%5bkotak%5d bfsi%2c june 2%2c 2015 - quarterly review 4qfy15
DESCRIPTION
fTRANSCRIPT
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For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
Kotak Institutional Equities Research [email protected] Mumbai: +91-22-4336-0000
Earnings slips into negative zone; NII growth tracking weak loan growth
After a few quarters of positive growth in earnings, 4QFY15 was a disappointment with a
decline of 3% yoy (ex-SBI at -9% yoy). Revenues grew 14% yoy with NII growth at 10% yoy
and non-interest income growth at 24% yoy. NII growth for private banks was stronger at 18%
yoy and weaker for public banks at 5% yoy, reflecting the weak trends on loan growth. We are
yet to see any slowdown in provisions for bad loans which grew 36% yoy with slippages mainly
from restructured loans. Among public banks, SBI declared strong results while Axis, HDFC
Bank and Yes Bank did likewise among private banks.
Loan growth still weak as recovery is still elusive; revenue growth sees support from treasury
Loan growth (under coverage) slowed to 11% yoy (Exhibit 24), the slowest in recent years as
demand for corporate loans slowed sharply and alternate channels opened up meaningfully.
Divergence further expanded between public (8% yoy) and private banks (18% yoy) primarily
due to the nature of the loan portfolio and private banks looking to rebuild growth in the
corporate segment. We see loan growth, and consequently revenue growth, as a key challenge
that is likely to continue in FY2016-17 as there is a lack of evidence of corporate demand (~45%
of loans) at this stage as bank pipelines show negligible sanctions. Revenue growth and
earnings growth should sustain/improve as the treasury book shows positive contribution.
Impairment ratios weak as expected; recovery and upgradation improve qoq
Fresh impairments were high qoq at 6.8% of loans with slippages largely unchanged at 3%
and fresh restructuring at 3.8% of loans. Gross NPLs increased 6% qoq (flat qoq) to 3.7% (4.7%
for public and 2.1% for private banks). Gross NPLs were flat qoq and can be explained by
better trends on recovery/upgradation (Exhibit 10) and flat write-offs (Exhibit 9) a trend that
we would define as seasonal more than cyclical improvement. Outstanding restructured loans
increased 30 bps qoq to 5% of loans. Fresh restructuring was higher as most banks/borrowers
used the underlying opportunity to complete their pending restructuring.
NBFCs: mixed trends in business; overall trends remain weak
Most NBFCs continued to report weakness in core earnings on the back of slowing growth and
higher NPLs. Select players reported sharp bounce back in NPL collections or growth but guided
for moderation in 1HFY16. Defensives players (HDFC, LICHF and Bajaj Finance) remained strong.
Trends in auto finance NBFCs were mixed: Cholamandalam, Magma, MMFS, L&T Finance
reported stable or marginally improvements; Shriram Transport reported marginal weakness
and its equipment finance subsidiary reported sharp deterioration. We remain most positive on
housing finance (HDFC, LICHF and Dewan) and would like to play the CV recovery through
Cholamandalam and other multi product NBFCs.
Banks/Financial Institutions India
Weak earnings; impairment ratios rise marginally. The quarter was even more
disappointing than the 3% yoy decline in earnings suggests. Earnings declined largely
on the back of weak NII growth (10% yoy) and high provisions (38% yoy). Impairment
ratios increased by 40 bps qoq to 10.9% with fresh impairments at 6.8% of loans.
NBFCs delivered a mixed performance with improved collections for most auto finance/
multi product NBFCs and sharp deterioration for others. We remain most positive on
housing finance (HDFC, LICHF and Dewan) and would like to play the CV recovery
through Cholamandalam and other multi product NBFCs.
ATTRACTIVE
JUNE 02, 2015
UPDATE
BSE-30: 27,849
QUICK NUMBERS
Earnings declined
3% yoy; NII grew
10% yoy
Gross NPLs at 3.9%
and restructured
loans at 5% for
banks under
coverage
Loan growth at 11%
yoy; public banks at
8% yoy
M.B. Mahesh, CFA [email protected]
Mumbai: +91-22-4336-0886
Nischint Chawathe [email protected]
Mumbai: +91-22-4336-0887
Abhijeet Sakhare [email protected]
Mumbai: +91-22-4336-0889
-
India Banks/Financial Institutions
2 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 1: Consolidated PAT for banks under coverage decreased 3% yoy Consolidated earnings for banks under coverage, March fiscal year-ends, 4QFY14-4QFY15 (` bn)
4QFY14 3QFY15 4QFY15 QoQ (%) YoY (%)
NII 449 477 493 3.3 9.7
Non interest income 215 207 267 29.3 24.2
Total income 664 684 760 11.1 14.4
Provisions 155 148 215 44.5 38.2
Loan loss provisions 139 142 190 33.3 36.4
PAT 155 144 151 5.0 (2.5)
PAT (ex-SBI) 124 115 114 (0.9) (8.7)
Source: Company, Kotak Institutional Equities
Exhibit 2: PAT growth was negative in last quarter for the sector Growth in PAT, March fiscal year-ends, 4QFY11-4QFY15 (%)
(30)
-
30
60
90
120
4Q
FY11
1Q
FY12
2Q
FY12
3Q
FY12
4Q
FY12
1Q
FY13
2Q
FY13
3Q
FY13
4Q
FY13
1Q
FY14
2Q
FY14
3Q
FY14
4Q
FY14
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
Public Private Sector
Source: Company, Kotak Institutional Equities
Exhibit 3: NII growth slowed to 10% yoy Growth in NII, March fiscal year-ends, 4QFY11-4QFY15 (%)
0
8
16
24
32
40
4Q
FY11
1Q
FY12
2Q
FY12
3Q
FY12
4Q
FY12
1Q
FY13
2Q
FY13
3Q
FY13
4Q
FY13
1Q
FY14
2Q
FY14
3Q
FY14
4Q
FY14
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
Public Private Sector
Source: Company, Kotak Institutional Equities
Exhibit 4: Loan-loss provisions increased significantly Loan-loss provisions, March fiscal year-ends, 4QFY11-4QFY15 (` bn)
0
40
80
120
160
200
4Q
FY11
1Q
FY12
2Q
FY12
3Q
FY12
4Q
FY12
1Q
FY13
2Q
FY13
3Q
FY13
4Q
FY13
1Q
FY14
2Q
FY14
3Q
FY14
4Q
FY14
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
Public Private
Source: Company, Kotak Institutional Equities
-
Banks/Financial Institutions India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 3
Exhibit 5: Impaired loans increased for public banks this quarter Public banks (under coverage), March fiscal year-ends, 4QFY13-4QFY15 (%)
3.8 4.3 4.4 4.4 4.1 4.2 4.4 4.7 4.7
5.3 5.5 5.7 5.5 5.6 5.8
5.9 5.8 6.2
-
2.4
4.8
7.2
9.6
12.0
4Q
FY13
1Q
FY14
2Q
FY14
3Q
FY14
4Q
FY14
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
Gross NPL Restructured loans
Source: Company, Kotak Institutional Equities
Exhibit 6: Private banks saw a marginal increase this quarter Private banks (under coverage), March fiscal year-ends, 4QFY13-4QFY15 (%)
1.8 1.8 1.9 1.8 1.7 2.0 2.0 2.0 2.1
1.6 1.7 1.8 1.8 2.0
2.1 2.0 2.0 2.1
-
0.9
1.8
2.7
3.6
4.5
4Q
FY13
1Q
FY14
2Q
FY14
3Q
FY14
4Q
FY14
1Q
FY15
2Q
FY15
3Q
FY15
4Q
FY15
Gross NPL Restructured loans
Source: Company, Kotak Institutional Equities
Fresh impairments rise sharply; recovery/upgradation improve qoq
Broad trends on outstanding impairment ratios worsened marginally for the quarter. The
previous few quarters show a steady improvement in fresh impairment ratios, though the
trend was not visible this quarter, which was partly expected considering that this was the
last quarter where the sunset clause of maintaining existing classification of freshly
restructured loans was available.
Fresh impairments increased 250 bps qoq at 6.8% of loans with slippages at 3% and fresh
restructuring at 3.8% of loans. The qualitative assessment of the slippages for the quarter
suggests that a large share of slippages for banks is coming from the increasing rate of
failures of previous restructured loans, especially from the iron and steel sector.
SBI and BoB amongst public banks and Axis Bank in private banks reported better
performance on fresh impairment ratios. PNB, Canara Bank and BoI had a very disappointing
quarter with a large rise in fresh impairments.
Outstanding gross impairment levels (gross NPLs and restructured loans) increased 30 bps
qoq at 8.9% of loans. Public banks, having reported few quarters of improvement, saw their
overall impaired loans at 11% (40 bps qoq) while the same for private banks increased 10
bps qoq to 4.2% of loans.
Overall gross NPLs were flat qoq at 3.7% of loans (flat at 4.7% of loans for public banks and
-
India Banks/Financial Institutions
4 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Management, especially for public banks, continue to highlight that a disproportionate
bandwidth is towards impairment management but the efforts can pay-off only when there
is recovery in the economy, which at this stage appears to be promising. The earliest sign
that we would need to read to gain confidence on the impairment cycle would be the
reduction in slippages which at this stage is not visible though one would argue that it has
probably stabilized. We should, after a few quarters, notice stronger trends on
recovery/upgrades.
Provision coverage has shown a decline, albeit nothing substantial. Among banks, SBI
reported one of the sharpest improvements in provision coverage ratios while ICICI Bank
reported the steepest decline qoq.
Exhibit 7: Gross NPLs increased 5.5% qoq, ratio flat qoq Gross NPLs and net NPLs, March fiscal year-ends, 4QFY14-4QFY15
1QFY15 2QFY15 3QFY15 4QFY15 1QFY15 2QFY15 3QFY15 4QFY15 1QFY15 2QFY15 3QFY15 4QFY15 1QFY15 2QFY15 3QFY15 4QFY15
Public banks
BoB 121 131 155 163 3.1 3.3 3.9 3.7 60 67 83 81 1.6 1.7 2.1 1.9
BoI 125 141 167 222 3.3 3.5 4.1 5.4 80 91 101 135 2.1 2.3 2.5 3.4
Canara 82 92 106 130 2.7 2.9 3.4 3.9 62 72 76 87 2.0 2.3 2.4 2.7
OBC 60 66 77 77 4.3 4.7 5.4 5.2 42 45 51 48 3.1 3.3 3.7 3.3
PNB 196 208 222 257 5.5 5.7 6.0 6.6 105 116 138 154 3.0 3.3 3.8 4.1
SBI 604 607 620 567 4.9 4.9 4.9 4.3 319 330 345 276 2.7 2.7 2.8 2.1
Union 102 115 126 130 4.3 4.7 5.1 5.0 58 64 71 69 2.5 2.7 3.0 2.7
Old private
CUBK 3 3 4 3 1.9 2.0 2.1 1.9 2 2 2 2 1.3 1.3 1.3 1.3
DCB 1 2 2 2 1.8 1.9 1.9 1.8 1 1 1 1 1.0 1.1 1.0 1.0
Federal 10 10 11 11 2.2 2.1 2.2 2.0 3 3 3 4 0.7 0.7 0.7 0.7
KVB 5 5 7 7 1.3 1.4 1.9 1.9 2 2 3 3 0.5 0.6 0.7 0.8
J&K 27 28 27 28 5.8 6.0 5.8 6.0 14 12 14 12 3.2 2.8 3.2 2.8
New private
Axis 35 36 39 41 1.3 1.3 1.3 1.3 11 12 13 13 0.4 0.4 0.4 0.4
HDFC Bank 34 34 35 34 1.1 1.0 1.0 0.9 10 9 9 9 0.3 0.3 0.3 0.2
ICICI 110 117 132 152 3.2 3.2 3.5 3.9 34 39 48 63 1.0 1.1 1.3 1.6
IndusInd 7 7 7 6 1.1 1.1 1.1 0.8 2 2 2 2 0.3 0.3 0.3 0.3
Yes 2 2 3 3 0.3 0.4 0.4 0.4 0 1 1 1 0.1 0.1 0.1 0.1
Total 1,523 1,602 1,737 1,833 3.6 3.7 3.9 3.9 805 869 959 960 1.9 2.0 2.2 2.0
Change qoq (%) 3.6 5.2 8.4 5.5 6.2 7.9 10.3 0.2
Public banks 1,290 1,359 1,472 1,546 4.2 4.4 4.7 4.7 726 786 864 850 2.4 2.5 2.7 2.6
Private banks 233 243 265 287 2.0 2.0 2.0 2.1 80 84 95 110 0.7 0.7 0.7 0.8
Gross NPLs (Rs bn) Gross NPLs (%) Net NPLs (Rs bn) Net NPLs (%)
Source: Company, Kotak Institutional Equities
Exhibit 8: Fresh impairments were higher than previous quarter Fresh additions to NPLs and restructured loans, March fiscal year-ends, 4QFY14-4QFY15
4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15
Bank of Baroda 1.3 2.1 1.9 3.1 1.3 1.2 1.0 1.2 1.6 3.8
Bank of India 3.8 4.0 3.0 3.3 6.4 2.5 1.7 1.4 0.7 2.7
Canara Bank 2.8 3.4 4.1 2.9 3.4 1.9 1.8 1.2 1.4 4.2
Oriental Bank of Commerce 3.4 4.1 2.8 3.8 2.1 2.9 2.5 2.0 6.0 4.7
Punjab National Bank 5.1 3.4 4.4 5.7 7.8 3.7 1.7 3.7 2.7 8.3
State Bank of India 2.6 3.3 2.5 2.3 1.5 2.6 1.2 1.1 1.3 3.7
Union Bank 2.0 2.1 3.2 2.8 2.4 2.4 0.8 1.2 2.0 3.6
Axis Bank 0.5 1.1 1.5 1.1 0.9 1.9 0.8 0.9 0.2 2.2
ICICI Bank 1.5 1.4 1.8 2.4 3.4 2.5 1.6 0.9 1.9 1.3
Total 2.6 2.9 2.8 2.9 3.0 2.4 1.4 1.4 1.6 3.8
Total (ex SBI) 2.6 2.7 2.9 3.2 3.7 2.4 1.5 1.6 1.8 3.8
Fresh slippages (%) Fresh restructuring (%)
Source: Company, Kotak Institutional Equities
-
Banks/Financial Institutions India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 5
Exhibit 9: Banks made higher write-offs during the quarter Write-off of loans, March fiscal year-ends, 4QFY14-4QFY15
4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15
Bank of Baroda 4,866 4,986 3,680 3,280 3,689 0.5 0.5 0.4 0.3 0.3
Bank of India 5,480 8,150 1,550 640 (2,330) 0.6 0.9 0.2 0.1 (0.2)
Canara Bank 4,030 8,000 10,540 200 (4,010) 0.5 1.1 1.4 0.0 (0.5)
Oriental Bank of Commerce 3,652 4,371 778 397 3,703 1.0 1.3 0.2 0.1 1.0
Punjab National Bank 8,740 7,490 10,700 10,820 13,540 1.0 0.9 1.2 1.2 1.4
State Bank of India 56,980 65,600 47,870 50,960 48,740 1.9 2.2 1.6 1.7 1.5
Union Bank 2,220 2,880 1,800 2,180 2,450 0.4 0.5 0.3 0.4 0.4
Axis Bank 140 2,120 5,970 1,940 2,140 0.0 0.4 1.0 0.3 0.3
ICICI Bank 7,190 3,920 5,390 2,360 5,950 0.8 0.5 0.6 0.3 0.6
Total 93,299 107,518 88,278 72,777 73,872 1.0 1.2 1.0 0.8 0.8
Write-offs (Rs mn) Write-offs (% of advances)
Source: Company, Kotak Institutional Equities
Exhibit 10: Strong recovery in 4QFY15, particularly for SBI and PNB Recoveries and upgradation of loans, March fiscal year-ends, 4QFY14-4QFY15
4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15
Bank of Baroda 8,572 13,125 5,137 3,186 1,816 0.4 0.9 1.4 0.5 0.3 0.2
Bank of India 12,155 22,911 12,214 7,254 12,874 1.2 1.3 2.4 1.2 0.7 1.3
Canara Bank 22,357 12,057 11,193 8,627 7,396 1.5 3.0 1.6 1.4 1.1 0.9
Oriental Bank of Commerce 4,063 6,291 2,397 2,773 3,929 1.1 1.2 1.8 0.7 0.8 1.1
Punjab National Bank 12,948 14,862 17,350 26,515 25,866 1.0 1.5 1.7 1.9 2.9 2.7
State Bank of India 84,430 45,411 26,349 6,679 51,611 1.0 2.8 1.5 0.9 0.2 1.6
Union Bank 1,905 3,179 5,582 3,856 8,672 0.5 0.3 0.5 0.9 0.6 1.3
Axis Bank 1,488 971 1,642 2,255 1,874 0.2 0.3 0.2 0.3 0.3 0.3
ICICI Bank 4,160 3,560 4,400 5,070 6,540 0.5 0.5 0.5 0.5 0.6 0.7
Total 152,077 122,368 86,263 66,216 120,579 0.9 1.7 1.4 1.0 0.7 1.2
Ex SBI 67,647 76,957 59,914 59,537 68,967 0.8 1.2 1.3 1.0 1.0 1.1
Recovery/upgradation (% of advances)Recovery and upgradation (Rs mn)
Source: Company, Kotak Institutional Equities
Exhibit 11: Nearly 30% of textiles and 25% of iron and steel exposure have been restructured or have slipped into NPLs NPL and restructured loans in textiles and iron and steel across select banks, March fiscal year-end, 4QFY15 (%)
Total
exposure
Total
exposure
(% of loan
book)
(% of total
expoure)
(% of
restructured
loans)
(% of total
expoure)
(% of
NPLs)
(% of loan
book)
(% of total
expoure)
(% of
restructured
loans)
(% of total
expoure) (% of NPLs)
IOB 4.1 10.1 3.7 14.6 7.1 6.3 28.7 16.2 12.3 9.3
OBC (A) 4.8 11.6 4.1 13.3 12.2 6.5 21.3 10.3 11.3 14.2
PNB 3.1 12.1 3.7 8.6 3.9 6.2 23.6 14.6 10.1 9.3
SBI 3.2 15.7 24.3 8.4 6.3 6.0 18.4 53.9 7.3 10.4
Notes:
(a) Restructured loans amount assumed to be same as 3QFY15.
Textiles Iron & steel
Restructutred loans NPLs Restructutred loans NPLs
Source: Company, Kotak Institutional Equities
-
India Banks/Financial Institutions
6 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 12: Loan loss provisions increased for most banks Loan loss provision ratio, March fiscal year-ends, 4QFY14-4QFY15 (%)
4QFY14 1QFY15 2QFY15 3QFY15 4QFY15
Public banks
Bank of Baroda 0.6 0.8 0.6 1.2 1.4
Bank of India 1.5 1.0 0.9 1.5 2.3
Canara Bank 1.0 1.5 1.1 1.4 1.2
Oriental Bank of Commerce 2.1 1.7 1.3 1.6 1.8
Punjab National Bank 2.4 1.4 2.0 2.1 3.8
State Bank of India 1.9 1.3 1.3 1.5 1.9
Union Bank 1.2 0.7 1.1 1.3 1.2
Old private banks
City Union Bank 0.6 1.1 1.2 0.6 0.7
DCB 0.5 0.6 0.4 0.4 0.5
Federal Bank 0.3 0.4 0.5 0.5 0.3
Karur Vysya Bank 0.1 1.5 0.8 1.7 1.8
J&K Bank 0.3 1.8 3.1 1.8 3.1
New private banks
Axis Bank 0.7 0.6 1.1 0.6 0.5
HDFC Bank 0.4 0.5 0.6 0.6 0.6
ICICI Bank 0.8 0.8 0.8 1.0 1.3
Yes Bank 0.3 0.5 0.3 0.3 0.6
IndusInd Bank 0.5 0.6 0.4 0.7 0.5
Source: Company, Kotak Institutional Equities
Exhibit 13: Provision coverage ratio trends were mixed Provision coverage ratio, March fiscal year-ends, 4QFY14-4QFY15 (%)
4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15
Public banks
BoB 49.2 50.2 48.7 46.3 50.4 65.5 66.7 65.4 62.4 65.0
BoI 37.5 35.8 35.6 39.7 39.1 58.7 58.1 56.3 56.6 52.4
Canara 21.2 24.6 21.8 28.5 33.0 60.1 60.1 58.7 59.4 57.3
OBC 30.5 29.3 32.0 33.8 37.2 60.2 59.1 59.0 57.4 60.6
PNB 47.5 46.6 44.0 37.9 40.1 59.1 60.0 59.1 57.3 58.2
SBI 49.5 47.2 45.7 44.4 51.4 62.9 62.7 63.2 63.6 69.1
Union 44.2 43.7 43.7 43.5 46.9 59.9 58.9 58.0 57.3 59.2
Old private banks
City Union Bank 32.7 33.7 35.3 38.9 30.7 62.0 61.1 62.0 62.0 58.0
DCB 46.5 46.1 44.1 46.9 43.2 80.5 79.1 76.8 77.1 74.7
Federal Bank 70.4 70.1 69.1 68.8 64.7 84.1 84.9 85.1 85.0 83.9
Karur Vysya Bank 49.9 59.5 56.8 62.3 58.5 75.0 75.0 75.0 75.1 75.2
J&K Bank 87.0 48.7 49.3 46.3 55.3 90.3 55.1 54.9 51.0 59.0
New private banks
Axis Bank 67.4 67.8 67.3 67.9 68.0
HDFC Bank 72.6 70.0 72.7 73.9 73.9
ICICI Bank 68.8 68.4 65.8 63.5 58.5
Yes 85.1 78.4 75.8 76.8 72.0
IndusInd Bank 70.4 70.1 70.2 70.0 62.6
Ex write-off Inc write-off
Source: Company, Kotak Institutional Equities
-
Banks/Financial Institutions India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 7
Exhibit 14: We factor loan loss provisions to reduce gradually Loan-loss provisions, March fiscal year-ends, 2009-17E (%)
0.0
0.4
0.8
1.2
1.6
2.0
2009
2010
2011
2012
2013
2014
2015
2016E
2017E
Private PSU
Notes:
(a) City Union Bank, DCB, ING Vysya and Karur Vysya Bank not included from banks under coverage.
Source: Company, Kotak Institutional Equities estimates
Restructured loans shows an increase of 30 bps qoq; net NPL and restructured loans
increase 20 bps at ~7% of loans
Overall restructured loans increased by 30 bps qoq 5% of loans. Public banks reported an
increase of 40 bps qoq to 6.2% of loans while the share of restructured loans for private
banks increased by 10 bps to 2.1% of loans.
The increase on a sequential basis was broadly on expected lines. Loans restructured in the
SEB segment came off to 46% from 50% in the past few quarters. There would be no
further fresh disbursements from FY2016 to the SEB as a part of the financial restructuring
package.
Overall stress (net NPL and restructured loans) stands at 2.9% of loans (10 bps qoq) for
private banks and 8.8% of loans (20 bps increase qoq) for public banks. There are some
early signs that the pipeline for fresh restructuring is gradually easing across all banks.
However, it would be incorrect to extrapolate considering that incremental cases for
restructuring would be of a very large ticket size.
The transitional costs of the provisioning requirements on new restructured guidelines
continued to bite earnings as they would have to have make ~5% on the incremental loans
restructured and move the outstanding stock of restructured to 5% by FY2015. We do note
that there are high slippages into NPL from the restructured loan portfolio as the
restructuring package implemented in these corporate portfolios has not been successful.
-
India Banks/Financial Institutions
8 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 15: Restructured loans and net NPLs to total loans are at about 9% for public banks, 3% for private banks Restructured loans and net NPLs, March fiscal year-ends, 4QFY14-4QFY15 (%)
4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15
Public banks
BoB 5.2 6.0 5.8 5.9 6.1 1.5 1.6 1.7 2.1 1.9 6.7 7.6 7.6 8.0 7.9
BoI 5.5 5.5 5.5 4.9 4.9 2.0 2.1 2.3 2.5 3.4 7.5 7.6 7.8 7.4 8.3
Canara 7.7 7.9 7.9 8.1 8.6 2.0 2.0 2.3 2.4 2.7 9.7 10.0 10.2 10.6 11.2
OBC 9.8 11.6 11.3 12.7 13.6 2.8 3.1 3.3 3.7 3.3 12.6 14.7 14.5 16.3 16.9
PNB 10.2 9.8 10.2 9.5 10.1 2.9 3.0 3.3 3.8 4.1 13.0 12.8 13.4 13.3 14.1
SBI 3.6 3.5 3.6 3.8 4.3 2.6 2.7 2.7 2.8 2.1 6.1 6.2 6.4 6.6 6.4
Union 5.3 5.0 6.6 5.0 5.2 2.3 2.5 2.7 3.0 2.7 7.6 7.5 9.3 7.9 5.2
Old private banks
City Union 1.7 1.6 1.5 1.5 1.4 1.2 1.3 1.3 1.3 1.3 2.9 2.9 2.8 2.8 2.7
DCB 1.0 0.9 1.0 1.2 0.5 0.9 1.0 1.1 1.0 1.0 2.0 1.9 2.1 2.2 1.5
Federal 5.3 5.5 5.0 5.1 5.6 0.7 0.7 0.7 0.7 0.7 6.1 6.2 5.7 5.7 6.3
Karur Vysya 4.1 4.3 4.5 4.7 5.4 0.4 0.5 0.6 0.7 0.8 4.5 4.8 5.1 5.4 6.2
J&K 3.4 3.0 2.8 4.1 5.5 0.2 2.2 2.5 3.2 2.8 3.6 5.2 5.3 7.3 8.3
Private
Axis 2.4 2.5 2.5 2.4 2.7 0.4 0.4 0.4 0.4 0.4 2.8 2.9 2.9 2.8 3.2
HDFC Bank 0.2 0.2 0.1 0.1 0.1 0.3 0.3 0.3 0.3 0.2 0.5 0.5 0.4 0.4 0.3
ICICI 3.1 3.2 3.0 3.2 2.8 1.0 1.0 1.1 1.3 1.6 4.1 4.2 4.1 4.5 4.5
IndusInd 0.3 0.4 0.5 0.6 0.5 0.3 0.3 0.3 0.3 0.3 0.7 0.7 0.9 0.9 0.8
Yes 0.2 0.2 0.2 0.3 0.5 0.1 0.1 0.1 0.1 0.1 0.2 0.3 0.3 0.4 0.6
Total 4.7 4.7 4.8 4.7 5.0 1.8 1.9 2.0 2.2 2.1 6.5 6.7 6.9 6.9 7.1
Public banks 5.6 5.8 5.9 5.8 6.2 2.3 2.4 2.6 2.8 2.6 7.9 8.2 8.5 8.6 8.8
Private banks 2.0 2.1 2.0 2.0 2.1 0.5 0.7 0.7 0.8 0.8 2.6 2.7 2.7 2.8 2.9
Restructured loans (%) Net NPL and restructured loans (%)Net NPLs (%)
Source: Company, Kotak Institutional Equities
Exhibit 16: Proportion of SEB restructured loans declined to 47% from 50% earlier led by implementation of FRP packages for SEBs March fiscal year-end, 4QFY15 (%)
(Rs bn) (Rs bn)
(% of
loans)
(% of
loans)
(% of
loans)
(% of
loans)
(% of
loans)
(% of
loans)
(% of
loans)
(% of SEB
loans)
Andhra Bank 1,296 199 15.4 3.6 7.2 11.1 2.9 0.4 7.7 82.2
Allahabad Bank 1,531 248 16.2 3.4 5.8 10.9 2.1 0.2 8.6 61.0
BOB (B) 4,281 357 8.3 1.5 3.0 6.1 0.7 0.3 5.0 46.1
BOI 4,020 490 12.2 3.7 4.6 5.0 1.0 0.6 3.5 25.7
Central Bank (B) 1,950 410 21.0 9.4 4.4 16.7 7.4 0.6 8.7 78.5
Corporation Bank 1,451 238 16.4 2.7 6.9 7.3 1.6 0.6 5.1 60.5
Dena Bank 806 153 19.0 9.0 3.4 12.2 4.6 0.2 7.4 51.6
IDBI Bank 2,084 572 27.5 12.0 8.0 0.2 7.8
Indian Bank (B) 1,288 230 17.8 3.3 6.6 7.7 3.1 0.5 4.1 91.1
IOB (A) 1,790 280 15.7 5.4 5.7 11.1 1.1 0.4 9.6 20.5
OBC 1,480 335 22.6 4.7 8.7 13.6 3.7 0.8 9.1 78.8
PNB 3,805 637 16.7 2.8 7.0 10.1 1.5 0.4 8.1 54.8
SBI (B) 13,354 1,773 13.3 0.8 7.2 5.3 0.3 0.1 4.9 35.5
Vijaya Bank 877 234 26.7 8.4 9.6 7.1 2.8 4.2 33.6
Syndicate bank 2,058 255 12.4 5.6 2.7 5.2 2.1 0.4 2.8 36.9
Total 48,000 7,442 15.5 3.4 6.1 8.0 1.5 0.3 6.2 46.1
Notes:
(A) Exposure to power extrapolated proportionate to increase in infrastructure book
(B) Assumed infrastructure exposures and SEB restructured loans same as previous quarter
(C) We have assumed exposure to be equal to last quarter where data is not available
Power
Total loans Infra exposure SEB Non-SEB SEB Aviation Others
Restructured loans (% of loans)
SEB
restructuringTotal
Source: Company, Kotak Institutional Equities
-
Banks/Financial Institutions India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 9
NBFCS: MIXED RESULTS; OVERALL TRENDS WEAK
Most NBFCs continued to report weakness in core earnings on the back of slowing growth and higher NPLs.
NIM improved marginally due to seasonal trends and lower incremental borrowings cost.
Key highlights
Sharp bounce back in select players. Some of the NBFCs like Mahindra Finance
reported a sharp bounce back in collections. High (31% qoq) loan growth for SKS (on the
back of weak traction in past three quarters) and 6% qoq loan growth (on the back of
flat loan book in last seven quarters) for Muthoot was reassuring.
Defensives remain strong. Housing finance companies (HDFC, LICHF) and Bajaj Finance
continued to deliver strong and stable performance though marginally tempered by
seasonal factors.
Divergent trends in CV collections. Cholamandalam, Magma, L&T Finance reported
stable or marginally improvement in collections. However, collections remained weak at
Shriram Transport Finance. The sharp rise in NPL (GNPL ratio of 15% from 3% qoq) in
Shrirams equipment finance subsidiary) rattled the street, raising concerns about
significant slippages for other players however, most other listed players have not
reported any such sharp deterioration.
Business momentum picked up
Most NBFCs reported improvement in business momentum during 4QFY15 though this may
not be construed as a sign of recovery in the sector.
Housing finance companies (HDFC, LICHF and Dewan) continue to report strong retail
loan growth. Market share gains over the last few quarters have also boosted growth for
these players. Reported yoy loan growth and disbursements growth has accelerated by
~1% yoy between 3QFY15 and 4QFY15.
CV finance companies reported slightly better business growth due to a pick-up in CV
sales in 2HFY15. HCV sales picked up during the quarter; while this benefitted banks
(catering to large fleet operators), some of the NBFCs (catering to smaller operators)
reported higher growth as well. This was likely due to financing of vehicles sold down to
small fleet operators from large fleet operators.
Bajaj Finance continued to report high loan growth (up 35%) yoy driven by 14 business
lines across consumer as well as business loan verticals.
SKS report high loan growth (31% qoq) due to an increase in ticket size and higher
momentum in 4Q.
Muthoot reported 6% qoq loan growth as compared to a flat performance in the past
few quarters as disbursements picked up gradually as its marketing efforts ramped up.
Reported loan growth declined for several players (Cholamandalam, Magma, Mahindra
Finance and L&T Finance) as business momentum has been weak for several quarters while
repayments remain stable/high.
-
India Banks/Financial Institutions
10 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 17: Loan growth remains weak Yoy loan growth, 4QFY14-4QFY15 (%)
4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 Comments
Bajaj F inance 37 40 41 37 35 Loan growth remains high
Cholamandalam 22 18 17 12 9 Retains cautious stance
DHFL 24 28 28 27 Loan growth continues
HDFC 16 15 15 14 16 Improving trend in retail busienss
IDFC 5 (8) (4) (3) (10) Loan book down sharply
LIC Housing F inance 17 17 17 18 19 Disbursements remain high
Mahindra F inance 23 17 13 10 11 Loan growth weak
Magma Finance 10 12 13 13 9 Slow ing down
Muthoot F inance (16) (17) (11) (2) 7 Loan book up 6% qoq
Power F inance Corporation 18 17 16 16 15 Business gradually slow ing down
Rural Electrification Corporation 17 17 17 19 21 Remains stable
Shriram City Union F inance (7) (2) 3 8 14 Growth improves on low base
Shriram Transport F inance 7 4 3 7 11 Strong yoy growth in disbursements
SKS Microfinance 41 39 50 35 47 Strong growth in ticket size
Source: Kotak Institutional Equities , Company
Exhibit 18: Trends in disbursements were better qoq Disbursements, 4QFY13-4QFY15 (%)
4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15
Bajaj Finance 21 32 20 45 38 48 50 NA NA
Cholamandalam 33 29 6 7 (3) (3) 7 (7) (5)
DHFL - 11 11 10 64 20 31 22 10
HDFC 30 17 19 13 3 18 22 1 17
L&T Finance 7 25 5 9 7 (2) 5 (3) 2
LICHF -retail 18 13 (0) 6 3 15 23 23 24
Mahindra Finance 27 32 5 8 (11) (13) (2) (8) 7
Magma Fincorp (18) (13) 3 6 28 33 9 14 (12)
Shriram City NA (21) (27) (4) 9 18 17 9 5
Shriram Transport 55 48 18 (8) (10) (6) 13 39 31
Source: Company, Kotak Institutional Equities
NIM rise and NPLs decline qoq
NIM improved for most players on a qoq basis. Seasonally, NPLs decline and collections
improve in most segments likely due to managements focus on recoveries. Higher income in
semi urban/rural India after the harvest season is also one of the reasons.
Borrowings cost down. Borrowings cost of most players has declined marginally. Large
and high-rated NBFCs shifted funds from bond markets at competitive rates. For instance,
LICHFs bond yield was down 150 bps in 2HFY15.
Lower growth = lower decline in borrowings cost. Lower loan growth implies that
incremental borrowings are low and hence reduction in average borrowings cost is lower.
Lower loan sell down. Share of loan sell down has declined yoy for most players due to
change in guidelines for bank classification of RIDF bonds. This is weighing negatively on
NIM.
-
Banks/Financial Institutions India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 11
Exhibit 19: NIM- mixed trends NIM (KS- calculations), 4QFY14-4QFY15 (%)
4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 Comments
Bajaj F inance 8.7 10.0 8.5 10.6 8.8 Seasonal weakness in NIM
Cholamandalam 6.9 6.7 6.9 7.6 7.2 Change in classification on EIS
DHFL 2.6 2.9 2.8 2.8 2.7 Stable qoq
HDFC 4.3 3.3 3.4 3.6 4.1 Strong seasonal trends
IDFC 4.1 4.2 3.8 4.3 3.4 Lower debt market gains
LIC Housing F inance 2.4 2.2 2.2 2.2 2.5 Seasonal trends at work
Mahindra F inance 10.2 9.1 9.5 9.1 10.7 Seaonally strong NIM
Magma Fincorp 5.5 5.2 5.3 5.9 5.9
Lower share of loan securitization and
higher share of high-y ield loans
Muthoot F inance 10.4 10.0 10.0 9.5 9.7 NIM up marginlly qoq
Power F inance Corporation 4.9 4.8 5.1 5.0 4.8 NIM remains high
Rural Electrification Corporation 5.0 5.0 5.2 5.2 5.1 NIM remains high
Shriram Transport F inance 6.9 7.2 7.3 7.5 7.5 Stable qoq
Shriam City Union F inance 13.3 13.5 13.3 14.3 13.7 Higher share of gold loans
SKS Microfinance 9.5 11.2 13.6 10.9 9.9 Cash distorted calculated ratio
Source: Company, Kotak Institutional Equities
Exhibit 18: Share of off-balance sheet loans lower yoy Off-balance sheet loans as % of total AUM, March fiscal year-end, 4QFY14-4QFY15 (%)
4QFY14 1QFY15 2QFY15 3QFY15 4QFY15
DHFL 9 9 9 9 10
Mahindra Finance 7 6 5 5 5
Magma Finance 36 33 32 30 32
Shriram City Union Finance 13 11 8 6 6
Shriram Transport Finance 31 26 21 14 17
SKS Microfinance 39 21 5 14 30
Source: Company, Kotak Institutional Equities
Exhibit 20: NPLs decline qoq for most players Gross NPLs of NBFCs, 4QFY13-4QFY15 (%)
4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15
Bajaj Finance 1.0 1.1 1.1 1.2 1.2 1.1 1.4 1.5 1.5
Cholamandalam 1.1 1.1 1.4 1.7 1.9 2.4 2.6 2.8 3.1
DHFL 0.7 0.8 0.8 0.9 0.8 0.8 0.8 0.8 0.8
HDFC 0.7 0.8 0.8 0.8 0.7 0.7 0.7 0.7 0.7
IDFC 0.2 0.4 0.3 0.6 0.6 0.6 0.6 0.7 0.7
LIC Housing Finance 0.6 0.8 0.7 0.8 0.7 0.8 0.6 0.6 0.5
LTF Holdings 2.03 2.54 2.89 2.93 3.18 3.57 2.96 3.01 2.25
L&T Finance 2.5 3.4 3.4 3.5 3.4 3.8 3.5 3.9 3.0
L&T Infra Finance 1.5 1.5 2.4 2.4 3.1 3.5 2.5 2.3 1.8
Magma Finance - - 1.3 1.6 2.2 2.9 3.6 3.6 4.1
Mahindra Finance 3.0 4.2 4.1 4.8 4.4 6.2 6.3 7.1 5.9
Muthoot Finance 2.0 2.1 1.9 1.6 1.9 1.9 2.1 1.9 2.2
Power Finance Corporation 0.7 0.7 0.7 0.7 0.7 1.0 1.0 1.0 1.1
Rural Electrification Corporation 0.4 0.4 0.4 0.3 0.3 0.9 0.8 0.8 0.7
Shriram Transport Finance 3.2 3.1 3.3 3.6 3.9 3.7 3.7 3.6 3.8
Shriram City Union Finance 2.2 2.3 2.5 2.5 2.7 2.9 2.9 3.0 3.1
SKS Microfinance 0.5 0.3 0.2 0.1 0.1 0.2 0.1 0.1 0.1
Source: Company, Kotak Institutional Equities
-
India Banks/Financial Institutions
12 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Impaired loans rise for PFC and REC Impaired loans, March fiscal year-end, 1QFY14-4QFY15 (Rs bn)
1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15
PFC
Gross NPLs 12 12 12 12 20 20 20 24
Rescheduled/ restructured loans 101 115 133 116 127 156 175 205
Total impaired loans 113 127 144 128 147 176 195 229
(% of loan book) 7 7 8 7 8 9 10 11
REC
Gross NPLs 5 5 5 5 13 13 13 13
Rescheduled/ restructured loans 337 337 337 337 337 30 95 164
Total impaired loans 342 342 342 342 350 43 108 178
(% of loan book) 26 25 24 23 23 3 6 10
Notes:
PFC
(b) ) If the loan repayment scheudule is revised due to change in cash flow forecasts, the loan is classified as 'restructured'.
REC
(a) If the commission date of a private sector project project is postponed by a single day,the loan is classified as 'rescheduled'.
(a) 1QFY14-1QFY15: If the commission date of a private/ public sector project is postponed or loan repayment schedule is revised by a
single day, the project is classified as 'rescheduled'.
(b) 2QFY15-4QFY15: If the commission date of a private/ public sector project is postponed by over two years or loan repayment
schedule is revised, the loans is classified as 'restructured'.
Source: Company, Kotak Institutional Equities
Exhibit 21: Earnings growth trend mixed for NBFCs Core PBT growth for NBFCs, 4QFY14-4QFY15 (%)
4QFY14 1QFY15 2QFY15 3QFY15 4QFY15
Bajaj Finance 16 20 18 33 24
Cholamandalam 12 2 7 21 48
DHFL 33 40 40 24 5
HDFC 13 18 21 12 12
IDFC 16 2 (5) 12 (21)
LICHF 21 13 9 18 17
Mahindra Finance 1 (19) (6) (17) 5
Magma Finance (22) (18) 15 29 36
Muthoot Finance (20) (7) (20) (20) (8)
PFC 15 16 12 11 13
REC 26 16 33 21 17
Shriram Transport (7) 1 4 10 16
Shriram City Union Finance 15 8 10 9 5
SKS Microfinance 803 886 255 90 71
Core PBT (%)
Source: Company, Kotak Institutional Equities
Exhibit 22: Earnings growth trend mixed for NBFCs PAT growth for NBFCs, 4QFY14-4QFY15 (%)
4QFY14 1QFY15 2QFY15 3QFY15 4QFY15
Bajaj Finance 11 20 18 33 27
Cholamandalam 6 2 6 21 49
DHFL 7 22 18 17 13
HDFC 11 21 14 18 15
IDFC (47) (14) (14) (16) 49
LICHF 17 14 21 16 10
Mahindra Finance (7) (19) (6) (17) 7
Magma Finance 1 1 31 25 18
Muthoot Finance (20) (7) (20) (20) (8)
PFC 9 21 11 1 11
REC 24 11 35 12 (8)
Shriram Transport (17) (10) (8) 4 7
Shriram City Union Finance 17 9 9 10 1
SKS Microfinance 803 886 255 90 49
PAT (%)
Source: Company, Kotak Institutional Equities
Summary of takeaways for select NBFCs
Bajaj Finance reported 27% growth in earnings supported by 35% growth in loan book
(Rs324 bn). Calculated NIM declined due to the shift to lower-yield loans. The company
made extra provisions of Rs174 mn as an impact of change in provisioning policy this
pulled down growth in reported earnings.
Cholamandalams (Chola) 4QFY15 PAT was up 21% yoy driven by high income on
recoveries (interest income including penal charges). Provisions were strong as well;
Cholas management indicated that delinquency resolution in early buckets (0-4 months)
was strong and substantially lower yoy but delinquencies in the past two months slipped
into the NPL category.
-
Banks/Financial Institutions India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 13
Dewan Housing Finances (Dewan) comparable PAT was up 20% yoy on the back of 27%
yoy loan growth to Rs568 bn. Calculated NIM were stable yoy at 2.7% as the company
has likely fully passed on the benefit of lower borrowings cost to its borrowers.
HDFC reported PAT (before DTL) was up 15% yoy. Overall loan book (including
outstanding loans sold to banks) was up 16% yoy to Rs2.53 tn. Individual loan book was
up 18% yoy. Non-individual loan book was up 13% yoy, higher than 8-11% yoy over the
past seven quarters. Calculated NIM (4.1%) was down 20 bps yoy but up 50 bps qoq due
to liability-side benefits.
LICHF reported 17% yoy growth in comparable earnings and 22% growth in NII on the
back of stable (19%) loan growth and marginal yoy NIM expansion.
L&T Finance (the retail and mid-market business of L&T Finance Holdings) 14% PBT
growth yoy. The sharp (45%) decline in CV/CE loans and weak business loans has offset
high growth in tractor and microfinance (leading to flat loan book) but such a strategy
boosted asset yields (up 40 bps yoy). The company made extra provisions (which
accounted for about half the provisions during the quarter) to prepare for 150 days past
due (dpd) NPL recognition from FY2017. The company will follow 150 dpd guidelines
from 1QFY15.
L&T Infra Finance reported strong loan growth of 27% yoy (from renewable projects,
roads and operating assets). Incremental trends are little weaker as seen from
disbursements (+2% yoy and -36% qoq). NIM was flat but high provisions (statutory and
extra provisions) affected earnings.
Sharp rise in impaired loans for PFC (and REC) were the key highlight of 4Q results. PFCs
impaired loans increased sharply led by large (17% qoq) rise in rescheduled loans. RECs
restructured loans were up 72% qoq; the restructured loan book in the public sector
increased by 23% yoy to Rs117 bn and the company restructured loans of about Rs47 bn
(NIL earlier) in the private sector.
Magma Fincorp (Magma) reported PBT growth of 36% largely supported by (1) lower
provisions due to relaxation of the NPL norms and (2) 19% yoy growth in NII (supported
by 11% loan growth and NIM expansion). Cost-to-income ratio increased to 61% in
4QFY15 from 56% in 3QFY15. The tax rate was higher at 23% from 17% in 3QFY15
and 10% in 4QFY14 due to the lower share of loan securitization, which in turn boosted
NIM to some extent.
Mahindra Finances (MMFS) PAT was up 7% yoy but 13% ahead of estimates. Strong
NPL recoveries in March led to 17% qoq decline in gross NPLs, thus reducing provisioning
expenses (down 45% qoq) and boosting NIM (write-back of interest reversals boosted
asset yields by 35 bps qoq). MMFSs strong recovery efforts and reversion of high
delinquencies in 3QFY15 is likely to have driven strong collections performance, in our
view.
Muthoot Finances (Muthoot) PAT was down 9% yoy but up 7% qoq. Loan growth
picked up sharply (up 6% qoq to Rs234 bn). NIM expanded as well (20 bps qoq). The
company continued its focus on reducing its operating expenses opex ratio was lower
at 5.1% of loans from 5.4% qoq.
Shriram City Union Finance (SCUF) reported 5% growth in PBT. NII, up 14% yoy, was
supported by similar (14%) loan growth even as NIM (13.7%) was stable yoy. Cost-to-
income ratio was up 400 bps yoy and 230 bps above estimates to 41% due to increase in
number of employees on roll.
-
India Banks/Financial Institutions
14 KOTAK INSTITUTIONAL EQUITIES RESEARCH
SKS Microfinances business momentum picked up sharply in 4QFY15 with 31% qoq
loan growth due to the average size/loan increase of 25% qoq. Long-term loans (loan
with tenure of 104 weeks for borrowers, who have completed at least two loan cycles)
contributed 31% of the qoq loan growth. Greater liquidity on balance sheet, higher loan
sell-down (which calls for higher cash collateral) pulled down calculated NIM (9.9% as
compared to 10.9% in 3QFY15) Consequently, PAT was lower qoq at Rs405 mn (Rs412
in 3QFY15).
Shriram Transport Finance reported subdued earnings due to high (32%) rise in credit
cost. NII was up 19% yoy on the back of 11% loan growth (up 7% in 3QFY15) and yoy
NIM expansion. Large losses in the subsidiary company due to a sharp rise in NPLs (15%
from 3% qoq) was the key reason for disappointment.
Loan growth slowdown is the emerging challenge for banks
Growth remained similar to industry average for the banks under coverage at 11% yoy.
Public banks continued to report a noticeable slowdown with growth at 8% yoy; the
corporate segment is witnessing the maximum slowdown as the fresh capex cycle is not
showing any improvement and there is some shift in lending to money market instruments
owning to a sharp change in the liquidity environment.
Loan growth for private banks remained healthy at 18% yoy and similar to the previous
quarter levels. Select banks like Axis Bank, Yes Bank, IndusInd Bank and HDFC Bank seeing a
large growth in the corporate loan portfolio.
We note that old private banks, CUBK and Federal Bank have reported an improvement in
loan growth despite growth in gold loans being a major challenge. These banks continue to
focus on SME loans for incremental growth. KVB and J&K Bank reported a modest or weak
growth.
Most of the other public and private banks have shifted focus towards lending to retail and
SME. We believe that this is likely to be the biggest source of concern in FY2015 as fresh
sanctions have not shown any improvements, repayments are increasing from existing loans
while retail, where banks have shifted focus contributes to only 20% of the overall loans for
the sector. Public banks are likely to struggle more as their ability to shift to retail is
challenging and growth in the corporate segment is likely to remain weak for a few more
quarters.
Exhibit 23: Loan growth has been weak at 11% yoy in recent months Yoy growth in loans, March fiscal year-ends, 2012-2015 (%)
5
10
15
20
25
30
Apr
May
Jun
Jul
Aug
Sep Oct
Nov
Dec
Jan
Feb
Mar
2012 2013 2014 2015
Source: Company, Kotak Institutional Equities
-
Banks/Financial Institutions India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 15
Exhibit 24: Loan growth for banks under coverage was at 11% yoy Yoy growth in loans, March fiscal year-ends, 4QFY13-4QFY15 (%)
4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15
Public banks
Bank of Baroda 14.2 12.4 16.3 17.7 21.0 18.8 13.5 11.7 7.8
Bank of India 16.5 17.1 29.4 27.2 28.4 23.3 18.5 15.1 9.4
Canara Bank 4.2 10.8 30.3 31.8 24.3 21.2 10.6 8.5 9.6
Oriental Bank of Commerce 16.3 12.4 9.2 8.4 8.1 8.1 8.1 5.5 5.2
Punjab National Bank 5.1 3.6 6.5 9.7 13.1 13.9 13.8 11.1 9.0
State Bank of India 20.5 15.7 19.1 17.4 15.7 13.0 9.6 7.4 7.5
Union Bank 17.1 16.5 25.5 19.9 10.6 18.1 10.3 8.9 12.1
Old private banks
CUBK 25.6 20.5 16.8 9.0 6.4 5.0 7.7 7.2 11.5
DCB 24.6 18.8 17.8 23.4 23.6 28.1 31.7 28.9 28.6
Federal Bank 16.8 8.5 16.3 5.4 (1.5) 9.1 14.8 15.3 18.1
KVB 22.7 25.8 24.3 21.2 15.2 11.9 11.3 8.0 5.5
J&K Bank 18.5 21.1 35.3 21.5 18.3 10.3 (3.9) 2.4 (3.9)
New private banks
Axis Bank 16.0 15.8 16.9 17.8 16.8 16.3 20.3 23.2 22.2
HDFC Bank 22.7 21.2 16.0 22.9 26.4 20.7 21.8 17.0 20.6
ICICI Bank 14.4 12.3 15.5 16.0 16.7 15.2 13.8 12.8 14.4
Yes Bank 23.7 24.3 13.6 14.7 18.4 23.2 30.0 32.4 35.8
IndusInd Bank 26.4 27.3 24.2 23.7 24.3 23.7 22.4 21.7 24.8
Public sector 15.0 13.3 19.3 18.7 17.5 16.0 11.7 9.5 8.4
Private sector 18.5 17.2 17.3 18.3 18.7 17.0 17.5 16.9 18.4
Total 15.9 14.3 18.8 18.6 17.8 16.3 13.3 11.5 11.1
Source: Company, Kotak Institutional Equities
-
India Banks/Financial Institutions
16 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 25: Industry loan growth is slowing down gradually Break-up of loans and growth across segments, March fiscal year-ends, 2012-2015 (%)
2012 2013 2014 2015 2012 2013 2014
2012-
2015
CAGR 2012 2013 2014
2012-
2015
Agriculture & Allied 12.7 12.1 12.0 12.7 13.3 7.7 13.5 12.0 10.5 7.4 11.4 12.7
Priority Sector 33.1 31.6 33.7 33.5 12.1 8.2 22.0 12.4 25.1 20.5 48.6 34.3
Agriculture & Allied Activities 12.7 12.1 12.0 12.7 13.3 7.7 13.5 12.0 10.5 7.4 11.4 12.7
Micro & Small Enterprises 11.6 11.5 13.5 13.3 12.3 12.5 33.6 17.3 9.0 11.0 27.1 17.6
Manufacturing 5.5 5.8 6.9 6.3 12.2 20.0 35.5 17.4 4.2 8.3 14.5 8.4
Services 6.1 5.7 6.6 7.0 12.5 5.8 31.6 17.2 4.8 2.7 12.6 9.2
Housing 6.2 5.5 5.5 5.4 10.7 0.3 13.5 6.7 4.2 0.1 5.2 3.3
Weaker Sections 5.4 5.6 6.9 6.7 18.1 17.1 41.3 20.2 5.9 7.0 16.2 9.8
Industry 45.2 45.8 45.3 44.1 20.3 14.9 13.1 11.2 53.7 50.6 42.0 41.5
Mining & Quarrying 0.8 0.7 0.6 0.6 27.6 6.6 2.0 3.0 1.2 0.4 0.1 0.2
Food processing 2.2 2.4 2.7 2.9 22.1 24.5 26.1 22.4 2.8 4.0 4.4 4.5
Textiles 3.7 3.8 3.7 3.4 9.4 14.9 11.1 8.4 2.2 4.2 2.9 2.5
Rubber, Plastic & their Products 0.7 0.6 0.7 0.6 15.7 4.1 18.0 8.3 0.7 0.2 0.8 0.5
Glass & Glassware 0.1 0.2 0.2 0.1 14.8 18.5 17.0 12.0 0.1 0.2 0.2 0.1
Cement 0.9 0.9 1.0 0.9 24.9 24.0 18.0 14.9 1.2 1.6 1.2 1.1
Basic metals 6.1 6.5 6.5 6.4 22.4 19.7 15.2 13.8 7.9 9.0 6.9 7.1
Construction 1.1 1.1 1.1 1.2 11.9 7.3 17.7 14.8 0.8 0.6 1.3 1.4
Infrastructure 14.7 15.0 15.1 15.3 20.5 15.7 15.1 13.6 17.6 17.3 15.8 16.8
Power 7.7 8.5 8.8 9.2 23.9 25.5 17.4 19.0 10.5 14.8 10.4 13.0
Telecom 2.2 1.8 1.6 1.5 0.5 (6.8) 3.0 (0.6) 0.1 (1.1) 0.4 (0.1)
Roads 2.6 2.7 2.8 2.8 22.1 18.2 19.9 14.8 3.3 3.5 3.7 3.3
Other Infrastructure 2.2 1.9 1.9 1.8 32.2 0.5 9.3 4.1 3.8 0.1 1.3 0.7
Services 23.7 23.7 24.0 23.4 14.4 13.1 16.1 11.5 21.0 23.3 26.6 22.5
Transport 1.8 1.6 1.6 1.5 9.1 4.2 12.4 4.9 1.0 0.6 1.4 0.7
Professional Services 1.1 1.2 1.3 1.2 5.0 18.8 25.3 16.3 0.4 1.6 2.1 1.6
Trade 5.2 5.7 5.8 6.0 21.1 22.4 17.0 17.1 6.4 8.8 6.7 7.8
Real Estate 2.6 2.6 2.8 2.8 15.6 11.9 22.4 14.2 2.5 2.3 4.1 3.2
NBFCs 5.3 5.3 5.3 5.2 23.9 14.1 13.2 11.2 7.2 5.6 4.9 4.9
Personal Loans 18.4 18.4 18.6 19.8 12.9 13.6 15.5 14.8 14.8 18.8 20.0 23.2
Housing 9.4 9.4 9.7 10.4 12.3 13.2 18.4 16.1 7.3 9.3 12.1 13.0
Vehicle 2.1 2.3 2.3 2.5 22.2 24.5 17.4 19.0 2.7 3.8 2.8 3.5
Other Personal Loans 3.7 3.6 3.6 3.9 8.1 11.1 12.6 14.2 2.0 3.1 3.2 4.5
Incremental contributionGrowth yoyProportion of loans
Source: RBI, Kotak Institutional Equities
Pressure on NIM across banks; lending yields under pressure
NIM performance across banks was weak. Only a few banks reported an increase and were
primarily from regional banks. Most private sector banks reported flat performance in NIM
qoq while most public banks showed a marginal deterioration. Across the board, public
banks reported a fall in lending yields primarily due to higher share of de-recognition due to
the sharp rise in restructured loans qoq. Also, slippages were higher from the restructured
loans, which implies higher share of income de-recognition.
We note that trends on the cost of funds (reported) were broadly stable or have started to
decline qoq. Our outlook on NIM is broadly negative. We expect costs of funds to come off,
while lending yields are likely to remain weak as bargaining power remains in favor of
borrowers. On the retail side, a bulk of the growth is coming from housing where yields are
low.
-
Banks/Financial Institutions India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 17
Exhibit 26: Margins were under pressure for most banks, especially public banks NIM and yoy growth in NII for banks, March fiscal year-ends, 4QFY14-4QFY15 (%)
4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15
Public banks
Bank of Baroda 2.3 2.4 2.4 2.2 2.2 11.0 15.2 17.5 7.5 1.5
Bank of India 2.3 2.2 2.3 2.2 2.1 23.1 5.9 19.9 2.2 (6.6)
Canara Bank 2.3 2.3 2.2 2.2 2.3 21.3 22.0 8.1 6.9 (1.9)
OBC 2.7 2.6 2.6 2.7 2.6 7.8 (4.9) (2.7) 5.4 (0.8)
Punjab National Bank 3.2 3.4 3.2 3.2 2.8 5.9 12.1 3.4 0.3 (5.3)
State Bank of India 3.2 3.1 3.1 3.1 3.2 16.5 15.1 8.4 9.0 14.0
Union Bank 2.6 2.6 2.5 2.5 2.4 3.7 10.9 6.6 8.0 3.4
Old private banks
City Union Bank 3.3 3.3 3.5 3.5 3.4 6.6 (0.3) 8.6 6.2 10.8
DCB 3.6 3.7 3.7 3.7 3.8 22.7 67.2 28.9 29.7 29.6
Federal Bank 3.6 3.3 3.4 3.2 3.3 30.3 10.7 10.5 7.6 (0.3)
Karur Vysya Bank 2.7 2.7 2.7 3.1 3.2 12.2 2.5 13.1 28.2 14.1
J&K Bank 4.1 3.7 3.9 3.7 3.9 10.7 (2.5) (2.7) (1.2) (2.7)
New private banks
Axis Bank 3.9 3.9 4.0 4.0 3.8 18.8 15.5 20.0 20.3 20.0
HDFC Bank 4.4 4.4 4.5 4.4 4.4 15.3 17.0 23.1 23.0 21.4
ICICI Bank 3.4 3.4 3.4 3.5 3.6 14.5 17.6 15.2 13.1 16.6
IndusInd Bank 3.8 3.7 3.6 3.7 3.7 18.1 17.8 19.0 18.0 18.4
Yes Bank 3.0 3.0 3.2 3.2 3.2 12.8 13.1 27.4 36.6 35.8
NII yoy growth (%)NIM (%)
Source: Company, Kotak Institutional Equities
Exhibit 27: Deposit growth has been subdued as well in recent quarters Yoy growth in deposits, March fiscal year-ends, 2012-2015 (%)
10
13
16
19
22
25
Apr
May
Jun
Jul
Aug
Sep Oct
Nov
Dec
Jan
Feb
Mar
2012 2013 2014 2015
Source: RBI
-
India Banks/Financial Institutions
18 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 28: Short-term rates came off by ~40 bps YTD CP and CD rates, February 2012 February 2015 (%)
7.0
8.4
9.8
11.2
12.6
14.0
May-
12
Aug-1
2
Nov-
12
Feb-1
3
May-
13
Aug-1
3
Nov-
13
Feb-1
4
May-
14
Aug-1
4
Nov-
14
Feb-1
5
May-
15
CP rate CD rate
Source: Bloomberg, Kotak Institutional Equities
Exhibit 29: Liquidity has been comfortable Net Reverse Repo, Jan 2014- May 2015 (` bn)
(1,400)
(1,000)
(600)
(200)
200
600
1,000
1,400
1,800
2,200
Jan-1
4
Feb-1
4
Mar-
14
Apr-
14
May-
14
Jun-1
4
Jul-14
Aug-1
4
Sep-1
4
Oct
-14
Nov-
14
Dec
-14
Jan-1
5
Feb-1
5
Mar-
15
Apr-
15
May-
15
Net LAF MSF
Source: Bloomberg, Kotak Institutional Equities
Exhibit 30: Yields for AAA-rated corporate bonds have declined ~12 bps YTD Yields on 5-year corporate bonds and 10-year G-Secs in India, May 2014- May 2015 (%)
7.5
8.1
8.7
9.3
9.9
10.5
May-
14
Jun-1
4
Jul-14
Aug-1
4
Sep-1
4
Oct
-14
Nov-
14
Dec
-14
Jan-1
5
Feb-1
5
Mar-
15
Apr-
15
May-
15
5-Year AAA 5-Year AA 10-Year G Sec
Source: Kotak Institutional Equities, Company
-
Banks/Financial Institutions India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 19
Exhibit 31: Deposit growth declined for most banks, CASA ratios improved Yoy growth in deposits and CASA ratio, March fiscal year-ends, 4QFY14-4QFY15 (%)
4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15
Public banks
Bank of Baroda 20.0 18.1 16.9 12.1 8.6 31.8 31.3 31.9 32.4 33.0
Bank of India 24.9 20.7 19.9 16.8 11.5 30.0 28.4 28.4 28.7 29.5
Canara Bank 18.2 12.3 17.8 13.1 12.6 25.9 24.2 23.7 24.1 25.5
Oriental Bank of Commerce 10.0 5.8 6.4 8.4 5.4 24.3 24.1 24.9 23.7 24.2
Punjab National Bank 15.3 12.1 16.7 15.1 11.1 41.3 39.9 39.9 39.4 40.6
State Bank of India 15.9 12.8 14.0 11.9 13.1 44.4 43.5 42.8 42.6 42.9
Union Bank 12.9 9.5 4.6 9.7 6.4 29.5 29.1 28.7 28.7 29.2
Old private banks
City Union Bank 8.4 9.1 10.0 9.9 9.3 17.8 18.1 18.5 16.9 19.2
DCB 23.5 26.8 24.0 23.5 22.1 25.0 25.4 25.5 23.8 23.4
Federal Bank 3.7 8.5 13.7 13.5 18.6 30.8 30.8 30.6 30.5 30.4
Karur Vysya Bank 13.2 5.6 3.4 3.2 2.1 20.6 21.0 21.8 21.5 22.0
J&K Bank 8.0 9.1 (5.2) 1.2 (5.2) 39.1 41.5 41.8 41.5 41.8
New private banks
Axis Bank 11.2 14.1 11.1 11.0 14.8 45.0 42.4 44.5 43.1 44.8
HDFC Bank 24.0 22.7 24.8 18.6 22.7 44.8 43.0 43.2 40.9 44.0
ICICI Bank 13.4 15.3 13.9 12.1 8.9 42.9 43.0 43.7 44.0 45.5
IndusInd Bank 11.8 14.8 24.4 23.3 22.5 32.5 33.3 33.9 34.1 34.1
Yes Bank 10.8 16.7 18.6 21.0 22.9 22.2 22.3 22.5 22.6 23.1
Deposit growth (%) CASA ratio (%)
Source: Company, Kotak Institutional Equities
Exhibit 32: Lending yields declined for most banks qoq Yield on advances, March fiscal year-ends, 4QFY14-4QFY15 (%)
4QFY14 1QFY15 2QFY15 3QFY15 4QFY15
Public banks
Bank of Baroda 8.2 8.3 8.4 8.1 7.7
Bank of India 8.5 8.5 8.6 8.4 8.4
Oriental Bank of Commerce 11.7 11.7 11.7 11.7 11.6
Punjab National Bank 9.9 10.3 9.9 9.9 9.5
State Bank of India 10.5 10.6 10.6 10.6 10.6
Union Bank 10.5 10.5 10.6 10.4 10.2
Old private banks
City Union Bank 13.1 13.0 13.6 13.1 13.1
DCB 12.9 12.8 12.6 12.5 12.6
Federal Bank (a) 11.6 11.8 11.7 11.6 11.2
Karur Vysya Bank 12.0 12.3 12.3 12.3 11.7
J&K Bank 12.3 11.3 11.4 11.3 11.4
New private banks
Axis Bank (a) 10.5 10.6 10.6 10.3 10.4
HDFC Bank (a) 11.3 11.4 11.4 11.3 11.0
ICICI Bank (a) 9.9 9.8 10.0 9.8 9.8
IndusInd Bank 13.7 13.5 13.3 13.0 12.8
Yes Bank 12.4 12.5 12.2 12.2 12.0
Notes:
(a) Yields are KS estimates for Axis Bank, HDFC Bank, ICICI Bank and Federal Bank.
Source: Company, Kotak Institutional Equities estimates
-
India Banks/Financial Institutions
20 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 33: Cost of funds/deposits declined for most banks Cost of funds/deposits, March fiscal year-ends, 4QFY14-4QFY15 (%)
4QFY14 1QFY15 2QFY15 3QFY15 4QFY15
Public banks
Bank of Baroda 5.3 5.2 5.2 5.2 5.2
Bank of India 5.6 5.7 5.8 5.7 5.7
Canara Bank 7.4 7.4 7.4 7.4 7.4
Oriental Bank of Commerce 7.7 7.8 7.7 7.6 7.7
Punjab National Bank 6.1 6.1 6.1 6.1 6.0
State Bank of India 6.4 6.3 6.3 6.3 6.3
Union Bank 7.3 7.2 7.4 7.3 7.3
Old private banks
City Union Bank 8.3 8.3 8.2 8.0 8.1
DCB 7.9 7.8 7.7 7.8 7.9
Federal Bank 8.3 7.9 8.0 7.9 7.5
Karur Vysya Bank 8.1 8.1 8.2 8.0 7.7
J&K Bank 6.7 6.7 6.5 6.7 6.5
New private banks
Axis Bank 6.2 6.2 6.2 6.2 6.3
HDFC Bank 5.8 5.9 6.0 6.1 5.9
ICICI Bank 6.0 6.0 6.1 6.0 5.9
IndusInd Bank 6.8 6.9 6.7 6.6 6.5
Yes Bank 8.4 8.5 8.3 8.1 7.8
Source: Company, Kotak Institutional Equities
Exhibit 34: Most banks have cut fixed deposit rates Retail term deposit rates for various maturities, April/May 2015 (%)
7-14
days
15-30
days
31-45
days
46-90
days
91-179
days
180-269
days
270-364
days
1 Year- less
than 2 years
2 Year- less
than 3 years
3 years and
above
Allahabad Bank 5.00 5.50 6.50 7.50 8.50 8.50 8.50 8.75 8.60 8.6-8.5
Andhra Bank 6.50 6.50 6.50 6.75 8.00 8.25 8.25 8.50 8.50 8.25
Bank of Baroda 4.50 4.50 4.50 6.50 7.00 7.75 8.25 8.50 8.50 8.50-8.00
Bank of India 4.00 4.50 4.50 6.50 7.00 7.75 8.25 8.50 8.50 8.5-8
Canara Bank 4.00 4.50 6.00 6.50 7.00 7.75 8.00 8.50 8.50 8.25-8.00
Corporation Bank 5.50 6.00 6.00 6-7.5 7.50 8.00 8.25 8.50 8.50 8.50
OBC 4.00 4.50 6.00 6.75 7.75 8.00 8.00 8.50 8.25 8.25
Punjab National Bank 4.50 4.50 5.00 6.50 7.00 7.75 7.75 8.50 8.50 8.5-8.25
State Bank of India 6.00 6.00 6.00 7.00 7.00 7.25-7.50 7.50 8.00-8.25 8.25 8.25-8.00
Union Bank of India 4.00 4.75 6.00 7.00 7.25-7.5 8.25 8.25 8.50 8.50 8.50
ICICI Bank 4.50 4.75 5.50 7.0-7.75 7.75 7.75 7.75 8.0-8.75 8.75 8.75-8.5
Axis Bank 3.50 3.50 6.00 7.50 7.5-8.25 8.50 8.50 8.50 8.50 8.50
HDFC Bank 3.50 5.00 6.00 7.50 8.00 8.25 8.25 8.50 8.25 8.25
Federal Bank 4.00 5.00 5.00 7-7.5 7.50 7.50 7.50 8.40 8.25 8.25
Yes Bank 5.75 5.75 5.75 7.50 8.00 8.25 8.50 8.50 8.50 8.50
Source: Company, Kotak Institutional Equities
-
Banks/Financial Institutions India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 21
Exhibit 35: Base rates declined for most banks in 4QFY15
Base rates (%) Aug-11 Oct-11 Dec-11 Apr-12 May-12 Aug-12 Jan-13 Feb-13 Jul-13 Aug-13 Sep-13 Nov-13 Jan-14 Apr-14 Oct-14 Jan-15 Apr-15
Public banks
Andhra Bank 10.75 10.50 10.25 10.00 10.25
Bank of Baroda 10.75 10.50 10.25 10.00
Bank of India 10.75 10.50 10.25 10.00 10.25 10.20 9.95
Canara Bank 10.75 10.50 10.25 9.95 10.20 10.00
Indian Bank 10.75 10.50 10.20 10.25
IOB 10.75 10.50 10.25
OBC 10.75 10.65 10.50 10.40 10.25 10.00
PNB 10.75 10.50 10.25 10.00
SBI 10.00 9.80 9.70 9.80 10.00 9.85
Union Bank 10.75 10.65 10.50 10.25 10.00 10.25 10.00
Private banks
Axis Bank 10.00 10.25 10.15 9.95
ICICI Bank 10.00 9.75 10.00 9.75
HDFC Bank 10.00 9.80 9.70 9.70 9.60 9.80 10.00 9.85
Yes Bank 10.50 10.75
IndusInd Bank 10.50 10.75 11.00
Source: Company, Kotak Institutional Equities
Contribution from non-interest income accelerates; treasury contribution
sharply rises qoq
Non-interest income grew sharply for all banks as the contribution from treasury improved
sharply. However, on a yoy basis, a few banks reported gains on the sale of loans to ARC
reversed in FY2015. Performance of non-interest income growth, excluding treasury, was
disappointing.
Private banks had a relatively better quarter, barring ICICI Bank. A large part of this
improvement qoq appears to have come from the retail segment where banks have seen a
higher contribution from distribution of wealth management products. Amongst public
banks, SBI did relatively well on the back of strong growth in government-related
transactions.
Credit related fees remain a big challenge for banks. Corporate activity has been subdued
and this typically should give early indication on the growth in loans in subsequent quarters.
Discussions with most banks indicate that sanctions have still not picked up pace as the
corporate segment is still looking at maintaining current portfolios of assets rather than
planning expansion.
Contribution levels from treasury showed improvement. The contribution of treasury gains
to PBT increased to 27% of PBT from 18% of PBT in 3QFY15. With yields showing a
softening bias, we believe the contribution is likely to increase hereon.
-
India Banks/Financial Institutions
22 KOTAK INSTITUTIONAL EQUITIES RESEARCH
Exhibit 36: Contribution from non-treasury non-interest income remained under pressure for
several banks, particularly PSU banks Yoy growth in non-interest (ex-treasury) income, March fiscal year-ends, 4QFY14-4QFY15 (%)
4QFY14 1QFY15 2QFY15 3QFY15 4QFY15
Public banks
Bank of Baroda 37.0 (2.5) (5.0) 5.2 (24.4)
Bank of India (11.3) 19.0 (17.9) (21.7) 9.2
Canara Bank 31.9 17.8 24.4 12.9 (17.9)
Oriental Bank of Commerce 84.9 39.5 0.3 (0.4) (44.1)
Punjab National Bank 33.2 (3.8) 63.0 14.8 4.1
State Bank of India 16.3 12.0 35.4 9.3 10.9
Union Bank 7.9 14.5 42.7 2.5 24.4
Old private banks
City Union Bank (1.0) 37.9 47.4 26.8 (9.9)
DCB 10.7 3.8 24.9 15.1 28.0
Federal Bank (0.6) (7.9) 12.8 3.4 52.4
Karur Vysya Bank 37.7 11.0 24.2 10.8 0.5
J&K Bank (27.7) 16.2 148.8 14.9 148.8
New private banks
Axis Bank 12.8 6.7 (4.8) 6.3 20.8
HDFC Bank 13.2 5.8 (3.3) 8.2 20.3
ICICI Bank 29.1 18.3 15.9 12.5 1.4
Yes Bank 33.2 19.2 14.6 35.8 27.9
IndusInd Bank 28.1 32.9 30.8 22.4 28.7
Source: Company, Kotak Institutional Equities
Exhibit 37: Investment gains were strong for most banks Treasury income (` mn) and treasury-to-PBT (%) of banks, March fiscal year-ends, 4QFY14-4QFY15
4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15
Public banks
Bank of Baroda 893 2,242 1,790 2,436 3,603 6.3 11.5 11.8 22.6 41.1
Bank of India 830 2,430 1,530 3,200 2,150 18.5 20.8 13.1 112.4 (25.9)
Canara Bank 748 909 1,440 3,010 5,090 9.5 9.0 17.7 31.5 70.4
Oriental Bank of Commerce 267 1,242 628 2,048 2,217 5.9 20.7 29.4 (2,662.8) (129.4)
Punjab National Bank 2,610 2,190 2,280 2,880 6,230 25.2 10.0 20.6 22.4 (98.7)
State Bank of India 4,011 5,868 4,528 9,195 16,589 8.5 11.1 10.9 22.6 28.5
Union Bank 830 990 750 2,520 2,830 15.9 10.1 16.6 41.1 44.1
Old private banks
City Union Bank 149 223 249 400 421 13.0 17.2 21.1 28.3 32.0
DCB 26 43 40 126 68 6.6 7.4 8.7 25.2 12.7
Federal Bank 400 401 420 770 950 11.0 12.2 11.5 19.3 22.1
Karur Vysya Bank 2 30 37 307 336 0.2 2.3 3.3 19.6 51.6
J&K Bank 210 153 543 153 543 5.0 9.5 27.9 9.5 27.9
New private banks
Axis Bank 2,170 2,600 2,710 3,290 2,750 7.9 10.4 11.1 11.7 8.3
HDFC Bank 333 250 951 2,655 1,961 1.0 0.7 2.6 6.3 4.7
ICICI Bank 2,450 3,880 1,370 4,430 7,260 6.6 10.2 3.6 10.9 17.6
IndusInd Bank 811 899 490 885 899 13.5 14.1 7.5 13.1 12.1
Yes Bank - - - 100 207 - - - 1.3 2.6
Total 16,738 24,349 19,755 38,405 54,105 7.7 9.8 9.2 17.7 26.5
Total - public 10,188 15,871 12,945 25,289 38,710 10.8 12.0 13.7 30.6 60.2
Total - private 6,550 8,478 6,810 13,116 15,395 5.4 7.2 5.6 9.7 11.0
Treasury profits (Rs mn) Treasury profits as % of PBT
Source: Company, Kotak Institutional Equities
Cost control continued to support earning growth
Growth in operating expenses accelerated in 4QFY15 primarily on account of high staff
costs. However, this is primarily led by a few factors (1) wage settlement and (2) its
subsequent impact on retirement costs as well as the impact of the decline in interest rates
on retirement expenses. Operating expenses growth was broadly similar for private and
public banks at 17% yoy.
-
Banks/Financial Institutions India
KOTAK INSTITUTIONAL EQUITIES RESEARCH 23
There were apprehensions that the decline in interest rates would result in higher staff costs
but it appears that the final impact was materially lower than initially expected. We would
probably need to see the assumptions made by banks while calculating retirement expenses
to understand this better.
Cost-to-income ratio declined >250 bps to 47% for public banks while private banks
reported a stable ratio of 41%. We are a bit more positive on public banks cost-income
ratio as the peak of NIM correction appears to be complete. Meanwhile, costs led by these
one-off charges are likely to remain for another quarter before growth comes off sharply
and contribution from treasury income to boost non-interest income is likely to show
improvement from current levels. Also, FY2016 would have no amortization of prior costs
items like the pension/gratuity.
Exhibit 38: Increased growth in operating expenses for most banks Yoy growth in operating expenses, March fiscal year-ends, 4QFY14-4QFY15 (%)
4QFY14 1QFY15 2QFY15 3QFY15 4QFY15
Public banks
Bank of Baroda 2.6 12.3 14.1 13.7 (5.2)
Bank of India 31.4 7.4 24.7 19.3 29.4
Canara Bank 23.1 24.8 14.6 18.3 20.7
Oriental Bank of Commerce (6.8) (8.9) 2.1 11.5 4.6
Punjab National Bank 5.9 9.5 19.1 12.9 7.6
State Bank of India (0.0) 3.3 2.2 5.6 22.1
Union Bank 28.7 14.6 16.5 11.0 7.0
Old private banks
City Union Bank 20.9 19.2 16.7 14.3 (4.4)
DCB 16.5 20.0 20.9 26.2 29.5
Federal Bank 24.8 13.7 16.0 18.4 20.0
Karur Vysya Bank 24.7 11.1 7.5 6