India Research

Bankex Vs BSE Sensex

220
180
140
100
Private Sector Banks
60
Sep-06 Mar-07 Sep-07
Bankex Sensex
Source: ENAM Research, Bloomberg

Bankex Vs Pvt Sector Banks

260
220
180 Still attractive, despite higher valuations
140
100
60
Sep-06 Mar-07 Sep-07
Bankex Pvt Sector Banks

Source: ENAM Research, Bloomberg

Sector summary
CMP Mkt. Cap P/E P/BV ROE (%) Tgt Price Upside Relative to
(Rs) (USD mn) FY08E FY09E FY08E FY09E FY09E (Rs) (%) sector
ICICI Bank 1,046 28,985 19 13 1.7 1.4 11.1 1,284 23 Outperformer
HDFC Bank 1,420 12,701 34 26 4.3 3.8 15.4 1,502 6 Underperformer
Axis Bank 728 6,567 28 20 3.0 2.7 14.2 937 29 Outperformer
CBoP 45 2,075 53 37 3.8 3.5 9.9 46 2 Underperformer
Yes Bank 193 1,371 32 20 4.0 2.8 16.8 - - -
Federal Bank 367 794 8 7 1.7 1.4 22.3 428 17 Outperformer
Source: ENAM Research , Note : Prices as on 9 October 2007. P/E and P/B of ICICI Bank are calculated after deducting the value of investments

Punit Srivastava
punit@enam.com (+91 22 6754 7609) October 10, 2007
1
Table of Contents
Slide No.
 Sector Review 3
 ICICI Bank 8
 HDFC Bank 17
 Axis Bank 23
 CBoP Bank 29
 Yes Bank 35
 Federal Bank 41
 Annexure 47
 Historical Performance: New Private Banks 49
 Historical Performance: Old Private Banks 53
 Current Performance 55

2
Key Events expected in FY08
 RBI unlikely to ease in the near term, interest rates still seen peaking out
„ Tight monetary policy likely to continue for next six months with real test of inflation starting from November onwards
„ Appreciating rupee, due to huge dollar inflows, may continue to force RBI to follow a tight monetary policy
„ However, the recent increase in MSS limit to Rs 2 trillion may allay the fear of an imminent CRR hike
„ Despite the tight monetary policy, interest rates likely to be stable with a downward bias

 A cut in SLR expected towards the end of this fiscal

„ Total demand for SLR estimated at USD 40bn in FY08
„ Against this demand, total supply is in the range of USD 25-30bn only
„ The demand supply gap is likely to worsen next fiscal

 Implementation of Basel–II norms by end FY08

„ Credit Portfolio to gain as risk weight to range from 20%-100% against 100% earlier
„ Extra capital requirement due to market and operational risk
„ Banks in general are likely to lose 1-1.5% CAR

 Banks that will raise fresh capital this fiscal include Yes, ING Vysya, Federal & Dhanalakshmi
„ Centurion Bank of Punjab & South Indian Bank have already raised capital in Sep 2007
„ Among Larger Banks, ICICI, HDFC and Axis have already raised capital in June/July 2007

 Credit growth expected to slow down to ~22% after growing by 26-30% in last three years
„ Slowdown largely due to moderated growth in retail segment
„ No major signs of slowdown in corporate, rural and overseas loans

3
Outlook for FY08
Headline Inflation
 Expect inflation to remain low till Nov 2007 7
„ Inflation for the week ended 22nd Sept-07 was 3.42% (%)
6
„ RBI has set a medium term target of 4-4.5%. Assuming
0.1% weekly rise
„ Expected to inch up from Oct- 07 though unlikely to go above 5% till Mar 2008 5

4
 Moderation in credit to restrict interest rates from rising further
„ Banks are reducing deposit rates but credit rates largely untouched 3
„ However, some banks have decided to cut mortgage rates
2
Corporate lending rates largely untouched

Nov-06

Nov-07
„

May-07
Jul-06

Jan-07

Jul-07
Mar-07

Jan-08
Sep-06

Sep-07
 Cut in deposit rates to help support NIMs
„ NIM of most banks were under pressure in Q1FY07
„ NIM may continue to be under pressure in Q2FY07 due to deposit re-pricing YoY growth in credit vs. deposits
„ However, recent cuts in deposit rates to support NIM after 2-3 quarters 35
(%)

 General Provisioning likely to come down in FY08 30

„ GP requirements to be lower this fiscal, after higher requirements in FY07

25
„ Higher Gross NPAs in some segments could increase loan specific provisions
20
 Asset quality unlikely to witness any major deterioration
„ Deterioration largely from the retail segment 15
Dec-05 Apr-06 Aug-06 Dec-06 Apr-07 Aug-07
„ CIBIL checks are helping to curtail higher NPAs despite higher interest rates
YoY gwth in deposits YoY gwth in credit

Source : CSO, RBI

4
Private Banks: From growth to profitability
 With loan growth slowing, more focus on NIMs
„ ICICI Bank to focus more on NIMs with slowing retail loan growth
„ HDFC Bank – focusing more on SMEs & corporates, Axis Bank likely to sustain growth momentum on lower base
„ Smaller banks like Centurion, Yes & Kotak likely to sustain growth momentum
„ ING Vysya to start seeing a pick up with renewed top management vigor
„ Regional private banks also likely to grow 20-25% this fiscal

 Superior quality growth in assets and earnings to mask low ROE on account of equity dilution
„ Almost all private banks have raised or will be raising equity capital this fiscal
„ ROE likely to remain low for next two years, though likely to pick up from FY10 onwards
„ P/BV looking attractive as most dilutions are substantially book accretive
„ Valuations higher on P/E terms due to substantial equity dilution
„ Valuations unlikely to be affected due to lower ROE – especially for HDFC Bank & Axis Bank

 Our top picks include ICICI Bank & Axis Bank

„ Despite the expected slowdown, NIMs to be stable for ICICI Bank
„ Asset quality unlikely to deteriorate significantly
„ Corporates, Rural, Overseas and unsecured loans likely to see higher growth
„ Value of non-banking businesses to increase substantially in next two years for ICICI Bank
„ Valuations are the most attractive for ICICI Bank. Axis Bank may see some further re-rating

 Federal Bank is our other preferred pick

„ Federal Bank expected to witness some further re-rating due to consistently superior performance
„ YES Bank expected to see strong growth momentum and better ROE for next two years
„ ING Vysya also to see much stronger growth in assets and earning for next two years

5
Comparative Valuations
Valuations summary

CMP Mkt. Cap P/E P/BV ROE (%) Tgt Price Upside Relative to
(Rs) (USD mn) FY08E FY09E FY08E FY09E FY09E (Rs) (%) sector
ICICI Bank 1,046 28,985 19 13 1.7 1.4 11.1 1,284 23 Outperformer
HDFC Bank 1,420 12,701 34 26 4.3 3.8 15.4 1,502 6 Underperformer
Axis Bank 728 6,567 28 20 3.0 2.7 14.2 937 29 Outperformer
CBoP 45 2,075 53 37 3.8 3.5 9.9 46 2 Underperformer
Yes Bank 193 1,371 32 20 4.0 2.8 16.8 - - -
Federal Bank 367 794 8 7 1.7 1.4 22.3 428 17 Outperformer
Source: ENAM Research , Note : prices as on 9 October 2007

Comparative P/BV vs RoE(FY09E) Comparative P/E vs ROE (FY09E)

4.0 40
HDFC Bk
3.5 CBoP
CBoP 35
3.0 30
Yes Bk HDFC Bk
P/BV (x)

2.5 Axis Bk 25

P/E (x)
2.0 20 Yes Bk
Axis Bk
1.5 15
1.0 ICICI Federal
10 ICICI
0.5 5 Federal
0.0 0
5 10 15 20 25 5 10 15 20 25
RoE (%) RoE (%)
Source: ENAM Research

6
Private Banks

7
 India Research

Stock Data

ICICI Bank
No. of shares : 1,111.7mn
Market cap : Rs 1,163bn
52 week high/low : Rs1,125/ Rs673
Avg. daily vol. (6mth) : 2.5mn shares
Bloomberg code : ICICIBC IN
Reuters code : ICBK.BO
Rs 1,046
Shareholding (%) Jun-07 QoQ chg
Relative to Sector: Outperformer Target Price: Rs.1,284
FIIs & NRIs : 45.9 0.9
ADRs : 24.9 (1.6) Potential Upside: 23%
Banks / FIs : 11.6 (0.4)
MFs/UTI : 5.0 0.6
Others : 12.6 0.5
Relative Performance
220
180
140
100 Opportunity, among short term fears
60
Sep-06 Mar-07 Sep-07
BANKEX ICICI

Source: ENAM Research, Bloomberg

Financial summary
PAT EPS BV P/BV Leverage P/Banking P/E P/E NPAs RoE RoE on
Y/E Mar (Rs mn) (Rs.) (Rs.) (x) BV BV (x) banking (%) (%) Banking BV(%)
2006 25,400 28.5 250 4.2 205 3.1 36.6 22.3 0.7 16.2 16.0
2007 31,102 34.6 270 3.9 222 2.9 30.2 18.4 1.0 13.4 15.9
2008E 42,457 38.2 424 2.5 384 1.9 27.4 18.8 1.5 11.9 13.4
2009E 54,264 48.8 456 2.3 417 1.4 21.4 12.2 1.5 11.1 12.8

Source: ENAM Research , Note : prices as on 9 October 2007

Punit Srivastava
punit@enam.com (+91 22 6754 7609) October 10, 2007
8
ICICI Bank: Investment Summary
 Well positioned to capitalize on rising corporate & overseas demand after the retail boom
„ Credit book still expected to grow at ~25% driven by rural credit and overseas lending
„ NIM expected to improve on the back of USD 5bn equity dilution
„ Fee-based income projected to grow at a CAGR of ~35% for next two years

 Asset quality issues overdone

„ Higher additions in NPAs due to higher proportion of unsecured loans, which forms ~14% of retail loans
„ Gross NPAs at 2.9% appears high on account of additions of write-offs in gross NPAs
„ Net NPAs at 1.3% still under control

 Best placed in the current interest rate scenario

„ Around 50% of the retail loans are of fixed rate – being non-mortgage loans
„ The re-pricing of such loans is yet to happen
„ Hence the upside potential on asset yields is among the highest

 A play on fast growing financial services like Insurance, asset management, securities etc.
„ ICICI – Prudential, the leading private life insurer, 74% being held by ICICI Bank– valued at USD 9.4bn – Rs 249 p/s
„ ICICI – Lombard, leader in private non-life space, 74% being held by ICICI Bank– valued at USD 1.1bn – Rs 31 p/s
„ Asset Management business, second largest Mutual Fund – valued at USD 500m – Rs 19/s
„ Overseas Subsidiaries, held 100% by ICICI, valued at USD 2bn – Rs 77 p/s
„ Others including I-Sec, ICICI Ventures, First Source etc. valued at Rs 48 p/s

 Total value of investments at Rs 451 p/s, SOTP gives a price target of Rs 1284
„ Value of all investments estimated at Rs 530 per share, if we take USD 11bn transaction of the holding company
„ Value of investments likely to grow multi-fold in next 3-5 years

 Stock quoting at of 1.4x FY09E Banking BV, after adjusting for the value of investments
9
ICICI Bank: Background
 Largest Private Bank with total asset size of USD 88bn ICICI Bank: Break of Deposits
„ 950 branches (including 48 ECs)
(Q1FY08)
„ 3,470 ATMs Term
„ 36,000 employees Deposits
9%
 Incorporated in 1994 as a subsidiary of ICICI (75%)
„ The bank came out with its IPO in Sep-1997 at Rs 35 per share. Current
Account
„ First Indian Company listed on NYSE in Sep 1999
Savings 77%
„ Acquired Bank of Madura in Feb 2001 and Sangli Bank in Dec 2006 Account
14%
 Leadership position in most retail segments
„ Enjoys 25-30% market share in Mortgages, Auto and Personal
loans
ICICI Bank: Loan breakup (Q1FY08)
 Largest overseas presence amongst Indian Banks Corporates & SMEs
„ Total overseas asset size of USD 22bn in Jun-07 Others 3% Overseas
Others 10% Loans
„ 25% market share in overseas remittances 16%
PL 8%
„ Presence in 17 countries
6% Rural
„ Three wholly owned international subsidiaries in UK, Canada & 7%
Russia CC
3% TW
 Key subsidiaries include 1% Mortgages
27%
„ ICICI Prudential (74%) & ICICI Lombard (74%) CV
9%
„ ICICI Ventures (100%) Auto
10%
„ ICICI Sec (Group) (99.9%)
„ ICICI-Prudential AMC (51%)
Source: Company

10
ICICI Bank: Performance Highlights
 Credit to witness 25-30% CAGR for next 2 years ICICI Bank: Balance Sheet growth
„ Largely driven by corporate lending, rural credit and overseas lending 60
(%)
„ CAGR in credit at 47% over the past 3 years 40
„ Retail loans have grown at a 57% CAGR over past 3 years
20
„ Retail loans likely to grow by 15-20% for next 2 years, despite the
slowdown 0
FY03 FY04 FY05 FY06 FY07 FY08E
 Re-pricing of fixed rate retail loans to help improve NIM
ICICI Bank: Credit Spread
„ Around Rs 75bn of such fixed rate retail loans are maturing per quarter 7
(%)
„ Hence the upside potential on asset yields is among the highest 6
„ We expect the NIM to start expanding from Q3 onwards
5

 Fee based income on track 4

„ Likely to grow at a CAGR of ~35% for next two years 3
„ Rising cross selling of wealth management products - Insurance & MFs FY03 FY04 FY05 FY06 FY07 FY08E
„ 25% market share in growing overseas remittances
„ Higher focus on Corporates and SMEs ICICI Bank: NPAs and Slippages
15
(%)
 Core NIM expected to improve from Q3 onwards 10
„ Downward re-pricing of bulk deposits and upward re-pricing of fixed rate
5
retail loans will help in improvement of NIM from Q3 onwards
„ USD 5bn issue will help in higher reported NIM from Q2 onwards 0

FY08E

FY09E
FY02

FY03

FY04

FY05

FY06

FY07
 Further rise in NPAs largely on account of Net NPAs
„ Rising proportion of unsecured loans Gross NPAs
Slippages as % of prev yr adv
„ Slowdown in overall retail loans, which will result in a base effect
Source: Company, ENAM Research

11
Performance & Value of Non-Banking Businesses
ICICI-Pru Life ICICI Lombard – Gross
 Life Insurance: Strong pick up in Q2 after a subdued Q1 100
Insurance - APE written premium
60
„ After a subdued growth of 22% in Q1FY07; 90 (Rs bn) 87 (Rs bn)
50.7
80 50
„ FYP grew 58% in July-07 and 91% in Aug-07
70 62 39
„ YTD growth till Aug-07 stands at 42% 60
40
4 yr CAGR 4 yr CAGR 30
„ FYP likely to end this fiscal with a growth of 55-60% 50 43 30 of 94%
40 of 103%
„ Valuing ICICI-Pru Life at USD 8.3bn – Rs 249 p/s for ICICI Bank 20 15.9
30 22
20 13 8.9
 Non Life Business: Focus on profitability 7 10 4.9
10 3 2.1
„ Gross Premium Underwritten grew 20%+ in July 2007 and Aug 2007 0 0

FY08E
FY09E
FY03
FY04
FY05
FY06
FY07

FY08E
FY09E
FY03
FY04
FY05
FY06
FY07
„ Earlier in Q1FY07, GP growth was at single digit at 9%
„ Focus to maintain its Combined Ratio had led to such a fall in GP
„ Higher competition in some segments led to price war, which is expected Value of Life Insurance Business Rs.bn
to cool down going ahead Estimated value of new policies likely to
be sold (on APE basis) in FY09 98
„ Normalised profit grew 59% in FY07 to Rs 1.38bn Estimated NBAP margin on APE by FY09 19%
„ Normalised profit projected to reach Rs 2.3bn by FY09 Estimated NBAP 18.7
Multiple (x) 20.0
„ Valuing ICICI-Lombard at USD 1.1bn – Rs 31 p/s for ICICI Bank Value of Life Insurance Business 374
Value assigned to ICICI Bank 277
Value per share for Life Insurance Business 249
 Overseas banking subsidiaries showing high growth
General Insurance (Rs mn)
„ Total assets grew 125% in FY07 to USD 7bn
PAT - FY07 684
„ UK subsidiary made a profit of USD 40m in FY07, likely to make USD 110m Combined Ratio - FY07 97.5%
net profit by FY09 Total Net Surplus - FY07 (normalised profit) 1,379
Total net surplus-FY09 (normalised profit) 2,331
„ Overseas subsidiaries – UK, Canada & Russia valued at USD 1.6bn – Rs 77 Value of the Non Life Business 46,610
ICICI share 74%
p/s for ICICI Bank Value of Non Life to ICICI 34,492
Value per share (FY09) 31

Source: Company, ENAM Research

12
Implied P/BV Based on Holding Company Valuations
ICICI Bank: Implied P/BV based on USD 11bn valuations of holding company

Valuations Rs./shr Comments

Value of ICICI Financial Services 378 Based on USD 11bn valuation of ICICI Financial Services

Value of overseas subsidiaries 77 0.8% ROA at 12x on $18bn of assets by FY09E

Value of other investments 75 Other investments include I-Sec, ICICI Venture and other investments

Total Value of Investments 530 -

Current price of the stock 1,046 -

Implied Price of ICICI Bank 516 -

Banking BV – FY09 417 After deducting the cost of investments at ~Rs 40 per share

Implied P/Banking BV 1.2 x FY09E Banking BV

Source: ENAM Research

13
SOTP Without Considering Holding Company Structure
FY09 (Rs/shr) FY09 Note

ICICI Bank 833 Value of Banking Business at 2x FY09 Banking BV

Mutual Fund Business 19 7% of AUM by FY09

Life Insurance 249 20x FY09 NBAP of Rs 18.7bn

General Insurance 31 20x FY09 projected Net Surplus

I-Sec (Group) 27 12x FY09 PAT of Rs 2.5bn (FY07 net profit of Rs 1.67bn)

Value of overseas subsidiaries 77 15x FY09E PAT for ICICI UK and ICICI Canada

Value of other investments at 20% 48 Include value of investments in ICICI Sec/3i/ ICICI Venture/ NCDEX/
discount NSE/ICICI First Source

Valuations of ICICI Group 1,284

Source: ENAM Research

14
ICICI Bank: Financials
Income Statement Balance Sheet
(Rs mn) FY06 FY07 FY08E FY09E (Rs mn) FY06 FY07 FY08E FY09E

Interest Income 143,061 229,942 348,435 448,242 Liabilities

Interest Expenses 95,974 163,585 260,659 331,100 Equity Capital 8,898 8,990 11,117 11,117
Net Interest Income 47,087 66,357 87,776 117,142 Net worth 222,060 243,130 470,864 507,221
Non-Interest Income 41,810 59,290 77,041 100,906 Preference Share 3,500 3,500 3,500 3,500
- Fee-based income 32,590 50,120 70,168 94,727 Deposits 1,650,832 2,305,100 2,881,375 3,659,346
- Profit from sale of sec. 9,280 10,140 8,500 7,500 ICICI Borrowings etc. 486,670 706,610 826,170 983,120
- Lease income 7,960 9,020 10,373 11,929 Others incl. ST borrowings 354,770 598,240 747,800 934,750
- Amortization (8,021) (9,990) (12,000) (13,250) Other Liabilities 150,830 188,240 353,432 495,032
Net Income 88,896 125,647 164,817 218,048 Total Liabilities 2,513,892 3,446,580 4,535,341 5,648,219
Operating Expenses 35,470 49,787 67,212 90,736
Operating Profit 38,886 58,742 79,526 106,275 Assets
Provisions 7,920 22,260 22,916 31,940 Cash with RBI and at Call 170,400 371,210 489,613 625,775
SLR Investments 510,740 673,680 889,258 1,156,035
PBT 30,966 36,482 56,610 74,335 Advances 1,461,631 1,958,660 2,546,258 3,259,210
Tax 5,565 5,380 14,152 20,070 Other Investments 204,730 238,900 342,422 339,955
Deferred Tax (1,347) 0 0 0 Fixed Assets 39,500 39,234 40,734 42,234
Other Assets 126,890 164,896 227,056 225,009
PAT 25,400 31,102 42,457 54,264 Total Assets 2,513,892 3,446,580 4,535,341 5,648,219

Source: Company, ENAM Research

15
ICICI Bank: Financials
Growth Rates & Key Ratios Key Ratios
(%) FY06 FY07 FY08E FY09E (%) FY06 FY07 FY08E FY09E

Growth (%) Asset Quality (%)

Growth in NII 66 41 32 33 Gross NPAs 1.9 2.3 3.1 3.2
Growth in Net profit 27 22 37 28 Net NPAs 0.7 1.0 1.5 1.5
Growth in deposits 65 40 25 27
Growth in advances 60 34 30 28 Capital (%)
Growth in SLR 48 32 32 30 Tier-I CAR 9.2 7.4 13.3 11.8
Decline in ICICI Borrowings (32) (18) (28) (38) Tier-II CAR 4.2 4.3 4.1 3.8
CAR 13.4 11.7 17.4 15.6
Valuations
EPS (Rs.) 29 35 38 49 Others
ROA (%) 1.2 1.0 1.1 1.1 Op. Cost as % of Net Inc. 56 53 52 51
ROE (%) 14.6 13.4 11.9 11.1 Op cost as % of avg. assets 2.4 2.2 2.1 2.2
BV (Rs.) 250 270 424 456 NII as % of total income 53.0 52.8 53.3 53.7
Adj. BV (Rs.) 240 254 395 416 Fee-inc. as % of net inc. 36.7 40 42.6 43.4
Banking BV (Rs.) 216 222 384 417 % of current deposits 10.0 9.3 10.0 10.5
% of savings deposits 12.7 12.5 13.0 13.5
% of Low Cost Deposits 22.7 21.8 23.0 24.0
Yields & Margins (%) Dividend Per Share (Rs) 8.5 10 11 12.5
Avg.Yield on Advances 8.7 10.4 11.3 11.3
Avg.Cost of Deposits 5.2 6.7 7.5 7.6
Avg.Cost of funds 5.4 6.4 7.8 7.9
NIM 2.6 2.6 2.5 2.6

Source: Company, ENAM Research

16
 India Research

Stock Data

HDFC Bank
No. of shares : 353.2mn
Market cap : Rs.501.4bn
52 week high/low : Rs.1,459 / Rs.875
Avg. daily vol. (6mth) : 695,068 shares
Bloomberg code : HDFCB IN
Reuters code : HDBK.BO
Rs.1,420
Shareholding (%) Jun-07 QoQ chg
Relative to Sector: Neutral Target Price: Rs.1,502
Promoters : 24.7 3.2
FIIs : 26.5 (5.8) Potential Upside: 6%
MFs / UTI : 5.5 2.4
Banks / FIs : 3.2 (0.1)
Others : 40.1 0.4
Relative Performance
200

150
100
A quality play, but upside potential limited
50
Sep-06 Mar-07 Sep-07
BANKEX HDFC Bank

Source: ENAM Research, Bloomberg

Financial summary
PAT EPS Change P/E BV P/BV NPAs P/Adj.BV RoE RoA
Y/E Mar (Rs m) (Rs.) YoY (%) (x) (Rs.) (x) (%) (x) (%) (%)
2006 8,708 28 29 51 169 8.4 0.4 8.6 17.7 1.4
2007 11,415 36 29 40 201 7.0 0.4 7.3 19.5 1.4
2008E 14,987 42 17 34 331 4.3 0.4 4.4 16.4 1.4
2009E 19,493 55 30 26 375 3.8 0.4 3.9 15.4 1.5

Source: ENAM Research , Note : Prices as on 9 October 2007

Punit Srivastava
punit@enam.com (+91 22 6754 7609) October 10, 2007
17
HDFC Bank: Investment Summary
 A quality play with consistent performance
„ Balance sheet growth of 31% in the past five years, likely to grow at ~30% for next two years
„ Net profit growth of 31% during the same period, expected to grow at 30% for next two years
„ Credit growth 5 year CAGR at 48%, likely to grow at 30% for next two years
„ Net Interest Margin of ~ 4% for last 4 years, expected to be maintained

 High quality funding franchise

„ CASA ratio of 51% as of Jun-07 - the highest in the industry
„ Current account component of ~26% in the same period.

 Strong fee income source

„ 5 year CAGR of 48% in fee-income growth
„ Distribution of third party insurance and MF’s contributed to 18% of retail commissions.

 Slippages higher on account higher proportion of unsecured loans

„ Unsecured loans comprised ~24% of the retail loan book in FY07
„ Slippages were almost 1.8% of total opening gross advances in the same period.

 Cost to asset ratio of 2.9% among the highest

„ Cost to asset ratio of 2.9% in FY07 against ~2% for ICICI and Axis Bank

 Net profit expected to grow by ~30% for next two years

„ ROA of ~1.5% for next two years, among the highest in the industry
„ ROE likely to average around 16% for next two years

 The stock quotes at 26x FY09E earnings and 3.8x FY09E BV

„ One year price target raised by 14% to Rs 1502 – an upside of 7% from current levels
18
HDFC Bank: Background
 Second largest private bank with USD 26bn of HDFC Bank: Break-up of Credit Portfolio (FY07)
assets
Retail Business CVs & CE TWL
„ 750 outlets in 320 cities Banking 8% 4%
Personal Loans
„ >1600 ATMs 9% 9% Credit Cards
3%
„ >15000 employees Loan against
Auto Loans securities
 Raised ~ USD 1bn in July-07 through equity 14% 2%
dilution Other retail
loans
Corporate Others
2%
 High focus on retail, especially in auto and personal 11% including
SME Mortgage
loans Agr. 27% backed
5% securities
 Higher focus on SME against top rated corporate 6%
loans earlier

HDFC: Delivery channels for retail clients HDFC Bank

Branches Telephone (No) FY05 FY06 FY07
22% banking
10% Cities 211 228 316
Branches 467 535 684
Internet & ATMs 1147 1323 1605
ATMs mobile
49% 19%
Source: Company

19
HDFC Bank: Performance Highlights
Retail loans as % of total loans
 High retail component, both in assets and liabilities 60 55 57 57
(%) 46
„ CASA at 51% (Q1FY08), the highest. 50 41
40 27
„ Wholesale deposits comprised 36% of deposits in FY07 30 18 21
„ Retail component continues to remain high 20
10
„ Personal loans account for 24% of retail loans 0
The second largest component in retail after Auto Loans

FY01

FY02

FY03

FY04

FY05

FY06

FY07

Q1FY08
`

 One of the highest NIMs due to lowt funding cost Break-up of retail loans
100%
„ Yields have been supported by the high proportion of retail and
80%
unsecured loans.
60%
„ CASA at above 50% in Q1FY07, almost evenly divided
40%
„ NIM expected to be stable at 4% 20%
0%
 Slippages higher due to higher % of unsecured loans FY04 FY05 FY06 FY07
„ Slippages at 1.8% in FY07 on account of Auto CVs & CE
` Substantial increase in interest rates Personal Against securities
TW Business Banking
` Higher proportion of unsecured loans which increased from 18% of retail loans Credit cards Others
in FY04 to an average of 26% in last two years Comparative CASA (FY07)
60 (%) 8
(%)
 Healthy fee income growth 40 27
6
7.1 mn debit and credit cards issued in FY07 30
„ 34 21 4
„ Increased cross selling through branches, while targeting various 20
26 13 2
19 19
customer segments 12 9
0 0

ICICI
HDFC

PNB

Bank

Bank
SBI
Bank

Axis
 Improving transaction cost
„ ~50% of retail transactions through ATMs Current a/c (LHS) Savings a/c (LHS)
Cost of Deposits
Source: Company
20
HDFC Bank: Financials
Income statement Balance sheet
(Rs. mn) FY06 FY07 FY08E FY09E (Rs mn) FY06 FY07 FY08E FY09E

Interest Earned 44,753 68,890 89,160 114,844 Liabilities

Interest Expended 19,295 31,795 39,988 50,313 Capital 3,131 3,194 3,573 3,573
Net Interest Income 25,458 37,096 49,172 64,530 Reserves and Surplus 49,864 61,138 114,818 130,412
Non-Interest Income 11,240 15,162 17,741 23,352 ESOP 0.7 - - -
- Sale of Investments (521) (684) (160) (500) Networth 52,996 64,332 118,390 133,985
- Fee & other income 11,761 15,727 20,501 26,652 Deposits 557,968 682,979 860,554 1,084,298
-Bond Amortisation - - (2,600) (2,800) Borrowings 28,585 28,154 29,562 35,474
Net Income 36,698 52,258 66,913 87,882 Sub-ordinated Debt 17,020 32,826 32,826 34,467
Operating Expenses 16,911 24,208 33,458 46,056 Other Liabilities & Prov. 78,495 104,065 124,878 156,098
- Staff Costs 4,868 7,769 11,264 15,207 Total Liabilities 735,064 912,356 1,166,210 1,444,322
Operating Profit 19,787 28,050 33,455 41,826
Provisions 7,252 11,663 10,747 12,292 Assets
Cash with RBI and at Call 69,190 91,539 109,847 111,413
PBT 12,535 16,388 22,708 29,534 Investments 283,940 305,648 382,060 469,934
Tax 3,134 3,827 4,973 7,721 Advances 350,613 469,448 614,977 799,470
Fixed Assets 8,551 9,667 10,667 11,667
PAT 8,708 11,415 14,987 19,493 Other Assets 22,771 36,055 48,661 51,839
Total Assets 735,064 912,356 1,166,210 1,444,322

Source: Company, ENAM Research

21
HDFC Bank: Financials
Growth Rates & Key Ratios Key Ratios

(%) FY06 FY07 FY08E FY09E (%) FY06 FY07 FY08E FY09E

Growth (%) Asset Quality (%)

Growth in NII 43 46 33 31 Gross NPAs 1.2 1.1 1.3 1.3
Growth in Net profit 31 31 31 30 Net NPAs 0.4 0.4 0.4 0.4
Growth in deposits 53 22 26 26 Provisioning Coverage 69.5 71.4 77.4 79.0
Growth in advances 37 34 31 30
Growth in investment 47 8 25 23 Capital (%)
Tier-I CAR 8.6 8.6 12.7 11.5
Valuations Tier-II CAR 2.9 4.5 4.0 3.5
EPS (Rs.) 28 36 42 55 CAR 11.4 13.1 16.7 15.0
ROA 1.4 1.4 1.4 1.5
ROE 18 19 16 15 Others
BV (Rs.) 169 201 331 375 Op.Cost as % of Net Inc. 46 46 50 52
Adj. BV (Rs.) 164 196 324 366 Credit deposit ratio 63 69 71 74
Fee-income to total assets 1.9 1.9 1.7 1.8
Yields & Margins (%) Fee-income to net income 32 30 31 30
Avg.Yield on Investment 6.8 7.8 7.7 7.7 % of current deposits 26 29 28 25
Avg.Yield on Advances 8.9 10.6 11.0 11.1 % of savings deposits 29 29 29 26
Avg.Cost of Deposits 3.3 4.0 4.8 4.8 % of Low cost deposits 55 58 57 51
NIM 4.0 4.3 4.5 4.4 % of retail assets 61 59 57 55
Dividend Per Share (Rs.) 5.5 7.0 8.0 10.0

Source: Company, ENAM Research

22
 India Research

Stock Data

Axis Bank
No. of shares : 356mn
Market cap : Rs 259bn
52 week high/low : Rs 775/ Rs 382
Avg. daily vol. (6mth) : 686,600 shares
Bloomberg code : AXSB IN
Reuters code : AXSB.BO
Rs 728
Shareholding (%) Jun-07 QoQ chg
Relative to Sector: Outperformer Target Price: Rs 937
Indian Promoters : 42.9 (0.2)
MFs & UTI : 8.5 1.7 Potential Upside: 29%
Banks & FIs : 0.1 (0.0)
FIIs : 36.2 (5.5)
Indian Public : 8.7 3.1
Others : 3.6 0.9
Relative Performance
250
200
150
100
Racing Ahead
50
Sep-06 Mar-07 Sep-07
BANKEX Axis Bk.
Source: ENAM Research, Bloomberg

Financial summary
PAT EPS Change P/E BV P/BV NPAs P/Adj. BV RoE RoA
Y/E Mar (Rs. m) (Rs.) YoY (%) (x) (Rs.) (x) (%) (x) (%) (%)
2006 4,851 17.6 25 41.4 103 7.1 0.8 7.5 18.4 1.1
2007 6,590 23.4 33 31.1 120 6.0 0.7 6.4 21.0 1.1
2008E 9,203 25.9 10 28.1 240 3.0 0.6 3.1 15.4 1.0
2009E 12,830 36.0 39 20.2 268 2.7 0.6 2.8 14.2 1.1

Source: ENAM Research , Note : Prices as on 9 October 2007

Punit Srivastava
punit@enam.com (+91 22 6754 7609) October 10, 2007
23
Axis Bank: Investment Summary
 Among the fastest growing Private Banks
„ 5 year Balance sheet CAGR of 40%, likely to grow by 35-40% for next two years
„ 5 year CAGR in net profit at 38%, in line with asset growth, expected to grow at a CAGR of 40% for next two years
„ 5 year CAGR in credit at 48%, expected to grow at a CAGR of 47% for next two years

 Among the most improved banks in the private space

„ NIM expanded from 1.68% in FY02 to 2.9% in FY07
„ Net NPAs fell to 0.67% in FY07 from 2.7% in FY02
„ CASA improved from 15% in FY02 to 41% in FY07
„ Average ROE of 22% in past five years

 Asset growth still expected to grow at 35-40% for next two years
„ Credit growth driven by corporates, SMEs, rural, retail and overseas assets
„ NIM likely to remain stable with CASA component of ~40%
„ Asset quality unlikely to see any noticeable deterioration
„ Average ROE likely to drop to 15% for next two years, however projected to deliver ~17% in FY10

 High earnings growth to keep the valuations attractive, despite lower ROE
„ The stock quotes at 20.2x FY09E earnings and 2.7x FY09E BV
„ Equity dilution of USD 1.05bn to lead to lower ROE in FY08 & FY09, though it will pick up in FY10
„ Raising our price target by 16% on account of expected sustained momentum in credit growth and net profit
„ Sector Outperformer rating with a price target of Rs 937

24
Axis Bank: Background
 Third largest private bank in the country Axis Bank: Break-up of Loan Portfolio
„ Total asset size of ~USD 20bn (Q1FY08)
Mid
 Established in 1994 with a capital of USD 28mn Corporate Retail
„ Promoters : SUUTI, LIC & GIC and other insurance companies 13% 23%
„ Currently, the third largest ATM network of 2,341 – next only
to SBI & ICICI
„ 522 branches with PAN India presence Agriculture
„ 9980 employees in FY07 10%
Large
coporates SME
 Recently raised USD 1bn through equity dilution 47% 7%
„ Raised capital simultaneously through GDR, QIP and
preferential allotments
State Wise Distribution of Branches
 Mr P J Nayak likely to continue for next two years
as Chairman & CEO Pondicherry Punjab
„ The bank will have to find a suitable suitor for him and split the 1% Rajasthan
Orrisa 17%
post between Non Executive Chairman & CMD in future 5%
8%

Sikkim
 Some of the large investors (besides promoters) 1%
include (pre-dilution) West Bengal
TN
31%
„ HSBC (4.9%) 20%
„ Barclays (4.9%)
„ Citigroup (4.4%) Uttaranchal Tripura
4% UP 1%
„ UBS (4%) 12%
Source: RBI, ENAM Research

25
Axis Bank: Performance Highlights
 Expect 47% CAGR in credit over the period 2007-09 Break-up of Retail Loans
„ Retail and corporate advances increased by 38% and 76% in
100%
FY07
80%
„ Expect retail lending to moderate to 30-32% with some slowdown
60%
in the home loan and Auto Loan segments
40%
20%
 Fee based income to provide greater upside to income
0%
growth 2004 2005 2006 2007 2008E
„ Projected 2 year CAGR of ~40% in fee based income
` Driven by capital market services and retail banking segments. Auto. loans Home Loans
Personal Loans Others
„ Growth in international operations likely to increase commission Edu. Loans Cons. durable loans
based income

 NIM expected to improve marginally in FY08 Fee Income growth for Axis
„ Expanding retail network and high CASA to help sustain NIM 16,000
(mn)
„ Margins likely sustain as the bank expands its branch network by a
12,000
further 150 branches in FY08 CAGR of 58%
„ USD 1.05bn issue will also help in higher reported NIM 8,000

 Healthy asset quality 4,000

„ Despite strong asset growth, Axis Bank’s asset quality remained
healthy. 0
FY04 FY05 FY06 FY07 FY08E
„ During Q1FY08 , gross and net NPAs were comfortable at 1.01%
and 0.59% Corporate Banking Business Banking
Capital Markets Retail Banking
„ As on Mar 2007, provisioning coverage (including write-offs) stood
at 76% Source: Company, ENAM Research

26
Axis Bank: Financials
Income statement Balance sheet
(Rs. mn) FY06 FY07 FY08E FY09E (Rs mn) FY06 FY07 FY08E FY09E

Interest Earned 28,888 45,604 68,780 95756 Liabilities

Interest Expended 18,106 29,933 46,132 64079 Capital 2,787 2,816 3,559 3,559
Net Interest Income 10,782 15,671 22,648 31677 Reserves and Surplus 25,935 31,116 81,760 91,767
Non-Interest Income 7,296 10,101 11,815 15985 Networth 28,856 34,022 85,453 95,461
- Sale of Investments 1,298 1,857 1,100 900 Deposits 401,135 587,856 822,998 1,111,048
- Fee inc (ex. Treasury) 5,998 8,433 11,815 16235 Borrowings 26,809 51,956 59,749 83,649
- Bond Amortisation - - (1,100) (1,150) Other Liabilities & Prov. 22,624 23,724 26,096 33,925
Net Income 18,079 25,772 34,463 47662 Subordinated Debt 17,886 35,014 35,014 38,515
Operating Expenses 8,141 12,146 17,126 24490 Total Liabilities 497,311 732,572 1,029,312 1,362,598
- Staff Costs 2,402 3,814 5,415 7744
Operating Profit 9,938 13,626 17,337 23173 Assets
Prov & Contingencies 2,625 3,664 3,393 4024 Cash with RBI and at Call 36,418 69,183 83,020 87,171
Investments 215,274 268,972 352,353 440,441
PBT 7,313 9,962 13,944 19149 Advances 223,142 368,765 560,522 795,942
Tax 2,462 3,372 4,741 6319 Fixed Assets 5,677 6,732 7,136 7,992
Other Assets 16,800 18,921 26,281 31,053
PAT 4,851 6,590 9,203 12,830 Total Assets 497,311 732,572 1,029,312 1,362,598

Source: Company, ENAM Research

27
Axis Bank: Financials
Growth Rates & Key Ratios Key Ratios
(%) FY06 FY07 FY08E FY09E (%) FY06 FY07 FY08E FY09E

Growth (%) Asset Quality (%)

Growth in NII 47 45 45 40 Gross NPAs 1.3 1.0 0.8 0.8
Growth in Net profit 45 36 40 39 Net NPAs 1.5 0.6 0.6 0.5
Growth in deposits 26 47 40 35 Prov.Coverage (ex. w/o) 42 36 44 46
Growth in advances 43 65 52 42
Growth in investment 51 25 31 25 Capital (%)
Tier-I CAR 7.3 6.4 10.8 8.9
Valuations Tier-II CAR 3.8 5.2 5.0 4.8
EPS (Rs.) 18 23 26 36 CAR 11.1 11.6 15.8 13.7
ROA 1.1 1.1 1.0 1.1
ROE 18 21 15 14 Others
BV (Rs.) 103 120 240 268 Op.Cost as % of Net Inc. 45 47 50 51
Adj. BV (Rs.) 97 113 233 259 Fee income to net income 33 33 34 34
Credit Deposit Ratio 56 63 68 72
Yields & Margins (%) % of current deposits 20 19 19 20
Avg.Yield on Investment 7.3 7.5 7.6 7.7 % of savings deposits 20 21 19 20
Avg.Yield on Advances 8.1 9.1 9.4 9.5 % of Low cost deposits 40 40 38 40
Avg.Cost of Funds 4.9 5.9 6.2 6.4 % of retail assets 29 24 22 20
NIM 2.9 2.9 3.0 3.0 Dividend Per Share (Rs.) 3.5 4.5 5.0 7.0

Source: Company, ENAM Research

28
 India Research

Stock Data

Centurion Bank of Punjab

No. of shares : 1,820 mn
Market cap : Rs 81.9bn
52 week high/low : Rs 47/ Rs 24
Avg. daily vol. (6mth) : 2.5 mn shares
Bloomberg code : CBOP IN
Reuters code : CENB.BO

Shareholding (%) Jun-07 QoQ chg

Rs 45
Promoters : 0.0 0.0 Relative to Sector: Underperformer Target Price: Rs.46
FIIs : 19.7 1.5 Potential Upside: 2%
MFs / UTI : 3.1 (0.1)
Banks / FIs : 0.1 0.0
Others : 77.2 (1.4)
Relative Performance

260
220
180
140
100 High growth story, but fairly valued
60
Sep-06 Mar-07 Sep-07
BANKEX CBoP

Source: ENAM Research, Bloomberg

Financial summary
PAT EPS Change P/E BV P/BV NPAs P/Adj. BV RoE RoA
Y/E Mar
(Rs.m) (Rs.) YoY (%) (x) (Rs.) (x) (%) (x) (%) (%)
2006 879 0.6 152 72.0 7 6.9 1.1 7.5 11.7 1.1
2007 1,217 0.8 24 57.9 9 5.1 1.3 5.7 10.6 0.8
2008E 1,627 0.8 9 52.9 12 3.8 1.5 4.3 8.9 0.7
2009E 2,352 1.2 45 36.6 13 3.5 1.0 3.9 9.9 0.7

Source: ENAM Research , Note : Prices as on 9 October 2007

Punit Srivastava
punit@enam.com (+91 22 6754 7609) October 10, 2007
29
CBOP: Investment Summary
 New private sector bank with substantial focus on Retail and SME
„ Retail loans comprise 68% of credit book, one of the highest among private banks
„ Increasing focus on SMEs, comprising 14% of the credit book

 Adequately capitalized to leverage future growth

„ Rs. 5 bn QIP placement at Rs.40.75 in Sept-07
„ Post QIP, CAR to reach 14%. Warrants conversion and higher Bank of Muscat stake can lead to further dilution

 One of the largest branch networks among private banks in North India
„ 56 branches in Delhi (NCR), 77 branches in Punjab and 23 branches in Haryana (23)
Merger has added 121 branches and EC’s along with access to LKB’s clients in Kerela
„ Post merger the bank will have over 37% of its branches in Kerela
„ The bank plans to add another 200 branches by June-08
„ Proportion of Retail deposits will increase but CASA may moderate to ~ 26% in FY08 from 28% in Jun-07

 Margin contraction due to higher cost of funds and pressure on yields

„ NIM contracted to 3.6% in Q1FY07 from a high of 4.6% in FY07
„ Cost to income ratio has also come down to 68% from 76% in Q1FY07
` Though C/I likely to remain high due to focus on retail – especially in TW & CV/CE

 ROA & ROE projected to remain low for next two years
„ ROA projected to remain ~0.7% and ROE <10% for next two years
„ While valuations likely to remain high due to strong growth prospects, further re-rating unlikely

 Downgrading to Underperformer with a price target of Rs 46

30
CBOP: Background
 Large branch network in Northern India and Kerala Branch distribution Sept-07
„ Post mergers with BOP & LKB, the bank enjoys dominant presence in (post LKB merger)
Punjab, Delhi, Haryana & Kerala
Others
„ 393 Branches and EC’s along with 450 ATM’s (post-merger). Kerela
Tamil- 14%
„ Over 6400 employees as of March 2007 Nadu
24%

7%
Haryana
Punjab
 Established in July-94 as ‘Centurion Bank’ 7%
22%
„ Restructuring and equity infusion in 2004 by some of the existing Maharash Delhi
tra 16%
investors and Sabre capital 10%
„ North based ‘Bank of Punjab’ merged with the bank in Oct,2005

 Merger with Lord Krishna Bank

„ CBOP took over unlisted Lord Krishna Bank in Sep 2007 at a swap
Balance sheet growth
ratio of 5:7
„ The merger added 121 branches and EC’s 180,000
(Rs mn)
„ Post merger balance sheet size of ~Rs 206bn 150,000
4 yr CAGR of
120,000
92% in credit
 Highly qualified team of top management 90,000
„ Mr Rana Talwar took over as Chairman post restructuring in 2004 60,000
„ He is also the Chairman of Sabre Capital with over 32 years of 30,000
experience with Citibank and Standard Chartered Bank 0
2003 2004 2005 2006 2007
„ Bank Muscat, ICICI Venture ,Citigroup etc. other key investors
Deposits Advances

Source: ENAM Research

31
CBOP: Performance Highlights
 Retail and SME likely to remain key areas of focus Advances Break-up (FY07)
„ Post restructuring CBOP has focused on retail and SME as core SME Mortgages are the biggest
segments Coporates 14%
contributor in FY07

„ Amongst top 3-4 players in Two-Wheeler segment 9%

„ Retail expected to grow at a CAGR of 40% and contribute to ~62 % Large
of total advances over the period 2007-09 Corporates
9% Retail
 NIMs to remain below 4% due to lower pricing power 68%
„ Cost of funds also rising on account of lower CASA base post BoP
Break-up of Retail advances (FY07)
merger Loan against
„ Yield on loans to remain stable with higher focus on SMEs sec. Car
3% Others
Agricultural 6% 3%
 Asset quality may deteriorate a bit, post LKB merger 6% Mortgages
28%
„ Net NPA’s at 1.26% in Q1FY08 as compared to 4.30% in FY04 Personal
„ Post-Merger likely to see a deterioration in asset quality by up to 30 17%

bps CV/CE Personal

17% 20%
 Strong fee income source:
Improvement in asset quality
„ Fee income proportion has risen from ~ 12% in FY04 to 26% in 20
(%)
FY07 15
„ Exposure to LKB’s NRI clients to provide impetus to fee-income 10
growth 5
„ Increased focus on HNI clients and wealth management products – 0
Centurion Elite’ FY03 FY04 FY05 FY06 FY07
Gross NPAs (%) Net NPAs (%)

March,05 numbers are for Centurion Bank alone. Source: ENAM Research
32
Centurion Bank of Punjab: Financials
Income Statement Balance Sheet
(Rs. mn) FY06 FY07 FY08E FY09E (Rs mn) FY06 FY07 FY08E FY09E

Interest Earned 8,032 12,685 23,317 34,390 Liabilities

Interest Expended 4,044 6,990 14,391 20,281 Capital 1,408 1,567 1,915 1,915
Net Interest Income 3,988 5,696 8,926 14,109 Reserves and Surplus 7,769 12,149 20,899 23,017
Non-Interest Income 2,142 4,054 5,558 7,016 Networth 9,178 13,716 22,815 24,932
- Sale of Investments 33 72 70 40 Employee Stocks 134 245 245 245
- Other inc.(ex. Treasury) 2,109 3,983 5,488 6,976 Deposits 93,996 148,637 230,092 333,634
Net Income 6,130 9,750 14,484 21,125 Borrowings 516 9,309 13,963 20,945
Operating Expenses 5,028 7,058 9,921 14,394 Other Liabilities & Prov. 7,328 10,771 12,925 21,524
- Staff Costs 1,424 2,213 3,541 5,666 Total Liabilities 2,150 2,150 2,150 2,150
Operating Profit 1,101 2,692 4,563 6,731 Total Liabilities 113,302 184,829 282,191 403,421
Prov & Contingencies 855 855 1,988 3,039
Assets
PBT 871 1,837 2,575 3,692 Cash with RBI and at Call 10,460 14,893 15,638 8,121
Tax -8 621 948 1,339 Investments 29,228 46,150 79,609 121,453
Advances 65,334 112,214 180,076 262,911
PAT 879 1,217 1,627 2,352 Fixed Assets 3,113 3,373 3,710 4,081
Other Assets 5,166 8,198 3,157 6,854
Total Assets 113,302 184,828 282,191 403,421

Source: Company, ENAM Research

33
Centurion Bank of Punjab: Financials
Growth Rates & Key Ratios Key Ratios

(%) FY06 FY07 FY08E FY09E (%) FY06 FY07 FY08E FY09E

Growth (%) Asset Quality

Growth in NII 124 43 57 58 Gross NPAs (%) 4.6 2.8 3.1 2.9
Growth in Net profit 250 38 34 45 Net NPAs (%) 1.1 1.3 1.5 1.0
Growth in deposits 166 58 55 45 Prov.Coverage (%) 76.5 55.5 49.6 64.1
Growth in advances 198 72 60 46
Growth in investment 98 58 73 53 Capital
Tier-I CAR 10.8 9.9 12.6 9.8
Valuations Tier-II CAR 1.7 1.1 2.0 2.0
EPS (Rs.) 0.6 0.8 0.8 1.2 CAR 12.5 11.1 14.6 11.8
ROA 1.1 0.8 0.7 0.7
ROE 11.7 10.6 8.9 9.9 Others
BV (Rs.) 6.5 8.8 11.9 13.0 Op.Cost as % of Net Inc. 82 72 68 68
Adj. BV (Rs.) 6.0 7.8 10.5 11.6 Op.Cost as % of Net Inc. 2 2 2 2
(excl treasury profits)
Yields & Margins % of current deposits 15 10 10 10
Avg.Yield on Investment 8.2 6.5 7.5 7.5 % of savings deposits 27 15 16 16
Avg.Yield on Advances 11.5 11.75 12.5 12.0 % of Low cost deposits 42 25 26 26
Avg.Cost of Funds 4.8 5.7 7.2 6.9 Dividend Per Share (Rs.)
NIM 4.6 4.6 4.0 4.2

Source: Company, ENAM Research

34
 India Research

Stock Data
No. of shares : 280mn
Market cap : Rs.54.1bn
52 week high/low : Rs.215 / Rs.99

Yes Bank
Avg. daily vol. (3mth) : 1.2mn shares

Rs193
Bloomberg code : YES IN
Reuters code : YESB.BO

Shareholding (%) Jun-07 QoQ chg

Promoters : 35.9 0.0
FIIs : 30.6 5.7
MFs / UTI : 1.0 (0.1)
Banks / FIs : 0.1 0.0
Others : 32.4 (5.6)
Relative Performance

260
220
180
140
100 A Premium Play
60
Sep-06 Mar-07 Sep-07
BANKEX Yes Bank
Source: ENAM Research, Bloomberg

Financial summary
PAT EPS Change P/E BV P/BV NPAs ROE ROA
Y/E Mar (Rs mn) (Rs) YoY (%) (x) (Rs) (x) (%) (%) (%)
2006 553 2.0 - 94.3 21 9.1 0.0 14.0 2.0
2007 944 3.4 64 57.3 28 6.9 0.0 13.9 1.2
2008E 1,818 6.1 80 31.9 48 4.0 0.1 16.3 1.3
2009E 3,008 9.6 58 20.2 68 2.8 0.1 16.8 1.3

Source: ENAM Research , Note : prices as on 9 October 2007

Punit Srivastava
punit@enam.com (+91 22 6754 7609) October 10, 2007
35
Yes Bank: Investment Summary
 New age private sector bank with excellent track record of promoters

 Unhindered growth momentum

„ Bank size grown at 195% CAGR between FY05 & FY07 to Rs 111bn
„ Branch network expanded from 8 in FY06 to 54 in Jun-07

 Balance sheet mix to improve

„ Strategically CASA is clear focus area
` CASA targeted to reach 25% by FY10. We however estimate CASA at 20% by FY10
„ Incremental asset growth from higher yielding assets
` SME and retail loans expected to constitute 35% of loan book by FY10 vs 6% in FY07
„ Better asset-liability profile expected to aid NIM expansion
„ NIM expected to be 3.10% by FY10 from 2.79% in FY07
„ Fee income at 2% of assets (FY10) to aid ROA

 Equity dilution imminent

„ Tier-I at 7.6% in June-07 but projected CAGR of 58% in assets between FY07 & FY10 will require capital infusion.
„ Bank employing a strategy of smaller dilutions at a premium to current market price

 Key concerns & challenges

„ Asset quality deterioration post retail-rollout, lower than expected CASA base and capital market based fee income
volatility are the key concerns to our estimates

36
Yes Bank: Background
 The only bank to receive a green-field license from the
Break-up of branches as of Jun 2007
RBI since 1995
„ Commenced operations in Aug 2004 after receiving license in May South
East
2% West
2004 7%
41%
„ IPO in 2005 at Rs 45 per share
„ Network of 54 branches as of June 2007, a majority concentrated in North
Northern and the Western India 50%
„ Employee strength of 2,792 as of Jun 2007
Growth in assets
 Excellent promoter track record & strong investor base 500
(Rs bn)
„ Mr. Rana Kapoor (CEO & MD) and Mr. Ashok Kapur - well known 400
2yr CAGR
300 of 195%
professional bankers
200
„ Institutions like Rabobank (current holding 19.29%), Chrys Capital 100
(current holding 2.28%) are the initial investors 0

FY08E

FY09E

FY10E
FY05

FY06

FY07
 Growth momentum largely driven by wholesale banking.
„ Corporate advances grew at a CAGR of over 200% since inception. Break-up of loan book (FY07)
„ Continues to have NIL NPAs till Jun 2007 Retail
2% C&IB
„ Balance sheet size has grown at CAGR of 195% in the past 2 years EC 73%
„ High treasury and advisory business income 21%
„ Non-Int Income/Total Income at 59.2% as of Jun 2007

SME
4%
Source: Company, ENAM Research
37
Yes Bank: Performance Highlights
 Current deposit franchise mainly funded by wholesale
FY07 Break-up of deposits
„ CASA at 6.6% as of Jun 2007
„ As the bank improves its retail presence, CASA expected improve to CASA Other
~20% by 2010 6% Retail
5%
CDs
 Retail and SME segment to drive incremental growth 20%
„ Expect 25% of loan book to comprise Retail & SME by FY10 Other
„ Bank targets to open 250 branches by 2010 with an initial focus on Whole-
sale
‘affluent’ retail customers 69%

 NIM to stabilize going forward

„ We expect NIM to steadily improve to ~3.1% by FY10 on the back of Margin Movement
a better asset liability mix 12 3.2
(Rs.bn) (%)
„ In the short term, NIM expected to remain under pressure due to
dependence on bulk deposits 9 3.0

 Commendable Fee-income/assets ratio of 2.4% (FY07) 6 2.8

„ Non-Interest Income/ total income ratio at 53.2%
3 2.6
„ Fee-income likely to grow at a CAGR of 58% between FY07 and FY10
0 2.4
 Untapped potential of financial services Business FY06 FY07 FY08E FY09E FY10E
„ Targeting to raise USD 1.5bn for PE investments by 2010
„ Investment in real estate, infrastructure, food and agri-business, NII (LHS) NIM (RHS)

distressed assets etc. through PE fund

Source: Company, ENAM Research

38
Yes Bank: Financials
Income statement Balance sheet
(Rs. mn) FY06 FY07 FY08E FY09E (Rs mn) FY06 FY07 FY08E FY09E

Interest Earned 1,902 5,876 12,375 21,141 Liabilities

Interest Expended 1,047 4,163 9,290 15,758 Capital 2,700 2,800 3,000 3,150
Net Interest Income 855 1,713 3,085 5,383 Reserves and Surplus 3,027 5,070 11,415 18,322
Non-Interest Income 997 1,946 3,697 6,285 Networth 5,727 7,870 14,415 21,472
- Financial Markets 549 809 1,391 1,867 Deposits 29,104 82,204 135,637 223,800
- Financial Advisory 309 642 739 943 Borrowings 4,648 8,673 13,877 22,203
- Third Party Distribution 40 195 813 1,885 Other Liabilities & Provisio 1,147 7,501 8,251 11,552
-Transaction Banking 60 214 739 1,571 Subordinated Debt 1,000 4,786 4,800 4,800
Net Income 1,852 3,659 6,782 11,667 Total Liabilities 41,626 111,034 176,980 283,827
Operating Expenses 861 1,935 3,483 5,958
- Staff Costs 501 1,175 2,114 3,700 Assets
Operating Profit 991 1,724 3,299 5,709 Cash with RBI and at Call 2,156 12,928 11,711 15,427
Prov & Contingencies 146 288 545 1,151 Investments 13,501 30,731 52,243 83,588
Advances 24,071 62,897 106,925 176,427
PBT 844 1,437 2,754 4,558 Fixed Assets 347 709 825 1,000
Tax 291 493 937 1,550 Other Assets 1,550 3,768 5,275 7,385
Total Assets 41,626 111,034 176,980 283,827
PAT 553 944 1,818 3,008

Source: Company, ENAM Research

39
Yes Bank: Financials
Growth Rates & Key Ratios Key Ratios
(%) FY06 FY07 FY08E FY09E (%) FY06 FY07 FY08E FY09E

Growth (%) Asset Quality (%)

Growth in NII 371 100 80 74 Gross NPAs 0.0 0.0 0.2 0.3
Growth in Net profit 1,573 71 93 65 Net NPAs 0.0 0.0 0.1 0.1
Growth in deposits 339 182 65 65 Prov.Coverage 0.0 0.0 51.4 70.6
Growth in advances 216 161 70 65
Growth in investment 242 128 70 60 Capital (%)
Tier-I CAR 13.8 8.2 9.5 8.8
Valuations Tier-II CAR 2.6 5.4 4.7 4.0
EPS (Rs.) 2 3 6 10 CAR 16.4 13.6 14.2 12.8
ROA (%) 2.0 1.2 1.3 1.3
ROE (%) 14 14 16 17 Others
BV (Rs.) 21 28 48 68 Op.Cost as % of Net Inc. 47 53 51 51
Adj. BV (Rs.) 21 28 48 68 Fee income to net income 52 51 54 54
Credit deposit ratio 83 77 79 79
Yields & Margins (%) % of current deposits 10.3 5.1 7.0 10
Avg.Yield on Advances 8.7 9.7 10.6 11.0 % of savings deposits 0.4 0.7 2.0 4
Avg.Cost of Funds 5.8 7.2 8.3 8.6 % of Low cost deposits 11 6 9 15
NIM 3.0 2.8 2.7 2.9 % of retail assets 0 2 4 8
Dividend Per Share (Rs.) 0.0 0.0 0.5 1.0

Source: Company, ENAM Research

40
 India Research

Stock Data

Federal Bank
No. of shares : 85.5mn
Market cap : Rs.31.3bn
52 week high/low : Rs.396 / Rs.188
Avg. daily vol. (3mth) : 262,273 shares
Bloomberg code : FB IN
Reuters code : FED.BO
Rs 367
Shareholding (%) Jun-07 QoQ chg
Relative to Sector: Outperformer Target Price: Rs.428
FIIs : 35.5 1.9
MFs / UTI : 14.0 3.4 Potential Upside: 17%
Banks / FIs : 4.2 0.0
Others : 46.3 (5.3)

Relative Performance

210

160
110
Consistency pays
60
Sep-06 Mar-07 Sep-07
BANKEX Federal
Source: ENAM Research, Bloomberg

Financial summary
PAT EPS Change P/E BV P/BV NPAs P/Adj. BV ROE ROA
Y/E Mar (Rs. m) (Rs.) YoY (%) (x) (Rs.) (x) (%) (%) (%)
FY06 2,252 26 150.0 13.9 145 2.5 1.0 2.7 23.0 1.2
FY07 2,927 34 30.0 10.7 175 2.1 0.4 2.2 21.3 1.3
FY08E 3,702 43 26.5 8.5 212 1.7 0.4 1.8 22.3 1.3
FY09E 4,476 52 20.9 7.0 257 1.4 0.4 1.5 22.3 1.4

Source: ENAM Research , Note : prices as on 9 October 2007

Punit Srivastava
punit@enam.com (+91 22 6754 7609) October 10, 2007
41
Federal Bank: Investment Summary
 An old private sector bank with consistence track record in growth and profitability

 Strong regional player with ~72% of the branches in the southern state of Kerala (FY06)

 Assets grew at CAGR of 20% between FY02 and FY07 indicating steady growth
„ Growth driven by Retail and SME, which currently constitutes 70% of the loan book on a combined basis

 NIM maintained despite low CASA

„ Higher asset yield due to strong foothold in its region has helped sustain higher NIMs
„ Amongst the few banks to experience NIM expansion despite a relatively low CASA base of 25%

 Consistently delivering on its ROA and ROE over the past few years
„ ROE has been in the region of 20% - 23% during FY02 - FY07
„ Only exception in FY05 when it was 13% due one time wage expenses and higher depreciation in bond portfolio

 Beginning to pursue alternate growth strategies

„ In 2006, acquired Ganesh Bank of Kurunwad, a regional player with a concentrated presence in Maharashtra
„ Entered into a life insurance joint venture with IDBI and Fortis. IRDA approval expected shortly
„ Management open to acquiring other private sector banks that provide a reasonable fit

 Maintain sector Outperformer

„ The stock quotes at 7.0x FY09E earnings and 1.4x FY09E BV

42
Federal Bank: Background
 An old generation private sector bank Geographical distribution of branches
„ Incorporated as Travancore Federal Bank Ltd, Nedumpram in West Others
1931 Bengal 15%
3%
Tamil
 No promoters but strong backing of Institutional Nadu
investors 7%
„ ICICI Bank held ~20.4% shares in Sep 2004
Maharas
` Reduction in holdings post notification of RBI guidelines restricting Kerala
htra
cross-bank ownership to 5% in 2004-05. 71%
4%
„ HDFC MF held 5.5% in Mar 2004. Stake reduced to ~1.7% as RoA & RoE
on Jun 2007 25
(%) (%) 1.5
„ In Mar 2007, IFC was looking to acquire close to 7.76% in Fed 20 1.2
Bank 15 0.9
` However the RBI restricted the investment to 5%
10 0.6
5 0.3
 Strategy of consistent asset growth 0 0.0
„ Asset growth clocked ~20% CAGR over FY02-FY07

FY02

FY03

FY04

FY05

FY06

FY07
„ Retail and SME segments to drive Incremental growth going
forward RoE (LHS) RoA (RHS)

 Consistently delivered a reasonable ROA and ROE

„ Barring FY05 when there was a GDR issue, one time wage Breakup of advances (FY07)
Retail
expenses and depreciation in investment portfolio which led to Corporate
30%
a fall in returns for the bank; 30%

„ ROA and ROE has been in the range of 1-1.3% and 20-23%
respectively

SME
40%

Source: Company
43
Federal Bank: Performance Highlights
 NIM expansion despite a low CASA base CASA & NIM
40% 300
„ Q1FY08 NIM at 3.21% vs. 3.17% in Q1FY07 and 3.06% in FY07 (bps)
30% 200
„ Relatively stable CASA over the past few years at 25% 20% 100
„ Asset quality consistently improving 10% 0
` Despite higher exposure to the Retail and SME segments 0% (100)

Vijaya Bk
Can Bk
Fed Bk

Corp Bk
SIB

Syndicate
„ NPAs at its lowest in Q1FY08, Net NPA ratio at 0.37%

Bk
„ Target is to recover NPAs of ~Rs 1.5bn in FY08, of which ~Rs 470mn are
already recovered in Q1FY08
CASA YoY Chng NIM (RHS)
Assets Quality
 Assets likely to grow at a CAGR of 19% in FY07-09 8 4.0
(%) (%)
„ Advances likely to grow at a CAGR of ~21.5% between FY07 and FY09 6 3.0
„ Bank is expected to maintain the current mix of loans and advances 4 2.0
2 1.0
 Life insurance foray - tie-up with IDBI and Fortis
0 0.0
„ Expected to pump in ~Rs 2bn over the next 5 years for 26% stake in the FY04 FY05 FY06 FY07 Q1FY08
venture Net NPAs (RHS) Gross NPAs

CASA & COD

 Decided to undertake a rights issue in the ratio of 1:1 28
(%)
12
(%)
„ The leverage in FY07 was comfortable at 16.7x with Q1FY08 Tier-I at 26 9
24
9.22% 6
22
20 3
„ However, the size and time frame for the issue is yet to be decided
18 0

FY02

FY03

FY04

FY05

FY06

FY07

Q1FY08
CASA COD (RHS)
Source: Company
44
Federal Bank: Financials
Income statement Balance sheet

(Rs. mn) FY06 FY07 FY08E FY09E (Rs mn) FY06 FY07 FY08E FY08E

Interest Earned 14,365 18,174 25,094 29,604 Liabilities

Interest Expended 8,367 10,850 16,207 19,120 Capital 856 856 856 856
Net Interest Income 5,998 7,324 8,887 10,484 Reserves and Surplus 11,573 14,166 17,313 21,117
Non-Interest Income 2,169 2,867 3,068 3,657 Networth 12,429 15,022 18,169 21,973
- Sale of Investments 331 493 200 200 Deposits 178,787 215,844 259,013 308,226
-Bond Amortisation (162) (159) (170) (185) Borrowings 6,105 7,702 8,472 9,320
Net Income 8,167 10,191 11,955 14,141 Other Liabilities & Prov. 6,337 7,631 8,012 12,432
Operating Expenses 3,646 4,061 4,597 5,287 Subordinate Bonds 2,700 4,700 4,700 4,700
- Employees expenses 2,284 2,605 2,995 3,444 Total Liabilities 206,358 250,899 298,366 356,650
- Other Op.expenses 1,362 1,456 1,602 1,842
Operating Profit 4,522 6,130 7,357 8,854 Assets
Provisions 1,714 2,148 2,216 2,460 Cash with RBI and at Call 18,725 23,131 26,601 30,591
Investments 62,724 70,327 77,359 85,095
PBT 2,808 3,982 5,141 6,394 Advances 117,365 148,991 183,259 219,911
Tax 556 1,055 1,440 1,918 Fixed Assets 1,668 1,861 2,047 2,432
Other Assets 5,877 6,589 9,100 18,621
PAT 2,252 2,927 3,702 4,476 Total Assets 206,358 250,899 298,366 356,650

Source: Company, ENAM Research

45
Federal Bank: Financials
Growth Rates & Key Ratios Key Ratios
(%) FY06 FY07 FY08E FY09E (%) FY06 FY07 FY08E FY09E

Growth (%) Asset Quality (%)

Growth in NII 19 22 21 18 Gross NPAs 4.6 3.0 2.7 2.5
Growth in Net profit 150 30 26 21 Net NPAs 1.0 0.4 0.4 0.4
Growth in deposits 18 21 20 19 Prov. Coverage 80.2 85.6 85.3 84.1
Growth in advances 33 27 23 20
Growth in investment 8 12 10 10 Capital (%)
Tier-I CAR 9.7 8.9 8.7 8.4
Valuations Tier-II CAR 4.0 4.5 3.0 2.5
EPS (Rs.) 26 34 43 52 CAR 13.8 13.4 11.7 10.9
ROA 1.2 1.3 1.3 1.4
ROE 23 21 22 22 Others
BV (Rs.) 145 175 212 257 Op.Cost as % of Net Inc. 45 40 38 37
Adj. BV (Rs.) 135 170 206 249 Op.Cost as % of Net Inc. 47 42 39 38
(excl treasury profits)
Yields & Margins (%) % of current deposits 5 6 6 7
Avg.Yield on Advances 9.8 10.2 11.4 11.3 % of savings deposits 20 20 19 19
Avg.Cost of Deposits 5.1 5.6 6.6 6.5 % of Low cost deposits 25 25 25 26
NIM 3.1 3.3 3.2 3.2 Dividend Per Share (Rs.) 3.5 4.0 5.5 5.5
Leverage (x) 19 17 17 16

Source: Company, ENAM Research

46
Annexure

47
Origin of Private Banks
 Post nationalization of banks in 1969 and Old Generation Private Sector Banks
1980, RBI permitted the entry of new City Union Bank (Nil, Tamilnadu) Federal Bank (Nil, Kerala)
Ing Vysya Bank (ING, 44.2, Karnataka ) The Jammu & Kashmir
generation private banks in July 1993 Bank (J&K Govt, 53%,
J&K)
 Prior to this, there were 21 old private banks, Karnataka Bank (Nil) The Karur Vysya Bank
(Nil, Tamilnadu)
which were already operating in 1993 Nainital Bank , (Bank of Baroda, 98 The Lakshmi Vilas Bank
„ Most of these old private banks have a long history of Uttarkhand) (Nil, Tamilnadu)
60-70 years SBI Commercial & International (100, The Ratnakar Bank
SBI) (Promoters of Centrum Fin,
„ Many of them have been doing quite well and hence 5%, Maharashtra)
have not yet been merged Tamilnad Mercantile Bank (Nadar, The South Indian Bank
80%, Tamilnadu) (Nil, Kerala)
 In 1993 RBI gave licenses to 9 new private Bank of Rajasthan (Tayal group, 44%)
Catholic Syrian Bank (Chawlas 36%, Syrian Community, Kerala)
sector banks in the country. Of these, Dhanalakshmi Bank (Raja Mohan Rao, 9.68, kerala)
„ Times Bank merged with HDFC Bank in Feb 2000 Note: Information in brackets includes majority shareholder,% owned & major
„ Global Trust Bank merged with OBC presence in the state
„ Bank of Punjab merged with Centurion Bank
New Generation Private Banks Promoters holding/
Controlling Stake (%)
 Two new banking licenses were given post Centurion Bank of Punjab 1.22
1993 Development Credit Bank 26.5
„ Yes Bank in 2004 HDFC Bank Ltd 22
„ Kotak was allowed to convert to a bank in 2003-04 ICICI Bank 0
IndusInd Bank 28
 Currently there are 8 new generation private Kotak Mahindra Bank 55
Axis Bank 34
banks and 18 old generation private banks
YES Bank 36
„ LKB recently merged with Centurion Bank
Source : RBI, ENAM Research, Company

48
Historical Performance: New Private Banks

49
New Private Banks: Credit Growth
Credit Growth Credit Growth
80 240
(%) 200 (%)
60 160
120
40
80
20 40
0
0 (40)

FY08E

FY08E
FY2003

FY2004

FY2005

FY2006

FY2007

FY2003

FY2004

FY2005

FY2006

FY2007
ICICI HDFC Bk Axis CBoP KMB Yes Bank

Credit Growth
80
(%)

40

(40)

FY08E
FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007
DCB IndusInd

Source: Company, ENAM Research

50
New Private Banks: NIM movement
NIM NIM
5 6
(%) (%)
4 5
3
4
2
1 3

0 2

FY08E
FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY08E
FY2003

FY2004

FY2005

FY2006

FY2007
ICICI HDFC Bk Axis CBoP KMB Yes Bank

NIM
4.0
(%)
3.0

2.0

1.0

0.0

FY08E
FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007
DCB IndusInd

Source: Company, ENAM Research

51
New Private Banks: Net NPAs
Net NPAs
Net NPAs 8
(%)
6
(%) 6
5
4 4
3
2
2
1 0
0

FY08E
FY2003

FY2004

FY2005

FY2006

FY2007
FY08E
FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007
CBoP KMB
ICICI HDFC Bk Axis

Net NPAs
10.0
(%)
8.0
6.0
4.0
2.0
0.0

FY08E
FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007
DCB IndusInd
Source: Company, ENAM Research
52
Historical Performance: Old Private Banks

53
Performance of Old Private Banks: Credit Growth
Credit Growth NIM Asset Quality
40 5 12
(%) (%) (%)
30 4 10
8
20 3 6
4
10 2
2
0 1 0

FY08E
FY00

FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY08E

FY08E
FY00

FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY00

FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007
J&K ING Vysya SIB Fed Bk KBV Karnataka Bk Fedbank KVB KTK BK

Credit Growth NIM Asset Quality

40 4.0 10
(%) (%) (%)
8
30 3.5
6
20 3.0
4
10 2.5
2
0 2.0 0
FY08E

FY08E
FY00

FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY00

FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY08E
FY00

FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007
Fed Bk KTK Bank KVB J&K BK SIB ING Vysya J&K Bank SIB ING Vysya

Source: Company, ENAM Research

54
Current Performance

55
Credit Growth Moderating, but Still Healthy
 Credit growth seen moderating in most large Q1FY08 YoY Credit and Deposit Growth
private banks
„ Mortgages and auto loans are worst affected YoY Credit growth YoY Deposit growth

„ Corporates, rural and overseas loans likely to continue Yes Bk 118 168
grow at higher rate (%)
CBoP 55
60
 Banks like HDFC Bank & ICICI Bank have seen Axis Bk 45
60
moderation in credit growth
Kotak Bk 121
56
 On a systemic basis 33
DCB 50
„ Both credit and deposits grew 23.4% till mid Sep 2007
„ Increase in credit till Apri-Sep-07 at Rs 0.5 trillion ICICI Bk 26
35
„ Increase in investments in the same period at Rs 1.17 35
HDFC Bk 33
trillion
J&K Bk 20
32
25
 NII growth was lower than credit growth as SIB 29
NIMs came under pressure KVB 23
26

INGV Bk 26
23

Federal Bk 13
23

Indus Bk 13
6

-150 -100 -50 0 50 100 150 200

Source: Company

56
NIMs Under Pressure
 NIM under pressure both on a sequential and QoQ Movement in CASA (Q1FY08)
YoY basis, largely on account of 160
(bps)
80
„ Fall in LDR over the last quarter 0
„ Fall in Bond spreads resulting from increase in cost of (80)
deposits and more or less flat yields on investments (160)
(240)
(320)
 Moderation in credit is helping banks to (400)
reduce cost of deposits. Therefore incremental (480)
(560)
cost of deposits will be lower (640)
(720)

ICICI Bk
 However, pressure on NIM may still sustain as

Indus Bk
DCB

KMB
J&K Bk
HDFC Bk

Axis Bk

INGV Bk

Ktk Bk

Fed. Bk

Yes Bk
deposits come up for re-pricing in the next
few quarters

Sequential change in NIM in Q1FY08* YoY change in NIM in Q1FY08

40 60 50
(bps) 15
(bps)
20 40
0 20 2 4 4
10
7
(20) 16 16
10 0
25 20 4 3
(40) 36
30 (20) 11 10
20 20
(60) 49 (40)
40
(80) (60)
(100) (80)
101 (100)
(120) 100
(120)
INGV Bk
ICICI Bk

HDFC Bk

Indus Bk

J&K Bk
Yes Bk

KMB
Axis Bk

Fed. Bk
CBOP

SIB

INGV Bk
ICICI Bk

HDFC Bk

Ktk Bk
J&K Bk
Yes Bk

Dena Bk

Indus Bk
KMB

Fed. Bk

Axis Bk
CBOP

SIB
Source: Company, ENAM Research, * in comparison with FY07 credit spreads

57
…even as credit spreads have improved
 Despite hike in term deposit rates in
YoY change in credit spread in Q1FY08
Q4FY07, credit spreads^ improved for 140 128
(bps)
banks 120
„ Largely on account of their ability to hike PLR 100
almost 3 times in FY07 80 68
60
60
 Banks saw improvement in credit spread
40 29
both on YoY and QoQ basis 20 24
20 9
0 0
 Banks are also slowly moving away from 0

ICICI Bk

INGV Bk
J&K Bk
Yes Bk

BoI

DCB
OBC
SIB
Federal
housing loans to industrial loans

Bk
„ where discount to PLR is reduced to some extent

 Pressure on credit spreads expected to QoQ change in credit spreads in Q1FY08*

40
be lower with banks cutting down on (bps)
22 24
deposit rates
20
8

0
4
(20)
20 19

(40)

ICICI Bk

INGV Bk

J&K Bk
Yes Bk

Fed. Bk

SIB
^ Credit Spread : Yield on Advances – Cost of deposits
Source: Company, ENAM Research, * In comparison with FY07 credit spreads
58
Some Deterioration in Asset Quality, but Not Alarming
Q1 QoQ Decline in Gross and Net NPA Q1 YoY Decline in Gross and Net NPA
Fall in Gross NPA Fall in Net NPA Fall in Gross NPA Fall in Net NPA

(bps) 8 (bps) 287

DCB DCB
25 962

15 124
SIB SIB
24 172

15 94
J&K Bk INGV Bk
157
13

3 39
Fed. Bk Fed. Bk
5 154

11 18
INGV Bk Ktk Bk
3 141

2 14
Axis Bk Axis Bk
(6) 24

(26)
(4) J&K Bk
Indus Bk (18)
(7)

(67)
(13) Indus Bk
Ktk Bk (61)
(21)
(50)
(32) ICICI Bk
ICICI Bk (74)
(52)

Source: Company, Note: Negative numbers indicate rise in NPAs

59
Net Profit Growth has been Robust
Q1FY08 YoY PAT and provisioning growth

(%) PAT Growth

Growth provision

Yes Bk 113.3 45.0

 High profit growth in Q1FY08
SIB 101.8 (60.5)
despite margin pressure largely
INGV Bk 71.2 109.1
on account of:
Federal Bk 66.6 19.8
„ Lower provisioning requirements for
IndusInd Bank 65.0 (19.5)
most banks in Q1FY08
„ Lower standard asset provisioning in Axis Bank 45.1 0.1

Q1FY08 vis-à-vis Q1FY07 when some Karnataka Bank 40.8 (25.7)

banks had higher standard asset KMB 39.7 54.3

provisioning due to change in RBI HDFC Bk 34.2 50.5
norms J&K Bk 33.4 (34.7)

DCB 32.3 0.9

ICICI Bk 25.1 155.4

Karur Vysya Bank 24.9 (99.0)

CBOP 14.9 98.9

Source: Company

60
Capital is Comfortable for Most Banks
Q1FY08: Tier-I & CAR

Tier-I CAR
 Most large Private Banks have 13
J&K Bk
already completed their capital 12.4
(%)

raising exercise Ktk Bk

11.0
13

„ ICICI Bank, HDFC Bank and Axis Bank have

11
already raised capital in July 2007 CBoP
9.3
„ CBOP and SIB both raised capital by way of 13
Fed. Bk
QIP in Sept 2007 9.2

13
HDFC Bk
 Post capital raising, Tier-I will go up 9.2

„ ICICI Bank - 11% DCB

10
8.0
„ HDFC Bank – 13.5%
„ Axis Bank – 12% 13
Yes Bk
7.6

 Others who are likely to raise capital INGV Bk

7.5
11

„ Yes Bank & ING Vysya planning for

12
preferential/QIP Indus Bk
7.2
„ Federal bank has already announced rights 11
ICICI Bk
issue 7.1

12
Axis Bk
6.3

Source: Company

61
Roadmap for Presence of Foreign Banks in India
 Phase –I (March 2005 to March 2009) (Source: RBI)

„ Foreign banks wishing to establish a setup in India can either operate through a branch network or set
up a 100% wholly owned subsidiary, following the one-mode presence criteria

„ For existing foreign banks – the RBI will go beyond the existing commitment of 12 branches in a year.
Also, a more liberal policy in under-banked areas will be followed

„ Foreign banks already operating in India will be allowed to convert their existing branches to wholly
owned subsidiaries which would be treated on par with the existing branches in terms of market
access and national treatment limitation

„ Initially, entry of foreign banks will be permitted only in those private banks that are identified by the
RBI for re-structuring
` RBI may ask the foreign bank for a minimum stake of 15% to start with though the overall limit of 74% will still
be applicable
` If such a foreign bank is already having a setup in India then the bank will have to submit a proposal to conform
to the “one mode of presence” concept, which should be completed within 6 months

62
Roadmap for Presence of Foreign Banks in India
 Phase – II : April 2009
„ Wholly Owned subsidiaries of foreign banks will be be treated at par with domestic banks

„ Dilution of stake in a wholly owned subsidiary

„ On completion of a minimum prescribed period of operations, wholly owned subsidiaries of foreign
banks will be allowed to dilute their stake so that at least 26% of equity is held by Indian Residents at
all times

„ Mergers & Acquisition of Private Banks in India

„ Foreign Banks may be permitted to enter into mergers and acquisitions with any private sector bank in
India, subject to overall limit of 74%

63
 ENAM Securities Pvt. Ltd.
109-112, Dalamal Tower, Free Press Journal Marg, Nariman Point, Mumbai - 400 021, India.
Tel:- Board +91-22 6754 7500; Dealing +91-22 2280 0167;
Fax:- Research +91-22 6754 7579; Dealing +91-22 6754 7575
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banks/brokerages in the world so that our clients may make an informed judgment about our recommendations. The following disclosures are intended to keep you informed before you make any decision- in addition, we
will be happy to provide information in response to specific queries that our clients may seek from us.
Disclosure of interest statement (As of October 5, 2007) ICICI Bank HDFC Bank Axis Bank CBoP Yes Bank Federal Bank
1. Analyst ownership of the stock Yes No No No No No
2. Firm ownership of the stock No No No No No No
3. Directors ownership of the stock Yes Yes No No Yes Yes
4. Investment Banking mandate No No No No Yes No
5. Broking relationship Yes Yes Yes No No No
We are committed to providing completely independent and transparent recommendations to help our clients reach a better decision.

This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Nothing in this document should be construed as investment or financial advice,
and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document. The intent of this document is not in recommendary nature
Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the
merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors
Enam Securities Private Limited has not independently verified all the information given in this document. Accordingly, no representation or warranty, express or implied, is made as to the accuracy, completeness or
fairness of the information and opinions contained in this document
The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject
to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval
Enam securities Private Limited, its affiliates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned
in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities
functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document
This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through analysis of ENAM Securities Private Limited. The views expressed are those of
analyst and the Company may or may not subscribe to all the views expressed therein
This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any
purpose. Neither this document nor any copy of it may be taken or transmitted into the United State (to U.S.Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or distributed or
redistributed in Japan or to any resident thereof. The distribution of this document in other jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about,
and observe, any such restrictions
Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise
from or in connection with the use of the information.
Copyright in this document vests exclusively with ENAM Securities Private Limited.

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