r pre budget analysis report banking & nbfcs · pre-budget analysis february 15, 2013 banking...

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PRE BUDGET ANALYSIS REPORT BANKING & NBFCS

Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 14

PRE-BUDGET ANALYSIS February 15, 2013

BANKING & NBFCS

Current view The credit growth came at 16.1% YoY (as on January 25, 2013) while deposit

mobilization remained relatively subdued at 13.2% YoY, which led to rise in C/Dratio (77.4% as on January 25, 2013 vs. ~75% during previous quarter). Webelieve, FD rates offered by banks are likely to be sticky as the gap betweencredit growth and deposit mobilization has widened during recent times. Withthe pressure on yields on assets likely to rise due to intense competition in retailsegments without commensurate fall in the cost of funds, NIM compression forthe banking system is possible.

Banks are currently borrowing ~Rs.935 bn from the RBI under LAF window(~1.3% of NDTL), higher than the RBI's comfort levels of +/- 1%. Earlier in themonth of January 2013, RBI had cut the CRR by 25bps to 4.0% and we expectone more CRR cut of 25bps during March 13, which could infuse another Rs.180bn into the system. The CRR cut is definitely beneficial for banks from marginperspective as they could lend additional amount to borrowers which was notearning any interest earlier.

On asset quality front, Indian banks are likely to witness rising stress on their loanbook especially in the sectors like Infrastructure, Aviation, Textiles, Agriculture,Construction, SMEs etc. Infrastructure especially power sector is under stressmainly due to delay in project implementation and shortage of fuel-linkages. Formany PSU banks, stressed portfolio has gone up to ~10% of their loan bookwhich could be the potential risk, going forward. Even agri portfolio is witnessingstress on asset quality due to moral hazards as farmers are delaying the pay-ments on expectation of another debt waiver scheme of 2008 kinds.

Last but not the least, consolidation in the industry has so far only been restrictedto roundtables (except few deals). Now is the time to act on this, as duplicationof IT infrastructure, manpower and capital is becoming prohibitively costly.

EXPECTED BUDGET IMPACT:Positive

LONG TERM OUTLOOK:Positive

Key budget expectations

Issues Industry wish-list Our expectation Rationale for our Impact of ourexpectation expectation

Status Quo (FY13:Rs.5.75 tn)

Increase in agrilending target

Likely to beincreased

For better financialinclusion, target could behiked along with keepinginterest subventionscheme at 3%.

Negative forPSU banks, asthis segment iswitnessingsharp rise inNPAs.

Capital infusion inthe form of tier-Icapital for PSU banks

Recapitalization ofPSU banks

Likely To improve Tier-I capital(CAR) needed for B/Sgrowth

Positive, it willprovideadequatecapital tosupportincreasedlending in theeconomy.

Reduce from fiveyears lock-in periodto three years.

Relaxation in thelock-in period forsavings to qualifyfor tax benefits(Under section 80C)

Likely Increase the attractivenessof term deposits andmake it at par with othertax saving instruments.

Positive, as thiswould help thebanks incorrecting theasset-liabilitymismatch.


PRE-BUDGET ANALYSIS February 15 2013

Banking & NBFCs (contd...)

Top picks

Company Price ABV (Rs) P/ABV (x) Recommendation(Rs) FY13E FY14E FY13E FY14E as per our last

report

ICICI Bank 1,126 15.4 12.8 2.0 1.8 BUY

IDFC 155 12.9 10.9 1.7 1.5 BUY

HDFC Bank 675 23.8 18.2 4.7 3.9 ACCUMULATE

BoB 758 6.7 5.5 1.2 1.0 ACCUMULATE

Source: Companies; Kotak Securities - Private Client Research

Increase from 10K to50K

Increase the TDSlimit on interest onbank deposits

Status quo likelyto be maintained

Revenue considerationfor GoI

Neutral

Increase the FDI limitin Insurance sectorfrom 26% to 49%

Liberalizing FDInorms for InsuranceSector

Likely To provide capital to theInsurance companies

Positive

Key budget expectations

Issues Industry wish-list Our expectation Rationale for our Impact of ourexpectation expectation

Source: Kotak Securities - Private Client Research


PRE-BUDGET ANALYSIS February 15, 2013

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Fundamental Research TeamDipen [email protected]+91 22 6621 6301

Sanjeev ZarbadeCapital Goods, [email protected]+91 22 6621 6305

Teena VirmaniConstruction, [email protected]+91 22 6621 6302

Saurabh AgrawalMetals, [email protected]+91 22 6621 6309

Saday SinhaBanking, NBFC, [email protected]+91 22 6621 6312

Arun [email protected]+91 22 6621 6143

Ruchir KhareCapital Goods, [email protected]+91 22 6621 6448

Ritwik RaiFMCG, [email protected]+91 22 6621 6310

Sumit PokharnaOil and [email protected]+91 22 6621 6313

Amit AgarwalLogistics, [email protected]+91 22 6621 6222

Jayesh [email protected]+91 22 6652 9172

K. [email protected]+91 22 6621 6311

Technical Research Team

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