The global financial system is still far away from a full recovery on account

of a slowdown in the US economy, the soft landing in China and the Euro debt crisis. The Indian banking sector has been relatively well shielded by the central bank and has managed to sail through most of the crisis. But, currently in light of slowing domestic GDP growth, persistent inflation, asset quality concerns and elevated interest rates, the investment cycle has been wavering in the country. The cost of borrowings was higher on account of the various monetary tightening measures undertaken by the central bank. People preferred to park their funds in higher yielding fixed deposits rather than current or savings account (CASA). CASA accretion slowed for most banks which led to a higher cost of funds. The savings bank account rate was deregulated by the RBI, however most banks continue to hold the rate at 4%. Apart from streamlining their processes through technology initiatives such as ATMs, telephone banking, online banking and web based products, banks also resorted to cross selling of financial products such as credit cards, mutual funds and insurance policies to augment their fee based income. They are also looking at various financial inclusion initiatives in order to spread the use of financial services among Indias large unbanked population.

Key Points Supply Demand

Liquidity is controlled by the Reserve Bank of India (RBI). India is a growing economy and demand for credit is high though it could be cyclical.

Barriers to entry Licensing requirement, investment in technology and branch network, capital and regulatory requirements. Bargaining power of suppliers High during periods of tight liquidity. Trade unions in public sector banks can be anti reforms and orchestrate strikes. Depositors may invest elsewhere if interest rates fall. For good creditworthy borrowers bargaining power is high due to the availability of large number of banks. High- There are public sector banks, private sector and foreign banks along with non banking finance companies competing in similar business segments. Plus the RBI is planning to issue new banking licenses. TOP Financial Year '12 The RBI had to revise its target for credit growth in FY12 a number of times given the external environment. From starting off with a prediction of 19% credit growth in May 2011, the central bank brought this estimate down to 16% in January 2012. Finally non-food credit growth came in at around 17% in FY12 compared to 21.5% in FY11. Against a backdrop of GDP

Bargaining power of customers Competition

growth deceleration, weak IIP data and persistent inflation banks became more risk averse to lending credit. This deceleration also reflects banks risk aversion in face of rising NPAs and increased leverage of corporate balance sheets. Credit growth decelerated across all bank groups during 2011-12 ranging between 16.3% in the case of public sector banks and 19.7% for private sector banks. The comparable figures for the previous year were 21% and 24.7% respectively. The RBIs has not yet rolled back its aggressive interest rate policy and rates continue to be elevated. The repo rate currently stands at 8%, with the reverse repo rate at 7%. While inflation continues to remain high the RBI has refrained from any further hikes in order to address the slowdown in growth. It may ease rates once inflation comes under control.

Growth on the deposit front however remained relatively low coming in at

around 13% YoY in FY12; this was as against an RBI target of 17%. Fixed deposits saw good growth, while demand deposits saw a deceleration on lower yields. The outstanding credit-deposit ratio rose from 74.5% FY11 to 76.7% in FY12.

Data source: RBI

In the retail portfolio, while home loans grew by 12% YoY, while vehicle

loans grew by 20%. Overall Other personal loans enjoyed a much smaller growth of 8% YoY due to banks reluctance towards uncollateralized credit. Credit card outstanding grew by 13% YoY. a percentage of GDP in FY12 as compared to that in FY11 on account of the uncertain economic environment. However credit as a % of GDP was higher as GDP growth slowed.

Indian banks, however, saw lower levels of money supply, and deposits as

Data source: RBI

Most private sector banks had a relatively better outing in FY12. Increased pricing power helped some of these banks sustain their net interest margins. Plus they were also able to sustain their asset quality. Net non performing assets (NPAs) in the system increased from 0.9% in FY11 to 1.2% in FY12. However for PSU banks this ratio increased from 1% in FY11 to 1.5% in FY12. Increased provisioning affected the profitability of the banks in question.

TOP Prospects Basel III is a new challenge that banks in India and overseas will have to surmount. It will be a challenge to deploy the same safely and profitably in the event of persistence of economic slowdown. The government was able to re-capitalize a few PSU banks in FY12, including the much needed infusion for State Bank of India. According to RBI estimates, Indian banks would require additional capital of Rs 5 trillion to meet Basel-III norms by March 31, 2018. In 2011-12, agriculture loan target was Rs 4.5 trillion, and Rs 4.8 trillion was disbursed. For 2012-13, the target has been set at Rs 5.8 trillion. Financial inclusion initiatives also need to be taken care of as India fares very poorly on this regard as half the population does not have access to banking services. New banking licenses are expected to be issued by the RBI to private sector players. However, these licenses will only be awarded to certain players meeting strict requirements on the capital, exposures, and corporate governance front. Lots of players including NBFCs, industrial houses, microfinance companies etc are all vying for this coveted license. There has so far been no progress on this issue since the RBI issued draft guidelines in August 2011. However, growth is still a concern for the banking sector in FY12 on account of a sustained slowdown in the economy as well as reduced demand for credit on account of the current high interest rate environment. The central bank expects credit growth to come in at 17%, with deposit growth at 16% for FY13. Asset quality concerns are also an issue especially in the power, textile, and mining space. In the year 2012-13 so far, there has been a easing of liquidity and

monetary conditions. The policy rate was cut by 0.5% in April. In addition there has been liquidity infusions through open market operations export credit refinance. The 1% Statutory Liquidity Ratio (SLR) reduction in August and the further 25 bps cut in the CRR is expected to further ease liquidity and encourage banks to increase loans and advances. The SLR and CRR stand at 4.25% and 23% respectively currently.

SBI
SBI is India's largest bank in the country with an asset size of over Rs 13 trillion. Although the bank's loan book is largely skewed towards corporate (large, mid and small) loans (50% of total advances in FY12), the retail side is also fast catching up. SBI has a network of almost 14,270 branches and over 22,141 ATMs across the country.

* Results Consolidated

No. of 12 12 12 12 12 Months * 31/03/200 * 31/03/200 * 31/03/201 * 31/03/201 * 31/03/201 Year 8 9 0 1 2 Ending

BALANCE SHEET DATA

Advances Rs m 6,032,219 7,503,624 8,695,016 10,064,01 11,636,70 6 2

Deposits Credit/Deposit ratio Yield on advances Cost of deposits Net Interest Margin Net fixed assets Share capital Free reserves Net worth Borrowings Investments Total assets Debt/equity ratio Return on assets Return on equity Capital adequacy ratio Net NPAs

Rs m 7,764,165 x % % % Rs m Rs m Rs m Rs m Rs m 77.7 8.6 5.4 2.4 46,628 6,315 292,375 612,364

10,119,88 11,164,64 12,555,62 14,146,89 3 6 5 4 74.1 9.0 5.5 2.3 52,235 6,349 318,957 723,904 77.9 8.3 5.5 2.4 60,139 6,349 362,657 831,356 80.2 8.3 4.8 2.9 64,868 6,350 409,974 82.3 9.6 5.6 3.3 74,080 6,710 571,380

834,713 1,062,300

660,232 1,000,288 1,218,215 1,386,633 1,579,914

Rs m 2,738,417 3,722,314 4,127,493 4,190,664 4,609,491 Rs m x % % % % 10,272,69 13,048,25 14,501,44 16,478,98 18,299,56 5 7 0 3 2 13.8 0.9 14.6 13.5 1.8 15.4 0.8 15.1 14.3 1.8 14.9 0.8 14.1 13.4 1.7 16.7 0.6 12.8 12.0 1.6 14.8 0.8 14.4 13.9 1.8

CASH FLOW
From Operations From Investments From Financial Activity Net Cashflow * Results Consolidated Rs m Rs m Rs m Rs m -42,094 -16,424 226,337 167,819 311,700 -16,309 45,007 340,398 -83,724 -13,446 -32,726 -129,896 439,001 -16,460 12,516 435,057 -301,141 -23,193 22,088 -302,245

AXIS
Axis Bank is one of the most aggressive players in the private sector banking industry having more than tripled its share in non-food credit over the last 9 years from 1% in FY02 to 3.6% in FY12. Axis Bank has set up a network of 9,925 ATMs, the third largest in the country. During the period FY07 to FY12, Axis Bank has grown its advances at a compounded annual rate of 47%, against the industry average of 27%. The bank acquired Enam's investment banking business by issue of shares in 1QFY13. No. of Months Year Ending 12 * 31/03/2008 12 * 31/03/2009 12 * 31/03/2010 12 * 31/03/2011 12 * 31/03/2012

BALANCE SHEET DATA

Advances Deposits Rs m Rs m 594,760 815,568 1,043,409 1,424,078 1,697,595

876,193 1,173,577 1,412,787 1,891,664 2,199,877

Credit/Deposit ratio Yield on advances Cost of deposits Net Interest Margin Net fixed assets Share capital Free reserves Net worth Borrowings Investments Total assets Debt/equity ratio Return on assets

x % % % Rs m Rs m Rs m Rs m Rs m Rs m

67.9 8.0 4.3 2.4 9,325 3,577 74,247 87,540 56,240 338,651

69.5 9.1 5.3 2.6 10,824 3,590 82,548 101,957 139,964 462,718

73.9 7.7 4.0 2.9 12,360 4,052 131,481 159,891 166,450 558,765

75.3 7.3 4.0 2.8 22,929 4,105 152,114 188,946 248,446 717,875

77.2 9.1 5.5 2.9 22,841 4,132 173,396 226,817 340,717 929,214

Rs m 1,095,664 1,476,972 1,805,867 2,425,667 2,854,165 x % 10.7 1.0 12.9 1.2 9.9 1.4 11.3 1.4 11.2 1.5

Return on equity

12.1

17.8

15.5

17.7

18.6

Capital adequacy ratio

13.7

13.7

15.8

12.7

13.7

Net NPAs

0.4

0.4

0.4

0.3

0.3

CASH FLOW
From Operations Rs m 61,399 103,357 1,499 113,277 -99,043

From Investments

Rs m

-48,807

-95,248

-50,753

-138,898

-50,407

From Financial Activity

Rs m

43,258

16,923

51,323

87,696

72,702

Net Cashflow * Results Consolidated

Rs m

55,850

25,032

2,069

62,075

-76,748

INCOME DATA
Interest income Other income Interest expense Net interest income Operating expense Gross profit Rs m Rs m Rs m Rs m Rs m Rs m 70,051 17,959 44,198 25,853 21,667 4,186 108,291 29,159 71,489 36,802 28,738 8,064 116,391 39,642 66,326 50,065 37,624 12,441 151,549 46,714 85,886 65,663 48,605 17,058 219,949 54,872 139,691 80,258 60,999 19,259

Gross profit margin Provisions/contingencies Profit before tax Extraordinary Inc (Exp) Minority Interest Prior Period Items Tax Profit after tax

% Rs m Rs m Rs m Rs m Rs m Rs m Rs m

6.0 5,794 16,350 0 0 0 5,759 10,591

7.4 9,394 27,829 0 0 0 9,700 18,129

10.7 13,888 38,194 0 0 0 13,413 24,781

11.3 12,796 50,929 0 0 0 17,530 33,399

8.8 11,427 62,716 0 0 0 20,518 42,198

Net profit margin

15.1

16.7

21.3

22.0

19.2

HDFC

HDFC is India's largest housing finance company with strong brand equity and market share of approximately 19%. Besides housing loans, HDFC has also been benefiting from the retail reach of its banking subsidiary (HDFC Bank). Over the years, HDFC has emerged as a financial conglomerate by not restricting its ambitions to just housing finance but also venturing into new businesses like insurance, banking and asset management (mutual funds). No. of Months Year Ending 12 * 31/03/2008 12 * 31/03/2009 12 * 31/03/2010 12 * 31/03/2011 12 * 31/03/2012

INCOME DATA
Interest income Other income Interest expense Net interest income Operating expense Gross profit Gross profit margin Provisions/contingencies Profit before tax Extraordinary Inc (Exp) Minority Interest Prior Period Items Tax Profit after tax Net profit margin Rs m Rs m Rs m Rs m Rs m Rs m % Rs m Rs m Rs m Rs m Rs m Rs m Rs m % 80,290 6,502 52,255 28,035 7,999 20,036 25.0 660 29,426 8,180 -108 0 10,369 27,129 33.8 108,210 8,636 75,628 32,582 11,918 20,664 19.1 889 32,794 218 772 0 10,678 23,106 21.4 239,268 33,867 71,439 167,829 142,385 25,444 10.6 1,858 42,643 2,251 61 0 12,545 32,410 13.5 239,117 13,739 76,500 162,617 127,650 34,967 14.6 1,151 56,456 5,070 -849 0 15,393 45,284 18.9 280,563 16,018 111,607 168,956 122,219 46,737 16.7 1,379 70,978 2,995 -2,078 0 17,270 54,625 19.5

BALANCE SHEET DATA

Advances Deposits Credit/Deposit ratio Yield on advances Cost of deposits Net Interest Margin Rs m Rs m x % % % 747,735 114,711 651.8 9.9 8.9 3.1 872,926 1,004,852 1,052,017 1,324,742 195,930 445.5 11.7 12.7 3.0 233,347 430.6 10.2 9.1 12.6 110,872 948.9 11.0 23.6 11.5 199,256 664.8 11.9 16.5 9.6

Net fixed assets Share capital Free reserves Net worth Borrowings Investments Total assets Debt/equity ratio Return on assets Return on equity Capital adequacy ratio Net NPAs

Rs m Rs m Rs m Rs m

4,913 2,840 95,584 128,010

5,070 2,845 110,388 149,539

4,423 2,871 130,081 181,822

6,332 2,934 151,437 211,901

6,707 2,954 173,388 244,240

Rs m 1,314,802 1,484,052 1,751,854 1,575,945 1,899,961 Rs m Rs m x % % % % 154,433 210,030 327,431 359,757 433,554

968,195 1,169,654 1,436,113 1,747,829 2,118,893 11.2 2.8 21.2 16.8 0.2 11.2 2.0 15.5 15.1 0.1 10.9 2.3 17.8 14.6 0.1 8.0 2.6 21.4 14.0 0.0 8.6 2.6 22.4 14.6 0.0

CASH FLOW
From Operations From Investments From Financial Activity Net Cashflow * Results Consolidated Rs m Rs m Rs m Rs m 61,325 -62,290 85 -880 -74,928 -45,846 133,885 13,111 6,766 -106,163 130,108 30,710 -114,023 -78,572 198,008 5,413 -175,272 -62,827 231,868 -6,231

ICICI

Despite being the second largest bank in the country after SBI in terms of asset size, ICICI Bank lost its share of the banking sector's advances from 10.2% in FY07 to 8% in FY12. At the end of March 2012, the bank had assets of over Rs 4.8 trillion and a franchise of over 9,000 ATMs and 2,750 branches spread across the country. Retail assets constituted 34% of advances in FY12 as against 65% in FY07. The bank is focusing on loan origination in the large corporate, SME and agrie segments and on non-fund based products and services. Besides the bank itself being the market leader across retail loan portfolios, its subsidiaries ICICI Life Insurance, ICICI General Insurance and ICICI AMC are leaders in their respective businesses.

No. of Months Year Ending

12 * 31/03/2008

12 * 31/03/2009

12 * 31/03/2010

12 * 31/03/2011

12 * 31/03/2012

INCOME DATA
Interest income Other income Interest expense Net interest income Operating expense Gross profit Gross profit margin Provisions/contingencies Profit before tax Extraordinary Inc (Exp) Minority Interest Prior Period Items Tax Profit after tax Net profit margin Rs m Rs m Rs m Rs m Rs m Rs m % Rs m Rs m Rs m Rs m Rs m Rs m Rs m % 340,950 259,581 257,670 83,280 270,434 -187,154 -54.9 30,178 42,249 0 2,830 0 11,097 33,982 10.0 362,507 279,024 264,873 97,634 281,858 -184,224 -50.8 45,117 49,684 0 1,975 0 15,889 35,770 9.9 301,537 294,461 207,292 94,245 277,332 -183,087 -60.7 45,587 65,786 0 -1,731 0 17,352 46,703 15.5 300,814 315,133 193,426 107,388 313,025 -205,637 -68.4 25,600 83,897 0 -2,249 0 20,715 60,933 20.3 379,949 286,634 250,132 129,817 295,520 -165,703 -43.6 14,063 106,866 0 -2,947 0 27,490 76,429 20.1

BALANCE SHEET DATA

Advances Rs m 2,514,017 2,661,305 2,257,781 2,560,193 2,921,254

Deposits Credit/Deposit ratio Yield on advances Cost of deposits Net Interest Margin Net fixed assets Share capital Free reserves Net worth Borrowings Investments Total assets Debt/equity ratio Return on assets Return on equity Capital adequacy ratio Net NPAs

Rs m 2,769,832 2,618,558 2,415,723 2,591,060 2,819,505 x % % % Rs m Rs m Rs m Rs m Rs m 90.8 9.6 6.8 1.8 46,784 11,127 368,060 447,222 825,030 101.6 9.5 7.0 2.2 44,975 11,133 361,125 467,775 93.5 9.0 5.6 2.1 38,623 11,149 388,503 512,965 98.8 7.5 4.4 2.1 54,895 11,518 406,141 553,025 103.6 8.4 5.4 2.3 54,320 11,528 438,127 612,765

934,623 1,084,720 1,214,121 1,612,966

Rs m 1,600,468 1,481,070 1,863,198 2,096,528 2,398,641 Rs m 4,856,166 4,826,910 4,893,473 5,337,679 6,041,914 x % % % % 8.0 0.7 7.6 14.0 1.6 7.6 0.7 7.6 15.5 2.1 6.8 1.0 9.1 19.4 2.1 6.9 1.1 11.0 19.5 1.1 7.2 1.3 12.5 19.6 0.7

CASH FLOW
From Operations From Investments From Financial Activity Net Cashflow * Results Consolidated Rs m Rs m Rs m Rs m 21,670 -291,073 325,157 55,754 -222,254 77,702 30,437 -114,115 295,509 -156,132 -14,420 124,957 -36,377 -60,810 6,572 -90,614 208,834 -212,629 17,421 13,626