Banking MFG

Indian Banking Sector
Manish Agarwalla
Shubhangi Agrawal
December 2008
BANKING
Sector outlook
Investment rationale
Credit growth to remain strong as funding through other channels have dried up.
The shift in financial assets of household towards bank deposit due to turmoil in capital market will keep
deposit growth buoyant.
The contraction of liquidity and lack of funding through alternate channels have increased the pricing power of
banks.
The declining yields to provide additional gain in treasury, which will enable the banks to create buffer
provisions towards NPA.
Banks with surplus SLR will be in a better position to manage liquidity.
Key concern
Asset quality of the banks are the biggest concern today specially considering the robust growth in the past
and stress witnessed in certain sectors.
Government interference with the state owned banks may overburden the later with more social responsibility
which could affect its performance and deteriorate the asset quality.
Near term trigger
Further relaxation in key policy rates will provide as near term trigger for the sector.
Top Picks: Large Cap ICICI Bank, SBI; Mid Cap BOB, UBI, BOI
Rating and Valuation matrix
CMP Tgt Price
upside
MCap
CAGR (08-10E)
P/Adj. BV
RoE (%)
Rs
Rs
(%)
US$ bn
NII %
PPP%
PAT%
FY08
FY09E
FY10E
FY08
FY09E FY10E
BANKING
Public Sector Banks

Andhra Bank
Buy
58
98
67.2
0.7
10.8
8.3
10.0
0.9
0.8
0.7
20.5
18.3
17.4
Bank of India
Buy
276
400
44.9
2.3
21.8
21.4
25.5
1.8
1.4
1.1
24.4
23.5
25.4
BOB
Buy
265
350
32.1
2.3
19.5
11.6
20.6
1.1
0.9
0.8
14.6
15.0
15.8
Canara Bank
Outperformer
168
219
30.8
1.6
20.0
11.4
16.4
0.9
0.8
0.7
15.0
16.0
16.9
Corp Bank
Buy
185
338
83.0
0.6
16.9
13.8
10.4
0.6
0.6
0.5
17.7
17.3
16.5
IOB
Buy
70
166
138.1
0.9
14.5
10.7
12.1
0.9
0.7
0.6
27.2
25.7
23.5
Oriental Bank
Buy
142
193
35.8
0.8
7.1
1.8
-4.4
0.7
0.6
0.6
6.2
10.9
11.7
PNB
Buy
481
574
19.3
3.5
17.8
16.0
22.3
1.5
1.3
1.1
18.0
19.4
19.6
SBI
Buy
1238
1614
30.3
15.2
12.8
18.8
30.7
1.4
1.2
1.1
16.7
16.0
16.0
Union Bank
Buy
157
184
17.2
1.8
15.7
11.3
22.0
1.4
1.2
0.9
22.1
21.0
21.5
Indian Bank
UR
123
184
49.2
1.2
19.4
8.6
14.0
1.1
0.9
0.8
22.3
20.3
20.5
Axis Bank
Buy
501
814
62.5
4.2
28.2
27.6
34.5
2.1
1.9
1.7
17.6
15.7
18.0
HDFC Bank
Buy
984
1503
52.7
8.1
42.2
32.2
37.8
3.1
2.6
2.3
17.7
15.6
15.7
ICICI Bank
Buy
422
795
88.7
10.9
20.8
11.4
8.2
1.1
1.1
1.0
11.6
8.8
9.5
Private Sector Banks
Source: MF Global India Research Estimates
BANKING
Relative P/ABV band
Source: MF Global India Research Estimates
BANKING
Sector-wise break up of non food credit
Source: RBI
Bank as source of fund to gain market share
Item/Year
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2024
2031
2201
2201
2214
1064
1431
57.1
65.3
69.8
53.4
55.5
34.4
38.3
6.7
-18.8
18.0
20.0
26.6
13.8
27.6
b) Depreciation
41.8
47.9
37.3
25.7
19.2
14.2
B. External Sources
42.9
34.7
30.2
46.6
44.5
65.6
61.7
a) Paid up capital
12.8
10.5
9.4
9.3
10.8
22.8
12.8
- Net Issues
4.6
4.7
7.3
4.9
4.1
NA
NA
- Premium
8.2
5.8
2.2
3.6
6.4
19.4
9.3
8.8
5.6
17.0
15.3
25.8
31.0
- Debentures
9.5
-1.5
-5.6
-3.5
-1.1
-4.1
-1.1
- From Banks
-0.8
21.5
27.1
21.4
15.2
30.7
22.8
- From FIs
-3.2
-0.7
-6.2
-5.06
-2.9
NA
NA
20.2
14.3
14.8
20.3
18.5
17.0
17.9
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Number of Companies
A. Internal Sources of which:
BANKING
a) Reserves and Surplus
b) Borrowings of which:
c) Trade dues & other current liabilities
C. Total (A+B)
Source: SEBI, MF Global India Research Estimates
9.3
12.5
Alternate source of fund to dry up

Resource mobilized through primary market
BANKING
Rs bn
Total
BFSI
Total Debt Issues
Ex-BFSI
1993-94
244
244
1994-95
276
276
1995-96
208
61
147
1996-97
143
58
85
1997-98
46
22
23
1998-99
56
47
1999-00
78
40
38
2000-01
61
31
30
2001-02
75
51
24
2002-03
41
34
2003-04
233
54
178
2004-05
283
113
169
2005-06
274
124
149
2006-07
335
22
313
2007-08
870
310
561
Source: MF Global India Research, RBI
FDI
Year Total Debt Issues, Rs bn

1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
193
214
328
543
645
706
711
696
682
873
965
1462
-
Rs bn
US$ mn
1990-91
97
1991-92
129
1992-93
10
315
1993-94
18
586
1994-95
41
1314
1995-96
72
2144
1996-97
100
2821
1997-98
132
3557
1998-99
104
2462
1999-00
93
2155
2000-01
184
4029
2001-02
292
6130
US$ mn
2002-03
244
5035
9467
7801
14888
26097
17829
2003-04
199
4322
2004-05
272
6051
2005-06
342
7722
2006-07
884
19531
ECBs
CY04
CY05
CY06
CY07
YTD (10 months)
Year
Business growth to remain strong
BANKING
Rs bn
March' 92
March' 93
March' 94
March' 95
March' 96
March' 97
March' 98
March' 99
March' 00
March' 01
March' 02
March' 03
March' 04
March' 05
March' 06
March' 07
March' 08
March' 09e
March' 10e
March' 11e
Credit
Gwth
Deposit
Gwth
C/D ratio
125592
151982
164418
211560
254015
278401
324079
368837
435958
511434
589723
729215
840785
1100428
1507077
1931189
2361914
3073296
3794242
4545945
21%
8%
29%
20%
10%
16%
14%
18%
17%
15%
24%
15%
31%
37%
28%
22%
30%
23%
20%
230758
268572
315132
386859
433819
505599
598485
714025
813345
962618
1103360
1280853
1504416
1700198
2109049
2611933
3196939
3841620
4627125
5543836
16%
17%
23%
12%
17%
18%
19%
14%
18%
15%
16%
17%
13%
24%
24%
22%
20%
20%
20%
54
57
52
55
59
55
54
52
54
53
53
57
56
65
71
74
74
80
82
82
Incremental
credit
Incremental
deposit
contributed by
housing hold
26390
12436
47142
42455
24386
45678
44758
67121
75476
78289
139492
111570
259643
406649
424112
430725
711382
720947
751703
37814
46560
71727
46960
71780
92886
115540
99320
149273
140742
177493
223563
195782
408851
502884
585006
644681
785505
916711
Bank deposit
requirement
contributed by
saving
29518
36236
55835
39941
50902
74099
79433
82892
94703
112936
123462
141967
158259
274864
417359
406631
496405
628404
715034
% of bank
incremental deposit
household saving
C/D ratio
78
78
78
85
71
80
69
83
63
80
70
64
81
67
83
70
77
80
78
69.79
26.71
65.72
90.41
33.97
49.18
38.74
67.58
50.56
55.63
78.59
49.91
132.62
99.46
84.34
73.63
*110.35
**91.78
82.00
*Considering 350bps cut in CRR and 100 bps cut in SLR

**Assuming 100 bps cut in CRR and 100 bps cut in SLR
Source: RBI
Gross domestic savings
BANKING
Financial saving
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06 P
2006-07P
2007-08P
2008-09E
2009-10E
2010-2011E
HOUSE HOLD SECTOR

% to GDP physical saving
% to GDP
8610
9614
12739
13294
17879
18538
23336
26820
27183
37998
49640
62101
65367
94738
120733
105719
141661
146777
180346
206602
215219
247476
253255
313260
318264
420841
467985
525987
601398
718397
790237
6
6
7
6
7
7
7
7
6
8
9
9
9
11
12
9
10
10
10
11
10
11
10
11
10
12
11
11
11
12
12
10114
10045
8491
12828
14810
18404
18317
29087
39724
44767
55149
41394
57948
54796
68057
95296
79312
123531
149414
205914
239634
256689
315879
357516
406846
445915
517837
7
6
4
6
6
7
6
8
9
9
10
6
8
6
7
8
6
8
9
11
11
11
13
13
13
12
12
total
% to GDP
Net Domestic Saving
18724
19659
21230
26122
32689
36942
41653
55907
66907
82765
104789
103495
123315
149534
188790
201015
220973
270308
329760
412516
454853
504165
569134
670776
725110
866756
985822
13
12
11
12
13
13
13
16
16
17
18
16
16
17
19
17
16
18
19
21
22
22
23
24
23
24
24
15145
16811
17482
19558
24056
28094
29101
39285
48532
60525
78932
79118
87553
109050
153640
179876
184677
219757
227545
302835
297215
306588
397493
541046
671501
848544
1006956
% to GDP GDP at curr. price

10
10
9
9
10
10
9
11
11
12
14
12
12
13
15
15
13
14
13
16
14
13
16
20
21
24
24
145370
170805
191059
222485
249268
281330
314816
357861
424531
487684
569624
654729
752591
865805
1015764
1191813
1378617
1527158
1751199
1952035
2102314
2278952
2454561
2754621
3149412
3580344
4145810
4713148
*5467252
**5986641
***6585305
*Assuming nominal GDP growth of 16%. **Assuming nominal GDP growth of 9.5%.***Assuming nominal GDP growth of 10%
Source: RBI
Household saving in financial assets
BANKING
Year
Currency
% of
bank
% of
life insu
% of
P&P
% of
Claims on
% of
Shares &
asset
deposit
asset
fund
asset
fund
asset
govt
asset
debtrs
% of
Trade
asset debt (net)
% of
chg in
Net
asset
fin asset
fin asset
8610
1980-81
1625
13
5550
46
915
2122
18
712
412
373
12118
1981-82
965
5194
38
1037
2480
18
1784
13
510
643
13621
9588
1982-83
2026
13
6661
41
1235
2865
18
1243
646
429
16097
12566
1983-84
2776
15
7978
42
1376
3052
16
1976
11
555
-164
-1
18790
13552
1984-85
2938
12
9859
42
1556
3759
16
3107
13
762
41
23549
17816
1985-86
2220
10603
41
1779
4188
16
3413
13
1394
-44
25562
18579
1986-87
3090
10
14510
46
2159
5055
16
3092
10
1768
-280
-1
31849
23339
1987-88
4815
13
14674
41
2589
6509
18
3680
10
813
504
36106
26819
1988-89
4256
11
14747
37
3423
7552
19
5478
14
1136
359
39958
27132
1989-90
7655
16
13987
29
4415
9508
20
6758
14
2655
-763
-2
48233
38045
1990-91
6251
11
18777
32
5599
10
11155
19
7883
13
4972
-453
-1
58908
49641
1991-92
8157
12
17848
26
7003
10
12501
18
4845
6800
10
-414
-1
68045
62048
1992-93
6562
29518
37
7114
14814
18
3885
8212
10
-1398
-2
80354
65298
1993-94
13367
12
36236
33
9548
18323
17
6908
10067
-1190
-1
109618
94759
1994-95
15916
11
55835
38
11370
21414
15
13186
13473
-1148
-1
145501
120731
1995-96
16525
13
39941
32
13894
11
22343
18
9588
8839
-252
124337
105717
1996-97
13643
50902
32
16121
10
30390
19
11783
6631
-708
158519
141662
1997-98
12780
74099
43
19410
11
32267
19
22162
13
4464
-770
171740
146821
1998-99
21822
11
79433
38
23428
11
46408
22
28220
14
5105
-6870
-3
207103
180330
1999-00
20845
82892
35
28644
12
53907
23
28985
12
16308
-1023
236213
200146
2000-01
15632
94703
38
33861
14
47882
19
39007
16
11148
183
248393
216614
2001-02
28156
112936
38
41237
14
46609
16
51938
18
9834
-183
296582
244855
2002-03
28632
123462
38
52009
16
48441
15
56087
17
7122
-341
322583
262278
2003-04
42675
11
141967
38
52240
14
48952
13
87372
23
9078
-114
377387
307405
2004-05
36977
158259
36
67986
16
56552
13
106420
25
8113
-213
434300
313734
2005-06P
53071
274864
46
83540
14
62581
10
87168
15
31179
-222
597867
414443
2006-07P
66323
417359
54
114889
15
70992
40627
51396
-183
768967
486270
2007-08$
80342
11
406631
55
128877
18
60204
-27042
-4
77398
11
-204
734653
525987
2008-09E
84136
10
496405
59
134618
16
75723
42068
841364
601398
2009-10E
101355
10
628404
62
162169
16
91220
20271
0 1013555
718397
2010-2011E 115328
10
715034
62
184525
16
103795
23066
0 1153281
790237
Source: RBI
10
MTM Profit to boost the profitability of PSBs
Interest rate sensitivity Rs crs
SBI
UBI
BOB
Corp
Can
HDFC
ICICI
IOB
PNB
UTI Andhra
OBC Indian Bk
Investments G-Secs
143,472
34,166
28,217
33,871
16,055
43,357
31,666
75,378 24,996
49,060
22,798
14,842 20,770
Total investment
189,501
42,432
34,674
40,453
19,207
50,200
44,195
97,148 27,858
57,721
37,997
15,700 25,700
79
95
82
78
95
88
74
84
89
83
113,701
32,458
23,113
26,270
15,252
38,152
23,291
56,346 20,894
43,663
18,999
% SLR book in HTM

Investments in HTM category
BANKING
BOI
75
95
17468
17,948
82
68
14,100 16,962
11,848
% of Investments in HTM
60
76
67
65
79
76
53
58
75
76
50
90
66
66
Investments in AFS / HFT
29772
1708
5104
7601
803
5205
8375
19032
4102
5397
3800
742
3808
5620
Duration of AFS / HFT
3.0
0.9
2.16
1.9
1.8
1.5
0.8
2.0
2.5
2.04
2.5
3.34
Modified duration
2.9
0.8
2.1
1.8
1.7
1.4
0.8
1.9
1.9
2.4
1.9
2.0
2.4
3.2
Interest rate hedge
8.65
8.65
8.65
8.65
8.65
8.65
8.00
8.65
8.65
8.65
8.65
8.65
8.65
8.65
Current interest rate on 10 yr G-Sec
7.20
7.20
7.20
7.20
7.20
7.20
7.20
7.20
7.20
7.20
7.20
7.20
7.20
7.20
(1241)
(21)
(153)
(201)
(20)
(109)
(52)
(529)
(112)
(188)
(106)
(21)
(132)
(261)
-9.8
-0.6
-6.8
-7.5
-1.7
-4.7
-1.5
-4.2
-6.1
-5.3
-0.8
-2.3
-15.2
-20.6
Expected MTM loss/(gain)

% of pre-tax earnings
Source: RBI, MF Global India Research
11
Cut in policy rate to offset the 75bps decline in PLR
BANKING
Name of the Bank
Axis
Bank of Baroda
Bank of India
Canara Bank
HDFC Bank
ICICI Bank
Indian Overseas Bank
Punjab National Bank
State Bank of India
PLR (%)
Axis
NIMs as
on Sep' 08
(%)
Decline in
deposit rate
since Sep 08
(%)
Decrease
in PLR
since Sep 08
(%)
Yield
(%)
Yield
expected
for FY09
(%)
Diff.
(%)
Decline
in deposit
cost
(%)
Impact of
decline in
CRR & SLR
(%)
Chg in
NIMs
(%)
3.51
2.77
3.20
2.70
4.20
2.40
3.19
3.78
3.36
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
9.51
8.77
9.20
8.70
10.20
8.40
9.19
9.78
9.36
9.28
8.52
8.95
8.45
10.03
8.20
8.94
9.53
9.11
-0.23
-0.25
-0.25
-0.25
-0.17
-0.20
-0.25
-0.25
-0.25
0.09
0.10
0.08
0.07
0.06
0.11
0.08
0.05
0.03
0.15
0.14
0.14
0.19
0.12
0.14
0.19
0.19
0.15
0.00
-0.01
-0.03
0.01
0.01
0.05
0.01
-0.01
-0.07
Aug'06
Jan'07
Feb'07
Mar'07
April'07
Aug'07
Feb' 08
June' 08
July' 08
Aug' 08
Nov' 08
NA
NA
NA
NA
15.00
15.00
14.75
15.25
15.25
15.75
15.75
Andhra Bank
11.50
11.75
12.25
12.25
13.00
13.00
12.75
13.25
13.25
14.00
14.00
Bank of Baroda
11.50
12.00
12.50
12.50
13.25
13.25
12.75
13.25
13.25
14.00
13.25
Bank of India
11.50
12.00
12.50
12.50
13.25
13.25
12.75
13.25
13.25
14.00
13.25
Canara Bank
11.50
11.75
12.50
12.50
13.25
13.25
12.75
13.25
13.25
14.00
14.00
Corporation Bank
11.50
12.00
12.50
12.50
13.25
13.25
13.25
13.50
13.50
14.00
13.25
HDFC Bank
11.50
13.00
14.00
14.00
14.75
15.00
15.00
15.25
16.00
16.50
16.50
ICICI Bank
13.25
13.75
14.75
14.75
15.75
15.75
15.75
16.50
16.50
17.25
17.25
Indian Overseasa Bank
11.50
12.00
12.50
12.50
13.25
13.25
13.25
13.50
13.50
14.00
14.00
11.50
11.75
12.25
12.25
13.00
13.00
12.50
13.00
13.00
14.00
13.50
State Bank of India
11.00
11.50
12.25
12.25
12.75
12.75
12.25
12.75
12.75
13.75
13.00
Union Bank of India
11.50
12.00
12.50
12.50
13.25
13.25
12.75
13.25
13.25
14.00
13.50
Yes bank
13.00
13.50
14.00
14.75
15.50
15.50
15.50
16.00
16.50
17.00
17.00
10 year Bond yeild(5)
7.52
7.90
7.76
7.98
7.97
8.17
7.94
7.60
8.69
9.30
7.70
Call Rate(%)
5.55
6.05
7.75
6.00
9.25
9.00
4.13
6.05
8.60
8.88
7.50
Repo Rate(%)
6.50
7.00
7.25
7.50
7.50
7.75
7.75
7.75
8.00
9.00
7.50
12
Banks with surplus SLR will be in a better position to manage

liquidity
Credit growth ytd (%)
Incremental credit growth
Total
SLR %
possible due to decline
"Release of funds due to

cut in policy rate (Rs bn)
in policy rate (ytd %)

Public sector
BANKING
Andhra Bank
14
26.2
29
Bank of India
13
18
25.0
61
BOB
12
19
26.0
72
Corp Bank
11
20
26.5
36
Canara
11
19
25.2
85
IOB
14
11
25
27.5
65
Indian Bank
20
12
31
27.7
46
Oriental Bank
10
13
23
28.5
70
PNB
18
26.0
106
SBI
18
26
26.0
304
Union Bank
14
20
24.4
47
HDFC Bank
18
25
25.0
57
Axis
15
22
25.0
41
ICICI Bank
-2
25.0
136
Private sector
13
Asset quality has largely remained stable. Slippages seen in nonmortgage retail segment
The asset quality in the industry remained healthy except some increase in slippages for new private sector
BANKING
banks.
Rise in the proportion of non mortgage retail portfolio of new private sector banks has led to the increase in the
NPAs. We believe that is to do with banks focus on non collateralized lending which are high risk high yielding
business.
14
Scenario Analysis Banks valuation at different level of NPA

P/Adj. BV
BANKING
50% rise in GNPA
Adj. BV
RoE %
Earnings gwth %
Coverage ratio %
GNPA %
NNPA %
FY09E
FY10E
FY09E
FY10E
FY09E
FY10E
FY09E
FY10E
FY09E
FY10E
FY09E
FY10E
FY09E
FY10E
Public Sector Banks

Andhra Bank
Bank of India
BOB
Canara Bank
Corp Bank
IOB
Oriental Bank
PNB
SBI
Union Bank
Indian Bank
0.77
1.32
0.93
0.78
0.55
0.70
0.67
1.31
1.24
1.10
0.94
0.71
1.10
0.86
0.67
0.49
0.61
0.68
1.24
1.17
0.99
0.82
72.7
188.3
272.2
211.5
323.6
94.6
210.4
343.8
948.6
131.1
129.0
78.4
227.4
295.3
247.8
362.1
107.4
207.8
365.4
1001.7
145.9
147.4
18.3
21.3
13.3
15.9
17.3
25.1
10.7
16.9
15.9
19.3
19.4
17.1
23.5
12.8
15.8
16.1
22.1
9.7
16.0
14.8
17.6
19.6
-4.8
13.2
8.1
13.2
11.4
10.9
-23.8
8.9
20.5
10.7
6.7
2.6
24.1
5.7
11.2
6.1
4.8
-2.7
7.3
6.6
5.4
14.3
88.3
69.0
74.7
0.0
74.0
57.0
48.8
65.9
45.4
90.1
83.8
89.0
69.9
74.6
0.0
73.9
54.0
48.7
61.2
44.4
79.2
87.0
1.4
2.1
2.3
1.7
1.6
2.0
3.0
3.4
3.2
2.8
1.5
1.8
2.5
2.8
2.1
2.1
2.5
3.8
4.3
4.0
3.5
1.9
0.2
0.6
0.6
0.8
0.4
0.9
1.5
1.2
1.8
0.3
0.2
0.2
0.8
0.7
0.7
0.5
1.1
2.0
1.7
2.2
0.7
0.2

Axis Bank
HDFC Bank
ICICI Bank
1.69
2.55
0.96
1.49
2.30
0.96
265.6
364.3
398.3
301.3
404.5
400.2
14.9
14.6
8.8
17.3
14.7
8.8
29.4
2.0
0.6
31.0
30.3
5.5
56.2
67.1
57.4
56.2
66.9
58.5
0.9
2.2
4.4
1.0
2.5
5.7
0.4
0.7
1.9
0.5
0.8
2.4
P/Adj. BV
75% rise in GNPA
Adj. BV
RoE %
Earnings gwth %
Coverage ratio %
GNPA %
NNPA %
FY09E
FY10E
FY09E
FY10E
FY09E
FY10E
FY09E
FY10E
FY09E
FY10E
FY09E
FY10E
FY09E
FY10E
Public Sector Banks

Andhra Bank
Bank of India
BOB
Canara Bank
Corp Bank
IOB
Oriental Bank
PNB
SBI
Union Bank
Indian Bank
0.77
1.37
0.98
0.80
0.56
0.72
0.71
1.38
1.32
1.19
0.95
0.76
1.21
1.01
0.74
0.53
0.70
0.90
1.52
1.46
1.23
0.88
72.6
181.6
259.7
207.4
318.6
91.1
198.7
326.4
891.9
121.1
126.8
74.2
205.3
250.3
221.7
336.7
93.9
156.4
297.8
803.4
117.3
137.9
18.3
19.8
12.0
15.8
16.6
22.8
9.4
13.1
14.9
18.0
18.5
15.7
20.3
10.6
14.7
12.1
17.0
5.3
9.5
11.3
14.5
16.5
-4.8
4.4
-3.3
12.2
7.0
-0.2
-33.1
-17.8
12.8
2.3
1.1
-6.8
12.6
-4.4
3.4
-19.3
-14.8
-41.6
-22.3
-15.7
-8.5
-1.0
89.5
68.0
69.5
53.4
73.2
59.9
46.3
70.6
42.6
77.7
81.4
79.0
68.7
61.5
54.5
73.8
58.5
38.3
66.0
40.5
64.1
81.3
1.6
2.4
2.7
2.0
1.9
2.3
3.5
4.0
3.8
3.3
1.8
2.4
3.4
3.8
2.9
2.8
3.3
5.2
5.8
5.5
4.8
2.5
0.2
0.8
0.8
0.9
0.5
0.9
1.9
1.2
2.2
0.7
0.3
0.5
1.1
1.5
1.3
0.7
1.4
3.2
2.0
3.3
1.7
0.5

Axis Bank
HDFC Bank
ICICI Bank
1.70
2.57
1.00
1.53
2.38
1.11
264.1
361.3
381.2
295.0
389.7
345.1
14.9
14.5
8.1
16.0
13.2
4.9
29.0
1.2
-7.9
20.8
16.4
-37.4
56.7
67.6
51.3
62.8
68.2
52.0
1.0
2.5
5.1
1.4
3.4
7.8
0.4
0.8
2.5
0.5
1.1
3.7
15
(Top picks)
State Bank of India

The core business will witness a strong growth driven by stability in NIMs and growth in fee income.
Fee based income is expected to witness traction given the 100% implementation of CBS and buoyant
corporate credit market.
Currently, 40% of the corporate accounts are rated, which when increased to 100% would provide a capital
release, thus improving the CRAR by 150 bps. This would enable the bank to increase its leverage
translating to improvement in return ratios.
ICICI Bank
ICICI bank is adequately capitalized to take on the underlying growth in the Indian economy.
The bank aims to increase the CASA proportion to the industry average.
The bank has undertaken measures to contain costs and this would keep the operating cost low.
We see ICICI bank as a value buy at current level, as it is trading at less than one time FY10E Adjusted
book value even after assuming NPA level of 9%.
Bank of Baroda
The core business is shaping up well after the make over process. Credit is expected to grow at a CAGR of
22% over FY08-10 driven by growth in corporate, agriculture and international segment.
The international operation has gained traction and makes up 20% of advances. The rise in corporate
operations has enabled the bank to accelerate its fee income, which is expected to grow at 19% over FY0810.
We believe, increase in leverage will improve the RoE whereas RoAs are likely to remain stable.
16
(Top picks)
Bank of India
Bank of India stands at favorable position in the risk and reward matrix.
The bank tends to provide strong earnings growth on the back of steady credit growth, stable margin,
revision of services charges, hedged investment portfolio and better asset quality with 55% of credit to
large corporate.
The bank has the potential to further increase its RoE with the increase in leverage.
The bank trades at price to book multiple of 1.2x FY09 ABV of Rs 196. We believe that better asset quality
and strong earnings growth will provide a strong upside from the current level. We have a 1-yr price target
of Rs400 (+70%).
Union bank of India

Credit to register a moderate growth of 21% over FY08-10, depicting the conscious move by the bank to
focus on quality growth without compromise on margins .
Non fund based income is expected to register healthy growth over FY08-10 driven by growth in fee income
and forex income. The banks non interest income growth can surprise on positive side in case of strong
recovery in written off portfolio.
We believe the re-balancing exercise initiated by the bank will ease margin pressure and maintain asset
quality. This will increase the earning visibility and improve return ratios.
17
Risk-Reward Matrix
RISK
High
Low
High
ICICI Bank
Axis Bank
REWARD
HDFC Bank;
BOI
provides high risk due to increasing slippage and its reliance on

wholesale funding.
BOB; UBI
ICICI Bank is expected to provide high return but at the same time
We expect BOB and UBI to provide return of over 30%. In terms of

valuation also the banks are available at less than one time FY10
SBI; PNB
Adj. Book value even after assuming a high GNPA of 4.1% and
Low
4.8% compared to the current level of 1.62% & 1.9% respectively.
Company
DD outlook
Leverage Risk Liquidity Risk NPA Risk
Stress on NIM Comment
SBI
Strong business growth, but NPA a concern
ICICI Bank
Concerns are priced in, less downside from current level
HDFC Bank
Merger benefit will take time to flow
Axis Bank
Comparatively younger loan book provides high risk
BOB
Higher possibility of re-rating
BOI
Change in top management a key concern
PNB
Growth to remain moderate
Healthy; Moderate; Vulnerable; High; CF Cash Flow; DD Demand
Source:
18
Banking
Analyst: Manish Agarwalla
manish.agarwalla@mfglobal.in (+9122 6667 9962)
Axis Bank (AXSB IN / AXBK.BO)
December, 2008
COMPANY UPDATE
On a fast track
250
CMP Rs 501
Target Rs 814(+63%)
Investment Rationale
Aggressive credit growth driven by stronger corporate relation, focus in international and agrisegment. The bank is expected to grow its credit portfolio at a CAGR of 35% through FY10E.
Margin to stabilize at 3.3% given banks ability to mobilize high CASA deposits. Aggressive
branch expansion and focus on product differentiation and a customer- centric vision will enable
the bank to develop strong retail deposit franchisee.
Fee income will continue to witness high growth of 36% through FY10E driven by opportunities
in cross-selling, private banking for HNI.
Operating costs to remain stable at 2% of average asset. The bank has low operating cost
compared to its peers partly because of the high proportion of wholesale business.
Asset quality has been stable. We have assumed higher provision for NPL in our estimates.
Concern for loss on forex derivatives are overdone. The bank declared the total MTM losses of Rs
5.65bn (suffered by its clients at the end of March 2008. Of the total MTM losses suffered by the
client, 70% of it is to the clients with rating of A and above. Hence, we do not see significant
slippages in derivatives transactions as most of these MTM losses will be honored by the client
Risks
Axis bank has emerged as one of the leading Private banks in India under the leadership of Dr. P
J Naik. We believe that the retirement of Dr. Naik on March 2009 may impact banks future
growth until a dynamic successor is appointed to carry forward the banks to a new league.
Valuation
At CMP of Rs501 the stock trades at 1.9x FY09E ABV of Rs268 and 1.7x FY10E ABV of Rs310.
Aggressive branch expansion and focus on product differentiation and a customer- centric vision
will enable to maintain high CASA proportion The robust credit and stable margin will enable
the bank to achieve strong PAT growth.
Rel. to BSE
200
150
100
50
Apr-07
Oct-07
Apr-08
Oct-08
Company data
O/S shares :
359mn
Market cap (Rs) :
162bn
Market cap (USD) :
3.3bn
52 - wk Hi/Lo (Rs) :
1292 / 353
Avg. daily vol. (3mth) :
5.4mn
Face Value (Rs) :
10
Share holding pattern, %

Promoters :
42.4
FII / NRI :
33.3
FI / MF :
10.9
Non Pro. Corp. Holdings :
6.8
Public & Others :
6.6
Y/E Mar, Rs mn
FY09E
FY10E
NII
25,854
34,496
42,503
PAT
10,710
14,732
19,373
NIM %
FY08
2.9
2.8
2.7
238.2
267.1
302.4
RoE, %
17.6
15.7
18.0
EPS, Rs
29.9
41.0
53.6
ABV per share
P/ABV, x
Disclaimer & disclosures: This report must be read with the disclaimer and disclosures on the last page that form part of it
AXIS Bank
2.1
1.9
1.7
19
Valuation Summary
Y/E Mar
Pre-prov ROE (%)
Pre-prov ROA (%)
FY06
FY07
FY08
FY09E
FY10E
31.8
34.2
40.2
36.6
31.9
33.7
1.9
2.2
2.1
2.5
2.4
2.3
Net Profit
3,355
4,851
6,590
10,710
14,732
19,373
% growth
20.5
44.6
35.9
62.5
37.6
31.5
EPS (Rs)
12.3
17.4
23.4
29.9
41.0
53.6
95.7
111.3
238.2
267.1
302.4
21.0
17.6
15.7
18.0
Adj BVPS (Rs)
Axis Bank
FY05
80.5
ROE (%)
18.8
P/E (x)
Adj. P/BV (x)
18.3
40.9
28.8
21.4
16.7
12.2
9.3
6.2
5.2
4.5
2.1
1.9
1.7
P/E
Source: Company, MF Global India Research Estimates
PBV
20
Financials
Profit & Loss Statement
Axis Bank
Y/E Mar, Rs mn
Interest on Loans
Interest on Investments
Others
Total Interest Earned
Total Interest Expended
Net Interest Income
Total non interest income
Total Income
Personnel Expenses
Other Expenses
Total Op expenses
Net Inc (Loss) before prov
Provision for NPAs
Provision for Invst deprn
Net Inc (Loss) before tax
Provision for Income Tax
Net Profit
Ratio Analysis
FY06
FY07
FY08
FY09E
FY10E
FY06
15,280
11,981
751
28,012
18,105
9,907
7,296
17,203
2,402
5,735
8,137
9,067
1,718
34
7,314
2,464
4,851
27,029
16,327
1,261
44,617
29,933
14,683
10,101
24,784
3,813
8,333
12,146
12,638
1,961
715
9,962
3,372
6,590
47,457
21,023
1,573
70,053
44,200
25,854
17,955
43,808
6,702
14,847
21,549
22,259
4,975
822
16,463
5,753
10,710
72,608
26,910
1,967
101,485
66,989
34,496
23,044
57,540
8,713
18,936
27,649
29,891
4,726
2,500
22,665
7,933
14,732
95,843
31,753
2,262
129,858
87,355
42,503
30,327
72,830
10,892
25,672
36,564
36,267
4,962
1,500
29,804
10,432
19,373
Earnings and Valuation Ratios

Pre-provision Operating RoAE (%)
34.2
RoAE (%)
18.3
Pre-provision Operating ROA (%)
2.1
RoAB (%)
1.2
EPS (Rs.)
17.4
Dividend per share (Rs.)
3.5
Book Value (Rs.)
103.5
Adj BV (Rs.)
95.7
Revenue Analysis
Interest income on IBA (%)
6.7
Interest cost on IBL (%)
4.6
NIM on IBA / AWF (%)
2.38
Core fee Inc / AWF (%)
1.4
Portfolio gains / Total Inc (%)
8.2
Op.Exp / TI (%)
51.2
Op.Exp / AWF (%)
2.0
Employee exps / Op exps (%)
29.5
Tax / Pre-tax earnings (%)
33.7
Asset Quality
GNPAs / Gr Adv (%)
1.7
NNPAs / Net Adv (%)
1.0
Growth Ratio
Loans (%)
43.0
Investments (%)
50.8
Deposits (%)
26.5
Networth (%)
19.2
Net Int Income (%)
35.5
Non-fund based income (%)
40.4
Non-Int Exp (%)
40.0
Profit Before Tax (%)
44.9
Net profit (%)
44.6
Asset / Liability Profile
Avg CASA/ Deposits (%)
39.0
Avg Adv / Avg Dep (%)
51.8
Avg Invst / Avg Dep (%)
50.7
Incr Adv / Deposits (%)
79.7
Avg Cash / Avg Dep (%)
12.4
Capital Adequacy
Capital Adequacy Ratio:
11.1
Tier I (%)
7.3
Internal Capital Generation rate (%) 16.0
NNPAs to Equity (%)
7.6
Balance Sheet
Y/E Mar, Rs mn
FY06
FY07
FY08
FY09E
FY10E
Assets
Cash & Bal with RBI
Loans, Adv & Int accrued
Investments
Fixed Assets (Net)
Other assets
Total Assets
36,418
223,142
219,244
5,677
12,829
497,311
69,183
368,765
275,391
6,732
12,502
732,572
125,042
596,611
346,130
9,229
18,766
1,095,778
140,707
835,256
436,579
12,229
21,581
1,446,352
159,344
1,061,625
509,307
14,229
24,819
1,769,323
Liabilities
Share capital
Reserves and Surplus
Hybrid Capital
Debt
Borrowing
Total Deposits
Other liab incld prov
Total Liabilities
2,787
26,069
0
17,886
26,809
401,780
21,979
497,311
2,816
31,206
4,140
30,875
51,956
589,629
21,951
732,572
3,577
84,130
3,986
30,308
56,240
878,040
39,498
1,095,778
3,595
95,918
4,140
30,914
79,714
1,185,846
46,225
1,446,352
3,613
111,909
4,140
31,532
83,700
1,486,997
47,432
1,769,323
FY07
FY08
FY09E
FY10E
40.2
21.0
2.1
1.1
23.4
4.5
120.8
111.3
36.6
17.6
2.4
1.2
29.9
6.0
245.2
238.2
31.9
15.7
2.4
1.2
41.0
7.0
276.8
267.1
33.7
18.0
2.3
1.2
53.6
8.0
319.7
302.4
7.5
5.3
2.46
1.5
2.5
50.2
2.0
31.4
33.8
7.9
5.4
2.90
1.7
5.3
51.8
2.4
31.1
34.9
8.2
5.9
2.8
1.8
1.1
48.6
2.2
31.5
35.0
8.3
6.0
2.7
1.9
0.7
50.6
2.3
29.8
35.0
1.1
0.7
0.7
0.4
0.9
0.4
1.1
0.6
65.3
25.6
46.8
17.9
48.2
58.3
49.3
36.2
35.9
61.8
25.7
48.9
157.8
76.1
65.9
77.4
65.2
62.5
40.0
26.1
35.1
13.5
33.4
42.5
28.3
37.7
37.6
27.1
16.7
25.4
16.1
23.2
32.9
32.2
31.5
31.5
39.8
58.9
49.9
77.5
10.7
43.2
65.2
42.3
79.0
13.2
45.6
68.8
37.9
77.5
12.9
45.7
70.3
35.4
75.2
11.2
11.6
6.4
18.4
7.8
13.7
10.2
25.2
2.8
12.0
8.9
13.9
3.5
10.6
7.9
16.6
5.4
21
Bank of India
December, 2008
COMPANY UPDATE
Strong earnings growth
BOI
260
(BOI IN / BOI.BO)
CMP Rs 276
Tgt Rs 400 (+45%)
Focus on corporate and international credit will translate into an healthy credit growth of ~23%
over FY08-10.
Requisite hike in PLR and re-negotiation of rate with sub-PLR clients will enable the bank to
maintain its margin.
Re-pricing of fee based products will continue the growth movement in CEB segment. The fee
based products are re-priced upward by an average 20%-25% effective from mid of August' 08.
The current account to witness increase in float following banks appointment as trustee bank for
pension scheme.
Lower provisioning will improve profitability. Improvement in the Asset quality (Net NPA at
0.52%) and a hedged investment portfolio (Investment in HTM at 83%) will reduce the
provision requirement towards NPA as well as investment depreciation, resulting in an
improvement in profitability.
We believe that the bank will not be affected by the new norms of accounting for farm loan
waiver issued by RBI as it has not made any add back of its provision towards farm loan waived
during Q1FY09.
Rel. to BSE
210
160
110
60
Apr-07
Oct-07
Apr-08
Oct-08
Company data
O/S shares :
525mn
Market cap (Rs) :
130bn
Market cap (USD) :
3.1bn
465 / 189
3.9mn
Face Value (Rs) :
10

Promoters :
64.5
FII / NRI :
16.0
FI / MF :
11.9
Risks
Slow down in credit off take will have a negative impact on the earnings growth of the bank
1.1
Public & Others :
6.6
Valuation
Bank of India stands at very favorable position in the risk and reward matrix. The bank tends to
provide strong earnings growth on the back of steady credit growth, stable margin, revision of
services charges, hedged investment portfolio and better asset quality with 55% of credit to
large corporate. The bank has the potential to further increase its RoE with the increase in
leverage. The bank trades at price to book multiple of 1.4x FY09 ABV of Rs 200. We believe that
better asset quality and strong earnings growth will provide a strong upside from the current
level. We have a 1-yr price target of Rs400 (+45%).
Y/E Mar, Rs mn
FY09E
FY10E
NII
42,293
51,821
62,698
PAT
20,094
25,390
31,647
NIM %
FY08
2.7
2.7
2.7
156.6
196.7
250.6
RoE, %
24.4
23.5
25.4
EPS, Rs
38.2
48.3
60.2
ABV per share
P/ABV, x
1.8
1.4
1.1
22
Valuation Summary
Bank of India
Y/E Mar
FY05
FY06
FY07
FY08
FY09E
FY10E
Pre-prov ROE (%)
35.2
41.2
44.0
44.9
41.1
43.8
Pre-prov ROA (%)
1.7
1.9
1.9
2.4
2.3
2.3
Net Profit (Rs mn)
3,409
7,014
11,232
20,094
25,390
31,647
% growth
-66.2
105.8
60.1
78.9
26.4
24.6
7.0
14.4
23.0
38.2
48.3
60.2
79.0
104.8
156.6
196.7
250.6
20.6
24.4
23.5
25.4
EPS (Rs)
Adj BVPS (Rs)
56.2
ROE (%)
8.0
P/E (x)
39.5
19.2
12.0
7.2
5.7
4.6
4.9
3.5
2.6
1.8
1.4
1.1
Adj. P/BV (x)
14.8
P/E
PBV
23
Financials
Bank of India
Y/E Mar, Rs mn
Interest on Loans
Others
Net Interest Income
Total Income
Personnel Expenses
Other Expenses
Total Op expenses
Provision for NPAs
Net Profit
Ratio Analysis
FY06
FY07
FY08
FY09E
FY10E
FY06
45,730
21,613
2,944
70,287
41,531
28,756
11,844
40,600
13,281
7,870
21,151
19,449
6,241
4,051
9,157
2,142
7,014
63,975
22,161
3,227
89,363
54,958
34,405
15,630
50,034
16,140
9,944
26,084
23,950
7,441
1,180
15,329
4,097
11,232
92,751
26,390
4,411
123,552
81,260
42,293
21,169
63,462
16,570
9,880
26,450
37,012
8,628
1,537
26,847
6,753
20,094
119,185
30,942
4,852
154,980
103,158
51,821
21,182
73,004
17,960
10,518
28,478
44,525
8,714
1,500
34,311
8,921
25,390
145,406
35,893
5,337
186,636
123,938
62,698
22,950
85,648
19,500
11,570
31,070
54,578
10,021
1,500
43,057
11,410
31,647

41.2
RoAE (%)
14.8
1.9
RoAB (%)
0.7
EPS (Rs.)
14.4
3.4
Book Value (Rs.)
102.1
Adj BV (Rs.)
79.0
Revenue Analysis
7.0
4.4
2.9
0.7
2.9
Op.Exp / TI (%)
53.6
Op.Exp / AWF (%)
2.1
62.8
23.4
Asset Quality
GNPAs / Gr Adv (%)
3.8
NNPAs / Net Adv (%)
1.5
Growth Ratio
Loans (%)
16.4
Investments (%)
12.6
Deposits (%)
19.3
Networth (%)
11.6
Net Int Income (%)
20.5
9.7
Non-Int Exp (%)
3.2
98.3
Net profit (%)
105.8
34.7
66.6
35.3
60.0
10.9
Capital Adequacy
11.5
Tier I (%)
7.0
NNPAs to Equity (%)
19.5
Balance Sheet
Y/E Mar, Rs mn
FY06
FY07
FY08
FY09E
FY10E
Assets
Cash & Bal with RBI
Investments
Fixed Assets (Net)
Other assets
Total Assets
114,460
174,055
177,174
207,450
252,640
651,737
851,159 1,134,763 1,415,896 1,738,936
324,646
363,583
427,876
496,517
572,235
8,100
7,893
24,261
24,761
25,761
23,800
21,480
24,226
24,396
23,929
1,122,743 1,418,170 1,788,300 2,169,021 2,613,501
Liabilities
Share capital
Hybrid Capital
Debt
Borrowing
Total Deposits
Total Liabilities
4,881
4,881
5,259
5,259
5,259
43,384
52,578
83,004
105,318
133,273
0
3,695
9,971
10,589
13,269
27,685
43,895
39,488
44,488
46,488
58,939
66,208
71,724
80,331
88,115
943,807 1,203,717 1,506,484 1,862,823 2,259,660
42,473
41,702
54,737
60,211
67,437
1,122,743 1,418,170 1,788,300 2,169,021 2,613,501
FY07
FY08
FY09E
FY10E
44.0
20.6
1.9
0.9
23.0
4.0
120.8
104.8
44.9
24.4
2.3
1.3
38.2
4.0
201.4
156.6
41.1
23.5
2.3
1.3
48.3
5.0
210.3
196.7
43.8
25.4
2.3
1.4
60.2
6.0
263.4
250.6
7.2
4.7
2.8
0.7
4.3
54.4
2.1
61.9
26.7
7.9
5.5
2.7
0.7
6.1
44.2
1.7
62.6
25.2
8.0
5.7
2.7
0.7
2.5
40.0
1.5
63.1
26.0
8.0
5.6
2.7
0.7
1.6
36.9
1.3
62.8
26.5
2.5
0.8
1.7
0.5
1.7
0.5
1.8
0.4
30.6
12.0
27.5
18.3
19.6
26.9
23.3
67.4
60.1
33.3
17.7
25.2
79.6
22.9
28.9
1.4
75.1
78.9
24.8
16.0
23.7
4.4
22.5
11.0
7.7
27.8
26.4
22.8
15.2
21.3
25.3
21.0
11.1
9.1
25.5
24.6
33.3
67.9
32.0
76.7
13.4
31.2
71.8
29.2
93.7
13.0
30.9
74.4
27.4
78.9
11.4
31.1
75.2
25.9
81.4
11.2
11.6
6.5
19.2
10.7
12.0
7.7
31.3
5.6
11.2
8.2
25.8
6.4
11.1
8.5
25.8
4.9
24
BOB
Bank of Baroda (BOB IN / BOB.BO)
December, 2008
COMPANY UPDATE
Core business is shaping well
Rel. to BSE
250
CMP Rs 265
Target Rs 350 (+32%)
The core business is shaping up well after the make over process. Credit is expected to grow at
a CAGR of 22% over FY08-10 driven by growth in corporate, agriculture and international
segment.
The international operation has gained traction and makes up 20% of advances. The rise in
corporate operations has enabled the bank to accelerate its fee income, which is expected to
grow at 19% over FY08-10.
We believe, increase in leverage will improve the RoE whereas RoAs are likely to remain stable
due to the upward pressure on operating expenses.
The capital adequacy is at a comfortable position of 13% (tier I: 7.8%) with enough headroom
available in the tier II category for it to comfortably comply with the new Basel II guidelines.
The bank is not adequately leveraged which we believe would improve its RoE as it increases its
leverage to support its future growth.
Some of the strategic investments made by the bank can unlock value for the investors.
We have an Outperformer rating and a price target of Rs 498
Risks
Low credit off take to impact earnings growth
Slippages is a concern area
Valuation
Focus on corporate business, thrust on building international franchisee, higher turnaround of
branch resources and focus on fee based income will drive earnings.
210
170
130
90
50
Apr-07
Oct-07
Apr-08
Oct-08
Company data
O/S shares :
364mn
Market cap (Rs) :
91.5bn
Market cap (USD) :
2.2bn
479 / 188
1.6mn
Face Value (Rs) :
10

Promoters :
53.8
FII / NRI :
19.5
FI / MF :
18.5
1.5
Public & Others :
6.7
Y/E Mar, Rs mn
FY09E
FY10E
NII
39,118
46,831
55,865
PAT
14,355
17,554
20,862
NIM %
FY08
2.5
2.4
2.4
247.1
282.4
323.9
RoE, %
14.6
15.0
15.8
EPS, Rs
39.3
48.0
57.1
ABV per share
P/ABV, x
1.1
0.9
0.8
25
Valuation Summary
Bank of Baroda
Y/E Mar
FY05
FY06
FY07
FY08
FY09E
FY10E
Pre-prov ROE (%)
39.9
30.2
31.8
30.8
28.2
28.5
Pre-prov ROA (%)
2.5
2.0
2.1
1.9
1.7
1.6
Net Profit (Rs mn)
6,855
8,270
10,265
14,355
17,554
20,862
% growth
-29.1
20.6
24.1
39.8
22.3
18.8
EPS (Rs)
23.3
22.6
28.1
39.3
48.0
57.1
Adj BVPS (Rs)
162.0
194.3
217.1
247.1
282.4
323.9
ROE (%)
12.7
12.3
12.4
14.6
15.0
15.8
P/E (x)
11.4
11.7
9.4
6.7
5.5
4.6
Adj. P/BV (x)
1.64
1.36
1.22
1.07
0.9
0.8
P/E
PBV
26
Financials
Bank of Baroda
Y/E Mar, Rs mn
Interest on Loans
Others
Net Interest Income
Total Income
Personnel Expenses
Other Expenses
Total Op expenses
Provision for NPAs
Net Profit
Ratio Analysis
FY06
FY07
FY08
FY09E
FY10E
FY06
37,778
29,064
3,658
70,500
38,751
31,749
12,418
44,166
15,238
8,610
23,848
20,319
3,640
7,759
8,920
651
8,270
59,374
27,689
5,064
92,126
54,266
37,861
13,818
51,679
16,441
9,003
25,443
26,236
3,951
5,742
16,543
6,278
10,265
84,130
27,373
6,632
118,135
79,017
39,118
20,510
59,628
18,038
11,305
29,343
30,286
6,347
1,867
22,072
7,716
14,355
109,369
32,848
7,295
149,511
102,680
46,831
18,855
65,686
20,202
12,436
32,638
33,048
5,712
940
26,396
8,843
17,554
133,430
36,789
7,368
177,587
121,723
55,865
19,191
75,055
22,222
15,136
37,358
37,697
5,826
500
31,371
10,509
20,862

30.2
RoAE (%)
12.3
2.0
RoAB (%)
0.8
EPS (Rs.)
22.6
5.7
Book Value (Rs.)
214.6
Adj BV (Rs.)
194.3
Revenue Analysis
7.0
4.2
3.2
0.5
7.3
Op.Exp / TI (%)
58.0
Op.Exp / AWF (%)
2.4
63.9
7.3
Asset Quality
GNPAs / Gr Adv (%)
4.0
NNPAs / Net Adv (%)
0.9
Growth Ratio
Loans (%)
38.0
Investments (%)
(5.0)
Deposits (%)
15.2
Networth (%)
39.4
Net Int Income (%)
13.8
(2.9)
Non-Int Exp (%)
11.1
2.3
Net profit (%)
20.6
37.0
55.4
42.2
132.6
12.9
Capital Adequacy
13.7
Tier I (%)
11.0
NNPAs to Equity (%)
6.6
Balance Sheet
Y/E Mar, Rs mn
Assets
Cash & Bal with RBI
Investments
Fixed Assets (Net)
Other assets
Total Assets
FY06
FY07
FY08
FY09E
FY10E
134,546
182,804
222,993
270,591
300,987
599,118
836,209 1,067,013 1,306,053 1,581,970
362,790
364,442
454,833
528,924
617,579
9,207
10,888
24,270
26,697
29,367
28,264
37,119
26,886
29,574
32,532
1,133,925 1,431,462 1,795,995 2,161,841 2,562,434
Liabilities
Share capital
3,655
3,655
3,655
3,655
3,655
72,539
80,706
91,593
105,298
121,883
Rev Res / Foreign Exch Gains
2,250
2,139
15,191
15,191
15,191
Debt
22,700
27,191
54,227
74,227
80,227
Borrowing
48,022
11,426
39,270
56,848
76,182
Total Deposits
943,441 1,258,795 1,532,280 1,863,179 2,217,337
41,318
47,551
59,779
43,443
47,958
Total Liabilities
1,133,925 1,431,462 1,795,995 2,161,841 2,562,434
FY07
FY08
FY09E
FY10E
31.8
12.4
2.0
0.8
28.1
6.9
236.6
217.1
30.8
14.6
1.9
0.9
39.3
9.3
302.1
247.1
28.2
15.0
1.7
0.9
48.0
9.0
339.6
282.4
28.5
15.8
1.6
0.9
57.1
10.0
385.0
323.9
7.4
4.7
3.1
0.6
2.7
50.6
2.1
64.6
37.9
7.6
5.4
2.5
0.5
9.8
54.0
1.9
61.5
35.0
7.8
5.7
2.4
0.5
4.0
51.7
1.7
61.9
33.5
7.7
5.6
2.4
0.5
2.7
51.1
1.6
59.5
33.5
2.5
0.6
1.9
0.5
1.9
0.4
2.1
0.5
39.6
0.5
33.4
10.3
19.3
32.6
6.7
85.4
24.1
27.6
24.8
21.7
27.7
3.3
21.9
15.3
33.4
39.8
22.4
16.3
21.6
12.4
19.7
7.6
11.2
19.6
22.3
21.1
16.8
19.0
13.4
19.3
5.4
14.5
18.8
18.8
35.0
63.1
33.0
75.2
14.4
31.9
66.7
29.4
84.4
14.5
31.5
68.6
29.0
72.2
14.5
31.9
69.4
28.1
77.9
14.0
11.8
8.7
10.2
5.8
12.9
7.6
13.0
4.5
12.3
7.4
15.0
4.6
11.8
7.4
15.8
5.1
27
HDFC Bank
Operational Excellence
HDFC Bank
230
(HDFCB IN / HDBK.BO)
CMP Rs 984
Target Rs 1503 (+53%)
Rel. to BSE
180
December, 2008
COMPANY UPDATE
130
The liquidity squeeze has returned the pricing power to the banks.
Credit growth on a comparable basis to be around 25%-30% during FY09.
Fee income stream to improve by Q4FY09 with the restoration of the third party distribution
business, retail and SME business of erstwhile CBoP.
The operating efficiency to show improvement gradually. Cost to income ratio which on a
blended basis stands at 55%-56% is expected to stabilize at 50% level over a period of 18-24
months.
CASA proportion to return to the pre-merger level of 48%-50% over a period of 18-24 months.
NIMs are expected to remain at the current level of ~4% during FY09 and expected to increase
with the improvement in CASA proportion.
Slippage to increase for few quarters as the two-wheeler and personal loan portfolio of erstwhile
CBoP matures in next 2 years. The GNPA is expected to increase marginally from 1.5% to 1.7%
over few quarters.
The retail portfolio of HDFC bank (excluding CBoP) remains healthy. Amongst the retail the most
vulnerable segment like credit card and personal loan portfolio has also not witnessed stress.
Large part of the these portfolios are to the banks internal customer, with decent track record.
Risks
Integrating the 400 odd branches of erstwhile CBoP stands as a biggest risk of the bank.
The rapid rise in credit off-take in the retail segment could result in slippages.
Valuation
At CMP of Rs984 the stock trades at 2.6x 1-yr forward ABV of Rs372 and 2.3x 2-yr forward ABV
of Rs424. HDFC Bank has shown remarkable consistency in its earnings growth. HDFC Bank's
success story is attributable to the innovative and proactive approach of its high quality
management. The bank has a strong funding base of 45% low cost deposits. This is reflected in
the premium valuation that it enjoys on the bourses.
80
Apr-07
Oct-07
Apr-08
Oct-08
Company data
O/S shares :
425mn
Market cap (Rs) :
382bn
Market cap (USD) :
9bn
1825 / 792
2.5mn
Face Value (Rs) :
10

Promoters :
19.4
FII / NRI :
49.2
FI / MF :
9.5
10.4
Public & Others :
11.6
Y/E Mar, Rs mn
FY08 FY09E
FY10E
NII
52,279 83,129 105,640
PAT
15,902 23,027
NIM %
30,201
4.8
4.6
4.8
316.0
372.6
423.2
RoE, %
17.7
15.6
15.7
EPS, Rs
44.9
49.3
64.7
ABV per share
P/ABV, x
3.1
2.6
2.3
28
Valuation Summary
HDFC Bank
Y/E Mar
FY05
FY06
FY07
FY08
FY09E
FY10E
Pre-prov ROE (%)
37.3
40.3
43.7
42.0
35.4
34.3
Pre-prov ROA (%)
3.0
3.3
3.2
3.5
2.9
3.0
Net Profit (Rs mn)
6,656
8,708
11,415
15,902
23,027
30,201
% growth
30.6
30.8
31.1
39.3
44.8
31.2
EPS (Rs)
21.5
27.8
35.7
44.9
49.3
64.7
Adj BVPS (Rs)
143.9
164.3
195.1
316.0
372.6
423.2
ROE (%)
18.5
17.7
19.5
17.7
15.6
15.7
P/E (x)
Adj. P/BV (x)
45.8
35.4
27.5
21.9
20.0
15.2
6.8
6.0
5.0
3.1
2.6
2.3
P/E
PBV
29
Financials
HDFC Bank
Y/E Mar, Rs mn
Interest on Loans
Others
Net Interest Income
Total Income
Personnel Expenses
Other Expenses
Total Op expenses
Provision for NPAs
Net Profit
Ratio Analysis
FY06
FY07
FY08
FY09E
FY10E
FY06
27,002
16,317
1,435
44,753
19,295
25,458
11,240
36,698
4,868
12,043
16,911
19,787
4,798
2,452
12,538
3,830
8,708
43,342
20,575
2,563
66,479
31,795
34,685
15,162
49,847
7,769
16,439
24,208
25,639
8,610
638
16,392
4,977
11,415
69,667
28,720
2,762
101,150
48,871
52,279
22,832
75,110
13,014
24,443
37,456
37,654
12,160
2,683
22,811
6,909
15,902
119,156
39,014
4,396
162,567
79,437
83,129
32,253
115,383
23,117
40,127
63,243
52,139
15,238
2,533
34,369
11,342
23,027
164,436
45,647
5,187
215,270
109,630
105,640
37,681
143,321
28,202
49,275
77,477
65,844
17,981
2,786
45,077
14,875
30,201

40.3
RoAE (%)
17.7
3.2
RoAB (%)
1.44
EPS (Rs.)
27.8
5.5
Book Value (Rs.)
169.2
Adj BV (Rs.)
164.3
Revenue Analysis
7.4
3.7
4.2
1.9
(1.4)
Op.Exp / TI (%)
45.4
Op.Exp / AWF (%)
2.8
28.8
30.5
Asset Quality
GNPAs / Gr Adv (%)
1.5
NNPAs / Net Adv (%)
0.4
Growth Ratio
Loans (%)
37.1
Investments (%)
47.6
Deposits (%)
53.3
Networth (%)
17.3
Net Int Income (%)
43.2
64.0
Non-Int Exp (%)
55.8
28.0
Net profit (%)
30.8
56.6
63.8
52.6
48.2
12.2
Capital Adequacy
11.4
Tier I (%)
8.6
NNPAs to Equity (%)
2.9
Balance Sheet
Y/E Mar, Rs mn
FY06
FY07
FY08
FY09E
FY10E
Assets
Cash & Bal with RBI
Investments
Fixed Assets (Net)
Other assets
Total Assets
69,190
350,613
293,158
8,551
13,553
735,064
90,467
147,783
215,313
262,712
469,448
634,269 1,113,342 1,441,570
321,573
505,840
611,965
784,793
9,667
11,751
19,149
23,936
21,202
32,122
44,598
51,288
912,356 1,331,766 2,004,368 2,564,299
Liabilities
Share capital
Debt
Borrowing
Total Deposits
Total Liabilities
3,131
49,864
17,020
28,585
566,232
70,231
735,063
3,194
3,544
4,671
4,671
61,138
111,428
174,887
199,897
30,826
32,491
42,491
62,491
28,154
44,789
68,336
102,504
700,018 1,024,434 1,630,473 2,090,154
87,027
115,081
83,510
104,581
912,356 1,331,766 2,004,368 2,564,299
FY07
FY08
FY09E
FY10E
43.7
19.5
3.1
1.43
35.7
7.0
201.4
195.1
42.0
17.7
3.4
1.47
44.9
8.5
324.4
316.0
35.4
15.6
3.1
1.28
49.3
9.0
384.4
372.6
34.3
15.7
2.9
1.36
64.7
9.5
438.0
423.2
9.3
5.2
4.8
1.8
3.3
51.5
3.5
34.7
30.3
9.1
5.6
4.6
1.7
0.1
54.9
3.5
36.6
33.0
9.7
5.5
4.8
1.6
0.1
54.1
3.5
36.4
33.0
1.4
0.4
1.4
0.5
1.9
0.5
2.4
0.5
33.9
9.7
23.6
21.4
36.2
34.7
43.2
30.7
31.1
35.1
57.3
46.3
78.7
50.7
28.8
54.7
39.2
39.3
75.5
21.0
59.2
56.2
59.0
57.3
68.8
50.7
44.8
29.5
28.2
28.2
13.9
27.1
16.9
22.5
31.2
31.2
55.5
63.8
48.5
88.8
12.6
54.7
63.1
48.0
50.8
13.8
49.5
68.1
42.1
79.0
14.4
47.1
67.2
37.5
71.4
12.8
13.0
8.3
17.3
3.2
13.6
10.3
20.0
2.6
11.2
8.8
16.4
3.1
11.2
8.6
14.3
3.4
8.3
4.6
4.4
1.9
(1.4)
47.9
3.0
32.1
30.4
30
ICICI Bank
December, 2008
COMPANY UPDATE
(ICICIBC IN / ICBK.BO)
Buy
CMP Rs 422
Target Rs 795 (+89%)
The recent global financial meltdown has raised concerns on the banks overseas assets, hence
significantly widening the valuation discount to its peer group. The market has become risk
averse due to the collapse of some of the bigger names in the financial world. The banks
overseas subsidiaries has an asset base of US$ 12bn (11% of the total asset base) and a
combined networth of US$ 790mn. The bank is adequately capitalized with CRAR above 13%.
We believe that the bank is currently trading below its trough valuation of Rs 540 per share. We
see the overhang persisting through the current market dislocation and the potential of a
bounce-back much faster when the dust settles down. Our sensitivity analysis shows that the
worst case per share valuation of the bank is Rs 540, where we have assumed the value of its
overseas subsidiaries at zero. At the CMP of Rs 422, the stock is trading at 1.1x FY09 ABV of Rs
404. The core book is currently trading at a historic low of 0.66x 1-yr forward ABV of
Rs346 (assuming a 1-yr forward value of Rs 193 per share for its subsidiaries).
Corporate lending and international credit will be the key growth drivers, which are expected to
grow at a CAGR of 15% over FY08-10.
The bank aims to increase the CASA proportion to the industry average of ~28% by FY10.
Growth in fee income will continue to surpass balance sheet growth.
The non-banking business will continue to witness a high growth rate. The life insurance
business is expected to grow at a CAGR of ~30% over FY08-10.
The bank has undertaken measures to contain costs and this would keep the operating cost low.
The bank is adequately capitalized to take on the underlying growth in the Indian economy. We
believe that the increase in leverage will improve the return ratios.
Risks
The asset quality remains a concern. But, we believe that it is to do with the banks focus on
non-collateralized lending, which are high-risk, high-yield businesses.
Further tightening of liquidity will have a negative impact on banks cost of funds.
200
IC IC I Bank
Rel. to BSE
150
100
50
0
Apr-07
Oct-07
Apr-08
Oct-08
Company data
O/S shares :
1113mn
Market cap (Rs) :
412bn
Market cap (USD) :
8.3bn
1465 / 282
18.2mn
Face Value (Rs) :
10

FII / NRI :
65.6
FI / MF :
19.5
6.9
Public & Others :
7.9
Y/E Mar, Rs mn
FY08 FY09E
FY10E
NII
73,041 88,904 106,671
PAT
41,577 42,465
NIM %
ABV per share
48,695
2.1
2.2
2.3
389.4
400.1
427.9
RoE, %
11.6
8.8
9.5
EPS, Rs
37.4
37.8
42.9
P/ABV, x
1.1
1.1
1.0
31
Valuation Summary & SOTP

Y/E Mar
FY05
FY06
FY07
FY08
FY09E
FY10E
Pre-prov ROE (%)
27.7
26.3
24.9
22.3
17.6
19.3
Pre-prov ROA (%)
2.2
2.4
2.1
2.3
2.1
2.1
Net Profit (Rs mn)
20,053
25,400
31,089
41,577
42,465
48,695
23.9
26.7
22.4
33.7
2.1
14.7
% growth
ICICI Bank
EPS (Rs)
27.2
28.5
34.6
37.4
37.8
42.9
Adj BVPS (Rs)
154.3
241.7
252.1
389.4
400.1
427.9
Adj BVPS (Rs) (banking business)
137.0
223.0
228.4
356.4
363.0
390.1
ROE (%)
18.9
14.3
13.2
11.6
8.8
9.5
P/E (x)
15.5
14.8
12.2
11.3
11.2
9.8
Adj. P/BV (x)
2.73
1.74
1.67
1.08
1.05
0.99
Normal case valuation
Share holding
Business
of ICICI
Valuation Rs bn
ICICI Bank
Valuation/
share
638.8
502
Valuation Criteria
DDM
ICICI Securities ltd
99.9%
26
23
ICICI Prudential life insurance company ltd
74.0%
281
187
ICICI Lombard General insurance company ltd
74.0%
17
11
15 times FY09E PAT of Rs 1.1bn
ICICI AMC
51.0%
54
25
8% FY10E AUM of Rs680bn
ICICI Venture capital fund management company ltd
100.0%
10
42
38
Other banking subsidiary including HFC's
15 times FY09E PAT of Rs 1.7 bn

15 times FY09E NBAP of Rs 18.75 bn
8% of FY09E AUM of Rs 124bn

1x FY09 ABV
795
32
Worst case Valuation

Share holding
Business
of ICICI
Valuation Rs bn
ICICI Bank
ICICI Bank
Valuation/
share
345
Valuation Criteria
one time 1-yr forward ABV of Rs 345
ICICI Securities ltd
99.9%
ICICI Prudential life insurance company ltd
74.0%
238
159
ICICI Lombard General insurance company ltd
74.0%
12
10 times 1-yr forward PAT of Rs 1.15bn
ICICI AMC
51.0%
15
2% of 1-yr forward AUM of Rs764bn
ICICI Venture capital fund management company ltd
100.0%
2% of 1-yr forward AUM of Rs 142bn
1 times 1-yr forward ABV of Rs 9bn
HFC
Overseas banking subsidiaries
10 times 1-yr forward of Rs 950mn (yoy decline of 20%)

15 times 1-yr forward NBAP of Rs 15.8bn (14% NBAP margin)
nil
Total
537
Rolling 1-yr forward P/ABV for core banking business
33
ICICI Bank
Valuation discount / premium to peer group
The bank is trading at a significant discount to its peer group. The discount is an all-time low compared to Axis
bank. The discount has also widened significantly compared to HDFC Bank.
34
Financials
ICICI Bank
Y/E Mar, Rs mn
Interest on Loans
Others
Net Interest Income
Total Income
Personnel Expenses
Other Expenses
Total Op expenses
Provision for NPAs
Net Profit
Ratio Analysis
FY06
FY07
FY08
FY09E
FY10E
FY06
96,850
36,927
4,068
137,844
95,974
41,870
49,831
91,701
10,823
34,199
45,022
46,679
7,947
7,767
30,966
5,565
25,400
160,963
49,885
9,094
219,943
163,585
56,358
69,279
125,637
16,167
50,738
66,906
58,731
21,593
671
36,467
5,378
31,089
226,010
74,660
7,213
307,883
234,842
73,041
88,108
161,149
20,789
60,753
81,542
79,607
27,010
2,036
50,561
8,984
41,577
271,212
85,859
8,295
365,366
276,462
88,904
87,571
176,475
23,699
68,077
91,777
84,698
32,412
500
51,786
9,322
42,465
317,318
94,445
9,125
420,888
314,217
106,671
95,704
202,374
27,254
76,292
103,546
98,828
38,894
550
59,384
10,689
48,695

26.3
RoAE (%)
14.3
2.2
RoAB (%)
1.3
EPS (Rs.)
28.5
8.5
Book Value (Rs.)
253.5
Adj BV (Rs.)
241.7
RoE of banking business
15.3
Revenue Analysis
7.0
5.4
2.1
1.8
8.2
Op.Exp / TI (%)
53.1
Op.Exp / AWF (%)
2.3
24.0
18.0
Asset Quality
GNPAs / Gr Adv (%)
1.5
NNPAs / Net Adv (%)
0.7
Growth Ratio
Loans (%)
59.9
Investments (%)
38.7
Deposits (%)
64.6
Networth (%)
74.9
Net Int Income (%)
47.5
49.4
Non-Int Exp (%)
36.1
22.5
Net profit (%)
26.7
23.1
86.9
47.4
83.8
11.2
Capital Adequacy
13.4
Tier I (%)
9.2
NNPAs to Equity (%)
4.7
Balance Sheet
Y/E Mar, Rs mn
FY06
FY07
FY08
FY09E
FY10E
Assets
Cash & Bal with RBI
Investments
Fixed Assets (Net)
Other assets
Total Assets
170,402
1,461,631
737,017
39,807
105,032
2,513,889
371,213
380,411
448,885
536,841
1,958,656 2,256,161 2,594,585 2,986,462
941,996 1,149,411 1,275,157 1,423,071
39,234
41,089
49,307
59,168
135,482
170,879
160,572
160,077
3,446,581 3,997,951 4,528,506 5,165,619
Liabilities
Share capital
Debt
Borrowing
Total Deposits
Total Liabilities
8,898
213,162
101,444
385,219
1,664,678
136,989
2,513,889
8,993
11,127
11,238
11,350
234,139
453,575
480,263
511,694
184,491
182,839
201,122
221,235
512,560
656,484
686,643
788,481
2,325,511 2,470,279 2,878,659 3,343,354
167,827
195,483
220,262
236,505
3,446,581 3,997,951 4,528,506 5,165,619
FY07
FY08
FY09E
FY10E
24.9
13.2
2.0
1.1
34.6
10.0
274.2
252.1
14.7
22.3
11.6
2.1
1.2
37.4
11.0
420.8
389.4
12.0
17.6
8.8
2.0
1.0
37.8
12.0
440.5
400.1
10.2
19.3
9.5
2.0
1.1
42.9
13.0
463.9
427.9
11.1
7.8
6.3
2.0
1.8
9.7
58.4
2.4
24.2
14.7
8.7
7.4
2.1
2.0
13.2
57.3
2.3
25.5
17.8
9.0
7.7
2.2
2.0
4.1
54.2
2.3
25.8
18.0
9.1
7.6
2.3
2.0
0.7
51.5
2.2
26.3
18.0
2.1
1.0
3.4
1.6
4.2
1.8
4.5
1.4
34.0
27.8
39.7
9.3
34.6
35.6
48.6
17.8
22.4
15.2
22.0
6.2
89.8
29.6
19.2
21.9
38.6
33.7
15.0
10.9
16.5
5.7
21.7
16.3
12.6
2.4
2.1
15.1
11.6
16.1
6.4
20.0
16.9
12.8
14.7
14.7
22.0
84.1
42.1
75.2
13.6
23.8
85.4
43.6
205.5
15.7
26.2
87.2
45.3
82.9
15.5
27.1
85.8
43.4
84.3
15.8
11.3
7.4
9.9
8.1
14.0
11.8
12.1
7.5
12.9
10.7
6.2
9.2
12.5
8.9
6.9
7.8
35
Indian Overseas Bk (IOB IN / IOBK.BO)
December, 2008
COMPANY UPDATE
Fundamentally strong
210
CMP Rs 70
Tgt Rs 166(+138%)
The bank expects credit growth of 25% for FY09; though it seems on the higher side but the
demand flow from infrastructure and large corporate is still strong which is expected to drive the
credit growth.
Pressure on the margins; expected to stabilize at 3% level down from 3.3% last owing to rise in
cost of deposit and pressure on maintaining CASA ratio.
Further, on the assets side, the Bank is focusing on the relatively high yielding retail, SME,
infrastructure and agriculture segments to sustain the yields on its advances portfolio.
Focus on non interest Income- IOB has taken timely steps to improve its non-interest income
stream by resorting to third party distribution of financial products. The recovery from written
off portfolio is expected to remain strong. The bank recovered around Rs 1600 mn last year from
written off portfolio. The size of the portfolio currently stands at Rs5.5bn.
The investment portfolio is well hedged currently with 85% of SLR in HTM category. The bank
has shifted investment from AFS to HTM during 1st week of April' 08, thus insulating itself to the
large extent from MTM losses and also one time hit on account of shifting the portfolio. The
duration of AFS portfolio now stands at 2 years (4.5 yrs previously).
The bank plans to raise Tier II capital to augment its capital adequacy which currently stands at
11.96%. It has head room of Rs25bn in Tier II segment and Rs5bn in Tier I segment.
Risks
The banks focus on SME and mid-sized corporate lending might lead to increase in the slippages
Valuation
At CMP of Rs70 the stock trades at 0.7x FY09E ABV of Rs97.9 and 0.6x FY10E ABV of Rs119.
The key strength of IOB has been its focus on the SME/SSI sector that enables the bank to
register higher NIMs and better returns. The stability in NIMs will provide the steady growth in
NII, in line with credit growth. The increasing proportion of investment in HTM category will also
reduce the provisioning requirement going forward, thus increasing the earning visibility.
IOB
Rel. to BSE
170
130
90
50
Apr-07
Oct-07
Apr-08
Oct-08
Company data
O/S shares :
545mn
Market cap (Rs) :
35.8bn
Market cap (USD) :
0.8bn
227 / 60
0.6mn
Face Value (Rs) :
10

Promoters :
61.2
FII / NRI :
19.0
FI / MF :
6.5
1.0
Public & Others :

Y/E Mar, Rs mn
12.3
FY09E
FY10E
NII
26,795
30,404
35,142
PAT
12,023
13,726
15,104
NIM %
FY08
3.0
2.7
2.6
ABV per share
80.4
97.7
115.8
RoE, %
27.2
25.7
23.5
EPS, Rs
22.1
25.2
27.7
P/ABV, x
0.9
0.7
0.6
36
Valuation Summary
Y/E Mar
FY05
FY06
FY07
FY08
FY09E
FY10E
Pre-prov ROE (%)
56.1
52.4
43.5
45.3
36.3
38.2
Pre-prov ROA (%)
2.7
2.8
2.2
2.2
1.7
1.8
Net Profit (Rs mn)
6,513
7,833
10,084
12,023
13,726
15,104
% growth
27.0
20.3
28.7
19.2
14.2
10.0
EPS (Rs)
12.0
14.4
18.5
22.1
25.2
27.7
Adj BVPS (Rs)
38.8
52.0
66.3
80.4
97.7
115.8
ROE (%)
28.0
27.2
28.1
27.2
25.7
23.5
P/E (x)
5.8
4.8
3.8
3.2
2.8
2.5
Adj. P/BV (x)
1.8
1.3
1.0
0.9
0.7
0.6
P/E
PBV
37
Financials
Y/E Mar, Rs mn
Interest on Loans
Others
Net Interest Income
Total Income
Personnel Expenses
Other Expenses
Total Op expenses
Provision for NPAs
Net Profit
Ratio Analysis
FY06
FY07
FY08
FY09E
FY10E
FY06
26,291
16,733
1,039
44,063
23,391
20,672
7,282
27,954
8,936
3,952
12,888
15,066
1,938
3,272
9,856
2,023
7,833
39,010
17,033
2,278
58,321
32,713
25,608
3,870
29,478
9,311
4,567
13,878
15,600
2,168
-302
13,734
3,650
10,084
55,220
22,357
2,106
79,683
52,888
26,795
8,076
34,871
9,497
5,356
14,853
20,018
1,910
1,561
16,547
4,524
12,023
71,786
24,592
2,527
98,905
68,501
30,404
5,575
35,979
10,447
6,122
16,568
19,410
2,578
-2,100
18,932
5,206
13,726
88,297
27,543
2,906
118,746
83,604
35,142
8,427
43,569
11,909
7,113
19,022
24,547
2,965
750
20,833
5,729
15,104

52.4
RoAE (%)
27.2
2.7
RoAB (%)
1.5
EPS (Rs.)
14.4
2.6
Book Value (Rs.)
58.3
Adj BV (Rs.)
52.0
Revenue Analysis
8.2
4.8
3.8
0.7
9.1
Op.Exp / TI (%)
50.3
Op.Exp / AWF (%)
2.4
69.3
20.5
Asset Quality
GNPAs / Gr Adv (%)
3.5
NNPAs / Net Adv (%)
0.7
Growth Ratio
Loans (%)
37.9
Investments (%)
(0.4)
Deposits (%)
14.1
Networth (%)
23.4
Net Int Income (%)
11.4
16.0
Non-Int Exp (%)
8.4
1.4
Net profit (%)
20.3
39.3
60.3
41.1
152.1
9.1
Capital Adequacy
13.0
Tier I (%)
8.5
NNPAs to Equity (%)
7.1
Balance Sheet
Y/E Mar, Rs mn
FY06
FY07
FY08
FY09E
FY10E
Assets
Cash & Bal with RBI
Investments
Fixed Assets (Net)
Other assets
Total Assets
37,072
89,793
103,413
128,658
168,076
347,562 470,603
604,238
753,997
912,337
194,935 246,938
292,892
340,231
402,936
4,577
5,107
5,586
5,686
5,936
9,431
10,128
12,468
21,524
28,867
593,578 822,568 1,018,597 1,250,096 1,518,152
Liabilities
Share capital
Debt
Borrowing
Total Deposits
Total Liabilities
5,448
5,448
25,102
33,276
11,000
26,250
5,366
28,962
507,091 690,022
36,346
34,630
593,578 822,568
5,448
5,448
5,448
41,979
52,837
64,754
26,250
31,250
36,250
37,286
46,608
53,599
845,172 1,074,124 1,313,088
30,272
34,529
39,212
992,347 1,250,096 1,518,152
* Inclusive of amortisation costs
FY07
FY08
FY09E
FY10E
43.5
28.1
2.2
1.5
18.5
3.5
73.2
66.3
45.3
27.2
2.2
1.3
22.1
3.5
89.1
80.4
36.3
25.7
1.7
1.2
25.2
4.5
107.0
97.7
38.2
23.5
1.8
1.1
27.7
5.0
128.9
115.8
8.4
5.1
3.69
0.7
8.8
51.2
2.0
67.1
26.6
8.8
6.4
2.96
0.6
7.0
45.6
1.6
63.9
27.3
8.9
6.6
2.73
0.6
1.4
46.7
1.5
63.1
27.5
8.8
6.5
2.60
0.6
1.2
44.2
1.4
62.6
27.5
2.4
0.6
1.6
0.6
1.8
0.7
2.0
0.8
35.4
26.7
36.1
25.6
23.9
(69.7)
7.7
39.3
28.7
28.4
18.6
22.5
21.7
4.6
286.2
7.0
20.5
19.2
24.8
16.2
27.1
20.0
13.5
(12.2)
11.6
14.4
14.2
21.0
18.4
22.2
20.4
15.6
56.2
14.8
10.0
10.0
36.9
66.4
36.9
67.3
10.6
34.0
68.6
35.2
86.1
12.6
33.3
69.5
33.0
65.4
12.1
33.1
68.5
31.1
66.3
12.4
13.3
8.2
26.8
6.5
12.0
7.9
26.1
7.5
11.4
7.5
23.8
8.7
11.0
7.3
21.2
10.1
38
Punjab National Bk (PNB IN / PNBK.BO)
December, 2008
COMPANY UPDATE
Core earnings to bounce back
PNB
160
CMP Rs 481
Tgt Rs 574 (+19%)
The accelerated growth in advances without a commensurate growth in low cost deposits had
impacted its margins earlier. The reset of its credit target to lower level and focus on low cost
deposits will enable the bank to maintain its margins. We expect a credit growth of 22% over
FY07-10.
The bank has de-risked its investment book with transfer of securities to the held-to-maturity
(HTM) category. This will reduce the vulnerability of reported earnings to rising bond yields, thus
improving the predictability of the earnings. The investment book in AFS category now stands at
29% of total investment with duration of this category at 3 yrs.
Higher proportion of business under CBS coverage provides the opportunity for growth in Fee
and Commission Income. This also helps control operating costs and brings down Cost/ Income
Ratio. Currently 83% of banks total business is covered under CBS.
Some of the strategic investments made by the bank can unlock value for the investors.
Rel. to BSE
140
120
100
80
60
Apr-07
Oct-07
Apr-08
Oct-08
Company data
O/S shares :
315mn
Market cap (Rs) :
141.9bn
Market cap (USD) :
2.9bn
720 / 330
1.2mn
Face Value (Rs) :
10

Promoters :
57.8
FII / NRI :
18.6
Risks
Asset quality has been a concern for the bank with huge rise in GNPA during H1FY08. But we
believe most of the rise in NPA are technical in nature and would subside going forward.
FI / MF :
17.8
Valuation
We expect the bank to report a steady credit growth of 22% over FY07-10. The cost / income
ratio will decline as the braches expand with the same headcount. We expect core earnings to
bounce back resulting in an improvement in return ratios.
Y/E Mar, Rs mn
1.2
Public & Others :
4.6
FY09E
FY10E
NII
55,342
63,688
76,835
PAT
20,488
25,883
30,621
NIM %
ABV per share
FY08
3.1
3.0
3.0
301.1
357.3
426.8
RoE, %
18.0
19.4
19.6
EPS, Rs
65.0
82.1
97.1
P/ABV, x
1.6
1.3
1.1
39
Valuation Summary
Y/E Mar
Pre-prov ROE (%)
FY05
FY06
FY07
FY08
FY09E
FY10E
32.5
32.3
36.5
35.2
33.2
34.5
Pre-prov ROA (%)
1.9
2.1
2.4
2.3
2.1
2.1
Net Profit (Rs mn)
14,110
14,398
15,401
20,488
25,883
30,621
% growth
27.3
2.0
7.0
33.0
26.3
18.3
EPS (Rs)
44.7
45.7
48.8
65.0
82.1
97.1
Adj BVPS (Rs)
235.1
264.2
281.7
301.1
357.3
426.8
ROE (%)
21.4
17.2
15.5
18.0
19.4
19.6
P/E (x)
Adj. P/BV (x)
10.8
10.5
9.9
7.4
5.9
5.0
2.0
1.8
1.7
1.6
1.3
1.1
P/E
PBV
40
Sum of the Parts Valuation
Ownership
Banking business
Valuation of the Value per share

business (Rs bn)
(Rs)
Valuation Criteria
100%
163
518
DDM
74%
12
1x FY 08 book value of Rs 5.24 bn
100%
1x FY 08 book value of Rs 1.62 bn
UTI AMC
25%
20
16
Principal PNB AMC
30%
Subsidiaries
PNB Gilt
PNB Housing Finance
Associate
UTI AMC valued at 4% of Current AUM of Rs 450 bn (Equity portion 45%)
Principal PNB AMC valued at 4% of current AUM of Rs 150 bn
(Equity portion 25% of AUM)
Relative valuation
Eton-Reliance MF deal valued at 13% of AUM (Equity portion 45-50% )
Rebecco-Canbank MF deal valued at 10% of AUM (Equity portion 25-30%)
UBS-Standard Chartered MF deal valued at 5% of AUM (Equity portion 10-15%)
Total
556
41
Financials
Y/E Mar, Rs mn
Interest on Loans
Others
Net Interest Income
Total Income
Personnel Expenses
Other Expenses
Total Op expenses
Provision for NPAs
Net Profit
Ratio Analysis
FY06
FY07
FY08
FY09E
FY10E
53,415
37,409
2,124
92,948
49,174
43,774
14,782
58,556
21,150
9,082
30,232
28,324
-505
8,477
20,353
5,955
14,398
76,439
32,878
3,040
112,357
60,229
52,128
17,304
69,432
23,524
9,738
33,262
36,170
7,518
6,961
21,691
6,291
15,401
104,391
36,113
2,146
142,650
87,309
55,342
19,976
75,317
24,615
10,639
35,255
40,062
5,156
1,947
32,959
12,472
20,488
132,576
41,169
2,168
175,913
112,225
63,688
19,508
83,196
27,077
11,800
38,877
44,319
6,187
-500
38,632
12,749
25,883
159,091
47,344
2,385
208,820
131,985
76,835
20,180
97,015
29,785
13,352
43,137
53,878
7,424
750
45,703
15,082
30,621
Balance Sheet
Y/E Mar, Rs mn
FY06
FY07
Assets
Cash & Bal with RBI
Investments
Fixed Assets (Net)
Other assets
Total Assets
247,917
746,274
422,963
10,302
25,217
1,452,673
Liabilities
Share capital
Hybrid Capital
Debt
Borrowing
Total Deposits
Total Liabilities
3,153
87,587
0
19,350
66,872
1,198,784
73,903
1,452,673
FY08
FY09E
FY10E
156,455
965,965
464,189
10,098
27,517
1,624,225
188,307
229,541
1,195,016 1,461,022
554,091
646,636
23,155
25,471
29,634
30,227
1,990,204 2,392,897
280,094
1,740,165
754,930
28,018
30,831
2,834,039
3,153
98,263
0
36,948
19,489
1,401,052
62,382
1,624,225
3,153
3,153
104,673
125,394
11,000
15,000
50,648
55,648
54,466
59,912
1,667,820 2,013,581
83,087
104,952
1,990,204 2,392,897
3,153
150,484
15,000
60,648
65,903
2,404,799
118,895
2,834,039

RoAE (%)
RoAB (%)
EPS (Rs.)
Book Value (Rs.)
Adj BV (Rs.)
Revenue Analysis
Op.Exp / TI (%)
Op.Exp / AWF (%)
Asset Quality
GNPAs / Gr Adv (%)
NNPAs / Net Adv (%)
Growth Ratio
Loans (%)
Investments (%)
Deposits (%)
Networth (%)
Net Int Income (%)
Non-Int Exp (%)
Net profit (%)
Capital Adequacy
Tier I (%)
Internal Capital Generation rate (%)
NNPAs to Equity (%)
FY06
FY07
FY08
FY09E
FY10E
32.3
17.2
2.1
1.1
45.7
6.0
280.4
264.2
36.5
15.5
2.4
1.0
48.8
10.0
314.0
281.7
35.2
18.0
2.2
1.2
65.0
13.0
373.7
301.1
33.2
19.4
2.0
1.2
82.1
14.0
439.1
357.3
34.5
19.6
2.1
1.2
97.1
15.0
518.4
426.8
7.0
4.1
3.3
0.7
8.5
56.0
2.3
70.0
29.3
7.5
4.4
3.5
0.8
5.7
50.6
2.2
70.7
29.0
8.1
5.4
3.1
0.9
6.2
49.7
2.0
69.8
37.8
8.2
5.7
3.0
0.8
3.3
48.3
1.8
69.6
33.0
8.2
5.6
3.0
0.7
1.7
45.2
1.7
69.0
33.0
4.2
0.3
3.5
0.8
2.8
0.6
2.8
0.7
3.0
0.8
29.4
9.7
16.9
11.3
19.1
33.1
10.0
6.6
7.0
23.7
19.4
19.0
18.0
6.2
14.6
6.0
51.9
33.0
22.3
16.7
20.7
16.7
15.1
8.4
10.3
17.2
26.3
19.1
16.7
19.4
17.4
20.6
10.3
11.0
18.3
18.3
47.4
63.3
34.1
108.6
15.6
44.4
68.2
33.2
85.9
11.2
43.3
70.1
32.6
76.9
11.4
43.8
70.3
31.7
71.4
11.5
13.5
9.0
16.2
6.1
12.2
8.8
19.9
7.3
11.7
8.5
20.1
8.1
23.5
(18.6)
15.7
14.9
14.4
(32.1)
(14.7)
6.8
2.0
47.6
57.3
42.2
87.6
16.1
12.0
10.1
15.9
2.2
12.3
8.9
13.5
7.0
42
State Bank of India (SBIN IN / SBI.BO)
December, 2008
COMPANY UPDATE
Value unlocking and consolidation
SBI
260
CMP Rs 1238
Tgt 1634 Rs (+30%)
The core business will witness a growth driven by stability in NIMs, restoration of growth in fee
income and cost rationalization. Lower provision for investment depreciation will drive the
profitability.
Credit growth is expected to be ~22% through FY10 driven by mid-sized corporate,
international business and agri-lending.
Improved technology and moderate credit growth will restore the CASA deposit to +40% level.
Roll out of CBS and large branch penetration will enable the bank to compete aggressively for
non government business. We expect the banks CEB income to increase at a CAGR of 15%
through FY10 on the back of growth in corporate and international business.
Non-banking subsidiary will continue to register strong growth. The infusion of further capital
will enable the bank to continue growing. The fund infusion to SBI life could be around Rs 20bn.
Currently, 40% of the corporate accounts are rated, which when increased to 100% would
provide a capital release, thus improving the CRAR by 150 bps. This would enable the bank to
increase its leverage translating to improvement in return ratios.
Rel. to BSE
220
180
140
100
60
Apr-07
Sep-07
Feb-08
Jul-08
Company data
O/S shares :
635mn
Market cap (Rs) :
742bn
Market cap (USD) :
15bn
2429 / 966
4.6mn
Face Value (Rs) :
10

Promoters :
59.4
FII / NRI :
18.2
FI / MF :
12.5
Risks
Asset quality has remained fairly stable. The decline in top rated client from 12% to 10% in last
one and half years, warrants increase in provisioning requirement. Hence we have assumed
higher provision for NPLs in our estimate.
3.3
Public & Others :
6.5
NII
235,518
267,820 310,866
Valuation
At CMP of Rs1238 the stock trades at 1.2x 1-yr forward ABV of Rs979 and 1.1x 2-yr forward ABV
of Rs1124. The core business will witness a strong growth driven by stability in NIMs,
restoration of growth in fee income and cost rationalization. Along with SBI, its Banking
Subsidiaries (7 Associate Banks) and other subsidiaries are also recording a decent growth.
Positive news flow relating to value unlocking in associate bank including non banking
subsidiaries will act as a trigger.
PAT
89,606
108,798 125,534
Y/E Mar, Rs mn
NIM %
ABV per share
FY08
2.7
FY09E
FY10E
2.5
2.5
864
991
1,129
RoE, %
16.7
16.0
16.0
EPS, Rs
142
172
199
P/ABV, x
1.4
1.2
1.1
43
Valuation Summary (Consolidated)
State Bank of India
Y/E Mar
FY05
FY06
FY07
FY08
FY09E
FY10E
Pre-prov ROE (%)
89.8
42.4
34.7
34.1
30.5
30.9
Pre-prov ROA (%)
5.0
2.4
2.0
2.1
2.0
1.9
Net Profit
54,645
55,298
63,644
89,606
108,798
125,534
% growth
#DIV/0!
1.2
15.1
40.8
21.4
15.4
EPS (Rs)
103.8
105.1
120.9
141.9
172.3
198.8
Adj BVPS (Rs)
541.6
617.9
718.6
864.3
991.2
1129.3
Adj BVPS (Rs) (banking business)
536.0
609.0
704.0
841.0
944.0
1072.0
ROE (%)
32.3
15.3
15.4
16.7
16.0
16.0
P/E (x)
Adj. P/BV (x)
11.9
11.8
10.2
8.7
7.2
6.2
2.3
2.0
1.7
1.4
1.2
1.1
P/E
PBV
44
Sum of the Parts Valuation

Ownership
Value per share
State Bank of India
"SBI and its banking subsidiaries "
1394
Comment
DDM
SBI Life
74.0%
164
17 times FY09 NBAP of Rs8.24bn
SBI cards
60.0%
19
20 times FY09 PAT of Rs0.98bn
SBI Fund Mgt.
63.0%
24
7% of FY09 AUM of Rs350bn
SBI factors
54.0%
20 times FY09 PAT of Rs 0.23bn
SBI Caps
86.2%
29
10 times FY09 PAT of Rs2.12 bn
1,634
45
Financials (Standalone)
State Bank of India
Y/E Mar, Rs mn
Interest on Loans
Others
Net Interest Income
Total Income
Personnel Expenses
Other Expenses
Total Op expenses
Provision for NPAs
Net Profit
Ratio Analysis
FY06
FY07
FY08
FY09E
FY10E
176,963
160,993
21,840
359,796
203,904
155,891
43,850
199,741
81,230
36,021
117,251
82,490
5,530
7,899
69,061
24,995
44,067
248,392
104,562
19,470
372,423
221,841
150,582
67,653
218,234
79,326
38,909
118,235
99,999
20,187
3,909
75,903
30,490
45,413
352,281
119,442
17,780
489,503
319,291
170,212
86,949
257,162
77,859
48,227
126,086
131,076
25,679
1,008
104,389
37,098
67,291
440,351
136,163
19,558
596,073
399,764
196,309
96,789
293,099
84,087
52,399
136,486
156,612
32,612
-3,200
127,200
44,520
82,680
528,422
155,226
22,492
706,140
475,050
231,090
114,595
345,685
92,496
60,163
152,659
193,025
34,243
500
158,282
55,399
102,883
Balance Sheet
Y/E Mar, Rs mn
FY08
FY09E
FY10E
Assets
Cash & Bal with RBI
Investments
Fixed Assets (Net)
Other assets
Total Assets
FY06
FY07
445,600
519,687
674,663
2,616,415 3,373,365 4,167,682
1,672,591 1,541,692 1,957,994
27,529
28,189
33,735
176,560
202,720
381,189
4,938,695 5,665,652 7,215,263
817,562
5,123,298
2,189,067
36,735
287,622
8,454,285
940,196
6,134,125
2,455,750
39,735
400,977
9,970,783
Liabilities
Share capital
Debt
Borrowing
Total Deposits
Total Liabilities
5,263
5,263
6,315
271,178
307,723
484,012
49,858
144,307
187,818
306,412
397,033
517,274
3,837,340 4,394,692 5,424,962
468,644
399,247
569,807
4,938,695 5,665,652 7,215,263
6,315
549,700
150,255
569,002
6,507,151
626,788
8,454,285
6,315
634,114
170,255
625,902
7,766,797
702,327
9,970,783

RoAE (%)
RoAB (%)
EPS (Rs.)
Book Value (Rs.)
Adj BV (Rs.)
Revenue Analysis
Op.Exp / TI (%)
Op.Exp / AWF (%)
Asset Quality
GNPAs / Gr Adv (%)
NNPAs / Net Adv (%)
Growth Ratio
Loans (%)
Investments (%)
Deposits (%)
Networth (%)
Net Int Income (%)
Non-Int Exp (%)
Net profit (%)
Capital Adequacy
Capital Adequacy Ratio
Tier I (%)
NNPAs to Equity (%)
FY06
FY07
FY08
FY09E
FY10E
31.9
17.0
1.7
1.0
83.7
14.0
525.3
432.0
33.9
15.4
1.9
0.9
86.3
14.0
594.7
494.8
32.6
16.8
2.0
1.1
106.6
21.5
776.5
658.9
29.9
15.8
2.0
1.1
130.9
23.0
880.5
757.1
32.3
17.2
2.1
1.2
162.9
25.0
1,014.2
869.7
8.0
5.7
2.8
1.1
3.8
50.9
2.1
61.8
35.5
8.0
6.0
2.6
1.1
0.6
46.8
1.8
61.6
35.0
8.0
6.0
2.6
1.1
0.5
44.4
1.7
60.6
35.0
3.1
1.8
3.0
1.5
3.0
1.5
23.5
27.0
23.4
56.7
13.0
23.1
6.6
37.5
48.2
22.9
11.8
19.9
13.4
15.3
27.0
8.2
21.9
22.9
19.7
12.2
19.4
15.2
17.7
22.0
11.8
24.4
24.4
47.2
74.5
35.6
77.1
12.2
46.5
75.5
34.8
88.3
12.5
46.7
76.5
32.5
80.2
12.3
12.6
8.5
17.2
15.1
11.3
7.6
13.9
14.0
10.9
7.4
15.7
14.2
7.8
5.0
3.4
1.0
3.0
60.5
2.6
69.3
36.2
4.0
1.9
29.3
(17.3)
1.9
14.8
11.8
12.7
7.6
5.9
2.4
43.7
58.0
48.6
836.9
11.0
11.9
9.4
15.2
17.7
7.3
4.9
3.0
1.0
(0.3)
54.0
2.3
67.1
40.2
3.0
1.6
28.9
(7.8)
14.5
13.2
(3.4)
20.2
0.8
9.9
3.1
47.6
70.3
39.0
135.8
11.7
12.3
8.0
13.8
16.8
46
Financials (Consolidated)
State Bank of India
Y/E Mar, Rs mn
Interest on Loans
Others
Net Interest Income
Total Income
Personnel Expenses
Other Expenses
Total Op expenses
Provision for NPAs
Net Profit
Ratio Analysis
FY06
FY07
FY08
FY09E
FY10E
176,963
160,993
21,840
359,796
203,904
155,891
43,850
199,741
81,230
36,021
117,251
82,490
5,530
7,899
69,061
24,995
44,067
248,392
104,562
19,470
372,423
221,841
150,582
67,653
218,234
79,326
38,909
118,235
99,999
20,187
3,909
75,903
30,490
45,413
352,281
119,442
17,780
489,503
319,291
170,212
86,949
257,162
77,859
48,227
126,086
131,076
25,679
1,008
104,389
37,098
67,291
440,351
136,163
19,558
596,073
399,764
196,309
96,789
293,099
84,087
52,399
136,486
156,612
15,407
14,820
126,385
44,235
82,150
528,422
155,226
22,492
706,140
475,050
231,090
114,595
345,685
92,496
60,163
152,659
193,025
33,896
0
159,129
55,695
103,434
Balance Sheet
Y/E Mar, Rs mn
FY06
FY07
FY08
FY09E
FY10E
Assets
Cash & Bal with RBI
Investments
Fixed Assets (Net)
Other assets
Total Assets
573,365
724,769
890,284
1,068,341
1,285,420
3,743,168 4,872,860 6,032,219
7,359,308
8,831,169
2,345,986 2,238,411 2,827,790
3,000,045
3,509,919
39,563
39,994
46,628
48,959
51,407
265,855
275,237
471,727
495,313
520,079
6,968,324 8,151,744 10,272,695 11,971,966 14,197,994
Liabilities
Share capital
Hybrid Capital
Debt
Borrowing
Total Deposits
Total Liabilities
5,263
5,263
6,315
6,315
6,315
366,804
420,094
606,049
697,855
804,920
0
19,724
36,945
63,265
94,577
90,708
202,236
279,754
321,717
369,974
369,749
486,618
660,232
726,255
798,880
5,440,243 6,362,729 7,764,165
9,431,203 11,321,983
681,254
638,181
898,955
702,013
774,468
6,968,324 8,132,020 10,272,695 11,971,966 14,197,994

RoAE (%)
RoAB (%)
EPS (Rs.)
Book Value (Rs.)
Adj BV (Rs.)
Revenue Analysis
Op.Exp / TI (%)
Op.Exp / AWF (%)
Asset Quality
GNPAs / Gr Adv (%)
NNPAs / Net Adv (%)
Growth Ratio
Loans (%)
Investments (%)
Deposits (%)
Networth (%)
Net Int Income (%)
Non-Int Exp (%)
Net profit (%)
Capital Adequacy
Capital Adequacy Ratio
Tier I (%)
NNPAs to Equity (%)
FY06
FY07
FY08
FY09E
FY10E
42.4
15.3
2.3
0.9
105.1
14.0
734.1
617.9
34.7
15.4
1.9
0.9
120.9
14.0
840.3
718.6
34.1
16.7
2.0
1.0
141.9
21.5
1,001.9
864.3
30.5
16.0
1.9
1.0
172.3
23.0
1,152.1
991.2
30.9
16.0
1.8
1.0
198.8
25.0
1,327.2
1,129.3
7.8
5.0
3.2
1.0
3.6
55.3
2.8
61.2
36.3
7.5
5.0
3.0
1.0
2.9
59.8
2.8
53.0
38.6
8.1
6.1
2.7
1.0
7.0
60.6
2.7
43.7
34.1
8.1
6.2
2.5
1.0
3.0
57.7
2.5
43.6
34.0
8.1
6.1
2.5
1.0
2.0
55.8
2.3
44.2
34.0
3.6
1.7
2.7
1.3
2.6
1.5
2.9
1.4
3.2
1.4
23.8
26.3
22.0
43.0
8.9
17.4
19.7
29.8
40.8
22.0
6.1
21.5
15.0
13.7
25.0
10.1
21.1
21.4
20.0
17.0
20.0
15.2
16.1
22.0
10.6
15.4
15.4
42.2
75.2
35.9
82.7
11.4
41.7
75.7
33.9
79.6
11.4
41.6
75.6
31.4
77.8
11.3
12.7
8.7
17.9
13.7
12.2
8.7
15.4
14.0
12.0
8.5
15.6
14.9
30.4
(12.8)
7.5
14.1
11.1
11.3
21.9
8.0
1.2
41.1
60.5
48.0
230.3
10.3
12.6
9.6
14.7
15.8
30.2
(4.6)
17.0
14.5
(0.7)
24.8
13.6
21.2
15.1
42.9
70.8
38.8
122.5
11.0
12.4
8.1
15.1
14.5
47
Union Bank of India
COMPANY UPDATE
Focusing on quality growth
240
(UNBK IN/UNBK.BO)
CMP Rs 157
Tgt Rs 161 (+17%)
Credit to register a moderate growth of 21% over FY08-10, depicting the conscious move by the
bank to focus on quality growth without compromise on margins .
Non fund based income is expected to register healthy growth over FY08-10 driven by growth in
fee income and forex income. The banks non interest income growth can surprise on positive
side in case of strong recovery in written off portfolio.
Initiated move in non banking business like life insurance, wealth management etc. We believe
that this move will take some time before any benefit starts accruing.
The bank is mulling the possibility of rights issue, but it still has head room of Rs 45bn in both
hybrid tier I and tier II.
Union Bank
Rel. to BSE
200
160
120
80
40
Apr-07
Oct-07
Apr-08
Oct-08
Company data
O/S shares :
505mn
Market cap (Rs) :
72.3bn
Market cap (USD) :
1.5bn
250 / 96
1.7mn
December, 2008
Face Value (Rs) :
Risks
The bank has been able to control its NPAs over past few years. Any deterioration in asset
quality can lower the earnings growth. Moreover high duration of AFS portfolio pose risk in case
of more than expected rise in yields.
Valuation
At CMP of Rs157 the stock trades at 1.2x FY09E ABV of Rs 136 and 0.9x FY10E ABV of Rs170.
We believe the re-balancing exercise initiated by the bank will ease margin pressure and
improve asset quality. This will increase the earning visibility and improve return ratios.
10

Promoters :
55.4
FII / NRI :
19.4
FI / MF :
11.9
1.6
Public & Others :

Y/E Mar, Rs mn
11.8
FY08 FY09E
FY10E
NII
30,864 34,834
41,293
PAT
13,872 16,899
20,636
NIM %
2.8
2.7
2.6
108.8
136.1
169.5
RoE, %
22.1
21.0
21.5
EPS, Rs
27.5
33.5
40.9
ABV per share
P/ABV, x
1.4
1.2
0.9
48
Valuation Summary
Union Bank of India
Y/E Mar
FY05
FY06
FY07
FY08
FY09E
FY10E
Pre-prov ROE (%)
42.4
35.9
41.1
41.2
34.4
33.4
Pre-prov ROA (%)
2.2
1.9
2.2
2.4
2.1
2.0
Net Profit (Rs mn)
7,190
6,747
8,448
13,872
16,899
20,636
1.0
-6.2
25.2
64.2
21.8
22.1
EPS (Rs)
15.6
13.4
16.7
27.5
33.5
40.9
Adj BVPS (Rs)
45.2
64.5
81.8
108.8
136.1
169.5
22.1
21.0
21.5
% growth
ROE (%)
24.1
P/E (x)
Adj. P/BV (x)
17.2
17.3
10.1
11.8
9.4
5.7
4.7
3.8
3.5
2.4
1.9
1.4
1.2
0.9
P/E
PBV
49
Financials
Union Bank of India
Y/E Mar, Rs mn
Interest on Loans
Others
Net Interest Income
Total Income
Personnel Expenses
Other Expenses
Total Op expenses
Provision for NPAs
Net Profit
Ratio Analysis
FY06
FY07
FY08
FY09E
FY10E
FY06
37,598
19,541
1,498
58,637
34,894
23,743
4,940
28,683
8,668
5,356
14,024
14,659
2,567
3,150
8,941
2,195
6,747
50,718
21,133
1,971
73,822
45,920
27,902
6,865
34,768
8,737
6,022
14,759
20,008
4,660
1,550
13,798
5,350
8,448
67,310
25,159
2,004
94,473
63,609
30,864
10,870
41,733
8,453
7,477
15,930
25,803
6,650
510
18,643
4,772
13,872
82,118
29,311
2,305
113,733
78,899
34,834
9,972
44,806
9,129
7,985
17,114
27,692
4,160
1,000
22,532
5,633
16,899
98,542
34,147
2,650
135,339
94,046
41,293
10,085
51,378
10,225
9,186
19,411
31,967
3,952
500
27,515
6,879
20,636

35.9
RoAE (%)
17.2
1.8
RoAB (%)
0.9
EPS (Rs.)
13.4
4.0
Book Value (Rs.)
90.2
Adj BV (Rs.)
64.5
Revenue Analysis
7.5
4.7
3.0
0.5
3.4
Op.Exp / TI (%)
50.6
Op.Exp / AWF (%)
1.8
61.8
24.5
Asset Quality
GNPAs / Gr Adv (%)
3.9
NNPAs / Net Adv (%)
1.6
Growth Ratio
Loans (%)
33.1
Investments (%)
13.7
Deposits (%)
19.8
Networth (%)
26.1
Net Int Income (%)
15.0
(21.2)
Non-Int Exp (%)
(0.5)
46.2
Net profit (%)
(6.2)
32.4
65.5
36.6
108.2
9.5
Capital Adequacy
11.4
Tier I (%)
7.3
NNPAs to Equity (%)
18.3
Balance Sheet
Y/E Mar, Rs mn
Assets
Cash & Bal with RBI
Investments
Fixed Assets (Net)
Other assets
Total Assets
Liabilities
Share capital
Hybrid Capital
Debt
Borrowing
Total Deposits
Total Liabilities
FY06
FY07
FY08
FY09E
FY10E
63,905
84,264
533,800
623,864
265,876
287,201
8,104
8,250
19,573
23,195
891,258 1,026,775
100,978
125,580
743,483
887,291
348,042
408,188
22,004
24,004
26,223
24,813
1,240,731 1,469,875
156,235
1,060,200
486,972
24,504
23,855
1,751,767
5,051
5,051
35,874
42,282
0
3,000
27,700
31,200
39,744
42,155
743,102
854,658
35,131
43,866
891,258 1,026,779
5,051
5,051
51,182
65,126
5,000
8,000
32,500
37,500
47,605
49,635
1,044,710 1,246,234
37,440
41,185
1,240,733 1,469,875
5,051
82,216
10,000
42,500
51,869
1,497,783
45,303
1,751,767
FY07
FY08
FY09E
FY10E
41.1
17.3
2.1
0.9
16.7
4.1
102.7
81.8
41.2
22.1
2.3
1.3
27.5
4.0
145.5
108.8
34.4
21.0
2.0
1.3
33.5
5.0
172.9
136.1
33.4
21.5
2.0
1.3
40.9
6.0
206.5
169.5
7.9
5.3
3.0
0.5
3.2
43.8
1.6
59.2
38.8
8.6
6.2
2.8
0.7
7.5
41.0
1.5
53.1
25.6
8.7
6.4
2.7
0.7
2.3
39.1
1.3
53.3
25.0
8.7
6.4
2.6
0.6
1.2
38.2
1.2
52.7
25.0
3.0
1.0
2.2
0.2
2.3
0.2
2.4
0.2
16.9
8.0
15.0
13.9
17.5
45.0
5.2
54.3
25.2
19.2
21.2
22.2
41.6
10.6
37.9
7.9
35.1
64.2
19.3
17.3
19.3
18.8
12.9
12.6
7.4
20.9
21.8
19.5
19.3
20.2
19.5
18.5
5.7
13.4
22.1
22.1
33.4
70.0
34.6
80.7
9.3
34.5
70.1
33.4
62.9
9.8
34.6
69.6
33.0
71.4
9.9
34.6
69.3
32.6
68.7
10.3
12.8
7.8
15.6
11.6
11.7
7.0
25.0
1.7
11.3
6.8
25.6
1.7
11.3
6.9
25.1
1.6
50
Thanking You
Disclosures and Disclaimers

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Indian Banking Sector

Near term trigger

Rating and Valuation matrix

CMP Tgt Price

Public Sector Banks

Private Sector Banks

Source: MF Global India Research Estimates

Relative P/ABV band

Source: MF Global India Research Estimates

Sector-wise break up of non food credit

Bank as source of fund to gain market share

A. Internal Sources of which:

a) Reserves and Surplus

c) Trade dues & other current liabilities

Source: SEBI, MF Global India Research Estimates

Alternate source of fund to dry up

Total Debt Issues

Source: MF Global India Research, RBI

Year Total Debt Issues, Rs bn

Business growth to remain strong

*Considering 350bps cut in CRR and 100 bps cut in SLR

Gross domestic savings

HOUSE HOLD SECTOR

Net Domestic Saving

% to GDP GDP at curr. price

Household saving in financial assets

asset debt (net)

MTM Profit to boost the profitability of PSBs

Interest rate sensitivity Rs crs

% SLR book in HTM

Investments in AFS / HFT

Duration of AFS / HFT

Interest rate hedge

Current interest rate on 10 yr G-Sec

Expected MTM loss/(gain)

Source: RBI, MF Global India Research

Cut in policy rate to offset the 75bps decline in PLR

Name of the Bank

Indian Overseasa Bank

Punjab National Bank

State Bank of India

Union Bank of India

10 year Bond yeild(5)

Source: RBI, MF Global India Research

Banks with surplus SLR will be in a better position to manage

Incremental credit growth

possible due to decline

"Release of funds due to

in policy rate (ytd %)

Source: RBI, MF Global India Research

Source: RBI, MF Global India Research

Scenario Analysis Banks valuation at different level of NPA

50% rise in GNPA

Public Sector Banks

Private Sector Banks

Public Sector Banks

Private Sector Banks

Source: RBI, MF Global India Research

State Bank of India

Union bank of India

provides high risk due to increasing slippage and its reliance on

We expect BOB and UBI to provide return of over 30%. In terms of

4.8% compared to the current level of 1.62% & 1.9% respectively.

Leverage Risk Liquidity Risk NPA Risk