The document discusses the impact of the recent 50 basis point hike in savings bank deposit rates by the RBI on banks. It estimates that public sector banks with higher savings account proportions of total deposits will be more impacted in terms of lower net interest margins and profits for FY2012. Specifically, it provides estimates of the increase in interest expenses, reduction in net interest margins, net interest income and profit before tax for some major public sector banks due to the savings bank rate hike.
The RBI cut its repo rate by 25 basis points to 7.75% and lowered the reverse repo and MSF rates as well. It revised India's GDP growth forecast down to 5.5% for FY2013 due to weak external demand and investment. Headline inflation is projected at 6.8%. Treasury bond yields were volatile after the announcement while equity markets closed lower. The RBI aims to support growth while managing inflation expectations in an uncertain global environment.
The US sovereign credit ratings will likely be impacted in 2013 due to growing debt levels and a lackluster economic recovery, according to QNB Group analysis. The US federal debt as a percentage of GDP has risen significantly in recent years and is projected to reach over 70% by the end of 2012. Several factors such as high and rising debt levels, ongoing fiscal deficits, and mixed economic indicators point to potential downgrades in the US credit rating going forward.
The document forecasts mortgage rates for 2011-2012. It predicts that while an improved economic outlook is putting upward pressure on rates, geopolitical risks threaten recent optimism. Assuming no major disruption from rising oil prices, mortgage rates are expected to gradually increase over the year, with 1-year fixed rates reaching 4.35% and 5-year fixed rates reaching 5.90% by the end of 2011. The forecast also notes that mortgage spreads have returned to normal levels, so future rates will largely depend on changes to government bond yields.
The Bank of Thailand raised its policy interest rate by 25 basis points to 3.50% based on a 5-2 vote, marking the sixth rate hike this year. While the MPC statement showed a less hawkish stance due to weaker global economic data, it did not strike as being dovish. The MPC judged that inflationary risks remained significant and that domestic demand could sustain price pressures. The BoT expects Asian economies to withstand global economic impacts better than expected. The decision was in line with keeping policy rates normalized to contain domestic inflationary pressures.
China raised interest rates for the second time in 2021 to curb inflation pressures. The one-year deposit rate was increased to 3.25% and lending rate to 6.31%. This move was expected after China also recently raised bank reserve requirements. Inflation remains high in China, with consumer prices at 4.9% in February and producer prices accelerating. The interest rate hike aims to support a soft economic landing by slowing credit growth and cooling demand.
The Thai economy grew more slowly than expected in the third quarter of 2011, expanding just 0.5% quarter-over-quarter and 3.5% year-over-year. Private investment and exports continued to drive growth, but agricultural output declined due to floods. Household consumption growth also slowed as consumers became more cautious due to flooding. The economy is expected to grow only 1.5% for the full year due to flooding impacts. The Bank of Thailand is expected to cut interest rates by 50 basis points to boost the economy and restore confidence.
- The key Indian indices closed near neutral levels, reflecting low trading volumes due to the holiday season. European stocks opened higher while US futures traded up.
- China's Shanghai Composite index fell 1.9% after the central bank raised lending and deposit rates.
- In India, the Sensex closed just above 20,000 points, erasing gains late in the day. Oil and metal stocks declined on concerns over economic growth in China.
The RBI cut its repo rate by 25 basis points to 7.75% and lowered the reverse repo and MSF rates as well. It revised India's GDP growth forecast down to 5.5% for FY2013 due to weak external demand and investment. Headline inflation is projected at 6.8%. Treasury bond yields were volatile after the announcement while equity markets closed lower. The RBI aims to support growth while managing inflation expectations in an uncertain global environment.
The US sovereign credit ratings will likely be impacted in 2013 due to growing debt levels and a lackluster economic recovery, according to QNB Group analysis. The US federal debt as a percentage of GDP has risen significantly in recent years and is projected to reach over 70% by the end of 2012. Several factors such as high and rising debt levels, ongoing fiscal deficits, and mixed economic indicators point to potential downgrades in the US credit rating going forward.
The document forecasts mortgage rates for 2011-2012. It predicts that while an improved economic outlook is putting upward pressure on rates, geopolitical risks threaten recent optimism. Assuming no major disruption from rising oil prices, mortgage rates are expected to gradually increase over the year, with 1-year fixed rates reaching 4.35% and 5-year fixed rates reaching 5.90% by the end of 2011. The forecast also notes that mortgage spreads have returned to normal levels, so future rates will largely depend on changes to government bond yields.
The Bank of Thailand raised its policy interest rate by 25 basis points to 3.50% based on a 5-2 vote, marking the sixth rate hike this year. While the MPC statement showed a less hawkish stance due to weaker global economic data, it did not strike as being dovish. The MPC judged that inflationary risks remained significant and that domestic demand could sustain price pressures. The BoT expects Asian economies to withstand global economic impacts better than expected. The decision was in line with keeping policy rates normalized to contain domestic inflationary pressures.
China raised interest rates for the second time in 2021 to curb inflation pressures. The one-year deposit rate was increased to 3.25% and lending rate to 6.31%. This move was expected after China also recently raised bank reserve requirements. Inflation remains high in China, with consumer prices at 4.9% in February and producer prices accelerating. The interest rate hike aims to support a soft economic landing by slowing credit growth and cooling demand.
The Thai economy grew more slowly than expected in the third quarter of 2011, expanding just 0.5% quarter-over-quarter and 3.5% year-over-year. Private investment and exports continued to drive growth, but agricultural output declined due to floods. Household consumption growth also slowed as consumers became more cautious due to flooding. The economy is expected to grow only 1.5% for the full year due to flooding impacts. The Bank of Thailand is expected to cut interest rates by 50 basis points to boost the economy and restore confidence.
- The key Indian indices closed near neutral levels, reflecting low trading volumes due to the holiday season. European stocks opened higher while US futures traded up.
- China's Shanghai Composite index fell 1.9% after the central bank raised lending and deposit rates.
- In India, the Sensex closed just above 20,000 points, erasing gains late in the day. Oil and metal stocks declined on concerns over economic growth in China.
The document summarizes recent economic data and trends in Thailand that suggest modest but continued economic growth. It notes private consumption and investment remained robust in February, while exports also grew strongly. The large current account surplus means the Thai baht is likely to appreciate further against the US dollar. Given the healthy economic outlook, the Bank of Thailand is expected to raise interest rates by 25 basis points at its next meeting on April 20th to gradually normalize monetary policy.
The Reserve Bank of India cut its repo rate by 50 basis points to 8% and announced other monetary measures to boost the economy. It forecasts GDP growth of 7.3% for fiscal year 2013 assuming normal monsoons, but expects inflation to remain in the 6.5% range. Equity markets rose in response to the rate cut and bond yields declined, while the banking sector did not see major gains due to some policy measures that may negatively impact margins. The central bank maintained a cautious stance and signaled low probability of further rate cuts in the near term.
Bharti Airtel is well positioned for strong growth over the next few years. Total minutes of usage are expected to grow at 20% annually through FY2014 as tele-density and usage per subscriber remain well below developed markets. Competition is also expected to moderate as costs for new entrants are high. Bharti trades at an attractive valuation of 12x FY2012 earnings compared to its historical average of 26x and the Sensex P/E of 14.5x, despite higher returns. The acquisition of African and Bangladesh assets is also expected to be accretive. Overall, Bharti Airtel provides exposure to the growing Indian telecom sector at a reasonable valuation.
The Indian markets managed to close flat with a positive bias despite negative global cues. Consumer durable, power and capital goods stocks recovered from early losses to boost the markets. Reliance Industries fell over 2% on concerns over comments from the CAG regarding costs in RIL's gas fields. Auto stocks also recovered on hopes that a tax refund scheme for exporters would be extended. Metal stocks declined on concerns over slowing growth in China.
Global markets declined last week due to concerns over slowing manufacturing growth and uncertainty around the US Federal Reserve's monetary policy. In Asia, Chinese and Hong Kong markets fell on measures to tighten liquidity, while Japan saw rising trade deficits. European markets were mixed with declining PMIs but positive business surveys in Germany. In India, markets declined ahead of the upcoming Union Budget amid expectations of efforts to balance populist measures with fiscal discipline. Bond yields eased but rates remained high due to liquidity issues.
The Ministry of Finance plans to issue a total of 103.5 billion baht in government bonds in the third quarter of fiscal year 2011, which is close to the initial estimate. Key differences include the planned issuance of 30-40 billion baht in inflation-linked bonds. Demand for government bonds is expected to remain high due to high liquidity among savers, though foreign investor inflows into the bond market have slowed in recent months.
The document summarizes the macroeconomic performance of the Indian economy from 2009 to 2012. Some key points:
- India saw consistent GDP growth of around 8% even during the global slowdown after 2008. GDP growth was estimated at 7.6% in 2011-12.
- Private consumption as a share of GDP decreased over the years but overall growth remained strong due to increased investments through foreign direct and portfolio investments.
- Rural consumption and disposable incomes increased substantially, driving overall growth. The rural market was expected to reach $425 billion by 2010-11.
- Total foreign investment was expected to reach $74 billion in 2011-12 while gross fixed investment was estimated to cross $616 billion.
Global equity markets declined this week due to concerns about the European debt crisis and slowing growth in China. Bond yields eased globally as economic data pointed to continued monetary policy support. Commodity prices also fell. In Europe, bank stocks declined sharply and Spanish and Italian borrowing costs rose. US markets closed lower as well. In India, weak earnings from Infosys dragged the market lower, while industrial production growth was revised down. Bond yields fell but pared gains on profit taking, amid hopes of an interest rate cut by the central bank.
- Major global equity indices gained, led by the US and Japan, while most emerging markets underperformed. Bond yields rose as investors focused on riskier assets.
- In India, equity markets declined as lower-than-expected earnings from Infosys weighed on the tech sector. However, banking, auto and real estate indices rose. Inflation eased slightly in February.
- Treasury bond markets in India gained amid sluggish growth and easing inflation. Yields fell across the yield curve, with sharper drops at the longer end. The rupee strengthened against the dollar.
- Thai economic indicators showed broad-based improvement in January from the impacts of flooding in 2011, but growth remains below pre-flood levels. Private consumption and investments increased.
- Manufacturing production continued rising as supply chain issues ease, though export-dependent sectors saw slower growth. Inflation declined further.
- The document discusses risks from higher oil prices and the ongoing European debt crisis, as well as positive factors like the risky asset rally and additional European funding measures.
The weekly market perspectives document provided an overview of the global financial markets and key economic indicators. It noted that Spain has yet to formally request external financial support and discussed the potential impact of such a request. It also summarized recent economic data from Europe, the US, and other regions that continued to point to ongoing recession pressures. The preview section outlined some of the major economic reports and events to watch in the coming week.
The Bank of Thailand held its policy rate unchanged at 3.50% due to the impacts of flooding in Thailand and global economic uncertainties. While inflation remains a concern, reconstruction efforts are expected to boost domestic demand and the flooding will negatively impact production capabilities and consumer spending. One MPC member voted for a rate cut but the committee decided to keep the rate on hold until at least the end of 2012 given weak global economic growth prospects.
Presentation, Economic Outlook for 2013 and Beyond, presented by Michael Brown, Wells Fargo Securities, presented at Winter 2012 NCLGBA Conference, 12/7/12
Indian stock markets gained for the seventh consecutive week, with the Sensex rising 3.04% and Nifty up 3.75%. Foreign institutional investors contributed to the rise by investing over Rs. 10,000 crore in Indian equities during the week. Several sectors such as auto, banks, capital goods and real estate saw gains over 6%. However, inflation declined to a 2-year low of 6.55% in January, giving the RBI scope to cut interest rates. Volatility is expected in the upcoming week due to F&O contract expiry and various economic data releases.
Recent Economic Developments in Latvia and Medium-term OutlookLatvijas Banka
This presentation summarises recent macroeconomic developments in Latvia and outlines a medium-term outlook for real GDP and inflation. Presentation reviews ongoing economic recovery, labour market issues and includes analyses on core factors behind the path of inflation. The main focus of the presentation is on the issue of competitiveness of the Latvian economy pointing to the costs adjustment process and productivity gains, as well as presenting export performance, market shares and current account developments. Presentation also features slides on monetary and financial market developments.
• Momentum halted US equities indices were in a +/-1% range, after Treasury
Secretary Geithner said the “vast majority” of banks have enough capital and
comments allayed concerns about next month’s “stress test” results, after an earlier
leak indicating otherwise. Big European banks also reported a brighter 1Q09 results or
guidance. Regional markets were mixed, with profit taking in Indonesia, Hong Kong
and Singapore, while Thailand and Malaysia were up.
• 14 painful years to breakeven at 5.4% p.a. Based on the available sample of MSCI
FExJ data, the long term capital returns for the MSCI FExJ markets works out to 5.4%
p.a. Including dividends, the total returns go up to 8.4% to 9.4%. The bad news is that
at this rate, it would take 14 miserable years before breakeven is achieved for
investments made at the October 2007 market.
• But 6.8% is probably more accurate The good news is that the 8.4% to 9.4% p.a.
returns is likely to be an underestimation of the potential returns of Asian equities. A
sanity check based on the historical cost of equity and the underlying ROE of the
countries under our coverage suggests that the long term returns are likely to be in the
10-18% range. Adding a trendline – albeit crude – to the FExJ index throws up an
implied 6.8% p.a. long term capital returns, or close to 12% total returns if dividends
are accounted for. This is also consistent with the long term returns of 10.7% that have
been documented for US equities.
• Juicing the returns beyond long term returns Returns are determined by the timing
of entry into the market. By definition, markets tend to oscillate around the long term
trendline. The FExJ index is currently below the trendline of its long term growth profile,
as expected. If investors are accurately discounting the GDP turning point that is
months away, risk tolerance should improve and equities should continue its march
upward. A reversion to the long term growth profile of the FExJ markets by the end of
this year implies an annualised return of 52%, while a less optimistic view of a
reversion only by the end of next year produces annualised returns of 24%. At 3.5x and
7.6x long term returns on conservative forecasts, the timing factor favours investors.
The document summarizes the rising levels of non-performing assets (NPAs) in the Indian banking system since 2011. It notes that NPAs have increased sharply for public sector banks, accounting for over 85% of total NPAs by 2015. The build-up is attributed to an economic slowdown, declining industrial growth, and concentrated exposure to stressed sectors like infrastructure and small and medium enterprises. The document analyzes NPA data in detail and outlines potential measures to reduce NPAs, including more stringent credit appraisal, monitoring of large loans, and utilizing the bankruptcy code.
Event Note Sebi Clears Ipo Norms For Insurersabhiseksasmal
Sebi has approved disclosure norms and accounting policies for upcoming IPOs of insurance companies in India, as recommended by IRDA. This is one of three phases laid out by IRDA for insurance company IPOs. IRDA had previously submitted draft IPO guidelines to Sebi for review. Final IPO guidelines will be issued after considering Sebi's recommendations. Many insurance companies want to relax current IPO rules to raise capital through public markets to fund growth in the capital-intensive sector. Issues around tenure of operations, profitability, and foreign ownership could impact upcoming IPO plans.
New Banking License Catalyst For Consolidationabhiseksasmal
The document discusses the potential impacts of the Reserve Bank of India issuing new banking licenses. This could allow corporate houses to enter the banking sector. It may lead banks to consolidate and move from many small banks to fewer large banks. Recent mergers and acquisitions in the Indian banking industry are provided as examples. The document analyzes certain listed private sector banks that may be attractive takeover targets based on factors such as market presence, asset quality, and financial ratios. Karur Vysya Bank, South Indian Bank, and Federal Bank are identified as potential targets.
The document provides a preview of the banking sector for the fourth quarter of 2011. It discusses the macroeconomic trends during Q4 including inflation, interest rates, and liquidity. It also outlines several policy actions by the RBI and government that could impact banks positively in the long run, such as proposed changes to banking laws and capital infusions into public sector banks. The outlook for the banking sector remains positive, with credit growth expected to be around 20% for many public sector banks.
The document summarizes recent economic data and trends in Thailand that suggest modest but continued economic growth. It notes private consumption and investment remained robust in February, while exports also grew strongly. The large current account surplus means the Thai baht is likely to appreciate further against the US dollar. Given the healthy economic outlook, the Bank of Thailand is expected to raise interest rates by 25 basis points at its next meeting on April 20th to gradually normalize monetary policy.
The Reserve Bank of India cut its repo rate by 50 basis points to 8% and announced other monetary measures to boost the economy. It forecasts GDP growth of 7.3% for fiscal year 2013 assuming normal monsoons, but expects inflation to remain in the 6.5% range. Equity markets rose in response to the rate cut and bond yields declined, while the banking sector did not see major gains due to some policy measures that may negatively impact margins. The central bank maintained a cautious stance and signaled low probability of further rate cuts in the near term.
Bharti Airtel is well positioned for strong growth over the next few years. Total minutes of usage are expected to grow at 20% annually through FY2014 as tele-density and usage per subscriber remain well below developed markets. Competition is also expected to moderate as costs for new entrants are high. Bharti trades at an attractive valuation of 12x FY2012 earnings compared to its historical average of 26x and the Sensex P/E of 14.5x, despite higher returns. The acquisition of African and Bangladesh assets is also expected to be accretive. Overall, Bharti Airtel provides exposure to the growing Indian telecom sector at a reasonable valuation.
The Indian markets managed to close flat with a positive bias despite negative global cues. Consumer durable, power and capital goods stocks recovered from early losses to boost the markets. Reliance Industries fell over 2% on concerns over comments from the CAG regarding costs in RIL's gas fields. Auto stocks also recovered on hopes that a tax refund scheme for exporters would be extended. Metal stocks declined on concerns over slowing growth in China.
Global markets declined last week due to concerns over slowing manufacturing growth and uncertainty around the US Federal Reserve's monetary policy. In Asia, Chinese and Hong Kong markets fell on measures to tighten liquidity, while Japan saw rising trade deficits. European markets were mixed with declining PMIs but positive business surveys in Germany. In India, markets declined ahead of the upcoming Union Budget amid expectations of efforts to balance populist measures with fiscal discipline. Bond yields eased but rates remained high due to liquidity issues.
The Ministry of Finance plans to issue a total of 103.5 billion baht in government bonds in the third quarter of fiscal year 2011, which is close to the initial estimate. Key differences include the planned issuance of 30-40 billion baht in inflation-linked bonds. Demand for government bonds is expected to remain high due to high liquidity among savers, though foreign investor inflows into the bond market have slowed in recent months.
The document summarizes the macroeconomic performance of the Indian economy from 2009 to 2012. Some key points:
- India saw consistent GDP growth of around 8% even during the global slowdown after 2008. GDP growth was estimated at 7.6% in 2011-12.
- Private consumption as a share of GDP decreased over the years but overall growth remained strong due to increased investments through foreign direct and portfolio investments.
- Rural consumption and disposable incomes increased substantially, driving overall growth. The rural market was expected to reach $425 billion by 2010-11.
- Total foreign investment was expected to reach $74 billion in 2011-12 while gross fixed investment was estimated to cross $616 billion.
Global equity markets declined this week due to concerns about the European debt crisis and slowing growth in China. Bond yields eased globally as economic data pointed to continued monetary policy support. Commodity prices also fell. In Europe, bank stocks declined sharply and Spanish and Italian borrowing costs rose. US markets closed lower as well. In India, weak earnings from Infosys dragged the market lower, while industrial production growth was revised down. Bond yields fell but pared gains on profit taking, amid hopes of an interest rate cut by the central bank.
- Major global equity indices gained, led by the US and Japan, while most emerging markets underperformed. Bond yields rose as investors focused on riskier assets.
- In India, equity markets declined as lower-than-expected earnings from Infosys weighed on the tech sector. However, banking, auto and real estate indices rose. Inflation eased slightly in February.
- Treasury bond markets in India gained amid sluggish growth and easing inflation. Yields fell across the yield curve, with sharper drops at the longer end. The rupee strengthened against the dollar.
- Thai economic indicators showed broad-based improvement in January from the impacts of flooding in 2011, but growth remains below pre-flood levels. Private consumption and investments increased.
- Manufacturing production continued rising as supply chain issues ease, though export-dependent sectors saw slower growth. Inflation declined further.
- The document discusses risks from higher oil prices and the ongoing European debt crisis, as well as positive factors like the risky asset rally and additional European funding measures.
The weekly market perspectives document provided an overview of the global financial markets and key economic indicators. It noted that Spain has yet to formally request external financial support and discussed the potential impact of such a request. It also summarized recent economic data from Europe, the US, and other regions that continued to point to ongoing recession pressures. The preview section outlined some of the major economic reports and events to watch in the coming week.
The Bank of Thailand held its policy rate unchanged at 3.50% due to the impacts of flooding in Thailand and global economic uncertainties. While inflation remains a concern, reconstruction efforts are expected to boost domestic demand and the flooding will negatively impact production capabilities and consumer spending. One MPC member voted for a rate cut but the committee decided to keep the rate on hold until at least the end of 2012 given weak global economic growth prospects.
Presentation, Economic Outlook for 2013 and Beyond, presented by Michael Brown, Wells Fargo Securities, presented at Winter 2012 NCLGBA Conference, 12/7/12
Indian stock markets gained for the seventh consecutive week, with the Sensex rising 3.04% and Nifty up 3.75%. Foreign institutional investors contributed to the rise by investing over Rs. 10,000 crore in Indian equities during the week. Several sectors such as auto, banks, capital goods and real estate saw gains over 6%. However, inflation declined to a 2-year low of 6.55% in January, giving the RBI scope to cut interest rates. Volatility is expected in the upcoming week due to F&O contract expiry and various economic data releases.
Recent Economic Developments in Latvia and Medium-term OutlookLatvijas Banka
This presentation summarises recent macroeconomic developments in Latvia and outlines a medium-term outlook for real GDP and inflation. Presentation reviews ongoing economic recovery, labour market issues and includes analyses on core factors behind the path of inflation. The main focus of the presentation is on the issue of competitiveness of the Latvian economy pointing to the costs adjustment process and productivity gains, as well as presenting export performance, market shares and current account developments. Presentation also features slides on monetary and financial market developments.
• Momentum halted US equities indices were in a +/-1% range, after Treasury
Secretary Geithner said the “vast majority” of banks have enough capital and
comments allayed concerns about next month’s “stress test” results, after an earlier
leak indicating otherwise. Big European banks also reported a brighter 1Q09 results or
guidance. Regional markets were mixed, with profit taking in Indonesia, Hong Kong
and Singapore, while Thailand and Malaysia were up.
• 14 painful years to breakeven at 5.4% p.a. Based on the available sample of MSCI
FExJ data, the long term capital returns for the MSCI FExJ markets works out to 5.4%
p.a. Including dividends, the total returns go up to 8.4% to 9.4%. The bad news is that
at this rate, it would take 14 miserable years before breakeven is achieved for
investments made at the October 2007 market.
• But 6.8% is probably more accurate The good news is that the 8.4% to 9.4% p.a.
returns is likely to be an underestimation of the potential returns of Asian equities. A
sanity check based on the historical cost of equity and the underlying ROE of the
countries under our coverage suggests that the long term returns are likely to be in the
10-18% range. Adding a trendline – albeit crude – to the FExJ index throws up an
implied 6.8% p.a. long term capital returns, or close to 12% total returns if dividends
are accounted for. This is also consistent with the long term returns of 10.7% that have
been documented for US equities.
• Juicing the returns beyond long term returns Returns are determined by the timing
of entry into the market. By definition, markets tend to oscillate around the long term
trendline. The FExJ index is currently below the trendline of its long term growth profile,
as expected. If investors are accurately discounting the GDP turning point that is
months away, risk tolerance should improve and equities should continue its march
upward. A reversion to the long term growth profile of the FExJ markets by the end of
this year implies an annualised return of 52%, while a less optimistic view of a
reversion only by the end of next year produces annualised returns of 24%. At 3.5x and
7.6x long term returns on conservative forecasts, the timing factor favours investors.
The document summarizes the rising levels of non-performing assets (NPAs) in the Indian banking system since 2011. It notes that NPAs have increased sharply for public sector banks, accounting for over 85% of total NPAs by 2015. The build-up is attributed to an economic slowdown, declining industrial growth, and concentrated exposure to stressed sectors like infrastructure and small and medium enterprises. The document analyzes NPA data in detail and outlines potential measures to reduce NPAs, including more stringent credit appraisal, monitoring of large loans, and utilizing the bankruptcy code.
Event Note Sebi Clears Ipo Norms For Insurersabhiseksasmal
Sebi has approved disclosure norms and accounting policies for upcoming IPOs of insurance companies in India, as recommended by IRDA. This is one of three phases laid out by IRDA for insurance company IPOs. IRDA had previously submitted draft IPO guidelines to Sebi for review. Final IPO guidelines will be issued after considering Sebi's recommendations. Many insurance companies want to relax current IPO rules to raise capital through public markets to fund growth in the capital-intensive sector. Issues around tenure of operations, profitability, and foreign ownership could impact upcoming IPO plans.
New Banking License Catalyst For Consolidationabhiseksasmal
The document discusses the potential impacts of the Reserve Bank of India issuing new banking licenses. This could allow corporate houses to enter the banking sector. It may lead banks to consolidate and move from many small banks to fewer large banks. Recent mergers and acquisitions in the Indian banking industry are provided as examples. The document analyzes certain listed private sector banks that may be attractive takeover targets based on factors such as market presence, asset quality, and financial ratios. Karur Vysya Bank, South Indian Bank, and Federal Bank are identified as potential targets.
The document provides a preview of the banking sector for the fourth quarter of 2011. It discusses the macroeconomic trends during Q4 including inflation, interest rates, and liquidity. It also outlines several policy actions by the RBI and government that could impact banks positively in the long run, such as proposed changes to banking laws and capital infusions into public sector banks. The outlook for the banking sector remains positive, with credit growth expected to be around 20% for many public sector banks.
Banks Credit Growth Time For Moderation.abhiseksasmal
Bank credit growth has been moderate in recent months. Medium scale businesses saw the highest credit growth at an average of 3.7% month-over-month from October to March 2011. Non-banking financial companies and transport operators also experienced high credit deployment over the last 6 months. Going forward, banks may become more cautious about lending to micro and small businesses due to interest rate hike risks. Overall, the document suggests that while credit growth has been steady, moderation in the pace of lending may be prudent given rising interest rates.
Yes Bank has experienced strong growth since its inception. It aims to continue growing loans and deposits at above industry rates through aggressive branch expansion and increasing penetration in corporate and retail segments. The bank's loan book has grown at a CAGR of 52.9% over the last 5 years, higher than industry average. The analyst expects loans to grow at a CAGR of 28% from FY11-13. However, maintaining high growth rates may require changes to prioritize improving key metrics like cost of funds. Overall, the report is bullish on the bank's business momentum continuing to drive strong performance.
This document provides an analyst's picks for the banking and financial sector in 2011. It begins with a summary of developments in the banking sector in 2010, including regulatory changes and performance. The outlook for 2011 is then discussed, with an anticipated credit growth of 18% but pressure on net interest margins. Several top picks are then highlighted, including private banks HDFC Bank and Axis Bank, public banks IOB and IDBI, and NBFCs REC and LICHF. Key financial metrics and investment highlights are provided for each pick.
The RBI's annual monetary policy review raised key policy rates like the repo rate and reverse repo rate by 25 basis points each, in line with expectations. The review projected GDP growth of 8% for FY2011 and placed the baseline inflation projection at 5.5% for the same period. While current inflation drivers are supply-side factors like food and fuel, inflation is becoming more broad-based. Money supply growth is expected to increase, putting upward pressure on interest rates. The summary argues that monetary tightening may need to be front-ended in FY2011 to anchor inflation expectations given reviving consumption and lagged capital expenditure.
The Reserve Bank of India made several changes to monetary policy in 2010-2011 to manage inflation and economic growth. It increased key policy rates like the repo rate and reverse repo rate by 0.25% to tighten liquidity and raise borrowing costs. It also increased the cash reserve ratio by 0.25% to reduce excess liquidity feeding into inflation. For the 2010-2011 fiscal year, RBI projected GDP growth of 8% with upward bias, and inflation lowering to 5.5% from the previous year's 9.9%. It increased projections for money supply, credit growth, and deposits to be consistent with higher expected growth. RBI aimed to anchor inflation expectations while ensuring credit growth, but faced challenges from global uncertainties
The document discusses objectives of studying the Reserve Bank of India's credit policies from 2009 to 2011 and their effects on inflation rates and the economy. It analyzes factors influencing inflation, monetary policies used by RBI to control money supply and inflation, and the impacts of inflation on various economic indicators like GDP and sectors like housing and small enterprises. The conclusion is that inflation needs to be controlled at moderate levels to benefit the economy.
The Bank of Thailand's January Inflation Report showed that while economic growth forecasts for 2010 and 2011 remained unchanged, assumptions had changed. While impacts of floods and slow trading partners had lifted, rising domestic demand and commodity prices would remain an inflation concern. The central bank expected to front-load policy rate hikes in the first half of 2011, bringing rates to 2.75% by mid-year to control inflation, holding or continuing gradual hikes depending on inflation trends.
Developments in the monetary policy arenavideoaakash15
The Reserve Bank of India increased key policy rates and the cash reserve ratio to tighten monetary policy and curb inflationary pressures. The repo and reverse repo rates were increased by 25 basis points to 5.25% and 3.75% respectively, while the cash reserve ratio was also raised by 25 basis points to 6%. RBI projected GDP growth of 8% for 2010-2011, with inflation projected to moderate to 5.5%, but highlighted risks from commodity prices, the monsoon, and volatile capital flows. While seeking to contain inflation, RBI said it would ensure adequate liquidity to meet credit demands and support growth.
Bladex's presentation outlines its positioning for growth opportunities in a post-Covid environment. Key points include:
1) Bladex has a differentiated balance sheet structure and the Latin American region is showing recovery, uniquely positioning Bladex to leverage new business opportunities.
2) Global and Latin American economic indicators show an optimistic outlook for 2021, with commodity prices and trade expected to support regional growth.
3) Bladex has enhanced its product offerings to address specific client needs through longer tenors, guarantee structures, and supply chain financing partnerships.
4) Internally, Bladex has undertaken strategic planning coordination to effectively align the bank for future opportunities in trade finance and corporate banking.
The Reserve Bank of India (RBI) made several changes to monetary policy measures in 2011-12, including hiking repo and reverse repo rates, adjusting cash reserve and statutory liquidity ratios, and revising GDP growth and inflation projections. Specifically, the RBI hiked repo rate by 0.5% to 7.25% and reverse repo by 0.5% to 6.25%, kept CRR at 6% and SLR at 24%, and projected 2011-12 GDP growth at around 8% and inflation at 6% by March 2012. Over subsequent policy reviews, the RBI further adjusted these rates and ratios in response to economic conditions, and revised GDP and inflation projections downward.
The Reserve Bank of India (RBI) made several changes to monetary policy measures in 2011-12, including hiking repo and reverse repo rates, adjusting reserve requirements, and revising economic projections. Specifically, the RBI hiked repo rates by 0.5% and then later by 0.25%, increased the cash reserve ratio by 0.5%, and revised GDP growth projections downward from 8% to 7% while inflation projections rose from 6% to 7%. Throughout 2011-12, the RBI made adjustments to key policy rates and reserve requirements in response to economic conditions while revising its forecasts for GDP growth and inflation.
The Reserve Bank of India raised key policy rates more than expected to contain high inflation. The RBI raised the repo rate by 25 basis points to 6% and the reverse repo rate by 50 basis points to 5%. Wholesale price inflation remains high at 8.5-9.5%, above the RBI's target range of 5-5.5%. While banks may raise deposit rates, lending rates are not expected to increase immediately, which should not disrupt the ongoing economic recovery and growth in sectors such as banking, auto and capital goods.
The banking industries in India and China face growing asset quality concerns due to rising non-performing assets (NPAs) from loans to politically connected and heavily indebted borrowers. In India, NPAs in public banks have sharply increased and threaten banking system stability, while authorities have taken steps to address the problem. However, China seems to be ignoring the full extent of its similar NPA problem. Both countries pursued accommodative monetary policies in response to economic challenges, but India's banking sector credit growth has slowed as NPAs have increased, while China saw rapid credit expansion and a tripling in banking assets.
1) The document discusses a presentation given at Citi's 23rd Annual Transportation Conference in November 2008.
2) It provides an overview of CSX's current financial performance and outlook, noting that while volume has declined, pricing momentum and productivity initiatives have helped sustain earnings growth.
3) It acknowledges economic headwinds but expresses confidence that CSX's diverse business portfolio and focus on operational excellence will allow it to continue generating strong free cash flow through the downturn.
1) The document discusses CSX Corporation's presentation at the Citi 23rd Annual Transportation Conference in November 2008.
2) It notes that while CSX's financial momentum remains strong, the overall economic environment is weakening, particularly in housing, automotive, and industrial sectors.
3) However, CSX believes the fundamentals of its business strategy ("Rail Renaissance") remain intact and it can maintain its focus on shareholder value through balanced capital deployment and priorities like productivity, growth, and price increases above inflation long-term.
2008 Shanghai Compensation and Benefits Studydacare
The document summarizes findings from Hewitt Associates' 2008 Shanghai City Compensation & Benefits Study. It provides an overview of economic trends in China and Shanghai, noting that while growth has slowed, it remains at a brisk pace. It then analyzes compensation trends in Shanghai, finding that salaries increased substantially in 2008, with average increases of 10.6% for manufacturing and 10.2% for non-manufacturing companies. The document also reviews companies' targets for revenue growth and headcount increases in Shanghai in 2009 despite the economic slowdown. It concludes by examining implications for businesses and human resources professionals in managing costs and investments in human capital.
capital one Capital One Acquisition of Chevy Chase Bankfinance13
Capital One announced the acquisition of Chevy Chase Bank for $520 million. Chevy Chase has $11.6 billion in deposits and is the #1 bank in the Washington D.C. market. The acquisition enhances Capital One's local banking business and deposit funding. It is expected to be financially attractive with an estimated 13% internal rate of return and accretion to earnings per share in 2009 and 2010. Capital One took a $1.75 billion net credit mark on Chevy Chase's loans to mitigate credit risks.
- State-owned banks in India restructured 3.1% of overall loans in FY12, with around 20% pertaining to corporate debt restructuring (CDR) cases. Excluding SBI, other state banks restructured around 4% of loans.
- Gross non-performing assets (NPAs) and net NPAs increased 54% and 58% year-over-year respectively. Provision coverage ratios declined for most banks despite higher loan stress.
- Gross slippages increased 48% year-over-year while the pace of recoveries and upgrades moderated, leading to higher balance sheet stress overall. The aggregate gross and net slippage ratios increased.
- While the net present value
Non-performing assets (NPAs) in the Indian banking system have significantly increased in recent years. NPAs totaled around 2.5 lakh crores (approximately $37 billion) by the end of March 2015, equal to the budget of the state of Uttar Pradesh. State-run banks account for two-thirds of total loans but 80% of bad assets. Rising NPAs hurt bank profitability, constrain new lending, and undermine public confidence in the banking system if left unaddressed. The majority of the increased NPAs have occurred in public sector banks that extensively lent to corporates between the early 2000s and 2008; many of these companies subsequently struggled amid a global slowdown.
Recent Economic Developments in Latvia and Medium-term OutlookLatvijas Banka
This presentation summarises recent macroeconomic developments in Latvia and outlines a medium-term outlook for real GDP and inflation. Presentation reviews ongoing economic recovery, labour market issues and includes analyses on core factors behind the path of inflation. The main focus of the presentation is on the issue of competitiveness of the Latvian economy pointing to the costs adjustment process and productivity gains, as well as presenting export performance, market shares and current account developments. Presentation also features slides on monetary and financial market developments.
bank of new york mellon corp 2q 07 earningsfinance18
The Bank of New York Mellon reported its second quarter 2007 earnings. Key highlights include:
- Revenue increased 19% to $3.2 billion driven by strong growth in asset management and securities servicing fees.
- Pre-tax income grew 28% to $1.1 billion as positive operating leverage led to a 34% pre-tax margin.
- The merger is achieving integration milestones and expense synergies are on track to reach $700 million by 2009.
- Combined assets under management were $1.1 trillion and assets under custody/administration were $20.4 trillion, demonstrating the company's strength in asset management and securities servicing.
Avant garde wealth mgmt quarterly letter - 1212Gaurav Jalan
The document discusses the relationship between interest rates, equity markets, and corporate earnings/profits in India based on empirical evidence from 1998-2012. Three key points:
1) There is no meaningful correlation between interest rates and P/E ratios in India, and historically interest rates have been loosely positively correlated with P/E ratios.
2) There is no relationship between changes in interest rates and subsequent corporate earnings growth.
3) No correlation exists between changes in bond yields and future equity index returns.
Although banks have a higher risk perception of the MSME sector, they continue to be the key players in formal financing. The higher share of bank supply can be attributed primarily to Priority Sector Lending (PSL). PSL guidelines require banks to allocate sizeable share of their credit portfolio to micro and small enterprises.
Similar to Banking & Nbfc Q411 Earnings & Policy Impacts (23rd May11) (20)
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Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
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2. Contents
Macro Economic Trend During Q4’11 3-6
Deployment of Bank Credit by Major Sectors 7
Impact of Savings Bank Rate hike 8-9
Impact of increase in the provision requirements 10-11
Impact of Other RBI notifications 12
Impact of Asset Liability Mismatch 13-14
Impact on credit growth - P i
I di h Private banks (last rate hik & inflationary cycle)
b k (l hike i fl i l ) 15
Impact on credit growth – Public Banks ( last rate hike & inflationary cycle) 16
Impact of increasing rates on credit growth - Now & Then (comparative situation) 17
Impact on forward earnings of companies under our coverage 18
Target Price Revisions 19-20
Banking Quarterly Performance Analysis (Q4’11) 21
NBFCs Performance Analysis (Q4’11)
(Q4 11) 22
Banking Sector – Outlook – near term pain 23
Quarterly Performance Analysis (Appendix 1) 24
Q
Quarterly Performance Analysis (Appendix 2)
y y ( pp ) 25
Key Financial Snapshot (Appendix 3) 26
Key Financial Snapshot (Appendix 4) 27
y
Return Summery 28
23rd May’2011
3. Macro-Economic Trend during Q4’11
The Indian Banking sector which has been a proxy to the Indian economy, is growing strong in fourth quarter too. During Q4-2011, RBI
increased the repo rate by 50 basis points from 6.25% to 6.75%, with a similar increase in the reverse repo rate from 5.25% to 5.75%. This takes
the overall increase during fiscal year 2011 to 150 basis points in the repo rate and 200 basis points in the reverse repo rate. Inflation remains the
key concern for the economy especially since December 2010 when food prices increased steeply Food prices have now started abating but
economy, steeply.
have been replaced by rise in fuel and non-food manufactured products inflation. Core inflation (i.e. manufactured products excluding food)
increased to 7.2% in March 2011. With domestic fuel prices yet to fully adjust to international oil price increases and also pressures rising in
non-food manufactured products, we believe risks to inflation are clearly on the upside. Headline inflation as measured by the Wholesale Price
Index, or WPI, was at 9.0% in March.
Policy rates & Reserve ratio trend Inflation Trend (y-o-y %)
10.00%
9.00% 12%
8.00%
10%
7.00%
6.00% 8%
5.00%
6%
4.00%
4%
3.00%
2.00% 2%
1.00%
0%
0.00%
-2%
CRR Repo Rate Reverse Repo
Source: RBI, Microsec Research
3 23rd May’2011
4. Macro-Economic Trend during Q4’11…..
High global crude oil and other
commodity prices pose the biggest risk to
India’s growth and inflation. Persistently
high inflation has kept inflation
g p
expectations elevated. Inflation during
FY12 is likely to moderate slowly but may
remain above the comfort level as the
pass-through of international commodity
prices is likely to continue.
Source: RBI, Microsec Research
4 23rd May’2011
5. Macro-Economic Trend during Q4’11…..
The statutory liquidity ratio was maintained at 24.0% in response to the deficit in systemic liquidity during the quarter. However, liquidity
conditions eased through the quarter on the back of increased government spending with government cash balances with RBI falling to a low level
of INR 1 billion by mid-March 2011. Interest rates on most of the short-term money market instruments including T-bill yields, inter-bank call
money rates, rates on Commercial Papers and rates on Certificate of deposits have showed a mild decline. In the mid-quarter monetary policy
review announced in March 2011, RBI has indicated a comfort level for overall liquidity to move in the range of +/-1% of net demand and time
q y g
liabilities (NDTL). Also, the special liquidity measures in terms of additional liquidity support and second LAF facility, which was to end in April
2011, were extended up to May 2011. Going forward, we expect liquidity to come under pressure again around June 2011 due to advance tax
payments.
21
9.00 Government Bond Yield Curve
d ld 18 IIP trend (YoY%)
8.00 15
12
7.00
9
6.00 6
(%)
5.00
5 00 3
(
0
4.00
-3
3.00
4/1/2010 3/31/2011 5 60
18
16 4 50
14 40
12 3
10 30
8 2
20
6
1 10
4
2 0 0
0
FY06 FY07 FY08 FY09 FY10 FY11 FY12E
Central Govt Net Market Borrowing (INR Tn)
Bank's share in Govt O/S Bonds(%) RHS
CD 3month CD 6month CD 12month Source: RBI, Microsec Research
RBI
5 23rd May’2011
6. Macro-Economic Trend during Q4’11…..
The
Th credit growth remained strong d i the quarter with a year-on-year non-food credit growth at 21 2% at M h 25 2011 compared to
di h i d during h ih f d di h 21.2% March 25, 2011, d
17.1% growth at March 26, 2010. Based on sector-wise data published by RBI, as of end February 2011, the growth was largely driven by
industry and services sectors; however, the deposit growth in the system continued to lag recording a growth of just 15.8% on year-on-year basis
at March 25, 2011 as against 17.2% at March 26, 2010. This moderation was due to a decline in demand deposits by 1% at March
25, 2011, compared to a growth of 23.4% at March 26, 2010. Time deposits grew by 18.7% in FY2011 compared to a growth of 16.2% in the
previous year Fiscal 2011 ended with the banking system reporting a credit to deposit ratio of 75 68% compared to 72 22% at the end of
year. credit-to 75.68% 72.22%
financial year 2010.
During the quarter, we saw most banks increase their deposit rates in the range of 25-150 basis points for various maturities. Lending rates were
also increased by most banks with 65 to 100 basis points increase in base rates during the quarter.
30 1000
Liquidity condition improved during Q4 11
Q4’11
25 Credit Growth% Deposit Growth%
500
20
15 0
10
-500
5
0
-1000
-1500
Incremental C/D ratio
I t l ti
Source: RBI, Microsec Research
6 23rd May’2011
8. Impact of Savings Bank Rate hike…
RBI hiked the savings bank deposit interest rate to 4% from the current 3.5% with immediate effect, even as the final decision to deregulate
savings rate remains pending. But, it was expected as term deposit rates have gone up significantly over the years. A core part of savings account
behaves as fixed deposit so it should earn better rates. The increase in the savings bank deposit rates likely to impact margins of banks, especially
banks with higher savings share in the overall deposit mix – impact more likely for PSU banks. However the net impact on margins is difficult to
predict because the banks may pass on this increase to end customers in the form of 1) higher fees on transactions 2) higher lending rates etc.
This will also vary bank to bank according to their priorities.
y g p
Assuming, the banks don’t pass on the 50 bps hike in Savings bank rate, the impact on their FY12 expected earnings is as under -
Public Sector Banks Increase due to SA Impact on NIMs Impact on NII%
TD% SA% CA% Rate hike FY12E (FY12E) Impact on PBT % FY12 E
Andhra Bank 70.94 21.3 7.76 10.7 7.7 2.68 4.28
BOB 65.6
65 6 27 7.4
74 13.5
13 5 10.5
10 5 3.68
3 68 5.88
5 88
BOI 75.5 19.6 4.8 9.8 6.8 2.38 3.81
Canara Bank 71 22.2 6.8 11.1 8.1 2.84 4.54
CBI 65.1 28.3 6.6 14.2 11.2 3.90 6.24
Corporation Bank 75 15.3 9.7 7.7 4.7 1.63 2.60
IDBI 79.1 7.7 13.2 3.9 0.9 0.30 0.48
Indian Bank 67.5 25.7 6.8 12.9 9.9 3.45 5.52
IOB 69.8
69 8 24.3
24 3 6 12.2
12 2 9.2
92 3.20
3 20 5.12
5 12
OBC 75.4 18.9 5.7 9.5 6.5 2.26 3.61
PNB 61.5 30.4 8.1 15.2 12.2 4.27 6.83
SBI* 53.1 35.5 11.4 17.8 14.8 5.16 8.26
Union Bank 68.2 22.1 9.7 11.1 8.1 2.82 4.51
Vijaya Bank 74.8 18.2 7 9.1 6.1 2.14 3.42
Increase due to SA Impact on NIMs Impact on NII%
Private Sector Banks
TD% SA% CA% Rate hike FY12E (FY12E) Impact on PBT % FY12 E
Axis Bank 58.9 21.6 19.5 10.8 7.8 2.73 3.69
Dhanlaxmi Bank 77.1 10.7 12.2 5.4 2.4 0.82 1.11
Federal Bank* 70.4 24 5.7 12.0 9.0 3.15 4.25
HDFC Bank 47.3 30.4 22.3 15.2 12.2 4.27 5.76
ICICI Bank 54.9 29.6 15.4 14.8 11.8 4.13 5.58
IndusInd Bank 72.8 8.9 18.3 4.5 1.5 0.51 0.69
ING Vysya Bank 65.4 17.7 16.9 8.9 5.9 2.05 2.76
J&K Bank* 60.4 28.8 10.8 14.4 11.4 3.99 5.39
Karnataka* 75.1 18.1 6.8 9.1 6.1 2.12 2.86
Karur Vysya Bank* 75 14 11 7.0 4.0 1.40 1.89
DCB 64.8 19.41 15.79 9.7 6.7 2.35 3.17
Color h
C l scheme – “D
“Deep R d” – worst i
Red” impacted , “Deep G
d “D Green” – l
” least i
impacted * 3Q’11 S d l
d Standalone Source: Company, Bloomberg, Microsec Research
S C Bl b Mi R h
8 23rd May’2011
9. Savings Bank Rate Deregulation - Case Study
India’s brush i h deregulation of d
I di ’ b h with d l i f deposit i
i interest rates d b k to the 1980 when b k were permitted to offer up to 8 per cent on d
date back h 1980s h banks i d ff deposits f a
i for
tenure between 15 days and up to a year. It triggered a flight of capital from current accounts and partially from savings bank accounts to the shorter
tenure deposits. The deregulation plan proved to be disastrous as it triggered a rate war among banks. The freedom to set interest rates was
withdrawn in May 1985. The process of interest rate deregulation resumed in 1992 after the liberalization. Bank won back the freedom to set interest
rates in phases, leaving the savings bank rate as the only administered rate at 3.5%.
Global experience
Interest rates on savings account in developed countries such as
Canada, Japan, Australia, New Zealand, UK, and USA are all deregulated
and determined by the commercial banks themselves on the basis of
market interest rates. Most savings bank accounts may carry customer
charges if the number of transactions exceeds the permissible level.
In response to the recent deregulation of SB rates in Hong Kong, a
number of banks launched new products such as combined savings and
checking accounts and Hong Kong inter-bank offered rate (HIBOR)
linked savings products. Some also revised fees and charges and minimum
balance requirements, and introduced tiered structures of interest rates.
Source: RBI, Telegraph, Google
However, we need to understand that unlike many other countries in Asia as well as other parts of the world, the Indian situation is different. A
large number of people in India are from the rural background with less saving. Deregulation of savings bank rate would work against financial
inclusion as public sector banks saddle with all un-remunerative accounts. Finally, if banks had the freedom to set the savings bank rate, they could
lower the rate in times of surplus liquidity to levels that are lower than at present. This would hurt senior citizens and pensioners who depend on
interest as a source of regular income
income.
Access our earlier report on SB rate Deregulation
http://www.microsec.in/Static/Pdf/634196444626714000_Event%20Note%20-%20Proposal%20on%20freeing%20Savings%20Bank%20rate.pdf
9 23rd May’2011
10. Impact of increase in the provision requirements
New Provision requirements for NPAs
Category Earlier (%) Now (%)
Sub-standard (Secured) 10% 15%
Sub-standard (Un-secured) 20% 25%
Secured -Doubtful -upto 1 year 20% 25%
Secured -Doubtful -From 1-3 year
y 30% 40%
Restructured -Standard 0.25-1% 2% in 1st 2 years from date of restructuring
Restructured -Standard -Where moratorium of interest / principal 0.25-1% 2% in period of moratorium + 2 years thereafter
Restructured -NPA -When upgraded to standard 0.25-1% 2% in the 1st year from the date of up-gradation
Source: RBI, Microsec Research
We expect limited impact of revised guidelines on NPA provisioning However guidelines on provision on restructured assets (RA) may effect
provisioning.
bank’s profitability in FY12, specially for PSU banks where the proportion of RAs to the overall advances are higher than their private peers.
FY12E Additioan Prov/
Additional Prov FY11 PBT PBT PBT Average Impact%
Restructured Advances (INR % of NPA coverage on FY12E PBT
Public Sector Banks
boo ( N M )
book (INR Mn) M )
Mn) adva ces
advances (%) 1.25%
. 5% 1.75%
.75% INR Bn
N INR Bn
N 1.25%
. 5% 1.75%
.75%
Andhra Bank 27,145 714,353 3.8 78 3.39 4.75 17.67 20.85 1.6% 2.3% 2.0%
BOB 67,114 2,286,764 2.9 85 8.39 11.74 56.50 66.67 1.3% 1.8% 1.5%
BOI 106,446 2,130,962 5 72.2 13.31 18.63 34.95 41.25 3.2% 4.5% 3.9%
Canara Bank 87,440 1,898,820 4.6 75.9 10.93 15.30 50.26 59.31 1.8% 2.6% 2.2%
CBI 47,710 1,163,090 4.1 70.3 5.96 8.35 16.59 19.58 3.0% 4.3% 3.7%
Corporation Bank 31,344 868,504 3.6 74.7 3.92 5.49 19.34 22.82 1.7% 2.4% 2.1%
IDBI 105,470 1,570,981 6.7 74.7 13.18 18.46 22.81 29.09 4.5% 6.3% 5.4%
Indian Bank 52,750 757,260 7 84.3 6.59 9.23 26.34 31.09 2.1% 3.0% 2.5%
Indian Overseas Bank 69,065 1,118,330 6.2 70 8.63 12.09 15.92 17.78 4.9% 6.8% 5.8%
OBC 52,500 959,082 5.5 76.8 6.56 9.19 20.39 24.06 2.7% 3.8% 3.3%
PNB 140,900 2,212,520 6.4 77.2 17.61 24.66 65.64 77.45 2.3% 3.2% 2.7%
SBI* 183,950 7,266,490 2.5 64.1 22.99 32.19 139.26 164.33 1.4% 2.0% 1.7%
Union Bank 50,649 1,337,870 3.8 70.2 6.33 8.86 29.55 34.87 1.8% 2.5% 2.2%
Vijaya Bank 12,630 435,700 3.8 67.6 1.58 2.21 6.84 8.07 2.0% 2.7% 2.3%
Color h
C l scheme – “D
“Deep R d” – worst i
Red” impacted , “Deep G
d “D Green” – l
” least i
impacted * 3Q’11 S d l
d Standalone Source: Company, Bloomberg, Microsec Research
S C Bl b Mi R h
10 23rd May’2011
11. Impact of increase in the provision requirements
Additioan Prov/
Additional Prov PBT
Restructured Advances (INR % of NPA coverage FY12E Average Impact%
Private Sector Banks on FY12E PBT
book (INR Mn) Mn) advances (%) 1.25% 1.75% FY11 PBT PBT 1.25% 1.75%
INR Bn INR Bn
Axis Bank 19,300 1,424,078 1.4 80.9 2.41 3.38 51.36 56.94 0.4% 0.6% 0.5%
Dhanlaxmi Bank 50 90,652 0.1 59.1 0.01 0.01 0.40 0.47 0.1% 0.2% 0.2%
Federal Bank* 13,510 282,400 4.8 80.3 1.69 2.36 9.02 10.73 1.6% 2.2% 1.9%
ICICI Bank 25,620 2,163,659 1.2 76 3.20 4.48 67.61 80.45 0.4% 0.6% 0.5%
IndusInd Bank 733 261,657 0.3 72.6 0.09 0.13 8.80 10.47 0.1% 0.1% 0.1%
ING Vysya Bank 3,200 236,021 0.3 83.4 0.40 0.56 4.84 5.76 0.7% 1.0% 0.8%
J&K Bank*
Bank 3,906
3 906 253,627
253 627 1.5
15 99.8
99 8 0.49
0 49 0.68
0 68 7.92
7 92 9.42
9 42 0.5%
0 5% 0.7%
0 7% 0.6%
0 6%
Karnataka Bank * 15,770 162,819 9.7 70 1.97 2.76 1.90 2.26 8.7% 12.2% 10.5%
Karur Vysya Bank* 5,080 165,140 3.1 87.4 0.64 0.89 4.26 5.07 1.3% 1.8% 1.5%
Yes Bank 829 343,636 0.2 88.6 0.10 0.15 10.92 13.00 0.1% 0.1% 0.1%
DCB 428 42,714 1.0 82 0.05 0.07 0.29 0.35 1.5% 2.2% 1.8%
HDFC Bank 5,000 1,599,826 0.3 83 0.63 0.88 58.19 69.08 0.1% 0.13% 0.1%
Color scheme – “Deep Red” – worst impacted , “Deep Green” – least impacted * 3Q’11 Standalone Source: Company, Bloomberg, Microsec Research
If we calculate the combo impact of 50 bps hike in SB rates and increase in the provisions on FY12 expected PBT, then we can see the worst
impact will be on IOB, SBI & Central bank of India in PSU Space and Karnataka bank, Federal bank & ICICI bank in private space. The average
impact for PSU banks would be 7.6% to their FY12 expected PBT. For private banks, the impact would be much lesser to the tune of 4.9%.
However the important thing to remember here is that Banks can pass on these cost to its end customers. Infact, after RBI’s annual meet on 3rd
May’11, a slew of banks like IDBI Bank, Indian Bank, YES bank, OBC , PNB & Bank of Maharashtra (BoM) has increased its base rate by 50
bps. With the increase, the base rate for PNB, OBC, IDBI and BoM stand at 10% while the private sector lender YES Bank will be at 9.50%.
BPLR of PNB stands at 13 50% OBC at 14 25% IDBI b k 14 50% B M 14 25% and Y B k 19% . H
f d 13.50%, 14.25%, bank 14.50%, BoM 14.25% d Yes Bank However the ih interesting things to watch
i hi h
in coming months is that how much it would effect the domestic credit demand. We have tried to predict the impact on credit growth in pages
15-17 where we have re-looked the previous rate hike cycle.
11 23rd May’2011
12. Impact of Other RBI notifications
RBI notification on Priority sector status
The Reserve Bank of India (RBI), in its notification dated 3rd May 11, has indicated that bank loans to NBFCs excluding micro finance institutions
(MFIs) will not be classified as priority sector lending. Loss of priority sector status on bank borrowings would increase the cost of funds for
NBFCs. RBI is likely to issue separate guidelines for assignment/securitization. Any substantial changes due to the new regulation could
y p g g y g g
considerably impact the profitability of asset financing NBFCs . On an average 10-15% of the total borrowings for these NBFCs are for priority
Sector lending . Removal of PSL status means in 4-5 bps increase in cost of funds simple arithmetic term.
However, as per managements, priority sector borrowings are either at normal bank rates or at negligible differential (between priority and non-
priority borrowing rates), which is likely to be passed on, hence protecting NIMs.
RBI has accepted the Malegam committee recommendations for microfinance companies
RBI's final Malegam Committee RBI has decided to broadly accept the recommendations of the Malegam Committee
For MFIs proposals recommendations report for micro-finance institutions and is likely to issue detailed guidelines on
Margin cap 12% 10% this. Borrowers would also have a choice of repayment in weekly, monthly or
Interest rate cap 26% 24% fortnightly installments. It can be a near term negative for the whole MFI sector
Share of income generating loans (%) 75% 75% and also for banks (IndusInd Bank, YES Bank) which has substantial exposure to
Source: RBI, Microsec Research this sector.
Investments in mutual funds restricted at 10% of last year’s net-worth
RBI has proposed that banks’ investments in liquid schemes of debt-oriented mutual funds will be subject to a prudential cap of 10% of their
networth, as of 31 March of the previous year. Banks which have over 10% of net-worth would be given about six months’ time to reduce to
regulatory limits As of 25 Mar ’11 banks investment in instruments issued by mutual funds stood at INR 476bn (13 9% of FY10 networth)
limits. 11, (13.9% networth).
So within six month’s time we may see debt oriented MF liquidation to the tune of INR 19 Bn which is negative for those mutual funds that
are largely debt-oriented. For banks we feel it wouldn’t have that much of an effect.
12 23rd May’2011
13. Impact of Asset Liability Mismatch
Unfortunately, the disproportionate dependence of Indian infrastructure projects on bank funding has forced banks to take higher-than-normal
exposure towards long gestation projects, resulting in potential ALM mismatches. Infrastructure accounts for 14% of bank loans as on
Q3’11compared to 9% on March 2008. We expect this ratio to go up to around 18% by March 2012. The liability profile of banks, on the other
hand, continues to be characterized by short to medium term deposits with tenures of one to three years. This has led to an average mismatch of
30 % in the 'up to three years' bucket, as on March 31, 2011, a gap that is expected to widen further. Now the potential impact could lead to
p y g p p p p
margin erosions for banks whose residual maturity of assets is higher than that of its liabilities.
BANKS’ ASSETS AND LIABILITIES (in %) Interest rate outlook and Asset-Liability Mismatches
Liabilities FY09 FY10 Assets FY09 FY10
Deposits Loans and Advances Interest rate outlook / mismatches +ve mismatch* -ve mismatch**
Up to 1 year 48.6 49.4 Up to 1 year 38.9 38.9
Over 1 year and up to 3 Increasing interest rates Favorable Unfavorable
years 28.5 29.4 Over 1 year and up to 3 years 33.3 33.3
Over 3 years 22.9 21.2 Over 3 years 27.8 27.8 Decreasing interest rates Unfavorable Favorable
Borrowings Investments
Up to 1 year 46.3 43.7 Up to 1 year 31.2 27.7
Over 1 year and up to 3 * Positive mismatch refers to a liquidity surplus (assets maturing faster than liabilities)
years 19.2 15.3 Over 1 year and up to 3 years 16.1 14.5
Over 3 years 34.5 41 Over 3 years 52.6 57.8 ** Negative mismatch refers to a liquidity deficit (liabilities maturing faster than assets)
Source: RBI, Microsec Research
13 23rd May’2011
14. Impact of Asset Liability Mismatch….
Impact in Increasing rate
3YR+ Dep. as % of 3YR+ Borr. as % of 3YR+ Adv. as a %of Term loans As % Of Less than 3 yrs Dep
Bank (FY10) 3YR + adv 3YR+ adv total adv Advances As % of TL
scenario & SB rate
deregulation *
United Bank of India 204.70% 0.60% 34.60% 73.90% 61.84% -42.8
HDFC Bank 173.80% 30.90% 16.20% 75.90% 52.24% 3.1
State Bank Of India 163.80% 24.70% 24.40% 49.70% 82.00% -37.0
Punjab National Bank 124.50% 23.90% 23.60% 53.60% 78.18% -23.3
Jammu & Kashmir Bank 115.20% 11.20% 23.30% 65.90% 70.00% -9.7
Karur Vysya Bank 109.70% 5.30% 21.40% 32.30% 56.96% -10.7
IndusInd Bank 96.80% 211.50% 5.20% 57.80% 16.12% 32.4
Bank of Baroda 94.30% 22.70% 29.70% 59.40% 69.01% -16.3
Axis Bank 61.50% 12.90% 62.00% 71.80% 39.30% -2.5
South Indian Bank 59.10% 8.70% 19.20% 37.70% 71.68% -2.3
UCO Bank 58.70% 8.90% 61.10% 66.80% 38.57% -0.3
Indian O
I di Overseas Bank
B k 32.20%
32 20% 23.00%
23 00% 26.60%
26 60% 50.50%
50 50% 66.27%
66 27% 2.4
24
IDBI Bank 27.40% 47.20% 35.40% 83.10% 11.48% 47.1
Allahabad Bank 25.90% 15.30% 35.50% 55.30% 71.36% 1.2
Development Credit Bank 12.20% 17.10% 14.10% 55.20% 43.05% 27.3
Andhra Bank 11.90% 23.20% 24.40% 44.60% 64.33% 7.3
Yes Bank 8.90% 75.80% 13.70% 78.50% 2.24% 65.1
Dena Bank 8.30% 11.80% 36.20% 52.00% 74.91% 5.8
Dhanalakshmi Bank 6.80% 1.50% 36.30% 62.30% 31.67% 39.6
Kotak Mahindra Bank 4.30% 20.60% 24.30% 79.30% 14.99% 61.4
ICICI Bank 3.80%
3 80% 74.00%
74 00% 28.60%
28 60% 77.50%
77 50% 37.90%
37 90% 25.9
25 9
Source: RBI, Microsec Research
* Calculation has been done by assuming advances to be 100. The color scheme represents : ‘Deep green’ – least impact & ‘Deep Red’ – highest impact.
The figures in the box should be read as an indicator rather than on absolute basis. The actual numbers may be different.
14 23rd May’2011
15. Impact on credit growth - Private banks – Will history repeat itself?
Private banks in last rate hike cycle had shown quick adaptability to the situation. Their Net Interest Income growth had come down to 2.23%
(Average quarterly growth) from a high of 12.57% during the FY08 period. The private banks ward off some its impact by reducing operational
expenses, however with a lag of 3 months. Average Opex/NII at that time came down to 68.78% from a high of 92.75% during FY08. On asset
quality front, there was a seasonal blip on GNPA as on June quarter’ 2008. However, GNPA & NPPA remain at the elevated level for the next 3
quarters with rising incremental slippages. On a PAT level, the average quarterly growth rate came down to 11.11% from a high of 16.6% in FY08.
We expect some seasonal moderation in Q1’12 along with increase in bad loans. However the real impact to be felt on subsequent quarters.
p Q g p q q
NII Growth% (Sequential) 30.00% Opex/NII 120.00%
25.00% 100.00%
20.00% 80.00%
15.00%
60.00%
10.00%
40.00%
5.00%
20.00%
0.00%
-5.00% 0.00%
0 00%
-10.00%
-15.00%
-20.00%
PAT Growth (Sequential) %
Asset Quality trend
A t Q lit t d 3.50
40.00%
GNPA% NNPA% 3.00
2.50 30.00%
2.00 20.00%
1.50
10.00%
1.00
0.00%
0.50
0.00 -10.00%
-20.00%
-30.00%
Source: Company, ACE Equity, Microsec Research
15 23rd May’2011
16. Impact on credit growth – Public Banks
Public banks in last
P bli b k i l rate hik cycle (M 08 N ’08) h d shown mixed b results. Th i N I
hike l (May08-Nov’08) had h i d bag l Their Net Interest I
Income growth h d come d
h had down to 3 92%
3.92%
(Average quarterly growth) from 5% during the FY08 period. In addition public banks’ average quarterly operational expenses to NII (%) increased
to 72.3% from 70% during FY08. On asset quality front, there was a seasonal blip on GNPA as on June quarter’ 2008. However, GNPA & NPPA
remain at the elevated level for the next 3 quarters with rising incremental slippages. On a PAT level, the average quarterly growth rate stays
reasonable at 8.16%. We expect some seasonal moderation in Q1’12 along with increase in bad loans. However the real impact to be felt on
subsequent quarters when incremental restructured assets will dent profitability
profitability.
NII Growth (Sequential)% 20.00% Opex/NII
90.00%
15.00% 80.00%
70.00%
10.00%
10 00% %
60.00%
50.00%
5.00%
40.00%
0.00% 30.00%
20.00%
-5.00% 10.00%
10 00%
0.00%
-10.00%
-15.00%
Asset Quality trend
3.00 PAT Growth (Sequential)% 60.00%
2.50
2.00 40.00%
1.50
1.00 20.00%
0.50
0 50
0.00%
0.00
-20.00%
-40.00%
GNPA% NNPA%
Q4’11 include SBI associates also Source: Company, ACE Equity, Microsec Research
16 23rd May’2011
17. Impact of increasing rates on credit growth…Now & Then
Then (July'2008)
y Now (May'2011)
y Comparative stand
Inflation Concern The headline inflation rate (WPI) had accelerated to a 13-year high India's headline inflation (WPI) rose faster than expected in
of 11.89% during the week ended July 12, 2008, from a low of 3.1% March on higher fuel and manufacturing prices. WPI rose
during the week ended November 24, 2007. RBI was worried about 8.98% YoY. The March reading was above the central bank's
the risk of second-round effects from high global commodity prices inflation projection of 8% for the final month of the fiscal
and thus inflation expectations. year, suggesting its eight interest rate hikes since March 2010
have been insufficient to contain stubbornly high inflation.
Current account deficit Even though oil prices had moderated from a peak of US$145/bbl, India's CAD, which stood at 3.7 per cent of GDP in the first
they were at higher than comfort levels at US$ 128/bbl. The rise in half of last fiscal (2010-11), moderated to 2.1 per cent in Q3'11
oil prices since April'08 implied that the trade deficit would widen on the back of a pick up in exports. However the rising prices
further. The RBI was also concerned about high non-oil import of commodities, especially crude oil, are likely to swell India’s
growth causing further widening of the current account deficit at a import bill in the coming months. India imports almost 75%
time when global capital inflows were slowing. Non-oil imports of the oil it uses. Recent decline in NYMEX crude from US$
grew at an average of 24 9% during April May 2008
24.9% April-May 2008. 113/bbl to US$ 98/bbl gave some short term relief to Indian
govt.
Monetary Aggregates Non-food credit growth stood at 25.9%Y during the fortnight ended Non-food credit growth stood at 20.6%Y during the fortnight
July'08, from a low of 21.9% as of end-2007. While some of the ended March 25 2011. It was down from a high of 23.14% as
uptick had been on account of greater credit off-take by the oil of end-2010. CD ratio which was very high at the end of 2010,
companies underpinned by higher oil p
p p y g prices. The RBI was has come down to a reasonable levels. Deposits growth was
p g
particularly concerned about the level of credit growth, considering also picking up due to almost ~300 bps hike in deposit rates of
that deposit growth had already slowed to 21.7% as of the fortnight different maturities.
ended July 4, 2008.
Rate hike In its first quarter review of monetary policy, the Reserve Bank of RBI Hiked Repo Rate 50 bps to 7.25% with immediate effect
India (RBI) decided to hike the repo rate (the rate at which the RBI in its annual policy review. Cash Reserve Ratio was
infuses liquidity) by 50bps to 9% and the cash reserve ratio (CRR) unchanged at 6 0% Savings bank rate increased to 4.0% from
6.0%. 4 0%
by 25bps to 9%. It was above market expectation of 25 bps. 3.5%. RBI started marginal standing facility for banks at
8.25%.
Policy Action rationale The policy statement highlighted the RBI’s concerns about The Central Bank enunciated the view that containing
aggregate demand pressures in the economy as reflected in higher inflation is imperative. However, no control over supply side
domestic inflation, the rising non-food credit off-take, the widening constraints make the situation much more trickier this time.
trade deficit and loose fiscal policy We also believe RBI was definitely behind the curve this time.
Impact on growth GDP growth projection moderated from a high of 9%+ to 7-7.5%. GDP growth projection moderated from a high of 8.5-8.75%+
Credit growth in next 9 months come down to 15% YoY and to 7.5-8%. Credit growth in next 10 months is expected to
deposits grow was at 13% YoY. come down to 18% YoY and deposits grow was at 16% YoY.
The deposit growth will have a lag effect of the SB rate hike.
Thumbs up - Now is comparatively better Source: RBI, Microsec Research
17 23rd May’2011
18. Impact on forward earnings of companies under our coverage
2012E 2013E
2012E 2013E
Old New % Change Old New % Change
Old New % Change Old New % Change LICHFL
HDFC NII 15876.20 16428.50 3.48% 20639.06 19993.60 -3.13%
Bank NII 121234.80 123354.30 1.75% 148876.30 149875.50 0.67% PAT 10576.30 10761.39 1.75% 13495.36 13356.36 -1.03%
PAT 48658.00 47144.74 -3.11% 63248.00 62457.40 -1.25% EPS 24.90 25.34 1.75% 31.77 31.45 -1.03%
EPS 106.70 103.38 -3.11% 139.20 136.96 -1.61%
2012E 2013E
Old New % Change Old New % Change
2012E 2013E Dewan
NII 4650.90 4578.81 -1.55% 6092.68 5943.30 -2.45%
Housing
Old New % Change Old New % Change PAT 3035.70 3005.34 -1.00% 3855.34 3786.73 -1.78%
Axis Bank NII EPS 29.19 28.90 -1.00% 37.07 36.41 -1.78%
79124.00 78426.60 -0.88% 98324.00 96633.80 -1.72%
PAT 40093.00 39190.91 -2.25% 49899.00 49337.64 -1.13% 2012E 2013E
EPS 99.00 96.77 -2.25% 123.21 121.82 -1.12% Old New % Change Old New % Change
GRUH
NII 1490.30
1490 30 1531.03
1531 03 2.73%
2 73% 1654.20
1654 20 1768.30
1768 30 6.90%
6 90%
Finance
PAT 980.60 993.99 1.36% 1108.10 1146.33 3.45%
2012E 2013E
EPS 28.06 28.44 1.36% 31.71 32.80 3.44%
Old New % Change Old New % Change
IDBI Bank NII 52118.00 51190.40 -1.78% 62263.20 60660.20 -2.57% 2012E 2013E
PAT 23267.50 22592.74 -2.90% 27301.50 26905.63 -1.45% Old New % Change Old New % Change
Bajaj
NII 12398.70 12262.31 -1.10% 14479.95 14335.15 -1.00%
EPS 23.60
23 60 22.92
22 92 -2 90%
2.90% 27.70
27 70 27.29
27 29 -1 48%
1.48% Finance
PAT 2920.72 2847.70 -2.50% 4065.54 3994.39 -1.75%
EPS 79.80 77.81 -2.50% 111.10 109.13 -1.77%
2012E 2013E
Old New % Change Old New % Change 2012E 2013E
IOB Old New % Change Old New % Change
NII 51273.79 50180.40 -2.13% 58663.42 58961.50 0.51%
REC NII 37884.70 36653.45 -3.25% 45840.40 44923.59 -2.00%
PAT 12405.72 11741.27 -5.36% 15640.68 15210.57 -2.75% PAT 29486.80 28307.33 -4.00% 35973.90 35182.47 -2.20%
EPS 19.90 18.83 -5.36% 25.00 24.40 -2.40% EPS 29.80 28.61 -4.00% 36.36 35.56 -2.21%
Source: Microsec Research
Key assumptions
• Credit demand slow down to the tune of 300 bps to 18% in FY12.
• Factored in 50 bps hike in SB rate & 50 bps hike in FD rate for FY12. Also 75 bps hike in base rates.
FY12 rates
• Increase in Provisioning expenditure by 1.4%, keeping slippages at the same levels of H1’FY 11.
• For NBFCs, we have factored in 150 bps hike in cost of funds.
We also adjusted our estimates on the basis of their recent financial performance in FY11.
18 23rd May’2011
19. Target Price Revisions - Banks
Target Price Recommendation
Target P/ABV Annualized
^
Banks Prev Current Multiple** CMP* Upside%# return% Comments Risk Return
PSU
Profile
Hike in base rates (Up by 50 bps) may support the margin, higher
High
proportion of Restructured assets (6.2% of advances) may pose
IOB 195 190 1.15 148 28.38% 16% BUY Risk/High
some upside risk to provisioning cost which may dent the
Gain
bottomline.
Loan growth to moderate as management emphasis on quality
over quantity, hike in base rates (Up by 50 bps) may support the
High
margin, higher proportion of Restructured assets (6.7% of
IDBI Bank 183 175 1.00 132 32.58% 18% BUY Risk/High
advances) may pose some upside risk to provisioning cost which
Gain
may dent the bottomline. However we feel the asset quality
improvement will continue.
Private
It has the pricing power in this kind of scenario. Base rate hike of
55 bps and FD rate hike to the tune of 75-125 bps (different Low
HDFC Bank 2451 2451 3.40 2265 8.21% 4% HOLD maturities)may have some marginal impact on NIMs going Risk/Low
forward. Strong operational & asset quality may support earnings Gain
despite
d it some moderation.
d ti
Low capital adequacy 12.7% may compel the bank for capital
raising during FY12 to support growth. This may see some equity Low
Axis Bank 1529 1529 2.40 1216 25.74% 14% BUY dilution. There can be some near term assert quality pressure due Risk/High
to execution delays in power & Infra segment along with trouble- Gain
some Microfinance portfolio.
p
*Closing price as on 18th May’11, ** based on FY13 expected earnings, # absolute, ^ according to our rating scale
19 23rd May’2011
20. Target Price Revisions – NBFCs
Target P i
T Price Recommendation
R d i
Target P/ABV Annualized
^ Comments
Prev Current Multiple** CMP* Upside%# return% Risk Return
NBFCs
Profile
Higher proportion of variable rates on the asset side and fixed
rates on the liability side may give the company to maintain its
margin. However, increasing interest rates may slowdown the Low
LICHFL 238 238 2.00 208 14.4% 8% HOLD
credit demand in the Tier-1 cities. Lower proportion of high Risk/Low
yielding assets may hamper profitability. Asset quality to remain Gain
strong.
Higher proportion of bank borrowings (~40%) may have an
g p p g ( ) y
impact on margins going forward as most of the banks had
Low
increased their base rates by almost 225-300 bps during H2'11.
GRUH Finance 478 470 3.25 396 18.7% 10% HOLD Risk/Low
Strong asset quality and strong parentage will support earnings.
Gain
Higher proportion of some risky segment in the asset side may
pose some risk.
Higher proportion of bank borrowings (~40%) may have an
impact on margins going forward as most of the banks had High
Dewan Housing 356 346 1.75 238 45.4% 25% Strong BUY increased their base rates by almost 225-300 bps during H2'11. Risk/High
Acquisition of Deautsche Post Bank Home finance will segment Gain
the loan book and diversify the loan portfolio.
Business restructuring will support the earnings However
earnings. However,
slowdown in consumer & capital goods segment may pose top High
Bajaj Finance 1080 950 1.75 635 49.6% 27% Strong BUY line earnings risk going forward. Beside that the benefit of lower Risk/High
base will not be there in FY12. However, strong brand, Gain
improving RoE profile makes it a investment case for long term.
Higher exposure to financially weak SEBs & T&D segment may
g p y g y
pose some asset quality risk. Even slow down in project
High Risk /
REC 286 286 1.75 213 34.3% 19% BUY execution may threaten the top line growth. Higher proportion
Low Gain
of bulk borrowing may erase margins going forward as higher
bulk borrowing cost.
*Closing price as on 18th May’11, ** based on FY13 expected earnings, # absolute, ^ according to our rating scale
20 23rd May’2011
21. Banking Quarterly Performance Analysis (Q4’11) – Operational Efficiency saves the day
Banking
B ki sector profit f th f th quarter ending M h 2011 reported a 3 5% Q Q i
t fit for the fourth t di March t d 3.5% QoQ increase and a 48 78% Y Y growth over th quarter ending
d 48.78% YoY th the t di
March 2011. Private sector banks have again relatively performed better than PSU banks in terms of gaining market share and reporting strong
bottom-line numbers. The PSU bottomline numbers were relatively subdued due to higher provisioning for 2nd option of pension liability &
higher provisioning for bad loans. The standalone net profit growth of Private sector banks for the quarter was 14.44% QoQ as against a decline
of 7.2% for PSU banks. Also, the standalone net profit growth of Private sector banks for the quarter was 71.74% YoY as against a of 25.8% for
PSU banks
banks.
Among the consortium, the highest YoY % increase in net profit for March 2011 quarter was reported by Laxmi Vilas Bank & Development
Credit Bank (DCB) among the private sector banks. Among PSU Banks, the highest increase in net profit in YoY % term for Q4’11 was observed
in the case of IOB & United Bank of India.
On the asset quality front, Private sector saw a decline in Net NPA by 11.33% QoQ and 19.62% on a YoY basis. In case of PSBs, asset quality
worsened in Q4’11 by 6.3% QoQ and 46.1% YoY. Among the PSBs, Indian Overseas Bank (IOB) has shown the best performance in terms of
asset quality. The bank’s NNPA declined by 10.7% QoQ and 33.4% on a YoY basis. Among the private sector banks, DCB has shown the best
improvement on asset quality front , closely followed by ING Vysya Bank and Laxmi Vilas bank.
3.80% 80.00%
80 00% 71.74%
Q4'11 Q3'11 Private Sector Bank (YoY%) Public Sector Banks (YoY%)
3.67%
60.00%
3.60% 46.10% 46.1%
39.61%
3.44%
40.00% 30.5% 29.4%
3.40% 3.32% 25.8%
19.56%
19 56% 16.8%
3.29% 20.00%
3.23% 13.8%
3.20%
3.10%
0.00%
Interest Earned Interest expenses Other Income Provisions PAT NNPA
3.00%
-20.00%
19 62%
-19.62%
2.80% -40.00%
Private Bank PSU Average Combined
Average NIM% NIMs% NIMs% -60.00% -51.72%
* Excluding associates of SBI Source: Bloomberg, Microsec Research
21 23rd May’2011