Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415 Dhaval Gada (Dhaval.Gada@MotilalOswal.com); +91 22 3982 5505

9 December 2015 Update | Sector: Financials

Bank of Baroda CMP: INR160 TP: INR225 (+41%) Buy

Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Deep dive into >USD20b overseas operations Focus shifts to consolidation and recoveries; reiterate Buy

BOB is one of the largest players in the overseas market amongst Indian banks. The bank’s overseas operations account for 30%+ of the business and consume ~25-30% of its equity capital (based on ~10% CET1 ratio). While overseas loan book has grown at 33% CAGR (FY05-15), profitability in the last three years has taken a beating (adj. RoA at 0.5% in FY15 v/s 1.1%) led by sharp contraction in NIMs and fees.

However, from strong thrust on business growth in the previous regime, strategy under the new management has now shifted to calibrating loan growth, increasing focus on recoveries (GNPAs now at 3.2% v/s 1.3% in 2QFY15) and core income growth (improving spreads and fees). In this note we deep dive into BOB’s overseas operations and analyze the low hanging fruits which could improve profitability / returns in the ensuing quarters. Also, we highlight the implied profitability/stressed loans at domestic operations which are largely in line with other public sector banks (PSBs).

Second largest Indian bank in the overseas market (based on loans) The bank’s 26% loan CAGR over FY05-15 was led by a strong 33% CAGR in overseas operations. The share of international book has been increasing and now accounts for a third of loans v/s 18% in FY05. The growth in international book was historically driven by syndicated loans (was 31-32% of international book at peak), predominantly to Indian corporate; however, due to global economic slowdown and company/sector-specific issues, the book has seen significant increase in stressed loans (~5.5% in 2QFY16 v/s 4% in 2QFY15). Currently, low-margin buyer’s credit business accounts for 51% of loans, syndication loans (incl. ECBs) 25% and balance local credit.

Focus shifting toward profitability and consolidation The moderating domestic economic growth prompted management to focus on low-margin (and low risk) but high-volume buyer’s credit business to increase the overall growth. RoA in overseas operations have tanked from the peak of 1.5% in FY10 to 0.5% (adj.) in FY15, led by higher stress in syndication loans (25% of international loans and ~8% of overall loans) and moderating margins (down from 1.4% to 1.1% in FY15). The management is now focusing on consolidating syndication (high stress) and buyer’s credit (low margin) businesses. Opex remains low (~0.3% of assets) in this business, thus consolidation is unlikely to be a major drag on profitability.

Overseas business outperforms domestic business Over FY09-15, domestic loan CAGR was 18% v/s 26% for international operations. The average cost-to-income ratio remained low at ~20% v/s 55%.

BSE Sensex S&P CNX 25,036 7,613

Stock Info Bloomberg BOB IN Equity Shares (m) 2,217.8 M.Cap.(INR b)/(USD b) 355.8/5.3

52-Wk Range (INR) 229/138 1, 6, 12 Rel. Per (%) 1/13/-14 Avg Val (INR m) 1,317

Free float (%) 40.8

Financial Snapshot (INR Billion) Y/E March 2016E 2017E 2018E NII 141.7 160.2 179.3 OP 103.5 116.2 129.9

NP 30.8 46.2 56.4 NIM (%) 2.0 2.1 2.1 EPS (INR) 13.3 20.0 24.4

EPS Gr. (%) -13.1 50.1 22.2 BV/Sh. (INR) 177.7 193.0 211.7 ABV/Sh. (INR) 135.7 155.6 175.9

RoE (%) 7.9 10.8 12.1 RoA (%) 0.4 0.6 0.6 Payout (%) 23.2 23.2 23.2

P/E(X) 12.0 8.0 6.6 P/BV (X) 0.9 0.8 0.8 P/ABV (X) 1.2 1.0 0.9

Div. Yield (%) 1.7 2.5 3.0

Shareholding pattern (%) As on Sep-15 Jun-15 Sep-14 Promoter 59.2 57.5 56.3

DII 21.2 20.7 17.7

FII 12.0 13.6 18.0 Others 7.6 8.2 8.1 FII includes depository receipts

Stock Performance (1-year)

Bank of Baroda

9 December 2015 2

Overseas fee income contributed 26% to overall fees and PPP as a percentage of overall assets stood at 1.5%. Despite the strain on the syndication loan business, overall stress loans in international operations stand at ~5.5% as against ~14.5% for domestic operations (in line with peers). International operations contributed on average 22% of PBT (our estimates). Stress reduction in syndication business and rise in local credit business (high NIMs) remain the key for overseas profitability.

Well capitalized, awaiting growth; reiterate Buy The bank is adequately capitalized, with one of the best CET1 ratios (~9.7%). Risk density (RWA/TA) at ~55% is one of the lowest in the system, reflecting better use of capital—also helped by higher share of buyer’s credit business in overall loans. Unlike other PSU banks, BOB is trading above trailing BV; thus, dilution (if any) is likely to be BV additive. Key factors driving our positive view are: (a) First PSB with private sector leadership, (b) lower exposure to sensitive sectors and low concentration risks, (c) valuations near LPA and future capital infusions to be BV additive, and (d) RoAs have bottomed at 0.5%—we expect the number to improve, led by fall in credit cost and continued operating leverage (earnings CAGR of 35% over FY16-18E). During the last up cycle, ROA improved from 0.5% to 1.2% in three years. Prolong economic slowdown leading to further asset quality pressures remains a key risk to our estimates. Reiterate Buy with a price target of INR225 (1.2x FY17E BV).

Exhibit 1: Quick comparison of BOB’s domestic and international operations Domestic Overseas

Size % of overall loans (%) 67 33 % of overall deposits (%) 69 31 % of overall CASA (%) 88 12

Business Mix Agri 14.5%, Retail 18%, SME

20%, Large/Mid corporate 25% and others 23%

Buyers Credit 51%, Syndicated loans (incl. ECBs) ~25% and

balance local credit Avg. FY12-15 NIM (%) 2.96 1.29 Fee to assets (%) 0.39 0.27 Cost to core income (%) 56.2 17.9 Provisions to PPP (%) 44.0 44.6 Gross stressed loans ~14.5% ~5.5% RoA (%) 0.82 0.50

Source: MOSL, Company

Exhibit 2: One-year forward P/E

Source: MOSL, Company

Exhibit 3: One-year forward P/B

Source: MOSL, Company

10.1 15.7

6.1

6.3

1.1 0

3

6

9

12

15

17

Nov

-05

Feb-

07

May

-08

Aug-

09

Nov

-10

Feb-

12

May

-13

Aug-

14

Nov

-15

PE (x) Peak(x) Avg(x)Median(x) Min(x)

1.0

1.8

0.9

0.9

0.2 0.0

0.5

1.0

1.5

2.0

Nov

-05

Feb-

07

May

-08

Aug-

09

Nov

-10

Feb-

12

May

-13

Aug-

14

Nov

-15

PB (x) Peak(x) Avg(x)Median(x) Min(x)

Bank of Baroda

9 December 2015 3

BOB: The fastest growing large PSB in the last decade Overseas operations accounted for 1/3rd of incremental loan growth

In the last 10 years, overall loan CAGR was 26% (much higher than PSB peers), led by33% international loan CAGR and 23% domestic loan CAGR.

While BOB has lower provisions to PPP ratio, its margins/core revenues as apercentage of assets are amongst the lowest in the industry—partly due to higherproportion of overseas operations.

BOB has focused on low-risk buyer’s credit in international operations over the last 3-4years, which helped it to withstand the economic growth moderation better thanpeers.

However, with new management’s thrust calibrating growth and increasing the focuson core income growth (improving spreads and fee income) and recoveries; in ourview, profitability of overseas operations could improve significantly in ensuingquarters as share of low margin buyers credit business moderates.

Exhibit 4: BOB has the second largest overseas loan book amongst Indian banks

Note: Data as of FY15 Source: MOSL, Company

Exhibit 5: In the last decade, share of overseas loans increased to 32%

Source: MOSL, Company

2,345 1,362 1,222 941 524 458 288 227 213

17.6

31.8 30.4

24.3

13.8 16.3

7.9 6.9 8.3

SBIN BOB BOI ICICIBC PNB AXSB HDFCB CBK UNBK

Overseas Loans (INR b) % of total loans

434 599 836 1,067 1,433 1,750 2,287 2,874 3,282 3,970 4,281

22

41 34

26 28 21

29 19

11

21

7 21 23

71

36

56

25 37

44

22

20 9

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Loans (INR b) Domestic Loan Growth YoY (%) Overseas Loan Growth YoY (%)

Over the last decade, BOB’s international loan CAGR

stood at 32%—highest amongst PSB peers

Bank of Baroda

9 December 2015 4

Exhibit 6: BOB was the fastest growing public sector bank in the last decade (%)

Source: MOSL, Company

Exhibit 7: However, NII growth was much lower than loan growth due to low margins in international operations

Source: MOSL, Company

Exhibit 8: Risk-adjusted returns better, thus provisions to PPP ratio on the lower side

Source: MOSL, Company

Exhibit 9: BoB’s pre-tax RoAs down, largely in line with other PSBs

Source: MOSL, Company

Exhibit 10: Domestic pre-tax RoAs down by 40%+ in the last three years, led by significant decline in core revenue

Source: MOSL, Company

26

22 22 21 20 20 20 19 19

BOB BOI ANDB INBK SBIN UNBK PNB OBC CBK

10 year Loan CAGR (%)

18 16 16 15 15 15

13 13 12

BOI ANDB BOB PNB UNBK SBIN INBK OBC CBK

10 year NII CAGR (%)

65 60 52 52 50 44 44 43 41

OBC BOI ANDB UNBK PNB SBIN INBK CBK BOB

Avg. Provisions / PPP Ratio (%) - FY11-15-0.3

-0.6 -0.8 -1.0 -1.0 -1.1 -1.1 -1.3

-1.6

SBIN UNBK BOI BOB CBK ANDB OBC PNB INBK

Decline in PBT/Avg.Assets (FY11-15, %)

1.8 1.6 0.9

0.1 0.5 0.4

0.4

0.6 0.0

0.0 0.1

Pre-

tax

RoA

(FY0

9)

Core

inco

me

Ope

x

Non

-cor

ein

com

e

Prov

ision

s

Pre-

tax

RoA

(FY1

2)

Core

inco

me

Ope

x

Non

-cor

ein

com

e

Prov

ision

s

Pre-

tax

RoA

(FY1

5)

Bank of Baroda

9 December 2015 5

Exhibit 11: International pre-tax RoAs down ~60% in the last three years, led by sharp contraction in margins and fees ; going forward we expect significant improvement in core income from current levels as share of low margin buyers credit business moderates

Source: MOSL, Company

1.1 1.3

0.5

0.5 0.2 0.1

0.6 0.7 0.1 0.1 0.0

Pre-

tax

RoA

(FY0

9)

Core

inco

me

Ope

x

Non

-cor

ein

com

e

Prov

ision

s

Pre-

tax

RoA

(FY1

2)

Core

inco

me

Ope

x

Non

-cor

ein

com

e

Prov

ision

s

Pre-

tax

RoA

(FY1

5)

Bank of Baroda

9 December 2015 6

Overseas operation the key driver of strong growth Focus on low-margin business and high provisions impacted profitability

Over the last 10 years, BOB’ international operations have witnessed a 33% CAGR andnow account for >30% of balance sheet.

Currently, 51% of loan book is buyer’s credit, 25% syndicated loans/ECBs and the restbalance local credit. BOB has lowered its syndicated lending business (~30% in FY12)since FY12, mainly due to asset quality pressure.

Overall gross stressed loans continue to rise (~5.5% v/s 4% in 2QFY15) largely led bysyndicated lending exposure; in our view this remains one of the biggest risk inoverseas operations. If we assume 1% stressed loan in buyers’ credit (low risk)business, implied aggregate gross stressed loans for syndicated credit and local creditbusiness would be ~10%.

Margins/RoAs have declined significantly due to change in the loan mix; goingforward, rate increase in developed markets, increase in share of local credit businessand recoveries will be the key drivers of margins/RoAs expansion.

As of FY15, INR110b of shareholder funds (including unremitted profits) wereemployed in overseas operations (28% of overall net worth).

RWA intensity on overseas operations is relatively low due to 20% credit RWA onbuyer’s credit business (where counter party is mostly a financial institution).

Exhibit 12: Focus on low-margin business in the last three years; near-term business growth expected to remain moderate

Source: MOSL

Exhibit 13: 2QFY16 loan mix dominated by buyer’s credit, which is expected to trend lower as focus shifts to improve profitability

Source: MOSL, Company

Exhibit 14: Three geographies account for ~80% of overseas lending

Note: Data based on place of loan origination Source: MOSL, Company

16 18 18 18 16 20 21 24 25 26 30 32 31 32

39

16 0

21 23

71

36

56

25 37 44

22 20 9

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Share in overall loans (%) Growth YoY (%)

Exposure to Australian / Indonesian mining sector First big push made on

syndicated lending biz

Buyers Credit 51.0%

Syndicated loans (incl.

ECBs) 25.0%

Local Credit 24.0% UK

31%

UAE 31%

U.S. 18%

Others 20%

Accounts for >25% of business and net worth

Assume 1% stressed loan in buyers’ credit biz, implied

gross stressed loans for syndicated and local credit

business would be ~10%

Bank of Baroda

9 December 2015 7

Exhibit 15: Led by change in loan mix, margins in international business have declined sharply…

Note: NRI Deposits and remittances are part of domestic balance sheet Source: MOSL, Company

Exhibit 16: … And fee income too

Source: MOSL

Exhibit 17: Cost-to-core income ratio trending higher as focus was more on low-margin business

Source: MOSL

Exhibit 18: Credit costs in the overseas business up sharply in FY15, led by stress in syndicated lending business

Source: MOSL

Exhibit 19: Gross stressed loans in the international operations remain elevated at 5.5%; in absolute terms, gross stressed loans have increased ~50% in last one year (%)

Source: MOSL

5.2

4.2 3.7 3.5 3.3

2.7 2.4

3.3

2.4 1.9 1.8 1.6

1.1 1.0 1.7 1.4 1.4 1.5 1.6

1.2 1.1

FY09 FY10 FY11 FY12 FY13 FY14 FY15

(%) Yield on Advances Cost of Deposit NIM

33.3 28.3

23.6 18.8 18.5 16.8

18.7

0.7

20.8 3.9 1.5

-2.5

FY10 FY11 FY12 FY13 FY14 FY15

Fees / Total Income (%) Fee Growth YoY (%)

22.4 22.7

20.5

17.6 16.6

17.9 19.2

FY09 FY10 FY11 FY12 FY13 FY14 FY15

Cost to core income ratio (%)

18 16

46 41

113

FY11 FY12 FY13 FY14 FY15

Credit costs (bps)

0.7 0.7 0.7 0.7 1.4 1.6 1.8 1.8 1.6 1.2 1.3 1.8 1.7 1.8 3.2

4.1 4.2 4.7 4.8 3.8 4.0 4.1 3.6 3.2 3.2 2.7 2.7 2.4 2.3

2.3

4.8 4.9 5.4 5.5 5.2 5.5 5.8 5.3 4.8 4.4 4.0 4.5 4.1 4.1 5.5

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16GNPA (%) RL (%)

Bank of Baroda

9 December 2015 8

Lower margins impact domestic business Gross stressed loans in domestic operations at ~14.5%

Over the last 10 years, BOB has seen strong growth in domestic loan book (23% CAGR)and it now accounts for 67% of loans v/s 82% in FY05.

Moderate core revenue growth (7% CAGR during FY12-15) and rising stressed assetsremain the key concern; gross stressed loans now stand at ~14.5% - in-line with otherPSBs.

We expect moderate loan growth in 2HFY16, with focus on recoveries and control onfresh stress additions. In the next couple of years, we expect improvement in corerevenues led by new management’s thrust on servicing to long term customers withfocus on improving spreads and fee income.

Exhibit 20: ‘RAM’ portfolio accounts for ~53% of domestic loan book (as of 2QFY16, %)

Source: MOSL, Company

Exhibit 21: Domestic NIMs continue to trend lower, impacted by falling lending yields

Source: MOSL, Company

Exhibit 22: Fee income growth remains volatile; contribution to overall income remains low at ~14%

Source: MOSL, Company

Exhibit 23: Cost-to-core income ratio continues to remain elevated, impacted by AS-15 and retirement-related provision

Source: MOSL, Company

Agri 14.5

Retail 18.0

SME 20.0

Large/Mid corporate

25.0

Others 22.5

10.9 10.1 10.2 11.8 11.6 11.1 11.0

6.3 5.6 5.3 6.8 7.4 7.2 7.2

3.2 3.1 3.6 3.5 3.1 2.9 2.9

FY09 FY10 FY11 FY12 FY13 FY14 FY15

(%) Yield on Advances Cost of Deposit NIM

16.2 13.1 13.1 12.9 14.2 13.7

12.6

17.9

11.7

3.0

18.5

6.1

FY10 FY11 FY12 FY13 FY14 FY15

Fees / Total Income (%) Fee Growth YoY (%)

63.2 57.7

48.5 47.7 52.5

58.8 57.3

FY09 FY10 FY11 FY12 FY13 FY14 FY15

Cost-to-core income ratio (%)

Bank of Baroda

9 December 2015 9

Exhibit 24: Domestic credit costs trending lower

Source: MOSL, Company

Exhibit 25: However, overall PCR down significantly

Source: MOSL, Company

Exhibit 26: GNPAs in domestic MSME segment continue to trend higher—currently 8%+

Note: We do not have data for 2QFY16. Source: MOSL, Company

Exhibit 27: Domestic gross stressed loans now at ~14.5% of loans

Note: The above ratios have been computed based on net domestic loans. Source: MOSL, Company

75 63

78

123

100

82

FY10 FY11 FY12 FY13 FY14 FY15

Credit costs (bps)

76 75 75 65

47 50 51

FY09 FY10 FY11 FY12 FY13 FY14 FY15

Computed Provision Coverage Ratio (%)

0

3

5

8

10

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

Agriculture Large / Medium Industries Retail SME

1.9 2.4 2.6 3.3 2.9 3.8 3.9 4.2 3.6 4.1 4.4 5.0 4.8 5.4 7.0 6.7 7.3 7.6 7.8 7.1

8.1 7.9 7.6 7.1 7.6 7.6 7.8 8.0 8.4 7.5

8.7 9.7 10.3 11.1 10.1 11.9 11.7 11.7 10.7 11.7 12.0 12.8 12.8 13.8 14.5

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

3QFY

14

4QFY

14

1QFY

15

2QFY

15

3QFY

15

4QFY

15

1QFY

16

2QFY

16

GNPA (%) OSRL (%)Domestic gross stressed loans now at ~14.5% of

loans

Bank of Baroda

9 December 2015 10

Best capitalized bank amongst PSBs Recent management change to provide next leg of re-rating

While we expect net stress loans addition to remain elevated in the near term,margins (change in business mix) and credit costs are likely to improve in FY17/18E—leading to 10-20bp RoA and 250-300bp RoE expansion.

CET 1 ratio at ~9.7% is better than most state-owned banks. We believe theappointment of new management will make capital raising easier vis-à-vis other PSBs.

Exhibit 28: Overall NSL one of the lowest amongst state-owned banks (%)

Source: MOSL, Company

Exhibit 29: PCR (including technical w/o) remains largely in line with PSB average

Source: MOSL, Company

Exhibit 30: Net stressed loans/Net worth is better than most state-owned banks (%)

Source: MOSL, Company

Exhibit 31: CET1 Ratio remains relatively healthy at ~9.7%

Source: MOSL, Company

4.0 3.0 3.6 2.6 2.9 4.3 3.4 3.1 2.1

10.0 10.8 9.6 8.2 7.1 5.1 5.7 5.5

4.2

PNB

ANDB OBC

INBK CB

K

BOI

UN

BK

BOB

SBIN

Net NPA (%) OSRL (%)70

63 62 62 61 60 58 58 55

SBIN ANDB INBK OBC PNB CBK BOB UNBK BOI

PCR incl. w/o (%)

164

140 127

108 101 91 86 82

58

ANDB OBC PNB BOI UNBK CBK INBK BOB SBIN

Net Stressed Assets / Networth (%) 10.9

9.9 9.7 9.2

8.0 7.8 7.7 7.6 7.4

INBK

SBIN

BOB

PNB

CBK

OBC

ANDB BO

I

UN

BK

CET1 ratio (%)

Bank of Baroda

9 December 2015 11

Exhibit 32: Domestic operations— Dupont analysis: RoAs have more than halved, led by significant decline in core revenue FY09 FY10 FY11 FY12 FY13 FY14 FY15

NII 2.77 2.66 3.26 2.97 2.61 2.40 2.40 Fee Income 0.56 0.52 0.49 0.45 0.39 0.40 0.38 Core Income 3.32 3.18 3.75 3.42 2.99 2.79 2.78 Opex 2.10 1.83 1.82 1.63 1.57 1.64 1.59 Cost to Core Income 63.2 57.7 48.5 47.7 52.5 58.8 57.3 Core PPP 1.22 1.34 1.93 1.79 1.42 1.15 1.19 Trading and others 0.91 0.72 0.49 0.53 0.52 0.59 0.53 PPP 2.14 2.06 2.42 2.31 1.94 1.74 1.71 NPA Provisions 0.17 0.47 0.40 0.49 0.75 0.61 0.52 Other Provisions 0.17 -0.07 0.06 0.24 0.12 0.11 0.26 PBT 1.79 1.66 1.97 1.58 1.06 1.02 0.93 Taxes 0.66 0.53 0.53 0.28 0.05 0.19 0.32 PAT 1.14 1.13 1.44 1.31 1.01 0.84 0.61

Note: NRI Deposits and Remittances are part of domestic balance sheet Source: MOSL

Exhibit 33: Overseas operations—Dupont analysis: Significant RoA decline, led by lower core revenue and higher credit costs FY09 FY10 FY11 FY12 FY13 FY14 FY15

NII 1.64 1.35 1.29 1.45 1.49 1.14 1.04 Fee Income 0.76 0.67 0.51 0.45 0.35 0.26 0.21 Core Income 2.41 2.02 1.80 1.90 1.84 1.40 1.24 Opex 0.54 0.46 0.37 0.34 0.30 0.25 0.24 Cost to Core Income 22.4 22.7 20.5 17.6 16.6 17.9 19.2 Core PPP 1.87 1.56 1.43 1.57 1.53 1.15 1.01 Trading and others 0.19 0.05 0.07 0.07 -0.03 -0.02 -0.06PPP 2.06 1.61 1.50 1.63 1.50 1.13 0.95 NPA Provisions 0.00 0.00 0.12 0.11 0.30 0.23 0.61 Other Provisions 0.94 -0.11 0.19 0.27 0.45 0.21 -0.19PBT 1.11 1.72 1.20 1.26 0.76 0.68 0.53 Taxes 0.17 0.26 0.18 0.19 0.11 0.10 0.24 PAT 0.95 1.47 1.02 1.07 0.64 0.58 0.28

Note: We have assumed 15% tax rate for FY09-14 and 46% for FY15 (due to one-off impact in Dubai operations). Source: MOSL

Exhibit 34: Overall Dupont analysis: Improvement in core revenue and lower credit costs to drive RoAs higher Y/E MARCH FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E Net Interest Income 2.42 2.52 2.35 2.76 2.56 2.28 1.98 1.92 1.92 1.99 1.98 Fee income 0.54 0.60 0.55 0.50 0.45 0.37 0.35 0.32 0.33 0.34 0.34 Core Income 2.97 3.12 2.91 3.26 3.01 2.65 2.33 2.24 2.25 2.32 2.33 Net Income 3.70 3.88 3.46 3.65 3.41 3.01 2.72 2.56 2.56 2.62 2.61 Operating Expenses 1.88 1.76 1.51 1.45 1.28 1.20 1.18 1.12 1.16 1.18 1.18 Cost to Core Income 63.4 56.4 51.9 44.6 42.6 45.1 50.7 49.9 51.5 50.6 50.5 Employee cost 1.18 1.16 0.93 0.92 0.74 0.69 0.69 0.62 0.64 0.63 0.62 Others 0.70 0.60 0.58 0.54 0.54 0.50 0.50 0.50 0.52 0.55 0.56 Core operating Profits 1.09 1.36 1.40 1.81 1.73 1.45 1.15 1.12 1.09 1.15 1.15 Trading and others 0.73 0.76 0.56 0.39 0.40 0.36 0.39 0.32 0.31 0.30 0.28 Operating Profits 1.81 2.12 1.95 2.19 2.13 1.81 1.54 1.44 1.40 1.44 1.44 Provisions 0.45 0.47 0.28 0.42 0.63 0.84 0.63 0.65 0.73 0.57 0.49 NPA 0.27 0.13 0.36 0.33 0.39 0.62 0.49 0.55 0.70 0.54 0.45 Others 0.18 0.34 -0.08 0.09 0.24 0.22 0.14 0.10 0.03 0.04 0.04 PBT 1.37 1.65 1.68 1.77 1.50 0.97 0.91 0.79 0.67 0.87 0.95 Tax 0.48 0.55 0.47 0.44 0.25 0.07 0.16 0.29 0.26 0.30 0.32 Tax Rate 35.0 33.4 27.8 24.9 16.9 7.3 17.4 37.3 38.0 34.0 34.0 RoA 0.89 1.10 1.21 1.33 1.24 0.90 0.75 0.49 0.42 0.57 0.62 Leverage (x) 17.8 19.0 19.7 18.9 17.8 17.9 19.2 19.6 18.9 18.8 19.3 RoE 15.8 20.9 23.9 25.2 22.1 16.1 14.4 9.7 7.9 10.8 12.1

Source: MOSL

Bank of Baroda

9 December 2015 12

Exhibit 35: Financials - Valuation metrics 66 Rating CMP Mcap EPS (INR) P/E (x) BV (INR) P/BV (x) RoA (%) RoE (%)

(INR) (USDb) FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17 ICICIBC* Buy 260 22.8 21.8 25.4 8.4 6.7 132 150 1.39 1.14 1.58 1.58 15.0 15.3 HDFCB Buy 1,048 39.8 49.1 59.3 21.4 17.7 285 331 3.68 3.17 1.88 1.86 18.4 19.3 AXSB Buy 451 16.2 35.6 41.8 12.7 10.8 217 252 2.08 1.79 1.69 1.70 17.5 17.8 KMB* Neutral 670 18.5 19.2 26.0 34.9 25.8 183 209 3.66 3.21 1.11 1.40 13.9 14.5 YES Buy 716 4.5 60.0 75.8 11.9 9.5 327 388 2.19 1.85 1.67 1.73 19.8 21.2 IIB Buy 927 8.3 41.3 51.3 22.4 18.1 295 340 3.14 2.73 2.04 2.08 17.6 16.1 DCBB Sell 76 0.3 5.4 5.8 14.1 13.1 60 66 1.26 1.15 0.84 0.73 9.3 9.2 FB Neutral 55 1.4 4.4 5.6 12.4 9.9 49 53 1.13 1.04 0.86 0.95 9.5 11.0 JKBK Neutral 79 0.6 16.2 18.0 4.9 4.4 138 152 0.58 0.52 1.00 1.02 12.3 12.4 SIB Buy 19 0.4 2.5 3.1 7.6 6.3 29 31 0.68 0.63 0.55 0.58 9.4 10.3 Private Aggregate 112.9 17.1 14.4 2.58 2.27 SBIN (cons)* Buy 234 27.6 26.0 31.9 8.6 6.9 231 257 0.96 0.86 0.73 0.80 11.9 12.9 PNB Buy 130 3.9 17.7 24.5 7.4 5.3 216 238 0.60 0.55 0.55 0.68 8.7 10.8 BOI Neutral 117 1.4 -4.6 16.5 -25.4 7.1 358 372 0.33 0.32 -0.06 0.18 -1.3 4.5BOB Buy 160 1.1 13.3 20.0 12.0 8.0 178 193 0.90 0.83 0.42 0.57 7.9 10.8 CBK Buy 247 1.9 43.2 60.0 5.7 4.1 572 618 0.43 0.40 0.39 0.48 8.0 10.1 UNBK Buy 157 1.6 36.2 44.5 4.3 3.5 312 348 0.50 0.45 0.62 0.68 12.5 13.5 OBC Buy 135 0.6 44.2 55.6 3.1 2.4 473 515 0.29 0.26 0.55 0.62 9.7 11.3 INBK Buy 124 0.9 21.1 30.6 5.9 4.1 278 301 0.45 0.41 0.50 0.65 7.8 10.6 CRPBK Neutral 41 0.1 16.5 21.9 2.5 1.9 141 158 0.29 0.26 0.54 0.64 12.3 14.7 ANDB Buy 63 0.6 17.8 22.8 3.5 2.8 180 196 0.35 0.32 0.55 0.62 10.3 12.2 IDBI Neutral 84 2.0 14.4 19.7 5.8 4.3 157 173 0.54 0.49 0.58 0.69 9.5 11.9 DBNK Neutral 41 0.3 8.8 12.5 4.6 3.3 126 136 0.32 0.30 0.36 0.44 7.2 9.6 Public Aggregate 42.1 8.1 6.0 0.67 0.62 HDFC* Under Review 1,155 27.5 35 42 20.2 15.2 165 188 4.32 3.36 2.46 2.55 23.6 22.7 LICHF Buy 453 3.5 34 42 13.4 10.7 182 216 2.49 2.09 1.48 1.55 20.1 21.3 DEWH Buy 213 0.9 26 33 8.1 6.5 179 204 1.19 1.05 1.27 1.29 15.6 17.2 IHFL Buy 670 4.3 56 72 12.0 9.3 275 304 2.44 2.20 3.91 4.07 25.9 24.8 GRHF Buy 257 1.4 7 9 37.9 30.0 24 28 10.87 9.03 2.18 2.05 28.9 28.6 REPCO Buy 640 0.6 24 35 27.1 18.5 151 182 4.23 3.52 2.08 2.28 16.8 20.7 IDFC Buy 45 1.1 10 12 4.6 3.9 107 116 0.16 0.13 1.75 1.83 8.8 9.8 RECL Buy 215 3.2 63 74 3.4 2.9 301 358 0.71 0.60 3.21 3.15 22.8 22.4 POWF Buy 205 4.1 54 59 3.8 3.5 285 328 0.72 0.62 3.08 2.97 20.5 19.3 SHTF Buy 852 2.9 62 73 13.8 11.7 457 515 1.86 1.66 2.08 2.29 14.0 15.0 MMFS Buy 240 2.0 12 15 19.8 15.7 109 120 2.19 1.99 1.93 2.22 11.5 13.3 BAF Buy 5,492 4.4 224 276 24.5 19.9 1,351 1,582 4.06 3.47 3.12 2.92 19.9 18.8 MUTH Buy 183 5.5 19 24 12.6 10.1 140 156 1.71 1.54 2.65 2.85 14.3 16.1 NBFC Aggregate 56.1 14.3 12.2 2.46 2.16 *Multiples adj. for value of key ventures/Investments; For ICICI Bank and HDFC Ltd BV is adjusted for investments in subsidiaries

Source: MOSL

Bank of Baroda

9 December 2015 13

Financials and valuations

Income Statement (INR Million) Y/E March 2011 2012 2013 2014 2015 2016E 2017E 2018E Interest Income 218,859 296,737 351,967 389,397 429,636 458,532 481,939 526,580 Interest Expense 130,837 193,567 238,814 269,744 297,763 316,842 321,787 347,297 Net Interest Income 88,023 103,170 113,153 119,653 131,872 141,690 160,152 179,283 Change (%) 48.2 17.2 9.7 5.7 10.2 7.4 13.0 11.9 Non Interest Income 28,092 34,223 36,306 44,627 44,020 47,230 50,885 56,858 Net Income 116,114 137,393 149,459 164,281 175,892 188,920 211,036 236,141 Change (%) 32.8 18.3 8.8 9.9 7.1 7.4 11.7 11.9 Operating Expenses 46,298 51,587 59,467 71,371 76,741 85,448 94,834 106,245 Pre Provision Profits 69,816 85,806 89,992 92,910 99,151 103,472 116,202 129,896 Change (%) 41.5 22.9 4.9 3.2 6.7 4.4 12.3 11.8 Provisions (excl tax) 13,313 25,548 41,679 37,937 44,945 53,841 46,216 44,379 PBT 56,503 60,258 48,312 54,973 54,206 49,631 69,986 85,517 Tax 14,086 10,188 3,505 9,562 20,222 18,860 23,795 29,076 Tax Rate (%) 24.9 16.9 7.3 17.4 37.3 38.0 34.0 34.0 PAT 42,417 50,070 44,807 45,411 33,984 30,772 46,191 56,441 Change (%) 38.7 18.0 -10.5 1.3 -25.2 -9.5 50.1 22.2 Equity Dividend (Incl tax) 7,534 8,123 10,596 10,837 8,517 7,170 10,763 13,151 Core PPP* 57,507 69,588 72,278 69,446 77,136 80,448 92,428 104,215 Change (%) 63.1 21.0 3.9 -3.9 11.1 4.3 14.9 12.8 *Core PPP is (NII+Fee income-Opex)

Balance Sheet (INR Million) Y/E March 2011 2012 2013 2014 2015 2016E 2017E 2018E Equity Share Capital 3,928 4,124 4,225 4,307 4,436 4,621 4,621 4,621 Reserves & Surplus 206,003 270,645 315,469 355,550 393,918 434,622 469,397 512,034 Net Worth 209,931 274,769 319,694 359,857 398,353 439,242 474,018 516,655 Deposits 3,054,395 3,848,711 4,738,833 5,688,944 6,175,595 6,607,887 7,400,833 8,362,942 Change (%) 26.6 26.0 23.1 20.0 8.6 7.0 12.0 13.0 of which CASA Dep 875,887 1,035,239 1,199,809 1,464,878 1,629,689 1,825,251 2,165,623 2,569,627 Change (%) 22.6 18.2 15.9 22.1 11.3 12.0 18.6 18.7 Borrowings 223,079 235,731 265,793 368,130 352,643 318,173 326,387 375,837 Other Liabilities & Prov. 96,567 114,005 147,034 178,115 223,294 253,627 289,210 330,473 Total Liabilities 3,583,972 4,473,215 5,471,354 6,595,045 7,149,885 7,618,929 8,490,448 9,585,907 Current Assets 499,341 641,685 853,989 1,308,779 1,483,532 1,287,553 1,419,686 1,585,920 Investments 713,966 832,094 1,213,937 1,161,127 1,223,197 1,590,156 1,749,172 1,924,089 Change (%) 16.7 16.5 45.9 -4.4 5.3 30.0 10.0 10.0 Loans 2,286,764 2,873,773 3,281,858 3,970,058 4,280,651 4,537,490 5,081,989 5,793,468 Change (%) 30.6 25.7 14.2 21.0 7.8 6.0 12.0 14.0 Fixed Assets 22,997 23,415 24,531 27,341 28,748 29,845 30,941 32,037 Other Assets 60,904 102,247 97,039 127,740 133,757 173,884 208,661 250,393 Total Assets 3,583,972 4,473,215 5,471,354 6,595,045 7,149,885 7,618,929 8,490,448 9,585,907

Asset Quality (%) GNPA (INR m) 31,525 44,648 79,826 120,390 164,789 272,450 281,635 298,783 NNPA (INR m) 7,909 15,436 41,920 60,348 80,695 149,049 132,946 127,312 GNPA Ratio 1.36 1.54 2.40 2.99 3.78 5.85 5.38 5.01 NNPA Ratio 0.35 0.54 1.28 1.52 1.89 3.28 2.62 2.20 PCR (Excl Tech. write off) 74.9 65.4 47.5 48.5 51.0 45.3 52.8 57.4 PCR (Incl Tech. Write off) 85.0 80.1 68.2 65.5 65.0 56.9 63.6 67.7 E: MOSL Estimates

Bank of Baroda

9 December 2015 14

Financials and valuations Ratios Y/E March 2011 2012 2013 2014 2015 2016E 2017E 2018E Spreads Analysis (%) Avg. Yield-Earning Assets 7.4 8.0 7.5 6.8 6.6 6.6 6.4 6.2 Avg. Yield on loans 8.0 8.7 8.4 7.7 7.5 7.2 6.7 6.5 Avg. Yield on Investments 7.2 8.0 7.3 7.3 7.9 7.9 7.5 7.5 Avg. Cost-Int. Bear. Liab. 4.5 5.3 5.3 4.9 4.7 4.7 4.4 4.2 Avg. Cost of Deposits 4.3 5.1 5.2 4.8 4.7 4.6 4.2 4.0 Interest Spread 2.9 2.7 2.3 1.9 1.9 1.9 2.0 2.0 Net Interest Margin 3.0 2.8 2.4 2.1 2.0 2.0 2.1 2.1

Profitability Ratios (%) RoE 25.2 22.1 16.1 14.4 9.7 7.9 10.8 12.1 RoA 1.3 1.2 0.9 0.8 0.5 0.4 0.6 0.6 Int. Expense/Int.Income 59.8 65.2 67.9 69.3 69.3 69.1 66.8 66.0 Fee Income/Net Income 15.4 15.2 16.6 16.2 17.9 17.0 17.0 16.4 Non Int. Inc./Net Income 24.2 24.9 24.3 27.2 25.0 25.0 24.1 24.1

Efficiency Ratios (%) Cost/Income* 42.5 40.3 42.5 47.2 46.3 47.5 47.0 46.9 Empl. Cost/Op. Exps. 63.0 57.9 58.0 58.0 55.5 55.3 53.6 52.4 Busi. per Empl. (Rs m) 118.7 143.0 171.0 192.2 203.7 205.6 212.4 227.2 NP per Empl. (Rs lac) 1.1 1.2 1.0 1.0 0.7 0.6 0.8 1.0

* ex treasury and RWOAsset-Liability Profile (%) Loans/Deposit Ratio 74.9 74.7 69.3 69.8 69.3 68.7 68.7 69.3 CASA Ratio 28.7 26.9 25.3 25.7 26.4 27.6 29.3 30.7 Investment/Deposit Ratio 23.4 21.6 25.6 20.4 19.8 24.1 23.6 23.0 G-Sec/Investment Ratio 84.0 83.3 84.2 82.5 79.2 69.7 71.0 72.9 CAR 14.5 14.7 13.3 12.3 12.6 12.9 12.0 11.7 Tier 1 10.0 10.8 10.1 9.3 9.9 10.4 9.7 9.4

Valuation Book Value (INR) 100.3 124.2 141.5 153.7 166.4 177.7 193.0 211.7 Change (%) 30.8 23.8 13.9 8.7 8.2 6.8 8.6 9.7 Price-BV (x) 1.6 1.3 1.1 1.0 1.0 0.9 0.8 0.8 Adjusted BV (INR) 97.7 119.3 128.6 135.5 142.7 135.7 155.6 175.9 Price-ABV (x) 1.6 1.3 1.2 1.2 1.1 1.2 1.0 0.9 EPS (INR) 21.6 24.3 21.2 21.1 15.3 13.3 20.0 24.4 Change (%) 29.1 12.4 -12.7 -0.6 -27.3 -13.1 50.1 22.2 Price-Earnings (x) 7.4 6.6 7.6 7.6 10.5 12.0 8.0 6.6 Dividend Per Share (INR) 3.3 3.4 4.3 4.3 3.2 2.7 4.0 4.9 Dividend Yield (%) 2.1 2.1 2.7 2.7 2.0 1.7 2.5 3.0 E: MOSL Estimates

BANK OF BARODA

OTHER BANKS

SECTOR UPDATES

REPORT GALLERY

Bank of Baroda

9 December 2015 16

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