New Private Banks

India Equity Research
Financials
August 10, 2010
New private banks
Promises underlying new equity yet unfulfilled
Sector Report The RoE on new equity of most new private banks has stayed below
that on their core equity. The success of the prolific equity offers by
Axis Bank new banks was partly based on implicit assumptions that new equity
Rating Add
Current Market Price 1,310
would earn a high RoE. The low incremental profitability could further
Target Price 1,501 erode the valuation premium over public sector banks. The latter have
Bloomberg Code AXSB IN stopped losing ground in the urban market and have arrested the long
Reuters code AXBK.BO
decline in their share of low‐cost deposits. Another challenge to the
Avg. Vol. (3m) 1.76
Avg. Val.(3m)(INRmn) 2.21
premium valuation of new banks could build up if more foreign banks
52‐wk H/L (INR) 1,399 / 797 choose to list in the IDR market, as done by Standard Chartered. We
MCAP (INRbn/USDbn) 534.34 / 11.58 assume the long‐term loan growth of new banks would widen its lead
over public sector banks. This is contrary to the trend of convergence
HDFC Bank
Rating Hold
seen in recent years. Yet, we estimate a low upside in two of the three
Current Market Price 2,082 largest banks. We initiate coverage on Axis Bank (Add), HDFC Bank
Target Price 2,154 (Hold) and ICICIC Bank (Hold).
Bloomberg Code HDFCB IN
Reuters code HDBK.BO Low RoE on new equity could erode valuation premium even more
Avg. Vol. (3m) 741,304
During the past decade, many new banks raised up to five tranches of equity;
Avg. Val.(3m)(INRmn) 1.46
this now comprises close to two‐thirds of their book. The success of these
52‐wk H/L (INR) 2,145 / 1,353
MCAP (INRbn/USDbn) 958.00 / 20.77
offers reflected implicit assumptions that the book multiples and RoEs would
be preserved. While the first assumption has been largely true, the second is
ICICI Bank not. We find that the RoE on new equity stays below that on core equity for
Rating Hold most new banks. In contrast, the RoE of public sector banks has expanded and
Current Market Price 980.1 now exceeds that of new banks with a better record in lifting the RoE on new
Target Price 1061
equity close to the level of core equity.
Bloomberg Code ICICIBC IN
Reuters code ICBK.BO
Strength in urban centres and savings deposits may be waning
Avg. Vol. (3m)(mn) 4.41 The dominance of new banks in urban branches began to decline in 2006, after
Avg. Val.(3m)(INRmn) 3.78 public sector banks began the huge expansion in their urban presence. Still, the
52‐wk H/L (INR) 1,010 / 690 branch networks of new private banks are heavily tilted towards urban India,
MCAP (INRtn/USDbn) 1,093 / 23.71 which drove the rebound in their savings deposits in FY10. Public sector banks
appear to have arrested the long trend of decline in their share of low‐cost
Valuations P/E (x) P/B (x)
03/11f 03/12f 03/11f 03/12f
deposits and could pose a challenge to new banks in the medium term.
AXSB 17.5 13.8 2.9 2.5 Is the IDR listing by foreign banks an inflection point for new banks?
HDFCB 24.7 19.5 3.8 3.3 The IDR listing by Standard Chartered Bank may inspire other foreign banks
ICICIBC 24.5 19.9 1.9 1.8 with a significant presence in India to follow suit. Potential crowding in the
investor’s portfolio could impact new private banks more due to their similar
profile. Standard Chartered Bank’s IDR is just 1.21% of the market cap of the
five largest new private banks. Thus, the risk of their P/E de‐rating is low.
Low upside in new banks, even as they regain lead in loan growth
The narrowing premium in the P/B of new banks is justified by their shrinking
lead over the loan growth of public sector banks and the decline in their RoEs.
Even with the assumption for the 10‐year, long‐term loan growth tilted in favor
of new banks, we foresee the potential upside to be restricted to 14.6%. We
initiate coverage on Axis Bank (AXSB IN, Add), HDFC Bank (HDFCB IN, Hold) and
ICICI Bank (ICICIBC IN, Hold).
Chandana Jha, +91 022 66842854

chandana.jha@avendus.com
Please refer to the disclaimer towards the end of the document.

India Equity Research New private banks
Investment Summary
During the past decade, many new banks raised up to five tranches of equity that now comprises close to two‐thirds of
their book. The positive response from investors reflected implicit assumptions that the book multiples are likely to
sustain and so would the RoEs. While the first assumption has been largely true, the second is not. The RoE on new
equity stays below that on the core equity for most new private banks. In contrast, the RoE of public sector banks has
expanded, with a better record in lifting the RoE on new equity. Also, the dominance of new banks in urban India has
been declining since 2006. Public sector banks appear to have arrested the long trend of decline in their share of
low‐cost deposits and could pose a challenge to new banks in the medium term. The IDR listing by Standard Chartered
Bank may be an inflection point for a listing in India by other foreign banks. Potential crowding in the investor’s
portfolio is likely to put new banks at a higher risk due to their similar profile. Even with the assumption of long‐term
loan growth tilted in favor of new banks, we foresee the potential upside to be restricted to 14.6%. We initiate coverage
on Axis Bank (AXSB IN, Add), HDFC Bank (HDFCB IN, Hold) and ICICI Bank (ICICIBC IN, Hold).
Low RoE on new equity could erode valuation premium even more
RoE on new equity stays Indian new private banks have been prolific issuers of new equity capital. During the past decade,
below that on the core many new private banks raised up to five tranches of equity that now comprises close to two‐thirds of
equity for most new the book. The positive response by investors to these issues reflects the implicit assumptions that the
banks, while PSBs have a book multiples are likely to sustain and so would the RoEs. While the first assumption has been largely
better record in lifting the true, the second is not. We find that the RoE on new equity stays below that on the core equity for
RoE on new equity. most new banks. In particular, the two latest tranches of equity have a significantly lower RoE. In
contrast, the RoE of public sector banks (PSBs) has expanded and now exceeds that of private banks.
Many PSBs also have a better record in lifting the RoE on new equity close to the level of core equity.
The premium in the P/B of new banks has been declining for the past 15 months. Our analysis suggests
this trend may extend.
The market share in The dominance of new banks in urban branches began to decline in 2006 after PSBs began the huge
savings deposits may have expansion in their urban presence. Still, the branch networks of new private banks are heavily tilted
peaked in FY08. PSBs have towards urban India. This helped drive their savings deposits growth, which rebounded strongly in
ceased to lose ground and FY10. However, the market share of new banks in savings deposits may have peaked in FY08 and could
may pose a stiff challenge even be in decline. PSBs appear to have arrested the long trend of decline in their share of low‐cost
in future. deposits and could pose a stiffer challenge to new banks in the medium term. Also, PSBs have
outpaced new banks in the growth in savings deposits per branch during the past three years.
Is the IDR listing by foreign banks an inflection point for new banks?
Potential crowding in the The IDR listing by Standard Chartered Bank may be an inflection point for other foreign banks with a
investor’s portfolio is significant presence in India to follow in its footsteps. Wider access to capital markets and potential
likely to put new private leverage to growth of the Indian business are likely to continue being key drivers for reasons to list in
banks at a higher risk due India. Potential crowding in the investor’s portfolio is likely to put new private banks at a higher risk
to their similar profile due to their similar profile with foreign banks. Standard Chartered Bank’s IDR is just 1.21% of the
with foreign banks. market cap of the five largest new banks. Thus, the risk of their P/E de‐rating is small. However, as
other foreign banks begin to list in India, the percentage of market cap of IDR to that of new banks may
begin to rise.
Even with assumptions for Even if the long‐term loan growth of new banks were to regain its lead over PSBs there would be little
loan growth tilted in favor justification for preservation of the current premium in their valuation. The lead of new banks shrank
of new banks, we foresee from 7.8% (difference between mean loan growth of three largest new banks and five large PSBs) in
the potential upside to be FY07 to ‐15.7% in FY10. Loan growth is a critical input in our estimation of the fair value of bank stocks
restricted to 14.6%.
by discounting the excess return over a period of 25 years. Our forecasts for the three years ending

Financials 2

Mar13fassume the lead to expand further in favor of new banks, relative to PSBs. We also assume loan
growth in the 10‐year semi‐explicit period after Mar13 to be between 22% and 29% for new banks
compared to 16% for PSBs. Even with assumptions tilted in favor of new banks, we foresee the
potential upside to be restricted to 14.6%.
Initiate coverage on three large new private banks
We initiate coverage on Axis Bank, HDFC Bank and ICICI Bank.
Axis Bank
AXSB’s RoE has been AXSB’s RoE has been superior to peers with the core RoE staying near 30% and that on the initial
superior to peers with the tranches of new equity rising to 27% by FY10. Our forecast loan CAGR of 27% till Mar13f is below that
core RoE staying near for the preceding three years as well as the growth at the end of Jun10. In contrast to peers, asset
30%. quality may be the major stress factor during FY11f and FY12f. We forecast a rise in incremental and
year‐end NPL ratios. Despite a likely deceleration, fee income may stay a significant driver of earnings
growth during FY11f‐FY13f. We forecast a three‐year CAGR of 26% in net profit and initiate coverage
with an Add rating and a Jun11 target of INR 1,501.
HDFC Bank
Threats to HDFCB’s The RoE on new equity raised before 2005 had risen rapidly for two years. However, incremental RoEs
profitability arise from a stay below the core RoE, which itself has been in a gentle decline. Gearing of the aggregate equity is
potential decline in fee likely to rise after a near‐term fall in FY11f, based on our forecast three‐year loan CAGR of 29%. We
intensity and rise in cost forecast the proportion of retail loans to stabilize near 50% by end FY12 and a three‐year CAGR of
ratios. 28.1% in net profits. Threats to HDFCB’s profitability arise from a potential decline in fee intensity and
rise in cost ratios. FY10 had seen the cost/assets fall by 0.73% after rising for seven years. The asset
quality cycle is poised to stabilize and we forecast a 1.42% gross NPL ratio by Mar12. A key challenge
for HDFCB would be to sustain the growth in savings deposits. Our Jun11 target of INR2,154 values the
stock at a P/E of 19.1x and P/B of 3.4x. We initiate coverage on the stock with a Hold rating.
ICICI Bank
ICICIBC has raised new equity more frequently and to a larger extent than peers. Compared with peers,
Compared with peers, the
the RoE on new equity raised after FY07 is the lowest. The phase of balance sheet contraction is likely
RoE on new equity raised
to have ended and we assume loan growth to rebound to 15% y‐o‐y in FY11f, driven by segments such
by ICICIBC after FY07 is
the lowest. as home loans, car loans and project finance. While savings deposits growth is likely to slow, the rise in
the proportion of savings deposits may sustain. We estimate a rise in the cost/asset ratio during FY10‐
FY13f. Loan‐loss provisions are likely to have peaked in FY10. However, we assume incremental NPL to
rise in the next three years as loan growth revives. We assume a CAGR of 20% in net profit during FY10‐
FY13f compared to 9% in the preceding three years. NII growth and low NPL provisions are likely to
stay key drivers of profitability. We initiate coverage with an Hold rating and Jun11 target of INR1,061.

Exhibit 1: Relative valuation (as on August 9, 2010)
CMP Rating Target ‐‐‐ Price change ‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐ P/E ‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐ P/B ‐‐‐‐‐‐‐‐‐‐‐‐
(INR) price (INR) 1‐m 3‐m 6‐m Mar11f Mar12f Mar13f Mar11f Mar12f Mar13f
AXSB 1,310 Add 1,501 2.9 10.1 26.1 17.5 13.8 10.6 2.9 2.5 2.1
HDFCB 2,082 Hold 2,154 3.9 12.7 30.7 25.1 19.9 15.4 3.9 3.4 2.9
ICICIBC 980 Hold 1,061 11.9 11.9 22.5 24.5 19.9 16.2 1.9 1.8 1.8
Source: Company, Bloomberg, Avendus Research

Financials 3

Table of Contents

Investment Summary ........................................................................................................................ 2
Low RoE on new equity could erode valuation premium even more ...................................................2
Strength in urban centres and savings deposits may be waning...........................................................2
Is the IDR listing by foreign banks an inflection point for new banks?..................................................2
Low upside in new banks, even as they regain lead in loan growth......................................................2
Initiate coverage on three large new private banks..............................................................................3
Fall in incremental RoE could erode premium in P/B of new banks.................................................. 5
Historical premium in valuation of new private banks over PSBs… ......................................................5
…partly attributed to the frequent capital raising by them ..................................................................5
Incremental RoE is lower than core RoE, but has been rising ...............................................................6
Flood of new equity has depressed RoE of new banks .........................................................................7
RoE on new equity has been rising steadily for public sector banks.....................................................8
Strength in urban centres and savings deposits may be waning....................................................... 9
Share of new banks in incremental urban branches is declining ..........................................................9
Savings deposits growth rebounds, but lead over PSBs has reduced .................................................10
Trend reversal in the share of savings deposits for new banks...........................................................11
Despite revival, growth in SB deposits per branch stays below PSBs..................................................12
Is the IDR listing by foreign banks an inflection point for new banks?............................................ 13
IDR listing by Standard Chartered Bank may set off a trend ...............................................................13
Reasons to list in India… ......................................................................................................................13
…may lead to other foreign banks following in its footsteps ..............................................................13
Potential crowding in the investor’s portfolio.....................................................................................14
Unlikely to impact P/E of new banks, in the near term.......................................................................14
Low upside in new banks, even as they regain lead in loan growth................................................ 15
We assume new banks to regain the lead in loan growth ..................................................................15
RoEs of new banks may not exceed 20%.............................................................................................15
Fair value derived from discounting excess returns............................................................................16
Target price derived from P/E, P/B and DCF‐based values .................................................................16
Low upside, despite higher CAGR in semi‐explicit period loan growth...............................................17
Initiate coverage on large new private banks .....................................................................................18
Key risks to our estimates ...................................................................................................................18

Financials 4

Fall in incremental RoE could erode premium in P/B of new banks
Indian new private banks have been prolific issuers of new equity capital. During the past decade, many new private
banks raised up to five tranches of equity that now comprises close to two‐thirds of the book. The positive response by
investors to these issues reflects the implicit assumptions that the book multiples are likely to sustain and so would the
RoEs. While the first assumption has been largely true, the second is not. We find that the RoE on new equity stays
below that on the core equity for most new banks. In particular, the two latest tranches of equity have a significantly
lower RoE. In contrast, the RoE of public sector banks (PSBs) has expanded and now exceeds that of private banks.
Many PSBs also have a better record in lifting the RoE on new equity close to the level of core equity. The premium in
the P/B of new banks has been declining for the past 15 months. Our analysis suggests this trend may extend.
Historical premium in valuation of new private banks over PSBs…
Valuation premium of Historically, new private banks have traded at a large valuation premium to PSBs. The average
new banks has been partly premium of new private banks during the past six years was 100.7%. The average valuation premium of
due to the success of their new banks increased from 80.5% during Mar04‐Jun05 to 122.2% during Jun05‐Sep08. However,
frequent capital issuances.
between Sep08 and Aug10, the average valuation premium of new banks declined to 74.7%.
Exhibit 2: Valuation premium in P/B of new banks to PSBs (%)
However, the premium in Premium of new banks to PSBs in P/B Average premium
the P/B of new banks has
154
been declining for the past
15 months.
128
Average 80.5%
Average 74.7%
102
Average 122.2%
76
50
Mar04 Apr05 May06 Jun07 Jun08 Jul09 Aug10

Source: Bloomberg, Avendus Research
…partly attributed to the frequent capital raising by them
Exhibit 3: Financial year in which equity was raised for new banks and large PSBs
Mar01 Mar02 Mar03 Mar04 Mar05 Contribution of share Mar06 Mar07 Mar08 Mar09 Mar10 Contribution of share
premium to networth premium to networth
ICICI Bank √ √ 31.8% √ √ 60.7%
HDFC Bank √ √ 50.3% √ √ 51.5%
Axis Bank √ √ √ 52.4% √ √ 60.9%
Kotak Mahindra Bank √ 33.8% √ √ 38.6%
Yes Bank 7.8% √ √ √ √ 41.7%

State Bank of India 10.8% √ 25.1%
Punjab National Bank √ √ 25.6% 12.3%
Bank of Baroda 13.7% √ 14.9%
Bank of India 12.2% √ 14.1%
Canara Bank √ 4.5% 2.7%
Corporation Bank √ 23.0% 12.1%
Source: Company, Avendus Research

Financials 5

The historical valuation premium of new banks to PSBs was partly due to stock prices being driven by a
decline in the valuation multiple after equity dilution.
New private banks have raised equity once every two to three years and three to five times during the
past decade. In contrast, large PSBs have raised equity just one to two times during the past decade.
Another reason that may have resulted in the large valuation premium of new banks is the high loan
growth during the initial 10 years of operations compared to PSBs.
Incremental RoE is lower than core RoE, but has been rising
Incremental RoE is rising on all tranches of new equity raised by AXSB
The RoE on new equity revives within every one to two years, but stays lower than that on core equity.
The RoE on new equity for new private banks, except ICICIBC, has been rising, though it remains lower
than that on core equity. AXSB’s average RoE for the first, second, third and fourth tranche of equity
raised in FY02, FY03, FY05 and FY08 was 20.9%, 19.2%, 18% and 11.2%, respectively. The RoE on new
equity was lower than the core RoE by 11.2% to 14%. While the RoE for each tranche of equity declines
with the decline in leverage ratio, it has a rising trend.
Exhibit 4: Core RoE and RoE on new equity for AXSB (%)
Though, the RoE on new
equity was lower than the Core RoE RoE (FY02) RoE (FY03) RoE (FY05) RoE (FY08)
core RoE by 11.2% to 14%, 40
it has a rising trend for all
tranches.
30
20
10
0
Mar02 Mar03 Mar04 Mar05 Mar06 Mar07 Mar08 Mar09 Mar10

Initial rise in incremental RoE seen in HDFCB, followed by a flattening
Exhibit 5: Core RoE and RoE on new equity for HDFCB (%)
The RoE for most tranches
of equity for HDFCB Core RoE RoE (FY02) RoE (FY05) RoE (FY08)
revived within one to two 40
years and stabilized at the
lower level, in contrast to
the rising trend for AXSB. 30
20
10
0


Financials 6

HDFCB’s average RoE for the first, second and third tranche of equity raised in FY02, FY05 and FY08
was 19.5%, 15.7%, 10.9%, respectively. Therefore, the RoE on new equity was lower than the core RoE
by 2.7% to 11.3%. Thus, the RoE for most tranches of equity for HDFCB revives within one to two years
and stabilizes at the lower level, in contrast to the rising trend for AXSB.
Low and declining incremental RoE in later tranches of equity raised by ICICIBC
ICICIBC’s average RoE for the first, second, third and fourth tranche of equity raised in FY03, FY05, FY06
and FY08 was 20.3%, 11.8%, 9.3%, 11.2% and 1.6%, respectively. Therefore, the RoE on new equity was
lower than the core RoE by up to 18.3%. The RoE of ICICIBC has been adjusted for the investment in
subsidiaries. Unlike AXSB and HDFCB where the RoE on new equity was either rising or had stabilized,
the RoE for ICICIBC on equity raised in later years shows a sharp decline after rising in the initial years.
We treat capital gains on sale of treasury stock in FY03 as new equity. Since ICICIBC’s net profit for
FY03 was inflated due to capital gains, the RoE on new equity has been very close to the core equity.
Exhibit 6: Core RoE and RoE on new equity for ICICIBC (%)
The RoE for ICICIBC on
equity raised after FY04
Core RoE RoE (FY03) RoE (FY05) RoE (FY06) RoE (FY08)
shows a sharp decline
after rising in the initial 40
years.
30
20
10
0

Flood of new equity has depressed RoE of new banks
Due to frequent equity issuance, the total RoE of new private banks has been declining. Equity dilution
virtually every alternate year has resulted in a decline in the RoE after every rebound. The impact has
been more pronounced for ICICIBC with the RoE declining by 12% in the preceding four years to 13.1%
(adjusted for investment in subsidiaries) after equity dilution in FY08.
Equity dilution virtually Exhibit 7: RoE for large new private banks (%) Exhibit 8: RoE for a few PSBs (%)

every alternate year by
ICICIBC AXSB HDFCB PNB BOB SBIN CRPBK
new banks has resulted in
30 30
a decline in the RoE after
every rebound. It has
25 25
been rising steadily for
PSBs during the past three 20 20
years.
15 15
10 10
5 5
Mar02 Mar04 Mar06 Mar08 Mar10 Mar02 Mar04 Mar06 Mar08 Mar10
Source: Company, Avendus Research Source: Company, Avendus Research

Financials 7

Between Mar04 and Mar08, the RoE of HDFCB and AXSB declined by 2.9% and 11.1% to 17.7% and
16%, respectively. Therefore, HDFCB had the most stable trend in RoE. The profitability of new capital
has been more consistent for HDFCB, resulting in the lower erosion in RoE.
RoE on new equity has been rising steadily for public sector banks
PSBs have raised new equity fewer times than their private counterparts. For Bank of Baroda (BOB IN,
Buy) and Punjab National Bank (PNB IN, Add), there has been a steady rise in the RoE on new equity.
For BOB, the RoE on equity raised in FY06 revived from 12% in FY07 to 16% in FY10.
For BOB and PNB, there Exhibit 9: Core RoE, RoE on new equity for BOB (%) Exhibit 10: Core RoE, RoE on new equity for PNB (%)
has been a steady rise in
the RoE on new equity; Core RoE RoE (FY06) Core RoE RoE (FY02) RoE (FY05)
thus, lifting the RoE on 40
40
aggregate equity.
30 30
20 20
10 10
0 0
Source: Company, Avendus Research Source: Company, Avendus Research
For PNB, the RoE on the equity raised in FY02 revived in three years from 1.2% in FY03 to 14.4% in
FY05. After a steady rise for five years, the RoE on new equity increased to 21% in FY10. The RoE on the
second tranche of equity raised in FY05 increased from 2.5% in FY06 to 19.3% in FY10, closer to the RoE
on the first tranche of equity. Thus, the RoE on new equity has been rising, though it remains lower
than that on core equity.

Financials 8

The dominance of new banks in urban branches began to decline in 2006 after PSBs began their huge expansion in
urban centres. Still, the branch networks of new private banks are heavily tilted towards urban India. This helped drive
their savings deposits growth, which rebounded strongly in FY10. However, the market share of new banks in savings
deposits may have peaked in FY08 and could even be in decline. PSBs appear to have arrested the long trend of decline
in their share of low‐cost deposits and could pose a stiffer challenge to new banks in the medium term. Also, PSBs have
outpaced new banks in the growth in savings deposits per branch during the past three years.
Share of new banks in incremental urban branches is declining
Urban region has been largest contributor to savings deposits
Since the urban region has the largest contribution to savings deposits, a decline in the urban presence
is likely to slow down the incremental growth in savings deposits of new private banks.
Exhibit 11: Region‐wise share in savings deposits (%)
Urban region is the largest
Mar01 Mar02 Mar03 Mar04 Mar05 Mar06 Mar07 Mar08
contributor to the stock of
savings deposits. Rural 19 19 20 19 19 17 17 17
Semi‐urban 24 24 24 24 24 21 22 21
Urban 57 57 56 57 57 61 61 62
Source: RBI, Avendus Research
Between end Mar01 and Mar05, 40.7% of urban branches were added by new private banks, while
PSBs added 49.9%. New urban branches during this period were 69.6% of total urban branches and
51.5% of total branches of new private banks at end Mar05.
Exhibit 12: Urban branch additions between Mar01 and Mar05
In the four years ended
Urban branches Share Total urban branches (a/b) Total branches (a/c)
Mar05, 40.7% of urban
added (a) (%) at end Mar05(b) at end Mar05 (c)
branches were added by
new banks, constituting Public sector 1,033 49.9 18,307 5.6 48,851 2.1
69.6% of total urban Private (new) 842 40.7 1,210 69.6 1,635 51.5
branches. Private (old) 150 7.2 2,246 6.7 4,806 3.1
Foreign banks 45 2.2 245 18.4 245 18.4
Total 2,070 100.0 22,008 9.4 55,537 3.7
The pace of addition of urban branches by PSBs between end Mar05 and Mar09 outpaced that of new
banks. While the share of new private banks in urban branches added during this period declined to
18.9%, it increased significantly to 76.9% for PSBs. New branches during this period were 57.5% of total
urban branches and 39.1% of total branches of PSBs at end Mar09.
Exhibit 13: Urban branch additions between Mar05 and Mar09
While share of new banks
Urban branches Share Total urban branches (a/b) Total branches (a/c)
in urban branches added added (a) (%) at end Mar09(b) at end Mar09 (c)
during the four years
Public sector 6,679 76.9 24,986 26.7 57,497 11.6
ended Mar09 declined to
Private (new) 1,639 18.9 2,849 57.5 4,195 39.1
18.9%, it increased to
76.9% for PSBs. Private (old) 329 3.8 2,575 12.8 4,991 6.6
Foreign banks 33 0.4 278 11.9 286 11.5
Total 8,680 100.0 30,688 28.3 66,969 13.0
Proportion of urban branches continues to decline for new private banks
The proportion of urban branches of new private banks declined from 74.2% at end Mar01 to 67.9% at
end Mar09. On the other hand, due to the significant addition of urban branches, the proportion of
urban branches for PSBs increased from 36.3% at end Mar01 to 43.5% at end Mar09. Therefore, new
private banks are losing their edge in urban presence to PSBs.

Financials 9

Exhibit 14: Proportion of bank branches located in urban centres (%)
The proportion of urban
branches of new banks Public sector Private (new) Private (old)
declined from 74.2% at 80
end Mar01 to 67.9% at
end Mar09, while it has
70
been increasing steadily
for PSBs.
60
50
40
30

Savings deposits growth rebounds, but lead over PSBs has reduced
After a sharp decline in the y‐o‐y growth in savings deposits to 15% for FY09, it rebounded in FY10 to
32.6%. Thus, despite a decline in the urban presence, new banks are likely to continue holding the edge
in savings deposits growth, partly due to the higher proportion of urban branches. However, the wide
gap in savings deposits growth compared to PSBs has reduced significantly. Savings deposits growth for
PSBs (arrived at by adding savings deposits for the six‐largest PSBs) increased from 15.2% in FY01 to
26.7% in FY10. For new private banks, savings deposits growth declined from 100% to 32.6%. The
increase in urban presence and a strong revival in savings deposits growth during the past two years
may continue to narrow the gap in savings deposits growth between the two bank segments.
Exhibit 15: Growth in savings deposits for the bank segments (%)
The gap in savings
Public sector Private (new)
deposits growth of new
banks compared to PSBs 112
has reduced significantly.
84
56
28
0

SB deposits growth continues to outpace the growth in total deposits
The four‐year CAGR in savings deposits for new private banks during end Mar01‐Mar05 and
end Mar05‐Mar09 outpaced the CAGR in total deposits. While the CAGR in savings deposits has
declined for new private banks during end Mar05‐Mar09 compared to the preceding four years, it
remained stable, close to 17%, for PSBs.

Financials 10

Exhibit 16: Four‐year CAGR in savings deposits and total deposits
While the CAGR in savings
(%) ‐‐‐‐‐‐‐‐‐‐‐‐‐‐ CAGR in savings deposits ‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐‐‐ CAGR in total deposits ‐‐‐‐‐‐‐‐‐‐‐‐‐‐
deposits declined for new
Mar01‐Mar05 Mar05‐Mar09 Mar01‐Mar05 Mar05‐Mar09
banks between
end‐Mar05‐Mar09 and Public sector banks 17.7 17.1 14.9 24.5
Mar01‐Mar05, it remained Private banks (new) 55.7 35.9 39.1 26.6
close to 17%, for PSBs. Private banks (old) 16.3 15.0 14.3 17.7
New private banks continue to gain a share in incremental savings deposits
Between end Mar01 and Mar05, 11.5% of incremental savings deposits were added by new private
banks, while the contribution by PSBs was 80.7%. Incremental savings deposits during this period were
83.0% of total savings deposits and 12.3% of total deposits for new private banks.
Exhibit 17: Incremental savings deposits between end‐Mar01 and Mar05
(INRbn) Incremental Share Total SB deposits (a/b) Total deposits (a/c)
SB deposits (a) (%) at end Mar05 (b) at end Mar05 (c)
Public sector 1,799 80.7 3,753 47.9 12,960 13.9
Private (new) 257 11.5 310 83.0 2,081 12.3
Private (old) 90 4.0 198 45.4 1,047 8.6
Foreign banks 83 3.7 143 58.1 765 10.8
Total 2,228 100.0 4,403 50.6 16,854 13.2
Incremental savings deposits of new private banks between end‐Mar05 and Mar09 banks increased
from that during the preceding four years. While the share of new banks in incremental savings
deposits increased to 17.2%, it declined to 76% for PSBs. Incremental savings deposits by new private
banks during this period was 70.7% of their total savings deposits and 14% of their total deposits.
Exhibit 18: Incremental savings deposits between end Mar05 and Mar09
While the share of new (INRbn) Incremental SB Share Total SB deposits (a/b) Total deposits (a/c)
banks in incremental deposits (a) (%) at end Mar09 (b) at end Mar09 (c)
savings deposits increased Public sector 3,301 76.0 7,055 46.8 31,127 10.6
to 17.2% during the four Private (new) 748 17.2 1,057 70.7 5,353 14.0
years ended Mar09, it Private (old) 148 3.4 345 42.7 2,011 7.3
declined to 76% for PSBs.
Foreign banks 145 3.3 288 50.5 2,141 6.8
Total 4,342 100.0 8,745 49.6 40,632 10.7
Trend reversal in the share of savings deposits for new banks
After rising steadily for the seven years till end Mar08 to 12.4%, the share of new private banks in the
stock of savings deposits declined marginally at end Mar09 to 12.1%. Due to higher growth in savings
deposits, PSBs have been able to arrest the decline in their share of savings deposits. Their share in
savings deposits declined from 89.9% at end Mar01 to 80.1% at end Mar08. However, it increased
marginally at end Mar09.
Exhibit 19: Share of bank segments in the stock of savings deposits
Due to higher growth in
(%) Mar01 Mar02 Mar03 Mar04 Mar05 Mar06 Mar07 Mar08 Mar09
savings deposits, PSBs
Public sector banks 89.9 89.0 88.2 85.8 85.2 83.5 82.7 80.1 80.7
have been able to arrest
the decline in their share New private banks 2.4 3.0 3.9 5.8 7.0 9.0 10.4 12.4 12.1
of savings deposits. Old private banks 5.0 5.0 4.8 5.1 4.5 4.4 3.6 4.1 3.9
Foreign banks 2.7 3.0 3.0 3.3 3.2 3.1 3.4 3.5 3.3

Financials 11

Despite revival, growth in SB deposits per branch stays below PSBs
Growth in savings deposits per branch of new private banks has been declining significantly since FY06.
After contraction of 10.5% in FY09, it rebounded to 9.4% in FY10. However, despite the revival, the
growth in savings deposits per branch of new private banks stays below that of PSBs (six largest PSBs).
The savings deposits per branch of PSBs have increased consistently during the past three years, from
11.6% in FY08 to 16.8% in FY10.
Exhibit 20: Growth in savings deposits per branch (%)
Despite the revival, the
Public sector banks New private banks
growth in savings deposits
per branch of new banks 60
stays below the mean for
the six largest PSBs.
35
10
‐15
Mar03 Mar04 Mar05 Mar06 Mar07 Mar08 Mar09 Mar10


Financials 12

Is the IDR listing by foreign banks an inflection point for new banks?
The IDR listing by Standard Chartered Bank may be an inflection point for other foreign banks with a significant
presence in India to follow in its footsteps. Wider access to capital markets and potential leverage to growth of the
Indian business are likely to continue being key drivers for reasons to list in India. Potential crowding in the investor’s
portfolio is likely to put new private banks at a higher risk due to their similar profile. Standard Chartered Bank’s IDR is
just 1.21% of the market cap of the five largest new banks. Thus, the risk of their P/E de‐rating is small. However, as
other foreign banks begin to list in India, the percentage of market cap of IDR to that of new banks may begin to rise.
IDR listing by Standard Chartered Bank may set off a trend
In May10 Standard Chartered Bank (STAN IN, NR) became the first foreign bank to list in India. It raised
INR25bn through issue of Indian depository receipts (IDR) by selling 240mn IDRs at an issue price of
INR104. Ten IDRs equal one share of Standard Chartered Plc (STAN LN, NR). Depending on its success,
this IDR may set off a trend of other foreign banks raising capital and listing on the Indian bourses.
Reasons to list in India…
Standard Chartered f Wider access to capital market: This was Standard Chartered Bank’s third listing after floating
Bank’s listing in India was public issues in London and Hong Kong. One of the key reasons to list in India is likely to be the
driven by potential wider access to the capital market. Standard Chartered Bank focuses on Asia, Africa and the Middle
leverage to growth of
East with a mix of wholesale and retail banking products. About 90% of its profit before tax comes
Indian business and wider
from these markets. The presence across geographies provides an opportunity to global banks to
access to capital market.
have wider access to the capital market.
f Emphasize the link with India: Standard Chartered Bank’s IDR issue can also be viewed as a
message to emphasize the link with India, which provides 12% of its global revenues.
f Potential leverage to growth of Indian business: Standard Chartered Bank has 94 branches in India
across 37 cities, with over 2mn customers. The issue is likely to increase the bank’s market visibility
and brand profile, apart from giving Indian investors an opportunity to participate in the bank’s
growth. India is the bank’s most profitable geography after Hong Kong.
…may lead to other foreign banks following in its footsteps
Exhibit 21: Share of loans and deposits of bank segments (%)
The IDR listing by ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ Mar05 ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ Mar09 ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐
Standard Chartered Bank Share in loans Share in deposits Share in loans Share in deposits
may inspire other foreign
Public sector banks 74.2 78.2 75.3 76.6
banks with a significant
Private banks (Old) 5.9 6.4 4.3 4.9
presence in India to
follow suit. Private banks (New) 13.3 10.8 14.9 13.2
Foreign banks 6.5 4.7 5.5 5.3
Exhibit 22: Loans and deposits of foreign banks in India (Mar09)
(INRmn) Loans % of total loans of foreign banks Deposits % of total deposits of foreign banks
Citibank 399,199 24.1 516,775 24.1
Standard Chartered Bank 375,160 22.7 418,018 19.5
HSBC 275,887 16.7 499,703 23.3
ABN Amro Bank 166,597 10.1 159,603 7.5
Deutsche Bank 87,976 5.3 141,474 6.6
Barclays Bank 105,505 6.4 124,855 5.8
DBS Bank 27,229 1.6% 60,229 2.8%
Total deposits of foreign banks 2,140,767 91.2 1,654,146 93.2

Financials 13

There are 31 operational foreign banks in India. However, the share of foreign banks in the business is
small. While the share of foreign banks in total deposits during the four years ended Mar09 declined to
4.7%, the share in total loans has increased. The listing by Standard Chartered Bank is likely to lead to
other foreign banks following in its footsteps, driven by the above‐mentioned rationale to list in India.
Potential crowding in the investor’s portfolio
Potential crowding in the The listing of Standard Chartered Bank and the possibility of other foreign banks following suit could
investor’s portfolio is lead to potential crowding in the investor’s portfolio, such as:
likely to put new private
banks at a higher risk due f Expanding the choice of banking stocks: There are 22 listed PSBs and 15 listed private banks (old
to their similar profile. and new) in India. The potential listing by foreign banks is likely to create a new category and
investment opportunity for investors.
f Reducing the allocation of institutional funds to Indian stocks: Investment in a new category is
likely to reduce the allocation of investments to Indian stocks.
f New private banks likely to be more at risk due to similar profile: Due to the profile of foreign
banks being similar to that of new private banks, these banks are likely to be at a higher risk of a
reduction in investor allocation.
Unlikely to impact P/E of new banks, in the near term
IDR is just 1.21% of the market cap of the five largest new private banks
Risk of P/E de‐rating of The size of the IDR is just 1.09% of the market cap of Standard Chartered Bank. Also, the market cap of
new banks, due to lower the IDR is just 1.21% of the sum of the free‐float adjusted market cap of the five largest new private
investor allocation, is banks. Thus, the risk of a P/E de‐rating of new private banks due to lower investor allocation is
currently immaterial. currently immaterial.
The percentage could rise if more foreign banks list in India
If other foreign banks list in India, the proportion of the market cap of foreign banks to that of new
banks is likely to increase. Thus, it is likely to increase the risk of a P/E derating.
Exhibit 23: Free‐float adjusted market cap as on 09 Aug 10 (INRbn)
If other foreign banks list
in India, the proportion of 940
their market cap to that of
new banks is likely to
increase, thereby,
705
increasing the risk of P/E
470
1.21% of the free‐float adjusted
market cap of five largest new banks
235
0
Stan IDR AXSB HDFCB ICICIBC KMB IN YES IN

Would regulators be comfortable with capital flowing into foreign banks?
There is an increasing trend of Indian banks raising capital overseas though issue of perpetual bonds.
The Regulator and the Government of India may not be comfortable with Indian capital flowing
overseas. Contrary to IDR issues, the reverse flow of capital is unlikely to sit well with the regulators.

Financials 14

Loan growth of HDFCB and AXSB is likely to decrease from a CAGR of 40% during the three years ended Mar10 to 28%
for the three years ending Mar13f. While the same for ICICI is likely to rise to 18.3%, it is likely to stay below its
historical peak of 46.7% between Mar04 and Mar07. This implies that the trend of a shrinking gap in loan growth
between the five PSBs under our coverage and the three largest new private banks is likely to continue. This trend is
consistent with the narrowing premium in the P/B of new banks over PSBs. The forecast CAGR in loan growth is a critical
input in our valuation model for banking stocks where we determine the fair value by discounting the excess return
over a period of 25 years. However, our assumptions for loan growth during the 10‐year semi‐explicit period currently
assume the loan growth to expand in favor of new banks after Mar13f. We assume semi‐explicit period growth of 22%
to 29% for new private banks and 16% for PSBs. Even with assumptions tilted in favor of new banks, we foresee the
potential upside to be restricted to 14.6%.
We assume new banks to regain the lead in loan growth
The three years ended Mar10 saw a sharp fall in loan growth for AXSB and ICICIBC compared to the
preceding three years. The deceleration in loan growth has been much less for PSBs. During
Mar10‐Mar13f, we assume new banks to regain the lead in loan growth over PSBs. However, while
new banks may grow ahead of PSBs, the gap in loan growth is likely to shrink.
Exhibit 24: Three‐year CAGR in loans (%)
While new banks may AXSB HDFCB ICICIBC SBIN PNB BOB BOI CRPBK
regain the lead in loan Mar04‐Mar07 57.9 38.3 46.7 28.8 26.9 32.9 22.9 29.2
growth over PSBs during Mar07‐Mar10 41.4 38.9 ‐2.6 23.3 24.5 27.9 26.3 28.3
Mar10‐Mar13f, the gap in Mar10‐Mar13f 26.6 29.4 18.3 21.8 24.3 24.3 20.8 21.7
loan growth is likely to Semi‐explicit period growth 26.0 28.0 23.0 16.0 16.0 16.0 16.0 16.0
shrink. Source: Company, Avendus Research
Semi‐explicit period growth for new banks assumed between 22% and 29%
We assume semi‐explicit period (10 years ending Mar23) growth of 21% to 29% for new private banks
and 16% for PSBs. We raised the growth assumption for PSBs by 3% to 16% in Nov09, assuming the gap
in loan growth between the banks segments may continue to shrink.
RoEs of new banks may not exceed 20%
Due to lower equity dilution, most PSBs have either sustained or increased their RoE during the past
decade. This is in contrast to the decline in RoE for new banks, which was partly driven by frequent
capital raising. Despite the lead in loan growth over PSBs, the RoEs of new banks may not diverge and
may stay below that of a few PSBs during Mar11f‐Mar13f.
Exhibit 25: Average RoE for large new banks and PSBs
Despite the lead in loan Mar02‐Mar04 Mar05‐Mar07 Mar08‐Mar10 Mar11f‐Mar13f
growth over PSBs, the ICICI Bank 15.7 15.8 9.2 10.0
RoEs of new banks may Axis Bank 27.1 20.4 18.6 19.7
not diverge and may stay HDFC Bank 20.0 18.6 17.0 18.3
below that of a few PSBs Punjab National Bank 24.1 20.5 24.0 24.1
during Mar11f‐Mar13f. Bank of Baroda 19.3 12.9 19.1 21.3
State Bank of India 18.6 17.3 16.3 14.6
Bank of India 25.4 14.2 23.7 15.4
Corporation Bank 18.9 14.2 19.9 20.4
Downward bias to valuation premium may persist
The valuation gap between new private banks and PSBs has narrowed during the past 15 months. This
decline in the valuation gap may sustain as the gap in the RoE narrows. Also, the premium enjoyed by
new private banks in valuations may be absent as the growth slows during the next three years.

Financials 15

Exhibit 26: Month‐end P/B (x) of bank segments
The decline in the
valuation gap between 4.5
new banks and PSBs may Public sector banks
sustain as the gap in the New private banks
RoE and loan growth 3.5
narrows.
2.5
1.5
0.5
Mar04 Apr05 May06 Jun07 Jun08 Jul09 Aug10

Fair value derived from discounting excess returns
Our three‐stage DCF uses Our three‐stage DCF uses explicit forecasts until FY13, followed by 10 years of semi‐explicit forecasts,
explicit forecasts until where we assume a CAGR of 22% to 29% in loan growth and dividend payout of 22%. We also assume
FY13, followed by 10 years the RoA at the end of the semi‐explicit period to converge to 1.21%—the difference between the
of semi‐explicit forecasts, average RoA for new private banks and PSBs (we assume a RoA of 1% for PSBs at the end of the
where we assume loan semi‐explicit period). The final stage of 12 years assumes convergence of the RoE and cost of equity
CAGR of 22% to 29%. (assumed to be 14%). The fair value is derived from discounting the excess returns over cost of equity.
Exhibit 27: RoA of new private banks and PSBs (%)
Mar05 Mar06 Mar07 Mar08 Mar09 Mar10 Average
New private banks 1.34 1.23 1.13 1.18 1.16 1.28 1.22
Public sector banks 0.94 0.94 0.91 1.04 1.17 1.04 1.01
Exhibit 28: Key assumptions for DCF
(%)
RoA at the end of the semi‐explicit period (FY23f) 1.2
Semi‐explicit period growth 22.0‐29.0
Fade period growth 3.0
Dividend payout 22.0
Cost of equity 14.0
Source: Avendus Research
Target price derived from P/E, P/B and DCF‐based values
We estimate the mean P/E and P/B for the 12‐month period ended 20 Jul10.
Exhibit 29: Average P/E (till 20 Jul10)
1 month 3 months 6 months 12 months
Axis Bank 15.8 15.8 15.4 14.6
HDFC Bank 22.5 22.2 21.9 21.7
ICICI Bank 21.8 23.2 22.6 22.0

Financials 16

Exhibit 30: Average P/B (till 20 Jul10)
1 month 3 months 6 months 12 months
Axis Bank 2.7 2.7 2.6 2.4
HDFC Bank 3.6 3.5 3.4 3.3
ICICI Bank 1.8 1.9 1.8 1.8
We apply these to our forecast one‐year forward EPS and book value for Jun10 to arrive at P/E and
P/B‐based target prices. Our target price is a weighted average, where we assign a weight of 50% to
our DCF/SOTP value and 25% each to our P/E and P/B values.
Sensitivity of sustainable growth assumption to DCF values
Exhibit 31: Sensitivity of semi‐explicit period growth assumption to AXSB’s DCF values
Our target price is a Weight Semi‐explicit period growth 24% 25% 26% 27% 28%
weighted average, where 50% DCF value 1,416 1.501 1,590 1,685 1,785
we assign a weight of 50%
25% P/E‐based value 1,495 1,495 1,495 1,495 1,495
to our DCF/SOTP value
25% P/B‐based value 1,330 1,330 1,330 1,330 1,330
and 25% each to our P/E
and P/B values. Price target 1,414 1,457 1,501 1,549 1,599
Exhibit 32: Sensitivity of semi‐explicit period growth assumption to HDFCB’s DCF values
Weight Semi‐explicit period growth 26% 27% 28% 29% 28%
50% DCF value 1,777 1,892 2,015 2,146 2,285
25% P/E‐based value 2,454 2,454 2,454 2,454 2,454
25% P/B‐based value 2,131 2,131 2,131 2,131 2,131
Price target 2,035 2,093 2,154 2,219 2,289
Source: Company, Avendus Research.
Exhibit 33: Sensitivity of semi‐explicit period growth assumption to DCF/SOP values of ICICIBC
Weight Semi‐explicit period growth 21% 22% 23% 24% 25%
50% DCF value 963 1,005 1,050 1,098 1,149
25% P/E‐based value 1,171 1,171 1,171 1,171 1,171
25% P/B‐based value 973 973 973 973 973
Price target 1,017 1,039 1,061 1,085 1,111
Low upside, despite higher CAGR in semi‐explicit period loan growth
Despite assuming higher semi‐explicit growth, there is a low upside for new banks compared to PSBs.
This implies that the estimated higher loan growth during the next three years may be priced in.
Exhibit 34: Target price and potential upside for banks in our coverage list as on 09 Aug 10
Low upside in new banks,
Target price 25% 25% 50% CMP
despite higher loan
(Jun11) P/E P/B DCF/SOTP (INR) Potential upside
growth in semi‐explicit
period, indicates that high Bank of India 471 466 439 489 439 7%
loan growth in next three Bank of Baroda 875 736 714 1,025 770 14%
years may be priced in. Corporation Bank 761 568 564 957 580 31%
Punjab National Bank 1,246 1,190 1,176 1,309 1,111 12%
State Bank of India* 2,444 2,516 2,497 2,382 2,651 ‐6%

Axis Bank 1,501 1,495 1,330 1,590 1,310 14%
HDFC Bank 2,154 2,454 2,131 1,777 2,082 3%
ICICI Bank 1,061 1,139 941 1,015 980 8%
Source: Company, Avendus Research * Target price of State Bank of India is for Mar11

Financials 17

Initiate coverage on large new private banks
Axis Bank
AXSB’s RoE has been superior to peers with the core RoE staying near 30% and that on the initial
tranches of new equity rising to 27% by FY10. Our forecast loan CAGR of 27% till Mar13f is below that
for the preceding three years as well as the growth at the end of Jun10. In contrast to peers asset
quality may be the major stress factor during FY11 and FY12. We forecast a rise in incremental and
year‐end NPL ratios. Despite a likely deceleration, fee income may stay a significant driver of earnings
growth during FY11f‐FY13f. We forecast a three‐year CAGR of 26% in net profit and initiate coverage
with an Add Rating and a Jun11 target of INR 1,501.
HDFC Bank
RoE on new equity raised before 2005 had risen rapidly for two years. However, incremental RoEs stay
below the core RoE which itself has been in gentle decline. The gearing of the aggregate equity is likely
to rise after a near‐term fall in FY11f based on our forecast three‐year loan CAGR of 29%. We forecast
the proportion of retail loans to stabilize near 50% by end of FY12 and net profits to grow at a three‐
year CAGR of 28.1%. Threats to HDFCB’s profitability arise from a potential decline in fee intensity and
rise in cost ratios. FY10 had seen cost/assets fall by 0.73% after rising for seven years. The asset quality
cycle is poised to stabilize and we forecast a 1.42% gross NPL ratio by Mar12. A key challenge for
HDFCB would be to sustain the growth in savings deposits. Our Jun11 target of INR2,154 values the
stock at a P/E of 19.1x and P/B of 3.4x. We initiate coverage on the stock with a Hold rating.
ICICI Bank
ICICIBC has raised new equity more frequently and to a larger extent than peers. Compared with peers,
the RoE on new equity raised after FY07 is the lowest. The phase of balance sheet contraction is likely
to have ended and we assume loan growth to rebound to 15% y‐o‐y in FY11f, driven by segments such
as home loans, car loans and project finance. While savings deposits growth is likely to slow, the rise in
the proportion of savings deposits may sustain. We estimate a rise in the cost/asset ratio during FY10‐
FY13f. Loan‐loss provisions are likely to have peaked in FY10. However, we assume incremental NPL to
rise in the next three years as loan growth revives. We assume a CAGR of 20% in net profit during FY10‐
FY13f compared to 9% in the preceding three years. NII growth and low NPL provisions are likely to
stay key drivers of profitability. We initiate coverage with an Add rating and Jun11 target of INR1,061.
Key risks to our estimates
f We have not assumed equity dilution in the forecast. Further equity dilution by new banks may
bring down the RoE on aggregate equity of new banks even more.
f Higher than assumed loan CAGR in the next three years may lead to the upside risk in earnings.
f Higher than estimated loan‐loss provisions for public sector banks may result in the decline in RoE.

Financials 18

Analyst Certification
I, Chandana Jha, MBA, research analyst and author of this report, hereby certify that all of the views expressed in this document accurately reflect our personal views about the
subject company/companies and its or their securities. We further certify that no part of our compensation was, is or will be, directly or indirectly related to specific
recommendations or views expressed in this document.
Disclaimer
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investigation as he deems necessary to arrive at an independent evaluation, including the merits and risks involved, for investment in the securities referred to in this document
and should consult his own advisors to determine the merits and risks of such investment. The investment discussed or views expressed may not be suitable for all investors. This
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Avendus generally prohibits its analysts and persons reporting to analysts from maintaining a financial interest in the securities or derivatives of any company that the analysts
cover. Avendus and its affiliates may have interest/positions, financial or otherwise, in the companies mentioned in this document. In order to provide complete transparency to
our clients, we have incorporated a ‘Disclosure of Interest Statement’ in this document. This should, however, not be treated as an endorsement of the view expressed in the
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manage potential conflicts of interest and protect the integrity of our relationships with investing and corporate clients. Employee compliance with these policies is mandatory.
Any comment or statement made herein are solely those of the analyst and do not necessarily reflect those of Avendus.

Financials 19

Disclosure of Interest Statement (as of August 9, 2010)

Analyst ownership Avendus or its associate Broking relationship with Investment Banking

of the stock company’s ownership of the Avendus Securities mandate with associate
stock companies of Avendus
ABN Amro Bank No No No No
Axis Bank No No No No
Bank of Baroda No No No No
Bank of India No No No No
Barclays Bank No No No No
Canara Bank No No No No
Citibank No No No No
Corporation Bank No No No No
DBS Bank No No No No
Deutsche Bank No No No No
HDFC Bank No No No No
HSBC No No No No
ICICI Bank No No No No
Kotak Mahindra Bank No No No No
Punjab National Bank No No No No
Standard Chartered Bank No No No No
State Bank of India No No No No
Yes Bank No No No No

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Financials 20

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Equity dilution virtually Exhibit 7: RoE for large new private banks (%) Exhibit 8: RoE for a few PSBs (%)

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