indian banks note

7/29/2019 Indian Banks Note

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ICRA LIMITED Page 1 of 19

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 banks

together account for around 92% of the total credit portfolio and deposits of all scheduled commercial banks (SCBs) in India as of December 2011. The

key 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 review, 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 credit

growth 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 sharp

increase 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, 2011

from 4.7% as on March 31, 2011; total restructured assets of Nationalised Banks increased by about 30% while the SBI Group reported a relatively

moderate 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 NPAs

increasing and the provision coverage being lower. For Nationalised Banks, the ratio increased to 15.8% from 11.6% over the same period. Private

banks continued to maintain a stable solvency profile at around 3% during the period stated. Although difficulties in the operating environment

may 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 however

avert 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 with

Tier 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 the

proposed capital infusion of around Rs. 20,000 crore into PSU banks by the government in the current fiscal to likely support their medium-term

growth.

Contacts:

Karthik Srinivasan

+91 22 3047 0028

[email protected]

Vibha Batra

+91 124 4545 302

[email protected]

Avinash P.

+91 44 4596 4311

[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 banks

and 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 to

6.7% 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 the

significant 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 few

months. However, it is still too early to assess the impact of this development at the industry level since most banks continue to maintain the

annual 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 the

benefit 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, an

increase in provisions following possible deterioration in asset quality could impact the asset quality of the banking system over the next few

quarters.

1

Current 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 2011

and 22.0% yoy in March 2011 with the average lending yields rising to 10.8% from 9.6% during this

period. However, despite moderation, sequential credit growth remained strong at 5.7% in Q3, FY2012 as

compared 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 as

compared with the 6.0% in Q2, FY2012.

Systemic domestic credit growth fell sharply to 15.8% in December 2011 from 19.4% in September 2011

in 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 softened

marginally in that quarter after a sharp rise in H1, FY2012. While Nationalised Banks reported steady

yields at 10.9% in Q3, FY2012 and Q2, FY2012 compared to 9.8% in Q4, FY2011, the SBI Groups lending

yields 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 SME

segmentsones that fetch higher yields. During 9M, FY2012, the SBI Group increased its base rate by

1.75%, 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 rate

would remain a function of banks cost of funds as most banks have locked in medium-term deposits at

relatively high rates over the last few quarters.

The outlook for systemic credit growth remains moderate, particularly if banks hold on to their current

lending rates. However, ICRA expects private banks to continue outperforming systemic growth. Still, it is

unlikely that their share in the total advances of the banking system would increase sharply.

9.0%

11.0%

13.0%

15.0%

17.0%

19.0%

21.0%

23.0%

25.0%

27.0%

29.0%

Ma r- 10 J un -10 Se p- 10 De c- 10 Ma r- 11 J un -11 Sep -11 D ec -1 1

SBI Group Nat ionalised Banks Private Banks All Banks

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

11.5%

Mar -10 J un -10 Sep -10 Dec -10 Mar -11 J un -11 Sep -11 Dec -11

S BI Group Nat ionali sed Banks P ri vat e Banks Al l Banks


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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 Advances

Bank Dec-11 Mar-11 Change Increase in

Restructured

Portfolio

Nationalised

Banks

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%


Nationalised Banks gross NPA levels remained stable in Q3FY12 at 2.4%, while those of SBI group

increased to 4.3% from 4.0% as on September 2011. However, in the nine months ended December 2011,

all PSU banks2

reported an increase in gross and net NPAs, in sharp contrast with private banks which

reported have reported a steady q-o-q decline in NPA levels. The Gross NPA% of SBI Group witnessed a

sharp deterioration, whereby Gross NPA% increased from 3.0% as on March 2011 to 4.3% as on

December 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. Continued

improvement on asset quality indicators for large private banks is largely on improvement in the asset

quality indicators for ICICI over the last few quarters.

With RBI relaxing the provision coverage norm by removing the overall requirement of 70%, the provision

cover 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 a

reduction 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 Change

Nationalised 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%


2 Except Bank of Maharashtra and Syndicate Bank

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%


S BI Group Nat ionali sed Banks P ri vat e Banks Al l Banks

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%


SBI Group Nat ionali sed Banks Pr ivat e B anks Al l Banks


5/19


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) slippages

on migration to system-based NPA recognition, as private banks historically have had robust information

technology systems.

The share of restructured advances in the total credit portfolio of PSU banks continued to increase during

9M, FY2012 and is estimated at 5.2% as on December 31, 2011, as against 4.6% as on March 31, 2011. In

absolute terms, the SBI Group reported just a 9.5% increase even as the Nationalised Banks restructured

book swelled by a sharp 30% (Annexure 4). Some of the ongoing restructuring of large power distribution

entities 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, the

restructured portfolios of the three largest private banks reported a sharp increase to Rs. 6,555 crore as

on December 31, 2011 from 3,724 crore as on March 31, 2011. In ICRAs estimate, the overall

restructured advances of private banks increased 65-70% during the 9M, FY2012.

Cumulative slippages from restructured assets for four large Nationalised Banks3

increased by 27.3% in

9M, FY2012, while SBI reported nearly stable NPAs out of its restructured portfolio during this period.

The solvency profile4

of the SBI Group weakened substantially to 24.2% as on December 31, 2011 from

17.7% 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, 2011

with 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 strength

of robust provision coverage and strong capitalisation. However, some regionally-focused, small private

banks such as KBL and LVB reported some deterioration in solvency on account of significant exposures to

export oriented and other vulnerable sectors.

Several PSU banks are awaiting capital infusion (by the government), which could improve their solvency

position in the near term.

Although difficulties in the operating environment may ease to an extent the fiscal 2013, large

restructured accounts and structural weaknesses in certain sectors 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 however avert a sharp deterioration in asset quality.

3Represents PNB, BOB, Canara and BoI

4

Computed as net NPAs / Networth

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Mar -10 J un -10 Sep -10 Dec -10 Mar- 11 J un -11 Sep -11 D ec -11

SB I Group Nat ional ised B anks Pr i va te Banks A ll Banks


6/19


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 on

March 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 capital

being strong. Their median capital adequacy stood at 16.3%, while the Tier I capital was at 11.2% as on

December 31, 2011. The median capital adequacy of the smaller private banks was lower at 13.3% as on

December 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 against

only four banks as on March 31, 2011. While ICRA sees an improvement of 30-60 bps in the median capital

adequacy capital by March 2012, several banks, including SBI, IOB and CBI, are expecting capital infusion by

the government in the current fiscal (around Rs. 20,000 crore in total), which would provide capital to

absorb shocks and support growth in the medium term.

While Government of India ownership and the systemic importance of PSU banks could ensure sovereign

support going forward, it would be important for PSU banks in the public sector to maintain prudent

capitalisation 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 to

raise 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 since

March 2010 following strong internal accruals in FY2011. While accruals have moderated in the current

fiscal, lower credit growth has helped them maintain a steady improvement in core capital. The SBI Group

too reported an improvement in core capitalisation in 9M, FY2012, after a steep decline in March 2011

because 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.

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11

Tier I Capital Adequacy Capital Adequacy Ratio

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

Mar -1 0 J un -10 Sep -1 0 D ec -10 Ma r- 11 J un -1 1 Se p- 11 D ec -1 1

SB I Group Nat ional ised B anks Pr ivat e Banks Al l Banks


7/19


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, 2011

and March 2011.

Private banks reported a robust yoy deposits growth of 24.4% during 9M, FY2012, higher than the PSU

banks 18.2%.

Given the higher interest rates offered on term deposits, the CASA levels of PSU banks came under

some 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 March

31, 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 few

years 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 rate

on 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 still

premature to assess the impact of savings rate deregulation, the retail franchise of the PSU banks and

large 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 wholesale

sources 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% in

the quarter ended December 2011 because of a combination of increase in term deposit interest rates

and a reduction in CASA levels.

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%


SB I Group Nat ionali sed B anks Pr i va te Banks Al l Banks

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

Mar -10 J un -10 Sep -10 D ec -1 0 Mar -1 1 J un -1 1 Se p- 11 D ec -11

SBI Group Nat ional ised Banks Pr ivat e Banks Al l Banks


8/19


0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%


SBI G ro up N ati on alis ed Ban ks Pr iv ate Ba nk s Al l Ba nk s

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 yields

stabilised 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 to

borrowers in Q2, FY2012; in Q3, FY2012 the NIMs remained stable as there were no base rate increases

that quarter. The interest spread improved marginally from 2.5% to 2.6% sequentially in Q3, FY2012

from 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% to

10.6%.

Even as systemic interest rates are set to soften over the next few quarters, the banking system is

unlikely to pass on the benefit of the same to borrowers, given the fixed-rate medium-term resources

mobilised during the last few quarters.

Aggregate other income level (excluding trading income) has remained stable at 1.0% of average assets

in the current fiscal. The non-interest income levels of private banks have been historically superior to

that 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 earn

higher non-interest income as compared with Nationalised Banks.

Treasury income for all banks under review remained moderate in Q3, FY2012. However, dependence

on 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 equity

investments 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 banks 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 current

fiscal.

Private banks operating costs remained steady during 9M, FY2012 supported by a moderate

improvement 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 as

certain 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, and

operating 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 operating

efficiency.

2.0%

2.2%

2.4%

2.6%

2.8%

3.0%

3.2%

3.4%

3.6%


SBI Group Nat ionali sed Banks Pr ivat e Banks Al l Banks

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

2.2%

2.4%


SB I Group Nat ionali sed B anks Pr ivat e B anks Al l Banks


9/19


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 in

the absence of any significant movement in NPA levels, and with a decline of 10-15% in the provision

cover 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 crore

reversal of equity investment depreciation; adjusted for this, the decline in loan loss provisioning works

out 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 eight

quarters. However, smaller banks have reported an increase in provisions because of higher slippages.

In ICRAs opinion, the loan-loss provisions of Nationalised Banks could continue to increase as there

could 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, provisions

could 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 banks net profitability stabilised at 0.9% in the

last 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 a

decline in provisions and improvement in interest margins.

With systemic interest rates likely to soften, ICRA expects the NIMs of banks with a higher proportion

of 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 level

of loan-loss provisions, although the softening interest rate environment could provide some

headroom to reduce provisioning requirement on banks investment books.

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%


SBI Group Nat ionali sed Banks P ri vat e Banks Al l Banks

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

Mar -1 0 J un -10 Se p- 10 De c- 10 Mar -1 1 J un -11 Se p- 11 De c- 11

SBI Group N at ionali sed Banks Pr i va te Bank s Al l Bank s

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%


S BI Group Nat ionali sed Banks Pr i va te Banks Al l Banks


10/19


Summing upAmidst 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 base

lending 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 banks

increased 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 not

reduce 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 constrain

banks from reducing the lending yields without unduly impacting their profitability; although declining interest rates may give some leeway to the banks as provisioning requirement

on 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 b asis 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 ease

out, 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 support growth, over the medium term.


11/19


Annexure 1: Quarterly Performance AnalysisAll 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-10

no. of months 3 3 3 3 3 3 3 3

PROFIT AND LOSS ACCOUNT

Interest / Discount on Advances / Bills 119,423 113,456 105,833 95,205 87,864 81,513 76,831 72,685

Interest / Dividend on Investments 36,728 34,602 31,887 29,774 29,012 27,334 25,627 24,408

Interest on RBI Bal.& Other Banks 1,493 1,370 1,542 1,265 997 1,026 1,277 1,002

Others 901 991 879 1,585 1,221 1,043 557 1,154

Total Interest Income 158,546 150,419 140,141 127,829 119,094 110,917 104,291 99,249

Interest Expense 106,288 100,836 93,946 81,582 72,778 68,083 65,205 63,095

Net Interest Income 52,259 49,584 46,194 46,248 46,316 42,834 39,086 36,155

Non-Interest Income 17,217 16,409 15,550 19,696 14,602 14,974 13,866 16,757

Operating Income 69,475 65,992 61,744 65,944 60,918 57,808 52,952 52,912

Operating Expenses 30,506 29,768 27,981 32,866 27,131 26,454 23,678 24,312

Operating Profits 38,969 36,224 33,763 33,078 33,787 31,354 29,274 28,600

Provisions etc. 13,467 13,914 12,961 12,653 10,066 10,702 8,743 11,779

Adjusted Profit Before Tax 25,503 22,310 20,801 20,425 23,721 20,652 20,530 16,821

Trading Profits 267 1,040 1,019 1,235 1,184 931 1,771 1,897

Profit 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 SHEET

Share Capital 14,879 14,910 14,914 14,749 13,991 13,740 13,523 13,676

Reserves 449,651 424,945 404,591 388,122 375,902 357,652 337,671 322,512

Net worth 464,531 439,854 419,505 402,871 389,893 371,392 351,194 336,187

Total Deposits 5,801,677 5,611,358 5,393,291 5,356,569 4,869,907 4,733,535 4,517,979 4,498,375

Advances 4,488,384 4,261,410 4,134,290 4,088,553 3,773,574 3,543,467 3,438,827 3,330,937

Investments 1,893,291 1,883,110 1,789,553 1,744,818 1,656,770 1,618,718 1,594,744 1,548,046

Total 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 RATIOS

Net 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%


12/19



no. of months 3 3 3 3 3 3 3 3

Core Profit before Tax (Net Interest Income+Fee Income-Operating

Expenses-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 RATIOS

Other 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 RATIOS

Core 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 14.76

CRAR 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 1.45

Fund Based Coverage 1.20 1.20 1.19 1.16 1.26 1.24 1.24 1.19

LIQUIDITY RATIOS

Total 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 QUALITY

Gross NPAs 129,284 117,693 100,574 93,828 90,029 87,868 82,893 78,018

Net NPAs 61,807 55,720 43,286 40,544 38,037 37,937 37,048 36,244

Gross 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


13/19


Annexure 2: Quarterly Performance AnalysisPublic Banks


no. of months 3 3 3 3 3 3 3 3




Interest on RBI Bal.& Other Banks 1,241 1,157 1,310 1,050 764 843 1,079 801

Others 559 547 482 1,204 859 635 211 786








Provisions etc. 11,963 12,481 11,425 11,208 8,329 8,661 6,594 9,448

APBT 17,230 14,904 14,136 13,187 17,280 14,951 15,705 11,916

Trading Profits 161 1,003 915 1,249 946 890 1,303 1,580

PBT 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 SHEET

Share Capital 10,421 10,421 10,421 10,290 9,669 9,430 9,377 9,376

Reserves 300,011 281,575 267,482 256,483 246,642 233,171 221,122 209,619

Net worth 310,432 291,996 277,903 266,773 256,311 242,601 230,498 218,995

Total Deposits 4,704,283 4,550,871 4,402,986 4,372,984 3,979,816 3,841,811 3,700,876 3,691,800

Advances 3,601,071 3,407,978 3,333,574 3,305,632 3,037,648 2,851,225 2,787,341 2,709,396

Investments 1,417,609 1,421,512 1,361,198 1,328,534 1,278,051 1,238,015 1,232,251 1,198,961

Total 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%











14/19



no. of months 3 3 3 3 3 3 3 3



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


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

EFFICIENCY RATIOS






CRAR 12.15% 12.35% 12.63% 13.12% 12.86% 13.25% 13.22% 13.28%



COVERAGE RATIOSTotal Interest Coverage 1.35 1.34 1.34 1.37 1.44 1.43 1.42 1.41


LIQUIDITY RATIOS

Total Liquid Assets /Total Liability 0.33 0.34 0.34 0.34 0.33 0.35 0.36 0.36

Total 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 60,069

Net NPAs 57,194 51,207 38,834 36,072 33,043 32,479 31,193 29,689





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%






15/19


Annexure 3: Quarterly Performance AnalysisPrivate Banks


no. of months 3 3 3 3 3 3 3 3




Interest on RBI Bal.& Other Banks 252 213 230 213 230 181 195 199

Others 343 444 396 379 362 409 346 368








Provisions etc. 1,503 1,411 1,512 1,430 1,725 2,029 2,145 2,322

Adjusted Profit Before Tax 8,309 7,396 6,658 7,212 6,430 5,692 4,819 4,876

Trading Profits 105 35 104 (16) 237 42 465 315

Profit 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 SHEET

Share Capital 4,373 4,372 4,376 4,343 4,207 4,197 4,059 4,216

Reserves 148,927 142,140 135,887 130,423 128,073 123,309 115,804 112,203

Net worth 153,300 146,512 140,264 134,765 132,280 127,506 119,863 116,419

Deposits 1,083,988 1,037,263 968,441 962,329 871,489 874,461 802,152 792,498

Advances 877,760 836,500 784,724 767,636 722,405 679,875 641,487 612,068

Investments 471,355 454,375 421,721 409,954 372,822 375,502 357,375 344,767

Total 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%











16/19



no. of months 3 3 3 3 3 3 3 3



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


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%



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%

EFFICIENCY RATIOS






CRAR 15.76% 15.89% 16.50% 16.35% 16.69% 17.29% 17.07% 17.36%



COVERAGE RATIOS

Total Interest Coverage 1.45 1.44 1.45 1.55 1.58 1.59 1.58 1.63


LIQUIDITY RATIOS

Total Liquid Assets /Total Liability 0.38 0.38 0.38 0.39 0.38 0.40 0.39 0.41

Total Advances/Total Deposits 0.81 0.81 0.81 0.80 0.83 0.78 0.80 0.77

ASSET QUALITY

Gross NPAs 18,919 18,631 18,541 18,413 18,594 18,478 17,905 17,722

Net NPAs 4,579 4,411 4,430 4,335 4,841 5,305 5,748 6,443





Provision Cover 75.80% 76.32% 76.11% 76.45% 73.96% 71.29% 67.90% 63.64%

DEPOSIT RATIOS






17/19


Annexure 4: Details of Restructured Advances

Bank Dec-11 Mar-11 Change Increase in Restructured

Portfolio 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%



18/19


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. Axis

Andhra Bank Andhra City Union Bank Ltd. CUB

Bank of Baroda BoB Dhanlaxmi Bank Ltd. Dhan

Bank of India BoI Development Credit Bank Ltd. DCB

Bank of Maharashtra BoM The Federal Bank Ltd. FederalCanara Bank CAN HDFC Bank Ltd. HDFC

Central Bank of India CBI ICICI Bank Ltd. ICICI

Corporation Bank Corp IndusInd bank ltd. IndusInd

Dena Bank Dena ING Vysya Bank Ltd. ING

IDBI Bank Ltd. IDBI The Jammu & Kashmir Bank Ltd. JandK

Indian Bank Indian The KVB Vysya Bank Ltd. KVB

Indian Overseas Bank IOB Karnataka Bank ltd. KBL

Oriental Bank of Commerce OBC Kotak Mahindra Bank Ltd. KMBL

Punjab National Bank PNB The Lakshmi Vilas Bank Ltd. LVB

Punjab And Sind Bank PSB The South Indian Bank Ltd. SIB

Syndicate Bank Syn Yes Bank Ltd Yes

UCO Bank UCO

Union Bank of India Union Other Terms & AbbreviationsUnited Bank of India United Nationalised Banks + SBI Group PSU Banks

Vijaya Bank Vijaya ICICI + HDFC + Axis Large Private Banks

Other Private banks Small Private Banks

SBI Group:

State Bank of India SBI

State Bank of Bikaner And Jaipur SBBJ

State Bank of Hyderabad SBH

State Bank of Mysore SBM

State Bank of Patiala SBOP

State Bank of Travancore SBT


19/19


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