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Q4 FY 14
REVIEW
BFSI




























Company Name 12m Q4 FY14
HDFC Bank 19.79 12.31
ICICI Bank 19.94 13.02
State Bank of
India
(5.51) 8.98
Bank of Baroda 11.19 13.37
Punjab National
Bank
8.41 19.89
Holding Period Return (in %)

85
95
105
115
31-Dec-13 22-Jan-14 13-Feb-14 7-Mar-14 29-Mar-14
Relative performance of CNX Nifty
and CNX Bank
CNX Nifty CNX Bank

0
500
1000
1500
Total credit off-take in India; CAGR
22.8%
Credit (US$ billions)
Overview
India is considered among the top emerging economies of the world. Despite being plagued
by issues such as high inflation, low growth, high fiscal deficit and slowing down of
investments, the fundamentals of the economy remain strong, thus outlining its growth
potential in the years to come.
The banking sector in the country is an elaborately structured one, with different types of
institutions catering to the divergent banking needs of various sectors of the economy. There
are about 27 nationalized banks, 19 private sector banks, 32 foreign banks and various
cooperative banks and regional rural banks operating in India. Even though the sector has
performed well and evolved over time, there is need for further improvement.

Recent Developments
The Banking Laws (Amendment) Bill passed by the Indian Parliament in 2012 has brought in
changes which can change the dynamics of the banking sector.
The RBI can now supersede the board of directors of a bank for up to 12 months if it
feels that the board is not working in the interests of shareholders and depositors
The Bill raises the shareholders voting rights in a public sector bank from 1% to 10%
and that in a private sector bank from 10% to 26%
Mergers and acquisitions in banks will henceforth need approval of the
Competition Commission of India
Basel III norms stipulate that banks maintain a minimum CRAR of 11.50% and a minimum
Tier I CRAR of 9.50% by 31
st
March, 2019. Finance Minister Arun Jaitley has announced that
meeting these norms would require infusion of equity of Rs. 240,000 crores into the banking
system.
In the Second Bi-Monthly Monetary Policy Statement unveiled by RBI governor Raghuram
Rajan in June 2014, repo rates have been retained at 8% to mitigate inflationary pressures on
the economy. CRR has been left unchanged at 4% but SLR has been reduced by 50 basis
points to 22.5%, thus unlocking Rs. 40,000 crore of funds to be released into the economy.

Future Outlook
India's banking industry, on the whole, has a positive outlook. It is on course to become the
fifth largest banking sector globally by 2020 and the third largest by 2025. But a major issue
which must be addressed is that of financial inclusion. Till date, just 1 in 2 Indians has a
savings account and only 1 in 7 has access to formal bank credit.
The Direct Cash Transfer scheme ushered in by the erstwhile UPA government makes it even
more imperative that the reach and penetration of the banking industry be expanded into
the rural areas. Driven by the efforts of the RBI and the Government of India in this regard,
this sector is expected to create up to 2 million jobs in the next 10 years. Two new banks
have already received licenses from the government.
RBI has relaxed and simplified KYC norms with respect to opening bank accounts, as part of
its financial inclusion drive. Only 1 documentary proof of address (permanent or local) is now
required, thus making it easier for migrant workers and employees with transferable jobs to
become a part of the banking system.
Technology is playing an increasingly important role in the development of the banking
sector. The popularity of internet and mobile banking is at an all-time high, with customer
relationship management (CRM) and data warehousing anticipated to drive the next wave of
transformation in the banking system of the country.

0
20
40
60
80
No. of commercial bank branches
per 100,000 people
Source: www.ibef.org
Source: data.worldbank.org
Source: www.nseindia.com

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Q4 FY 14
REVIEW
BFSI
Company Name Financials
Q4 FY14
(in Rs. Cr.)
Q4 FY13
(in Rs. Cr.)
Y-O-Y
(in %)
Q3 FY14
(in Rs. Cr.)
Q-O-Q
(in %)
Key Highlights & Outlook
HDFC Bank
Revenues 12,789.98 12,738.95 0.40 11,127.54 14.94
The largest bank in India in terms of
market capitalization, HDFC Bank
showed strong growth with a
26.05% surge in net profits in the
financial year 2013-14.
Net interest income grew by 18.2%,
while net interest margin stood at
4.4%, a decline of 10 basis points
over the last fiscal.
EBITDA 9615.26 9843.88 (2.32) 7991.37 20.32
PAT 2326.52 2325.70 0.04 1889.84 23.11
ICICI Bank
Revenues 14,465.34 14,255.96 1.47 12,573.52 15.05
Operating profits for ICICI Bank rose
by 25.72% and net profits increased
by 17.84% in the financial year
2013-14.
This was on the basis of growth of
18.82% in net interest income and
21.1% in total income. Net interest
margin stood at 3.31%, up from
3.11% in 2012-13.
EBITDA 11,586.22 11,638.93 (0.45) 10,166.23 13.97
PAT 2652.01 2532.21 4.73 2304.07 15.10
State Bank of India
Revenues 42,443.27 39,060.76 8.66 36,330.87 16.82
Net profits for State Bank of India
declined by a whopping 22.79% in
the financial year 2013-14.
This happened because a rise of
14.16% in total income could not
keep up with an increase of 18.44%
in total expenses.
Net interest margin fell from 3.34%
to 3.17% over the year.
EBITDA 33,582.63 29,848.41 12.51 27,466.41 22.27
PAT 3040.74 2234.34 36.09 3299.22 (7.83)
Bank of Baroda
Revenues 11,614.85 10,622.80 9.34 10,262.50 13.18
Bank of Baroda displayed steady
growth of 20.05% and 20.97% in
total deposits and total advances
respectively in the financial year
2013-14.
But the net profit margin continued
its downward trend, falling from
15.12% in 2011-12 to 11.54% in
2012-13 and 10.46% in 2013-14.
EBITDA 9743.82 8831.06 10.34 8439.62 15.45
PAT 1157.27 1047.84 10.44 1028.85 12.48
Punjab National
Bank
Revenues 12,498.23 11,922.30 4.83 11,552.84 8.18
Punjab National Bank recorded one
of the highest net interest margins
(among public sector banks) of
3.44% during the 2013-14 fiscal.
Net profit margin though, dipped
from 10.29% to 6.99% since
revenues saw growth of only 3.67%
as compared to increase in
expenditure by 7.49%.
EBITDA 10,272.96 9465.13 8.53 9451.84 8.69
PAT 806.35 755.41 6.74 1130.80 (28.69)

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Q4 FY 14
REVIEW
BFSI

Stock Recommendation - HDFC Bank


0.00
1.00
2.00
3.00
4.00
Q4 FY13 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14
Chart 1: Net NPA Percentage (in %)
HDFC ICICI SBI BoB PNB
0.00
10.00
20.00
30.00
Mar '10 Mar '11 Mar '12 Mar '13 Mar '14
Chart 2: Return on Equity (in %)
HDFC ICICI SBI BoB PNB
0
5
10
15
20
Mar '10 Mar '11 Mar '12 Mar '13 Mar '14
Chart 3: Net Profit Margin (in %)
HDFC ICICI SBI BoB PNB
8.87
9.28
9.72
12.78
11.8
2.65
3
2.72
4.92
4.3
0 5 10 15 20
PNB
BoB
SBI
ICICI
HDFC
Chart 4: Capital to Risk Weighted Assets
Ratio (in %)
Tier I
Tier II
Credit Quality
During the FY14, Net Non-Performing Assets have gone up for
most of the banks included in this analysis. But taking the Net
NPA percentage values (refer Chart 1) instead of absolute
figures, it is evident that public sector banks are burdened more
by NPAs than private sector ones. While Punjab National Bank
and State Bank of India report figures of 2.85% and 2.57%
respectively, HDFC Bank has kept its percentage in check at a
commendable 0.30%.
Return on Equity
Return on Equity analysis (refer Chart 2) for the five banks
indicates that while profit generating capacity for Punjab
National Bank has nose-dived over the last 4 fiscals, the same for
HDFC Bank has gone up consistently and is now at 19.50%. Bank
of Baroda has declined from 20.24% to 12.61%, while ICICI Bank
has risen up to 13.40% from 7.53%.
Profitability
Net profit margins display a falling trend (refer Chart 3) over the
last 4-5 years. Punjab national bank has seen figures plummet
from 15.64% in FY10 to 6.99% in FY14, a decline of more than
50%. For Bank of Baroda, a margin of 17.17% in FY11 has
reduced to 10.46% in the current fiscal. Fighting the trend is ICICI
Bank, with profits rising from 12.17% in FY10 to the current
value of 17.96%. HDFC Bank too, has seen an upward, albeit a
slower trend, from 14.76% in FY10 to 17.28% in FY14.
Capital to Risk Weighted Assets Ratio (CRAR)
As per the stipulated Basel III norms and the data given (refer
Chart 4), we see that whereas HDFC Bank and ICICI Bank are in
comfortable positions, State Bank of India, Punjab National Bank
and other public sector banks need to take timely steps to
improve their respective CRARs. As a result, state-owned banks
such as State Bank of India and Punjab National Bank are likely
to hit the markets this year in a bid to raise equity.
Conclusion
HDFC Bank has shown a stellar performance in the last fiscal.
Strong growth percentages in net interest income and net
interest margin along with a reduction of 4.8% Y-o-Y in
provisions and contingencies led to a steep rise in net profits.
Cost to income ratio improved by 577 basis points to 45.70%,
while CASA ratio increased 111 basis points to 44.80%, driven by
16.90% Y-o-Y growth in saving deposits and 17.50% Y-o-Y growth
in current deposits. High asset quality indicated by low NPA
percentage, consistent increase in profitability as well as earning
capacity, a strong capital adequacy ratio and a high price to book
value signal that the stock is fundamentally strong, and hence, I
recommend a BUY for the stock.
Sources: www.moneycontrol.com, www.hdfcbank.com, www.icicibank.com, www.sbi.co.in,
www.bankofbaroda.co.in, www.pnbindia.in