India banks: Annual Report analysis Source: IRIS (13-JUN-13)

Nomura Financial Advisory and Securities has analyzed annual reports of ICICI Bank, HDFC Bank, IndusInd Bank, Yes Bank, Bank of Baroda and Punjab National Bank for relative movement in non-performing loan buckets and trends in excess ‘specific’ provisions on the books, ALM gaps, loans and deposit movements in various maturity buckets, trends in priority sector lending, working capital loans and contingent liability trends. Following are the key highlight from Nomura’s analysis:

> Private sector banks have a gdreater proportion of GNPL in the doubtful/loss buckets compared with PSU banks. Bank of Baroda has seen a sharp increase in the proportion of its sub-standard assets in FY12- the percentage of sub-standard loans within the GNPL book increasing from 34.8% in FY11 to 59.6% in FY12. In FY13, there has not been much ageing of this sub-standard loan book with the proportion increasing marginally to 61.6%. Within private sector banks, ICICI Bank had a relatively better ‘aged’ GNPL book as in FY13.

> In terms of excess ‘specific’ provisions carried on the balance sheet, Yes Bank leads the pack with excess ‘specific’ provisions of 55% over what is required under IRAC norms while PSU banks like Bank of Baroda (BoB) and Punjab National Bank (PNB) have low ”excess specific provisions” of 11.9% and 3.9%, respectively.

> It also looks at what proportion of sub-standard and doubtful assets (D-1 and D-2 categories) have been covered by provisions. The rationale behind this analysis is – since D-3 and loss categories should carry a mandated 100% provision, it analyzes how much provision cover is left for sub-standard and D-1 & D-2 assets. No surprises here – private banks have high provision cover (ranging from ICICI Bank at 57.5% to Yes Bank at 91.8%) while BoB and PNB have 43.9% and 38.2% coverage, respectively.

> Asset-liability management: ICICI Bank has seen a sharp improvement in its deposit structure in FY13 due to growth in core CASA and retail term deposits. Deposits in 3-5 year and 5 years and beyond maturity buckets have registered a growth of 163% and 47%, respectively. This improvement in deposit structure enabled ICICI Bank to reduce its ALM gap from 3 months in FY12 to a negative 1 month in FY13. This should ensure margin stability for the bank in the year ahead, in its view.

> On priority sector lending mandate: Only HDFC Bank and IIB have managed to meet their priority sector loan mandates solely through their loan books, while it sees the biggest shortfall for Yes Bank due to the sharp increase in its loan book in FY11 and also the regulatory changes around securitization through the assignment route impacting pool buyouts.

Disclaimer: IRIS has taken due care and caution in compilation of data for its web site. Information has been obtained by IRIS from sources which it considers reliable. However, IRIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. IRIS especially states that it has no financial liability whatsoever to any user on account of the use of information provided on its website.



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