1. 13 March 2012
Update
Financials
Superior and stable RACI leading to lower earnings volatility and higher RoA
HDFCB, IIB, PNB and INBK leading the pack; SBIN and ICICIBC report sharp improvement



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We have analyzed banks' performance on two parameters: (1) risk-adjusted margin (RAM) and (2) risk adjusted core
income (RACI). We define RAM as (NII-NPA provisions)/average assets, and RACI as RAM + fee income (as a percentage of
average assets).
Significant improvement in RAM is noticed for private banks from FY11 onwards led by the sharp fall in credit cost due to
benign retail asset quality. Private banks are historically twice efficient than PSU banks on generating fees. The gap of RACI
has increased further during the last two years leading to sustained premium multiples despite moderation in growth.
Banks delivering higher-than-system average RACI are HDFCB (~5.4%), AXSB (~4.1%), INBK (~3.8%) and PNB (~3.6%). ICICIBC
and IIB's sharp improvement in core income over the last 2-3 years has led to historical high RACIs. Despite being a bulk
borrower YES's consistent on performance of RAM is commendable (range of 2.2-2.5%).
We re-iterate SBIN, ICICIBC, PNB, INBK and YES as our top picks in the sector due to their consistently superior/improving
core operating performance.
PSU banks' RAMs down sharply by 60bp over FY07-10;
higher NIMs resulted in improvement thereafter: Sharp
contraction in PSU banks' RAM during FY07-10 was led
by the drop in NII-to-average assets (defined as net
interest margin or NIM) of over 40bp and higher NPA
provisions-to-average assets (defined as credit cost) of
over 20bp. However, banks recovered some lost ground
in FY11 as NIMs increased by ~42bp leading to over 32bp
improvement in RAM. In FY11, for PSU banks like Bank
of Baroda (BOB), Bank of India (BOI), Canara Bank (CBK),
Union Bank (UNBK) and Andhra Bank (ANDB), RAM
expanded by over 35bp. Punjab National Bank (PNB) and
Indian Bank (INBK) have consistently maintained
average RAMs that are ~50bp higher vis-à-vis peers.
Superior retail asset quality, NIM expansion helped
private banks' to boost RAM: During FY07-10, private
banks' average RAM remained largely stable at 1.9%,
while performance varied sharply among players. While
ICICI Bank's (ICICIBC) RAM compressed sharply by 40bp
to 1% (half of private bank's average of 1.9%) in FY10,
IndusInd Bank's (IIB) reported sharp improvement in
RAM during the same period. Led by ICICIBC' strong
bounce back (up 82bp, out of which 65bp was from credit
cost) and the superior retail asset quality performance
of HDFC Bank (HDFCB) and other smaller banks, private
banks' RAM improved sharply (up 70bp) in FY11. While
an improvement in RAM was seen across all private banks
(FY12 v/s FY07), a sharp improvement was noticed for
IIB (3% v/s 1.1%), ICICIBC (2.1% v/s 1.4%) and Federal
Bank (FB) - 2.8% v/s 2.2%. Yes Bank's (YES) RAM remained
in the narrow band of 2.2-2.5%.
Strong contribution from fee-based income leading to
higher RACI for SBIN; private banks doing a better job:
With the exception of State Bank of India (SBIN), the
contribution of fee-based income to average assets is
less than 90bp for PSU banks. Whereas private banks are
nearly 1.8x more efficient than their PSU counterparts
in fees. Over FY07-11, PSU banks' average fee-based
contribution was ~90bp v/s private banks' 160bp. In a
moderating economic scenario, the RACI gap between
PSU and private banks has widened sharply due to
continued buoyancy in fee-based income for private
banks, and improving RAM led by lower credit cost (due
to benign retail asset quality and lower restructured
loans). In case of SBIN, while RAM was ~10bp lower than
PSU banks' average (over FY07-11), RACI was ~10bp
higher because of the high component of fee-based
income for the bank. For FY12, SBIN's RACI is likely to be
~40bp higher than PSU banks' average in FY12.
Superior RACI leads to higher RoA; SBIN is an exception:
We believe banks that have consistently delivered
higher RACI are better placed. PSU banks with higher
RACI like PNB, INBK enjoy much superior ROAs compared
to peers. While SBIN's RACI is higher than its peers,
higher opex and highly volatile treasury income has lead
to lower RoA. Among private banks, consistent
improvement in RACI was witnessed for ICICIBC, IIB,
VYSB and FB over the last 2-3 years leading to an
improvement in RoAs. HDFCB enjoys best of the RACI's,
followed by IIB. We reiterate SBIN, ICICIBC, PNB, INBK
and YES as our top picks in the sector due to their
consistently superior core operating performance.
Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com) + 91 22 3982 5415
Sohail Halai (Sohail.Halai@MotilalOswal.com) / Umang Shah (Umang.Shah@MotilalOswal.com)

2. Financials | Update
Margins competitive but asset quality-a key differentiator
Sharp improvement in RAM for ICICIBC and IIB; HDFCBs RAM remain superior
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Led by a sharp drop in NIM (down over 40bp) and higher credit cost (up 20bp) over FY07-10,
PSU banks' RAM compressed sharply. However, NIMs recovered in FY11 (up 42bp) leading to
~32bp improvement in RAM.
During FY07-10, while the average RAM for private banks was 1.9-2%, performance varied
sharply among players. While ICICIBC's RAM compressed sharply by 40bp to 1% (nearly half
of private bank's average of 1.9%), that of IIB improved sharply during the same period.
Over the last 2-3 years, private banks' strong retail asset quality performance and structural
improvement in balance sheet profile have translated into higher RAM. After restructuring
of its balance sheet, ICICIBC registered the strongest improvement in RAM (up 105bp over
the past two years).
HDFCB, PNB and INBK have consistently delivered superior RAM over the years leading to
superior ROA. YES's stable RAM, despite a bulk borrower, is commendable.
PSU Bank RAM bounce back in FY11 led by improvement in margins
Led by a sharp drop in NIM (down over 40bp) and higher credit cost (up 20bp) over
FY07-10, PSU banks' RAM compressed sharply. However, NIMs recovered in FY11
(up 42bp) leading to ~32bp improvement in RAM.
 Compression in NIM (down 50bp, led by high liquidity build-up) and asset quality
pressure (+20bp) led to a sharp compression in SBIN's RAM by ~70bp during FY0710. However, corrective actions taken by the management with increased focus
on NIM led to 23bp improvement in FY11 which is expected to improve further by
40bp in FY12. SBIN's RAM has again bounced back to near the FY07 level now.
 Except PNB, UNBK and INBK, none of the PSU banks have shown consistency in
RAM performance. PNB and INBK have consistently maintained RAMs of 40-75bp
and 40-100bp above PSU banks' average leading to superior ROA.
 Among PSU banks, major swings were witnessed for BOI in FY10 (down 80bp due
to asset quality-related issues) and CBK in FY08 (down 70bp, largely driven by NIM
compression).

Private banks flare better in terms of RAM during FY11-12 (RAM, %)
PSU banks' RAM
improved in FY11 led by
an up-tick in margins.
However, credit costs
remained at an elevated
level. In case of private
banks, improvement in
asset quality (led by
ICICIBC) and higher
margins led to sharp
improvement in RAM
PSU Avera ge
Pvt Avera ge
2.7
2.6
2.6
1.9
FY07
1.9
FY08
2.3
2.3
2.3
2.3
2.0
FY09
2.0
1.9
FY10
FY11
FY12E
Source: Company/MOSL
13 March 2012
2

3. Financials | Update
3.6
3.6
3.0
3.0
HDFCB
INBK
IIB
PNB
1.8
3.0
3.0
3.0
2.9
2.9
2.8
2.8
2.8
2.6
ANDB
2.6
2.8
2.4
SIB
2.6
2.7
2.3
FB
2.7
2.0
2.3
FY12
VYSB
2.6
2.6
AXSB
2.4
2.1
2.5
2.2
SBIN
2.3
2.3
YES
2.2
2.3
BoB
FY11
2.5
2.4
2.3
2.1
UNBK
2.2
1.8
2.1
1.3
ICICIBC
2.2
2.0
2.2
OBC
2.2
1.7
1.9
CBK
1.7
BoI
2.1
2.2
FY07--11
3.9
Private banks’ RAM has remained stable or improved; PSU banks has been a mixed bag (%)
Source: Company/MOSL
Private Banks: Sharp improvement in RAM over past two years; ICICIBC &
IIB posting strong turnaround
SBIN's higher focus on
yield led to sharp
bounce back in RAM
despite challenges in
asset quality. IIB's and
ICICIBC's strong
improvement in RAM
was led by restructuring
of balance sheet and
focus on profitability.
HDFCB, INBK and PNB
has consistently
delivered superior RAM
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13 March 2012
Most private banks have registered stable-to-improving RAMs during FY05-10,
led by improving CASA ratio, better pricing on retail loans and superior risk
management practices.
After a dismal performance during FY07-10 (due to lower margins and pressure on
asset quality), ICICIBC registered a sharp improvement in RAM. Addressing ALM
issues, improvement in liability profile, increased focus on profitable growth,
better loan sourcing and diversifying its loan book are some of the key reasons for
the healthy improvement.
HDFCB has consistently maintained its RAM level above private banks' average
leading to consistent and healthy earnings growth. Post the management change
in IIB its RAM, which used to be half of the private banks' average in FY08, has
improved to more than the average in FY11.
AXSB's RAM, which was 2.2-2.5% (average of 2.3%) during FY07-10, has improved
to 2.6% due to improvement in margins (led by the impact of capital-raising and
lower growth rates than historical averages).
YES has managed to keep its RAM in the range of 2.2-2.5% during FY07-12, which
has reduced earnings volatility. VYSB and FB has registered sharp improvement in
RAM during the same period.
3

4. Financials | Update
INBK and PNB have consistently delivered higher RAM; SBIN's RAM has bounced back sharply (%)
SBIN: Margins off-sets higher credit cost
NII/Avg As s ets
2.6
LLP/Avg As s ets
2.5
PNB: Consistently delivering higher RAM
NII/Avg As s ets
3.0
LLP/Avg As s ets
2.2
2.8
2.6
-0.3
-0.3
1.9
2.3
2.9
3.3
-0.3
-0.5
-0.7
3.4
3.1
3.1
3.1
-0.2
-0.4
-0.4
-0.8
FY07 FY08 FY09 FY10 FY11 FY12E
2.6
3.5
3.3
-0.6
-0.4
2.8
2.1
2.5
2.7
LLP/Avg As s ets
2.4
2.2
2.4
2.8
2.4
2.5
2.4
-0.1
-0.3
-0.1
-0.4
2.2
2.8
2.6
-0.3
-0.4
2.0
FY10 FY11 FY12E
FY07 FY08 FY09 FY10 FY11 FY12E
BoI: Volatile asset quality impacting RAM CBK: Weak core operating performance
UNBK: Stable RAM despite higher NPAs
NII/Avg As s ets
2.3
2.2
2.4
2.7
-0.4
2.6
-0.4
2.7
-0.3
LLP/Avg As s ets
1.6
2.2
2.3
2.5
-0.7
-0.3
1.7
2.1
-0.4
FY07 FY08 FY09 FY10 FY11 FY12E
OBC: Volatile RAM performance
NII/Avg As s ets
1.8
1.9
2.0
2.3
-0.2
0.3
2.3
-0.4
2.2
NII/Avg As s ets
2.3
1.9
LLP/Avg As s ets
1.7
2.2
1.5
2.7
-0.4
2.0
2.4
2.3
2.6
-0.5
-0.4
-0.6
-0.4
1.7
2.0
3.3
2.3
2.0
2.1
2.7
2.5
2.7
2.4
-0.4
-0.3
-0.5
-0.4
-0.4
2.3
2.1
2.9
2.7
-0.6
-0.6
FY07 FY08 FY09 FY10 FY11 FY12E
ANDB: Strong margin performance
LLP/Avg As s ets
3.0
LLP/Avg As s ets
2.0
FY07 FY08 FY09 FY10 FY11 FY12E
NII/Avg As s ets
NII/Avg As s ets
2.4
INBK: RAM best amongst peers
LLP/Avg As s ets
2.8
FY07 FY08 FY09
NII/Avg As s ets
2.9
2.9
2.9
-0.4
2.3
BoB: Largely stable RAM performance
3.0
2.7
3.3
3.0
3.4
3.4
3.6
3.4
0.0
-0.4
-0.6
-0.4
NII/Avg As s ets
LLP/Avg As s ets
2.8
3.0
2.8
3.2
3.3
-0.5
-0.5
2.4
2.4
2.3
3.0
2.6
2.6
2.8
-0.1
-0.2
-0.3
-0.4
0.2
2.5
2.0
2.8
2.5
3.4
3.2
-0.6
-0.4
-0.2
-0.6
FY07 FY08 FY09 FY10 FY11 FY12E
FY07 FY08 FY09 FY10 FY11 FY12E
FY07 FY08 FY09 FY10 FY11 FY12E
Source: Company/MOSL
13 March 2012
4

5. Financials | Update
Across-the-board RAM improvement; ICICIBC and IIB register strong turnaround (%)
ICICIBC: Sharpest improvement in
RAM since FY10
NII/Avg As s ets
LLP/Avg As s ets
1.8
1.2
2.0
2.1
2.2
-0.7
-1.0
-1.2
1.3
1.9
-0.5
NII/Avg As s ets
3.4
2.4
-0.5
3.7
3.7
4.2
2.1
2.3
1.0
1.4
AXSB: Improving RAM performance
over FY11-12
HDFCB: RAM best amongst peers
4.7
4.7
LLP/Avg As s ets
3.9
3.6
4.1
4.2
3.9
-1.0
-0.3
-0.8
-0.9
-1.0
FY07 FY08 FY09 FY10 FY11 FY12E
NII/Avg As s ets
LLP/Avg As s ets
2.1
2.1
1.9
1.8
2.3
2.7
1.1
3.4
3.3
2.5
2.2
2.3
2.5
2.8
1.4
-0.3
-0.5
-0.4
-0.4
-0.3
-0.4
-0.2
-0.4
-0.7
-0.4
FY07 FY08 FY09 FY10 FY11 FY12E
FB: Superior NIM leading to higher RAM
NII/Avg As s ets
2.4
3.0
-0.9
-1.0
FY07
FY08
2.8
2.9
3.0
3.1
3.0
-0.4
-0.6
-0.9
-0.5
-0.4
FY07 FY08 FY09 FY10 FY11 FY12E
NII/Avg As s ets
2.2
3.7
2.4
LLP/Avg As s ets
2.4
2.5
2.6
2.7
2.6
2.4
-0.3
-0.3
-0.1
-0.1
2.3
2.3
2.4
0.0
2.3
FY07 FY08 FY09 FY10 FY11 FY12E
SIB: Consistently delivering on asset quality
LLP/Avg As s ets
2.0
3.1
2.4
-0.2
FY07 FY08 FY09 FY10 FY11 FY12E
2.2
2.6
2.2
1.8
-0.3
2.6
2.9
2.8
1.4
2.2
0.0
1.3
1.1
2.2
YES: RAM in a narrow band of 2.2-2.5%
LLP/Avg As s ets
3.0
2.4
2.5
2.3
-0.3
IIB: Sharp turnaround in core operations VYSB: Improving core income
3.0
LLP/Avg As s ets
-0.1
3.2
-0.3
FY07 FY08 FY09 FY10 FY11 FY12E
NII/Avg As s ets
NII/Avg As s ets
2.6
NII/Avg As s ets
2.7
3.4
3.7
-1.3
-1.0
-1.1
FY09
FY10
FY11
FY12E
2.4
-0.8
3.5
2.7
2.2
2.9
-0.7
FY07
LLP/Avg As s ets
2.3
2.6
2.8
2.4
2.8
2.5
2.7
2.8
-0.1
-0.1
-0.2
-0.1
-0.1
FY08
FY09
FY10
FY11
FY12E
Source: Company/MOSL
13 March 2012
5

6. Financials | Update
Private banks: Reaping benefit of benign asset quality
PSU banks' Higher NIMs aids profitability; credit cost remain elevated
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The increased discipline in pricing and improvement in CD ratio propelled margins in FY11.
However, the sharp increase in PSU banks' slippages led by system-based recognition of
NPAs and continued tight liquidity in the system led to stable to marginal decline in NIMs in
FY12. SBIN is an exception with margins improving ~50bp in FY11 and expected to further
improve by 50bp in FY12 - best amongst the sector.
Change in NPA provisions requirement and higher asset quality stress led to sharp increase
in PSU banks' NPA provisions. On the other hand, NPA provisions for private banks declined
due to their well-diversified portfolio, superior risk management practices and betterthan-trend line retail asset quality performance.
A higher share of a retail portfolio and strong liability franchise enabled HDFCB to maintain
superior NIMs. ICICIBC and IIB reported consistent improvement in NIM led by structural
improvement in balance sheet profile. ICICIBC's NPA provisions also fell sharply due to the
sharp decline in unsecured retail loans and improvement in risk management practices.
2.9
2.5
2.9
2.8
2.6
2.6
2.4
2.6
3.1
Pvt Avera ge
2.9
PSU Avera ge
2.9
Performance on
margins is expected to
be a mixed bag for PSU
bank. However, on an
aggregate basis margins
are expected to remain
stable. Private banks
exhibited strong margin
performance across the
board
3.0
Consistent improvement in NIM of private banks bridges the gap as against PSU banks (NIM, %)
FY07
FY08
FY09
FY10
FY11
FY12E
Source: Company/MOSL
Divergent trend in NPA provision-to-average assets for PSU and private bank (credit cost, %)
While NPA provisions of
PSU banks has been
rising over past three
years, private banks
have been able to show
consistent
improvement led by
sharp decline in NPA
provision
PSU
Pri va te
1.0
0.8
0.6
0.3
FY07
0.5
0.3
FY08
0.6
0.6
0.5
0.4
0.3
0.3
FY09
FY10
FY11
FY12E
Source: Company/MOSL
13 March 2012
6

7. Financials | Update
PSU Banks: Performance on margin a mixed bag; SBIN's performance
remains superior
Margins bounced back sharply for PSU banks in FY11 led by (1) asset reallocation,
leading to improvement in CD ratio, (2) buoyancy in CASA growth, and (3) increased
pricing discipline.
Despite pressure on CASA deposits, higher slippages and tight liquidity conditions,
we believe NIMs are unlikely to drop sharply in FY12 due to significant pricing
discipline in the industry and banks' focus on core profitability.
Change of management's focus to garner higher share of customer wallet share
via yields than fees, sharp repricing of some of the assets and high share of CASA
mix benefitted SBIN in FY12. The bank is likely to report 70bp+ improvement in
margins v/s the average seen during FY07-11. While SBIN's NPA provisions were
either in-line or marginally above PSU banks' average during FY07-10, it increased
sharply in FY11-12 impacting earnings growth
CBK's and BOI's margins compressed sharply led by higher slippages and higher
proportion of bulk deposits (annualized slippage ratio in FY12 is expected to be
2.2% and 3.1%, respectively). UNBK's performance on margins surprised us
positively as despite higher slippages, its NIM is expected to decline by only
~20bp as compared to over 30-50bp for BOI and CBK.
Other PSU banks are expected to report 20-30bp NIM decline in FY12. Apart from
SBIN, the only other PSU bank that is expected to report improvement in margin
is ANDB (up 10bp).
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Mixed performance on margins (%)
FY12E
2.9
3.2
3.5
PSU avg
ANDB
PNB
3.6
2.9
UNBK
INBK
2.8
BOB
2.9
2.6
2.7
2.8
OBC
SBIN
2.6
2.6
2.5
BOI
2.4
2.1
2.6
2.1
2.3
2.5
2.6
2.7
2.9
2.8
3.3
3.2
3.3
2.6
3.3
3.4
3.4
FY11
CBK
Avg. FY07-11
SBIN - Strong improvement in NIMs (%)
E
Credit cost increases for most PSU banks (%)
0.8
0.6
0.7
SBIN
UNBK
0.6
0.4
0.4
0.6
0.6
PSU
average
0.3
0.5
ANDB
0.3
BOI
0.4
0.5
FY12E
0.4
0.4
0.4
0.6
0.4
FY11
PNB
0.4
CBK
0.5
0.4
OBC
0.4
0.1
0.6
0.4
0.4
0.6
INBK
0.4
0.3
BOB
0.2
Avg. FY07-11
BOB and INBK, NPA
provision remain under
control led by strong
asset quality
performance. Those of
SBIN, UNBK and OBC
have risen significantly
Source: Company/MOSL
13 March 2012
7

8. Financials | Update
Private banks' NIMs sharp improvement in FY11-12

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


The performance of private banks has remained strong across-the-board. A higher
share of retail portfolio and strong liability franchise enabled HDFCB to maintain
superior NIM of ~4%.
ICICIBC and IIB reported consistent improvement in NIMs led by a structural
improvement in their balance sheet profile.
Improvement in liability mix (CASA ratio improved to 40%+ in FY11 from 22% in
FY07) and an uptick in its international business' margins led to ICICIBC registering
a strong performance. Its NPA provision declined to 50bp in FY11 as against peak
of 120bp in FY10. Better risk management, change in loan mix more towards
secured products and running-off of unsecured loan portfolio has led to stellar
performance on asset quality, driving ROAA.
IIB's increased focus on high-yielding commercial vehicle (CV) loans and improving
liability franchise has resulted in its NIMs improving. Despite its higher exposure
to the CV segment, the bank has been able to maintain its asset quality in a
moderating economic growth environment, which is commendable.
AXSB's performance has been strong with the bank maintaining MINs at 3%+ over
the past three years. While strong growth in past and higher exposure towards
the SME segment remains a risk for the bank, so far its performance has been
strong with NPA provisions declining from ~90bp in FY10 to ~45bp in FY11 and
expected to further decline to ~40bp in FY12.
2.4
2.9
2.8
3.0
2.8
3.0
2.8
3.1
3.1
3.4
3.7
VYSB
AXSB
Pvt Avg
IIB
FB
4.7
4.7
4.2
4.1
4.2
FY10
FY11
3.9
4.2
2.7
2.8
2.7
SIB
NII to a vera ge a s s ets
HDFCB
2.5
2.4
2.6
YES
2.2
2.1
2.4
2.3
3.4
3.5
FY12E
3.3
FY11
ICICIBC
Avg. FY07-11
HDFB: Superior perfomance on NIMs continues (%)
4.4
3.9
Healthy NIM performance across board (NIM, %)
FY07
FY08
FY09
FY12E
0.8
1.1
0.4
FB
0.3
0.5
AXSB
HDFCB
0.4
Pvt
Average
0.3
0.4
0.5
0.7
0.3
0.4
0.4
IIB
0.5
ICICIBC
0.3
0.4
0.4
0.2
VYSB
YES
0.1
0.1
0.1
0.2
0.1
0.1
SIB
FY12E
0.8
FY11
0.8
Avg. FY07-11
Balance sheet
restructuring and focus
on profitability led to
sharp decline in ICICIBC
NPA provisions,
resulting in higher RAM
and RoAA
1.1
Lower credit cost led by strong asset quality (credit cost, %)
Source: Company/MOSL
13 March 2012
8

9. Financials | Update
Higher RACI translating into higher RoAs
Fees a key differentiator of return ratios




In case of most PSU banks (excluding SBIN), the contribution of fee-based income contribution
to average assets is less than 90bp. Private banks are nearly 1.8x efficient in garnering feebased income. In FY11, fee income accounted for 90bp of PSU banks' average vis-à-vis 160bp
for private banks.
In a moderating economic scenario, the RACI gap between PSU and private banks has widened
sharply due to continued buoyancy in fees for private banks, lower credit cost (due to
buoyancy in retail loans) and improving NIMs led by ICICIBC (ALM changes and liability profile).
While SBIN's RACI is higher than its peers, higher opex and highly volatile treasury income
has translated into lower ROA.
Among private banks, players, the consistent improvement in RACI over the last 2-3 years
for ICICIBC, IIB, VYSB and FB has lead to an improvement in ROA. HDFCB enjoys the best RACI
followed by IIB. Whereas in PSU banks PNB and INBK has consistently delivered higher RACI
translating into higher RoAA's.
Private banks have consistently delivered higher fee income than PSU banks
Private banks have
emerged as clear
winners in terms of fee
income generation led
by superior technology,
introduction of
structured products and
diversified sources of
fee income
PSU
Fee income to average asset (%)
1.7
1.6
FY07
1.7
FY08
0.9
FY09
1.6
1.6
1.6
0.9
0.9
0.9
Pvt
0.9
FY10
0.8
FY11
FY12E
Source: Company/MOSL
Fee income to average asset (%)
PSU banks: Fee income moderates across-the-board
1.8
FY12E
IIB
AXSB ICICIBC HDFCB VYSB
YES
0.5
0.5
0.7
0.7
ANDB INBK UNBK OBC
0.6
0.8
1.2
1.3
1.4
1.8
1.7
1.6
1.8
1.3
1.4
1.7
1.8
1.7
1.7
1.8
FY11
0.5
0.6
BOI
0.8
BOB
0.7
0.7
0.9
CBK
0.7
0.8
PNB
0.6
0.6
0.5
0.6
0.7
0.8
0.6
0.6
0.8
0.8
0.6
0.7
0.7
0.8
0.8
0.9
1.1
1.0
1.1
SBIN
Avg FY07‐11
1.4
FY12E
1.8
FY11
1.7
Avg FY07‐11
Private banks: Fee income remains as a key contributor to RoA
FB
SIB
Source: Company/MOSL
13 March 2012
9

10. Financials | Update
Improving core income performance from private banks
During FY07-11, PSU banks' margin performance (NIMs of 2.7%) was competitive
to those of private banks (NIMs of 2.8%). However, the higher contribution of feebased income led to higher RACI (average of 3.7% v/s 3.2% for PSU banks) for
private banks.
 RACI gap between PSU and private banks widened sharply in FY11-12 due to the
latter's strong performance on fee-based income, lower credit cost (due to
buoyancy in retail loans) and improving NIMs. Fee income to average assets for
private banks over FY07-11 averaged ~160bp as against 90bp for PSU banks.
 One of the key differentiator in fees for private banks is forex income, contributing
30-40bp for private banks v/s 10-20bp for PSU banks

PSU banks: Moderation in RAM and fee income is expected to result in
lower RACI in FY12; except for SBIN and PNB
SBIN's RAM was ~10bp lower than the PSU bank average (over FY07-11). However,
due to its high fee-based income, its RACI is ~10bp higher than the average for
PSU banks. RACI is likely to be 50bp higher than average for PSU banks in FY12 due
to a change in revenue mix from fees to margins.
 While fee income growth for most of the other PSU banks has moderated, PNB
has been able to maintain its fee income to average assets at ~80bp over FY07-12E
despite strong growth in balance sheet (22%+ over FY07-12E).
 Higher than peers RACI is leading to superior ROAA performance for PNB and
INBK. While SBIN's RACI is higher than peers, higher opex and highly volatile
treasury income leads to lower ROA.
 BoI and ANDB fee income to average assets has reported the sharpest decline of
25bp over FY07-11 to 70bp each. Falling fee income contribution and weaker RAM
due to higher asset quality issues is resulting in BoI's RACI declining to 2.3% in
FY12 as against average of ~3% over FY07-11.

Private Banks: Strong fee income boost RACI & RoAA's
Private Banks has been able to deliver stable fee income to average assets of
~160bp throughout FY07-11 and is expected to be similar in FY12. However fee
income growth for old generation private banks viz. FB and SIB remains at a low of
50-60bp.
 Strong RAM performance and sharp improvement in fee income to average from
1.2% in FY07 to ~1.8% in FY12E (highest in the sector), has translated in to superior
RACI for IIB, next only to HDFCB.
 YES fee income to average assets is expected to decline to 1.2% from 2.4% in FY07
despite strong growth in fee income (CAGR of 34% over FY07-12) as fee income
was unable to keep pace with balance sheet growth. As a result RACI has
moderated to 3.8% in FY11 as against average of 4.1% over FY07-11.
 Among private banks, consistent improvement in RACI over the last 3-4 years for
ICICIBC, IIB, VYSB and FB, leading to an improvement in ROAs. HDFCB enjoys the
best RACI with average at over FY07-11 at 5.4% i.e.170bp higher than overall
average of private banks. Superior RAM and strong fee income contribution of
1.7%+ has led to higher RACI and thereby RoAA.

13 March 2012
10

11. Financials | Update
PSU banks
Risk-adjusted core income (RACI, %)
Return on average assets (ROAA, %)
SBIN: RACI to improve led by sharp improvement in margins
SBIN: Despite higher RACI, higher opex leading to lower ROA
RAM
3.5
1.0
Fee Income
3.4
3.2
1.0
1.0
3.0
1.1
3.5
1.0
1.1
3.3
1.1
1.0
0.9
0.9
0.9
0.7
2.6
2.3
2.2
1.9
2.1
FY07
FY08
FY09
FY10
FY11
2.5
FY12E
PNB: Consistently higher RAM leading to strong RACI
RAM
3.8
3.6
0.8
0.8
FY07
FY08
0.8
3.6
0.8
FY10
FY11
FY12E
PNB:Consistently delivering higher ROAs
Fee Income
3.5
FY09
3.7
0.8
1.4
3.7
0.8
1.4
1.3
1.2
1.1
1.0
3.0
2.9
2.7
2.8
2.9
2.9
FY07
FY08
FY09
FY10
FY11
FY12E
BOB: Lower margins compared to peers leading to lower RACI
RAM
0.8
0.7
2.7
FY07
FY08
FY09
FY10
0.7
0.7
2.2
2.4
FY08
FY09
2.0
FY10
1.2
2.9
2.7
0.8
FY12E
1.3
3.1
3.2
FY11
BoB: Consistent improvement though led by operating leverage
Fee Income
3.4
2.9
FY07
1.2
1.1
0.6
0.9
0.8
2.4
2.2
FY11
FY12E
FY07
FY08
FY09
FY10
FY11
FY12E
Source: Company/MOSL
13 March 2012
11

12. Financials | Update
Risk-adjusted core income (RACI, %)
Return on average assets (ROAA, %)
BOI: Sharp drop in RACI as higher slippages impacted NIM
as well as credit cost
BOI: Earnings impacted due to higher slippages
RAM
3.2
0.9
3.1
Fee Income
3.4
1.0
0.9
2.8
2.3
2.2
2.4
FY07
FY08
FY09
1.3
2.3
0.7
0.6
0.7
2.3
1.5
1.6
FY10
2.2
FY11
0.9
2.8
FY12E
0.9
1.1
2.3
FY07
0.9
0.9
1.9
1.5
FY08
1.7
FY09
FY10
RAM
2.7
0.7
0.7
2.4
FY07
FY08
FY09
1.2
2.4
0.7
2.2
FY11
0.7
2.0
2.3
FY08
FY09
2.7
3.0
FY10
FY12E
1.3
0.9
0.9
1.7
FY12E
FY07
FY08
FY09
FY10
FY11
FY12E
UNBK: ROA declines led by higher opex and credit cost
1.2
1.2
1.2
2.7
1.0
0.9
0.6
0.6
0.7
2.0
FY11
1.0
1.0
Fee Income
3.0
FY10
CBK: Drop in RACI and trading gains translating into lower RoA
UNBK: Higher credit cost and moderation in fee income
impacting RACI despite healthy margin performance
3.1
FY07
3.1
2.6
0.7
1.7
Fee Income
3.2
2.6
0.8
0.7
CBK: Higher volatility in core operating parameters
RAM
0.9
0.6
2.3
2.1
FY11
FY12E
FY07
FY08
FY09
FY10
FY11
FY12E
Source: Company/MOSL
13 March 2012
12

13. Financials | Update
Risk-adjusted core income (RACI, %)
Return on average assets (ROAA, %)
OBC: RACI remains in a narrow range of 2.4-2.6%
OBC: RoA declines led by higher opex and lower trading gains
RAM
1.2
Fee Income
3.4
1.0
2.8
2.7
2.6
0.5
0.5
2.4
2.4
0.6
0.5
1.8
0.6
1.9
2.2
2.0
FY09
FY10
FY11
FY12E
0.6
2.8
2.3
FY07
FY08
INBK: Superior RACI across years
RAM
3.7
3.8
0.8
0.8
FY07
3.0
3.0
FY08
FY10
FY11
FY12E
ANDB: Consistent improvement in NIM offset higher
credit cost
RAM
3.9
3.0
FY07
3.2
FY10
FY11
FY12E
1.6
1.7
1.5
1.5
1.4
3.1
3.1
0.8
2.3
2.4
FY08
FY09
FY10
FY08
FY09
FY10
FY11
FY12E
1.3
1.2
3.5
1.1
1.3
1.1
0.8
2.4
3.5
FY07
ANDB: Higher provisions towards restructured loan impairs
ROA for FY12
Fee Income
0.8
0.9
FY09
3.0
FY09
2.7
FY08
0.6
0.8
3.3
FY07
1.6
3.7
0.8
0.8
0.7
INBK: RoA best amongst peers
3.3
3.5
0.9
Fee Income
4.2
4.0
1.0
0.9
0.7
0.6
2.8
2.8
FY11
FY12E
1.0
FY07
FY08
FY09
FY10
FY11
FY12E
Source: Company/MOSL
13 March 2012
13

14. Financials | Update
Private banks
Risk-adjusted core income (RACI, %)
Return on average assets (ROAA, %)
ICICIBC: Consistent improvement across profitability
parameters
ICICIBC: Structural improvement in ROA
RAM
Fee Income
3.5
3.1
3.1
2.9
2.5
1.7
1.7
1.8
1.7
1.5
3.8
1.7
1.2
FY08
FY09
FY10
2.1
FY11
FY12E
1.0
FY07
1.1
1.0
1.8
1.3
1.1
1.0
1.5
1.4
1.3
HDFCB: Despite some moderation RACI remain best amongst
peers
RAM
5.3
1.9
5.6
5.5
1.8
1.8
Fee Income
5.7
5.0
1.8
1.8
FY07
FY08
FY09
FY10
FY11
FY12E
HDFCB: RoA remains as best in the industry
1.7
5.3
1.6
1.7
1.5
1.4
1.4
FY08
FY09
1.4
3.4
3.7
3.7
3.2
FY07
FY08
FY09
FY10
3.9
3.6
FY11
FY12E
FY07
FY10
FY11
FY12E
AXSB: Fee-based income to average assets best amongst peers AXSB: Strong margin performance and continuous traction in
fee income leading to higher RoA
RAM
Fee Income
4.4
1.5
4.4
4.1
4.1
4.0
1.4
1.6
1.9
1.8
2.3
2.5
2.2
2.2
2.6
FY08
FY09
FY10
FY11
FY12E
1.5
1.4
2.6
FY07
1.6
3.7
1.8
1.8
1.2
1.1
FY07
FY08
FY09
FY10
FY11
FY12E
Source: Company/MOSL
13 March 2012
14

15. Financials | Update
Risk-adjusted core income (RACI, %)
Return on average assets (ROAA, %)
IIB: Structural improvement across parameters
- strong turnaround
IIB: Consistent improvement in return ratios; now second
best in the Industry after HDFCB
RAM
Fee Income
4.6
1.4
4.8
1.1
3.8
1.6
2.3
2.6
2.3
1.2
1.2
1.1
1.1
FY08
FY09
0.6
0.4
0.3
FY07
FY08
1.3
FY07
1.8
1.4
1.3
1.6
2.4
FY10
3.0
3.0
FY11
FY12E
VYSB: Improvement in NIM & lower credit cost driving RACI
RAM
3.4
1.3
3.7
FY10
FY11
1.5
3.7
FY12E
VYSB: Fee income & operating leverage to be the key
drivers going forward
1.0
Fee Income
3.4
1.6
FY09
4.1
0.9
3.2
1.4
0.6
1.4
0.7
0.7
FY08
FY09
FY10
1.4
0.4
2.1
2.1
1.9
1.8
FY07
FY08
FY09
FY10
2.3
2.7
FY11
FY12E
YES: Fee income continues to moderate; Asset Quality
remains impeccable
RAM
4.7
4.5
2.1
4.0
1.4
1.6
1.3
FY12E
1.6
1.5
1.5
3.8
FY11
YES: RoA to be at 1.4%+ despite moderation in RACI
Fee Income
3.7
2.4
FY07
1.4
3.5
1.2
2.2
2.3
2.3
2.4
2.5
FY08
FY09
FY10
FY11
FY12E
1.2
2.3
FY07
1.5
FY07
FY08
FY09
FY10
FY11
FY12E
Source: Company/MOSL
13 March 2012
15

16. Financials | Update
Risk-adjusted core income (RACI, %)
Return on average assets (ROAA, %)
FB:: Strong margin performance overshadows higher credit cost FB: Improvement in fee income could drive RoAs higher
RAM
3.0
0.8
Fee Income
1.4
3.4
3.2
3.3
0.8
0.7
0.7
1.3
1.3
1.2
0.6
3.2
2.8
1.3
1.1
0.8
2.2
2.0
2.4
2.4
2.6
2.7
FY07
FY08
FY09
FY10
FY11
FY12E
FY07
FY08
FY09
FY10
FY11
FY12E
SIB: Impeccable asset quality leading to consistently higher RACI SIB: RoA remains at 1%+ over past 5 years
RAM
2.9
0.7
3.1
0.7
Fee Income
3.2
3.4
0.5
1.1
1.0
3.3
1.0
1.0
FY09
FY10
FY11
0.5
1.0
2.9
0.7
0.6
2.2
2.4
2.7
2.3
2.6
2.8
FY07
FY08
FY09
FY10
FY11
FY12E
0.7
FY07
FY08
FY12E
Source: Company/MOSL
13 March 2012
16

17. Financials | Update
Valuation matrix
13 March 2012
17

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