104
3.0
0.9
1.7
0.9
360.0
5.6
5.2
20.7
120.0
1.9
1.7
6.9
8243
508.0
200
623.5
3.1
0.8
1.8
2.3
1.0
0.3
0.6
0.8
Source: Company, ICICIdirect.com Research, * Not under coverage, AFS- Available for Sale
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
2.2
3.2
3.1
2.5
2.2
2.8
3.2
2.5
2.3
2.9
3.0
2.4
2.1
2.9
3.0
2.3
1.7
2.9
2.9
2.3
2.2
2.6
3.0
2.4
2.2
2.5
2.8
2.5
3.9
3.5
3.7
3.7
3.2
4.4
3.7
3.2
3.8
3.4
3.8
3.7
3.3
4.4
3.9
3.2
3.8
3.6
3.8
3.7
3.1
4.3
3.9
3.3
3.9
3.7
3.8
3.9
3.1
4.2
4.0
3.3
3.8
3.8
4.0
3.9
3.0
4.3
3.9
3.4
4.0
4.0
3.9
3.9
3.3
4.3
3.6
3.4
3.8
4.1
4.1
4.0
3.3
4.4
3.4
3.4
Page 9
Exhibit 11: Key financials of industry as on Q1FY17 (listed banks + SBI associates)
(| crore)
NII
Growth YoY
Other income
Growth YoY
Total operating exp.
Staff cost
Operating profit
Growth YoY
Provision
PBT
PAT
Growth YoY
GNPA
Growth YoY
NNPA
Growth YoY
Q1FY17
71877
3.3
35295
31.9
51825
27585
55348
9.6
41571
13777
9480
-49.9
623373
96.2
365812
107.0
Q4FY16
71510
4.6
40640
10.2
57441
28343
54710
-4.4
76632
-22014
-12302
-166.4
575313
92.3
331340
99.2
Q3FY16
69546
4.2
30823
10.7
49321
26693
51048
3.6
48698
2350
215
-98.7
435255
50.3
249191
48.1
Q2FY16
65515
-0.6
29145
17.1
42181
25893
52480
12.2
25528
26931
17329
-2.7
337826
27.3
186531
23.4
Q1FY16
69579
8.4
26763
13.4
45841
25264
50501
7.7
22439
28045
18911
-8.0
317795
27.8
176728
26.7
Q4FY15
68381
7.7
36892
26.5
48032
25676
57241
12.6
31991
25234
18538
-4.1
299145
25.4
166296
26.5
Q3FY15
66732
8.4
27846
26.4
45292
25070
49286
13.8
23391
25876
17015
12.2
289590
20.6
168204
23.0
Page 10
TP(|) Rating
152 Hold
112 Hold
240 Hold
190 Hold
510 Hold
140 Buy
98 Hold
62 Hold
1,375 Buy
1,250 Buy
68 Hold
750 Hold
1,150 Hold
M Cap
(| Cr)
38,489
27,000
189,966
10,398
140,810
7,797
3,183
12,365
322,113
70,466
4,033
145,029
50,675
567
560
1,393
550
481
1,530
Hold
Buy
Buy
28,696
13,764
219,761
33
43
45
39
42
47
46
46
53
17.2
13.0
31.0
14.4
13.3
29.8
12.2
12.2
26.1
3.2
1.1
6.5
2.7
1.0
5.9
2.2
0.9
5.3
1.4
1.8
2.6
1.4
1.5
2.4
1.5
1.5
2.4
20
8
22
20
7
21
19
7
21
37
1,243
CARE (CARE)
3,096
Bajaj Finserv (BAFINS)
1,075
Bajaj Finance (BAJAF)
Source: Company, ICICIdirect.com Research
39
1,400
2,900
1,060
Hold
Buy
Buy
Buy
2,123
3,604
49,304
5,765
3
48
117
25
7
40
149
32
5
46
198
44
13.0
25.7
26.4
43.7
5.4
31.1
20.7
34.0
8.1
27.0
15.7
24.7
1.4
10.0
3.8
7.6
1.2
8.9
3.2
6.5
1.1
8.3
2.7
5.2
2.6
43.2
1.9
3.2
5.0
40.9
2.1
3.2
2.9
43.5
2.5
3.4
12
39
16
21
25
29
17
21
15
31
19
23
Sector / Company
Bank of Baroda (BANBAR)
Punjab National Bank (PUNBAN)
State Bank of India (STABAN)
Indian Bank (INDIBA)
Axis Bank (UTIBAN)
City Union Bank (CITUNI)
Development Credit Bank (DCB)
Federal Bank (FEDBAN)
HDFC Bank (HDFBAN)
Indusind Bank (INDBA)
Jammu & Kashmir Bank (JAMKAS)
Kotak Mahindra Bank (KOTMAH)
Yes Bank (YESBAN)
NBFCs
LIC Housing Finance (LICHF)
Reliance Capital (RELCAP)
HDFC (HDFC)
PTC India Financial Services (PTCIND)
EPS (|)
P/E (x)
P/ABV (x)
RoA (%)
RoE (%)
FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E
-23
7
20 -7.1 24.0
8.5
2.0
1.9
1.4 -0.8
0.2
0.6 -13
4
11
-20
15
22 -6.8
9.3
6.3
7.5
2.5
1.3 -0.6
0.4
0.6 -10
7
10
13
18
24 19.9 14.2 10.7
2.2
2.0
1.6
0.5
0.6
0.7
7
9
11
15
22
28 14.6
9.9
7.6
1.0
1.0
0.9
0.4
0.5
0.6
5
6
8
35
35
42 17.2 17.1 14.3
2.8
2.6
2.2
1.7
1.5
1.5
17
14
15
7
8
10 17.5 15.4 12.9
2.8
2.5
2.1
1.5
1.5
1.6
16
16
16
7
7
9 18.0 17.5 13.7
2.1
1.9
1.8
1.1
1.0
1.0
12
11
13
3
4
5 26.0 18.0 13.4
1.7
1.7
1.5
0.5
0.7
0.8
6
8
10
49
59
72 26.5 22.0 18.0
4.6
3.9
3.5
1.9
1.9
1.9
18
19
20
38
49
61 30.8 23.9 19.4
4.0
3.5
3.1
1.9
2.0
2.0
16
15
17
9
13
19
9.7
6.5
4.3
1.0
1.0
0.9
0.5
0.7
1.0
7
9
13
11
16
19 69.6 50.4 41.5
6.4
5.7
5.0
1.1
1.4
1.4
9
11
12
48
60
65 25.1 20.0 18.6
3.7
2.5
2.2
1.6
1.7
1.7
21
20
17
Page 11
RATING RATIONALE
Pankaj Pandey
Head Research
pankaj.pandey@icicisecurities.com
Page 12
ANALYST CERTIFICATION
We /I, Kajal Gandhi, CA, Vasant Lohiya, CA and Vishal Narnolia, MBA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research
report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s)
or view(s) in this report.
Page 13