Update | November 2015
India Banking
Private Banks Review: 2QFY16
Strong retail traction continues – 70% of
incremental loan growth for 1HFY16
Asset quality surprise negatively for AXSB
and FB
Cost control continues to aid core
profitability
Outlook
Alpesh Mehta
(Alpesh.Mehta@motilaloswal.com) +91 22 3982 5415
REVIEW | November 2015
Dhaval Gada
(Dhaval.Gada@motilaloswal.com) +91 22 3982 5505
on
margins
stable
despite
proposed change in base rate computation

Contents
Earnings progression – Strong operating results marred by higher provisions ……………..……………………………………….………..3
Summary | Private Banks: Key highlights from 2QFY16 performance …..………………………………………..………………………………4
Asset quality: Gross Stress Addition – Large corporate stressed exposures start biting……………………………………………….6-7
Earning revisions …..………………………………………………………………………………………………………………………………..…………………….8
Key operating parameters…………………………………….……………………………………………………………………………………………………9-15
Private Banks: Quarterly Performance.…………………………………………………………….……………………………………………..………16-17
Valuation Matrix……………………………………………………………………………………….………….………………………………….……..………18-20
REVIEW | November 2015
2

Strong performance on core PPP; Retail business remains a key contributor
MOSL coverage universe Private Banks (PBs) reported inline NII (+18% YoY) and PAT (16%+ YoY) growth.
Better than expected
performance on margins and strong cost control compensated by higher provisioning requirement. YES surprised positively on NIMs
(stable QoQ on a higher base).
Asset quality trends show divergence with large corporate lenders highlighting stress via sale to ARC/5:25.
While ICICIBC reported
sequential moderation in gross stress addition, AXSB surprised negatively with gross stress addition (incl. sale to ARC/5:25/SDR) increased
to 7.2% of loans (annualised) v/s 4.2% in 1Q. For 1HFY16, both ICICIBC and AXSB have reported ~5.5% (annualised) of stress addition. IIB,
YES remained well within the guidance whereas, FB disappointed yet again with higher stress in corporate segment. Most banks have kept
their stress addition (ex. 5:25, SDR, sale to ARC) and credit costs guidance unchanged.
Platform built, waiting for growth now; top picks: ICICIBC, IIB, and YES -
Despite the weak economic environment, PBs' consistent
performance enhances our confidence in them. While all banks stand to benefit from improved growth prospects, we believe the large
ones with established branch network across India are likely to witness higher traction in growth. Improved liquidity, softening of short
term interest rates and strong growth in high yielding retail segments augers well for margins. While the retail portfolio is holding up well,
higher near term stress in the corporate segment and a challenging macro environment will lead to a rather gradual decline in credit costs,
which is already factored in our estimates. Overall return ratios are likely to remain strong, with RoA of 1.6%+ and RoE of ~17%. Tier I ratio
for most banks will be comfortable.
Actual vs. Estimate –Strong NII growth and lower opex drove PPP beat
(+2%) while higher provisions/taxes led to largely inline PAT
NII
4
4
3
1
Strong core PPoP performance (+22% YoY) was partially offset by higher
provisioning (Private Banks; INR b)
PPP
Var (%)
2.7
0.9
2.6
6.6
1.0
-1.8
2.0
Act.
52
50
36
10
10
3
162
Est.
50
47
38
9
10
4
158
Var (%)
2.4
6.8
-4.2
14.1
1.4
-17.1
2.2
Act.
30
29
19
6
6
2
91
PAT
Est.
30
29
19
6
6
2
91
Var (%)
1.8
0.0
1.5
9.4
-2.8
-31.1
0.5
(INR b)
ICICIBC
HDFCB
135
AXSB
YES
IIB
FB
Aggregate
Act.
53
67
41
11
11
6
188
Est.
51
66
40
10
11
6
184
133
PBT
(Estimate)
Higher NII
Higher other Lower opex
income
Higher
provisions
PBT (Actual)
Note: For private banks result analysis, we have included AXSB, HDFCB, IIB, ICICIBC, FB, YES.
REVIEW | November 2015
3

Private Banks: Key highlights from 2QFY16 performance
Strong sequential loan growth (+5% QoQ), benefit of deposit reprising and improving liability franchise helped in protecting
margins
– despite a) increase in low yielding segment like refinancing and mortgages and b) full impact of base rate cuts in 1Q.
Overall fee income growth was 14.4% YoY, similar to 1Q;
continues to trail loan growth. Most banks continue to guide for
moderate fee income growth for FY16, impacted by subdued corporate fees (now share of retail fees more than 50% in top
three private banks)
Loan growth remained healthy at 21.2% YoY (+5% QoQ),
led by strong growth in retail loans (26% YoY vs. 24% YoY in 4Q) –
accounted for ~70% of overall incremental loan growth in 1HFY16. Within retail also banks have started focusing more on cross
sell and high yielding unsecured retail products
Opex grew by 16% YoY (vs. 17% YoY in 4QFY15) lower than core revenue growth of 17.5% YoY.
Cost to core income was at
46%, similar to 1Q. Both employee cost and other operating expenses grew 16% YoY. 1H branch additions at ICICI lowest ever.
Provisions charge for our coverage was INR26.8b vs. INR25.4b expectation
– largely led by floating / contingency provisions
created by HDFCB (INR500m) and YES (INR300m). Effective tax rate was largely in-line at 32%.
Overall RoA remained stable
QoQ at 1.7%+
Margins remained broadly stable QoQ; NSL increased for all private banks.
ICICIBC reported better than expected asset quality performance
2QFY16
ICICIBC
HDFCB
AXSB
YES
IIB
FB
Aggregate
3.5
4.3
3.8
3.3
3.7
3.1
3.9
NIM (%)
1QFY16
2QFY16
3.5
4.2
3.9
3.3
3.9
3.1
3.9
Loan Growth (%)
YoY
13.3
27.9
23.1
29.0
30.6
5.0
21.2
QoQ
2.5
9.6
4.7
0.4
8.4
2.7
5.3
Net Stress Loans (%)*
1QFY16
4.7
0.4
3.5
0.8
0.9
6.2
2.7
2QFY16
4.5
0.4
3.3
0.9
0.9
6.4
2.6
PPP growth was ahead of estimate – partially led by high trading gains.
Higher provisions resulted PAT in-line with estimates
2QFY16
ICICIBC
HDFCB
AXSB
YES
IIB
FB
Aggregate
NII Growth (%)
YoY
13
21
15
29
31
0
18
QoQ
3
5
0
5
12
1
3
PPP Growth (%)
YoY
10
24
15
25
39
-18
17
QoQ
2
4
-11
12
9
-8
0
PAT Growth (%)
YoY
12
20
19
26
30
-33
16
QoQ
2
6
-3
11
7
14
3
Note: For private banks result analysis, we have included AXSB, HDFCB, IIB, ICICIBC, FB, YES.
Source: Company, MOSL
REVIEW | November 2015
4

Private Banks: RoA continues to remain healthy at 1.7%+
Core PPoP growth (per share basis) remains healthy for most banks; Growth at ICICIBC remains subdued led by muted fees and moderate loan growth
AXSB
40
25
10
-5
-20
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
FB
HDFCB
ICICIBC
IIB
YES
Overall Private Bank RoA remains healthy at 1.7%+
Private Banks Dupont
Interest Income
Interest Expenses
Net Interest Income
Other income
Total Income
Operating Expneses
Employee expenses
Other
Operating Profits
Provisions
PBT
Taxes
ROA
Leverage (x)
ROE
1QFY14
8.69
5.31
3.38
1.91
5.29
2.24
0.89
1.35
3.05
0.60
2.45
0.79
1.66
10.4
17.2
2QFY14
8.85
5.44
3.41
1.73
5.13
2.16
0.80
1.37
2.97
0.50
2.47
0.78
1.69
10.1
17.0
3QFY14
8.90
5.51
3.39
1.87
5.27
2.19
0.79
1.39
3.08
0.35
2.73
0.90
1.83
10.0
18.4
4QFY14
8.67
5.23
3.44
1.96
5.40
2.27
0.85
1.42
3.13
0.41
2.72
0.85
1.86
10.3
19.1
1QFY15
8.75
5.28
3.47
1.74
5.21
2.22
0.87
1.35
2.99
0.40
2.59
0.83
1.76
10.1
17.8
2QFY15
8.97
5.36
3.61
1.81
5.42
2.29
0.84
1.44
3.14
0.51
2.62
0.85
1.78
9.8
17.3
3QFY15
8.92
5.34
3.58
1.96
5.54
2.25
0.82
1.43
3.30
0.48
2.82
0.89
1.92
9.7
18.6
4QFY15
8.82
5.25
3.57
2.11
5.68
2.31
0.86
1.45
3.37
0.60
2.78
0.89
1.89
9.7
18.4
1QFY16
8.74
5.18
3.56
1.80
5.37
2.20
0.83
1.37
3.17
0.62
2.54
0.81
1.74
9.7
16.8
2QFY16
8.73
5.16
3.58
1.75
5.33
2.24
0.82
1.42
3.08
0.51
2.57
0.83
1.74
9.4
16.4
REVIEW | November 2015
5

Gross Stress Addition – Large corporate stressed exposures start biting
AXSB – Reported highest quarterly slippage including sale to ARC; INR15b loans restructured under 5/25 scheme. Management maintains full year gross
stress addition guidance of < INR57b (excluding any sale to ARC and 5:25 refinancing)
AXSB
Slippage (INRb)
Slippage ratio (annualized, %)
Fresh restructuring (INRb)
% of loans (annualized)
Gross stress additions (INRb)
% of loans (annualized)
NNPA (%)
OSRL (%)
NSL (%)
1QFY14
6.8
1.6
6.9
1.6
13.7
3.2
0.4
2.1
2.5
2QFY14
6.2
1.4
10.3
2.4
16.5
3.8
0.4
2.4
2.8
3QFY14
5.9
1.3
6.7
1.5
12.6
2.8
0.4
2.6
3.0
4QFY14
3.0
0.6
11.2
2.3
14.2
2.9
0.4
2.6
3.0
1QFY15
6.3
1.3
4.8
1.0
11.1
2.2
0.4
2.7
3.2
2QFY15
9.1
1.8
5.7
1.1
14.8
2.9
0.4
2.8
3.2
3QFY15
7.1
1.3
1.3
0.2
8.4
1.6
0.4
2.6
3.1
4QFY15
6.1
1.1
15.4
2.7
21.5
3.7
0.4
2.9
3.3
1QFY16
11.9
2.1
7.4
1.3
19.3
3.3
0.5
3.0
3.5
2QFY16
5.8
1.0
4.6
0.8
10.5
4.7 #
0.5
2.8
3.3
ICICIBC – Better than expected asset quality; net stressed addition was at a six-quarter low; INR20b loans restructured under 5/25 scheme. Management
continue to stress additions to be lower than FY15 and credit cost of 90-95bp for FY16 – large corporate stressed exposure remains the key monitorable
ICICIBC
Slippage (INRb)
Slippage ratio (annualized, %)
Fresh restructuring (INRb)
% of loans (annualized)
Gross stress additions (INRb)
% of loans (annualized)
NNPA (%)
OSRL (%)
NSL (%)
1QFY14
11.2
1.7
8.3
1.2
19.5
2.9
0.8
2.0
2.8
2QFY14
11.5
1.7
10.8
1.6
22.2
3.2
0.9
2.1
3.0
3QFY14
12.3
1.7
20.5
2.9
32.8
4.6
0.9
2.6
3.5
4QFY14
12.4
1.7
21.6
3.0
34.0
4.7
1.0
3.1
4.1
1QFY15
12.0
1.6
13.9
1.9
25.9
3.4
1.0
3.2
4.2
2QFY15
16.7
2.1
11.9
1.5
28.6
3.6
1.1
3.0
4.1
3QFY15
22.8
2.7
17.6
2.1
40.3
4.9
1.3
3.2
4.5
4QFY15
32.6
3.8
12.4
1.5
45.0
5.3
1.6
2.8
4.5
1QFY16
16.7
1.9
19.6
2.3
36.3
4.2
1.6
3.2
4.7
2QFY16
22.4
2.5
1.0
0.1
23.4
2.6
1.7
2.9
4.5
# Stress addition adjusted for INR18.2b sale to ARC during the quarter
Source: Company, MOSL
REVIEW | November 2015
6

Stress additions remain elevated; however credit costs guidance unchanged
Fresh Stress addition incl. 5:25 restructuring and sale to ARC (as % of loans) spiked for AXSB; however, both management continue to maintain credit
costs guidance (% of loans, annualized)
Slippages
INR51.5b
0.6
1.2
2.3
2.2
0.1
2.5
2QFY16
ICICIBC
INR43.4b
INR24.3b
0.9
1.3
2.1
1QFY16
AXSB
0.0
2.5
0.8
1.0
2QFY16
3.0
Fresh Restructuring
5:25
SDR
Sale to ARC
Gross stress addition
INR43.7b
1.9
1QFY16
Gross stress addition remains continues to remain elevated
ICICIBC
AXSB
5.4
5.9
7.2
However, NSL ratio has largely remained stable over last four quarters
ICICIBC
3.9
4.8
3.4
2.9
2.8
3.0
3.0
3.2
3.2
3.1
3.3
3.5
3.3
AXSB
4.1
4.0
4.3
4.2
4.6
4.4
4.6
3.8
3.3
4.7
3.5
4.0
4.9
2.8
2.9
2.3
2.9
1.6
3.8
4.2
# Gross stress addition includes fresh slippages, fresh restructuring, 5:25 rescheduling and sale to ARC
REVIEW | November 2015
7

We largely maintain our earnings estimates for coverage universe
FY16E
(INR b)
ICICIBC
HDFCB
AXSB
YES
IIB
FB
Aggregate
FY17E
(INR b)
ICICIBC
HDFCB
AXSB
YES
IIB
FB
Aggregate
FY18E
(INR b)
ICICIBC
HDFCB
AXSB
YES
IIB
FB
Aggregate
Old Est.
303
398
214
66
68
36
1085
Old Est.
255
326
185
54
53
30
903
Old Est.
211
272
162
45
43
25
759
NII
New Est.
217
272
165
46
44
25
767
NII
New Est.
252
329
189
54
55
28
906
NII
New Est.
296
400
218
66
68
32
1081
Chg (%)
-2.1
0.4
2.2
-0.3
0.1
-10.5
-0.4
Old Est.
307
299
219
62
65
25
978
Chg (%)
-1.0
1.0
1.9
0.4
2.0
-8.4
0.3
Old Est.
260
247
188
50
51
21
816
Chg (%)
2.9
0.0
1.3
0.6
1.8
-2.3
1.1
Old Est.
218
208
166
41
41
17
691
PPP
New Est.
218
212
160
42
42
15
689
PPP
New Est.
255
255
186
50
52
17
816
PPP
New Est.
305
310
215
63
65
21
979
Chg (%)
-0.6
3.9
-1.8
0.6
-1.1
-18.4
0.1
Old Est.
176
178
121
39
38
14
566
Chg (%)
-1.8
3.3
-1.1
1.5
2.2
-17.1
-0.1
Old Est.
150
148
103
31
30
12
473
Chg (%)
0.0
1.9
-4.0
2.0
3.3
-10.1
-0.3
Old Est.
125
123
87
25
24
9
392
PAT
New Est.
127
123
84
25
24
8
391
PAT
New Est.
147
149
99
32
30
10
467
PAT
New Est.
176
179
116
39
38
11
560
Chg (%)
0.3
0.3
-3.7
0.7
-0.5
-21.4
-1.1
Chg (%)
-1.5
0.2
-3.3
1.7
2.2
-17.2
-1.3
Chg (%)
1.4
0.1
-2.7
0.2
2.7
-17.8
-0.4
REVIEW | November 2015
8

Strong sequential loan growth led by Retail and high rated corporate biz
Private banks continue to gain loan market share – HDFCB saw sharp uptick in credit growth
YoY Loan growth (%)
2QFY15
ICICIBC
HDFCB
AXSB
YES
IIB
FB
Private Banks
13.8
21.8
20.3
30.0
22.4
14.8
18.9
3QFY15
12.8
17.0
23.2
32.4
21.7
15.3
17.9
4QFY15
14.4
20.6
22.2
35.8
24.8
18.1
19.9
1QFY16
15.2
22.4
23.5
35.1
23.1
10.1
20.5
2QFY16
13.3
27.9
23.1
29.0
30.6
5.0
21.2
2QFY15
4.2
4.9
5.1
5.2
2.2
7.7
4.7
3QFY15
3.8
6.1
7.6
7.4
6.5
-0.9
5.4
QoQ Loan growth (%)
4QFY15
3.2
5.3
7.9
13.4
7.7
6.8
5.9
1QFY16
3.2
4.5
1.3
5.4
5.0
-3.4
3.1
2QFY16
2.5
9.6
4.7
0.4
8.4
2.7
5.3
Strong retail loan growth traction continues; contributes ~50% of incremental loan growth (QoQ basis)
YoY Loan growth (%)
2QFY15
ICICIBC
HDFCB
AXSB
IIB
FB
Private Banks
25.2
9.8
27.1
7.4
15.7
18.0
3QFY15
25.6
11.7
24.1
9.6
15.3
18.6
4QFY15
24.5
15.5
27.2
14.6
14.2
20.8
1QFY16
24.6
24.6
26.3
18.3
10.6
24.1
2QFY16
25.1
29.3
26.6
23.1
6.2
26.1
2QFY15
5.0
5.2
-1.0
2.4
6.5
3.7
3QFY15
6.5
4.2
9.9
4.0
1.7
6.1
QoQ Loan growth (%)
4QFY15
7.1
4.9
12.8
5.2
2.8
7.3
1QFY16
4.0
8.3
2.9
5.6
-0.6
5.2
2QFY16
5.4
9.2
3.7
6.5
2.2
6.4
Source: Company, MOSL
REVIEW | November 2015
9

Strong mortgages/unsecured loan growth continues
Commercial Vehicle loan growth recovers led by growth in large CVs; positive commentary from lenders continues
2Q
FY15
-18.3
-5.8
2.6
3Q
FY15
-21.1
0.7
8.0
YoY Loan growth (%)
4Q
FY15
-11.3
10.4
10.6
1Q
FY16
0.6
18.3
12.6
11.2
2Q
FY16
6.8
27.6
15.3
15.3
2Q
FY15
4.1
0.5
2.2
2.3
3Q
FY15
-4.7
3.7
2.7
1.6
QoQ Loan growth (%)
4Q
FY15
-3.2
5.7
3.6
2.7
1Q
FY16
4.7
7.4
3.5
4.2
2Q
FY16
10.5
8.4
4.6
6.0
HDFCB
IIB
SHTF
Aggregate
-2.8
0.9
6.5
Mortgages growth remains healthy – a key driver of retail loan growth – accounted for ~30% of incremental retail credit growth
2Q
FY15
25.7
19.5
-2.3
18.8
14.8
3Q
FY15
26.8
23.9
21.7
20.9
25.1
YoY Loan growth (%)
4Q
FY15
26.2
25.0
-15.2
15.6
9.8
1Q
FY16
26.4
37.4
21.2
16.2
26.3
2Q
FY16
25.3
45.6
14.7
16.2
24.4
2Q
FY15
6.8
-0.1
4.9
4.0
5.2
3Q
FY15
6.5
2.1
3.7
3.1
5.0
QoQ Loan growth (%)
4Q
FY15
5.5
20.8
8.3
5.3
8.4
1Q
FY16
5.3
11.5
2.9
3.0
5.4
2Q
FY16
5.8
5.9
3.7
3.9
5.2
ICICIBC
HDFCB
AXSB*
FB
Aggregate*
Strong traction on unsecured portfolio (personal loans + credit cards) led by higher focus on cross sell; accounted for ~20% of incremental retail growth
2Q
FY15
61.7
23.1
14.4
102.5
27.5
3Q
FY15
65.0
26.3
39.6
120.7
34.7
YoY Loan growth (%)
4Q
FY15
49.5
28.5
14.4
106.1
30.2
1Q
FY16
41.2
31.6
48.6
105.7
36.9
2Q
FY16
43.2
34.3
40.7
110.4
38.0
2Q
FY15
8.5
6.9
4.8
15.7
7.0
3Q
FY15
15.1
8.1
9.9
19.3
9.7
QoQ Loan growth (%)
4Q
FY15
5.5
4.5
12.8
26.6
6.3
1Q
FY16
7.1
8.9
14.4
17.8
9.6
2Q
FY16
10.1
9.2
3.7
18.3
8.6
ICICIBC
HDFCB
AXSB*
IIB
Aggregate*
Note: AXSB data has been reclassified from FY14
Source: Company, MOSL
REVIEW | November 2015
10

Liability franchise improving
SA/branch (12M lag) for large private banks has remained largely stable; However, YES continues to impress with Avg. SA balance >2x of large private
banks) – INR m
ICICIBC
420
340
260
180
100
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
AXSB
HDFCB
IIB
YES
FB
Over past couple of years, YES has improved CASA ratio by 500bp+ while HDFCB’s CASA ratio has declined by 500bp+ - only bank to see CASA ratio
trending lower
2QFY14
2QFY15
2QFY16
ICICIBC
AXSB
HDFCB
IIB
FB
YES
Source: Company, MOSL
REVIEW | November 2015
11

Healthy revenue growth traction continues; NIM stable for most private banks
NII growth driven by loan growth; NIMs largely stable
YoY NII growth (%)
2QFY15
ICICIBC
HDFCB
AXSB
YES
IIB
FB
Private Banks
15.2
23.1
20.0
27.4
19.0
10.5
19.5
3QFY15
13.1
23.0
20.3
36.6
18.0
7.6
19.1
4QFY15
16.6
21.4
20.0
35.8
18.4
-0.3
19.3
1QFY16
13.9
23.5
22.5
42.2
22.5
7.2
20.7
2QFY16
12.8
21.2
15.2
29.4
31.3
0.4
17.6
2QFY15
3.7
6.6
6.5
14.9
4.1
7.4
6.0
3QFY15
3.3
3.4
1.8
6.2
3.4
-3.1
2.9
QoQ NII growth (%)
4QFY15
5.6
5.5
5.8
7.5
7.4
6.1
5.8
1QFY16
0.7
6.2
6.8
8.5
6.0
-3.0
4.5
2QFY16
2.7
4.6
0.1
4.6
11.6
0.6
3.3
Net interest margins remain broadly stable; However, HDFCB continues to see NIM trend lower – Management expects NIM to be 4.1-4.4% range in FY16
2QFY15
1QFY16
2QFY16
HDFCB - NIM (%)
HDFCB
AXSB
IIB
ICICIBC
YES
FB
Source: Company, MOSL
REVIEW | November 2015
12

Moderate fee income growth – impacted by subdued corporate fees
Strong fee income traction at HDFCB, YES and IIB; while ICICIBC and AXSB remain impacted by sluggish corporate fee income growth
Fee Income Growth (%)
Fee Income as a % of Avg. Assets
2QFY15
ICICIBC
HDFCB
AXSB
YES
IIB
FB
Private Banks
3QFY15
5.7
14.7
15.8
37.8
22.4
6.2
13.6
4QFY15
8.3
20.6
19.3
21.0
28.7
9.7
16.7
1QFY16
9.0
21.8
12.5
11.3
23.3
1.3
14.3
2QFY16
6.3
21.6
14.0
23.7
23.5
-5.9
14.4
2QFY15
1.40
1.23
1.64
1.42
2.39
0.57
1.42
3QFY15
1.37
1.38
1.65
1.46
2.17
0.47
1.45
4QFY15
1.35
1.30
1.92
1.46
2.18
0.53
1.49
1QFY16
1.31
1.12
1.36
1.22
2.28
0.41
1.28
2QFY16
1.38
1.16
1.57
1.40
2.27
0.49
1.37
5.5
13.4
11.1
50.8
38.8
12.1
13.5
Trading gains moderate in 2Q; expected to pick-up in 3Q led by RBI policy
action in Sept-end (INR b)
15.0
Trading gains as % of PBT
15.0
14.1
6.9
3.7
3.8
8.4
7.0
13.0
6.7
6.7
12.7
8.1
5.0
4.9
7.7
5.8
6.1
5.8
7.5
10.1
6.0
11.1
9.7
6.0
5.4
-0.4
-0.4
Note: We have excluded KMB while computing trading gains.
Source: Company, MOSL
REVIEW | November 2015
13

Strong cost control – operating leverage continues…
Expenses growth lower than core revenue growth…
Core Income (YoY, %)
32
24
16
8
0
Overall Opex (YoY, %)
50
40
30
20
10
-
…led by moderating other expenses growth
Employee Expense (YoY, %)
Other Opex (YoY, %)
HDFCB accounted for 1/3
rd
of overall private bank branch expansion; ICICIBC has added just 4 branches in 1HFY16 and now trails HDFCB in overall
branch network – however, ICICIBC continues to expect 300-400 branch additions in FY16
2QFY15-1QFY16
126
2QFY16
4,400
3,850
3,300
2,750
501
2
237
154
84
HDFCB
ICICIBC
AXSB
43
126
IIB
38
81
YES
4
33
FB
2,200
1,650
1,100
ICICIBC
HDFCB
Source: Company, MOSL
REVIEW | November 2015
14

Stressed loans remain under check
GNPA ratio (%) remains largely stable
Gross non performing assets (% of loans)
ICICIBC
HDFCB
AXSB
YES
IIB
FB
1QFY14
2.8
1.0
1.1
0.2
1.1
3.5
2QFY14
2.7
1.1
1.2
0.3
1.1
3.4
3QFY14
2.7
1.0
1.3
0.4
1.2
2.8
4QFY14
2.6
1.0
1.2
0.3
1.1
2.5
1QFY15
2.7
1.1
1.3
0.3
1.1
2.2
2QFY15
2.7
1.0
1.3
0.4
1.1
2.1
3QFY15
3.0
1.0
1.3
0.4
1.1
2.2
4QFY15
3.3
0.9
1.3
0.4
0.8
2.0
1QFY16
3.3
1.0
1.4
0.5
0.8
2.6
QoQ
-3
2
4
5
-2
55
YoY
57
-12
4
13
-32
37
ORSL (% of loans) increased at ICICIBC – inline with 4QFY15 guidance
Outstanding standard restructured loans (% of loans)
ICICIBC
HDFCB
AXSB
YES
IIB
FB
1QFY14
2.0
0.2
2.1
0.3
0.3
4.7
2QFY14
2.1
0.2
2.4
0.3
0.3
5.2
3QFY14
2.6
0.2
2.6
0.2
0.3
4.6
4QFY14
3.1
0.2
2.6
0.2
0.3
5.8
1QFY15
3.2
0.2
2.7
0.2
0.4
5.5
2QFY15
3.0
0.1
2.8
0.2
0.5
5.1
3QFY15
3.2
0.1
2.6
0.3
0.6
5.1
4QFY15
2.8
0.1
2.9
0.5
0.5
5.1
1QFY16
3.2
0.1
3.0
0.7
0.6
5.2
QoQ
31
0
9
21
10
14
YoY
-9
-10
26
52
23
-26
Net stressed loans ticked higher QoQ for all private banks (RL + NNPA; % of loans)
Outstanding net stressed loans (% of loans)
ICICIBC
HDFCB
AXSB
YES
IIB
FB
1QFY14
2.8
0.5
2.5
0.3
0.5
5.7
2QFY14
3.0
0.5
2.8
0.3
0.5
6.2
3QFY14
3.5
0.4
3.0
0.3
0.6
5.4
4QFY14
4.1
0.5
3.0
0.2
0.7
6.5
1QFY15
4.2
0.5
3.2
0.3
0.7
6.2
2QFY15
4.1
0.4
3.2
0.3
0.9
5.7
3QFY15
4.5
0.4
3.1
0.4
0.9
5.7
4QFY15
4.5
0.3
3.3
0.6
0.8
5.8
1QFY16
4.7
0.4
3.5
0.8
0.9
6.2
QoQ
28
7
13
22
10
39
YoY
50
-13
30
58
21
4
Source: Company, MOSL
REVIEW | November 2015
15

Private Banks: Quarterly Performance Summary
Private Banks (INR b)
Net Interest Income
% Change (Y-o-Y)
Other Income
Net Income
Operating Expenses
Employee Expenses
Other Expenses
Operating Profit
% Change (Y-o-Y)
Other Provisions
Profit before Tax
Tax Provisions
Net Profit
% Change (Y-o-Y)
Operating Parameters
Deposits (INR b)
Deposit Growth (%)
Loans (INR b)
Loan Growth (%)
Cost/Income Ratio (%)
Tax Rate (%)
Asset Quality
OSRL
OSRL (%)
Gross NPA
Net NPA
Gross NPA (%)
Net NPA (%)
PCR calculated (%)
2QFY14
134
20.3
68
202
85
31
54
117
25.5
20
97
31
66
22.4
10,548
12.1
9,266
16.3
42.1
31.7
147
1.6
178
48
1.9
0.5
72.9
3QFY14
138
18.7
76
214
89
32
57
125
20.9
14
111
37
75
18.8
11,106
14.0
9,852
18.2
41.5
33.0
169
1.7
184
55
1.8
0.6
70.3
4QFY14
146
16.4
83
229
96
36
60
133
21.9
18
115
36
79
19.3
11,746
15.1
10,259
19.0
42.0
31.4
200
2.0
185
57
1.8
0.6
69.4
1QFY15
151
16.5
76
227
97
38
59
130
11.2
18
112
36
76
19.8
11,817
16.9
10,524
17.6
42.7
32.1
210
2.0
195
61
1.8
0.6
68.8
2QFY15
160
19.5
80
240
101
37
64
139
18.9
23
116
37
79
18.6
12,372
17.3
11,017
18.9
42.2
32.3
209
1.9
204
66
1.8
0.6
67.7
3QFY15
165
19.1
90
255
103
38
66
152
21.0
22
129
41
88
18.5
12,780
15.1
11,615
17.9
40.5
31.8
222
1.9
225
75
1.9
0.6
66.5
4QFY15
174
19.3
103
277
113
42
71
165
23.8
29
136
43
92
16.6
13,709
16.7
12,297
19.9
40.6
31.9
229
1.9
246
91
2.0
0.7
62.8
1QFY16
182
20.7
93
275
113
42
70
162
24.5
32
130
41
89
16.3
14,050
18.9
12,679
20.5
41.1
31.8
251
2.0
255
96
2.0
0.8
62.2
2QFY16 (QoQ, %) (YoY, %)
188
3
18
17.6
92
-1
14
280
2
17
118
5
16
43
2
16
75
6
16
162
0
17
16.7
27
-16
18
135
4
16
44
6
16
91
3
16
16.5
14,696
18.8
13,355
21.2
42.2
32.3
244
1.8
267
104
2.0
0.8
61.0
5
5
19
21
-3
5
8
16
31
58
Note: For private banks result analysis, we have included AXSB, HDFCB, IIB, ICICIBC, FB, YES.
Source: Company, MOSL
REVIEW | November 2015
16

Private Banks: Quarterly Performance
Key takeaways from 2QFY16 results
ICICIBC
Net stress loans declined 13bp QoQ and net stressed addition was at a six-quarter low of INR14.1b. While retail asset
quality remains benign (NNPA% 65bp), corporate stress loans (GNPA+RL) increased to all-time high of ~11%
Strong traction in the retail business continued (loans +25% YoY, ~93% of incremental 2Q growth, retail fee growth of
15%+ - accounted for 65% of overall fee income, and healthy average daily CASA ratio of 40%+ )
ICICIBC’s proposed 9% stake sale in ICICI Lombard led to significant value unlocking and capital release (~20bp addition to
tier 1). We believe this will help ICICIBC to provide for some of the lumpy large corporate stress exposures on the BS.
Strong retail loan growth (10% QoQ, 29% YoY), healthy fee income growth of 22% YoY, robust SA growth of 19% YoY and
continued branch expansion (+125 QoQ, +625 YoY to 4,227) were the key highlights of the quarter.
Led by strong loan growth, core revenue (NII+Fees) growth remains healthy (20%+ YoY over the last five quarters)—giving
HDFCB avenues to expand aggressively (branches +17% YoY, headcount +11% YoY) and invest in the digitalization
initiatives without impact on cost ratios (C/I ratio in the 45-47% range).
Slippages (excluding sale to ARC) declined QoQ to INR5.9b (1% of loans, annualized) v/s INR11.9b (2.1%). However, in 2Q
AXSB sold INR18.2b of loans to ARC for net consideration of INR6.5b (INR5.5b in SRs and INR1b in cash). Loss on sale was
absorbed using contingency provisions and additional NPA provisions. Credit cost guidance (90bp) maintained
Strong traction in retail (+27% YoY) and corporate loans (+24% YoY; refinancing and lending to high-rated corporate)
Strong traction in CASA growth continued (14% QoQ, 40% YoY), led by robust growth in SA (21% QoQ, 62% YoY; partly
driven by one-off float)—added 0.13m SA accounts (+40% YoY). Average SA balances more than 2x of large private banks
Slippages increased QoQ (0.95% of loans, annlzd. v/s 0.51%); while NSL remained stable. Credit costs guidance unchanged
PAT was up 30% YoY (3% miss on our est.), led by higher-than-expected provisions (62bp credit costs v/s 52bp in 1Q); core
PPoP (up 33% YoY) was 3% ahead of est., driven by strong core revenue growth (28% YoY).
Strong customer acquisition and deepening of relationships led to SA deposits growth of 32% YoY (+7% QoQ). SA ratio
improved to 18.6% (18% in 1Q). Overall CASA ratio remained stable QoQ at 34.7%.
Significant pace of capital consumption - ~100bp on account of growth, CVA adjustment and off balance sheet exposures
On back of weak core operating performance; we cut earnings by ~18% and downgraded the stock to Neutral
Asset quality pressures persist with gross slippages at 11-quarter high (3.3%) le d by corporate (4.6% )and SME/Agri (3.5%)
Announcement of significant strategic shift leads to <10% RoE till FY18; Hence, we downgraded the stock to Sell
2Q PAT (-10% YoY) missed our est. by 28% due to lower than expected trading gains and high opex
Report
Report link
HDFCB
Report Link
AXSB
Report Link
YES
Report Link
IIB
Report Link
FB
DCBB
Report Link
Report Link
REVIEW | November 2015
17

Financials: Valuation Metrics
REVIEW | November 2015
18

Private banks near LPA P/BV – healthy RoE and strong capitalization
ICICIBC: trades at 3% discount to 10 yr LPA
3.5
2.5
1.5
0.5
1.9
1.8
PB (x)
Avg(x)
9.1
9.6
RoE’s and Tier I Capital (%)
Tier 1 (%)
11.5 12.8
14.8 15.2 15.2 15.0 15.3 16.0
ROE (%)
Net stress Loans rising off late (%)
NNPA
OSRL
HDFCB: trades at 10 yr LPA
5.5
4.5
3.5
2.5
1.5
3.4
3.4
PB (x)
Avg(x)
RoE’s and Tier I Capital (%)
Tier 1 (%)
ROE (%)
21.3 19.4
18.7 20.3
18.4 19.3 19.9
16.9 16.1 16.7
Net stress Loans – one of the best (%)
NNPA
OSRL
AXSB: trades at 8% discount to 10yr LPA
4.8
3.6
2.4
1.2
0.0
2.1
1.9
PB (x)
Avg(x)
RoE’s and Tier I Capital (%)
Tier 1 (%)
ROE (%)
Net stress Loans - Incr. led corp loans(%)
NNPA
OSRL
19.1 19.2 19.3 20.3 18.5 17.4 17.8 17.5 17.8 18.0
REVIEW | November 2015
19

Private banks near LPA P/BV – healthy RoE and strong capitalization
IIB: trades at 36% premium to 10 yr LPA
3.5
2.7
1.9
1.1
0.3
2.1
PB (x)
Avg(x)
2.8
11.7
RoE’s and Tier I Capital (%)
Tier 1 (%)
ROE (%)
19.5 19.3 19.2 17.8 17.5 19.0 17.6
16.1 17.5
Net stress Loans rising off late (%)
NNPA
OSRL
YES: trades at 11% discount to 10 yr LPA
6.0
4.8
3.6
2.4
1.2
0.0
PB (x)
Avg(x)
RoE’s and Tier I Capital (%)
Tier 1 (%)
ROE (%)
23.1 24.8 25.0 21.3
22.1
20.6 20.3 21.1
19.8 21.2
2.1
Net stress Loans – one of the best (%)
NNPA
OSRL
2.3
FB: trades at 3% premium to 10yr LPA
PB (x)
1.5
1.1
0.7
0.3
1.0
1.1
Avg(x)
RoE’s and Tier I Capital (%)
Tier 1 (%)
12.1
10.3
12.0
ROE (%)
11.0 11.9
Net stress Loans - Incr. led corp loans(%)
NNPA
OSRL
14.4 13.9
12.6 13.7
9.5
REVIEW | November 2015
20

NOTES
REVIEW | November 2015
21

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REVIEW | November 2015
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