Nomura - India Banks Errclub - Making Sense of The "Stress"

India banks
EQUITY: BANKS
Making sense of the stress
Global Markets Research
Stress discounted for private banks; sensitivity

indicates need to remain selective on PSUs
16 September 2015
INR6tn of unrecognised stress Sensitivity analysis

Large unrecognised exposure to stressed metals/infra and other corporates
remains a key investor concern and 5:25 refinancing is providing leeway to
delay recognition and impact on the P&Ls. In this report, we undertake a
analysis of the ultimate loss given default (LGD) relating to these stressed
names and ascertain what is and is not priced in for banks.
We estimate that some INR6tn in stressed assets at metals (INR1.4tn) and
infra SPVs (INR2tn) and infra conglomerates (INR1.6tn) and large
corporates/real estate (INR1tn) is yet to be recognised as impaired, which is
equal to 75% of current systems NPA+restructuring.
We estimate 15-20% of these loans have already been pushed out using
5:25 refinancing and more will likely follow. Thus, we believe adjusting bank
books for the ultimate LGD best assesses the potential impact.
Our LGD assumptions vary from 0% for hydro power and airports to 20-30%
for coal power assets, and a much higher 40-60% for gas power, overseas
coal, steel and infra conglomerate parent debt. Overall, an LGD of ~30%
implies a INR1.7tn hit to banks on these assets.
Large asset quality risks across

metals and infrastructure
conglomerates and corporates
have yet to be recognized. Our
exposure analysis indicates the
risk seems to be priced in for
private corporate banks, but
adjusted valuations for PSUs are
not cheap. Investors need to
remain selective on PSUs.
Anchor themes
How are banks relatively placed?

While there is exposure to stressed non-infra loans, private corporate banks
and PSU banks have similar exposure to large metal/infra names.
We estimate an LGD of 15-23% of net worth for corporate private banks.
ICICIs LGD is higher at ~23% of net worth due to its higher overseas coal
and JPA exposure. LGD for Axis/Yes is lower at 15-18% of net worth.
LGD for PSU banks in these accounts is 15-30% of net worth. BOB is best
placed with LGD of 13%, while PNB and BOI are worst placed. SBI parent is
better placed, but including subs its exposure is only marginally better.
Nomura vs consensus
We are 5-6% below consensus
on FY16/17F PAT estimates.
Research analysts
India Banks
Adarsh Parasrampuria - NFASL
adarsh.parasrampuria@nomura.com
+91 22 4037 4034
Amit Nanavati - NFASL
amit.nanavati@nomura.com
+91 22 4037 4361
Risk discounted in private banks: stay selective on PSUs

For private corporate banks, valuations adjusted for stressed loans are 1015% below mean valuations; hence the concerns seem priced in. ICICI's
higher exposure vs Axis/Yes is reflected in a ~20% discount.
For PSUs, the book adjustment is much larger at 30-55% with a 15-25% hit
from these accounts and a 15-30% book hit from higher coverage on NPA
and restructuring. Adjusting the stress, PSU valuations are not cheap. We
see a need to remain selective and prefer SBI and avoid PNB/BOI.
With the recent correction, we think private banks, especially Axis and ICICI,
offer a good entry opportunity and are our top pick along with HDFCB.
Fig. 1: India banks: Stocks for action
Company
Ticker
Rating
ICICI
Axis
SBI
Yes
BOB
PNB
BOI
ICICIBC IN
AXSB IN
SBIN IN
YES IN
BOB IN
PNB IN
BOI IN
BUY
BUY
BUY
BUY
BUY
Neutral
Neutral
Mcap (USDbn)
23.3
17.3
26.4
4.5
6.1
3.7
1.4
Avg. TO (USDmn)
64.6
62.7
64.1
45.3
14.8
12.8
7.6
Target Price
Current Price
Upside
350
625
290
870
210
140
140
272
496
235
732
187
137
136
28.5%
26.0%
23.3%
18.9%
12.6%
2.2%
2.9%
Source: Bloomberg, Nomura estimates. Pricing as of 14 September 2015.
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | India banks
16 September 2015
Contents
Investment summary ....................................................................................... 3
Our thesis in charts .......................................................................................... 4
Current stress may not be felt by P&Ls soon .................................................. 5
What we consider in our sensitivity and our rationale for loss given defaults
across segments .............................................................................................. 7
Private Banks discounting the hit; need to remain selective on PSU banks . 10
How does it all stack up: Corporate banks factoring in the hit, still need to be
selective on PSUs .......................................................................................... 12
Sector view: Positive on private banks; still remain selective on PSUs: ....... 14
Axis Bank ............................................................................................. 16

ICICI Bank ............................................................................................ 19
Yes Bank .............................................................................................. 23
State Bank of India ............................................................................... 26
Bank of Baroda..................................................................................... 29
Bank of India ........................................................................................ 32
Punjab National Bank ........................................................................... 35
Appendix A-1 ........................................................................................ 38
16 September 2015
Investment summary
While many stressed names have been recognised in the past two to three years, we
believe that some of the larger stressed metal/infra special purpose vehicles (SPVs) and
corporates have yet to be recognised. While the government is trying to resolve project
bottlenecks, weak balance sheets plague many infra conglomerates plus the commodity
downcycle will likely delay the expected recovery in asset quality. That said, in the near
term we expect banks to likely opt to manage some of these accounts through the 5:25
refinancing provided by the regulator. We believe some of these companies have
unsustainable debt levels and so the banks will likely eventually need to take a hit on
these accounts. In this report, we have done our best to estimate:
The part of the stress still not recognised We believe there could be INR6tn of
debt not recognised as NPAs or restructuring. This is 75% of current system NPA and
restructured book.
Loss given default (LGD) While asset classes will differ significantly in ultimate
LGDs, overall we estimate a ~30% LGD in these accounts.
Bank exposure We look at MCA data to find bank exposure to these assets, which
show that private corporate banks have similar exposure as PSU banks.
Bank-wise LGD and how valuations stack after factoring these hits: For private
banks, we estimate the impact to their net worth at 15-25%. For PSUs, the LGD is not
very different (20-25% of net worth), but overall book adjustments will be larger when
factoring in high provisioning for NPAs and restructured loans.
Overall, we expect an elongated credit cost cycle. Private corporate bank
valuations adjusted for the stress are below long-term averages; hence we are
positive on Axis and ICICI particularly following the recent correction. For PSUs,
adjusted valuations are not attractive, so we remain selective, with SBI as our
preferred pick.
Fig. 2: Potential stress seems to be priced in for corporate private banks but adjusted PSU multiples are closer to long-term
averages, indicating that the potential stress is not fully priced in
Book Im pact
ICICI
Axis
Yes HDFCB Kotak
IIB
SBI
PNB
BOB
BOI Union
Reported book FY17F
149
255
382
332
173
336
266
243
212
389
300
Book Im pact on banks
Deep dive sensitivity+SEB
70% NPL coverage+ARC
Restructured book
-22.1% -11.3% -10.9%

-18.2% -11.2% -13.3%
-1.8% 2.0%
3.3%
-2.2% -2.1%
-0.9%
1.4%
-0.6%
2.1%
0.0%
-1.8%
-0.2%
-1.4%
-0.1%
-0.9% -30.2% -55.5% -28.8% -58.6% -40.5%

-1.2% -15.0% -24.0% -12.1% -28.5% -20.1%
0.9%
-5.7% -16.3% -6.1% -16.2% -11.1%
-0.6%
-9.5% -15.2% -10.6% -13.9%
-9.3%
Adjusted book FY17F
116
225
334
336
170
329
178
108
148
115
169
P/B at current price

Reported book - FY17F
Adjusted book - FY17F
1.38
1.78
1.94
2.20
1.92
2.19
3.06
3.03
3.23
3.28
2.60
2.66
0.78
1.17
0.56
1.27
0.88
1.26
0.35
1.19
0.57
1.02
P/B at Target price

1.90
2.45
2.45
2.77
2.28
2.60
3.61
3.57
3.83
3.90
3.05
3.12
0.99
1.48
0.58
1.30
0.99
1.42
0.36
1.22
0.67
1.18
Long term 1 yr frd P/B (04-now )

2004-07 average 1 yr frd P/B
1.87
2.10
2.16
2.47
2.36
3.21
At current valuation
Reported book FY17 P/B v/s LT average
Adjusted book FY17 P/B v/s 04-07 multiple
-26% -10%
-15.3% -10.9%
At Target m ultiples
1.8% 13.5%
17.0% 12.3%
3.43
3.65
2.79
2.68
2.13
1.95
1.28
1.20
1.29
1.45
1.04
1.00
1.08
1.16
1.09
1.25
-19%
N/A
-11%
16%
-16.9% 22.5%
22%
36.9%
-39%
-2.0%
-56%
-12.5%
-15%
N/A
-68%
2.5%
-47%
-18.7%
-3.4%
N/A
5.1% 37.5%
-2.0% 45.5%
42.7%
60.3%
-22.6%
23.9%
-55.3%
-10.7%
-4.4%
N/A
-66.8%
5.6%
-39.0%
-5.7%
Source: Bloomberg, Company data, Nomura estimates
16 September 2015
Our thesis in charts

Fig. 3: Plenty of stress yet to be recognised 75% of current
system NPA and restructured book
Fig. 4: We estimate 30% LGD for these assets in the long run
INRbn
Metal exposure to stressed groups
Infra conglomerates (Top-4)
Infra SPVs (ex Infra conglomerates)
Corporates and Real Estate (ex infra)
Total potential stress
Sector
Airports
Pow er - Coal
Pow er -Coal - IPPs
Pow er - Coal international
Pow er - Gas
Pow er - Hydro
Roads
Infra Conglomerate - Parent
Real Estate
Steel
Corporates ex-Steel
Divestments
Total LGD
Exposure % of loans
1,427
2.4%
1,555
2.6%
1,957
3.2%
1,004
1.7%
5,943
9.8%
Banks NPAs
Banks -Restructured book
NPA of Infra Finance com panies
Total recognised stress
3209
4,368
249
7827
Potential stress as a % of current NPA

+ Restructuring
5.3%
7.2%
NA
12.5%
76%
Source: MCA, Nomura research
LGD %
0%
20%
30%
60%
60%
0%
15%
50%
15%
40%
20%
0%
28.8%
Source: Nomura estimates
Fig. 5: Unrecognised stress ~15-30% of banks current net worth
Exposure to
stressed assets
5,943
880
783
96
3,631
507
925
INRbn
Total System
Private banks
ICICI/Axis/Yes
Other private banks
PSUs
IDFC/PFC/REC
Other Institutions
% of FY15 Netw orth

LGD on stressed Total stressed
Infra Ex infra Corp.
Infra
assets
assets conglo
and CRE Corporates Metals
1,709
20.4%
5.1%
2.3%
6.0%
6.8%
280
11.2%
4.5%
1.4%
2.4%
2.6%
248
19.8%
8.4%
2.5%
4.2%
4.0%
33
2.6%
0.6%
0.3%
0.5%
1.1%
1,088
23.4%
5.2%
2.4%
5.8%
9.8%
139
18.7%
5.1%
1.9%
11.8%
0.0%
201
Fig. 6: Book adjustment much higher for PSU banks after

adequate provisions for NPAs and restructured book
-70%
Deep dive sensitivity+SEB

Restructured book
Fig. 7: Private banks trading at discount after adjusting for

stress, PSUs trading in line with long-term averages
70% NPL coverage+ARC
-60%
-50%
-14%
-15%
-40%
-16%
-16%
-30%
-9%
-20%
-10%
-2%
-2%
-18%
0%
-11%
-6%
-2%
-1%
-11%
-13%
2%
3%
Axis
Yes
-24%
-15%
-6%
-9%
-11%
-28%
-20%
-12%
10%
ICICI
SBI
PNB
BOB
BOI
Union
ICICI
Axis
Yes
SBI
PNB
BOI
Union
P/B (FY17F P/B (FY17F

Reported Adjusted
book)
book)
1.38
1.78
1.94
2.20
1.92
2.19
0.78
1.17
0.56
1.27
0.35
1.19
0.57
1.02
Reported
book
FY17 P/B
v/s LT
average
-26.3%
-10.0%
-18.8%
-38.8%
-56.2%
-67.8%
-47.4%
Adjusted
book
FY17 P/B
v/s 04-07
multiple
-15.3%
-10.9%
N/A
-2.0%
-12.5%
2.5%
-18.7%
Source: Bloomberg, Nomura estimates
16 September 2015
Current stress may not be felt by P&Ls soon

No material resolution of large asset quality risks: The current government has been
taking steps to improve the investment climate and remove roadblocks to projects across
the value chain, but what we see is that still large risks in Infrastructure SPVs and
conglomerates, metals and now also SEBs remains for the banking system. For metals,
the outlook has deteriorated in the last 12 months given the fall in global commodity
prices and in Infrastructure weak promoter company balance sheets remain a key issue
and leverage ratios of most of the Infra conglomerates has only deteriorated.
1)
Infra conglomerates: Financial position has deteriorated: Interest coverage has

dropped to 0.7x in FY15 from 0.9x in FY14 and debt/equity is up to ~16.5x from
14.5x in FY14. While there has been some success in selling down assets by these
Infra conglomerates, sales are largely of cash generating assets and also
improvement in some of their stressed assets is slower than expected.
Fig. 8: Interest coverage for infra conglomerates has been

deteriorating
7.0
JPA
GMR
6.0
IVRCL
Lanco
GVK
Fig. 9: Debt/Equity ratio also fails to improve despite asset

sales
14.0
JPA
IVRCL
GVK
GMR
12.0
5.0
10.0
4.0
8.0
3.0
6.0
2.0
4.0
1.0
2.0
FY09
(1.0)
FY10
FY11
FY12
FY13
FY14
FY15
FY09
Source: ACE Equity, Nomura research
2)
FY10
FY11
FY12
FY13
FY14
FY15
Commodity names: Could lead to high a LGD: the global commodity downcycle
is having significant impact on the profitability of most metal companies. In a lowprice commodity regime, longer-term losses given defaults could be high in some of
these names.
Fig. 10: Interest coverage of even large metal names now

challenged
Fig. 11: Debt levels very high of some of the metal

companies could lead to high loss given default (LGD)
Jun-15
Mar-15
Dec-14
Sep-14
Jun-14
Mar-14
Dec-13
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Dec-11
Sep-13
Metals IC - Large companies

Metals IC - Medium companies
Metals IC - Small companies
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
3)
Metal com panies

Bhushan Steel
Bhushan pow er & steel
Monnet Ispat
MSP Steel
Adhunik Metaliks
Concast Group
Loha Ispat
Essar Steel
Total
Total sector's system loans
Total Debt % of sector's

(INRbn) system loans
381
13%
317
11%
98
3%
5
0%
49
2%
34
1%
7
0%
536
19%
1,427
50%
2861
100%
Source: MCA, RBI, Nomura research
Infra SPVs (ex conglomerates): Project-level issues remain on gas plants and
even profitability of coal power plants is a worry after the auctions as pointed out by
IDFC in their 1Q16 results conference call (the company having increased its own
LGD assumptions). Some independent power producer-run power plants will not be
able to receive any balance sheet support from parent.
4)
16 September 2015
Slippage from restructured books: For PSUs, we have highlighted that relapse
risk remains very high, which will keep credit costs elevated in our view. Slippage
from restructured books has increased to ~30% of total slippages in FY15 compared
to ~15% in FY13/14.
Fig. 12: Slippage from restructured books have risen
SBI
PNB
BOB
BOI
Union
Total
Slippages from restructuring (% of loans)

FY13
FY14 1HFY15 2HFY15 FY15
1Q16
0.26% 0.66%
0.49%
0.52% 0.49% 0.37%
0.30% 0.50%
1.64%
2.35% 1.94% 0.89%
0.63% 0.49%
0.62%
0.88% 0.72% 0.34%
0.57% 0.41%
1.13%
1.55% 1.32% 2.33%
0.48% 0.89%
0.71%
0.41% 0.54% 1.00%
% slippages from restructured book

FY13
FY14 1HFY15 2HFY15 FY15
8.7% 19.8%
16.7%
28.7% 21.5%
7.1% 14.6%
44.6%
35.1% 38.4%
30.0% 28.7%
30.9%
40.8% 36.3%
22.6% 17.5%
33.3%
28.2% 30.1%
25.1% 37.0%
26.1%
16.1% 21.1%
13.3% 20.8%
26.7%
30.8% 28.9%
1Q16
16.2%
25.0%
18.3%
35.2%
41.0%
25.6%
Source: Company data, Nomura research
5)
SEB debt: Restructuring related moratorium coming to an end. While SEB debt
carries some sovereign guarantee and is unlikely to become an NPA any time soon,
we believe that a large part of this debt is exiting its moratorium in FY16 and, given
the weak financials of these SEBs, the Reserve bank of India (RBI) may have to
give an exception to prevent these SEBs from becoming NPAs.
Fig. 13: Financial position of SEBs under FRP have not

improved significantly
Fig. 14: Banks do have large exposure to SEBs part of which

they have restructured as well
SEB losses (INRbn)

Haryana
Punjab
Rajasthan
UP
AP
Karnataka
TN
MP
SEB
% of FY15
Of w hich
%
INRbn exposure
Loans
restructured restructured
Union
105
4.1%
57
53.9%
BOI
151
3.7%
40
26.5%
PNB
107
2.8%
58
54.4%
BOB
52
1.2%
35
67.3%
SBI
107
0.8%
38
35.5%
FY10
(15.9)
(13.0)
(110.1)
(52.6)
(36.4)
(4.3)
(103.0)
(33.4)
Source: PFC report, Nomura research
FY11
(10.8)
(16.4)
(213.7)
(39.7)
(21.8)
0.1
(119.1)
(21.6)
FY12
(132.0)
(4.6)
(195.7)
(92.3)
(40.2)
(0.8)
(133.1)
(29.2)
FY13
(36.5)
0.5
(123.5)
(97.8)
(175.2)
(9.1)
(120.6)
(44.5)
But these stresses may not affect P&Ls in the near term the 5:25 leeway
While our interest coverage analysis indicates stability in overall interest coverage for
corporate India, the assets above have seen a deterioration in their debt servicing that
are large relative to the size of the current stressed book (NPA + restructured book).
While this would imply that incremental stress in the next 12-18 months should not ebb,
the RBIs leeway given to refinance (5:25 restructuring), provides a way to push out
these asset-quality worries for the time being. This will likely shield banks P&Ls in the
interim as well.
Since large part of the stressed book can be re-financed and the P&L in the near
term will not reflect the real asset quality challenges, we believe running
sensitivity on this exposure for their ultimate LGDs is the best way to factor in the
relative stress for banks.
16 September 2015
Fig. 15: 5:25 restructuring announced pushing out some of

the current stress
Fig. 16: The pool of problem assets pretty large
Com pany
Bhushan Steel
Lanco Kondapalli II and III
GMR - Odisha pow er plant
Essar steel
Adani Pow er
Uttam Galva Metallics
Jaypee - Yamuna Expressw ay
Vedanta
RPow er - Butibori and Rosa
Torrent Pow er
Lanco Udupi
Krishnapatnam Port
JSW Energy - JPVL's Hydro plants
Tata pow er - Mundra UMPP
Total referrals under 5:25 schem e
Stressed nam es (%)
INRbn
INR bn
350
24
40
150
150
13
103
102
65
13
49
46
60
100
1,265
88.3%
Source: Media reports (Mint, Financial express, Money control), Nomura research
Banks NPAs
Potential stress as a % of current NPA
+ Restructuring
Exposure % of loans
1,427
2.4%
1,555
2.6%
1,957
3.2%
1,004
1.7%
5,943
9.8%
3209
4,368
249
7827
5.3%
7.2%
NA
12.5%
76%
What we consider in our sensitivity and our rationale for loss

given defaults across segments
The list is INR6trn 75% of banking systems current stressed book (NPAs +
restructured book): We have included debts of ~INR1.4trn form steel; INR1.5trn from
four Infra conglomerates; INR2.0trn from Infra SPVs (ex-Infra conglomerates) and
INR1.0trn from some stressed corporates including some real estate names. This
aggregates to INR6trn and equates to 75% of the FY15 system stressed loans
(Gross NPAs + Restructuring).
We believe this set of exposure largely represents the possible stress remaining to be
recognised for the banking system, and that a large part of it is eligible for 5:25 refinancing and so may not affect P&Ls for now. While we have tried to exclude exposure
that is already part of the restructured book for banks, there may be some overlap but we
believe this to be negligible given the scale of the numbers involved (please see
Appendix 1 for details on what has been included in our stressed list for sensitivity).
Fig. 17: Unrecognised stress still very large - ~75% of system NPA + Restructuring
INRbn
Banks NPAs
Potential stress as a % of current NPA +
Restructuring
Exposure % of loans
1,427
2.4%
1,555
2.6%
1,957
3.2%
1,004
1.7%
5,943
9.8%
3209
4,368
249
7827
% of Netw orth
17.0%
18.6%
23.4%
12.0%
70.9%
5.3%
7.2%
NA
12.5%
76%
Assessing loss given default (LGD) in different asset classes: As discussed above
we thus think that adjusting book value of banks for loss given defaults in this stressed
accounts would be the best adjustment to determine what is priced in and what is not.
16 September 2015
Fig. 18: Loss given default assumptions across asset classes

70%
LGD %
60%
60%
60%
50%
50%
40%
40%
30%
30%
20%
20%
15%
28.8%
20%
15%
10%
0%
0%
0%
0%
Fig. 19: Rationale for our loss given default assumptions

Sector
LGD %
Rationale
Airports
0.0%
4 major airports run by GVK/GMR w hose B/S look stretched but its airports assets are
making money and hence can be disposed off even if parent B/S remains stretched
Pow er - Hydro
0.0%
Barring 1-2 hydro assets, most assets are able to service interest - even in case of JPA's
sale of Hydro assets the sale is happening at Equity value of +1x
Divestments
0.0%
Some assets have been divested or process of being divested to better B/S companies and
hence w e assume no w rite-off in those cases
Roads
15.0%
Write offs low as most assets don't have any linkage/ raw material issues like pow er plants Low er interest rates should aid profitability as w ell
Real Estate
15.0%
No large defaults as yet but low real estate volumes a concern - LGD low because of
collateral of property
Pow er - Coal
20.0%
Improving coal availability a positive in the long run but project over-runs and now no pass
through of auction coal cost is an issue - IDFC inched up their LGD expectation from coal
pow er plants recently
Corporates ex-Steel
20.0%
Past LGD for Indian banks is ~40-45% - We assume low er slippages as some corporates
w ill be able to divest or w ould benefit from a recovery
Pow er -Coal - IPPs
30.0%
Higher LGD v/s other coal assets as parent B/S support could be low er in these cases
Steel
40.0%
Longer term debt of some of the steel names like Essar/Bhushan looks unsustainable
w ithout considering a commodity boom again.
Infra Conglomerate - Parent
50.0%
Infra conglomerate parent B/S funding used for cost over-runs, equity funding and hence
asset backing is low er and hence w e assume high Loss given default here.
Pow er - Coal international
60.0%
Most coal acquisitions happened in commodity boom time and asset values have come off
significantly since then. Also debt funding required to scale up and optimise production here
looks difficult to tie-up
Pow er - Gas
60.0%
Near term w e don't see a solution to the gas assets - Govt's solution of pooling gas can
meet only a very small part of interest obligations
Total LGD
28.8%
Source: Nomura research
16 September 2015
We arrive at a LGD of ~30% of this INR6trn of stresses exposure

Based on our above assumptions, on a system level we arrive at a total LGD of ~3035% of the accounts mentioned above, aggregating to a ~INR2trn impact on banks and
non-bank financial companies (NBFCs) from these accounts.
The 30% LGD ratio is lower than the 40-50% Indian banks have faced in the past due
to: 1) the long gestation of these stressed assets (mostly Infra); and 2) divestments that
will reduce the risk profile of some of these assets.
The 30% LGD is not significantly different from the provisioning IDFC has talked about.
Of its ~16% of stressed exposure, there is 2% of equity exposure and ~3.0-3.5% of gas
exposure where write-offs will be larger. Adjusting for these higher LGD, IDFCs
assumed LGD is ~35-40% against 30% in our analysis.
Fig. 20: We arrive at an LGD of ~INR1.7trn in these stressed accounts over time
INRbn
Banks NPAs
LGD INRbn
571
430
505
196
1,702
LGD (%) % of Netw orth

40.0%
6.8%
27.6%
5.1%
25.8%
6.0%
19.5%
2.3%
28.8%
20.4%
3209
4,368
70%
40%
Source: MCA, Company data, Nomura research
Fig. 21: Longer-term, system-level LGDs have been 40-50%

in the past
Fig. 22: IDFCs provisioning assume a LGD of 45%, excluding

gas and equity it is 30-35%
PSU Banks Ultim ate Loss given

Default (FY02-14) - INRbn
FY02-14 FY02-04 FY12-04
Total Slippages
6,372
498
3,765
Total Reductions
4,637
530
2,236
Estimated Write offs
1,734
237
742
Total Recoveries/Upgrades
2,903
293
1,494
Recoveries/upgrades (% of
Slippages)
45.6%
58.7%
39.7%
Thru cycle loss given default
54.4%
41.3%
60.3%
IDFC's reported stressed book

Provision created
IDFC's total stressed book
Of w hich Equity
Of w hich Gas assets
Other stressed assets
Gross Slippages
Total Reductions
Implied Write offs
Recovery/Upgrades
Net Slippages (ex- Write offs)
Credit Costs (only NPA)
Source: RBI, Nomura research
2.28%
2.04%
0.84%
1.21%
1.07%
1.00%
3.06%
3.21%
1.43%
1.78%
1.27%
1.79%
% of loans
8.50%
9.0%
16.0%
2.5%
3.1%
10.4%
LGD
56%
60%
60%
35%
2.84%
1.68%
0.55%
1.12%
1.72%
1.01%
16 September 2015
Private Banks discounting the hit; need to remain selective

on PSU banks
We start with a caveat: We base our bank-wise exposure and LGD analysis on detail of
the exposure provided by the ministry of corporate affairs (MCA). While the MCA
reasonably captures consortium-lending exposures, we may miss bilateral exposure
taken by some banks given separate fixed asset charges filed for each of these lendings.
However, overall in the past, the quantum and magnitude of exposure as provided by the
MCA has been not too different from actual bank exposure so analysis based on this
data is useful, in our view.
Exposure analysis to the above names and key observations:
Exposure to some of the Metal/Infra conglomerate names is not dramatically different
between PSU banks and private corporate banks like ICICI/Axis/Yes bank Gross
NPAs + restructuring of Axis/ICICI/Yes is 50-60% lower than PSU banks but their
exposure to the above mentioned assets is only 10-15% lower (as % of net worth) and
LGDs are 5-10% lower (as % of their net worth).
Within the private banks, ICICI Bank has the highest exposure according to the data.
The biggest difference is ICICI Banks large international coal exposure and high
exposure to the JPA group. Excluding these assets, exposure of ICICI Bank is similar
to Axis Bank and Yes Bank.
Among our covered retail banks, their exposure to these stressed names is <0.5% in
the case of HDFCB and Kotak and ING Vysya Bank. IndusInd Banks exposure is also
negligible at ~1% of loans, part of which could have been recognised when it sold down
assets to ARCs (asset reconstruction companies).
Within PSU banks, BOB clearly stacks up as the best, and PNB the worst. For SBI,
exposure of its subsidiaries is higher in these accounts than the parent. Union and BOI
are middle of the pack, but on a relative basis Union is better placed than BOI.
Among non-covered PSU banks, IDBI/ United and UCO are worst placed.
Within NBFCs, IDFCs exposure is similar to the high stressed book disclosure that
IDFC made while IDFC has provided for this in terms of credit cost, the interest
reversal impact of this may be large, in our view.
Fig. 23: Exposure to stressed assets PSU banks have high exposure but even exposure of private banks like ICICI/Axis/Yes
is not very different
INRbn
Total System
Private banks
ICICI/Axis/Yes
Other private banks
PSUs
IDFC/PFC/REC
Other Institutions
Exposure to
stressed assets
5,943
880
783
96
3,631
507
925
Total stressed
assets
7.6%
5.9%
10.5%
1.3%
6.6%
11.3%
% of FY15 loans
Infra
Ex infra Corp.
conglo
and CRE
2.0%
1.3%
2.5%
0.9%
4.7%
1.6%
0.2%
0.2%
1.6%
1.0%
3.5%
1.0%
Infra SPVs
2.5%
1.5%
2.6%
0.4%
1.9%
7.5%
Metals
1.8%
1.1%
1.7%
0.5%
2.1%
0.0%
Fig. 24: Loss given default for banks in these accounts ICICI Bank similar to PSUs; Axis and Yes Bank lower. Within PSUs
BOB is best, PNB the worst
INRbn
Total System
Private banks
ICICI/Axis/Yes
Other private banks
PSUs
IDFC/PFC/REC
Other Institutions
LGD on stressed
assets
1,709
280
248
33
1,088
139
201
Total stressed
assets
20.4%
11.2%
19.8%
2.6%
23.4%
18.7%
% of FY15 Netw orth

Infra
Ex infra Corp.
conglo
and CRE
5.1%
2.3%
4.5%
1.4%
8.4%
2.5%
0.6%
0.3%
5.2%
2.4%
5.1%
1.9%
Infra
Corporates
6.0%
2.4%
4.2%
0.5%
5.8%
11.8%
Metals
6.8%
2.6%
4.0%
1.1%
9.8%
0.0%
10
16 September 2015
Fig. 25: Bank-wise LGDs to each segments Corporate private banks have higher exposure to infra conglomerates while
PSUs have higher risks towards the metal sector and infra SPVs
INRbn
Total System
% of FY15 Netw orth

LGD on stressed
Total stressed
Infra
Ex infra Corp.
Infra
assets
assets
conglo
and CRE
Corporates
Metals
1,709
20.4%
5.1%
2.3%
6.0%
6.8%
Corporate Private Banks

Axis
ICICI
Yes
Other Private Banks
IIB
HDFCB
KVB
Federal
Karnataka
SIB
Kotak
ING
J&K
PSUs
SBI+Subs
SBI
BOB
PNB
BOI
Canara
Union
Corp
Andhra
BOM
ALBK
Dena
OBC
Vijaya
Indian
IOB
Syndicate
Central
Uco
United
PSB
IDBI
NBFCs/Institutions
REC
PFC
IDFC
IFCI
68
158
21
15.2%
23.0%
18.1%
3.6%
11.2%
10.4%
1.7%
2.9%
3.2%
4.6%
4.5%
1.1%
5.2%
3.4%
3.2%
2
5
3
3
2
3
1
1
12
2.3%
0.9%
6.0%
4.0%
6.3%
9.0%
0.3%
1.4%
20.1%
0.5%
0.0%
1.5%
0.3%
3.8%
1.4%
0.0%
1.0%
6.2%
0.5%
0.0%
0.0%
0.1%
2.0%
4.1%
0.0%
0.2%
0.9%
0.7%
0.3%
0.9%
1.3%
0.5%
0.8%
0.3%
0.0%
2.1%
0.7%
0.4%
3.6%
2.3%
0.0%
2.7%
0.0%
0.1%
11.0%
292
198
50
98
76
64
38
28
26
17
29
8
26
9
14
38
25
32
43
27
10
136
19.1%
16.4%
12.9%
26.1%
27.4%
24.3%
20.7%
26.4%
27.7%
24.3%
24.9%
11.5%
20.0%
15.7%
10.9%
27.4%
20.6%
20.5%
35.7%
50.9%
21.7%
60.2%
2.1%
1.6%
3.5%
3.6%
9.9%
5.8%
3.2%
7.4%
12.2%
4.6%
5.9%
1.5%
4.0%
1.3%
2.1%
8.2%
2.3%
6.3%
7.4%
18.1%
10.9%
20.4%
1.4%
0.9%
0.8%
2.6%
2.4%
2.0%
1.6%
4.2%
5.0%
5.5%
1.7%
1.7%
3.1%
3.4%
0.5%
1.7%
2.5%
2.0%
5.0%
5.6%
2.0%
8.6%
6.3%
6.2%
3.0%
6.1%
5.2%
4.1%
5.8%
4.8%
4.9%
2.1%
3.3%
1.5%
4.8%
6.3%
3.6%
3.5%
2.2%
3.5%
9.6%
12.3%
3.5%
17.3%
8.9%
7.4%
5.7%
13.5%
9.8%
12.4%
10.2%
10.0%
5.6%
12.2%
13.9%
6.8%
7.9%
5.6%
4.5%
13.6%
13.4%
8.5%
13.6%
14.9%
5.4%
13.0%
54
59
27
13
21.8%
18.2%
15.5%
18.3%
5.1%
2.2%
10.4%
6.5%
2.2%
1.7%
1.9%
3.9%
14.4%
14.3%
3.1%
5.4%
0.0%
0.0%
0.0%
1.8%
11
16 September 2015
How does it all stack up: Corporate banks factoring in the hit,
still need to be selective on PSUs
We highlight that some the stress identified above will likely impact bank P&Ls in the
long run. We thus adjust book values for the stress already recognised (NPAs +
restructuring) and the stress that remains largely as yet unrecognised.
For NPAs, we increase coverage to ~70% mostly PSUs affected.
For restructured accounts We estimate that ~20% of restructured accounts ex-Air
India and SEBs have turned bad, and we further take a ~20% charge in the
restructured book mostly PSU banks affected again due to high level of restructuring.
SEB exposure While these accounts are less likely to turn bad, we believe there
could be NPV losses and hence take a 15% credit charge on SEB exposures here
also it is mainly PSU banks that are affected.
For unrecognised stress We take our LGD estimate as credit charges that banks
will have to take here the effect is felt by both private and PSU banks.
Key observations:
Corporate private banks: The book impact is between 13-22% of their banking net
worth. The impact is lower for Axis and Yes Bank at 12-13% of their net worth as their
exposure to the unrecognised names is lower than that of ICICI Bank (22%).
PSU banks: The book impact for PSU banks is much higher at 30-55% of their net
worth. In the case of PSU banks >50% of the book effect is from write-downs from
already recognised stress (NPAs + restructuring).
Among PSU banks, the book adjustment is least for BOB and SBI at ~30% of their net
worth, where it is highest for PNB/BOI at ~55%.
For retail private banks, the book adjustment required is negligible at <1% of their net
worth. This was one of the reasons for our recent upgrade of Kotak Bank; the stock
came off ~20% lower after the recent correction.
Fig. 26: Detailed book adjustment and sensitivity
INRm n
Mar-17 Reported book
P/B on reported book
ICICI
149
1.83
Axis
255
2.45
Yes
382
2.28
Im pact from adjusting to 70% NPA coverage:

Gross NPAs (1Q16)
Net NPAs (1Q16)
Coverage (%)
Intended coverage (%)
% impact from 70% coverage adjustment
Mar-17 Price to adj. book
151,376
63,333
58.2%
70%
-2.1%
1.87
42,512
14,613
65.6%
70%
1.8%
2.40
3,683
1,067
71.0%
70%
2.5%
2.22
Im pact from slippages on Restructured book

Restructured book - 1Q16
Restructured book (ex AI +SEBs)
Additional slippgaes (%) - Ex AI +SEBs
Additional slippgaes ex AI +SEB
126,040
126,040
15.0%
18,906
85,150
85,150
15.0%
12,773
SEB exposures - Loans

Additional slippages from SEBs
% impact from restructured book slippages
M ar-17 Price to adj. book
Deep dive sensitivity
Total exposure to stressed names
Hit based on our LGD assumptions
% impact from stressed book
M ar-17 Price to Adj.book
-2.2%
1.91
PNB
243
0.58
BOB
212
0.99
BOI
389
0.36
Union
300
0.67
705,260 253,974
358,364 153,936
49.2%
39.4%
70%
70%
-7.1%
-16.3%
1.07
0.69
172,740
84,700
51.0%
70%
-6.9%
1.06
268,892
157,890
41.3%
70%
-22.2%
0.46
141,436
76,338
46.0%
70%
-12.7%
0.76
5,671 1,023,630 436,340

5,671
973,670 362,340
25.0%
20.0%
20.0%
1,418
194,734
72,468
312,569
253,569
20.0%
50,714
298,830
242,830
20.0%
48,566
191,280
124,650
20.0%
24,930
52,000
7,800
151,000
22,650
105,000
15,750
-2.1%
2.46
-0.9%
2.24
495,109 222,186
158,438
67,894
-18%
-11%
2.36
2.77
66,034
21,189
-13%
2.58
SBI
266
0.99
107,000
16,050
-10.3%
1.20
107,000
16,050
-18.6%
0.89
-12.2%
1.22
-20.5%
0.63
-15.2%
0.92
936,687 331,273
292,409
98,214
-14%
-21%
1.45
1.30
159,077
50,072
-10%
1.41
238,109
76,453
-22%
1.02
133,778
38,022
-14%
1.15
Source: Company data, Nomura estimates
12
16 September 2015
Valuations discount most of the pain for corporate private banks; our sensitivity
suggests a need to remain selective on PSUs:
Corporate banks pricing in the stress
Adjusted for the stress, current valuations of corporate private banks are at a 5-10%
discount to their long-term averages and hence we believe the stress is discounted in
current stock prices, assuming our LGD estimates are accurate.
Our revised TPs imply multiples ~5-10% higher than average long-term multiples for
corporate private banks, mainly because of granularity that the corporate banks have
built in their liability and asset franchise over the last five to seven years.
PSU banks remain selective
While PSU banks are trading at deep discounts of 40-70% to their long-term average
multiples, adjusted for their stress, valuations are trading just below the long-term
average in a few cases and at average valuations in others.
Our revised TPs imply multiples closer to their long-term averages. Since upside in
PSU banks after factoring in the stress is lower, investors need to be selective.
SBI is our preferred PSU pick (trading at 12% below its long-term average multiples).
PNB/BOI (Neutral) remains our least preferred picks, despite their low multiples.
Fig. 27: Potential stress seems to be priced in for corporate private banks but adjusted multiples for PSUs are closer to longterm averages, indicating that the potential stress in not fully priced in
ICICI
Axis
Yes
P/B at current price

1.38
1.78
1.94
2.20
1.92
2.19
3.06
3.03
P/B at Target price

1.90
2.45
2.45
2.77
2.28
2.60
3.61
3.57
Long term 1 yr frd P/B (04-now )

2004-07 average 1 yr frd P/B
1.87
2.10
2.16
2.47
2.36
3.21
At current valuation
-26% -10%
-15.3% -10.9%
At Target m ultiples
1.8% 13.5%
17.0% 12.3%
HDFCB Kotak
3.43
3.65
IIB
SBI
PNB
BOB
BOI
Union
3.23
3.28
2.60
2.66
0.78
1.17
0.56
1.27
0.88
1.26
0.35
1.19
0.57
1.02
3.83
3.90
3.05
3.12
0.99
1.48
0.58
1.30
0.99
1.42
0.36
1.22
0.67
1.18
2.79
2.68
2.13
1.95
1.28
1.20
1.29
1.45
1.04
1.00
1.08
1.16
1.09
1.25
-19%
N/A
-11%
16%
-16.9% 22.5%
22%
36.9%
-39%
-2.0%
-56%
-12.5%
-15%
N/A
-68%
2.5%
-47%
-18.7%
-3.4%
N/A
5.1% 37.5%
-2.0% 45.5%
42.7%
60.3%
-22.6%
23.9%
-55.3%
-10.7%
-4.4%
N/A
-66.8%
5.6%
-39.0%
-5.7%
Fig. 28: Private banks valuations pre and post book

adjustment
Fig. 29: PSU bank valuations pre and post book adjustment
At current prices
At current prices
3.5

3.2 3.3
3.0
1.3
1.9
2.0
2.2
1.0
0.8
1.9
0.9
0.8
0.6
0.6
0.6
1.8
1.2
1.0
2.5
2.2

1.3
1.2
1.2
2.6 2.7
1.5
1.4
3.1 3.0
0.3
0.4
1.4
0.2
1.0
ICICI
Axis
Yes
HDFCB
Kotak
IIB
SBI
PNB
BOB
BOI
Union
13
16 September 2015
Sector view: Positive on private banks; still remain selective

on PSUs:
We revise down (by 5-10%) our target prices for corporate private banks and PSUs to
adjust for the potential stress from accounts not yet recognised.
For corporate private banks we see highest upsides for Axis and ICICI Bank (~30%
upside) to our new TP. While near-term asset quality challenges remain, we believe the
market is factoring in the complete risk as valuations adjusted for stress are 5-10%
lower than long-term averages.
We continue to remain positive on most retail banks. We recently also upgraded Kotak
given the ~20% correction in stock price. Our order of preference is: HDFCB > Kotak >
IndusInd.
While PSU banks are down 25-50% YTD, we still believe investors need to remain
selective. Adjusted for stress levels, SBI is our preferred choice, but for a recovery
theme Axis and ICICI Bank are preferred over the PSUs.
We have factored in the credit cost impact for banks stemming from these as yet
unrecognised stressed names. Provisions on these will also have an impact on net
interest income (NII) which will depend upon the timing of the recognition, and that
remains difficult to predict we provide below a sensitivity of profitability for banks due
to the NII impact of higher stress.
Overall Axis/ICICI/HDFCB is our top pick currently. Within corporate private
banks we prefer Axis/ICICI over Yes bank. Within retail private banks we prefer
HDFCBB over Kotak/IIB. We currently have a BUY on all six private banks we
cover. Within PSU banks, SBI is our preferred pick and we would continue to
avoid PNB/BOI.
Fig. 30: Bank valuations and our revised PTs
P/B
P/E ROE PAT Old (INRbn) PAT New (INRbn)
Change
Company Rating Old PT PT Change Upside FY17F FY17F FY17F FY16F FY17F
FY16F FY17F FY16F FY17F
Axis
BUY
660 625
-5.3%
26% 1.95 11.2 18.8%
86.5 110.4
85.0 105.3
-1.7% -4.7%
HDFCB
BUY
1200 1200
0.0%
18% 3.11 16.9 19.5%
No Change
ICICI
BUY
380 350
-7.9%
28% 1.45
8.6 14.9% 122.7 146.0
122.7 140.3
0.0% -3.9%
Kotak
Buy
750 750
0.0%
16% 2.79 19.4 15.4%
No Change
IndusInd
BUY
1025 1025
0.0%
17% 2.61 17.5 15.9%
No Change
Yes
BUY
960 870
-9.4%
19% 1.93 10.5 19.7%
24.4
30.2
24.4
29.1
0.0% -3.6%
PNB
Neutral
155 140
-9.7%
2% 0.67
5.5 11.1%
40.9
53.1
39.6
48.9
-3.2% -7.9%
BOI
BUY
160 140 -12.5%
3% 0.53
5.1 7.3%
19.8
31.7
16.7
24.0 -15.6% -24.2%
BOB
BUY
210 210
0.0%
13% 0.96
7.3 12.8%
49.1
63.2
43.5
57.4 -11.5% -9.2%
Union
BUY
200 200
0.0%
16% 0.65
5.2 12.1%
No Change
SBI
BUY
335 290 -13.4%
23% 0.83
6.5 12.8% 163.9 208.9
163.9 195.5
0.0% -6.4%
Source: Bloomberg, Nomura estimates
Fig. 31: Higher stress in the long run will have a NII impact as well
INRmn
NII - FY17F
Interest reversal impact
NII post interest reversal
ICICI
Axis
Yes
241,115 201,060 54,632
15,844
6,789
2,119
225,271 194,271 52,513
SBI
PNB
BOB
BOI
Union
886,104 191,232 166,015 139,276 104,379
29,241
9,821
5,007
7,645
3,802
856,863 181,411 161,008 131,631 100,576
Interest reversal % of PBT
7.9%
4.3%
4.9%
8.1%
13.7%
6.1%
22.9%
8.9%
RORWA - FY17F
ROA post interest reversal
2.09%
1.98%
2.22%
2.15%
2.02%
1.95%
1.30%
1.22%
1.07%
0.97%
1.28%
1.23%
0.60%
0.50%
1.01%
0.94%
14
16 September 2015
Appendix 1: Names included in our Exposure analysis

Fig. 32: List of companies/projects included in our sensitivity analysis
Metals
Bhushan Steel
Bhushan pow er & steel
Monnet Ispat
MSP Steel
Adhunik Metaliks
Concast Group
Loha Ispat
Essar Steel
Infra conglo
Lanco (Anapara)
Lanco (Kondapalli)
Lanco (Amarkantak)
Lanco (Vidarbha )
Lanco (Teesta)
Lanco (Babandh)
Lanco (Griffin)
Lanco (Parent)
GMR (Ambala-Chandigarh)
GMR (Rajamundry I/II)
GMR (Chattisgarh)
GMR (Kamalanga)
GMR (Emco energy)
GMR (Vemagiri)
GMR (Kakinada)
GMR (Delhi Airport)
GMR (Hyderabad airport)
GMR Infra Parent
GVK (Alkananda -Tehri)
GVK (Goindw al Sahib- Punjab)
GVK (Gautami Pow er- AP)
GVK (Jegurupadu)
JPA (Parent)
JPVL (Vishnuprayag)
JPVL (Karchana)
JPVL (Baspa II)
JPVL (Bina)
JPVL (Bara)
JPVL (Nigre)
Jaypee Infratech
Jaypee sports
JPA (Parent - NCD)
Infra SPVs
Tata (Mundra UMPP)
Lanco/Adani (Udupi Pow er)
Abhijit (MADC Nagpur - Mihan)
Abhijit (Chandw a)
Abhijit (Banka - Bihar)
KSK (Mahanadi - Chattisgarh)
Rpow er (Butibori)
Rpow er (Sasan UMPP)
CESC (Chandrapur - Maha)
Indiabulls (Nashik - Phase I)
Indiabulls (Amravati - Phase I)
Indiabulls (Amravati - Phase II)
Indiabulls (Nashik - Phase II)
Adani (Mundra UMPP)
Adani (Tiroda)
JSW (Ratnagiri)
SKS Ispat pow er (Chattisgarh)
Bajaj Hindustan (Lalitpur Pow er)
Coal and Oil Group (Coastal Energen )
Monnet Ispat (Malibrahmani TPP)
Ind Bharat (Orissa)
Avantha Pow er (Seoni,Madhya Pradesh)
Moser Baer (Anuppur, MP)
RKM pow er gen (Uchpinda TPP)
Visa Pow er (Raigarh TPP(Visa))
DB Pow er (Baradarha TPP)
East Coast Energy (Bhavanpadu TPP)
NCC / Gayathri (NCC Pow er Projects Ltd)
Vizag Bottling Co (Konaseema)
Rpow er (Samalkot -AP)
NTPC & GAIL (Dabhol)
Others (Kashipur CGT)
Others (Beta Infratech)
Torrent Pow er (Sugen - Torrent)
Torrent Pow er (Dahej Pow er)
Soma (Panipat-Jalandhar)
Soma-Maytas-NCC (Silk Rd Jn-Electronic City Jn)
IVRCL (Kumarapalayam-Chengapally)
IVRCL (Salem-Kumarapalayam)
Madhucon (Karur-Dindigul)
Madhucon (Trichy-Thanjavur)
Madhucon (Madurai-Tuticorin)
Reliance Infra (Gurgaon-Faridabad)
HCC (Delhi-Agra Section)
IVRCL (Jalhandar-Amritsar)
HCC (Raiganj-Dalkhola)
HCC (Farakka-Raiganj)
DSC Limited (Delhi-Gurgaon Expressw ay)
DSC Limited (Kundli-Manesar-Palw al)
DSC Limited (Delhi-Gurgaon Expressw ay)
Corporates and Real

Estate (ex infra)
Tecpro Systems
Rcom
Jet Airw ays
Videocon
Empee Sugar
C Mahendra exports
Pipapav Defence
Shriram EPC
Tulsyan NEC
Amtek Auto
Castex
Ramky Infra
Essar pow er
Essar port
Essar shipping
Unitech Ltd
HDIL
DB Realty
Hubtow n
Parasvanath
Omaxe
Ansal Properties
Source: Nomura research
15
Axis Bank AXBK.NS
AXSB IN
EQUITY: BANKS
Remains preferred private bank
Relatively lower exposure to stressed names
16 September 2015
Rating
Remains
Action: Stress discounted in the price

Axis Bank remains our preferred private corporate bank for its improving
granularity in assets/liabilities, better growth, and relatively lower exposure in
large stressed names. Our sensitivity indicates a loss given default (LGD) of
11% of the banks FY17 net worth, vs 15-30% for peers. We thus think the
recent ~20-25% correction offers a good opportunity to buy Axis Bank. We
maintain our Buy rating with a revised TP of INR625/share.
Stress test outcome: We estimate a loss given default of INR68bn for Axis
Bank in these stressed accounts, which is ~11% of its FY17F net worth. In
this regard, Axis is better placed than peers, where we estimate a LGD of
13-22% of FY17F net worth. Axis has less exposure in infra conglomerates
than ICICI Bank, and less exposure to stressed metal names and ex-infra
corporates than PSU banks. Also, unlike most other private corporate
banks, Axis has ~INR12.5bn in floating provisions stock, which is about
20% of our estimate of its LGD in these accounts.
Structural improvement in B/S continues and better placed on growth:
1) Axis Banks granularity of assets (more retail), liabilities (higher CASA+
retail term deposit ratio), and fees (increase in retail fee share) has been
improving, aiding overall profitability and lowering the business risk profile,
while CASA momentum has moderated in the past 12-15 months; 2) Axis
will likely continue to deliver better mix of growth given the increase in its
retail mix and lower overseas book mix than most corporate banks.
Currency (INR)
PPOP (mn)
FY15
Actual
FY16F
Old
New
FY17F
Old
New
Closing price
14 September 2015
INR 496
Nomura vs consensus
Our FY16/17F PAT is 1-3%
below consensus.
Research analysts
India Banks
+91 22 4037 4034
+91 22 4037 4361
FY18F
Old
133,854 159,452 158,965 195,829 190,398
+26%

New
225,788
73,578
86,455
84,980 110,442 105,280
128,352
Normalised net profit (mn)
73,578
86,455
84,980 110,442 105,280
128,352
31.04
36.47
35.85
46.59
44.41
54.15
FD norm. EPS growth (%)
18.3
17.5
15.5
27.7
23.9
21.9
FD normalised P/E (x)
16.0
N/A
13.8
N/A
11.2
N/A
9.2
Price/adj. book (x)
2.6
N/A
2.3
N/A
1.9
N/A
1.6
Price/book (x)
2.6
N/A
2.3
N/A
1.9
N/A
1.6
N/A
Dividend yield (%)
INR 625
Anchor themes
Reported net profit (mn)
FD normalised EPS
Target price
Reduced from 660
Potential upside
Multiples reasonable now adjusted for the stress; maintain Buy

Axis Bank shares are trading at 1.95x FY17F book and look reasonable when
adjusted for our stress test valuation at 2.2x FY17F book (~10-15% discount
to FY04-07 multiple). Hence, we maintain Buy. While growth will certainly lag
the FY04-07 period, Axis Banks profitability has improved significantly to
offset the impact of slower growth. We marginally revise our earnings down by
2-4% and our TP by 6% to factor in part of the impact from our stress test.
Year-end 31 Mar
Buy
0.9
N/A
1.1
N/A
1.2
ROE (%)
17.8
17.9
17.6
19.5
18.8
19.4
1.6
ROA (%)
1.7
1.7
1.7
1.8
1.8
1.7
Nomura | Axis Bank
16 September 2015
Key data on Axis Bank

Relative performance chart
Balance sheet (INRmn)
Source: Thomson Reuters, Nomura research
Notes:
Performance
(%)
Absolute (INR)
Absolute (USD)
Rel to MSCI India
1M 3M 12M
-12.9 -10.0 19.0
-14.6 -13.1 8.8
-5.0 -8.8 23.3
M cap (USDmn)
Free float (%)
3-mth ADT (USDmn)
17,775.3
36.0
64.4
Profit and loss (INRmn)

Year-end 31 Mar
Interest income
Interest expense
Net interest income
Net fees and commissions
Trading related profits
Other operating revenue
Non-interest income
Operating income
Depreciation
Amortisation
Operating expenses
Employee share expense
Pre-provision op profit
Provisions for bad debt
Other provision charges
Operating profit
Other non-op income
Associates & JCEs
Pre-tax profit
Income tax
Net profit after tax
Minority interests
Other items
Preferred dividends
Normalised NPAT
Extraordinary items
Reported NPAT
Dividends
Transfer to reserves
FY14
306,412
-186,895
119,516
53,956
3,276
16,820
74,052
193,569
-3,639
FY15
354,786
-212,545
142,241
61,549
9,949
12,153
83,651
225,892
-4,057
FY16F
426,293
-256,222
170,071
72,012
7,500
14,510
94,023
264,093
-4,462
FY17F
504,744
-303,684
201,060
86,415
7,500
17,403
111,318
312,378
-4,909
FY18F
608,592
-369,800
238,792
103,698
7,500
20,636
131,834
370,627
-5,399
-49,355 -56,831 -66,492 -77,796 -93,355

-26,013 -31,150 -34,174 -39,276 -46,084
114,561 133,854 158,965 190,398 225,788
-17,810 -19,970 -31,252 -32,176 -32,894
-3,261
-3,307
0
0
0
93,490 110,578 127,713 158,221 192,894
93,490 110,578 127,713 158,221 192,894

-31,313 -36,999 -42,733 -52,941 -64,543
62,177
73,578
84,980 105,280 128,352
62,177
0
62,177
-11,011
51,166
73,578
0
73,578
-13,090
60,489
23.6
13.0
17.9
23.1
20.0
19.0
19.0
16.8
16.5
11.7
12.5
11.2
19.0
13.0
15.1
16.8
18.3
18.3
18.3
22.2
21.8
21.4
20.5
14.8
84,980 105,280 128,352

0
0
0
84,980 105,280 128,352
-14,672 -16,872 -19,403
70,308
88,408 108,948
Growth (%)
Net interest income
Non-interest income
Non-interest expenses
Pre-provision earnings
Net profit
Normalised EPS
Normalised FDEPS
Loan growth
Interest earning assets
Interest bearing liabilities
Asset growth
Deposit growth
19.6
12.4
17.0
18.8
15.5
15.5
15.5
21.0
21.0
16.8
16.8
15.6
18.2
18.4
17.0
19.8
23.9
23.9
23.9
22.0
22.0
22.6
22.1
23.7
18.8
18.4
20.0
18.6
21.9
21.9
21.9
23.0
23.0
23.5
23.1
25.5
As at 31 Mar
Cash and equivalents
Inter-bank lending
Deposits with central bank
Total securities
Other int earning assets
Gross loans
Less provisions
Net loans
Long-term investments
Fixed assets
Goodwill
Other intangible assets
Other non IEAs
Total assets
Customer deposits
Bank deposits, CDs,
debentures
Other
int bearing liabilities
Total int bearing liabilities
Non-int bearing liabilities
Total liabilities
Minority interest
Common stock
Preferred stock
Retained earnings
Reserves for credit losses
Proposed dividends
Other equity
Shareholders' equity
Total liabilities and equity
Non-perf assets
FY14
FY15
FY16F
FY17F
FY18F
240,741 318,836 240,882 299,702 375,589
41,647
42,154
49,703
61,840
77,499
2,321,881 2,838,765 3,443,505 4,205,413 5,171,202

-21,214 -27,935 -42,400 -56,065 -67,504
2,300,668 2,810,830 3,401,105 4,149,348 5,103,698
1,135,484 1,323,428 1,559,307 1,903,356 2,340,172
24,102
25,143
26,184
27,225
28,266
89,808
98,932 116,649 145,132 181,881
3,832,449 4,619,324 5,393,830 6,586,603 8,107,104
2,809,446 3,224,419 3,728,439 4,613,805 5,791,912
452,639 656,001 749,218 844,869 942,390
50,270 141,582 221,582 301,582 381,582
3,312,355 4,022,002 4,699,238 5,760,256 7,115,884
137,889 150,557 177,519 220,866 276,791
3,450,244 4,172,559 4,876,757 5,981,122 7,392,675
4,698
4,741
4,741
4,741
4,741
377,506 442,024 512,332 600,740 709,688
382,205 446,765 517,073 605,481 714,429

3,832,449 4,619,324 5,393,830 6,586,603 8,107,104
31,464
41,102
65,231
82,449
99,271
Balance sheet ratios (%)

Loans to deposits
Equity to assets
82.6
10.0
88.0
9.7
92.4
9.6
91.1
9.2
89.3
8.8
1.4
0.77
0.55
67.4
12.8
17.0
1.4
0.70
0.60
68.0
12.1
15.2
1.9
0.91
0.79
65.0
11.7
15.1
2.0
0.77
0.85
68.0
11.3
14.9
1.9
0.64
0.83
68.0
10.9
14.4
26.23
26.23
26.23
4.00
48.33
162.69
162.62
162.69
31.04
31.04
31.04
4.60
56.47
188.47
188.39
188.47
35.85
35.85
35.85
5.29
67.06
218.13
217.83
218.13
44.41
44.41
44.41
6.08
80.32
255.42
255.26
255.42
54.15
54.15
54.15
8.19
95.25
301.38
301.18
301.38
18.9
18.9
18.9
0.8
3.0
3.1
5.49
14.08
5.95
8.13
38.3
40.8
33.5
17.7
17.4
1.72
26.2
2.58
16.0
16.0
16.0
0.9
2.6
2.6
5.48
13.66
5.80
7.86
37.0
40.7
33.5
17.8
17.8
1.74
26.7
2.62
13.8
13.8
13.8
1.1
2.3
2.3
5.40
13.52
5.88
7.65
35.6
39.8
33.5
17.3
17.6
1.70
26.5
2.55
11.2
11.2
11.2
1.2
1.9
1.9
5.25
13.18
5.81
7.37
35.6
39.0
33.5
16.0
18.8
1.76
28.2
2.64
9.2
9.2
9.2
1.6
1.6
1.6
5.08
12.96
5.74
7.22
35.6
39.1
33.5
15.1
19.4
1.75
29.2
2.63
Asset quality & capital

NPAs/gross loans (%)
Bad debt charge/gross
loansreserves/assets
Loss
(%)
(%)
Loss reserves/NPAs (%)
Tier 1 capital ratio (%)
Total capital ratio (%)
Per share
Reported EPS (INR)
Norm EPS (INR)
FD norm EPS (INR)
DPS (INR)
PPOP PS (INR)
BVPS (INR)
ABVPS (INR)
NTAPS (INR)
Valuations and ratios

Reported P/E (x)
Normalised P/E (x)
Dividend yield (%)
Price/book (x)
Price/adjusted book (x)
Net interest margin (%)
Yield on assets (%)
Cost of int bearing liab (%)
Net interest spread (%)
Non-interest income (%)
Cost to income (%)
Effective tax rate (%)
Dividend payout (%)
ROE (%)
ROA (%)
Operating ROE (%)
Operating ROA (%)
17
Nomura | Axis Bank
16 September 2015
Fig. 33: Axis Bank: Key changes to FY16/17F estimates

Old
INRm n
NII
New
FY16F
170,558
FY17F
206,492
FY16F
170,071
Variance%
FY17F
FY16F
FY17F
-0.3%
-2.6%
0bps
201,060
Loan grow th
22.0%
22.0%
21.0%
22.0%
-100bps
Fee grow th
17.3%
20.0%
17.3%
20.0%
0bps
0bps
PPOP
159,452
195,829
158,965
190,398
-0.3%
-2.8%
86,455
110,442
84,980
105,280
PAT
-1.7%
-4.7%
NIM%
3.48%
3.51%
3.49%
3.45%
1bps
-7bps
LLPs
0.95%
0.78%
1.01%
0.85%
6bps
7bps
GNPA%
1.80%
1.80%
1.89%
1.96%
10bps
16bps
Slippages
7.1%
7.9%
ROA
39,743
1.77%
39,902
1.88%
42,581
1.74%
43,044
1.81%
-2bps
-7bps
ROE
17.9%
19.5%
17.6%
18.8%
-28bps
-78bps
Valuation: Axis Bank shares are trading at 1.95x FY17F book and look reasonable
when adjusted for our stress test valuation at 2.2x FY17F book (~10-15% discount to
FY04-07 multiple). Hence, we maintain Buy. While growth will certainly lag the FY04-07
period, Axis Banks profitability has improved significantly to offset the impact of slower
growth. We marginally revise our earnings down by 2-4% and our TP by 6% to factor in
part of the impact from our stress test.
Risks: 1) A slower-than-expected recovery in corporate capex execution, and 2) higherthan-expected delinquency.
Fig. 34: Axis Bank: ROA decomposition we expect profitability to improve further with improvement in credit costs
Du-pont table
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16F
FY17F
FY18F
Net Interest Income/Assets
2.96%
3.42%
3.39%
3.29%
3.27%
3.46%
3.46%
3.49%
3.45%
3.34%
Fees/Assets
2.11%
2.22%
2.21%
2.18%
2.02%
2.05%
1.80%
1.78%
1.78%
1.74%
Investment profits/Assets
0.23%
0.49%
0.19%
0.04%
0.20%
0.09%
0.24%
0.15%
0.13%
0.10%
Net revenues/Assets
5.30%
6.13%
5.78%
5.51%
5.48%
5.60%
5.50%
5.42%
5.36%
5.18%
Operating Expense/Assets
-2.31%
-2.57%
-2.47%
-2.46%
-2.34%
-2.29%
-2.24%
-2.16%
-2.09%
-2.02%
Provisions/Assets
-0.75%
-0.95%
-0.66%
-0.47%
-0.59%
-0.61%
-0.57%
-0.64%
-0.55%
-0.46%
Taxes/Assets
-0.78%
-0.92%
-0.90%
-0.84%
-0.80%
-0.91%
-0.90%
-0.88%
-0.91%
-0.90%
Total Costs/Assets
-3.84%
-4.44%
-4.03%
-3.77%
-3.73%
-3.80%
-3.71%
-3.68%
-3.55%
-3.39%
ROA
1.46%
1.69%
1.75%
1.74%
1.75%
1.80%
1.79%
1.74%
1.81%
1.79%
Equity/Assets
7.62%
8.97%
9.05%
8.57%
9.45%
10.33%
10.09%
9.89%
9.62%
9.22%
ROE
19.1%
18.9%
19.3%
20.3%
18.5%
17.4%
17.8%
17.6%
18.8%
19.4%
RORWA
1.86%
1.98%
2.01%
1.98%
2.11%
2.28%
2.30%
2.18%
2.22%
2.21%
Fig. 35: Axis Bank: TP of INR625 implies 2.45x Mar-17F book

of INR255
Fig. 36: Axis: Valuation reasonable now adjusting for stress

1yr fwd P/B chart
New
Old
13.3%
13.3%
Terminal grow th
5.0%
5.0%
Normalised ROE
21.1%
21.1%
Stage 2 grow th
20.0%
20.0%
Mar-16 PT
625
660
1.5
Implied Mar-17 P/B
2.45
2.56
1.0
Implied Mar-17 P/E
14.1
14.2
0.5
Valuation assum ptions
3.5
Axis
3.0
2.5
2.0
Apr-05
Aug-05
Dec-05
Apr-06
Aug-06
Dec-06
Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Dec-12
Apr-13
Aug-13
Dec-13
Apr-14
Aug-14
Dec-14
Apr-15
Aug-15
Cost of Equity
Source: Company data, Bloomberg, Nomura estimates
18
ICICI Bank ICBK.NS
ICICIBC IN
EQUITY: BANKS
Higher stress but discounted in price
We see risk-reward similar to Axis Bank now
16 September 2015
Rating
Remains
Action: Higher stress but discounted in the price, in our view

ICICI Bank has underperformed its private peers in the past 12 months largely
due to asset quality risks and, to some extent, slower growth. Our sensitivity
analysis does indicate that ICICI Bank has some concentrated exposure to
two to three infra conglomerates and their LGD would be +20% of FY17 net
worth, which is higher than Axis/Yes Bank. The ~30% discount in valuations to
Axis Bank does factor in the extra risk, and adjusted for the stress, valuations
are at a 15% discount and hence we still find relative risk-reward becoming
favourable. We reaffirm our Buy rating, with a revised target price of INR350.
expanded, but with retail growing at ~25% y-y and the corporate book
growing from a lower base, we now believe the growth differential will likely
narrow, though still remain below private peers. 2) ICICI Bank lost CASA
market share in FY09-13 due to lower SME connect. Incremental CASA
market share in the past 12 months has improved and continued
performance on this metric should drive a re-rating, in our opinion.
FY16F
Old
New
FY17F
Old
New
Research analysts
India Banks
+91 22 4037 4034
197,199 218,280 218,280 249,209 246,646 294,750 288,583
111,754 122,718 122,718 145,951 140,288 176,892 169,966
111,754 122,718 122,718 145,951 140,288 176,892 169,966

19.15
21.03
21.03
25.01
24.04
30.31
29.13
13.4
9.8
9.8
18.9
14.3
21.2
21.2
14.2
N/A
13.0
N/A
11.3
N/A
9.4
Price/adj. book (x)
2.0
N/A
1.8
N/A
1.6
N/A
1.4
Price/book (x)
2.0
N/A
1.8
N/A
1.6
N/A
1.4
Dividend yield (%)

+91 22 4037 4361
New
PPOP (mn)
FD normalised EPS
+28.5%
Our FY16F PAT estimate is 3-6%

below consensus on our higher
credit cost estimates.
FY18F
Old
INR 272
Nomura vs consensus
Risk remains, but in the price; maintain Buy

ICICIs exposure to risky accounts is higher and even adjusting for the higher
stress, valuations are at a 15-20% discount to peers like Axis/Yes. While the
charge-offs in some of ICICIs exposures could be large, current valuations at
1.4x FY17 book discount the risks and hence we maintain our Buy rating.
FY15
Closing price
14 September 2015

Operating metrics improving: 1) ICICIs growth differential vs peers had
Actual
INR 350
Anchor themes
INR158bn for ICICI Bank in its stressed accounts, which are ~18% of its
FY17 net worth. We think ICICI is worst-placed among private corporate
banks for which we estimate an LGD at 11-22% of FY17 net worth. Key
reason for a higher LGD than its peers is its higher exposure to infra
conglomerates; excluding these, its exposure is similar to Axis in other risky
segments.
Currency (INR)
Target price
Reduced from 380
Potential upside
Our stress test outcome: We estimate a loss given default LGD of
Year-end 31 Mar
Buy
1.8
N/A
2.0
N/A
2.3
N/A
3.2
ROE (%)
14.5
14.5
14.5
15.5
14.9
16.8
16.2
ROA (%)
1.8
1.8
1.8
1.8
1.7
1.9
1.8
Nomura | ICICI Bank
16 September 2015
Key data on ICICI Bank

Notes:
Performance
(%)
Absolute (INR)
Absolute (USD)
Rel to MSCI India
1M 3M 12M
-10.0 -8.0 -12.9
-11.7 -11.1 -20.4
-2.0 -6.8 -8.7
M cap (USDmn)
Free float (%)
3-mth ADT (USDmn)
23,828.9
90.3
65.1

Year-end 31 Mar
Interest income
Interest expense
Net interest income
Non-interest income
Operating income
Depreciation
Amortisation
Operating expenses
Operating profit
Other non-op income
Associates & JCEs
Pre-tax profit
Income tax
Minority interests
Other items
Preferred dividends
Normalised NPAT
Extraordinary items
Reported NPAT
Dividends
FY14
441,782
-277,026
164,756
63,073
7,654
33,552
104,279
269,034
-5,760
FY15
490,911
-300,515
190,396
69,850
15,503
36,409
121,761
312,157
-6,239
FY16F
552,888
-338,901
213,986
74,041
14,418
44,558
133,017
347,003
-6,738
FY17F
625,321
-384,206
241,115
87,368
13,697
50,643
151,708
392,823
-7,277
FY18F
726,876
-446,038
280,838
103,095
13,012
57,677
173,783
454,622
-7,859
-55,128 -61,221 -69,791 -80,260 -92,299

-42,201 -47,499 -52,193 -58,639 -65,881
165,946 197,199 218,280 246,646 288,583
-22,527 -31,413 -42,969 -46,235 -45,773
-3,741
-7,587
0
0
0
139,677 158,199 175,311 200,411 242,809
139,677 158,199 175,311 200,411 242,809

-41,577 -46,446 -52,593 -60,123 -72,843
98,100 111,754 122,718 140,288 169,966
98,100 111,754 122,718 140,288 169,966

0
0
0
0
0
98,100 111,754 122,718 140,288 169,966
-31,259 -33,951 -37,282 -42,620 -51,636
66,841
77,803
85,436
97,668 118,330
Growth (%)
Net interest income
Non-interest income
Net profit
Normalised EPS
Normalised FDEPS
Loan growth
Asset growth
Deposit growth
18.8
24.9
19.1
25.7
17.8
17.3
17.5
16.7
14.6
11.1
10.8
13.4
15.6
16.8
11.1
18.8
13.9
13.9
13.4
14.4
13.0
9.7
8.7
8.9
12.4
9.2
14.0
10.7
9.8
9.8
9.8
16.0
16.1
16.4
15.8
18.8
12.7
14.1
15.0
13.0
14.3
14.3
14.3
18.0
17.9
16.2
15.6
16.9
16.5
14.6
15.0
17.0
21.2
21.2
21.2
19.0
19.0
17.8
17.2
19.5
As at 31 Mar
Inter-bank lending
Total securities
Gross loans
Less provisions
Net loans
Fixed assets
Goodwill
Other non IEAs
Total assets
Customer deposits
Bank deposits, CDs,
debentures
Other
Total liabilities
Minority interest
Common stock
Preferred stock
Retained earnings
Proposed dividends
Other equity
Non-perf assets
FY14
FY15
FY16F
FY17F
166,349 189,752 296,360 345,529
FY18F
409,414
248,947 233,295 274,911 320,521
379,782
3,459,105 3,963,612 4,606,617 5,447,998 6,483,608

-72,079 -88,392 -111,361 -143,596 -171,369
3,387,026 3,875,221 4,495,256 5,304,402 6,312,238
1,770,218 1,865,800 2,071,568 2,286,749 2,575,912
46,781 47,255 47,729 48,203
48,677
327,094 249,972 294,562 343,432 406,929

5,946,416 6,461,294 7,480,386 8,648,83510,132,951
3,319,137 3,615,627 4,293,945 5,020,259 5,998,375
1,432,481 1,505,319 1,629,074 1,811,527 2,018,622
115,110 218,855 293,855 393,855 493,855
4,866,728 5,339,801 6,216,874 7,225,641 8,510,853
347,555 317,199 373,782 435,796 516,370
5,214,283 5,657,000 6,590,657 7,661,437 9,027,223
11,616
11,671
11,671
11,671
11,671
720,517 792,623 878,059 975,727 1,094,057
732,133 804,294 889,730 987,398 1,105,728

5,946,416 6,461,293 7,480,386 8,648,83510,132,951
105,058 150,947 202,474 239,327 272,015

Loans to deposits
Equity to assets
104.2
12.3
109.6
12.4
107.3
11.9
108.5
11.4
108.1
10.9
3.0
0.65
1.21
68.6
12.8
17.7
3.8
0.79
1.37
58.6
12.8
17.0
4.4
0.93
1.49
55.0
12.8
16.7
4.4
0.85
1.66
60.0
12.4
15.9
4.2
0.71
1.69
63.0
12.0
15.2
16.81
16.81
16.89
4.60
28.44
126.05
125.98
126.05
19.15
19.15
19.15
4.97
33.79
137.83
137.20
137.83
21.03
21.03
21.03
5.46
37.41
152.47
151.38
152.47
24.04
24.04
24.04
6.24
42.27
169.21
168.32
169.21
29.13
29.13
29.13
8.85
49.45
189.48
188.76
189.48
16.2
16.2
16.1
1.7
2.2
2.2
4.84
12.98
5.99
6.98
38.8
38.3
29.8
31.9
14.0
1.73
20.0
2.47
14.2
14.2
14.2
1.8
2.0
2.0
4.92
12.68
5.89
6.79
39.0
36.8
29.4
30.4
14.5
1.80
20.6
2.55
13.0
13.0
13.0
2.0
1.8
1.8
4.82
12.45
5.87
6.59
38.3
37.1
30.0
30.4
14.5
1.76
20.7
2.51
11.3
11.3
11.3
2.3
1.6
1.6
4.64
12.03
5.72
6.31
38.6
37.2
30.0
30.4
14.9
1.74
21.4
2.49
9.4
9.4
9.4
3.2
1.4
1.4
4.56
11.80
5.67
6.13
38.2
36.5
30.0
30.4
16.2
1.81
23.2
2.59

Loss
(%)
(%)
Per share
Reported EPS (INR)
Norm EPS (INR)
FD norm EPS (INR)
DPS (INR)
PPOP PS (INR)
BVPS (INR)
ABVPS (INR)
NTAPS (INR)

Reported P/E (x)
Normalised P/E (x)
Dividend yield (%)
Price/book (x)
Yield on assets (%)
Cost to income (%)
Dividend payout (%)
ROE (%)
ROA (%)
Operating ROE (%)
Operating ROA (%)
20
Nomura | ICICI Bank
16 September 2015
Fig. 37: ROA break-down We expect ROEs to inch up to ~15% by FY17F
ROA decomposition
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16F
FY17F
FY18F
2.30%
2.34%
2.48%
2.57%
2.91%
3.11%
3.24%
3.22%
3.13%
3.13%
Fees/Assets
1.73%
1.91%
1.89%
1.82%
1.65%
1.80%
1.81%
1.78%
1.79%
1.79%
0.36%
0.25%
-0.06%
-0.02%
0.10%
0.17%
0.26%
0.22%
0.18%
0.15%
Net revenues/Assets
4.40%
4.50%
4.31%
4.37%
4.66%
5.07%
5.32%
5.22%
5.10%
5.07%
-1.94%
-1.69%
-1.82%
-1.88%
-1.89%
-1.94%
-1.96%
-1.94%
-1.90%
-1.85%
Provisions/Assets
-1.05%
-1.27%
-0.63%
-0.38%
-0.38%
-0.50%
-0.66%
-0.65%
-0.60%
-0.51%
Taxes/Assets
-0.37%
-0.38%
-0.44%
-0.56%
-0.64%
-0.78%
-0.79%
-0.79%
-0.78%
-0.81%
Total Costs/Assets
-3.36%
-3.34%
-2.90%
-2.82%
-2.92%
-3.22%
-3.42%
-3.37%
-3.28%
-3.17%
1.03%
1.16%
1.42%
1.55%
1.75%
1.85%
1.90%
1.85%
1.82%
1.90%
13.22%
14.61%
14.70%
13.84%
13.34%
13.20%
13.09%
12.73%
12.19%
11.67%
ROA
Equity/Assets
ROE
RORWA
7.8%
8.0%
9.7%
11.2%
13.1%
14.0%
14.5%
14.5%
14.9%
16.2%
1.05%
1.24%
1.62%
1.75%
1.98%
2.09%
2.14%
2.10%
2.09%
2.17%
Fig. 38: Key changes to our FY16/17F estimates
Old
INRm n
NII
FY16F
213,986
Loan grow th
16.0%
Fee grow th
11.6%
New
FY17F
243,677
17.9%
16.4%
FY16F
213,986
16.0%
11.6%
Variance%
FY17F
241,115
17.9%
16.4%
FY16F
FY17F
0.0%
-1.1%
0.0%
0.0%
0bps
0bps
PPOP
203,863
235,512
203,863
232,950
0.0%
-1.1%
PAT
122,718
145,951
122,718
140,288
0.0%
-3.9%
NIM%
3.22%
3.17%
3.22%
3.13%
0bps
-3bps
LLPs
1.03%
0.83%
1.03%
0.94%
0bps
11bps
GNPA%
Slippages
4.40%
95,127
4.23%
82,919
4.40%
95,127
4.39%
92,132
0bps
16bps
0.0%
11.1%
ROA
1.85%
1.90%
1.85%
1.82%
0bps
-7bps
ROE
14.5%
15.5%
14.5%
14.9%
0bps
-57bps
Valuation: ICICIs exposure to risky accounts is higher, and even adjusting for the
higher stress, valuations are at a 15-20% discount to peers like Axis/Yes. While chargeoffs in some of ICICIs larger exposures could be significant we think current valuations
at 1.4x FY17 book discount the risks, and hence we maintain our Buy rating.
Risks: 1) Some asset quality risks: legacy gas assets and overseas coal assets funded
by ICICI; 2) slower-than-expected turnaround of GDP growth.
Fig. 39: TP of INR350
Fig. 40: Our TP implies 1.95x Mar-17 book

2.5
Cost of Equity
New
Old
13.3%
13.3%
Terminal grow th
5.0%
5.0%
Stage 2 grow th
18.0%
18.0%
Normalised ROE
19.1%
19.1%
284
314
Lending business value

Mar-16 PT
350
380
Im plied Mar-17 P/E
13.2
13.9
Im plied Mar-17 P/B
1.96
2.15
66
66
Susbdiary valuation
ICICIBC
2.0
1.5
1.0
0.5
Apr-05
Aug-05
Dec-05
Apr-06
Aug-06
Dec-06
Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Dec-12
Apr-13
Aug-13
Dec-13
Apr-14
Aug-14
Dec-14
Apr-15
Aug-15
21
Nomura | ICICI Bank
16 September 2015
Fig. 41: Subsidiary valuation
Valuation basis
Life Insurance
Value of sub [A] (INRm n)
ICICIBC's
share [B]
ICICI share Per share of

(INRm nn)
parent
Appraisal value
311,500
74%
230,510
40
4% of AUM
62,911
51%
32,085
ICICI Securities
PE of 12x Mar-17
46,658
100%
46,658
ICICI Home Finance
PE of 10x Mar-17
19,800
100%
19,800
General Insurance
7x Mar-17 PAT
49,620
74%
36,719
0.75x Mar-17 book
86,751
100%
86,751
15
Total Subsidiary value
452,522
78
Value post holding discount (15%)
384,644
66
Asset Management
Foreign subsidiaries
Per sh
paren
22
Yes Bank YESB.NS
YES IN
EQUITY: BANKS
Not as bad as perceived
Large exposure to some groups, but risks look

manageable
16 September 2015
Rating
Remains
Exposed to stressed groups, but risks look manageable

Yes Banks asset quality perception has taken a hit in the past three to six
months, with some large exposure to infra conglomerates. While our exposure
analysis suggests that Yes does have material exposure to some of the infra
names, its exposure is less than that of the PSUs banks/ICICI (as a
percentage of net worth). Adjusted for our stress test, Yes Banks valuation at
2.1x FY17 book looks reasonable and hence we reaffirm our Buy rating. We
prefer Axis (AXSB IN, Buy) /ICICI (ICICIBC, Buy) on a relative basis, however,
given there is no valuation gap with Axis and a ~30% premium over ICICI.
Our stress test outcome: We estimate a loss given default of INR21bn for
Yes Bank in its stressed accounts, which is ~13% of its FY17 net worth. We
believe Yes Bank is better placed than ICICI Bank, given its mix of high
exposure to infra conglomerates and lower exposure than peers to metal
names and infra SPVs. While credit charges in these accounts could lead to
a spike in Yes Banks credit cost, its 50bp of floating provisions (on loans)
and better collateral, according to management, provides some comfort.
Growth outcome better; liability profile remains the key: 1) Given Yes
Banks smaller size we believe it should be able to deliver faster growth
than larger private peers, and PSUs share loss offers additional opportunity.
2) While SA accretion has improved in the past three years since
deregulation, its overall share of total retail deposits is significantly lower
than peers and delivery here remains key to sustained margin improvement.
Multiples reasonable now adjusted for the stress; maintain Buy
Yes Bank currently trades at 1.9x FY17 book, and adjusted for our stress test,
valuations at 2.2x FY17 book look reasonable to us. Hence, we reaffirm our
Buy rating. While we expect growth to largely lag the FY04-07 period, this is
well reflected in current valuation multiples, in our opinion. We marginally
revise our FY16/17F PAT estimates down by 2-4% and our target price by 9%
to factor in part of the impact suggested by our stress test.
Year-end 31 Mar
Currency (INR)
FY15
FY16F
FY17F
INR 732
+18.9%
Nomura vs consensus
Our FY16/17F PAT estimate is 37% below consensus.
Research analysts
India Banks
+91 22 4037 4034
+91 22 4037 4361
FY18F
Old
New
Old
New
PPOP (mn)
32,496
41,484
41,484
50,971
50,927
64,736
62,521
20,054
24,430
24,430
30,243
29,146
39,065
37,555
20,054
24,430
24,430
30,243
29,146
39,065
37,555
48.00
58.48
58.48
72.40
69.77
85.34
82.04
7.0
21.8
21.8
23.8
19.3
17.9
17.6
15.2
N/A
12.5
N/A
10.5
N/A
8.9
Price/adj. book (x)
2.6
N/A
2.3
N/A
1.9
N/A
1.5
Price/book (x)
2.6
N/A
2.2
N/A
1.9
N/A
1.5
Dividend yield (%)
Closing price
14 September 2015

New
INR 870
Anchor themes
Old
Target price
Reduced from 960
Potential upside
Actual
FD normalised EPS
Buy
1.5
N/A
1.7
N/A
1.9
N/A
2.2
ROE (%)
21.3
19.3
19.3
20.4
19.7
19.9
19.3
ROA (%)
1.6
1.6
1.6
1.7
1.6
1.8
1.7
Nomura | Yes Bank
16 September 2015
Key data on Yes Bank

Notes:
Performance
(%)
Absolute (INR)
Absolute (USD)
Rel to MSCI India
1M 3M 12M
-8.2 -9.2 15.6
-10.0 -12.3 5.6
-0.2 -8.0 19.9
M cap (USDmn)
Free float (%)
3-mth ADT (USDmn)
4,615.1
90.3
42.9

Year-end 31 Mar
Interest income
Interest expense
Net interest income
Non-interest income
Operating income
Depreciation
Amortisation
Operating expenses
Operating profit
Other non-op income
Associates & JCEs
Pre-tax profit
Income tax
Minority interests
Other items
Preferred dividends
Normalised NPAT
Extraordinary items
Reported NPAT
Dividends
FY14
FY15
FY16F
FY17F
FY18F
99,814 115,720 141,016 170,353 207,056
-72,651 -80,842 -96,353 -115,721 -139,692
27,163
34,878
44,663
54,632
67,364
12,609
19,765
0
0
0
1,662
1,421
1,600
1,500
1,500
2,945
-721
23,397
28,879
34,590
17,216
20,465
24,997
30,379
36,090
44,378
55,343
69,660
85,012 103,454
-632
-850
-935
-1,029
-1,132
-9,018
-7,844
26,884
-2,637
-980
23,268
-12,200
-9,797
32,496
-3,740
346
29,101
-15,250
-11,990
41,484
-5,558
0
35,926
-18,758
-14,299
50,927
-8,063
0
42,863
-23,072
-16,729
62,521
-7,292
0
55,229
23,268
-7,085
16,183
29,101
-9,047
20,054
35,926
-11,496
24,430
42,863
-13,717
29,146
55,229
-17,674
37,555
16,183
0
16,183
-3,376
12,807
20,054
0
20,054
-4,525
15,528
24,430
0
24,430
-5,132
19,298
29,146
0
29,146
-5,865
23,281
37,555
0
37,555
-7,230
30,325
22.4
36.9
43.8
25.5
24.4
7.4
23.7
18.4
19.5
8.7
10.0
10.8
28.4
18.9
35.3
20.9
23.9
23.9
7.0
35.8
44.6
22.9
24.9
22.9
28.1
22.1
25.0
27.7
21.8
21.8
21.8
29.0
18.3
20.8
20.1
24.0
22.3
21.5
23.0
22.8
19.3
8.9
19.3
25.0
25.0
22.0
21.3
25.2
23.3
18.8
23.0
22.8
28.9
28.9
17.6
26.0
26.0
20.8
22.4
23.5
Growth (%)
Net interest income
Non-interest income
Net profit
Normalised EPS
Normalised FDEPS
Loan growth
Asset growth
Deposit growth
As at 31 Mar
Inter-bank lending
Total securities
Gross loans
Less provisions
Net loans
Fixed assets
Goodwill
Other non IEAs
Total assets
Customer deposits
Bank deposits, CDs,
debentures
Other
Total liabilities
Minority interest
Common stock
Preferred stock
Retained earnings
Proposed dividends
Other equity
Non-perf assets
FY14
43,116
FY15
3,646
FY16F
79,181
15,801
71,926
4,431
FY17F
FY18F
97,324 118,336
5,446
6,622
557,818 757,755 980,131 1,229,268 1,550,436

-1,489
-2,257
-5,538 -11,027 -15,452
556,330 755,498 974,593 1,218,241 1,534,983
409,504 466,052 503,260 577,518 670,754
2,938
3,193
3,448
3,703
3,958
62,470
61,389
70,598
81,187
93,366
1,090,158 1,361,704 1,635,510 1,983,420 2,428,019
741,920 911,759 1,130,625 1,416,016 1,749,218
181,588 194,994 219,994 246,994 273,994
31,554
67,210
67,210
67,210
67,210
955,063 1,173,962 1,417,829 1,730,220 2,090,422
63,877
70,942
81,583
93,821 107,894
1,018,940 1,244,904 1,499,412 1,824,041 2,198,315
3,606
4,177
4,177
4,177
4,577
67,611 112,623 131,920 155,202 225,127
71,217 116,800 136,098 159,379 229,704

1,090,158 1,361,704 1,635,510 1,983,420 2,428,019
1,749
3,134
6,923
13,784
19,315

Loans to deposits
Equity to assets
75.2
6.5
83.1
8.6
86.7
8.3
86.8
8.0
88.6
9.5
0.3
0.47
0.14
85.1
9.8
14.4
0.4
0.49
0.17
72.0
11.5
15.6
0.7
0.57
0.34
80.0
10.6
15.0
1.1
0.66
0.56
80.0
10.2
14.8
1.2
0.47
0.64
80.0
11.9
16.5
38.74
38.74
44.87
9.36
64.36
197.48
197.48
197.48
48.00
48.00
48.00
10.83
77.79
279.60
278.62
279.60
58.48
58.48
58.48
12.28
99.31
325.80
324.97
325.80
63.67
63.67
69.77
14.04
111.26
381.53
379.88
381.53
82.04
82.04
82.04
15.79
136.59
501.82
499.71
501.82
18.9
18.9
16.3
1.3
3.7
3.7
5.17
18.99
7.92
11.07
38.8
39.4
30.5
20.9
25.0
1.56
36.0
2.24
15.2
15.2
15.2
1.5
2.6
2.6
4.98
16.54
7.59
8.94
37.0
41.3
31.1
22.6
21.3
1.64
31.0
2.37
12.5
12.5
12.5
1.7
2.2
2.3
4.94
15.61
7.44
8.18
35.9
40.4
32.0
21.0
19.3
1.63
28.4
2.40
11.5
11.5
10.5
1.9
1.9
1.9
4.96
15.47
7.35
8.12
35.7
40.1
32.0
20.1
19.7
1.61
29.0
2.37
8.9
8.9
8.9
2.2
1.5
1.5
4.87
14.98
7.31
7.66
34.9
39.6
32.0
19.3
19.3
1.70
28.4
2.50

Loss
(%)
(%)
Per share
Reported EPS (INR)
Norm EPS (INR)
FD norm EPS (INR)
DPS (INR)
PPOP PS (INR)
BVPS (INR)
ABVPS (INR)
NTAPS (INR)

Reported P/E (x)
Normalised P/E (x)
Dividend yield (%)
Price/book (x)
Yield on assets (%)
Cost to income (%)
Dividend payout (%)
ROE (%)
ROA (%)
Operating ROE (%)
Operating ROA (%)
24
Nomura | Yes Bank
16 September 2015
Fig. 42: We expect ROEs to inch back to ~20% levels by FY17F

ROA decomposition
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16F
FY17F
FY18F
2.71%
2.79%
2.72%
2.67%
2.72%
2.76%
3.00%
3.12%
3.16%
3.19%
Fees/Assets
1.53%
1.69%
1.46%
1.36%
1.35%
1.58%
1.64%
1.64%
1.67%
1.64%
0.79%
0.35%
-0.10%
0.06%
0.19%
0.17%
0.12%
0.11%
0.09%
0.07%
Net revenues/Assets
5.03%
4.82%
4.08%
4.09%
4.26%
4.52%
4.77%
4.87%
4.91%
4.89%
-2.23%
-1.77%
-1.48%
-1.54%
-1.63%
-1.78%
-1.97%
-1.97%
-1.97%
-1.94%
Provisions/Assets
-0.33%
-0.48%
-0.21%
-0.15%
-0.26%
-0.37%
-0.29%
-0.39%
-0.47%
-0.34%
Taxes/Assets
-0.86%
-0.88%
-0.80%
-0.78%
-0.77%
-0.72%
-0.78%
-0.80%
-0.79%
-0.84%
Total Costs/Assets
-3.12%
-3.42%
-3.13%
-2.49%
-2.47%
-2.66%
-2.87%
-3.04%
-3.16%
-3.23%
ROA
1.62%
1.69%
1.58%
1.62%
1.59%
1.65%
1.73%
1.71%
1.68%
1.78%
Equity/Assets
7.83%
8.34%
7.50%
7.00%
6.42%
6.58%
8.10%
8.85%
8.54%
9.20%
ROE
20.7%
20.3%
21.1%
23.1%
24.8%
25.0%
21.3%
19.3%
19.7%
19.3%
RORWA
1.79%
2.17%
2.12%
2.05%
2.18%
2.25%
2.23%
2.09%
2.02%
2.12%

Old
INRm n
NII
FY16F
44,663
New
FY17F
54,677
FY16F
44,663
Variance%
FY17F
FY16F
FY17F
0.0%
-0.1%
Loan grow th
24.7%
23.0%
24.7%
54,632
23.0%
0bps
0bps
Fee grow th
22.8%
23.4%
22.8%
23.4%
0bps
0bps
PPOP
41,484
50,971
41,484
50,927
0.0%
-0.1%
PAT
24,430
30,243
24,430
29,146
0.0%
-3.6%
NIM%
3.12%
3.16%
3.12%
3.16%
0bps
0bps
LLPs
0.64%
0.59%
0.64%
0.74%
0bps
14bps
GNPA%
0.71%
0.96%
0.71%
Slippages
7,578
9,801
7,578
ROA
1.71%
1.75%
1.71%
ROE
19.3%
20.4%
19.3%
1.12%
0bps
16bps
0.0%
20.0%
1.68%
0bps
-6bps
19.7%
0bps
-67bps
11,762
Valuation: Yes Bank currently trades at 1.9x FY17 book (BVPS: INR380), and adjusted
for our stress test, valuations at 2.2x FY17 book look reasonable to us. Hence, we
maintain our Buy rating. While growth will lag the FY04-07 period, we think this is well
reflected in current valuation multiples. We marginally revise our FY16/17F PAT
estimates down by 2-4% and our target price by 9% to factor in part of the impact
suggested by our stress test.
Risks: Lower-than-expected NIM expansion and loan growth, sharp deterioration in
asset quality, and slower-than-expected SA growth.
New
Old
4.0
14.0%
14.0%
Terminal grow th
5.0%
5.0%
3.0
Stage 2 grow th
24.0%
24.0%
2.5
Normalised ROEs
18.9%
18.9%
2.0
870
960
1.5
Implied Mar-17 P/B
2.3
2.50
1.0
Implied Mar-17 P/E
12.5
13.3
0.5
Mar-16 PT
Yes Bank
3.5
Jul-05
Nov-05
Mar-06
Jul-06
Nov-06
Mar-07
Jul-07
Nov-07
Mar-08
Jul-08
Nov-08
Mar-09
Jul-09
Nov-09
Mar-10
Jul-10
Nov-10
Mar-11
Jul-11
Nov-11
Mar-12
Jul-12
Nov-12
Mar-13
Jul-13
Nov-13
Mar-14
Jul-14
Nov-14
Mar-15
Jul-15
Cost of Equity
25
State Bank of India SBI.NS
SBIN IN
EQUITY: BANKS
Preferred PSU bank
Liability franchise, capital levels and relatively better

underwriting are key positives
16 September 2015
Rating
Remains
Action: Preferred PSU bank; maintain Buy

SBIs recent underperformance was due to asset quality concerns and recent
net interest margin (NIM) and PPOP weakness. Our stress test indicates that
SBIs loss-given-default (LGD) from large stressed names is lower than most
PSU banks, but higher than BOB (BOB IN, Buy) especially after including
exposure to its subsidiaries which is higher risk. While we think the NIM
pressure will likely be sector wide, its best-in-class liability franchise should
help lower the long-term impact on its NIM, in our view. Also, adjusting for the
stress test, valuations are now at a discount to BOB and similar to PNB;
hence, SBI is our preferred PSU bank.
FY16F
Old
New
FY17F
Old
New
Research analysts
India Banks
+91 22 4037 4034
+91 22 4037 4361
FY18F
Old
New
389,135 402,783 402,783 461,136 449,950 528,310 523,765
131,016 163,871 163,871 208,930 195,527 260,848 251,111
131,016 163,871 163,871 208,930 195,527 260,848 251,111

17.55
21.66
21.66
27.16
25.42
33.41
32.17
20.3
23.4
23.4
25.4
17.4
23.0
26.5
13.4
N/A
10.9
N/A
9.3
N/A
7.3
Price/adj. book (x)
1.4
N/A
1.2
N/A
1.1
N/A
1.0
Price/book (x)
1.4
N/A
1.2
N/A
1.1
N/A
1.0
Dividend yield (%)
+23.3%
Our FY16/17F PAT estimates are

2-6% below consensus.
PPOP (mn)
FD normalised EPS
INR 235
Nomura vs consensus
on NIMs/PPOP was due to higher deposit growth despite lower term-deposit

rates, which is not negative in the long run and highlights its superior liability
franchise.Tier-1 of ~10% remains best among PSU banks and should help
SBI deliver better growth than peers over the next three years.
Maintain Buy, TP cut to INR290
While SBI currently trades at 0.8x FY17F reported book, adjusted for our
stress test its valuations are at 1.2x FY17F adjusted book (similar to the FY0407 multiple). Overall, we like SBIs superior liability franchise, capital levels
and better underwriting, and hence we maintain our Buy rating. We revise our
FY16/17F PAT estimates down by 0-6% and cut our TP by 13% to factor in
part of the impact from our stress test.
FY15
Closing price
14 September 2015

Capital+ Liability franchise remains a key advantage: SBIs 1Q16 miss
Actual
INR 290
Anchor themes
for SBI (INR292bn including subsidiaries) in its stressed accounts, which

are ~12% of its FY17F net worth. SBI (parent) LGD is ~12% of FY17 net
worth which increases to ~14% of FY17F net worth including subsidiaries,
which is still better than most peers at 14-22% of FY17F net worth. SBI has
the lowest exposure to infra conglomerates of our covered PSU banks but
its exposure to metals and infra SPVs is similar to peers.
Currency (INR)
Target price
Reduced from 335
Potential upside
Stress test outcome: We estimate a loss-given-default (LGD) of INR198bn
Year-end 31 Mar
Buy
1.5
N/A
1.8
N/A
2.2
N/A
3.0
ROE (%)
10.6
12.0
12.0
13.5
12.7
14.8
14.4
ROA (%)
0.7
0.8
0.8
0.9
0.8
1.0
0.9
Nomura | State Bank of India
16 September 2015
Key data on State Bank of India

Notes:
Performance
(%)
Absolute (INR)
Absolute (USD)
Rel to MSCI India
1M 3M 12M
-12.4 -7.4 -10.6
-14.1 -10.5 -18.3
-4.4 -6.2 -6.3
M cap (USDmn)
Free float (%)
3-mth ADT (USDmn)
26,818.6
90.3
65.3

Year-end 31 Mar
Interest income
Interest expense
Net interest income
Non-interest income
Operating income
Depreciation
Amortisation
Operating expenses
Operating profit
Other non-op income
Associates & JCEs
Pre-tax profit
Income tax
Minority interests
Other items
Preferred dividends
Normalised NPAT
Extraordinary items
Reported NPAT
Dividends
FY14
FY15
FY16F
FY17F
FY18F
1,363,508 1,523,971 1,667,177 1,825,493 2,058,955
-870,686 -973,818
492,822 550,153 1,083,208
583,969 1,176,450
649,043 1,304,100
754,855
130,721 138,072 157,402 181,012 208,164
20,767
36,181
30,000
28,000
28,000
34,041
51,507
58,718
67,525
77,654
185,529 225,759 246,119 276,537 313,818
678,351 775,911 830,088 925,580 1,068,673
-13,339 -11,165 -12,818 -13,313 -15,104
-118,876
-225,043
321,092
-154,843
-4,511
161,739
-140,241
-235,371
389,135
-197,197
1,201
193,140
-161,277
-253,210
402,783
-161,209
0
241,575
-183,856
-278,462
449,950
-161,709
0
288,241
-213,273
-316,531
523,765
-153,584
0
370,182
161,739 193,140 241,575 288,241 370,182

-52,827 -62,124 -77,704 -92,714 -119,071
108,912 131,016 163,871 195,527 251,111
108,912 131,016 163,871 195,527 251,111

0
0
0
0
0
108,912 131,016 163,871 195,527 251,111
-26,208 -30,779 -37,685 -45,969 -55,982
82,704 100,236 126,186 149,558 195,128
Growth (%)
Net interest income
Non-interest income
Net profit
Normalised EPS
Normalised FDEPS
Loan growth
Asset growth
Deposit growth
11.2
15.7
21.8
3.3
-22.8
-22.8
-29.3
15.7
14.8
15.0
14.4
15.9
11.6
21.7
18.0
21.2
20.3
18.7
20.3
7.5
15.0
13.0
14.3
13.1
6.1
9.0
15.0
3.5
25.1
23.0
23.4
11.0
9.3
11.1
10.1
10.8
11.1
12.4
14.0
11.7
19.3
17.6
17.4
14.0
13.9
12.8
12.8
12.8
16.3
13.5
16.0
16.4
28.4
28.4
26.5
15.0
14.9
13.9
13.9
14.2
As at 31 Mar
FY14
FY15
FY16F
FY17F
FY18F
724,991 149,432 296,656 334,406 381,553
Inter-bank lending
Deposits with central
Total securities
bank
600,505 1,599,181 1,525,658 1,719,800 1,962,273
Other int earning
Gross loans
assets
12,403,38013,291,612 14,780,84316,871,64319,397,936
Less provisions
-305,093 -291,348 -350,550 -421,109 -479,822
Net loans
12,098,28713,000,264 14,430,29316,450,53418,918,114
Long-term investments 3,983,082 4,950,274 5,526,957 6,062,835 6,725,537
Fixed assets
80,022
93,292 109,216 128,325 151,256
Goodwill
Other non IEAs
435,459 684,696 653,216 736,339 840,155
Total assets
17,922,34620,477,138 22,541,99625,432,23828,978,887
Customer deposits
13,944,08515,767,932 17,464,96719,697,97422,500,069
Bank deposits, CDs,
1,748,507 2,016,597 2,291,373 2,592,329 2,893,527
debentures
Other
int bearing
82,802
34,906
34,906
34,906
34,906
liabilities
Total
int bearing
15,775,39417,819,435 19,791,24622,325,20825,428,502
liabilitiesbearing
Non-int
964,129 1,373,321 1,310,182 1,476,904 1,685,131
liabilities
Total
liabilities
16,739,52319,192,756 21,101,42823,802,11227,113,633
Minority interest
Common stock
7,467
7,466
7,567
7,692
7,806
Preferred stock
Retained earnings
1,175,357 1,276,917 1,433,001 1,622,434 1,857,448
Reserves for credit
Proposed dividends
losses
Other equity
1,182,823 1,284,382 1,440,568 1,630,126 1,865,254
Total liabilities and
17,922,34620,477,138 22,541,99625,432,23828,978,887
equity
Non-perf
assets
613,061 564,261 637,364 726,049 827,279
Balance sheet ratios

(%) to deposits
Loans
Equity to assets
Asset quality &

capital
NPAs/gross
loans (%)
Loss
(%)
(%) reserves/NPAs
Loss
(%) 1 capital ratio (%)
Tier
89.0
6.6
84.3
6.3
84.6
6.4
85.7
6.4
86.2
6.4
4.9
1.25
1.70
49.8
9.7
12.4
4.2
1.48
1.42
51.6
9.6
12.0
4.3
1.09
1.56
55.0
9.9
12.4
4.3
0.96
1.66
58.0
10.0
12.6
4.3
0.79
1.66
58.0
10.0
12.6
14.59
14.59
14.59
3.00
43.01
158.42
156.77
158.42
17.31
17.31
17.55
3.55
51.42
172.04
170.65
172.04
21.30
21.30
21.66
4.26
52.36
190.37
189.14
190.37
25.05
25.05
25.42
5.11
57.64
211.92
210.82
211.92
32.17
32.17
32.17
7.17
67.09
238.94
237.70
238.94
16.1
16.1
16.1
1.3
1.5
1.5
4.15
11.48
5.90
5.57
27.4
52.7
32.7
24.1
10.0
0.65
14.9
0.96
13.6
13.6
13.4
1.5
1.4
1.4
4.03
11.17
5.80
5.37
29.1
49.8
32.2
23.5
10.6
0.68
15.7
1.01
11.0
11.0
10.9
1.8
1.2
1.2
3.82
10.91
5.76
5.15
29.6
51.5
32.2
23.0
12.0
0.76
17.7
1.12
9.4
9.4
9.3
2.2
1.1
1.1
3.80
10.70
5.59
5.11
29.9
51.4
32.2
23.5
12.7
0.82
18.8
1.20
7.3
7.3
7.3
3.0
1.0
1.0
3.87
10.55
5.46
5.08
29.4
51.0
32.2
22.3
14.4
0.92
21.2
1.36
Per share
Reported EPS (INR)
Norm EPS (INR)
FD norm EPS (INR)
DPS (INR)
PPOP PS (INR)
BVPS (INR)
ABVPS (INR)
NTAPS (INR)
Valuations and
ratios P/E (x)
Reported
Normalised P/E (x)
Dividend yield (%)
Price/book (x)
Yield on assets (%)
Cost of int bearing liab
(%) interest spread (%)
Net
Non-interest income
(%) to income (%)
Cost
Dividend payout (%)
ROE (%)
ROA (%)
Operating ROE (%)
Operating ROA (%)
27
Nomura | State Bank of India
16 September 2015
Fig. 46: ROA break-down We expect SBI to deliver +14% ROE by FY18F
ROA decom position
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16F
FY17F
FY18F
2.61%
2.44%
2.97%
3.53%
3.18%
3.03%
2.97%
2.82%
2.80%
2.87%
Fees/Assets
1.27%
1.33%
1.36%
1.25%
1.07%
1.01%
1.02%
1.04%
1.07%
1.09%
0.32%
0.22%
0.08%
-0.08%
0.08%
0.13%
0.20%
0.14%
0.12%
0.11%
Net revenues/Assets
4.20%
3.99%
4.42%
4.70%
4.33%
4.17%
4.18%
4.00%
3.99%
4.07%
-1.96%
-2.10%
-2.10%
-2.13%
-2.10%
-2.20%
-2.08%
-2.06%
-2.05%
-2.07%
Provisions/Assets
-0.47%
-0.45%
-0.95%
-1.07%
-0.80%
-0.98%
-1.06%
-0.78%
-0.70%
-0.58%
Taxes/Assets
-0.63%
-0.49%
-0.61%
-0.55%
-0.42%
-0.32%
-0.33%
-0.37%
-0.40%
-0.45%
Total Costs/Assets
-3.06%
-3.04%
-3.66%
-3.75%
-3.32%
-3.50%
-3.48%
-3.21%
-3.15%
-3.11%
ROA
1.14%
0.95%
0.76%
0.95%
1.01%
0.67%
0.71%
0.79%
0.84%
0.96%
Equity/Assets
6.70%
6.40%
5.98%
6.07%
6.56%
6.68%
6.65%
6.57%
6.63%
6.65%
ROE
17.1%
14.8%
12.6%
15.7%
15.4%
10.0%
10.6%
12.0%
12.7%
14.4%
RORWA
1.63%
1.43%
1.10%
1.41%
1.53%
1.02%
1.12%
1.28%
1.37%
1.54%
Old
INRm n
NII
Loan grow th
New
FY16F
583,969
FY17F
660,222
11.0%
13.9%
FY16F
583,969
11.0%
Variance%
FY17F
FY16F
FY17F
0.0%
-1.7%
649,043
13.9%
0bps
0bps
PPOP
402,783
461,136
402,783
449,950
0.0%
-2.4%
PAT
163,871
208,930
163,871
195,527
0.0%
-6.4%
NIM%
2.82%
2.85%
2.82%
2.80%
0bps
-5bps
LLPs
1.18%
0.99%
1.18%
1.05%
0bps
6bps
GNPA%
Slippages
4.31%
259,186
4.22%
280,836
4.31%
259,186
4.30%
295,617
0bps
9bps
0.0%
5.3%
ROA
0.79%
0.90%
0.79%
0.84%
0bps
-6bps
ROE
12.0%
13.5%
12.0%
12.7%
0bps
-81bps
Valuation: While SBI currently trades at 0.8x FY17F reported book (BVPS: INR251),
adjusted for our stress test it trades at 1.2x FY17F adjusted book (similar to the FY04-07
multiple). Overall, we like SBIs superior liability franchise, capital levels and better
underwriting and hence we reiterate Buy. We revise our FY16/17F PAT estimates down
by 0-6% and cut our TP by 13% to factor in part of the impact from our stress test.
Risks: Risks include slower-than-expected recovery of the corporate credit cycle.

Cost of Equity
Terminal grow th
Stage 2 grow th
Normalised ROE
Mar-16 PT
Implied Mar-17 P/B
Implied Mar-17 P/E
Price Target - Mar-16

Insurance Valuation
Capital market businesses
Total Subsidiary valuation
Lending business valuation
Fig. 49: Our TP implies 1.05x Mar-17F book

New
13.5%
5.0%
12.0%
16.1%
290
1.05
5.93
Old
13.5%
5.0%
12.0%
16.1%
335
1.22
6.86
Per Share
290
13
14
26
264
Per Share
335
13
14
26
309
2.5
2.3
2.1
1.9
1.7
1.5
1.3
1.1
0.9
0.7
0.5
SBI
Apr-05
Aug-05
Dec-05
Apr-06
Aug-06
Dec-06
Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Dec-12
Apr-13
Aug-13
Dec-13
Apr-14
Aug-14
Dec-14
Apr-15
Aug-15
28
Bank of Baroda BOB.NS
BOB IN
EQUITY: BANKS
Lowest risk within PSU banks
Valuations now at a premium to SBI, and hence

lower in the relative pecking order
16 September 2015
Rating
Remains
Action: Lower risk within PSU banks; maintain Buy

BOBs asset quality and delinquent loans are the best among the PSU banks,
and our sensitivity analysis indicates its incremental risk is the lowest. Part of
its superior underwriting is reflected in its premium valuations vs peers. Its
underwriting and new private sector management make it a good long-term
investment within the group, in our view. On a relative basis, we prefer SBI
(SBIN IN, Buy) due to lower valuations and better liability franchise.
Relatively better underwriting in the past and recent management change

are certainly positives for BOB over the medium term. Near term, we see
two challenges: 1) Overseas margins are under pressure and new
management will have to address the profitability gap and 2) BOBs pension
provisioning over the past two years has been weaker than peers and is
likely to lead to higher opex growth in FY16/17F vs peers.
FY16F
Old
New
FY17F
Old
New
Research analysts
India Banks
+91 22 4037 4034
+91 22 4037 4361
New
PPOP (mn)
99,151 111,239 101,303 132,886 120,664
33,983
49,135
43,469
63,241
57,401
73,472
139,707
33,983
49,135
43,469
63,241
57,401
73,472
FD normalised EPS
15.37
110.77
19.66
139.43
25.38
32.49
-27.1
44.6
27.9
25.9
29.1
28.0
+12.6%
Our FY16/17F PAT estimates are

3-5% below consensus, as we
build in lower NIMs.
FY18F
Old
INR 187
Nomura vs consensus
Maintain Buy and TP of INR210

While BOB currently trades at 0.9x FY17F reported book, adjusted for our
stress test its valuations are 1.3x FY17F adjusted book. BOBs better
underwriting/profitability, vs the FY04-07 cycle has led to its premium
valuations vs peers, and is likely to be sustained in view of its better capital
position and management change. We lower FY16/17F PAT estimates by 911% on lower NIMs in the international book but maintain our INR210 TP.
FY15
Closing price
14 September 2015

Management change a positive; overseas margins remain a key drag:
Actual
INR 210
Anchor themes
in its stressed accounts, which is ~10% of its FY17F net worth. This
compares well with the group, with LGDs of 15-25% of FY17F net worth.
BOB has lower exposure to most segments (particularly metals), and its
concentration risk in infra SPV debt is the lowest among peers, which is
consistent with our view of BOB being the most prudent underwriter.
Currency (INR)
Target price
Remains
Potential upside
Year-end 31 Mar
Buy
12.1
N/A
9.5
N/A
7.3
N/A
5.7
Price/adj. book (x)
1.2
N/A
1.1
N/A
1.0
N/A
0.9
Price/book (x)
1.1
N/A
1.0
N/A
0.9
N/A
0.8
Dividend yield (%)
2.1
N/A
2.5
N/A
3.0
N/A
ROE (%)
9.2
11.8
10.7
13.6
12.8
14.5
ROA (%)
0.5
0.7
0.6
0.8
0.7
0.8
3.0
Nomura | Bank of Baroda
16 September 2015
Key data on Bank of Baroda

Notes:
Performance
(%)
Absolute (INR)
Absolute (USD)
Rel to MSCI India
1M 3M 12M
1.2 26.9 -1.3
-0.8 22.6 -9.8
9.2 28.1 3.0
M cap (USDmn)
Free float (%)
3-mth ADT (USDmn)
6,216.0
36.0
25.2

Year-end 31 Mar
Interest income
Interest expense
Net interest income
Non-interest income
Operating income
Depreciation
Amortisation
Operating expenses
Operating profit
Other non-op income
Associates & JCEs
Pre-tax profit
Income tax
Minority interests
Other items
Preferred dividends
Normalised NPAT
Extraordinary items
Reported NPAT
Dividends
FY14
389,397
-269,744
119,653
14,781
7,438
22,408
44,627
164,281
-3,450
-26,523
-41,397
92,910
-34,702
-3,235
54,973
FY15
429,636
-297,763
131,872
15,190
10,070
18,760
44,020
175,892
-3,404
FY16F
453,498
-310,136
143,363
16,861
9,000
20,824
46,685
190,047
-3,744
FY17F
490,310
-324,294
166,015
19,390
10,000
23,947
53,337
219,353
-4,119
FY18F
546,495
-355,717
190,778
22,299
10,000
27,539
59,838
250,616
-4,531
-30,724 -34,411 -39,228 -44,328

-42,614 -50,589 -55,342 -62,050
99,151 101,303 120,664 139,707
-43,340 -39,204 -38,662 -34,746
-1,605
0
0
0
54,206
62,099
82,002 104,961
54,973
-9,563
45,410
54,206
-20,223
33,983
62,099
-18,630
43,469
82,002 104,961
-24,601 -31,489
57,401
73,472
45,410
0
45,410
-10,864
34,546
33,983
0
33,983
-8,517
25,466
43,469
0
43,469
-10,350
33,120
57,401
0
57,401
-12,701
44,700
73,472
0
73,472
-12,701
60,772
5.7
22.9
20.8
3.2
1.3
-0.6
-0.6
21.0
27.6
21.0
20.6
20.0
10.2
-1.4
15.8
6.7
-25.2
-27.1
-27.1
7.8
9.0
7.8
8.4
8.6
8.7
6.1
12.0
2.2
27.9
27.9
27.9
11.0
5.5
8.0
8.0
8.0
15.8
14.3
14.0
19.1
32.0
29.1
29.1
13.0
12.9
12.6
12.5
12.9
14.9
12.2
13.0
15.8
28.0
28.0
28.0
14.0
14.0
13.8
13.6
14.1
Growth (%)
Net interest income
Non-interest income
Net profit
Normalised EPS
Normalised FDEPS
Loan growth
Asset growth
Deposit growth
As at 31 Mar
Inter-bank lending
Total securities
Gross loans
Less provisions
Net loans
Fixed assets
Goodwill
Other non IEAs
Total assets
Customer deposits
Bank deposits, CDs,
debentures
Other
Total liabilities
Minority interest
Common stock
Preferred stock
Retained earnings
Proposed dividends
Other equity
Non-perf assets
FY14
FY15
FY16F
FY17F
FY18F
22,185
32,638 222,251 250,530 285,496
1,286,594 1,450,893 1,296,466 1,461,425 1,665,391
4,028,470 4,362,571 4,857,634 5,500,155 6,273,022

-58,411 -81,920 -106,111 -130,934 -152,110
3,970,058 4,280,651 4,751,523 5,369,221 6,120,912
1,161,127 1,223,197 1,303,973 1,441,694 1,611,932
16,815
18,876
20,936
22,996
25,057
127,740 133,757 119,520 134,728 153,531

6,584,519 7,140,013 7,714,670 8,680,593 9,862,319
5,688,944 6,175,595 6,667,868 7,526,155 8,590,905
368,109 352,632 379,566 407,938 437,121
21
11
11
11
11
6,057,073 6,528,238 7,047,444 7,934,104 9,028,038
178,115 223,307 245,638 270,201 297,222
6,235,188 6,751,545 7,293,082 8,204,305 9,325,259
4,307
4,423
4,423
4,523
4,523
345,024 384,045 417,165 471,765 532,536
349,331 388,468 421,588 476,288 537,059

6,584,519 7,140,013 7,714,670 8,680,593 9,862,319
118,759 162,614 204,059 238,062 276,563

Loans to deposits
Equity to assets
70.8
5.3
70.6
5.4
72.9
5.5
73.1
5.5
73.0
5.4
2.9
0.86
0.89
49.2
9.3
12.3
3.7
0.99
1.15
50.4
9.9
12.9
4.2
0.81
1.38
52.0
9.7
12.7
4.3
0.70
1.51
55.0
9.7
12.6
4.4
0.55
1.54
55.0
9.7
12.3
21.09
21.09
21.09
5.05
43.15
162.22
150.50
162.22
15.37
15.37
15.37
3.85
44.83
175.66
160.81
175.66
19.66
19.66
19.66
4.68
45.81
190.63
173.42
190.63
25.38
25.38
25.38
5.62
53.36
210.61
194.07
210.61
32.49
32.49
32.49
5.62
61.78
237.48
218.25
237.48
8.8
8.8
8.8
2.7
1.1
1.2
2.55
8.31
4.88
3.43
27.2
43.4
17.4
23.9
13.8
0.75
16.7
0.91
12.1
12.1
12.1
2.1
1.1
1.2
2.40
7.82
4.73
3.09
25.0
43.6
37.3
25.1
9.2
0.50
14.7
0.79
9.5
9.5
9.5
2.5
1.0
1.1
2.43
7.70
4.57
3.13
24.6
46.7
30.0
23.8
10.7
0.59
15.3
0.84
7.3
7.3
7.3
3.0
0.9
1.0
2.58
7.61
4.33
3.29
24.3
45.0
30.0
22.1
12.8
0.70
18.3
1.00
5.7
5.7
5.7
3.0
0.8
0.9
2.61
7.48
4.19
3.28
23.9
44.3
30.0
17.3
14.5
0.79
20.7
1.13

Loss
(%)
(%)
Per share
Reported EPS (INR)
Norm EPS (INR)
FD norm EPS (INR)
DPS (INR)
PPOP PS (INR)
BVPS (INR)
ABVPS (INR)
NTAPS (INR)

Reported P/E (x)
Normalised P/E (x)
Dividend yield (%)
Price/book (x)
Yield on assets (%)
Cost to income (%)
Dividend payout (%)
ROE (%)
ROA (%)
Operating ROE (%)
Operating ROA (%)
30
Nomura | Bank of Baroda
16 September 2015
Fig. 50: ROA break-down We expect BOB to deliver +14% ROE by FY18F
ROA decomposition
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16F
FY17F
FY18F
2.60%
2.41%
2.83%
2.63%
2.33%
2.03%
1.96%
1.97%
2.06%
2.10%
Fees/Assets
0.94%
0.85%
0.76%
0.72%
0.62%
0.63%
0.51%
0.52%
0.54%
0.55%
0.46%
0.29%
0.14%
0.15%
0.13%
0.13%
0.15%
0.12%
0.12%
0.11%
Net revenues/Assets
4.01%
3.55%
3.74%
3.50%
3.08%
2.79%
2.62%
2.61%
2.73%
2.75%
-1.82%
-1.55%
-1.49%
-1.31%
-1.23%
-1.21%
-1.14%
-1.22%
-1.23%
-1.22%
Provisions/Assets
-0.49%
-0.28%
-0.43%
-0.65%
-0.86%
-0.64%
-0.67%
-0.54%
-0.48%
-0.38%
Taxes/Assets
-0.57%
-0.48%
-0.45%
-0.26%
-0.07%
-0.16%
-0.30%
-0.26%
-0.31%
-0.35%
Total Costs/Assets
-1.95%
-2.87%
-2.31%
-2.37%
-2.23%
-2.16%
-2.02%
-2.11%
-2.01%
-2.01%
ROA
1.13%
1.24%
1.36%
1.28%
0.92%
0.77%
0.51%
0.60%
0.71%
0.81%
Equity/Assets
5.37%
5.13%
5.40%
5.87%
5.90%
5.58%
5.49%
5.56%
5.58%
5.57%
ROE
21.1%
24.2%
25.3%
21.7%
15.7%
13.8%
9.2%
10.7%
12.8%
14.5%
RORWA
1.78%
2.12%
2.32%
2.16%
1.60%
1.37%
0.92%
1.09%
1.28%
1.45%

Old
INRm n
NII
FY16F
150,309
Loan grow th
PPOP
11.0%
New
FY17F
176,315
13.0%
FY16F
143,363
11.0%
Variance%
FY17F
166,015
13.0%
FY16F
FY17F
-4.6%
-5.8%
0.0%
0.0%
111,239
132,886
101,303
120,664
-8.9%
-9.2%
PBT
70,193
90,345
62,099
82,002
-11.5%
-9.2%
PAT
49,135
63,241
43,469
57,401
-11.5%
-9.2%
NIM%
2.04%
2.14%
1.97%
2.06%
-7bps
-8bps
LLPs
0.91%
0.84%
0.87%
0.76%
-4bps
-8bps
GNPA%
4.20%
4.33%
4.20%
4.33%
0bps
0bps
Slippages%
1.90%
1.70%
1.90%
1.70%
0bps
0bps
ROA
0.67%
0.77%
0.60%
0.71%
-7bps
-6bps
ROE
11.8%
13.6%
10.7%
12.8%
-106bps
-78bps
Valuation: While BOB currently trades at 0.9x FY17F reported book (BVPS: INR194),
adjusted for our stress test its valuations are at 1.3x FY17F adjusted book. BOBs better
underwriting/profitability vs the FY04-07 cycle has led to its premium valuations vs peers,
and is likely to be sustained due to its better capital position and recent management
change, in our view. We lower FY16/17F PAT estimates by 9-11% on lower NIMs in the
international book, but maintain our TP of INR210.
Risks: 1) Longer-than-expected asset quality pressure and 2) slower-than-expected
pick-up in economic activity.
Cost of Equity

New
Old
1.9
13.8%
13.8%
Terminal grow th
5.0%
5.0%
1.5
Stage 2 grow th
10.0%
10.0%
1.3
Normalised ROE
14.0%
14.1%
1.1
210
210
0.9
Implied Mar-17 P/B
1.08
1.04
0.7
Implied Mar-17 P/E
8.27
7.53
0.5
Apr-05
Aug-05
Dec-05
Apr-06
Aug-06
Dec-06
Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Dec-12
Apr-13
Aug-13
Dec-13
Apr-14
Aug-14
Dec-14
Apr-15
Aug-15
Mar-16 PT
BOB
1.7
31
Bank of India BOI.BO
BOI IN
EQUITY: FINANCIALS
Many problems to take care of
Weak underwriter + weak capital position
16 September 2015
Rating
Remains
Action: Many problems to take care of

BOI, along with PNB, clearly are the weakest underwriters among large PSU
banks, and like PNB, even our estimate of BOIs LGD (loss given default) to
the unrecognised stressed names is highest at 22% of FY17 net worth. BOIs
total net worth adjustments are highest among peers at ~60%, due to high
share of NPA plus restructuring, large ARC sales and now higher exposure in
these stressed names. While valuations on FY17F P/B look cheap at 0.35x,
adjusted valuation at 1.2x FY17F book looks demanding, especially with
RORWAs at <0.5%. We retain our cautious view on BOI.
Stress test outcome: We estimate a loss given default of INR76bn for BOI in
these stressed accounts, which is ~22% of its FY17F net worth. BOI is one of
the worst placed within our covered PSUs with LGDs of 15-25% of FY17F net
worth. More importantly, it has significantly higher exposure towards infra
conglomerates vs PSU peers, while it has similar exposure to other risky
segments. BOI has been significantly disappointing on asset quality in the past
two quarters, which can be explained by its higher exposures in these risky
segments. On the back of this, we expect ROEs to continue to remain sup-par
(<10% till FY18F) for BOI.
Profitability to remain weak: With ~12% of NPAs plus restructuring,
profitability has been significantly impacted and with still more to come, we
expect ROA to remain <0.5% over the next two years for BOI.
Currency (INR)
FY15
FY16F
FY17F
New
INR 140
Closing price
14 September 2015
INR 136
+2.9%
Anchor themes
Nomura vs consensus
Our FY16/17F PAT is 7-8%
below consensus as we factor in
higher asset quality pressures for
BOI.
Research analysts
India Banks
+91 22 4037 4034
FY18F
Old
Target price
Reduced from 160
Potential upside
Multiples marginally above FY04-07 cycle adjusted for stress; Neutral

While BOI currently trades at 0.35x FY17F reported book, adjusted for our
stress test it trades at 1.2x FY17F adjusted book and hence we maintain
Neutral. We think asset quality pressure will be higher for BOI vs peers and
hence we inch up our credit cost estimates, and additional recognition of these
stress assets will lead to interest reversals impacting NIMs. Overall, we revise
our FY16/17F PAT estimates down by 15-25% and cut our TP by 12% to
factor in part of the impact from our stress test.
Year-end 31 Mar
Neutral
Actual
Old
New
Old
PPOP (mn)
74,878
84,131
79,850
96,878
91,813 109,879 103,656
New
17,081
19,764
16,682
31,667
24,017
44,665
35,259
17,081
19,764
16,682
31,667
24,017
44,665
35,259
FD normalised EPS
25.69
25.14
21.22
35.41
26.86
47.30
37.34
-39.4
-2.1
-17.4
40.9
26.6
33.6
39.0
5.3
N/A
6.4
N/A
5.1
N/A
3.6
Price/adj. book (x)
0.4
N/A
0.5
N/A
0.5
N/A
0.4
Price/book (x)
0.3
N/A
0.3
N/A
0.3
N/A
0.3
Dividend yield (%)
4.4
N/A
4.7
N/A
5.2
N/A
5.7
ROE (%)
6.3
6.7
5.7
9.4
7.3
11.7
9.6
ROA (%)
0.3
0.3
0.3
0.5
0.4
0.6
0.5

+91 22 4037 4361
Nomura | Bank of India
16 September 2015
Key data on Bank of India

Notes:
Performance
(%)
Absolute (INR)
Absolute (USD)
Rel to MSCI India
1M 3M 12M
-20.1 -21.6 -53.3
-21.6 -24.3 -57.3
-12.1 -20.4 -49.0
M cap (USDmn)
Free float (%)
3-mth ADT (USDmn)
1,363.0
90.3
1.3

Year-end 31 Mar
Interest income
Interest expense
Net interest income
Non-interest income
Operating income
Depreciation
Amortisation
Operating expenses
Operating profit
Other non-op income
Associates & JCEs
Pre-tax profit
Income tax
Minority interests
Other items
Preferred dividends
Normalised NPAT
Extraordinary items
Reported NPAT
Dividends
FY14
379,101
-270,796
108,305
14,720
7,956
20,242
42,918
151,224
-2,279
FY15
434,299
-320,862
113,437
16,572
9,309
16,445
42,327
155,764
-2,854
FY16F
462,505
-338,624
123,881
16,904
8,000
17,747
42,650
166,531
-3,025
-24,805
-39,911
84,229
-47,545
-1,241
35,443
-28,174
-49,858
74,878
-57,440
504
17,942
-32,118
-51,538
79,850
-56,681
0
23,169
FY17F
494,830
-355,554
139,276
18,256
8,000
19,904
46,160
185,436
-3,207
FY18F
542,298
-388,332
153,966
20,082
9,000
22,500
51,582
205,548
-3,399
-35,330 -39,569
-55,086 -58,924
91,813 103,656
-58,455 -54,684
0
0
33,358
48,971
35,443
-8,158
27,285
17,942
-861
17,081
23,169
-6,487
16,682
33,358
-9,341
24,017
48,971
-13,713
35,259
27,285
0
27,285
-3,757
23,528
17,081
0
17,081
-3,997
13,084
16,682
0
16,682
-5,059
11,623
24,017
0
24,017
-6,330
17,687
35,259
0
35,259
-7,352
27,907
20.0
14.0
23.0
12.9
-0.8
-4.0
-8.0
28.1
28.1
25.9
26.1
24.9
4.7
-1.4
13.6
-11.1
-37.4
-47.1
-39.4
8.4
9.3
8.9
8.0
11.5
9.2
0.8
14.0
6.6
-2.3
-14.1
-17.4
7.0
6.5
5.0
5.2
4.9
12.4
8.2
10.0
15.0
44.0
36.3
26.6
10.0
9.9
9.4
9.5
9.2
10.5
11.7
12.0
12.9
46.8
46.8
39.0
12.0
12.1
12.0
12.0
12.1
Growth (%)
Net interest income
Non-interest income
Net profit
Normalised EPS
Normalised FDEPS
Loan growth
Asset growth
Deposit growth
As at 31 Mar
Inter-bank lending
Total securities
Gross loans
Less provisions
Net loans
Fixed assets
Goodwill
Other non IEAs
Total assets
Customer deposits
Bank deposits, CDs,
debentures
Other
Total liabilities
Minority interest
Common stock
Preferred stock
Retained earnings
Proposed dividends
Other equity
Non-perf assets
FY14
FY15
FY16F
FY17F
FY18F
170,634 248,988 216,486 235,985 265,985
443,189 515,049 530,545 578,330 651,850

3,751,849 4,107,012 4,424,945 4,892,750 5,493,988
-44,514 -86,757 -123,272 -160,910 -194,326
3,707,335 4,020,256 4,301,673 4,731,841 5,299,662
1,141,524 1,197,920 1,248,941 1,352,742 1,510,642
20,439
23,304
24,304
25,304
26,304
211,363 145,902 150,292 163,829 184,655

5,694,484 6,151,419 6,472,242 7,088,029 7,939,098
4,769,741 5,319,066 5,579,749 6,094,113 6,830,810
414,502 346,748 356,129 389,691 426,743
69,773
53,823
68,360
84,352 101,942
5,254,016 5,719,638 6,004,238 6,568,155 7,359,495
178,656 152,873 157,472 171,655 193,477
5,432,671 5,872,510 6,161,710 6,739,810 7,552,972
6,434
6,649
7,861
8,942
9,442
255,379 272,259 302,670 339,277 376,683
261,813 278,909 310,532 348,219 386,126

5,694,485 6,151,419 6,472,242 7,088,029 7,939,098
118,686 221,932 308,180 365,704 404,846

Loans to deposits
Equity to assets
78.7
4.6
77.2
4.5
79.3
4.8
80.3
4.9
80.4
4.9
3.2
1.27
0.78
37.5
7.2
10.0
5.4
1.40
1.41
39.1
8.2
10.7
7.0
1.28
1.90
40.0
8.5
11.0
7.5
1.19
2.27
44.0
8.7
11.1
7.4
1.00
2.45
48.0
8.6
11.0
41.04
41.04
42.41
5.84
126.68
406.90
347.67
406.90
21.73
21.73
25.69
6.01
95.25
419.47
318.48
419.47
18.65
18.65
21.22
6.43
89.29
395.02
280.69
395.02
25.44
25.44
26.86
7.08
97.24
389.41
286.57
389.41
37.34
37.34
37.34
7.79
109.78
408.93
317.94
408.93
3.3
3.3
3.2
4.3
0.3
0.4
2.93
10.26
5.75
4.51
28.4
44.3
23.0
13.8
11.2
0.53
14.5
0.69
6.3
6.3
5.3
4.4
0.3
0.4
2.61
10.00
5.85
4.15
27.2
51.9
4.8
23.4
6.3
0.29
6.6
0.30
7.3
7.3
6.4
4.7
0.3
0.5
2.64
9.87
5.78
4.10
25.6
52.1
28.0
30.3
5.7
0.26
7.9
0.37
5.3
5.3
5.1
5.2
0.3
0.5
2.75
9.76
5.66
4.10
24.9
50.5
28.0
26.4
7.3
0.35
10.1
0.49
3.6
3.6
3.6
5.7
0.3
0.4
2.73
9.63
5.58
4.05
25.1
49.6
28.0
20.9
9.6
0.47
13.3
0.65

Loss
(%)
(%)
Per share
Reported EPS (INR)
Norm EPS (INR)
FD norm EPS (INR)
DPS (INR)
PPOP PS (INR)
BVPS (INR)
ABVPS (INR)
NTAPS (INR)

Reported P/E (x)
Normalised P/E (x)
Dividend yield (%)
Price/book (x)
Yield on assets (%)
Cost to income (%)
Dividend payout (%)
ROE (%)
ROA (%)
Operating ROE (%)
Operating ROA (%)
33
Nomura | Bank of India
16 September 2015
Fig. 54: ROA break-down ROEs will likely remain <10% till FY18F
ROA decom position
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16F
FY17F
FY18F
2.82%
2.38%
2.78%
2.42%
2.23%
2.20%
1.98%
2.02%
2.11%
2.11%
Fees/Assets
1.18%
0.84%
0.83%
0.85%
0.82%
0.71%
0.58%
0.56%
0.58%
0.58%
0.38%
0.25%
0.11%
0.12%
0.11%
0.16%
0.16%
0.13%
0.12%
0.12%
Net revenues/Assets
4.38%
3.46%
3.72%
3.39%
3.16%
3.07%
2.72%
2.71%
2.81%
2.81%
-1.59%
-1.52%
-1.81%
-1.44%
-1.32%
-1.36%
-1.41%
-1.41%
-1.42%
-1.39%
Provisions/Assets
-0.66%
-0.91%
-0.67%
-0.91%
-1.10%
-0.99%
-0.99%
-0.92%
-0.89%
-0.75%
Taxes/Assets
-0.59%
-0.31%
-0.36%
-0.26%
-0.06%
-0.17%
-0.02%
-0.11%
-0.14%
-0.19%
Total Costs/Assets
-2.84%
-2.74%
-2.84%
-2.61%
-2.48%
-2.52%
-2.42%
-2.44%
-2.45%
-2.33%
RoA
1.54%
0.72%
0.89%
0.78%
0.68%
0.55%
0.30%
0.27%
0.36%
0.48%
Equity/Assets
5.28%
5.08%
5.13%
5.20%
5.25%
4.97%
4.72%
4.80%
4.99%
5.02%
RoE
29.2%
14.2%
17.3%
15.0%
12.9%
11.2%
6.3%
5.7%
7.3%
9.6%
Fig. 55: Key changes in FY16/17F estimates

Old
INRm n
NII
FY16F
126,101
Loan grow th
7.0%
Fee grow th
6.5%
New
FY17F
142,184
10.0%
10.1%
FY16F
123,881
7.0%
4.9%
Variance%
FY17F
FY16F
FY17F
-1.8%
-2.0%
10.0%
0bps
0bps
10.1%
139,276
-155bps
3bps
PPOP
84,131
96,878
79,850
91,813
-5.1%
-5.2%
PAT
19,764
31,667
16,682
24,017
-15.6%
-24.2%
NIM%
2.05%
2.16%
2.02%
2.11%
-3bps
-5bps
LLPs
1.36%
1.17%
1.36%
1.29%
0bps
12bps
GNPA%
Slippages
6.96%
156,066
7.39%
132,748
6.96%
156,066
7.47%
137,173
0bps
8bps
0.0%
3.3%
ROA
0.32%
0.48%
0.27%
0.36%
-5bps
-12bps
ROE
6.7%
9.4%
5.7%
7.3%
-104bps
-211bps
Valuation: While BOI currently trades at 0.35x FY17F reported book, adjusted for our
stress test it trades at 1.2x FY17F adjusted book and hence we maintain Neutral. We
think asset quality pressure will be higher for BOI vs peers and hence we inch up our
credit cost estimates, and additional recognition of these stress assets will lead to
interest reversals impacting NIMs. Overall, we revise our FY16/17F PAT estimates down
by 15-25% and cut our TP by 12% to factor in part of the impact from our stress test.
Risks: Slower-than-expected economic recovery impacting asset quality and aggressive
growth will be the key downside risk and any material improvement in asset quality
trends will be the key upside risk.

Cost of Equity

New
Old
14.3%
14.3%
Terminal grow th
5.0%
5.0%
Stage 2 grow th
10.0%
10.0%
Normalised ROEs
12.5%
12.5%
Mar-16 PT
140
160
Implied Mar-17 P/B
0.55
0.60
Implied Mar-17 P/E
5.21
4.52
2.3
2.1
1.9
1.7
1.5
1.3
1.1
0.9
0.7
0.5
0.3
BOI
Apr-05
Aug-05
Dec-05
Apr-06
Aug-06
Dec-06
Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Dec-12
Apr-13
Aug-13
Dec-13
Apr-14
Aug-14
Dec-14
Apr-15
Aug-15
34
Punjab National Bank PNBK.NS
PNB IN
EQUITY: BANKS
Share of incremental stress also highest
Valuations reflect weak underwriting Adjusted

valuations not cheap
16 September 2015
Rating
Remains
Action: Share of incremental stress highest; least preferred PSU

PNBs FY15 impaired loan ratio of 17% is the highest among the large PSU
banks, and our stress test sensitivity indicates that its share of incremental
stress should also remain the highest thus highlighting its weak underwriting.
As we expect a much delayed recovery/upgrade cycle this time, we do not see
merit in buying the most stressed PSU bank. While current valuations at 0.55x
FY17F book (BVPS: INR204) may look cheap, but adjusted for higher stress,
PNBs valuation at 1.24x FY17F book is the highest among PSU banks. PNB
remains our least preferred PSU bank.
PPOP (mn)
FY15
Actual
FY16F
Old
New
FY17F
Old
New
119,548 127,945 127,833 142,546 140,279
INR 137
+2%
Nomura vs consensus
Our FY16F/17F PAT estimates
are 2-5% below consensus as we
assume higher credit costs.
Research analysts
India Banks
+91 22 4037 4034
FY18F
Old
Closing price
14 September 2015

Multiples marginally above FY04-07 cycle adjusted for stress; maintain

Neutral
While PNB currently trades at 0.7x FY17F reported book, adjusted for our
stress test it trades at 1.3x FY17F adjusted book (~10% below the FY04-07
multiple) with significantly lower profitability, and hence we reiterate our
Neutral rating. We think, asset quality pressure will likely be higher for PNB
and even relapse risk from the restructured book remains high. Overall, we
revise FY16/17F PAT down by 3-8% and cut our TP by 9% to INR140 to
reflect part of the impact from our stress test.
Currency (INR)
INR 140
Anchor themes
for PNB in its stressed accounts, which is ~21% of its FY17F net worth.
PNB is one of the worst placed within our covered PSUs, with LGD of 1525% of FY17F net worth. It has higher exposure to infra conglomerates and
the metals sector vs. PSU peers. This, coupled with a higher percentage of
unprovided NPAs and restructured book leads to a more than a 50% writeoff of its FY17F net worth, vs. SBI and BOB at ~30% each.
Not the time to buy the worst underwriter: In this credit cycle, most of the
stressed names have a high gestation period, and hence we do not expect
a meaningful recovery/upgrade cycle that PNB could benefit from given its
large book of impaired loans.
Year-end 31 Mar
Target price
Reduced from 155
Potential upside
Neutral

+91 22 4037 4361
New
151,099
30,616
40,860
39,560
53,088
48,869
59,485
30,616
40,860
39,560
53,088
48,869
59,485
FD normalised EPS
16.51
22.03
21.33
27.09
24.94
30.35
-10.6
33.5
29.2
22.9
16.9
21.7
8.3
N/A
6.4
N/A
5.5
N/A
4.5
Price/adj. book (x)
0.7
N/A
0.6
N/A
0.6
N/A
0.5
Price/book (x)
0.7
N/A
0.6
N/A
0.6
N/A
0.5
Dividend yield (%)
2.8
N/A
2.8
N/A
2.8
N/A
ROE (%)
8.5
10.4
10.1
12.0
11.1
12.0
ROA (%)
0.5
0.6
0.6
0.7
0.7
0.8
2.8
Nomura | Punjab National Bank
16 September 2015
Key data on Punjab National Bank

Notes:
Performance
(%)
Absolute (INR)
Absolute (USD)
Rel to MSCI India
1M
-17.5
-19.1
-9.5
3M
4.0
0.4
5.2
12M
-30.3
-36.3
-26.0
M cap (USDmn)
Free float (%)
3-mth ADT (USDmn)
3,833.7
36.0
13.2

Year-end 31 Mar
Interest income
Interest expense
Net interest income
Non-interest income
Operating income
Depreciation
Amortisation
Operating expenses
Operating profit
Other non-op income
Associates & JCEs
Pre-tax profit
Income tax
Minority interests
Other items
Preferred dividends
Normalised NPAT
Extraordinary items
Reported NPAT
Dividends
FY14
432,233
-270,773
161,460
26,078
5,493
14,195
45,767
207,227
-3,524
FY15
463,154
-297,598
165,556
31,139
10,227
17,541
58,907
224,463
-3,702
FY16F
506,793
-334,070
172,723
33,942
7,500
18,963
60,405
233,127
-3,887
FY17F
558,376
-367,143
191,232
38,015
7,500
20,614
66,129
257,362
-4,082
FY18F
614,429
-405,443
208,987
42,577
7,500
22,344
72,421
281,408
-4,286
-24,754 -27,844 -31,185 -35,551 -40,529

-65,104 -73,369 -70,222 -77,450 -85,494
113,845 119,548 127,833 140,279 151,099
-58,911 -84,703 -68,714 -67,471 -62,679
-8,028
4,728
-942
-942
-942
46,905
39,573
58,177
71,866
87,478
46,905
-13,479
33,426
39,573
-8,957
30,616
58,177
-18,617
39,560
71,866
-22,997
48,869
87,478
-27,993
59,485
33,426
0
33,426
-4,236
29,190
30,616
0
30,616
-7,160
23,455
39,560
0
39,560
-7,160
32,400
48,869
0
48,869
-7,567
41,302
59,485
0
59,485
-7,567
51,918
8.7
8.6
14.0
4.4
-29.6
-31.3
-31.3
13.1
17.0
15.8
15.0
15.3
2.5
28.7
12.5
5.0
-8.4
-10.6
-10.6
9.0
16.0
9.5
9.6
11.1
4.3
2.5
12.0
6.9
29.2
29.2
29.2
9.0
9.3
12.4
12.1
11.9
10.7
9.5
14.0
9.7
23.5
16.9
16.9
11.0
10.8
10.0
10.3
9.3
9.3
9.5
14.0
7.7
21.7
21.7
21.7
12.0
11.9
11.5
11.4
10.9
Growth (%)
Net interest income
Non-interest income
Net profit
Normalised EPS
Normalised FDEPS
Loan growth
Asset growth
Deposit growth
As at 31 Mar
Inter-bank lending
Total securities
Gross loans
Less provisions
Net loans
Fixed assets
Goodwill
Other non IEAs
Total assets
Customer deposits
Bank deposits, CDs,
debentures
Other
Total liabilities
Minority interest
Common stock
Preferred stock
Retained earnings
Proposed dividends
Other equity
Non-perf assets
FY14
201,206
0
FY15
22,711
0
FY16F
25,371
0
FY17F
27,712
0
FY18F
30,712
0
250,979 536,631 599,488 654,800 725,690

3,582,322 3,908,328 4,272,158 4,755,268 5,334,570
-89,631 -102,984 -124,333 -151,182 -177,994
3,492,691 3,805,344 4,147,825 4,604,086 5,156,576
1,437,855 1,512,824 1,819,532 1,984,075 2,191,613
20,116
21,639
23,639
25,639
27,639
87,271 120,312 134,405 146,805 162,699

5,490,117 6,019,461 6,750,260 7,443,118 8,294,929
4,513,968 5,013,786 5,610,018 6,131,316 6,801,309
471,896 451,332 520,763 598,815 689,344
8,448
5,374
17,958
32,430
49,073
4,994,312 5,470,492 6,148,739 6,762,561 7,539,727
150,934 172,049 192,202 209,935 232,663
5,145,246 5,642,541 6,340,941 6,972,496 7,772,390
3,621
3,709
3,709
3,920
3,920
341,251 373,211 405,610 466,702 518,620
344,871 376,920 409,319 470,622 522,540

5,490,117 6,019,460 6,750,260 7,443,118 8,294,929
188,801 256,949 296,032 321,665 349,008

Loans to deposits
Equity to assets
79.4
6.3
78.0
6.3
76.2
6.1
77.6
6.3
78.4
6.3
5.3
1.64
1.63
47.5
8.9
11.5
6.6
2.17
1.71
40.1
9.3
12.2
6.9
1.61
1.84
42.0
9.3
11.9
6.8
1.42
2.03
47.0
9.6
12.0
6.5
1.17
2.15
51.0
9.6
11.7
18.46
18.46
18.46
2.34
62.89
190.50
185.92
190.50
16.51
16.51
16.51
3.86
64.46
203.24
195.17
203.24
21.33
21.33
21.33
3.86
68.93
220.71
212.03
220.71
24.94
24.94
24.94
3.86
71.58
240.14
232.83
240.14
30.35
30.35
30.35
3.86
77.10
266.63
260.09
266.63
7.4
7.4
7.4
1.7
0.7
0.7
4.65
12.45
5.82
6.63
22.1
45.1
28.7
12.7
10.2
0.65
14.3
0.91
8.3
8.3
8.3
2.8
0.7
0.7
4.10
11.46
5.69
5.77
26.2
46.7
22.6
23.4
8.5
0.53
11.0
0.69
6.4
6.4
6.4
2.8
0.6
0.6
3.80
11.15
5.75
5.40
25.9
45.2
32.0
18.1
10.1
0.62
14.8
0.91
5.5
5.5
5.5
2.8
0.6
0.6
3.82
11.16
5.69
5.47
25.7
45.5
32.0
15.5
11.1
0.69
16.3
1.01
4.5
4.5
4.5
2.8
0.5
0.5
3.75
11.03
5.67
5.36
25.7
46.3
32.0
12.7
12.0
0.76
17.6
1.11

Loss
(%)
(%)
Per share
Reported EPS (INR)
Norm EPS (INR)
FD norm EPS (INR)
DPS (INR)
PPOP PS (INR)
BVPS (INR)
ABVPS (INR)
NTAPS (INR)

Reported P/E (x)
Normalised P/E (x)
Dividend yield (%)
Price/book (x)
Yield on assets (%)
Cost to income (%)
Dividend payout (%)
ROE (%)
ROA (%)
Operating ROE (%)
Operating ROA (%)
36
Nomura | Punjab National Bank
16 September 2015
Fig. 58: ROA break-down We expect PNB to deliver ROEs lower than cost of equity till FY18F
ROA decom position
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16F
FY17F
FY18F
3.26%
3.23%
3.61%
3.30%
3.26%
3.22%
2.94%
2.77%
2.76%
2.72%
Fees/Assets
1.04%
1.05%
1.01%
0.95%
0.82%
0.80%
0.86%
0.85%
0.85%
0.84%
0.31%
0.31%
0.09%
0.09%
0.11%
0.11%
0.18%
0.12%
0.11%
0.10%
Net revenues/Assets
4.61%
4.58%
4.71%
4.34%
4.19%
4.13%
3.99%
3.74%
3.71%
3.66%
-1.95%
-1.81%
-1.94%
-1.72%
-1.79%
-1.86%
-1.86%
-1.69%
-1.69%
-1.70%
Provisions/Assets
-0.45%
-0.54%
-0.76%
-0.88%
-0.96%
-1.33%
-1.42%
-1.12%
-0.99%
-0.83%
Taxes/Assets
-0.78%
-0.76%
-0.65%
-0.53%
-0.39%
-0.27%
-0.16%
-0.30%
-0.33%
-0.36%
Total Costs/Assets
-2.89%
-3.18%
-3.10%
-3.36%
-3.14%
-3.14%
-3.46%
-3.44%
-3.10%
-3.01%
ROA
1.43%
1.48%
1.35%
1.20%
1.04%
0.67%
0.54%
0.63%
0.71%
0.77%
Equity/Assets
5.54%
5.57%
5.54%
5.71%
6.32%
6.55%
6.41%
6.31%
6.35%
6.46%
ROE
25.8%
26.6%
24.4%
21.1%
16.5%
10.2%
8.5%
10.1%
11.1%
12.0%
RORWA
2.19%
2.27%
2.02%
1.81%
1.54%
0.96%
0.80%
0.95%
1.07%
1.17%

Old
INRm n
NII
FY16F
198,059
FY16F
172,723
Variance%
FY17F
191,232
FY16F
FY17F
-2.4%
-3.4%
Loan grow th
10.1%
11.1%
9.2%
11.1%
-96bps
0bps
Fee grow th
8.7%
10.8%
8.7%
10.8%
0bps
0bps
PPOP
177,033
New
FY17F
127,945
142,546
127,833
140,279
-0.1%
-1.6%
40,860
53,088
39,560
48,869
-3.2%
-7.9%
PAT
NIM%
2.83%
2.83%
2.77%
2.76%
-6bps
-7bps
LLPs
1.67%
1.44%
1.73%
1.54%
5bps
10bps
6.76%
-40bps
-27bps
0.0%
-2.0%
GNPA%
Slippages
7.33%
136,791
7.04%
117,755
6.93%
136,791
115,348
ROA
0.65%
0.76%
0.63%
0.71%
-2bps
-5bps
ROE
10.4%
12.0%
10.1%
11.1%
-31bps
-87bps
Valuation methodology: While PNB currently trades at 0.7x FY17 reported book
(BVPS: INR204), adjusted for our stress test it trades at 1.3x FY17 adjusted book (~10%
below FY04-07 multiple) with significantly lower profitability; hence, we reiterate our
Neutral rating. We think asset quality pressure will likely be higher for PNB and even
relapse risk from the restructured book remains high. Overall, we reduce FY16/17F PAT
estimates by 3-8% and cut our TP by 9% to INR140 to factor in part of the impact from
our stress test.
Risks: Better-than-expected economic recovery will be a key upside risk. Downside risk
will be higher slippages from the restructured book.
Cost of Equity

New
Old
14.5%
14.5%
Terminal grow th
5.0%
5.0%
Stage 2 grow th
10.0%
10.0%
Normalised ROEs
12.9%
140
155
Implied Mar-17 P/B
0.69
0.8
Implied Mar-17 P/E
5.6
5.7
PNB
Apr-05
Aug-05
Dec-05
Apr-06
Aug-06
Dec-06
Apr-07
Aug-07
Dec-07
Apr-08
Aug-08
Dec-08
Apr-09
Aug-09
Dec-09
Apr-10
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Dec-12
Apr-13
Aug-13
Dec-13
Apr-14
Aug-14
Dec-14
Apr-15
Aug-15
12.9%
Mar-16 PT
2.2
2.0
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
37
16 September 2015
Appendix A-1
Analyst Certification
We, Adarsh Parasrampuria and Amit Nanavati, hereby certify (1) that the views expressed in this Research report accurately
reflect our personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of
our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this
Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by
Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
Issuer Specific Regulatory Disclosures

The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries, and may refer to one or more
Nomura Group companies.
Materially mentioned issuers

Issuer
Axis Bank
Bank of Baroda
Bank of India
ICICI Bank
Punjab National Bank
State Bank of India
Yes Bank
Ticker
AXSB IN
BOB IN
BOI IN
ICICIBC IN
PNB IN
SBIN IN
YES IN
Price
INR 482
INR 182
INR 137
INR 268
INR 135
INR 234
INR 729
Price date
15-Sep-2015
15-Sep-2015
15-Sep-2015
15-Sep-2015
15-Sep-2015
15-Sep-2015
15-Sep-2015
Stock rating
Buy
Buy
Neutral
Buy
Neutral
Buy
Buy
Previous rating
Rating Suspended
Rating Suspended
Buy
Rating Suspended
Reduce
Rating Suspended
Rating Suspended
Date of change Sector rating

08-Jul-2014
N/A
08-Jul-2014
N/A
30-Jul-2015
N/A
08-Jul-2014
N/A
06-Jan-2015
N/A
08-Jul-2014
N/A
08-Jul-2014
N/A
Rating and target price changes

Issuer
Ticker
Old stock rating
New stock rating
Old target price
New target price
Axis Bank
Bank of India
ICICI Bank
Punjab National Bank
State Bank of India
Yes Bank
AXSB IN
BOI IN
ICICIBC IN
PNB IN
SBIN IN
YES IN
Buy
Neutral
Buy
Neutral
Buy
Buy
Buy
Neutral
Buy
Neutral
Buy
Buy
INR 660
INR 160
INR 380
INR 155
INR 335
INR 960
INR 625
INR 140
INR 350
INR 140
INR 290
INR 870
Axis Bank: Valuation Methodology TP of INR625 implies 2.45x Mar-17F book of INR255. The benchmark index for this stock
is the MSCI India.
Axis Bank: Risks that may impede the achievement of the target price 1) A slower-than-expected recovery in corporate
capex execution; and 2) higher-than-expected delinquency.
Bank of India: Valuation Methodology Our TP of INR140 is based on 0.55x FY17F adjusted book of INR255. The benchmark
index for this stock is MSCI India.
Bank of India: Risks that may impede the achievement of the target price Slower-than-expected economic recovery
impacting asset quality and aggressive growth will be the key downside risk and any material improvement in asset quality
trends will be the key upside risk.
ICICI Bank: Valuation Methodology Our TP of INR350 is based on 1.9x Mar-17F book of INR165 for the lending business and
INR66 of subsidiary valuations. The benchmark index for this stock is MSCI India.
ICICI Bank: Risks that may impede the achievement of the target price 1) Some lumpy asset quality risks: legacy gas
assets and overseas coal assets funded by ICICI and 2) slower-than-expected turnaround of GDP growth.
Punjab National Bank: Valuation Methodology Our TP of INR140 is based on 0.7x Mar-17F book of INR204. The benchmark
index for this stock is MSCI India.
38
16 September 2015
Punjab National Bank: Risks that may impede the achievement of the target price A better than expected economic
recovery will be a key upside risk. A downside risk will be higher slippages from the restructured book.
State Bank of India: Valuation Methodology Our target price of INR290 is based on 1.05x FY17F book (BVPS: INR251) after
deducting for subsidiary value of INR26. The benchmark index for this stock is MSCI India.
State Bank of India: Risks that may impede the achievement of the target price Risks include slower-than-expected
recovery of corporate credit cycle. Upside risk include any sharp up-tick in marco thereby reducing the underlying stress.
Yes Bank: Valuation Methodology Our TP of INR870 implies 2.3x Mar-17F ABVPS of INR380. The benchmark index for this
stock is MSCI India.
Yes Bank: Risks that may impede the achievement of the target price Lower-than-expected NIM expansion and loan
growth, sharp deterioration in asset quality and slower-than-expected SA growth.
Important Disclosures
Online availability of research and conflict-of-interest disclosures
Nomura research is available on www.nomuranow.com/research, Bloomberg, Capital IQ, Factset, MarkitHub, Reuters and ThomsonOne.
Important disclosures may be read at http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx or requested
from Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please email
grpsupport@nomura.com for help.
The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a
portion of which is generated by Investment Banking activities. Unless otherwise noted, the non-US analysts listed at the front of this report are
not registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of NSI, and may not be subject to
FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held
by a research analyst account.
Nomura Global Financial Products Inc. (NGFP) Nomura Derivative Products Inc. (NDPI) and Nomura International plc. (NIplc) are
registered with the Commodities Futures Trading Commission and the National Futures Association (NFA) as swap dealers. NGFP, NDPI, and
NIplc are generally engaged in the trading of swaps and other derivative products, any of which may be the subject of this report.
Any authors named in this report are research analysts unless otherwise indicated. Industry Specialists identified in some Nomura International
plc research reports are employees within the Firm who are responsible for the sales and trading effort in the sector for which they have
coverage. Industry Specialists do not contribute in any manner to the content of research reports in which their names appear.
Distribution of ratings (Global)

The distribution of all ratings published by Nomura Global Equity Research is as follows:
47% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 42% of companies with this
rating are investment banking clients of the Nomura Group*.
42% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 55% of companies with
this rating are investment banking clients of the Nomura Group*.
11% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 21% of companies with
this rating are investment banking clients of the Nomura Group*.
As at 30 June 2015. *The Nomura Group as defined in the Disclaimer section at the end of this report.
Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America, and
Japan and Asia ex-Japan from 21 October 2013
The rating system is a relative system, indicating expected performance against a specific benchmark identified for each individual stock,
subject to limited management discretion. An analysts target price is an assessment of the current intrinsic fair value of the stock based on an
appropriate valuation methodology determined by the analyst. Valuation methodologies include, but are not limited to, discounted cash flow
analysis, expected return on equity and multiple analysis. Analysts may also indicate expected absolute upside/downside relative to the stated
target price, defined as (target price - current price)/current price.
STOCKS
A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral',
indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that
the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target
price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies
that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage. Investors should not expect continuing or
additional information from Nomura relating to such securities and/or companies. Benchmarks are as follows: United States/Europe/Asia exJapan: please see valuation methodologies for explanations of relevant benchmarks for stocks, which can be accessed at:
http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx; Global Emerging Markets (ex-Asia): MSCI
Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology; Japan: Russell/Nomura Large Cap.
39
16 September 2015
SECTORS
A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance,
indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that
the analyst expects the sector to underperform the Benchmark during the next 12 months. Sectors that are labelled as 'Not rated' or shown as
'N/A' are not assigned ratings. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging
Markets (ex-Asia): MSCI Emerging Markets ex-Asia. Japan/Asia ex-Japan: Sector ratings are not assigned.
Explanation of Nomura's equity research rating system in Japan and Asia ex-Japan prior to 21 October 2013
STOCKS
Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price,
subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock,
based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that
potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A
'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price
have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is
acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled
as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should
not expect continuing or additional information from Nomura relating to such securities and/or companies.
SECTORS
A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive
absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks
under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average
recommendation of the stocks under coverage is) a negative absolute recommendation.
Target Price
A Target Price, if discussed, reflects in part the analyst's estimates for the company's earnings. The achievement of any target price may be
impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the
company's earnings differ from estimates.
Disclaimers
This document contains material that has been prepared by the Nomura entity identified on page 1 and/or with the sole or joint contributions of
one or more Nomura entities whose employees and their respective affiliations are also specified on page 1 or identified elsewhere in the
document. The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries and may refer to one or
more Nomura Group companies including: Nomura Securities Co., Ltd. ('NSC') Tokyo, Japan; Nomura International plc ('NIplc'), UK; Nomura
Securities International, Inc. ('NSI'), New York, US; Nomura International (Hong Kong) Ltd. (NIHK), Hong Kong; Nomura Financial Investment
(Korea) Co., Ltd. (NFIK), Korea (Information on Nomura analysts registered with the Korea Financial Investment Association ('KOFIA') can be
found on the KOFIA Intranet at http://dis.kofia.or.kr); Nomura Singapore Ltd. (NSL), Singapore (Registration number 197201440E, regulated by
the Monetary Authority of Singapore); Nomura Australia Ltd. (NAL), Australia (ABN 48 003 032 513), regulated by the Australian Securities and
Investment Commission ('ASIC') and holder of an Australian financial services licence number 246412; P.T. Nomura Indonesia (PTNI),
Indonesia; Nomura Securities Malaysia Sdn. Bhd. (NSM), Malaysia; NIHK, Taipei Branch (NITB), Taiwan; Nomura Financial Advisory and
Securities (India) Private Limited (NFASL), Mumbai, India (Registered Address: Ceejay House, Level 11, Plot F, Shivsagar Estate, Dr. Annie
Besant Road, Worli, Mumbai- 400 018, India; Tel: +91 22 4037 4037, Fax: +91 22 4037 4111; CIN No : U74140MH2007PTC169116, SEBI
Registration No: BSE INB011299030, NSE INB231299034, INF231299034, INE 231299034, MCX: INE261299034) and NIplc, Madrid Branch
(NIplc, Madrid). CNS Thailand next to an analysts name on the front page of a research report indicates that the analyst is employed by
Capital Nomura Securities Public Company Limited (CNS) to provide research assistance services to NSL under a Research Assistance
Agreement. NSFSPL next to an employees name on the front page of a research report indicates that the individual is employed by Nomura
Structured Finance Services Private Limited to provide assistance to certain Nomura entities under inter-company agreements.
THIS MATERIAL IS: (I) FOR YOUR PRIVATE INFORMATION, AND WE ARE NOT SOLICITING ANY ACTION BASED UPON IT; (II) NOT TO
BE CONSTRUED AS AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY IN ANY JURISDICTION WHERE
SUCH OFFER OR SOLICITATION WOULD BE ILLEGAL; AND (III) BASED UPON INFORMATION FROM SOURCES THAT WE CONSIDER
RELIABLE, BUT HAS NOT BEEN INDEPENDENTLY VERIFIED BY NOMURA GROUP.
Nomura Group does not warrant or represent that the document is accurate, complete, reliable, fit for any particular purpose or merchantable
and does not accept liability for any act (or decision not to act) resulting from use of this document and related data. To the maximum extent
permissible all warranties and other assurances by Nomura group are hereby excluded and Nomura Group shall have no liability for the use,
misuse, or distribution of this information.
Opinions or estimates expressed are current opinions as of the original publication date appearing on this material and the information, including
the opinions and estimates contained herein, are subject to change without notice. Nomura Group is under no duty to update this document.
Any comments or statements made herein are those of the author(s) and may differ from views held by other parties within Nomura Group.
Clients should consider whether any advice or recommendation in this report is suitable for their particular circumstances and, if appropriate,
seek professional advice, including tax advice. Nomura Group does not provide tax advice.
Nomura Group, and/or its officers, directors and employees, may, to the extent permitted by applicable law and/or regulation, deal as principal,
agent, or otherwise, or have long or short positions in, or buy or sell, the securities, commodities or instruments, or options or other derivative
instruments based thereon, of issuers or securities mentioned herein. Nomura Group companies may also act as market maker or liquidity
provider (within the meaning of applicable regulations in the UK) in the financial instruments of the issuer. Where the activity of market maker is
carried out in accordance with the definition given to it by specific laws and regulations of the US or other jurisdictions, this will be separately
disclosed within the specific issuer disclosures.
40
16 September 2015
This document may contain information obtained from third parties, including ratings from credit ratings agencies such as Standard & Poors.
Reproduction and distribution of third-party content in any form is prohibited except with the prior written permission of the related third-party.
Third-party content providers do not guarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and
are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such
content. Third-party content providers give no express or implied warranties, including, but not limited to, any warranties of merchantability or
fitness for a particular purpose or use. Third-party content providers shall not be liable for any direct, indirect, incidental, exemplary,
compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including lost income or profits and
opportunity costs) in connection with any use of their content, including ratings. Credit ratings are statements of opinions and are not statements
of fact or recommendations to purchase hold or sell securities. They do not address the suitability of securities or the suitability of securities for
investment purposes, and should not be relied on as investment advice.
Any MSCI sourced information in this document is the exclusive property of MSCI Inc. (MSCI). Without prior written permission of MSCI, this
information and any other MSCI intellectual property may not be reproduced, re-disseminated or used to create any financial products, including
any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of this information. MSCI, its
affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of
originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any
of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information
have any liability for any damages of any kind. MSCI and the MSCI indexes are services marks of MSCI and its affiliates.
Russell/Nomura Japan Equity Indexes are protected by certain intellectual property rights of Nomura Securities Co., Ltd. and Russell
Investments. Nomura Securities Co., Ltd. and Russell Investments do not guarantee the accuracy, completeness, reliability, or usefulness
thereof and do not account for business activities and services that any index user and its affiliates undertake with the use of the Indexes.
Investors should consider this document as only a single factor in making their investment decision and, as such, the report should not be
viewed as identifying or suggesting all risks, direct or indirect, that may be associated with any investment decision. Nomura Group produces a
number of different types of research product including, among others, fundamental analysis and quantitative analysis; recommendations
contained in one type of research product may differ from recommendations contained in other types of research product, whether as a result of
differing time horizons, methodologies or otherwise. Nomura Group publishes research product in a number of different ways including the
posting of product on Nomura Group portals and/or distribution directly to clients. Different groups of clients may receive different products and
services from the research department depending on their individual requirements.
Figures presented herein may refer to past performance or simulations based on past performance which are not reliable indicators of future
performance. Where the information contains an indication of future performance, such forecasts may not be a reliable indicator of future
performance. Moreover, simulations are based on models and simplifying assumptions which may oversimplify and not reflect the future
distribution of returns.
Certain securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of, or income derived
from, the investment.
The securities described herein may not have been registered under the US Securities Act of 1933 (the 1933 Act), and, in such case, may not
be offered or sold in the US or to US persons unless they have been registered under the 1933 Act, or except in compliance with an exemption
from the registration requirements of the 1933 Act. Unless governing law permits otherwise, any transaction should be executed via a Nomura
entity in your home jurisdiction.
This document has been approved for distribution in the UK and European Economic Area as investment research by NIplc. NIplc is authorised
by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. NIplc is a
member of the London Stock Exchange. This document does not constitute a personal recommendation within the meaning of applicable
regulations in the UK, or take into account the particular investment objectives, financial situations, or needs of individual investors. This
document is intended only for investors who are 'eligible counterparties' or 'professional clients' for the purposes of applicable regulations in the
UK, and may not, therefore, be redistributed to persons who are 'retail clients' for such purposes. This document has been approved by NIHK,
which is regulated by the Hong Kong Securities and Futures Commission, for distribution in Hong Kong by NIHK. This document has been
approved for distribution in Australia by NAL, which is authorized and regulated in Australia by the ASIC. This document has also been
approved for distribution in Malaysia by NSM. In Singapore, this document has been distributed by NSL. NSL accepts legal responsibility for the
content of this document, where it concerns securities, futures and foreign exchange, issued by their foreign affiliates in respect of recipients
who are not accredited, expert or institutional investors as defined by the Securities and Futures Act (Chapter 289). Recipients of this document
in Singapore should contact NSL in respect of matters arising from, or in connection with, this document. Unless prohibited by the provisions of
Regulation S of the 1933 Act, this material is distributed in the US, by NSI, a US-registered broker-dealer, which accepts responsibility for its
contents in accordance with the provisions of Rule 15a-6, under the US Securities Exchange Act of 1934. The entity that prepared this
document permits its separately operated affiliates within the Nomura Group to make copies of such documents available to their clients.
This document has not been approved for distribution to persons other than Authorised Persons, Exempt Persons or Institutions (as defined
by the Capital Markets Authority) in the Kingdom of Saudi Arabia (Saudi Arabia) or 'professional clients' (as defined by the Dubai Financial
Services Authority) in the United Arab Emirates (UAE) or a Market Counterparty or Business Customers (as defined by the Qatar Financial
Centre Regulatory Authority) in the State of Qatar (Qatar) by Nomura Saudi Arabia, NIplc or any other member of Nomura Group, as the case
may be. Neither this document nor any copy thereof may be taken or transmitted or distributed, directly or indirectly, by any person other than
those authorised to do so into Saudi Arabia or in the UAE or in Qatar or to any person other than Authorised Persons, Exempt Persons or
Institutions located in Saudi Arabia or 'professional clients' in the UAE or a Market Counterparty or Business Customers in Qatar . By
accepting to receive this document, you represent that you are not located in Saudi Arabia or that you are an Authorised Person, an Exempt
Person or an Institution in Saudi Arabia or that you are a 'professional client' in the UAE or a Market Counterparty or Business Customers in
Qatar and agree to comply with these restrictions. Any failure to comply with these restrictions may constitute a violation of the laws of the UAE
or Saudi Arabia or Qatar.
NO PART OF THIS MATERIAL MAY BE (I) COPIED, PHOTOCOPIED, OR DUPLICATED IN ANY FORM, BY ANY MEANS; OR (II)
REDISTRIBUTED WITHOUT THE PRIOR WRITTEN CONSENT OF A MEMBER OF NOMURA GROUP. If this document has been distributed
by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be
intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors
or omissions in the contents of this document, which may arise as a result of electronic transmission. If verification is required, please request a
hard-copy version.
Nomura Group manages conflicts with respect to the production of research through its compliance policies and procedures (including, but not
limited to, Conflicts of Interest, Chinese Wall and Confidentiality policies) as well as through the maintenance of Chinese walls and employee
training.
Additional information is available upon request and disclosure information is available at the Nomura Disclosure web page:
http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx
Copyright 2015 Nomura International (Hong Kong) Ltd. All rights reserved.
41

Nomura - India Banks Errclub - Making Sense of The "Stress"

Transféré par

Informations du document

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Nomura - India Banks Errclub - Making Sense of The "Stress"

Transféré par

Droits d'auteur :

Formats disponibles

India banks

Making sense of the stress

Global Markets Research

Stress discounted for private banks; sensitivity

INR6tn of unrecognised stress Sensitivity analysis

Large asset quality risks across

How are banks relatively placed?

Risk discounted in private banks: stay selective on PSUs

Source: Bloomberg, Nomura estimates. Pricing as of 14 September 2015.

Nomura | India banks

Axis Bank ............................................................................................. 16

Nomura | India banks

-22.1% -11.3% -10.9%

-0.9% -30.2% -55.5% -28.8% -58.6% -40.5%

Adjusted book FY17F

P/B at current price

P/B at Target price

Long term 1 yr frd P/B (04-now )

Source: Bloomberg, Company data, Nomura estimates

Nomura | India banks

Our thesis in charts

Potential stress as a % of current NPA

Source: MCA, Nomura research

Source: Nomura estimates

Fig. 5: Unrecognised stress ~15-30% of banks current net worth

% of FY15 Netw orth

Source: MCA, Nomura research

Fig. 6: Book adjustment much higher for PSU banks after

Deep dive sensitivity+SEB

Fig. 7: Private banks trading at discount after adjusting for

70% NPL coverage+ARC

Source: MCA, Nomura research

P/B (FY17F P/B (FY17F

Source: Bloomberg, Nomura estimates

Nomura | India banks

Current stress may not be felt by P&Ls soon

Infra conglomerates: Financial position has deteriorated: Interest coverage has

Fig. 8: Interest coverage for infra conglomerates has been

Fig. 9: Debt/Equity ratio also fails to improve despite asset

Source: ACE Equity, Nomura research

Source: ACE Equity, Nomura research

Fig. 10: Interest coverage of even large metal names now

Fig. 11: Debt levels very high of some of the metal

Source: ACE Equity, Nomura research

Metals IC - Large companies

Metal com panies

Total Debt % of sector's

Source: MCA, RBI, Nomura research

Nomura | India banks

Fig. 12: Slippage from restructured books have risen

Slippages from restructuring (% of loans)

% slippages from restructured book

Source: Company data, Nomura research

Fig. 13: Financial position of SEBs under FRP have not

Fig. 14: Banks do have large exposure to SEBs part of which

SEB losses (INRbn)

Source: PFC report, Nomura research

Source: Company data, Nomura research

Nomura | India banks

Fig. 15: 5:25 restructuring announced pushing out some of

Fig. 16: The pool of problem assets pretty large

Source: MCA, Nomura research

What we consider in our sensitivity and our rationale for loss