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8/10/2019 Banking - Dolat
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Financials Sector Q1FY13 Overview
In Q1 FY13, private sector banks demonstrated better performance on balance-sheet expansion,stability of margin and asset quality fronts. On deposit mobilization front, each of the private sector
banks under coverage (barring ICICI Bank) recorded higher deposit growth than the industry and
s a e-owne an s. ma er pr va e sec or pos e muc g er expans on n epos ase; among
state-owned banks, IOB, PNB and Andhra Bank were ahead of its peers
Overall, banks deposit profile demonstrated weakening with decrease in CASA share. KVB and
Andhra Bank surprised with increase in CASA share even in such tight liquidity condition; in case of
KVB, current deposit mobilization significantly aided CASA share
-
disbursements. Smaller private sector banks under coverage were better off due to their lowerbases. State-owned banks (under coverage) recorded lesser credit book expansion than the
industry overall. Canara Bank moderated its credit growth to further reduce dependence on
w o esa e a vances an s or - erm corpora e oans on unsecure as s
On asset quality front, PSU banks performance was quite dismal with sharp jump in gross slippage
ratio. SBI, UBI, Andhra Bank and BoI posted highest increase in slippages ratio on sequential basis.
IOB and OBC recorded sequential decline with higher base in Q4 FY12. Private sector banks were
better off on this front as well in our coverage universe
-,basis but not enough to maintain PCR. Most of banks under coverage reported sequential decrease
in PCR except for OBC, Syndicate Bank and ICICI Bank
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Financials Sector Overview (Contd..)
Most of banks under coverage posted further increase in outstanding restructured loan book exceptSBI, HDBK, ICICI Bank and KVB. Overall, on asset quality fronts, incrementally PSU banks were
further hit with increase in gross slippage ratio, outstanding restructured loan book and decrease in
On margin front, most of banks witnessed sequential fall in margin except for OBC and PNB.
Syndicate Bank and BoI reported biggest fall in margin on sequential basis mainly due to larger fall
in credit yield on the back of downward revision in rates, much higher slippages and loan
restructuring at lesser rates
- , -
a lag had negative impact on banks margin. Among PSU Banks, Syndicate Bank and Andhra Bankrecorded sequential increase in C-D ratio and among private sector banks, HDBK and ICICI Bank
posted further expansion in C-D ratio
On fee income front, most of banks recorded healthy growth on YoY basis; SBI, Syndicate Bank and
ICICI Bank were outliers with relatively lesser traction in our coverage universe
Overall, banks under our coverage took a beating on profitability level on sequential basis. OBC,
Syndicate Bank, SBI and Andhra Bank recorded improvement in RoA on sequential basis. OBCs
performance was robust all along and could report better performance, but in case of SBI and
, ,and took a dent on their PCR. In case of Syndicate Bank, high tax credit succored the profitability
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Financials - TOP PICKS
ICICI Bank (CMP:
956, TP :`
1,323, Buy)
ICICI Banks traction in business expansion, improvement in margin, reduction in credit cost
and decrease in leverage (with expansion in balance-sheet size) would yield higher return
ratios going forward
We ex ect credit book to ex and in hi h teens 20% CAGR durin FY12-14E driven b SME
retail & working capital requirements
The bank would record NIM in a range of 2.8-2.9% on the back of higher yield on
, ,
stability in CASA deposit share
We expect that the banks other income to grow by 17% CAGR over FY12-14E on the back of
healthy core fee income
With tier I capital of 12.8% (as on end-June12), the bank is adequately capitalized. The bankwould not be re uired to raise e uit ca ital in near future
The bank quotes at cheap valuations, hence offer an opportunity to add to the positions. At
current price, the stock quotes at 1.8x and 1.7x adjusted book value (ABV) FY13 and FY14
. , , . .FY13 and FY14 respectively
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Financials - TOP PICKS
HDFC Bank (CMP:
596, TP :
627, ACC)
HDBKs diversified credit book with prudent expansion strategy has led to healthy yield and
m n ma e nquenc es. g ow-cost epos ts s are conta n eros on n marg n an a so a es
the bank to cross-sale its other products to huge low-cost depositors base. We expect credit
to expand faster than the system at CAGR of 21% over FY12-14
Slight re-balancing in credit book in favor of high-yielding assets aided yield on advances
(mainly due to higher composition of retail loan book). Higher asset yield and expansion in C-
D ratio aided margin. Going forward, we expect NIM to stabilize at 4.2% on yearly average
Majority of fee income comes from various retail segment and is quite diversified. Incremental
adverse impact on the banks fee income would be muted
HDBK demonstrated robust performance on asset quality front; GNPA & restructured loan
book remained almost stagnant. The bank has been maintaining most comfortable assetquality amongst the peer group with GNPA at 0.97% and NNPA at 0.2%. Total restructured
assets were 0.3% of the banks gross advances as of Q1 FY13
At current price, the stock quotes at 4.0x and 3.4x adjusted book value (ABV) FY13E and
FY14E res ectivel . Based on our tar et rice of`627, the stock would trade at 4.2x and 3.6x
ABV FY13E and FY14E respectively
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Financials - TOP PICKS
Karur Vysya Bank (CMP:
401, TP :
512, Buy)
Karur Vysya Banks better understanding of clienteles business domain and widespread
regional presence are the key strengths. Continued robust credit book expansion and
contained delinquencies have been key outcomes of the banks strengths
We ex ect the banks credit book to ex and b 28% ca r in FY12-14 much hi her than the
industry. Key focus area would be retail trade, SME and agriculture sectors
In Q1 FY13, KVBs margin drifted by 22bps QoQ to 2.82% on higher cost of funds, however
, -
erosion in margin. Though, the decline in CASA share remain our near term concern. Wefactor margin to drift by 26bps to 2.62% (on yearly average basis), as a conservative stance
We expect GNPA to hold in the current level even as the marginal pressure on asset quality
would be mitigated by higher recoveries and upgradations
At current rice, the stock uotes at 1.4x and 1.3x ad usted book value ABV FY13 and FY14
respectively. Based on our price target of `512, the stock will trade at 1.8x and 1.6x ABV
FY13 and FY14 respectively
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Financials - TOP PICKS
Syndicate Bank (CMP:
95, TP :
145, Buy)
Syndicate Banks management plans to expand credit book faster than the industry, in the range of
18-19% and retail credit book would grow at even faster pace of 22%. Key focus area for credit
growth would be retail, MSME and mid-corporate. We expect credit book to grow 17.4% CAGR in
FY12-14. Faster expansion in retail and MSME books would aid asset yield and margin
The bank plans to increase its CASA share by 100-125 bps to 32% mark. Also, re-pricing of bulk
deposits and CD at lesser rated would aid margin erosion in declining interest rate scenario.
The banks mana ement ex ects 15b s decline in mar in to 3.25% from 3.4% in FY12. We factor in
10 bps decline in margin to 2.96% (on yearly average basis) primarily due to decline in interest ratesand re-pricing lag of liabilities
On the back of hi her loan rowth and ali nment of rocessin char es with eers fee income is
expected to revive. We expect the banks other income to grow by 13% YoY in FY13
As on June12, the banks asset quality improved on sequential basis; further higher PCR provides.
in FY13
At current price, the stock quotes at 0.65x and 0.56x adjusted book value (ABV) FY13 and FY14
. , . .FY14 respectively
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Financials- Q1FY13 Result Analysis
In Q1FY13, Majority of state-owned banks under coverage recorded healthy credit book expansion.They grew higher than industry barring few names likes OBC, Syndicate Bank, Andhra Bank and
Canara Bank. Canara Bank decided to moderate its pace in order to reduce the dependence for
growth on wholesale advances and short-term corporate loans on unsecured basis and thereby
maintain its asset quality
n e quar er, s nves men expan e a a pace o . o , w e our coverage un verse
reported 13.6% growth on an average. Majority of growth was contributed by addition of N-SLR
investments.
In the quarter, most of banks under coverage recorded much higher traction barring BoI. Slacknessin credit demand and banks higher base rate led corporates to go for investments. With continuous
rise in NPLs, banks are finding investments instruments relatively safer asset on risk-adjusted basis.
In Q1FY13, SCBs deposits base expanded by 16.1% YoY and our coverage universe grew at
16.6% on an average. Majority of banks under coverage recorded higher growth than industrybarrin OBC Canara Bank Union Bank and BOI. Smaller rivate sector banks could re ort better
traction due to base effect. Majority of banks under coverage witnessed sequential decline in their
CASA deposits; whereas on YoY basis, most the of banks reported 10-18% growth. On CASA ratio
front, all banks under coverage witnessed sequential decline in their CASA ratio except KVB and
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Financials- Q1FY13 Result Analysis (Contd..)
In Q1FY13, considering lack of genuine credit demand, majority of banks was not able to deploytheir incremental funds towards credit. Consequently banks incremental creditdeposit ratio
declined on sequential basis. Few banks like OBC, Axis Bank, CUB, PNB, and ICICI Bank recorded
expans on n ncremen a ra o. g er epos ra e, su ue cre eman an vers on o
banks assets towards investments reflected into slight moderation or decline in CD ratio in majority
of the banks
Majority of the banks under coverage recorded robust growth on NII front on yearly basis barring
Andhra Bank and Canara Bank which reported single digit growth. Andhra Bank reported merely 3%
YoY growth in NII which was mainly due to interest income losses due to restructuring and high
. -
expansion and difficulty in passing on higher liabilities cost.
On mar in front ma orit of banks under covera e re orted decrease in mar in. OBC and PNB
recorded improvement in margin on QoQ basis. On YoY basis, most of banks under coverage
reported decline in margin except for ICICI Bank, Axis Bank, BOI, HDBK and Syndicate Bank
On fee income front, banks under coverage recorded healthy growth on YoY basis barring SBI
whereas on QoQ basis all banks except KVB reported decline in fee income. On capital gains front,
most of the banks reported poor show due to volatility on bond yield across the tenures except for
the few ones like SBI S ndicate Bank HDBK and BoI
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Financials- Q1FY13 Result Analysis (Contd..)
In Q1FY13, in case of state-owned banks, employees expenses rose at healthy pace on YoY basismainly due to fresh recruitments and wage revisions. All the private sector banks under coverage,
employees expenses reported much higher increase due to branch expansion and wage revision
IOB and Union Bank reported increase in cost-income ratio (C-I ratio) on QoQ basis on the back of
weak NII growth and higher operating overheads
Majority of state-owned banks under coverage except for PNB, Syndicate Bank IOB and OBC
reported increase (on QoQ basis) in gross slippages ratio. Slippages from restructured loan book
also added to increase in slippages ratio; PSU banks with higher delinquency rates in previous
quarters were better off in the Q1. OBC and IOB managed to reduce their gross slippages onsequential basis; a positive surprise
n case o s a e-owne an s, core pro a y oo a ea ng ue o pressure on marg n oug ee
income remained strong. For majority of state-owned banks, gross slippages ratio also increased
due to slippages from restructured loan book. Overall, PSU banks earning quality was subdued. Onother hand, private sector banks were better off on the back of better margin, healthy fee income
and lesser slippages ratio
Further decline in provision coverage ratio (including technical write-offs) on QoQ basis across
- .coverage reported fall in PCR. Banks managed to show up good bottom-line though with a
compromise on buffer
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Conclusion
Overall, in Q1FY13, private sector banks outshined state-owned banks qualitatively and
(barring CUB & KVB). Asset quality also remained under control with some additions in
restructured loan book in CUB and Axis Bank. Overall, private banks performance remained
strong on CASA deposit, incremental gross slippages & provision coverage on balance-sheets e.
Majority of the state-owned banks performance was poor mainly due to strain on margin and
.
lesser credit costs and also reflecting banks efforts to push bottom-line at a cost on theirbuffer
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Financials Annual Estimates
Particulars RecoCMP
`
Target
Price
Upside/Down-
side
NII (`
mn) Net Profit (`
mn) P/ABV (x)
FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E
Andhra Bank BUY 95 145 52 37,593 40,377 46,921 13,447 12,933 14,703 0.8 0.7 0.6
Axis Bank BUY 1,076 1,582 47 80,177 97,289 114,277 42,422 50,797 58,961 2.0 1.7 1.4
BoI Reduce 273 250 (9) 83,134 88,731 100,918 26,775 21,113 20,993 1.0 0.9 0.8
Canara Bank BUY 333 496 49 76,893 82,397 95,487 32,827 32,833 36,232 0.9 0.8 0.7
City Union Bank BUY 51 68 33 4,998 5,989 7,335 2,803 3,161 3,751 1.7 1.4 1.2
* , , , , , , . . .
ICICI Bank BUY 956 1,323 38 107,342 139,453 165,617 64,653 81,838 92,111 2.0 1.8 1.7
IOB ACC 71 83 17 50,162 54,905 61,526 10,502 9,618 10,537 0.6 0.6 0.6
KVB BUY 401 512 28 9,171 10,710 13,635 5,017 5,324 6,640 1.6 1.4 1.3
OBC BUY 231 325 41 42,158 45,609 52,725 11,416 11,495 15,440 0.7 0.7 0.6
PNB BUY 712 912 28 134,144 145,683 170,574 48,842 46,585 58,184 1.0 0.9 0.8
SBI Reduce 1,895 1,810 (4) 432,911 452,900 515,503 117,073 126,121 155,791 1.7 1.7 1.4
Syndicate Bank BUY 95 145 53 50,850 56,932 65,296 13,134 16,377 17,257 0.8 0.6 0.6
, , , , , , . . .
*
Revised
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Net Advances
During the quarter, SCBs aggregatecredit book grew by 18.7% YoY, while
our coverage universe on an average
reported credit expansion of 19.6% YoY
Majority of state-owned banks under
barring few names likes OBC,
Syndicate Bank, Andhra Bank and
Canara Bank
Canara Bank decided to moderate its
pace to reduce the dependence for
short-term corporate loans on
unsecured basis
Bigger private sector banks credit book
grew at 22-30% rate. Old-generation
private sector banks recorded much
smaller bases
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C-D ratio (%)
In Q1FY13, considering lack ofgenuine credit demand, majority of
incremental funds towards credit.
Consequently banks incremental
credit-deposit ratio declined onsequential basis. Few banks like
OBC, Axis Bank, CUB, PNB, and
ICICI Bank recorded expansion in
Higher deposit rate, subdued credit
assets towards investments reflected
into slight moderation or decline in C-
D ratio in majority of the banks
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YoA (%)
In Q1FY13, majority of banks undercoverage recorded improvement in
YoA on YoY basis on the back of
increased exposure to high-yielding
credit portfolio
Though, some of the banks YoA
went for toss mainly due to high
slippages and sharp additions to
Some of the banks like BOI, OBC,
recorded higher drift in YoA on QoQ
basis mainly due to much higher
incremental loan restructuring
*
Ratios
are
calculated
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Investments
In the quarter, SCBs investmentexpanded at a pace of 16.7% Y/Y,
13.6% growth on an average
recorded much higher traction barring
BoI
Slackness in credit demand andbanks higher base rate led
corporates to go for investments.
t cont nuous r se n s, an s
are finding investments instruments
relatively safer asset on risk-adjusted
Canara Bank, Syndicate Bank,
HDBK Andhra Bank re orted hi her
growth in investment book
Y I (%)
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YoI (%)
In the quarter, majority of banksunder coverage witnessed
mainly on the back of banks
investment into high-yielding
investments
SBI and IOB recorded highest drift in
YoI on sequential basis
*
Ratios
are
calculated
D it
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Deposits
In Q1FY13, SCBs deposits baseexpanded by 16.1% Y/Y and our
coverage un verse grew a .
on an average
recorded higher growth than
industry barring OBC, Canara
Bank, Union Bank and BOI.
Smaller private sector banks couldreport better traction due to base
effect
On sequential basis, only Union
Bank & Syndicate Bank recorded-
Higher retail term deposit rates
in most of the banks
C D (%)
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CoD (%)
In Q1FY13, each of the banks undercoverage reported uptick in cost of
BOI mainly on the back of
continuous re-pricing of deposits
Banks with higher dependence on
whole-sale deposits and faster
deposit mobilization reported slightly
higher increase in cost of deposits
Canara Bank, HDBK and KVB
reporte g er expans on n o
on QoQ basis
*
Ratios
are
calculated
(Cost
of
funds)
CASA D it & CASA R ti
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CASA Deposits & CASA Ratio
All banks under coverage witnessed
sequential decline in their CASA ratio except
KVB and Andhra Bank
Majority of banks under coverage witnessed
sequential decline in their CASA deposits;
whereas on YoY basis, most the of banks
reported 10-18% growth
NII
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NII
Majority of the banks under coverage
recorded robust growth on NII front
barring Andhra Bank and Canara Bank
which reported single digit growth (on
yearly basis)
Canara Bank reported lesser growth in
NII mainly due to moderation in
- . ,
yield on advances and funds went upby 62bps and 48bps on YoY basis;
whereas its cost of deposits and funds
expanded by 84bps and 63bps YoY
leading to de-growth in NII
n ra an repor e mere y o
growth in NII which was mainly due to
interest income losses due to
restructurin and hi h sli a es
NIM (%)
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NIM (%)
On margin front, majority of banksunder coverage reported decrease in
on advances and almost flat liabilities
cost
OBC and PNB recorded improvement
in margin on QoQ basis
On YoY basis, most of banks undercoverage reported decline in margin
except for ICICI Bank, Axis Bank, BOI,
Fee & Treasury Income
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Fee & Treasury Income
On fee income front, banks under coverage
recorded healthy growth on YoY basis barring
KVB reported decline in fee income
On capital gains front, most of the banks
yield across the tenures except for the few
ones like SBI, Syndicate Bank, HDBK and BoI
Employee Expenses
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Employee Expenses
In Q1FY13, in case of state-ownedbanks, employees expenses rose at
All the private sector banks under
,
reported much higher increase due to
branch expansion and wage revision
On QoQ basis, PNBs employeeexpenses grew at a robust pace as it
provided more for employee
expenses ue to c ange n actuar a
valuation of employees expenses
liabilities
C I Ratio (%)
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C-I Ratio (%)
IOB and Union Bank reported
increase in cost-income ratio C-I
ratio) on QoQ basis on the back of
weak NII growth and higher operating
overheads
Andhra Bank, BoI, OBC and PNB
were on lower side on C-I ratio at
-
banks were on higher side in a rangeof 42-49%
Branches
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Branches
Over the past one year, privatesector banks expanded their
networks at faster ace
Axis Bank, CUB, HDBK and KVB
recorded 17-22% YoY incrementaladdition to their branch networks;
ICICI Banks branch network reported
9% expansion
Among state-owned banks, BoI and
IOB recorded 20% YoY incremental
,
banks branch addition took place at
slightly moderate pace
Gross slippage ratio (%)
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Gross slippage ratio (%)
Majority of state-owned banks undercoverage except for PNB, Syndicate
(on QoQ basis) in gross slippages
ratio
Slippages from restructured loan book
also added to increase in slippages
ratio; PSU banks with higher
delinquency rates in previous quarters
were better off in the Q1
an manage to re uce
their gross slippages on sequential
basis; a positive surprise
Credit Cost (%)
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Credit Cost (%)
Against the sequential rise in gross
slippages ratio, some of the state-
owned banks made lesser NPA
provisions in order to enhance their
profitability and core capital
PNB, SBI, Syndicate Bank and
OBC made lesser provisions
Net Profit
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Net Profit
In terms of growth and quality inbottom-line, private sector banks
ou per orme s a e-owne an s;
latters performance could have been
impacted even more if one factors in
higher credit cost considering surge ingross slippages ratio
Quality of bottom-line deteriorated in
- .
yearly basis, all banks under coverageexcept Andhra Bank reported increase
in net profit growth
Majority of the state owned banks
incremental gross slippages ratios were
restructured loan book were also
elevated. PSU banks lesser NPA
provision reflected into reduced
prov s on coverage rat o an t ere yincrease in their profitability
RoA (%)
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RoA (%)
Among the state-owned banks,majority of banks reported flat or
decline in RoA sequentially owing to
lesser margin, moderation in core fee
income and requirements of NPA
OBC, Syndicate Bank and SBI
recorded rise in RoA on se uential
basis
ICICI Bank recorded shar um in
return ratio on YoY basis mainly due
to higher margin and much lesser
NPL provision
On sequential basis, Union Bank,
IOB and PNB reported sharp decline
deterioration
RoAE (%)
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RoAE (%)
On return ratio level, relatively mostof private sector performed well on
yearly basis
Among state-owned banks, OBC wase er o ma n y ue o e er
performance on margin and lesser
NPL provisioning on sequential basis
Asset Quality
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Asset Quality
Barring few banks, most of the banks under coverage reported increase in gross and net NPA levels
gross NPA level on QoQ basis
Provision Coverage Ratio (incl tech w/off)
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Provision Coverage Ratio (incl tech w/off)
OBC, Syndicate Bank, ICICI Bank,PNB and KVB recorded improvement in
,
though Andhra Bank and SBIs
provision coverage came down sharply
due to lesser provisioning
Majority of banks under coverage
reported fall in PCR. Banks managed to
show up good bottom-line though witha compromise on buffer
Restructured Assets as % to Net Advances
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%
On restructuring front, state-ownedbanks witnessed further deterioration
with um in restructured loan book.
Particulars Q1FY13 Q4FY12 Q1FY12
Andhra Bank 7.9 7.1 3.7
Barring few PSU banks (likes SBI and
IOB) all other banks under coverage
saw their loan restructuring increasing
Axis Bank 2.2 1.8 1.6
BoI 7.8 5.7 5.2
Canara Bank 6.2 3.4 4.0 s arp y
Private sector banks were better off
CUB 2.3 2.2 2.8
HDBK 0.3 0.4 0.4
ICICI Bank 1.6 1.7 0.9
Bank witnessed increase in itsrestructured loan book
IOB 9.1 9.0 5.8
KVB 2.6 2.7 2.6
OBC 9.6 8.5 3.8
PNB 8.7 8.5 6.4
SBI 4.0 4.3 4.5
S ndicate Bank 7.0 4.9 4.2
Union Bank 7.8 6.7 4.0
Dolat Universe 5.3 4.7 3.9
GNPA
&Restructured
Assets
as
%
to
Gross
Advances
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`
Q1FY13
O/S Particulars ` mnGNPA %
Restructured Aseets
% to Gross Advances `
NPAsRestructured
assets
Advances
Andhra Bank 23,583 67,690 10.5
FY13E FY14E FY13E FY14E
Andhra Bank 2.5 2.5 9.0 8.1
Axis Bank 1.2 1.2 2.2 2.1 , , .
BoI 67,518 205,894 10.3
Canara Bank 44,966 140,559 8.2
CUB 1,372 2,908 3.4
BoI 2.6 2.5 8.7 8.0
Canara Bank 1.9 1.9 5.7 5.5
CUB 1.0 0.9 2.1 1.8
HDBK 20,863 6,451 1.3
ICICI Bank 98,166 41,720 5.1
IOB 44,097 133,680 12.0
ICICI Bank 3.2 2.9 1.9 1.9
IOB 3.0 2.9 10.0 9.5
KVB 3,769 6,474 4.1
OBC 33,776 109,538 12.6
PNB 99,882 255,190 11.9
. . . .
OBC 3.0 2.7 9.4 9.0
PNB 3.5 3.5 9.4 8.5
SBI 471,564 369,040 8.9
Syndicate Bank 30,768 88,800 9.3
Union Bank 65,415 135,210 11.4
. . . .
Syndicate Bank 2.6 2.5 6.8 6.7
Union Bank 3.7 3.9 7.4 6.7
Capital Adequacy Ratio (%)
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Capital Adequacy Ratio (%)
On core capital front, among private sector banks under coverage, Axis Bank was slightly on
lesser side at 9%. Other private sector banks under coverage had tier I capital in double digit
mong s a e-owne an s, o , an n on an a er cap a n a range o - . ,
other PSU banks were relatively comfortable
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