Tag - Banks

CitiBank acquisition provides access to an affluent client base: Axis Bank

Update on the Indian Equity Market:

On Monday, NIFTY crossed the 18,000 mark to settle at 18,053 (+2.2%) aided by the surge in HDFC twins post the announcement of the merger of HDFC Ltd into HDFC Bank. HDFCBANK (+9.8%), HDFC (+9.1%), and ADANIPORTS (+4.1%) led the stock gainers. INFY (-1.1%), TATACONSUM (-0.4%), and TITAN (-0.2%) led the laggards. Among the sectoral indices, FINANCIAL SERVICES (+4.6%), BANK (+4%), and PRIVATE BANK (+3.9%) led the gainers and there were no sectoral losers.

Excerpts of an interview with Mr. Amitabh Chaudhary, MD & CEO, Axis Bank published in Economic Times on 1st April 2022:

  • Axis bank acquired Enam Financials, which was renamed Axis Capital. It is the number one player in the equity capital markets in India and is expanding business in the brokerage and M&A segments. Axis Capital will also benefit from the One Axis strategy.
  • Axis bank was distributing Max Financials’ products for over 10 years, so its acquisition provided an opportunity to sign up for a long-term deal and strengthened the partnership with Max.
  • Citi bank’s retail portfolio acquisition was in line with Axis bank’s strategy of granularizing retail business and premiumisation of the portfolio. The acquisition will create opportunities and synergies that will accelerate the journey to creating a franchise across the country.
  • The acquisition provides access to one of the best affluent consumer franchises in India and Axis bank will get access to salary accounts, 1600 plus corporate accounts, and Suvidha corporates. Axis bank will also gain 3,600 Citibank employees. There are a lot of interesting parts which will strengthen Axis Bank’s franchise.
  • The CEO believes they have structured a transaction where the Bank is protected from customer attrition.
  • The price paid for the transaction was approved by the Board. The transaction took slightly longer because it was a complex one. As it was a purchase of a portfolio, he believes it was better that some of the complications were discovered upfront rather than during the transition process.
  • It will take about nine to twelve months to get all the regulatory approvals. It will take time to get customer consent, which depends on the agreement customers have with Citibank. From there, it will take 18 months to transition every Citi customer to Axis’ platform.
  • Right now, wholesale banking has been muted due to muted credit growth. Axis bank wants to be careful about giving loans at prices where the NIMs doesn’t make any sense. Overall, he believes there is a lot of work that can be done on the wholesale banking franchise.
  • Axis bank’s balance sheet gives it the flexibility to fund Citi India’s consumer purchase through balance sheet liquidity, external capital, or a combination of both. The impact will be 230bps on the CET ratio. Though the resultant CT-1 ratio will be above regulatory requirements, the Bank may consider raising capital in the future.
  • A very important part of any merger of this size is how to execute that merger. The integration management committee has already been formed and some of the important considerations in that plan would be around customer attrition, staff attrition, technology transition, and also getting benefits in terms of ensuring that Axis bank can cross-sell more to the Citibank customers.

 Asset Multiplier Comments

  • We believe the deal will add to Axis Banks’ competitive positioning across the credit cards and wealth management segments.
  • The value accretion from Citibank’s portfolio in the long term depends on Axis Bank’s ability to retain and continually add customers as well as employees and its ability to up-sell and cross-sell. The deal is fairly small compared to the size of Axis Bank’s balance sheet.

Consensus Estimate: (Source: market screener and investing. in websites)

  • The closing price of Axis Bank was ₹ 784/- as of 04-April-2022. It traded at 1.9x/ 1.7x the consensus book value per share estimate of ₹ 417/ 474/- for FY23E/FY24E respectively.
  • The consensus target price of ₹ 943/- implies a P/BV Multiple of 2x on the FY24E book value per share estimate of ₹ 474/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 Expect NIMs to be in the range of 3.2-3.3% – Federal Bank

Update on the Indian Equity Market:

On Thursday, Nifty closed lower at 17,110 (-1%) in the highly volatile session after Federal Reserve in its policy outcome indicated interest rates hike soon.

PSU BANK (+5.1%), BANK (+0.7%), and MEDIA (+0.6%) were the top gainers and IT (-3.6%), CONSUMER DURABLES (-2.3%), and HEALTHCARE INDEX (-2.3%) were top losing sectors.

The top losers were HCLTECH (-3.9%), TECHM (-3.6%), and DRREDDY (-3.4%) while AXISBANK (+3.3%), SBIN (+2.8%) and CIPLA (+2.3%) were the top gainers.

 Expect NIMs to be in the range of 3.2-3.3% – Federal Bank

Edited excerpts of an interview with Mr. Shyam Srinivasan, Managing Director and Chief Executive Officer, Federal Bank with ETNow on 25th January 2022:

  • In 3QFY22, Federal Bank’s advances grew by 4.5% QoQ and 12% YoY. 3QFY22 showed all-around improvement. The performance was broad-based which is an encouraging sign. Some businesses were driven by economic activity and the bank’s gain in market share.
  • In 3QFY22:
    • Corporate business come back strongly, and
    • Retail, which has been trending well, gathered steam and kept its pace with the developments in the economy.
  • The overall numbers show credit growth and improvement in the quality of the book.
  • The credit quality of the Bank is normally in the top quartile and credit costs have been well managed across lengths of time because of disciplined lending.
  • In 3QFY22, Federal Bank recorded its best-ever net profit and ROA crossed 1%. It crossed the Rs 5,000 mn quarter mark in net profits. So, it has been a diversified, broad-based, and on-target performance.
  • Generally, Bank’s performance is ahead of the industry by a multiple. As the economy picked up pace in 3QFY22, Federal Bank saw a good pick up and its market share gain amplified. The bank is witnessing organic, structural, and holistic growth and it is not one-off bolstering performance.
  • The bank is confident of continuing its momentum in 4QFY22E provided the economy is moderately affected by Coronavirus third wave.
  • The bank believes that green shoots in the economy should play through and if it does, the bank’s market share gain will be even more pronounced.
  • Looking at the last two-three years of the incremental credit in the country, the bank’s share is higher than its normal market share.
  • The bank is gathering momentum across and believes as things improve in the economy, its market share gain should be visible across the spectrum.
  • The credit cost of the bank has reached its bottom at 22 bps and there is no scope for further improvement. Mr. Srinivasan thinks that a normalized credit cost on an annualized basis of around 50-60 bps in a steady state would be a good place to be in. The bank always tries to maintain a balance between the kind of business momentum, and credit cost.
  • Recovery upgrade for 3QFY22 was strong and close to Rs 3,000 mn. Slippages in 3QFY22 were Rs 3,300 mn and almost matched the slippages of the 2QFY22. The incremental recovery upgrades are doing well, and collection efficiency is strong.
  • The CEO expects to see a pick up in capex in 2HCY22 as capacities are getting built-in.
  • Bank’s share gain is visible as it doesn’t have the baggage of any adverse credit and companies are beginning to look at borrowing opportunities. For a greater part of CY21 corporates had other borrowing opportunities to meet their credit requirements but those are turning out to be a little more expensive. So, banking and bank credit are looking more attractive and as that happens, Federal Bank is well-positioned to gain share.
  • Sequentially, the corporate book grew ~7% in 3QFY22. The bank is confident that this will repeat as its strengths, reach out programs and appetite remains strong. Bank thinks as capex picks up, the corporate book will grow even faster.
  • The Bank has been giving NIMs guidance to be in the range of 3.2% to 3.3%. The bank is presently at 3.27% levels and sees room for improvement of another 5 odd basis points.
  • NIMs are impacted by the mix of the book, frequency of credit growth, the quantum of credit growth, and reversals in slippages. Bank has successfully controlled all these variables and demonstrated NIMs expansion. Typically, in a rising interest rate scenario, NIMs tend to expand for banks.

Asset Multiplier Comments

  • We think the Bank’s performance in terms of the advances growth, profitability, and asset quality has been strong.
  • We expect this momentum to continue considering the improving economic condition which will aid higher disbursements and better asset quality.

Consensus Estimate (Source: market screener website)

  •  The closing price of Federal Bank was ₹ 100/- as of 27-January-2022. It traded at 1.08x/0.98x/ 0.87x the consensus Book Value Per Share estimates of ₹ 88.4/ 98.1/ 110 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 118/- implies a PBVPS Multiple of 1.07x on FY24E BVPS estimate of ₹ 110/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”




Expect loan book growth of 9.5% in FY22E – SBIN

Update on the Indian Equity Market:

On Monday, NIFTY closed in the green at 18,003 (+1.1%). Among the sectoral indices, PSU BANK (+3.2%), MEDIA (+2.6%), and REALTY (+1.2%) closed higher while none closed in the red. Among stocks, UPL (+4.6%), HEROMOTOCO (+3.3%), and TITAN (+3.1%) were the top gainers while WIPRO (-2.3%), NESTLEIND (-1.0%), and DIVISLAB (-0.9%) were among the top losers.

Excerpts from an interview of Mr. Ashwani Bhatia, MD, State Bank of India (SBIN) with CNBC-TV18 dated 7th January 2022:

  • The management stated that a big part of the stress in the banking system, which mostly consists of the corporate sector, has been reduced and that they are not witnessing any further tension.
  • RBI in their financial stability report talked about some stress buildup on account of COVID, looking at the trajectory of the virus at the moment. But as an industry, the management thinks that things are pretty much in place for decent growth.
  • Management is optimistic about the growth pipeline, the majority of which is expected to result from increased government activity. The national monetization strategy has already taken off, and InvITs are receiving favorable coverage. According to management, more economic activity would benefit the industry. Management expects the loan book to grow at 9.5 percent in FY22E and 7-9 percent in the next 5 years.
  • Mr. Bhatia stated that the retail sector was never a concern. The retail book is generally small ticket, and the housing sector is by far the most important for all banks. In general, delinquencies in the housing industry are quite low. On the personal loan side, some evaluation is done at the backend because the clients are primarily salaried persons or government employees; hence, management anticipates this stress to be managed under 0.5 percent for FY22E.
  • Despite the fact that the RBI has emphasized the stress that the MSME sector is under, as well as the significance of closely monitoring these problematic loans, SBI management, in particular, feels that things cannot get much worse. Today, all public sector banks are well-capitalized, and their high net worth is sufficient to handle loan expansion in the next few years. The bank’s NPA levels are quite constant, and the operating profit and provisions are also adequate.
  • Reliance Industries raised about $400 mn, the biggest issue by any Indian business done overseas, with one of the main reasons being the cheaper cost of financing as opposed to borrowing from a bank. On the subject of whether the trend may lead to a loss of market share for banks, management stated that it is a very beneficial development since it helps local institutions de-risk. Well-managed businesses are gaining access to international funding. After factoring in the hedging cost, the LIBOR, and the spread, the resulting rate would be close to the domestic rate. However, many of the enterprises do not need to hedge since they have a large export book. As a result, the cost of funding is significantly reduced.

Asset Multiplier comments:

  • The asset quality forecast appears to be positive since the worst phase of the corporate cycle appears to be behind the industry. Despite the tough circumstances, it reported good FY21 results. We anticipate that robust loan and deposit growth, as well as continuing recovery, will maintain the earnings momentum.
  • We believe the bank is well-positioned to deliver strong advances and PAT growth on the back of strong retail franchise and recovery in the asset quality, particularly the corporate book. We expect the bank to benefit from economic recovery and recovery of the benign corporate credit cycle.

Consensus Estimate: (Source: Market screener website and Tikr)

  • The closing price of SBI was ₹ 504 as of 10-January-2022. It traded at 1.6x/1.4x/1.3x the consensus Book Value per share estimate of ₹ 300/ 340 / 388 / for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 625 /- which implies a PB per share multiple of 1.6x on FY24E BVPS of ₹ 388/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”


Collection efficiency improved by 16% in 2QFY22 – Bandhan Bank

Update on the Indian Equity Market:

On Tuesday, NIFTY closed flat at 17,890 (-0.2%) led by REALTY (+4.0%), PSU BANK (+2.4%), and MEDIA (+1.0%). Those in red were METAL (-2%), OIL & GAS (-0.8%) and HEALTHCARE (-0.6%). Top gainers in NIFTY50 were MARUTI (+2.2%), NTPC (+2%), and TITAN (+2%). The top losers were TATASTEEL (-3.4%), GRASIM (-2.2%), and JSWSTEEL (-2%).

Excerpts of an interview with Mr. Chandra Shekhar Ghosh, MD & CEO, Bandhan Bank with CNBC-TV18 on 01st November 2021:

  • Asset quality is improving since the last quarter. In Q1, they faced a severe effect of the second wave of COVID-19, but from September it improved in a way that gives comfort to the bank and its future growth is coming
  • From Q1 to Q2, collection efficiency has improved by 16% and the Special Mention Account-0 (SMA-0) has become half, SMA-1 has come 25 percent down and SMA-2 is flat because they made higher provisions in this quarter.
  • Restructured book amount is ₹ 83.3 bn.
  • The second wave was severe than the first wave and the second wave entered the Eastern region which is Bandhan Bank’s core area in May. Hence, the May-June months were affected by that and the impact was seen in Q1FY22.
  • Eventually, August witnessed some improvement and September is when the bank saw a pick-up.
  • The Assam government has informed customers that if they don’t pay their respective dues, their credit history will be affected and they will not get credit in the future.
  • Ground-level customers are returning back and hence collection efficiency improved by 33% from June to September particularly in Assam.
  • Small borrowers are asking for time which is duly provided and it is seen that 66% of these borrowers are paying to the bank and NPA customers are also paying 65% to them
  • As a result, all of these customers don’t belong to the NPA bucket, they belong to the regular bucket.
  • Every day, 14,000 of Bandhan Bank’s customers are closing their loans which means they are coming to the regular category from the restructured and NPA one.
  • If this continues, the bank expects this to normalize in the next couple of months.

Asset Multiplier Comments

  • Bandhan Bank declared 2QFY22 earnings recently and reported a loss, impacted by significantly higher provisions. The Bank has provided for NPA to protect its balance sheet from the potential impact of a 3rd Covid wave.
  • With economic activity picking up ahead of the festive season, we believe credit growth will pick up. The bank is likely to be a beneficiary of this.

Consensus Estimate (Source: market screener websites)

  • The closing price of Bandhan Bank was ₹ 309/- as of 02-November-21. It traded at 3x/2x/2.1x the book value estimate of ₹ 102/130/150 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 310/- implies a Price/book multiple of 2.1x on the FY24E book value of ₹ 150/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Localised lockdowns impacting collection efficiency – Bandhan Bank

Update on the Indian Equity Market:

The Indian benchmark indices closed in the red for the second day, due to concerns over the impact of faster inflation on dollar flows into emerging markets. The Nifty50 ended the day at 14,697 (-1.0%), dragged by TATASTEEL (-4.8%), HINDALCO (-3.5%), and JSWSTEEL (-3.5%). The top gainers in the index were TATAMOTORS (+3.2%), TITAN (+1.6%), and MARUTI (+1.3%). The sectoral gainers were PSU BANK (+3.2%), MEDIA (+0.7%), and AUTO (+0.2%), while METAL (-3.0%), PRIVATE BANK (-1.6%), and BANK (-1.3%) led the sectoral losers.

Excerpts of an interview with Mr. Chandra Shekhar Ghosh, MD and CEO, Bandhan Bank (BANDHANBNK) published in Mint on 12th May 2021:

  • The complete impact of the second wave is yet to be felt, but Mr. Ghosh expects business to bounce back by June-21.
  • The impact of the second wave of the virus has been localised lockdowns. The advantage of localised lockdowns is businesses are still functional. There was a lack of access to villages and smaller localities last year, affecting collection efficiency.
  • Following localised lockdowns, collection efficiency has dropped 300-400bps from March-21. The drop has been due to complete lockdowns in certain areas and with branches in such areas, executives cannot go out for collections. This impact has been felt in April-21, he expects the efficiency to bounce back by June-21.
  • The microfinance part of their business is better off without moratoriums. In their case, borrowers repay if they can come to the bank’s offices or where the collection executives can reach. Wherever it is not permitted, the executives are not venturing out. Mr. Ghosh believes this is better than a moratorium, as nobody would want to repay under a blanket benefit.
  • The bank is providing loan restructuring if customers request it. The customers who are able to pay 50% or 75% in instalments are paying. The customers take it upon themselves to repay so that credit score isn’t impacted. About 78% of NPA (Non-performing Asset) customers have repaid in March-21.
  • He expects similar growth in credit growth in FY22 as last year (~20%).

Asset Multiplier Comments

  • As the bank has a higher exposure to rural and semiurban areas, there was a lower impact on its operations in 4QFY21. With lockdown restrictions imposed in rural areas as well due to the second wave, the bank may face issues with collection.
  • In the recently released 4QFY21 results, the Bank has recognised higher provisions for weaker borrowers adequately. While the impact of the second wave cannot be measured so soon, the bank is likely to maintain its conservative stance and maintain higher provisioning buffers going forward.

Consensus Estimate: (Source: market screener website)

  • The closing price of BANDHANBNK was ₹ 288/- as of 12-May-2021. It traded at 2.3x/ 1.9x the consensus book value estimate of ₹ 126/ 155 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 384/- implies a PB multiple of 2.5x on FY23E BV of ₹ 155/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

This week in a nutshell (April 26th to April 30th)

Technical talks

NIFTY opened the week on 26th April at 14,449 and closed on 30th April at 14,631. It made a weekly gain of 1%. The index is trading above its 20DMA of 14,618 which might act as a support. On the upside 50DMA of 14,783 might act as a resistance. The RSI (50), and MACD turning downwards suggests a further possible decline.

Weekly highlights

  • The Reserve Bank of India (RBI) capped the tenure of MDs and CEOs of private banks at 15years. Promoters can hold this post for a maximum of 12 years but the RBI can choose to give them a 3-year extension under extraordinary circumstances. These rules apply to private banks, small finance banks, and wholly-owned subsidiaries of foreign banks. These new rules will apply once the tenure of existing MDs/CEOs for which approvals have been taken is completed. This will impact banks such as Kotak Mahindra Bank, where Mr. Uday Kotak has been the head of the institution for 17 years and there could be a change in the management once his term is completed in 2024.
  • The Securities and Exchange Board of India (SEBI) has directed the mutual fund (MF) industry that a fifth of the salary of top executives is to be paid in the form of mutual fund schemes they oversee. The allotment of MF units will be done every month and will be subject to a 3-year lock-in. The industry welcomed the move as it increases accountability and would ensure a better selection of securities.
  • Several automobile manufacturing companies have announced plans to shut down plants for up to a fortnight from May 1. The surge in Covid-19 cases and scattered lockdowns across states and cities are the reasons attributed to the temporary shutdown. This will impact production and sales in the June-21 quarter.
  • FII (Foreign Institutional Investors) selling and DII (Domestic Institutional Investors) buying trend continued this week as well. There was a net outflow of Rs 44571mn from the FII kitty while DII invested Rs 52833 mn.

Things to watch out for next week

  • The Automobile companies will report monthly volume data for April-21. The data will be important to ascertain the impact of the second Covid-19 wave and lockdowns on the demand.
  • The 4QFY21 result season continues in the next week as well. The Commentary from biggies such as Hero MotoCorp and HDFC will be critical.

RBI should allow one-time restructuring rather than extending moratorium – Bajaj Finserv

Update on the Indian Equity Market:

On Thursday, Nifty ended 0.9%, lower than the previous close at 11,254. The top gainers for Nifty 50 were Dr Reddy (+4.6%), Sun Pharma (+3.7%), and Wipro (+2.5%) while the losing stocks were BPCL (-7.9%), IndusInd Bank (-5.4%), and IOC (-4.0%). The sectoral gainers for the day were Pharma (+3.1%) and IT (+0.7%) while the losers were Media (-2.3%), Pvt Bank (-2.0%) and PSU Bank (-1.9%).

Edited excerpts of an interview with Mr Sanjiv Bajaj, MD, Bajaj Finserv; dated 29th July 2020 from CNBC TV18:

  • Mr Bajaj extended support to HDFC chief Mr Deepak Parekh’s view that the Reserve Bank of India should not extend the loan moratorium.
  • Bajaj Finserv has a total of 6 months available for moratorium by September, and as the economy has started picking up from last month at varying speeds because of local lockdowns creating issues. But it is picking up other than a few key sectors like hospitality, travel, entertainment which are facing very high challenges. But most others have started at least doing okay. So, at a time like this, Mr. Bajaj believes that it doesn’t make sense to extend a blanket moratorium.
  • Moratorium numbers have come down significantly in the month of June as compared to April and May-20 for many banks & NBFCs.
  • RBI should allow one-time restructuring rather than extending the moratorium. According to him, let lenders decide on the basis of each one’s own underlying cash flows, because eventually, it should be kept in mind that there is a cost to doing all this and somebody has bear that cost. A 6-month moratorium is long enough, beyond that will start creating a moral hazard that even reasonable quality borrowers will lose the habit of paying.
  • Bajaj Finserv sees Rs 6,300 crores of credit cost for FY21E.
  • The Company was fortunate enough to raise capital for Bajaj Finance last year. They are adequately capitalised with the Rs 8,500 crore raised last year. As the two insurance companies do not need it, Bajaj Finserv has a significant capital on the books from profits of earlier years.
  • The tier-I ratio is 23-24% which he thinks is a comfortable one.

Consensus Estimate: (Source: market screener website)

  • The closing price of Bajaj Finserv Ltd was ₹ 6,175/- as of 30-July-2020. It traded at 2.8x/2.5x/2.1x the consensus book value estimate of ₹ 2,188/2,478/2,873 for FY21E/FY22E/FY23E respectively.
  • The consensus target price of ₹ 7,248/- implies a PB multiple of 2.5x on FY23E EPS of ₹ 2,873/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Deposit figures shot up since the announcement of Yes Bank moratorium: Romesh Sobti, IndusInd Bank

Update on the Indian Equity Market:

Markets seesawed the entire session after a one day break as Nifty closed marginally lower at 10,448. The increasing number of virus infections in the country has created uncertainty over the near term outlook for companies as many states are rushing to close public places to control the spread of the virus. Among the Nifty 50 stocks, YESBANK (36.7%), ZEEL (7.5%) and INFRATEL (6.6%) were the highest gainers whereas GAIL (-10.2%), TATASTEEL (-7.8%) and TATAMOTORS (-6.9%) were the top losers. Within the sectoral indices, MEDIA (1.7%), PVT BANK (0.4%) and FIN SERVICES (0.2%) were few of the gainers while PSU BANK (-3.9%), REALTY (-2.7%) and METAL (-2.1%) were the top losers.

Excerpts from an interview with Mr Romesh Sobti, MD & CEO, IndusInd Bank published in CNBC TV-18 on 9th March 2020:

  • IndusInd Bank has deferred its plans to raise funds through additional tier-1 (AT 1) bonds after a write-down in the AT1 bonds of Yes Bank under the restructuring plan. The bank’s board meeting that was scheduled for 9th March 2020 has also been deferred.  On this development, Mr Sobti said that the bank does not need capital on an urgent basis. He believes that the bank still has got enough fuel in the tank for the next 2 years for loan growth.
  • He said that the capital adequacy ratio of the bank is well beyond 15 percent and another 1 percent to come in from the residual preference share allotment to the promoters as a consequence of the Bharat Financial Inclusion merger.
  • He further said that they did not defer capital raising due to fear around AT1 bonds. The bank decided to defer the meeting as there is a lot of dust flying around the Yes Bank issue and IndusInd bank is still above the threshold level where the board is comfortable.
  • On the write-off of AT1 bonds, he said that the last word is not yet out on the fate of the bonds. He is waiting for the final resolution plan before concluding his remarks.
  • When asked about the Yes Bank fiasco, he said that the moratorium is a standard process that happens whenever this sort of restructuring or merger takes place. He said that the moratorium is going to be lifted sooner than later in the coming 30 days period.
  • Commenting on the behaviour of depositors since Yes Bank moratorium was announced, he said that the deposit figures of IndusInd have shot up since the announcement. As a result, the bank is carrying a huge amount of excess liquidity.
  • When asked if they would be interested in buying 5 percent stake in Yes Bank if they were approached by SBI, Sobti said that it is a very attractive proposition under current valuations.

Consensus Estimate: (Source: market screener website and investing.com websites)

  • The closing price of IndusInd Bank was ₹ 845/- as of 11-March-2020.  It traded at 1.6x/ 1.4x/ 1.2x the consensus book value estimate of ₹ 514/ 613/ 728 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price for IndusInd Bank is ₹ 1,660/- which implies a PB multiple of 2.3x on FY22E BV of ₹ 728/-.

HDFC Bank (HDFCBANK): Bank to cash on the festive demand

Update on the Indian market

On Monday, NIFTY continued the rally for the second consecutive trading day after Friday’s announcements of tax measures and revisions in GST rates leading to earnings upgrade of the companies. NIFTY closed 2.9% higher. The sectoral indices’ performance reflected the key beneficiaries of the change in tax rates with NIFTY BANK (+5.4%), NIFTY Financial services (+5.4%) and FMCG (+4.4%) were the biggest gainers while NIFTY IT (-2.9%) and NIFTY Pharma (-2.2%) were the losers. The biggest gainers were BPCL (+13.7%), LT (+9.1%), BAJFINANCE (+9%), EICHERMOT (+9%) while the highest losers were ZEEL (-8%), INFY (-5%).

HDFC Bank (HDFCBANK): Bank to cash on the festive demand

Key takeaways from the interview of Mr Aditya Puri, MD, HDFC Bank; dated 19th September 2019 on CNBC TV 18:

  • HDFC bank has made higher provision for Agri loans but the actual defaults are not high. Agri loan slippages were one-off and will come down post-harvest.
  • HDFC bank created contingency provisions as per RBI norms for NBFCs and for corporates which don’t have unhedged exposure. These provisions are expected to go away this quarter.
  • The cost to income ratio is expected to go down by 5% in the next 5 years for HDFC bank.
  •  Banks are not allowed to lend for land. In the real estate sector, commercial real estate is doing well. The middle, slightly above middle and affordable housing continues to see demand. The concessions announced by the finance minister of India are only for affordable houses. The Luxury flats, are the ones which will not benefit and the prices will eventually be determined by the market.
  •  HDFC Bank is looking ahead to a very good festive season of Diwali. From 27th September 2019 to 31st December 2019; HDFC Bank is coming up with a Diwali Dhamaka offer which will provide lower cost, cashback and discount from the vendor to the customers. HDFC Bank will give ~7-10% cashback over and above the discounts given by the vendor partners. HDFC Bank will maintain NIMS of ~4.3%.
  • On talking about the linking to external benchmark rates, Mr Puri mentioned that HDFC bank doesn’t have many floating loans. He mentioned that floating rate deposits are not feasible. There is a lot of pressure on banks to transmit lower rates, but there is a need for the debt market reforms. 

Consensus Estimate (Source: market screener website)

  •  The closing price of HDFCBANK was Rs 1,255/- as of 23-September-19. It traded at 4.1x / 3.6x / 3.0x the consensus book value for FY20E/ FY21E/ FY22E of Rs 308/ 351/ 413 respectively.
  • Consensus target price of Rs 2,661/- implies a P/B multiple of 6.4x on the FY22E book value of Rs 413/-

SBI 1QFY20 result update: Profitability sequentially better, pace of improvement disappoints.

Dated: 5th August 2019

  • Advances grew by 14% YoY to Rs 21,347 bn. Indian retail book growth was 17% while corporate book growth was 12%. Foreign advances book grew by 16%.
  • NII was Rs 229 bn, 5% higher YoY. Overall NIMs at the Bank level marginally improved to 2.81% from 2.78% in 4QFY19.
  • Total operating expense was 7% higher YoY. The increase was due to higher employee provisions on account of decline in bond yields.
  • Provisions were 52% lower YoY and 44% lower QoQ. The total provisions number was lower due to provision write backs of Rs 24 bn. NPA provisions were Rs 116 bn in 1QFY20 vs. Rs 130 bn in 1QFY19 and 173 bn in 4QFY19.
  • Reported PAT was at Rs 23 bn vs Rs 48 bn loss reported in 1QFY19 and Rs 8 bn profit in 4QFY19.
  • Asset Quality was stable on a sequential basis with GNPA and NNPA at 7.53% and 3.07% respectively.

Management commentary:

  • Slippages were high in 1QFY20 at Rs 162 bn compared to Rs 99 bn and Rs 75 bn in 1QFY19 and 4QFY19 respectively. Reasons for this jump include Rs 20 bn exceptional agri slippages in one state on account of farm loan waiver, higher SME slippages due to absence of RBI dispensation which was available in 1QFY19, Rs 20 bn due to some technical issues in an account that is being serviced regularly.
  • Out of Rs 116 bn NPA provisions made in 1QFY20, Rs 23 bn was provided against 2 accounts that are standard but need proactive provisions as per a recent RBI circular.
  • Management has guided to credit costs of 140 bps for FY20E. This includes any additional provisions that may be required for the 2 specific currently standard accounts (DHFL and one renewable energy account). This credit cost guidance is higher than the previous guidance of 100 bps.
  • Management is expecting loan growth of 12% and NIMs for the overall business of 3.15% in FY20E.
  • In the current scenario, management expects to achieve core RoA of 0.5-0.6% in FY20. Gains from recoveries or subsidiary stake sale will be over and above this return guidance. This is lower than previous comparable guidance of 0.70-0.75%

Consensus estimates (Source: Marketscreener website):

  • The stock price was Rs 300/- as of 5-Aug-19 and traded at 1.17x/ 1.04x the consensus Book Value for FY20E/21E BV of Rs 256/286 respectively.
  • Consensus target price is Rs 376/- implying P/B of 1.31x for FY21E BV of Rs 286