banking icra

8/2/2019 Banking ICRA

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ICRA LIMITED Page 1 of 1

Introduction

This paper analyses the performance of 20 Nationalised Banks, 6 banks in the State Bank Group (SBI Group) collectively referred to as public sectorbanks (PSU banks) and 16 banks in the private sector (private banks) during the period April 2011 to December 2011 (9M, FY2012). These 42 bankstogether account for around 92% of the total credit portfolio and deposits of all scheduled commercial banks (SCBs) in India as of December 2011. Thekey performance highlights for the quarter and nine months ended December 2011 are as follows: Year-on-year (yoy) credit growth moderated to 18.9% as on December 31, 2011 for the 42 banks under review from 22.7% as on March 31, 2011

with corporate credit offtake losing pace because of higher interest rates; average lending yields of the State Bank Group of banks (SBI Group)increased by 140 basis points (bps) during the nine month period under r eview, while other banks reported a 120 bps increase on an average.

The yield on advances began stabilising in the third quarter (Q3) of 2011-12 (FY2012) after a sharp increase in the first half (H1); the pace of creditgrowth is likely to remain moderate over the next few quarters.

The Gross Non-Performing Assets (NPAs) of Nationalised Banks rose to 2.4% of advances as on December 31, 2011 from 1.9% as on March 31,2011, while those of the SBI Group increased sharply to 4.3% from 3.0% during the same period; certain large corporate slippages and a sharpincrease in advances to the agriculture and small & medium enterprise (SME) sectors was noted during the nine month period. The Gross NPAs of private banks moderated to 2.1% of advances as on December 31, 2011 from 2.3% as on March 31, 2011.

The share of restructured assets of Nationalised Banks continued to increase, and was up at 5.5% of the credit book as on December 31, 2011from 4.7% as on March 31, 2011; total restructured assets of Nationalised Banks increased by about 30% while the SBI Group reported a relativelymoderate increase of 9% over the same period. Slippages out of restructured portfolios continued to rise for Nationalised Banks during 9M,FY2012. Private banks restructured assets also rose to 1% of advances, albeit on a smaller base.

Net NPAs in relation to Net Worth of the SBI Group weakened to 24.2% as on December 31, 2011 from 17.7% as on March 31, 2011 with NPAsincreasing and the provision coverage being lower. For Nationalised Banks, the ratio increased to 15.8% from 11.6% over the same period. Privatebanks continued to maintain a stable solvency profile at around 3% during the period stated. Although difficulties in the operating environmentmay ease to an extent the fiscal 2013, large restructured accounts and structural weaknesses in some large exposures could lead to a further

increase in NPAs and therefore deterioration in the overall solvency profile of banks. Implementation of some key policy initiatives could howeveravert a sharp deterioration in asset quality.

The median Tier I capital of PSU banks moderated to 8.3% as on December 31, 2011 from 8.7% as on March 31, 2011 as the number of banks withTier I capital less than 8% increased to 12 as on December 31, 2011 from four as on March 31, 2011 partly because of the non-inclusion of unaudited profits for 9M, FY2012. ICRA sees an improvement of 30-60 bps in the overall Tier I capitalisation by March 2012 and expects theproposed capital infusion of around Rs. 20,000 crore into PSU banks by the government in the current fiscal to likely support their medium-termgrowth.

Contacts:Karthik Srinivasan+91 22 3047 [email protected]

Vibha Batra+91 124 4545 [email protected]

Avinash P.+91 44 4596 [email protected]

ICRA RATING FEATURE: INDIAN BANKING SECTOR

Q3 and 9M, FY2012 Performance Review and Outlook

QUARTERLY REVIEW FEBRUARY 2012 ICRA
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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Deposits growth remained steady during 9M, FY2012 with high term-deposit rates attracting retail depositors. However, Nationalised Banks CASA1 came under moderate pressure, sliding down to 31.1% as on December 31, 2011 from 33.2% as on March 31, 2011. The large private banksand the SBI Group were able to maintain stable CASA levels during the period stated, while small private banks faced pressure on this front.

Increase in term deposit rates and hardening interest rates for most part of the year to December 2011 led to an increase in the cost of funds to6.7% in Q3 FY2012 from 5.7% in Q4 FY2011. This level of cost is unlikely to reduce sharply even as systemic interest rates could soften, given thesignificant share of fixed-rate, medium-term resources mobilised.

A few banks increased the interest rate on savings accounts and reported improved traction on savings deposit mobilisations during the last fewmonths. However, it is still too early to assess the impact of this development at the industry level since most banks continue to maintain theannual savings deposit rate at 4%.

Interest margins were stable during the 9M, FY2012 with the increase in funding costs being passed on to borrowers. However, passing on of thebenefit of lower incremental funding costs would be a function of competition.

There was a marginal increase in aggregate provisioning levels during 9M, FY2012 mainly because of loan-loss provisions. Going forward, anincrease in provisions following possible deterioration in asset quality could impact the asset quality of the banking system over the next fewquarters.

1Current account and savings account balances


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Banks report steady moderation in credit growth in current fiscal; yields move in line with systemic interest rate cycle

Chart 1: Trend in Advances Growth (yoy)

Chart 2: Trend in Quarterly Yield on Advances

Source: ICRA Research; Banks

PSU banks credit growth moderated to 18.5% yoy in December 2011 from 19.5% yoy in September 2011and 22.0% yoy in March 2011 with the average lending yields rising to 10.8% from 9.6% during thisperiod. However, despite moderation, sequential credit growth remained strong at 5.7% in Q3, FY2012 ascompared with the 2.2% in Q2, FY2012. Systemic domestic credit grew 3.2% in Q3, FY2012.

Private sector banks continued to report robust yoy credit growth clocking 21.5% in December 2011 (23%in September 2011), even as systemic credit growth fell to 15.8% in December 2011 from 19.4% inSeptember 2011. Despite moderation, sequential credit growth remained strong at 5.2% in Q3, FY2012 ascompared with the 6.0% in Q2, FY2012.

Systemic domestic credit growth fell sharply to 15.8% in December 2011 from 19.4% in September 2011in a lagged response to the series of increases in benchmark interest rates by the Reserve Bank of India(RBI) since March 2010.

With banks not increasing the base rate in Q3, FY2012, the pace of increase in lending yields softenedmarginally in that quarter after a sharp rise in H1, FY2012. While Nationalised Banks reported steadyyields at 10.9% in Q3, FY2012 and Q2, FY2012 compared to 9.8% in Q4, FY2011, the SBI Groups lendingyields increased marginally to 10.6% in Q3, FY2012 from 10.4% sequentially and from 9.2% in Q4, FY2011.Some private banks reported a sharper rise as they increased their exposure to the retail and SMEsegments ones that fetch higher yields. During 9M, FY2012, the SBI Group increased its base rate by1.75%, Nationalised Banks by 1.15-1.25%, and private sector banks by 1.00-2.50% (median: 1.45%).

In ICRAs opinion, lending yields are likely to have peaked in Q3 , FY2012, but a reversal in the base ratewould remain a function of banks cost of funds as most banks have locked in medium-term deposits atrelatively high rates over the last few quarters.

The outlook for systemic credit growth remains moderate, particularly if banks hold on to their currentlending rates. However, ICRA expects private banks to continue outperforming systemic growth. Still, it isunlikely that their share in the total advances of the banking system would increase sharply.

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PSU banks asset quality comes under greater stress; NPAs and restructured advances increase sharply while solvency weakens

Chart 3: Trend in Gross NPAs (%)

.

Chart 4: Trend in Net NPAs (%)


Table 1: Share of Restructured Advances in Total AdvancesBank Dec-11 Mar-11 Change Increase in

RestructuredPortfolio

NationalisedBanks

5.5% 4.7% 0.8% 30.3%

SBI Group 4.5% 4.6% -0.1% 9.3%PSU Banks 5.2% 4.6% 0.6% 24.4%Private Banks 1.0% 0.7% 0.3% 66.1%All Banks 4.4% 3.9% 0.5% 25.8%Source: ICRA Research; Banks

Nationalised Banks gross NPA levels remained stable in Q3FY12 at 2.4%, while those of SBI groupincreased to 4.3% from 4.0% as on September 2011. However, in the nine months ended December 2011,all PSU banks 2 reported an increase in gross and net NPAs, in sharp contrast with private banks whichreported have reported a steady q-o-q decline in NPA levels. The Gross NPA% of SBI Group witnessed asharp deterioration, whereby Gross NPA% increased from 3.0% as on March 2011 to 4.3% as onDecember 2011.

Private Banks asset quality remained largely stable with gross NPAs moderating marginally to 2.1% from2.2%; Net NPA level also remained stable at 0.5% as on December 2011 and September 2011. Continuedimprovement on asset quality indicators for large private banks is largely on improvement in the assetquality indicators for ICICI over the last few quarters.

With RBI relaxing the provision coverage norm by removing the overall requirement of 70%, the provisioncover of several large banks declined; while provision cover of PSU Banks excluding technically written off accounts declined to 52.2% as on December 2011 from 56.8% as on March 2011, ICRA estimates areduction of 10-15% in provision cover including technically written off portfolio during this period.

Table 2: Provision Coverage Ratio (including written off accounts)Bank Dec-11 Mar-11 ChangeNationalised Banks:BoB 80.5% 85.0% -4.5%BoI 60.9% 72.2% -11.3%BoM 87.0% 65.6% 21.4%CBI 48.1% 67.6% -19.6%Corp 62.9% 74.7% -11.8%Dena 76.6% 74.6% 1.9%Indian 76.5% 84.3% -7.8%IOB 71.7% 70.5% 1.2%PNB 70.0% 73.2% -3.2%Union 63.1% 67.6% -4.4%

SBI Group:SBI 62.5% 64.9% -2.4%SBH 51.3% 65.8% -14.5%

Private Banks:ICICI 78.9% 76.0% 2.9%HDFC 80.3% 82.5% -2.2%Axis 75.3% 80.9% -5.6%Yes 80.0% 88.6% -8.6%Federal 80.5% 82.1% -1.5%SIB 75.2% 73.6% 1.5%ING 85.0% 83.4% 1.6%KVB 80.0% 93.9% -13.9%Source: ICRA Research; Banks

2 Except Bank of Maharashtra and Syndicate Bank

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Chart 5: Solvency Profile (Net NPAs/Net Worth)


Private banks were largely shielded from the two major causes of increase in systemic NPAs during 9M,FY2012: (1) slippages from restructured advances, given their small share of the same; and (2) slippageson migration to system-based NPA recognition, as private banks historically have had robust informationtechnology systems.

The share of restructured advances in the total credit portfolio of PSU banks continued to increase during9M, FY2012 and is estimated at 5.2% as on December 31, 2011, as against 4.6% as on March 31, 2011. Inabsolute terms, the SBI Group reported just a 9.5% increase even as the Nationalised Banks restructuredbook swelled by a sharp 30% ( Annexure 4 ). Some of the ongoing restructuring of large power distributionentities could increase share of restructured advances of PSU Banks further by March 31, 2012.

While private banks have an insignificant share of the total restructured assets of the banking system, therestructured portfolios of the three largest private banks reported a sharp increase to Rs. 6,555 crore ason December 31, 2011 from 3,724 crore as on March 31, 2011 . In ICRAs estimate, the overallrestructured advances of private banks increased 65-70% during the 9M, FY2012.

Cumulative slippages from restructured assets for four large Nationalised Banks 3 increased by 27.3% in9M, FY2012, while SBI reported nearly stable NPAs out of its restructured portfolio during this period.

The solvency profile 4 of the SBI Group weakened substantially to 24.2% as on December 31, 2011 from17.7% as on March 31, 2011 following a sharp rise in the net NPAs of SBI. The solvency profile of Nationalised Banks also weakened to 15.8% as on December 31, 2011 from 11.6% as on March 31, 2011with some large banks like CBI and BoI reporting a sharp deterioration in solvency following a decline in

provision coverage. Private banks solvency profile remained largely unaffected in the year to December 2011 on the strengthof robust provision coverage and strong capitalisation. However, some regionally-focused, small privatebanks such as KBL and LVB reported some deterioration in solvency on account of significant exposures toexport oriented and other vulnerable sectors.

Several PSU banks are awaiting capital infusion (by the government), which could improve their solvencyposition in the near term.

Although difficulties in the operating environment may ease to an extent the fiscal 2013, largerestructured accounts and structural weaknesses in certain sectors could lead to a further increase inNPAs and therefore deterioration in the overall solvency profile of banks. Implementation of some keypolicy initiatives could however avert a sharp deterioration in asset quality.

3 Represents PNB, BOB, Canara and BoI4

Computed as net NPAs / Networth

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Private banks maintain strong Tier I capital; capital infusion by government in PSU banks critical for growth as median Tier I capital ratio moderates

Chart 6: Capital Adequacy of PSU Banks (Median)

Chart 7: Capital Adequacy of Private Banks (Median)

Chart 8: Core Capital/Total Assets


PSU banks median capital adequacy levels declined to 12.1% as on December 31, 2011 from 13.4% as onMarch 31, 2011, whereas their Tier I capital moderated to 8.3% from 8.7% over the same period.

The capital adequacy of all large private banks remains comfortable, with the proportion of core capitalbeing strong. Their median capital adequacy stood at 16.3%, while the Tier I capital was at 11.2% as onDecember 31, 2011. The median capital adequacy of the smaller private banks was lower at 13.3% as onDecember 31, 2011, given the lower share of Tier II capital. However, their Tier I capital of 11.1% was

comparable with that of large private banks. The capital adequacy ratio of most banks as of December 2011 excludes the unaudited profits earned in 9M,

FY2012, and 12 PSU banks had a Tier I capital adequacy of less than 8% as on December 31, 2011, as againstonly four banks as on March 31, 2011. While ICRA sees an improvement of 30-60 bps in the median capitaladequacy capital by March 2012, several banks, including SBI, IOB and CBI, are expecting capital infusion bythe government in the current fiscal (around Rs. 20,000 crore in total), which would provide capital toabsorb shocks and support growth in the medium term.

While Government of India ownership and the systemic importance of PSU banks could ensure sovereignsupport going forward, it would be important for PSU banks in the public sector to maintain prudentcapitalisation levels so as to prevent deterioration in credit profile, going forward.

In the case of private banks, the large ones and certain smaller banks like ING and KVB have been able toraise equity in the year to December 2011, even as other regionally-focused smaller banks face shortage of capital for growth and are seeking to increase the proportion of Tier II capital.

Nationalised banks core capital as a percentage of total assets has reported steady improvement sinceMarch 2010 following strong internal accruals in FY2011. While accruals have moderated in the currentfiscal, lower credit growth has helped them maintain a steady improvement in core capital. The SBI Grouptoo reported an improvement in core capitalisation in 9M, FY2012, after a steep decline in March 2011because of large one-time provisions.

Private banks core capital as a percentage of total assets remained comfortable at 9.8% as on December 31,2011, marginally lower than the 10.0% as of March 2011.

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Attractive interest rates ensure steady growth in term deposits even as CASA drops

Chart 9: Deposits Growth (yoy)

Chart 10: Trend in CASA Ratio


Overall deposits growth has remained stable in the current fiscal at 19.1% yoy as on December 31, 2011and March 2011.

Private banks report ed a robust yoy deposits growth of 24.4% during 9M, FY2012, higher than the PSUbanks 18.2% .

Given the higher interest rates offered on term deposits, the CASA levels of PSU banks came undersome pressure during the last few quarters and declined to 31.1% as on December 31, 2011 from 33.2%

as on March 31, 2011. While the SBI Group continued to hold a strong CASA share of 41.3% as onDecember 31, 2011, Nationalised Banks CASA levels declined sharply to 27.0% from 29.4% as on March31, 2011.

Large private banks continue to hold a strong CASA share in excess of 40% as on December 31, 2011.However, the smaller and regionally- focused banks CASA ratio has been declining over the last fewyears and remains under pressure, with the result that there has been a sharper rise in their cost of funds compared to other private banks.

While PSU banks and large private banks with a strong retail franchise have not revised the interest rateon savings deposits so far, a few small private banks (with a cumulative market share of around 2.7%)have of late gained some traction in savings deposits by offering higher interest rates. While it is stillpremature to assess the impact of savings rate deregulation, the retail franchise of the PSU banks andlarge private banks would help them maintain their share in savings deposits.

The smaller banks, which are now competing for retail deposits mainly by offering higher interest rates,could face pressure, going forward, as systemic interest rates decline. Dependence on wholesalesources could remain relatively high for these banks.

The aggregate quarterly cost of funds increased from 5.7% in the quarter ended March 2011 to 6.7% inthe quarter ended December 2011 because of a combination of increase in term deposit interest ratesand a reduction in CASA levels.

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Net interest margins and interest spreads remain stable; increase in cost of funds passed on to borrowers

Chart 11: Trend in Net Interest Margin (qoq)

Chart 12: Trend in Non-Interest Income (excl. trading income)


Nationalised banks reported a stable net interest margin (NIM) of 2.7% in Q3, FY2012 as lending yieldsstabilised at 10.9% while there was a marginal 10 bps sequential increase in the cost of funds to 6.9%.

After a decline in NIM in Q1, FY2012 to 3.0%, private banks passed on the increase in funding cost toborrowers in Q2, FY2012; in Q3, FY2012 the NIMs remained stable as there were no base rate increasesthat quarter. The interest spread improved marginally from 2.5% to 2.6% sequentially in Q3, FY2012from Q2, FY2012.

The SBI Group has reported a sharp rise in NIM in the current fiscal with the yield on investmentsshooting up from 6.9% in Q4, FY2011 to 8.8% in Q3, FY2012 and the lending yield rising from 9.2% to10.6%.

Even as systemic interest rates are set to soften over the next few quarters, the banking system isunlikely to pass on the benefit of the same to borrowers, given the fixed-rate medium-term resourcesmobilised during the last few quarters.

Aggregate other income level (excluding trading income) has remained stable at 1.0% of average assetsin the current fiscal. The non-interest income levels of private banks have been historically superior tothat of PSU banks, which have traditionally focused on fund-based business.

The SBI Group has historically had a higher share of government business, which has helped it earnhigher non-interest income as compared with Nationalised Banks.

Treasury income for all banks under review remained moderate in Q3, FY2012. However, dependenceon trading gains for profitability has remained marginal for private banks and most Nationalised Banksin the past as well.

The SBI Group reported trading losses of Rs. 1,090 crore in Q3, FY2012 as SBI offloaded certain equityinvestments in Q3, FY2012 and reversed the mark-to-market provisions held against these investments.

Operating costs likely to remain stable; core profitability could be impacted by increase in loan-loss provisions

Chart 13: Trend in Operating Cost (qoq) Operating costs of all banks remained stable in Q3, FY2012; PSU b anks cost levels stabilised at 1.6% inthe current fiscal after a sharp rise in Q4, FY2011 following absorption of arrears against staff retirement costs. Most banks continue to amortise the transitional staff-retirement costs in the currentfiscal.

Private banks operating costs remained steady during 9M, FY2012 supported by a moderateimprovement in operating cost reported by large private banks.

Small private banks operating costs remained stable in Q3, FY2012 after a sharp rise in Q4, FY2011 ascertain small private banks absorbed one-time staff retirement costs in that quarter.

Over the medium term, banks expansion plans are likely to be in line with business growth, andoperating costs could marginally improve as a result of better efficiency. However, amortisation of transitional staff retirement costs over the next few years could moderate improvements in operatingefficiency.

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Chart 14: Trend in Provisions (qoq)

Source: ICRA Research

Provisions of Nationalised Banks have remained largely steady at 0.9% in Q2, FY2012 and Q3, FY2012 inthe absence of any significant movement in NPA levels, and with a decline of 10-15% in the provisioncover of most banks.

In the case of the SBI Group, the sharp fall in provisions in Q3, FY2012 is on account of the Rs. 817 crorereversal of equity investment depreciation; adjusted for this, the decline in loan loss provisioning worksout to a modest 10 bps over Q2, FY2012.

Provisions for private banks have remained stable at 0.4% of average assets over the last four quarters,with ICICI and HDFC reporting a steady sequential improvement on this front over the last eightquarters. However, smaller banks have reported an increase in provisions because of higher slippages.

In ICRAs opinion, the l oan-loss provisions of Nationalised Banks could continue to increase as therecould be a further rise in the size of restructured loans portfolio and NPAs. While the benefit of investments depreciation reversal could be available over the next few quarters, overall, provisionscould continue to increase on account of loan-loss provisions.

PSU banks net profitability remains stable; SBI Group and private banks report improvement

Chart 15: Trend in Quarterly Net Profitability (annualised)

Chart 16: Trend in Quarterly Return on Net Worth (annualised)

Source: ICRA Research

After a steep fall in Q4, FY2011 and Q1, FY2012, PSU b anks net profitability stabilised at 0.9% in thelast two quarters, backed by stable NIMs and operating cost levels.

Almost all private banks have reported a sharp rise in net profitability during the last two years on theback of stronger non-interest income and lower provisions.

The SBI Group has reported a sharp improvement in profitability since Q4, FY2012, drawing on adecline in provisions and improvement in interest margins.

With systemic interest rates likely to soften, ICRA expects the NIMs of banks with a higher proportionof wholesale deposits to shrink marginally, even as other banks would likely register stable NIMs.Further, aggressive reduction in base rates would have an adverse impact on interest margins.

Incremental profitability would be driven largely by the movement in asset quality and the related levelof loan-loss provisions, although the softening interest rate environment could provide someheadroom to reduce provisioning requirement on banks investment books.

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Summing up Amidst a slowdown in credit offtake and an increasing interest rate scenario that prevailed during the review period, Indian Banks have reported largely stable interest margins.Lending yields, which increased by 110 bps for the banks reviewed by ICRA in H1, FY2012, showed signs of stabilising in Q3, FY2012 as there was no further increase in banks baselending rates in that quarter; lending yields increased by just 10 bps in Q3, FY2012, taking the overall increase to 120 bps in the period under review. Aggregate cost of funds for banksincreased by around 90 basis points in the same period. Even as interest rates are expected to turn benign over the next few quarters, cost of funds for the banking system may notreduce sharply over next two quarters given the significant share of fixed-rate, medium-term resources mobilised. Further, elevated level of loan loss provisions would also constrainbanks from reducing the lending yields without unduly impacting their profitability; although declining interest rates may give some leeway to the banks as provisioning requirementon the investment book could reduce.

Gross NPAs of Nationalised Banks increased by 50 bps as on March 31, 2011 to 2.4% as on December 31, 2011, while those o f SBI Group increased sharply by 130 basis points to 4.3%from 3.0% during this period; Gross NPAs of private banks moderated to 2.1% from 2.3% during the same period. Although the stress level in the operating environment could easeout, ICRA anticipates a further deterioration in the quality of banks credit portfolio due to structural weaknesses in certain sectors and an increasing proportion of restructured loans.Government of Indias commitment to infuse capital in certain PSU banks is likely to provide cushion to absorb shocks and sup port growth, over the medium term.


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Annexure 1: Quarterly Performance Analysis All Banks

(Rs. crore) QE Dec-11 QE Sep-11 QE Jun-11 QE Mar-11 QE Dec-10 QE Sep-10 QE Jun-10 QE Mar-10no. of months 3 3 3 3 3 3 3 3

PROFIT AND LOSS ACCOUNTInterest / Discount on Advances / Bills 119,423 113,456 105,833 95,205 87,864 81,513 76,831 72,685Interest / Dividend on Investments 36,728 34,602 31,887 29,774 29,012 27,334 25,627 24,408Interest on RBI Bal.& Other Banks 1,493 1,370 1,542 1,265 997 1,026 1,277 1,002Others 901 991 879 1,585 1,221 1,043 557 1,154Total Interest Income 158,546 150,419 140,141 127,829 119,094 110,917 104,291 99,249Interest Expense 106,288 100,836 93,946 81,582 72,778 68,083 65,205 63,095Net Interest Income 52,259 49,584 46,194 46,248 46,316 42,834 39,086 36,155Non-Interest Income 17,217 16,409 15,550 19,696 14,602 14,974 13,866 16,757Operating Income 69,475 65,992 61,744 65,944 60,918 57,808 52,952 52,912Operating Expenses 30,506 29,768 27,981 32,866 27,131 26,454 23,678 24,312Operating Profits 38,969 36,224 33,763 33,078 33,787 31,354 29,274 28,600Provisions etc. 13,467 13,914 12,961 12,653 10,066 10,702 8,743 11,779Adjusted Profit Before Tax 25,503 22,310 20,801 20,425 23,721 20,652 20,530 16,821Trading Profits 267 1,040 1,019 1,235 1,184 931 1,771 1,897Profit Before Tax 25,769 23,350 21,821 21,660 24,905 21,584 22,301 18,718

Tax 7,273 6,454 6,946 6,989 7,674 6,333 7,042 5,381Profit After Tax 18,496 16,896 14,875 14,671 17,230 15,251 15,259 13,338

BALANCE SHEETShare Capital 14,879 14,910 14,914 14,749 13,991 13,740 13,523 13,676Reserves 449,651 424,945 404,591 388,122 375,902 357,652 337,671 322,512Net worth 464,531 439,854 419,505 402,871 389,893 371,392 351,194 336,187Total Deposits 5,801,677 5,611,358 5,393,291 5,356,569 4,869,907 4,733,535 4,517,979 4,498,375Advances 4,488,384 4,261,410 4,134,290 4,088,553 3,773,574 3,543,467 3,438,827 3,330,937Investments 1,893,291 1,883,110 1,789,553 1,744,818 1,656,770 1,618,718 1,594,744 1,548,046Total Assets 7,252,788 6,942,029 6,747,210 6,652,151 6,114,376 5,849,772 5,657,423 5,548,503

KEY RATIOS (Q-o-Q Basis)Yield on Average Advances 10.92% 10.81% 10.30% 9.69% 9.61% 9.34% 9.08% 9.12%Yield on Average Investments 7.78% 7.54% 7.22% 7.00% 7.09% 6.80% 6.52% 6.44%Yield on Average Earning Assets 9.32% 9.13% 8.67% 8.32% 8.26% 7.95% 7.67% 7.70%Cost of Average Interest Bearing Funds 6.71% 6.58% 6.28% 5.75% 5.46% 5.31% 5.23% 5.34%Gross Interest Spread 2.61% 2.55% 2.39% 2.57% 2.80% 2.64% 2.44% 2.36%

PROFITABILITY RATIOSNet Interest Margin/Average Average Assets 2.95% 2.90% 2.76% 2.90% 3.10% 2.98% 2.79% 2.71%Non-Interest Income/Average Average Assets 0.97% 0.96% 0.93% 1.23% 0.98% 1.04% 0.99% 1.26%Operating Expenses/Average Total Assets 1.72% 1.74% 1.67% 2.06% 1.81% 1.84% 1.69% 1.82%Operating Profit / Average Total Assets 2.20% 2.12% 2.02% 2.07% 2.26% 2.18% 2.09% 2.14%Provisions/Average Total Assets 0.76% 0.81% 0.77% 0.79% 0.67% 0.74% 0.62% 0.88%


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(Rs. crore) QE Dec-11 QE Sep-11 QE Jun-11 QE Mar-11 QE Dec-10 QE Sep-10 QE Jun-10 QE Mar-10no. of months 3 3 3 3 3 3 3 3Core Profit before Tax (Net Interest Income+Fee Income-OperatingExpenses-Provisions)/ Average Total Assets

1.44% 1.30% 1.24% 1.28% 1.59% 1.44% 1.47% 1.26%

Net Interest Income Less Provisions/ Average Total Assets 2.19% 2.08% 1.98% 2.11% 2.42% 2.23% 2.17% 1.83%Net profit on sale of securities & assets / Average Total Assets 0.02% 0.06% 0.06% 0.08% 0.08% 0.06% 0.13% 0.14%Profit before Tax / Average Total Assets 1.45% 1.36% 1.30% 1.36% 1.67% 1.50% 1.59% 1.40%Profit after Tax / Average Total Assets 1.04% 0.99% 0.89% 0.92% 1.15% 1.06% 1.09% 1.00%

Profit after Tax/ Average Net worth 16.36% 15.73% 14.47% 14.80% 18.11% 16.88% 17.76% 16.01%

EFFICIENCY RATIOSOther Income / Operating Expenses 56.44% 55.12% 55.57% 59.93% 53.82% 56.60% 58.56% 68.93%Operating Cost to Operating Income Ratio 43.91% 45.11% 45.32% 49.84% 44.54% 45.76% 44.72% 45.95%

CAPITALISATION RATIOSCore Capital / Total Assets 6.40% 6.34% 6.22% 6.06% 6.38% 6.35% 6.21% 6.06%Total Debt / Net worth 13.89 14.15 14.37 14.75 13.88 14.13 14.27 14.76CRAR 12.90% 13.08% 13.39% 13.75% 13.61% 14.07% 13.96% 14.08%Tier I Capital / Risk Weighted Assets 8.86% 9.02% 9.18% 9.36% 9.14% 9.18% 9.26% 9.42%Tier II Capital / Risk Weighted Assets 4.04% 4.06% 4.21% 4.39% 4.47% 4.88% 4.70% 4.66%

COVERAGE RATIOSTotal Interest Coverage 1.37 1.36 1.36 1.41 1.46 1.46 1.45 1.45Fund Based Coverage 1.20 1.20 1.19 1.16 1.26 1.24 1.24 1.19

LIQUIDITY RATIOSTotal Liquid Assets /Total Liability 33.74% 34.82% 35.09% 35.18% 34.24% 36.32% 36.26% 37.02%Total Advances/Total Deposits 77.36% 75.94% 76.66% 76.33% 77.49% 74.86% 76.11% 74.05%

ASSET QUALITYGross NPAs 129,284 117,693 100,574 93,828 90,029 87,868 82,893 78,018Net NPAs 61,807 55,720 43,286 40,544 38,037 37,937 37,048 36,244Gross NPAs / Gross Advances 2.84% 2.72% 2.40% 2.27% 2.35% 2.45% 2.38% 2.31%Net NPAs / Net Advances 1.38% 1.31% 1.05% 0.99% 1.01% 1.07% 1.08% 1.09%Operating Profits (Annualised) / Net NPAs 252% 260% 312% 326% 355% 331% 316% 316%Net NPAs / Networth 13.31% 12.67% 10.32% 10.06% 9.76% 10.21% 10.55% 10.78%Provision Cover 52.19% 52.66% 56.96% 56.79% 57.75% 56.83% 55.31% 53.54%

DEPOSIT RATIOS 32.33% 33.11% 33.99% 34.63% 34.38% 34.47% 33.86% 34.98%Demand Deposits / Total Deposits 7.43% 7.90% 8.38% 9.66% 8.53% 8.69% 8.41% 11.17%Savings Deposits / Total Deposits 24.90% 25.21% 25.60% 24.97% 25.85% 25.78% 25.45% 23.81%Term Deposits / Total Deposits 65.21% 66.87% 66.13% 65.37% 64.54% 64.59% 64.70% 65.02%

Source: Banks Press Releases, ICRA Research


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Annexure 2: Quarterly Performance Analysis Public Banks


PROFIT AND LOSS ACCOUNTInterest / Discount on Advances / Bills 94,977 90,487 84,757 76,009 70,493 65,350 61,813 58,048Interest / Dividend on Investments 27,780 26,388 24,478 22,876 22,419 21,289 20,251 19,431Interest on RBI Bal.& Other Banks 1,241 1,157 1,310 1,050 764 843 1,079 801Others 559 547 482 1,204 859 635 211 786Total Interest Income 124,557 118,578 111,027 101,139 94,536 88,116 83,354 79,065Interest Expense 84,110 80,154 75,250 65,501 58,347 54,743 53,029 51,528Net Interest Income 40,446 38,424 35,777 35,639 36,189 33,373 30,325 27,537Non-Interest Income 11,067 10,869 10,408 13,942 9,608 10,237 9,634 12,066Operating Income 51,514 49,293 46,185 49,581 45,797 43,610 39,959 39,603Operating Expenses 22,321 21,908 20,623 25,186 20,188 19,998 17,660 18,239Operating Profits 29,193 27,385 25,562 24,395 25,609 23,612 22,299 21,363Provisions etc. 11,963 12,481 11,425 11,208 8,329 8,661 6,594 9,448APBT 17,230 14,904 14,136 13,187 17,280 14,951 15,705 11,916Trading Profits 161 1,003 915 1,249 946 890 1,303 1,580PBT 17,391 15,908 15,051 14,437 18,226 15,841 17,008 13,496

Tax 4,805 4,205 4,952 4,774 5,666 4,661 5,408 3,651PAT 12,587 11,702 10,099 9,663 12,560 11,180 11,600 9,845

BALANCE SHEETShare Capital 10,421 10,421 10,421 10,290 9,669 9,430 9,377 9,376Reserves 300,011 281,575 267,482 256,483 246,642 233,171 221,122 209,619Net worth 310,432 291,996 277,903 266,773 256,311 242,601 230,498 218,995Total Deposits 4,704,283 4,550,871 4,402,986 4,372,984 3,979,816 3,841,811 3,700,876 3,691,800Advances 3,601,071 3,407,978 3,333,574 3,305,632 3,037,648 2,851,225 2,787,341 2,709,396Investments 1,417,609 1,421,512 1,361,198 1,328,534 1,278,051 1,238,015 1,232,251 1,198,961Total Assets 5,677,374 5,442,681 5,355,068 5,276,987 4,856,855 4,615,621 4,510,053 4,417,746

KEY RATIOS (Q-o-Q Basis)Yield on Average Advances 10.84% 10.74% 10.21% 9.59% 9.58% 9.27% 9.00% 8.97%Yield on Average Investments 7.83% 7.59% 7.28% 7.02% 7.13% 6.89% 6.66% 6.65%Yield on Average Earning Assets 9.30% 9.10% 8.64% 8.28% 8.27% 7.94% 7.67% 7.69%Cost of Average Interest Bearing Funds 6.68% 6.55% 6.27% 5.75% 5.46% 5.31% 5.27% 5.41%Gross Interest Spread 2.63% 2.55% 2.37% 2.54% 2.81% 2.63% 2.40% 2.28%



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(Rs. crore) QE Dec-11 QE Sep-11 QE Jun-11 QE Mar-11 QE Dec-10 QE Sep-10 QE Jun-10 QE Mar-10no. of months 3 3 3 3 3 3 3 3Core Profit before Tax (Net Interest Income+Fee Income-OperatingExpenses-Provisions)/ Average Total Assets

1.24% 1.10% 1.06% 1.04% 1.46% 1.31% 1.41% 1.12%

Net Interest Income Less Provisions/ Average Total Assets 2.05% 1.92% 1.83% 1.93% 2.35% 2.17% 2.13% 1.70%Net profit on sale of securities & assets / Average Total Assets 0.01% 0.07% 0.07% 0.10% 0.08% 0.08% 0.12% 0.15%Profit before Tax / Average Total Assets 1.25% 1.18% 1.13% 1.14% 1.54% 1.39% 1.52% 1.27%Profit after Tax / Average Total Assets 0.91% 0.87% 0.76% 0.76% 1.06% 0.98% 1.04% 0.93%

Profit after Tax/ Average Net worth 16.71% 16.43% 14.83% 14.78% 20.14% 18.90% 20.65% 18.21%




LIQUIDITY RATIOSTotal Liquid Assets /Total Liability 0.33 0.34 0.34 0.34 0.33 0.35 0.36 0.36Total Advances/Total Deposits 0.77 0.75 0.76 0.76 0.76 0.74 0.75 0.73

ASSET QUALITY 55.01% 42.95% 26.57% 25.12% 33.02%Gross NPAs 110,292 98,797 81,971 75,156 71,153 69,112 64,764 60,069Net NPAs 57,194 51,207 38,834 36,072 33,043 32,479 31,193 29,689Gross NPAs / Gross Advances 3.02% 2.86% 2.43% 2.25% 2.31% 2.39% 2.30% 2.19%Net NPAs / Net Advances 1.59% 1.50% 1.16% 1.09% 1.09% 1.14% 1.12% 1.10%Operating Profits (Annualised) / Net NPAs 204% 214% 263% 271% 310% 291% 286% 288%Net NPAs / Networth 18.42% 17.54% 13.97% 13.52% 12.89% 13.39% 13.53% 13.56%Provision Cover 48.14% 48.17% 52.63% 52.00% 53.56% 53.00% 51.84% 50.58%

DEPOSIT RATIOS 29.56% 31.54% 31.47% 33.04% 34.03% 34.19% 33.78% 34.05%Demand Deposits / Total Deposits 5.39% 6.87% 6.74% 8.28% 8.10% 15.92% 8.56% 10.04%Savings Deposits / Total Deposits 24.17% 24.67% 24.74% 24.76% 25.93% 18.27% 25.21% 24.02%Term Deposits / Total Deposits 62.31% 63.88% 62.66% 66.97% 64.64% 64.65% 64.30% 65.95%



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Annexure 3: Quarterly Performance Analysis Private Banks


PROFIT AND LOSS ACCOUNTInterest / Discount on Advances / Bills 24,163 22,476 20,635 18,778 17,025 15,880 14,765 14,405Interest / Dividend on Investments 8,867 8,082 7,301 6,804 6,492 5,957 5,301 4,909Interest on RBI Bal.& Other Banks 252 213 230 213 230 181 195 199Others 343 444 396 379 362 409 346 368Total Interest Income 33,625 31,214 28,562 26,174 24,109 22,428 20,607 19,881Interest Expense 21,876 20,200 18,279 15,728 14,124 13,079 11,941 11,350Net Interest Income 11,749 11,014 10,283 10,446 9,984 9,349 8,666 8,531Non-Interest Income 6,123 5,479 5,072 5,683 4,946 4,684 4,188 4,633Operating Income 17,871 16,493 15,355 16,129 14,930 14,033 12,854 13,164Operating Expenses 8,059 7,686 7,185 7,487 6,774 6,312 5,890 5,966Operating Profits 9,813 8,807 8,170 8,642 8,156 7,721 6,963 7,198Provisions etc. 1,503 1,411 1,512 1,430 1,725 2,029 2,145 2,322Adjusted Profit Before Tax 8,309 7,396 6,658 7,212 6,430 5,692 4,819 4,876Trading Profits 105 35 104 (16) 237 42 465 315Profit Before Tax 8,415 7,432 6,762 7,196 6,667 5,734 5,283 5,191

Tax expense 2,468 2,245 1,991 2,206 2,005 1,668 1,632 1,722Profit after Tax 5,946 5,186 4,771 4,990 4,662 4,066 3,652 3,469

BALANCE SHEETShare Capital 4,373 4,372 4,376 4,343 4,207 4,197 4,059 4,216Reserves 148,927 142,140 135,887 130,423 128,073 123,309 115,804 112,203Net worth 153,300 146,512 140,264 134,765 132,280 127,506 119,863 116,419Deposits 1,083,988 1,037,263 968,441 962,329 871,489 874,461 802,152 792,498Advances 877,760 836,500 784,724 767,636 722,405 679,875 641,487 612,068Investments 471,355 454,375 421,721 409,954 372,822 375,502 357,375 344,767Total Assets 1,559,483 1,472,500 1,367,007 1,351,124 1,235,989 1,214,116 1,130,344 1,115,037

KEY RATIOS (QoQ Basis)Yield on Average Advances 11.28% 11.09% 10.63% 10.08% 9.71% 9.61% 9.42% 9.74%Yield on Average Investments 7.66% 7.38% 7.02% 6.95% 6.94% 6.50% 6.04% 5.74%Yield on Average Earning Assets 9.40% 9.22% 8.79% 8.43% 8.19% 8.00% 7.67% 7.74%Cost of Average Interest Bearing Funds 6.83% 6.70% 6.33% 5.73% 5.44% 5.27% 5.04% 5.06%Gross Interest Spread 2.57% 2.53% 2.46% 2.70% 2.76% 2.73% 2.64% 2.68%



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(Rs. crore) QE Dec-11 QE Sep-11 QE Jun-11 QE Mar-11 QE Dec-10 QE Sep-10 QE Jun-10 QE Mar-10no. of months 3 3 3 3 3 3 3 3 Core Profit before Tax (Net Interest Income+Fee Income-OperatingExpenses-Provisions)/ Average Total Assets

2.19% 2.08% 1.96% 2.23% 2.10% 1.94% 1.72% 1.81%

Net Interest Income Less Provisions/ Average Total Assets 2.70% 2.71% 2.58% 2.79% 2.70% 2.50% 2.32% 2.31%Net profit on sale of securities & assets / Average Total Assets 0.03% 0.01% 0.03% -0.01% 0.08% 0.01% 0.17% 0.12%Profit before Tax / Average Total Assets 2.22% 2.09% 1.99% 2.23% 2.18% 1.96% 1.88% 1.93%Profit after Tax / Average Total Assets 1.57% 1.46% 1.40% 1.54% 1.52% 1.39% 1.30% 1.29%

Dividend / Profit after Tax 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Profit after Tax/ Average Net worth 15.87% 14.47% 13.88% 14.95% 14.36% 13.15% 12.36% 11.99%




LIQUIDITY RATIOSTotal Liquid Assets /Total Liability 0.38 0.38 0.38 0.39 0.38 0.40 0.39 0.41Total Advances/Total Deposits 0.81 0.81 0.81 0.80 0.83 0.78 0.80 0.77

ASSET QUALITYGross NPAs 18,919 18,631 18,541 18,413 18,594 18,478 17,905 17,722Net NPAs 4,579 4,411 4,430 4,335 4,841 5,305 5,748 6,443Gross NPAs / Gross Advances 2.12% 2.19% 2.32% 2.36% 2.53% 2.67% 2.74% 2.84%Net NPAs / Net Advances 0.52% 0.53% 0.56% 0.56% 0.67% 0.78% 0.90% 1.05%Operating Profits (Annualised) / Net NPAs 857% 799% 738% 797% 674% 582% 485% 447%Net NPAs / Networth 2.99% 3.01% 3.16% 3.22% 3.66% 4.16% 4.80% 5.53%Provision Cover 75.80% 76.32% 76.11% 76.45% 73.96% 71.29% 67.90% 63.64%

DEPOSIT RATIOSDemand Deposits / Total Deposits 14.53% 13.80% 13.72% 15.23% 13.12% 14.65% 12.97% 16.53%Savings Deposits / Total Deposits 23.30% 23.48% 23.76% 26.14% 25.84% 24.21% 24.57% 22.95%Term Deposits / Total Deposits 62.17% 62.72% 62.51% 58.63% 61.03% 61.14% 63.23% 60.52%



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Annexure 4: Details of Restructured Advances

Bank Dec-11 Mar-11 Change Increase in RestructuredPortfolio in YTD Dec-11

Allahabad 3.5% 2.7% 0.9% 43.1%Andhra 4.7% 3.5% 1.2% 46.9%BoB 3.8% 2.9% 0.9% 48.2%BoI 5.9% 5.0% 0.9% 28.5%

BoM 5.4%CAN 4.4% 3.8% 0.6% 18.3%CBI 7.4% 4.1% 3.3% 86.6%Corp 4.9% 3.6% 1.3% 44.4%Dena 3.8% 2.7% 1.1% 48.4%IDBI 6.3% 6.7% -0.4% -6.2%Indian 6.4% 6.9% -0.5% 7.3%IOB 7.7% 6.2% 1.5% 44.8%OBC 5.5% 4.1% 1.4% 55.9%PNB 6.4% 6.3% 0.1% 10.3%UCO 6.7% 6.4% 0.3% 12.3%Union 5.5% 3.7% 1.8% 53.9%United 3.1% 4.3% -1.2% -22.0%

Nationalised Banks 5.5% 4.7% 0.8% 30.3%

SBI 4.4% 4.5% -0.1% 9.5%SBH 5.0% 5.0% 0.0% 7.7%SBI Group 4.5% 4.6% -0.1% 9.3%

Total PSU Banks 5.2% 4.6% 0.6% 24.4%

CUB 0.3% 0.3% -0.1% -7.0%ING 0.3% 0.3% 0.0% 16.9%KVB 2.7% 2.9% -0.2% 16.5%HDFC 0.4% 0.2% 0.2% 113.0%ICICI 1.2% 0.7% 0.6% 115.3%Axis 1.8% 1.4% 0.5% 39.9%IndusInd 0.2% 0.3% -0.1% -2.6%KMBL 0.2% 0.2% -0.1% -5.5%Yes 0.5% 0.2% 0.2% 111.9%Private Banks 1.0% 0.7% 0.3% 66.1%

All Banks 4.4% 3.9% 0.5% 25.8%



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Annexure 5: List of Banks in the current research and Abbreviations used

Bank Name Abbreviation used Bank Name Abbreviation used Nationalised Banks: Private Banks:Allahabad Bank Allahabad Axis Bank Ltd. AxisAndhra Bank Andhra City Union Bank Ltd. CUBBank of Baroda BoB Dhanlaxmi Bank Ltd. DhanBank of India BoI Development Credit Bank Ltd. DCB

Bank of Maharashtra BoM The Federal Bank Ltd. FederalCanara Bank CAN HDFC Bank Ltd. HDFCCentral Bank of India CBI ICICI Bank Ltd. ICICICorporation Bank Corp IndusInd bank ltd. IndusIndDena Bank Dena ING Vysya Bank Ltd. INGIDBI Bank Ltd. IDBI The Jammu & Kashmir Bank Ltd. JandKIndian Bank Indian The KVB Vysya Bank Ltd. KVBIndian Overseas Bank IOB Karnataka Bank ltd. KBLOriental Bank of Commerce OBC Kotak Mahindra Bank Ltd. KMBLPunjab National Bank PNB The Lakshmi Vilas Bank Ltd. LVBPunjab And Sind Bank PSB The South Indian Bank Ltd. SIBSyndicate Bank Syn Yes Bank Ltd YesUCO Bank UCOUnion Bank of India Union Other Terms & AbbreviationsUnited Bank of India United Nationalised Banks + SBI Group PSU BanksVijaya Bank Vijaya ICICI + HDFC + Axis Large Private Banks

Other Private banks Small Private BanksSBI Group:State Bank of India SBIState Bank of Bikaner And Jaipur SBBJState Bank of Hyderabad SBHState Bank of Mysore SBMState Bank of Patiala SBOPState Bank of Travancore SBT


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