8 October 2015
Sector Update
Financials
Individual Housing Loans: Rationalization of Risk-Weights and LTV Ratios
Significant capital release for HFCs; Limited benefits for banks
Event:
RBI reduces risk weights on housing loans of up to INR7.5m based on LTV
slabs. It has also increased the minimum ticket size on the lowest risk weight to
INR3m from INR2m earlier. Post modifications, lowest risk weight on individual
housing loans reduce to 35% from 50% earlier (Please refer to exhibit #1)
Our view:
Reduction in risk weights would be mild positive for banks however,
will lead to significant capital release for HFCs (once NHB also implements
similar guidelines). Based on back of the envelope calculations, banks which
have higher proportion of home loans could see ~15-20bp capital release.
However, in case of large HFCs, capital release could be 50-250bp; In case of
HFCs which are engaged in affordable housing segment, capital release could be
very significant – up to 300bp (exhibit #4).
Important things to be considered
a) While capital release can be significant for
HFCs, balance sheet leverage is more important to maintain credit rating (most
important to manage spreads), b) in our view, high share of loans for below
INR7.5m can be in the bracket of >75% LTV at the time of origination where risk
weights have not been altered from 50%.
Opportunity remains big - Push to affordable housing to increase:
Lower risk
weights, cheap source of funding (infra bonds) and increasing presence of
private banks in rural/semi urban locations is likely to give a significant push to
affordable housing lending. Despite thin spreads, banks typically approach
housing loans as customer acquisition strategy for long term relationships (to
earn higher revenues via cross sell in future); thus, growth is likely to accelerate
further.
Exhibit 1: Existing NHB norms on risk weights for loan amount and LTV ratios
Revised Guideline
Category of loan
Up to INR 3mn
LTV ratio (%)
≤ 80
> 80 and ≤ 90
≤ 75
> 75 and ≤ 80
≤ 75
Risk Weight (%)
35
50
35
50
75
Minimum ticket size
increased; new slabs
introduced for loans up to
INR7.5mn based on LTVs
Above INR 3mn and up to INR 7.5mn
Above INR 7.5mn
Old Guideline
Up to INR 2mn
Above INR 2mn and up to INR 7.5mn
Above INR 7.5mn
≤ 90
≤ 80
≤ 75
50
50
75
Source: RBI, MOSL
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415
Sunesh Khanna
(Sunesh.Khanna@MotilalOswal.com); +91 22 3982 5521
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal
2 June 2014
research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.
1

Financials | Sector Update
Large banks could see 15-20bp capital release
Average risk weight on the housing loan portfolio will decline by >10% (refer exhibit
#3). Housing loans as a percentage of total loan book is ~12% for banking system.
For every 10% weighted average reduction in housing loans risk weights, we expect
~15bp improvement in CET1. For the large banks with the high share of home loan
portfolio could see CET1 improve by 15-20bp
Exhibit 2: ICICIBC, AXSB and SBIN have relatively higher proportion of home loans
Home loans account for
30%+ of ICICIBC’s domestic
loan book
31
23
19
12
15
11
5
8
7
7
5
6
5
6
23
% of Global loans
% of Domestic loans
ICICIBC
AXSB
SBIN
Industry
BOB
HDFCB
PNB
CBK
Source: MOSL, Company
Exhibit 3: AXSB, ICICIBC and SBIN to be the biggest beneficiary with ~15-20bp improvement in CET1 ratio (%)
Bank
% of home loans*
Old Risk Weights
New Risk Weights
RWA (INR b)
% of
Total Home loans < INR
> INR
< INR > INR
< INR > INR
Blended
Blended Current Revised
Loans Loans
7.5mn
7.5mn 7.5mn 7.5mn
7.5mn 7.5mn
19
23
12
70%
60%
85%
30%
40%
15%
50%
50%
50%
75%
75%
75%
58%
60%
54%
35%
35%
35%
75%
75%
75%
INR b
Approx.
Current Impact
(bps)
CET1
INR b
AXSB 2,811 537
ICICIBC 3,997 938
SBIN 13,137 1,637
47%
3,620
3,564
440
19
51%
5,692
5,608
698
18
41%
12,447 12,238
1194
16
Note: * assumption; Source: MOSL, Company
HFCs to be the biggest beneficiaries – Expect NHB to follow suit
We expect NHB to follow suit in order to keep the level playing field for HFCs. For
HFCs individual housing loans comprises 70-95% of the total portfolio thus, HFCs are
likely to be biggest beneficiaries. Theoretically, while the leverage can increase; it is
generally capped at 10-12x in order to keep cost of funds lower (as rating agencies
are not comfortable beyond these levels). In case of large HFCs, capital release could
be 50-250bp whereas, HFCs engaged in affordable housing segment could see up to
300bp release in capital.
Exhibit 4: LICHF, DEWH, GRHF and REPCO likely beneficiaries among HFCs, once NHB revises the norms
INR b
Company
(%)
Old Risk Weights
New Risk Weights
(%)
Total
Home
< INR
> INR
< INR
> INR
< INR > INR
Current Revised
Blended
Blended
Loans
Loans 7.5mn* 7.5mn* 7.5mn
7.5mn
7.5mn 7.5mn
CET1
CET 1
HDFC
2,312
1,619
60%
40%
50%
75%
60%
35%
75%
51%
14.9
16.0
110
LICHF
1,104
1,077
70%
30%
50%
75%
58%
35%
75%
47%
12.1
14.3
221
DHFL
538
398
80%
20%
50%
75%
55%
35%
75%
43%
12.1
14.0
186
IHFL
479
249
50%
50%
50%
75%
63%
35%
75%
55%
15.0
15.8
77
REPCO
63
51
70%
30%
50%
75%
58%
35%
75%
47%
20.0
22.9
297
GRHF
93
84
75%
25%
50%
75%
56%
35%
75%
45%
14.1
17.0
284
*These numbers are based on our assumption. However, the actual figures may vary.
Source: MOSL, Company
Approx.
Impact
(bp)
8 October 2015
2

Financials | Sector Update
Exhibit 5: Financials: Valuation metrics
66
Rating
ICICIBC*
HDFCB
AXSB
KMB*
YES
IIB
DCBB
FB
JKBK
SIB
Private Aggregate
SBIN (cons)*
PNB
BOI
BOB
CBK
UNBK
OBC
INBK
CRPBK
ANDB
IDBI
DBNK
Public Aggregate
HDFC*
LICHF
DEWH
IHFL
GRHF
REPCO
IDFC
RECL
POWF
SHTF
MMFS
BAF
MUTH
NBFC Aggregate
Buy
Buy
Buy
Neutral
Buy
Buy
Buy
Buy
Neutral
Buy
Buy
Buy
Neutral
Buy
Buy
Buy
Buy
Buy
Neutral
Buy
Neutral
Neutral
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
CMP
Mcap
EPS (INR)
FY17
25.8
59.2
43.3
25.3
74.5
50.2
9.4
6.7
17.3
3.1
31.7
26.8
27.1
25.1
59.7
46.6
63.8
30.6
21.9
22.8
19.7
12.5
44
42
33
72
9
34
12
76
60
73
15
261
24
P/E (x)
BV (INR)
P/BV (x)
FY16
1.63
3.80
2.25
3.59
2.23
3.21
2.27
1.31
0.66
0.80
2.70
1.01
0.63
0.36
1.02
0.52
0.58
0.31
0.51
0.32
0.38
0.50
0.33
0.71
5.00
2.61
1.24
2.74
11.05
4.79
0.32
0.89
0.83
2.07
2.16
3.74
1.67
2.67
FY17
1.37
3.28
1.94
3.16
1.88
2.80
1.97
1.19
0.61
0.73
2.37
0.90
0.57
0.34
0.92
0.48
0.52
0.28
0.47
0.29
0.35
0.46
0.31
0.65
3.93
2.20
1.09
2.48
9.15
4.00
0.28
0.75
0.72
1.84
1.96
3.22
1.51
2.34
RoA (%)
FY16
1.54
1.89
1.78
1.01
1.68
1.98
1.07
1.02
0.85
0.47
0.70
0.57
0.20
0.61
0.39
0.56
0.57
0.50
0.54
0.55
0.58
0.36
2.60
1.49
1.27
4.08
2.23
2.20
1.75
3.22
3.07
2.10
1.92
3.13
2.75
FY17
1.58
1.86
1.82
1.32
1.73
2.03
1.15
1.06
0.92
0.59
0.77
0.70
0.25
0.68
0.48
0.65
0.69
0.65
0.64
0.62
0.69
0.44
2.60
1.54
1.29
4.19
2.09
2.32
1.83
3.23
3.03
2.28
2.20
2.84
2.83
RoE (%)
FY16
14.8
18.4
18.0
13.9
19.7
17.2
11.8
11.4
10.7
8.2
11.7
9.3
4.8
11.7
8.1
11.8
10.1
7.8
12.3
10.3
9.5
7.2
23.6
20.2
15.6
26.5
29.4
17.3
8.8
22.9
20.4
14.1
11.5
19.8
14.7
FY17
15.7
19.2
18.3
14.5
20.9
15.9
14.1
13.0
12.1
10.5
13.1
11.6
6.4
13.1
10.0
13.9
12.8
10.6
14.7
12.2
11.9
9.6
24.4
21.3
17.3
24.7
29.0
20.4
9.8
22.9
19.7
14.9
13.2
17.9
16.0
(INR) (USDb) FY16
278
24.5 21.5
1,084 41.2 49.1
491
17.6 36.5
654
18.1 18.2
729
4.6
59.9
946
8.4
40.2
140
0.6
6.9
65
1.7
5.4
91
0.7
14.1
23
0.5
2.2
117.8
243
27.9 25.6
139
3.9
19.6
146
1.5
19.4
186
1.2
20.3
298
2.3
43.8
185
1.8
35.7
145
0.7
46.3
141
1.0
21.1
45
0.1
16.5
69
0.6
17.8
79
1.9
14.4
42
0.4
8.8
43.4
1,278 30.5
38
475
3.6
34
222
1.0
26
755
4.9
57
262
1.4
7
728
0.7
24
63
1.5
10
268
4.0
63
236
4.7
54
950
3.3
62
235
2.0
12
5,053
4.1
222
180
5.4
20
61.7
FY16 FY17 FY16 FY17
10.0 7.9
131
150
22.1 18.3 285
330
13.4 11.4 218
254
36.0 25.9 182
207
12.2 9.8
327
387
23.5 18.9 294
338
20.4 15.0
62
71
12.0 9.6
49
54
6.4
5.2
136
150
10.2 7.3
28
31
17.9 14.8
9.0
7.3
229
255
7.1
5.2
220
244
7.5
5.4
410
432
9.1
7.4
182
201
6.8
5.0
573
619
5.2
4.0
317
356
3.1
2.3
474
523
6.7
4.6
278
301
2.7
2.1
141
158
3.9
3.0
180
196
5.5
4.0
157
173
4.8
3.4
126
136
7.8
6.0
21.9 17.2 167
192
14.0 11.2 182
216
8.4
6.7
179
204
13.2 10.5 275
305
37.9 30.1
24
29
29.8 21.3 152
182
6.4
5.4
107
116
4.2
3.5
302
360
4.4
3.9
285
329
15.2 13.1 458
515
19.6 15.5 109
120
22.7 19.4 1,350 1,568
11.9 9.9
141
156
15.3 13.1
*Multiples adj. for value of key ventures/Investments; For ICICI Bank and HDFC Ltd BV is adjusted for investments in subsidiaries
8 October 2015
3

Financials | Sector Update
NOTES
8 October 2015
4

REPORT GALLERY
STRATEGIES
COMPANIES
SECTOR UPDATES

This document has been prepared by Motilal Oswal Securities Limited (hereinafter referred to as Most) to provide information about the company(ies) and/sector(s), if any, covered in the report and may be distributed
Financials | Sector Update
by it and/or its affiliated company(ies). This report is for personal information of the selected recipient/s and does not construe to be any investment, legal or taxation advice to you. This research report does not
constitute an offer, invitation or inducement to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for
public distribution and has been furnished to you solely for your general information and should not be reproduced or redistributed to any other person in any form. This report does not constitute a personal
recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, investors should consider
whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as
up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur.
MOSt and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We and our affiliates have investment banking and other business relationships with a
some companies covered by our Research Department. Our research professionals may provide input into our investment banking and other business selection processes. Investors should assume that MOSt and/or
its affiliates are seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this
material may educate investors on investments in such business. The research professionals responsible for the preparation of this document may interact with trading desk personnel, sales personnel and other
parties for the purpose of gathering, applying and interpreting information. Our research professionals are paid on the profitability of MOSt which may include earnings from investment banking and other business.
MOSt generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.
Additionally, MOSt generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders,
and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary
trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing
among other things, may give rise to real or potential conflicts of interest. MOSt and its affiliated company(ies), their directors and employees and their relatives may; (a) from time to time, have a long or short position
in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation
or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with
respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations
made by the analyst(s) are completely independent of the views of the affiliates of MOSt even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report
Reports based on technical and derivative analysis center on studying charts company's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as
such, may not match with a report on a company's fundamental analysis. In addition MOST has different business segments / Divisions with independent research separated by Chinese walls catering to different set
of customers having various objectives, risk profiles, investment horizon, etc, and therefore may at times have different contrary views on stocks sectors and markets.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates or
employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt or any of
its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The information contained herein is
based on publicly available data or other sources believed to be reliable. Any statements contained in this report attributed to a third party represent MOSt’s interpretation of the data, information and/or opinions
provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party. This Report is not intended to be a complete statement or
summary of the securities, markets or developments referred to in the document. While we would endeavor to update the information herein on reasonable basis, MOSt and/or its affiliates are under no obligation to
update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its affiliates or employees shall not be in any way
responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. MOSt or any of its affiliates or employees do not provide, at any time,
any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement.
The recipients of this report should rely on their own investigations.
This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision based on
this report or for any necessary explanation of its contents.
Most and it’s associates may have managed or co-managed public offering of securities, may have received compensation for investment banking or merchant banking or brokerage services, may have received any
compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months.
Most and it’s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report.
Subject Company may have been a client of Most or its associates during twelve months preceding the date of distribution of the research report
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise of over 1 % at the end of the month immediately preceding the date of publication of the research in the securities
mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the
report.
Motilal Oswal Securities Limited is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014. SEBI Reg. No. INH000000412
There are no material disciplinary action that been taken by any regulatory authority impacting equity research analysis activities
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be
directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible for preparation
of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues
Disclosure of Interest Statement
Analyst ownership of the stock
Served as an officer, director or employee
Companies where there is interest
No
No
Disclosures
A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes
Regional Disclosures (outside India)
For U.S.
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law,
regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In
addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the
United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or
intended for U.S. persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional
investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major
institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the
"Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning
agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this
chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL,
and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors
Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to
accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Kadambari Balachandran
Email : kadambari.balachandran@motilaloswal.com
Contact : (+65) 68189233 / 65249115
Office Address : 21 (Suite 31),16 Collyer Quay,Singapore 04931
For Singapore
Motilal Oswal Securities Ltd
8 October 2015
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
6