India PSU Banks

Asia Pacific Equity Research
19 May 2013
India PSU banks

Bond rally signals improving fundamentals: upgrade BOB, PNB to OW
We upgrade BOB and PNB to OW on the back of a sharp rally in bond markets. We see the benefits extending beyond mere treasury gains we think the imminent deposit and base rate cuts will be incrementally positive for loan growth and asset quality. The bond rally also creates conducive conditions for a quick margin-accretive switch from excess SLR to loans. Elevated delinquencies remain a risk, but recoveries should improve given the more aggressive intent shown in recent weeks. We retain our ratings on SBI (OW) and BOI (UW) with raised price targets. Interest rates headed down. We think the bond market rally (yields down 60bp since early April) heralds a significant decline in lending and deposit rates. CD rates have now slipped below retail deposit rates, which is positive for loan growth and asset quality. Also, PSU banks have a significant cushion on excess SLR which they can now liquidate in favor of loans to protect themselves against the margin pressures from base rate cuts. Asset quality pressure continues. We see a continued increase in delinquency on both NPLs and restructuring, and that is a worry. However, the recent efforts by PSU banks in cases such as Kingfisher Airlines (covered by Princy Singh) point to some acceleration in bad loan recoveries. We are not convinced that asset quality has turned the corner, but believe it is unlikely to get much worse. Valuations appear undemanding. Our upgrade is significantly led by valuations. Both stocks are trading at <1sd on P/BV and P/E, and thus the incremental good news on interest rates is likely to trigger a rerating, in our view. Some negatives persist for PSUs the steady erosion of deposit franchises (most acute for BOB), and the weakness in capital and pension hits. However, the potential upside from falling rates is significant, given where valuations are. BOI low coverage and CAR. We stay UW on BOI as we are worried about the low CAR and provision coverage (32%). We do see some signs of improved performance but believe these two factors will continue to be a significant drag on the stock price. Structurally falling ROEs are our primary worry.
Equity Ratings and Price Targets Company Bank of Baroda Bank of India Punjab National Bank State Bank of India Symbol BOB.BO BOI.BO PNBK.BO SBI.BO Mkt Cap (Rs mn) 304,413.80 186,575.20 282,959.70 1,627,171.00 Rating Price (Rs) 740.45 324.75 834.25 2,424.85 Cur OW UW OW OW Prev UW n/c UW n/c Price Target Cur Prev 850.00 625.00 275.00 250.00 925.00 650.00 2,700.00 2,200.00
India Banks Seshadri K Sen, CFA

AC
(91-22) 6157-3575 seshadri.k.sen@jpmorgan.com J.P. Morgan India Private Limited
Dhiren C Shah
(91-22) 6157 3576 dhiren.c.shah@jpmorgan.com J.P. Morgan India Private Limited
Josh Klaczek
(852) 2800-8534 josh.klaczek@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Source: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 17 May 13.
See page 21 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.jpmorganmarkets.com
Seshadri K Sen, CFA (91-22) 6157-3575 seshadri.k.sen@jpmorgan.com
Asia Pacific Equity Research 19 May 2013
Earnings estimate revisions

Table 1: PSU banks valuation comparison
Price 834 325 740 2,425 Mcap ($ MM) 5,165 3,406 5,557 29,701 Rating OW UW OW OW PT 925 275 850 2,700 Upside 11% -15% 15% 12% P/BV FY14E 0.8 0.7 0.9 1.1 P/E FY14E 5.3 6.2 5.4 6.2 ROE FY14E 15.2% 9.9% 15.7% 17.8%
Punjab National Bank BOI Bank of Baroda State Bank of India
Source: Bloomberg, J.P. Morgan estimates. Share prices as of 17 May 2013.
Table 2: Estimate changes key financials

BOB NII PPOP EPS FY14E FY15E FY14E FY15E FY14E FY15E New 145,045 167,926 121,325 137,518 136.6 149.9 % chg 3.3 2.7 9.1 7.3 11.8 9.5 New 116,862 132,430 91,185 99,919 52.5 55.5 BOI % chg 3.8 3.1 7.3 6.4 17.8 15.6 New 179,286 204,136 137,465 150,316 156.6 182.5 PNB % chg 2.9 4.3 9.3 11.1 9.4 11.4 New 771,767 914,186 560,463 616,872 392.7 434.4 SBI % chg 3.0 3.0 7.5 7.4 10.6 10.4
Source: J.P. Morgan estimates.
Higher NIMs We now expect material deposit rate cuts across the sector. PSU banks have been hurt by falling asset yields (both loans and credit substitutes) whereas deposit rates have been sticky due to low deposit costs across the system. Bank CDs are now >50bp below retail deposit rates we believe this anomaly will be corrected in the near term.
Table 3: Lower deposit costs could provide material relief
4Q FY13 8.50 5.40 3.51 PNB 4Q FY13 8.83 5.70 3.47 change in bp (33.00) (30.00) 4.00 4Q FY13 11.33 7.41 2.93 BOB 3Q FY13 11.57 7.33 3.08 change in bp (0.24) 0.08 (0.15) 4Q FY13 9.11 6.39 3.00 BOI 3Q FY13 9.42 6.77 2.80 change in bp (0.31) (0.38) 0.20
YOA COF NIM
Source: Company reports and J.P. Morgan estimates. All numbers relate to domestic balance sheet
Bond profits This is difficult to predict as it depends on the quantum that the banks choose to realize in FY14. We have, for the moment, simply recognized the unwinding of provisions made in 2H FY14. We see potential upside to these forecasts, but this would probably be offset by higher provisions on account of falling rates (we have already baked in the possible pension hits from higher wage growth assumptions).
Figure 1: Proforma impact on earnings from bond gains

9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 2.72 3.68 6.10 8.90
Figure 2: CASA growth momentum picking up

10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0%
Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q4FY13 BOI
PNB
BOB
SBI
BOI
PNB
BOB
BOI
Source: J.P. Morgan estimates, Company data.
Source: Company data.
Asset quality forecasts unchanged We maintain our cautious view on NPLs and credit costs. The concurrent indicators for the economy are still negative, and we think the momentum in delinquencies will continue in the near term. We will revisit these only when we see material signs of a turnaround.
Figure 3: Large base of stressed assets could get worse
16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 PNB SBI Restructured loans BOI Gross NPA 4.3 5.3 3.0 10.4 4.1 5.6 5.7 2.4 BOB
Figure 4: Recoveries could accelerate in FY14

120.0 100.0 80.0 60.0 40.0 20.0 0.0 -20.0 -40.0 -60.0 Q2FY13 PNB Q3FY13 BOB
Source: Company data. Source: Company data.
Strong rally in bond markets

Figure 5: Yield curve has shifted down laterally Figure 6: Short-term rates are down, despite duration-lengthening
10.5 10 9.5 9 8.5 8 7.5 7 05/16/12 06/06/12 06/27/12 07/18/12 08/08/12 08/31/12 09/24/12 10/16/12 11/09/12 12/06/12 12/28/12 01/18/13 02/11/13 03/05/13 03/28/13
04/25/13
CP rates 3 months CD rates 3 months
T Bills 3 months
Source: Bloomberg. The white line is the latest gilt yield curve
Source: Bloomberg.
Figure 7: Repo liquidity still tight, but could be driven by excess SLR
Figure 8: AAA yields well below base rates

10.5% 10.0% 9.5% 9.0% 8.5% 8.0%
Source: Bloomberg.
AAA (3y)
Source: Bloomberg.
SBI
PNB
BOB
Figure 9: AAA yields collapse partial proxy to PSU lending yields

10 9.8 9.6 9.4 9.2 9 8.8 8.6 8.4 8.2 8 05/14/12 05/28/12 06/11/12 06/25/12 07/09/12 07/23/12 08/06/12 08/22/12 09/05/12 09/20/12 10/05/12 10/19/12 11/06/12 11/22/12 12/07/12 12/21/12 01/07/13 01/21/13 02/05/13 02/20/13 03/06/13 03/20/13 04/08/13 04/25/13 05/10/13
Figure 10: Short-term rates are down, despite durationlengthening

10.5 10 9.5 9 8.5 8 7.5 7
05/16/12
06/06/12
06/27/12
07/18/12
08/08/12
08/31/12
09/24/12
10/16/12
11/09/12
12/06/12
12/28/12
01/18/13
02/11/13
03/05/13
CP rates 3 months CD rates 3 months
T Bills 3 months
Source: Bloomberg.
Source: Bloomberg.
03/28/13
04/25/13
BOI
Bank of Baroda
Bank of Baroda (BOB) has emerged from the last downturn with the weakest deposit franchise among its peers. To some extent, it therefore has the most to gain from a systemic downward move in interest rates; also, the delta on its NIMs could be the highest. If rates do start moving down aggressively, BOB has probably the largest potential upward surprise in NIMs. The recent stress in BOBs asset quality is partially driven by delayed recognition in 1H FY13. We thus think that delinquencies will peak soon, as the backlog of stressed assets gets cleared over the next two quarters. Historically, BOB has been one of the more conservative banks and, over the next 4-6 quarters, we should see it emerging with a cleaner book than some of its peers. We expect BOBs return ratios to stabilize at ~1% ROA and 15% ROE over FY14/15. This could deliver an upward surprise when the asset quality cycle turns, although we dont expect that in the near term. BOBs capital situation is comfortable, in our view, so the risks of ROE dilution are minimal even if the government capitalizes the bank in FY14. Valuations look undemanding, with both P/BV and P/E trading well below the historical average. In the macro context, the stock is not building in an economic recovery the key risk is that the economy worsens from here, which could push valuations down even further. We think the declining interest rates address that.
Figure 11: BOB: P/E history

12 11 10 9 8 7 6 5 4 3 2 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 PE1yf mean +1sd -1sd
Figure 12: BOB: P/BV history

1.9 1.7 1.5 1.3 1.1 0.9 0.7 0.5 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 PB1yf mean +1sd -1sd
Source: Company reports and J.P. Morgan estimates.
Company Description
P&L sensitivity metrics

NIMs Impact of each 25bps Cost to Income Impact of each 100bps Provisions/Assets Impact of each 25bps
Source: J.P. Morgan estimates
PPOP impact (%) 5.0% 2.0% 0.0%
EPS impact (%) 8.5% 3.8% 8.5%
Bank of Baroda is the one of the largest public sector banks in India, with a loan book of cUS$52B. BOB is highly concentrated in western India, with ~50% of its branches in Gujarat, Maharashtra, and Rajasthan. The governments stake increased to 57% following the recent capital infusion.
Price target and valuation analysis
Our Mar-14 PT of Rs850 (previously Rs625) is based on our 2stage Gordon growth model and implies 1x FY14E book. Our valuations factor in a cost of equity of 14.9%, normalized ROE of ~14.7%, and terminal growth of 5%. Our PT change is driven by the change in our second-stage growth assumption.
Sectoral breakdown
Risk free rate Equity Risk Premium Beta Cost of Equity Terminal growth Stage 2 growth Mar-14 PT Normalized ROE
Agri Retail SME Wholesale Others
8.0% 6.0% 1.15 14.9% 5.0% 15.5% 850 3.1% 0.8% 1.7% -1.0% 1.7% 1.2% 14.7%
15% 14% 16% 38% 17%
NII/assets Non Interest Income/Assets Opex/Assets LLP/Loans Pre tax ROA Normalized ROA Nomalized ROE Consensus 127.0 147.0
Source: Company
Adjusted EPS: J.P. Morgan vs consensus

Rs FY14E FY15E
Source: Bloomberg, J.P. Morgan
J. P. Morgan 136.6 149.9
The key risks are a) NPL momentum surprises on the downside from here, due to either macro factors or higher rollovers from restructured loans, or b) bond yield momentum reverses from global or local macro headwinds.
Company Data 52-week Range (Rs) Market Cap (Rs mn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (Rs) Date Of Price 3M - Avg daily value (Rs mn) 3M - Avg daily value ($ mn) 3M - Avg daily volume (mn) BSE30 Exchange Rate
899.65-605.55 304,414 5,557 411 Mar 740.45 17 May 13 641.90 11.7 0.92 2,0247.33 54.79
Bank of Baroda (Reuters: BOB.BO, Bloomberg: BOB IN) Rs in mn, year-end Mar FY11A FY12A FY13E Operating Profit (Rs mn) 65,381 80,229 87,028 Net Profit (Rs mn) 42,417 50,070 45,535 Cash EPS (Rs) 108.26 121.79 107.78 Fully Diluted EPS (Rs) 99.76 109.51 98.99 DPS (Rs) 16.50 17.00 15.46 EPS growth (%) 29.4% 12.5% (11.5%) ROE 23.3% 19.1% 14.3% P/E (x) 6.8 6.1 6.9 BVPS (Rs) 504.55 668.34 732.33 P/BV (x) 1.5 1.1 1.0 Dividend Yield 2.2% 2.3% 2.1%
Source: Company data, Bloomberg, J.P. Morgan estimates.
FY14E 115,825 57,728 136.64 123.62 19.60 26.8% 15.7% 5.4 846.03 0.9 2.6%
FY15E 132,518 63,318 149.87 138.04 21.50 9.7% 15.2% 4.9 970.75 0.8 2.9%
Bank of Baroda: Summary of Financials

Income Statement Rs in millions, year end Mar NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Net Interest Income Total Non-Interest Income Fee Income Total operating revenues Operating costs Pre-Prov. Profits Provisions Other Inc (treasury Income) Other Exp. Exceptionals Associate Pre-tax Tax Minorities Attributable Income FY11 2.8% 98.0% 2.8% 88,023 23,657 15,639 111,679 (46,298) FY12 2.6% 97.5% 2.6% 103,170 28,148 19,378 131,319 (51,090) FY13E 2.4% 97.3% 2.4% 113,532 32,295 22,296 145,827 (58,799) FY14E 2.7% 97.5% 2.7% 145,045 37,785 26,087 182,831 (67,006) Growth Rates FY15E 2.7% Loans 97.5% Deposits 2.7% Assets Equity 167,926 RWA 44,209 Net Interest Income 30,522 Non-Interest Income of which Fee Grth 212,135 Revenues Costs (79,617) Pre-Provision Profits Loan Loss Provisions 132,518 Pre-Tax (51,953) Attributable Income - EPS - DPS 5,000 - Balance Sheet Gearing 85,565 Loan/deposit (22,247) Investment/assets 0 Loan/Assets 63,318 Customer deposits/liab. LT debt/liabilities Asset Quality/Capital Loan loss reserves/loans NPLs/loans Specific loan loss reserves/NPLs Growth in NPLs Tier 1 Ratio Total CAR Du-Pont Analysis NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Non-Int. Rev./ Revenues Non IR/Avg. Assets Revenue/Assets Cost/Income Cost/Assets Pre-Provision ROA LLP/Loans Loan/Assets Other Prov, Income/ Assets Operating ROA Pre-Tax ROA Tax rate Minorities & Outside Distbn. ROA RORWA Equity/Assets ROE FY11 30.7% 26.7% 28.9% 43.4% 34.5% 48.2% 13.6% 19.1% 39.2% 21.5% 55.2% 90.9% 33.3% 38.7% 29.4% 65.0% FY11 74.9% 3.4% 64.3% 90.5% 2.7% FY11 (1.0%) 1.4% 74.9% 31.3% 10.0% 14.5% FY11 2.8% 98.0% 2.8% 21.2% 0.7% 3.5% 41.5% 1.5% 2.1% (0.7%) 64.3% 0.1% 1.6% 1.8% 24.9% 0.0% 1.2% 2.1% 5.3% 23.3% FY12 25.6% 26.0% 25.2% 39.0% 20.9% 17.2% 19.0% 23.9% 17.6% 10.3% 22.7% 95.6% 6.6% 18.0% 12.5% 3.0% FY12 74.7% 3.1% 64.8% 91.7% 3.2% FY12 (1.0%) 1.5% 69.4% 41.6% 10.8% 14.7% FY12 2.6% 97.5% 2.6% 21.4% 0.7% 3.3% 38.9% 1.3% 2.0% (1.0%) 64.8% 0.2% 1.3% 1.5% 16.9% 0.0% 1.1% 1.9% 5.9% 19.1% FY13E 14.2% 13.1% 13.0% 12.6% 25.0% 10.0% 14.7% 15.1% 11.0% 15.1% 8.5% 61.2% (18.6%) (9.1%) (11.5%) (9.1%) FY13E 75.3% 2.9% 65.3% 91.7% 3.0% FY13E (1.2%) 2.0% 54.3% 78.7% 10.1% 13.4% FY13E 2.4% 97.3% 2.4% 22.1% 0.7% 3.1% 40.3% 1.2% 1.8% (1.4%) 65.3% 0.1% 0.9% 1.0% 7.1% 0.0% 0.9% 1.5% 6.1% 14.3% FY14E 17.8% 16.6% 16.4% 15.5% 17.0% 27.8% 17.0% 17.0% 25.4% 14.0% 33.1% 5.6% 57.0% 26.8% 26.8% 26.8% FY14E 75.5% 2.7% 66.0% 91.9% 3.1% FY14E (1.8%) 2.8% 53.5% 56.1% 9.9% 12.8% FY14E 2.7% 97.5% 2.7% 20.7% 0.7% 3.3% 36.6% 1.2% 2.1% (1.2%) 66.0% 0.1% 1.3% 1.4% 25.0% 0.0% 1.0% 1.5% 6.1% 15.7% FY15E 16.7% 15.6% 15.5% 14.7% 16.0% 15.8% 17.0% 17.0% 16.0% 18.8% 14.4% 17.1% 11.2% 9.7% 9.7% 9.7% FY15E 75.8% 2.4% 66.8% 92.0% 3.3% FY15E (2.4%) 3.6% 59.9% 43.9% 9.8% 12.4% FY15E 2.7% 97.5% 2.7% 20.8% 0.7% 3.3% 37.5% 1.3% 2.1% (1.2%) 66.8% 0.1% 1.3% 1.4% 26.0% 0.0% 0.9% 1.5% 6.1% 15.2%
65,381 80,229 (13,313) (26,046) 4,435 6,075 56,503 60,258 (14,086) (10,188) 0 0 42,417 50,070
87,028 115,825 (41,987) (44,355) 4,000 5,500 49,041 76,970 (3,506) (19,243) 0 0 45,535 57,728
Per Share Data EPS DPS Payout Book value Fully Diluted Shares Key Balance sheet Rs in millions Net Loans LLR Gross Loans NPLs Investments Other earning assets Avg. IEA Goodwill Assets Deposits Long-term bond funding Other Borrowings Avg. IBL Avg. Assets Common Equity RWA Avg. RWA
FY11 108.26 16.50 15.2% 504.55 392 FY11 2,286,764 (23,616) 2,310,380 31,525 114,354 62,254 3,107,779 3,571,722 3,054,395 115,591 0 2,814,279 3,170,838 197,682 2,098,901 1,829,906
FY12 121.79 17.00 14.0% 668.34 411 FY12 2,873,773 (29,211) 2,902,984 44,647 133,529 107,146 3,923,131 4,473,215 3,848,711 126,473 0 3,572,585 4,022,469 274,769 2,537,338 2,318,119
FY13E 107.78 15.46 14.3% 732.33 422 FY13E 3,276,101 (38,291) 3,314,392 79,774 142,723 115,345 4,636,306 5,053,003 4,352,051 146,171 0 4,236,703 4,763,109 309,397 3,171,672 2,854,505
FY14E 136.64 19.60 14.3% 846.03 422 FY14E 3,833,038 (70,975) 3,904,014 124,518 148,460 134,169 5,329,302 5,881,231 5,075,528 176,487 0 4,875,118 5,467,117 357,436 3,710,856 3,441,264
FY15E 149.87 21.50 14.3% 970.75 422 FY15E 4,446,324 (111,088) 4,557,412 179,174 154,777 154,807 6,178,098 6,791,899 5,868,700 212,833 0 5,666,774 6,336,565 410,127 4,304,593 4,007,725
Bank of India
Lowest returns among PSU banks: Although we have increased our earnings estimates for FY14 and FY15 by 18% and 16%, respectively, we expect ROE and ROA for the bank to trend downwards in FY14-FY15 and remain the lowest among the PSU banks. We expect the significant discount to persist, given its weak fundamentals, high volatility in earnings and large international book. Low provision coverage: The bank had one of the lowest provision coverages among its peers at 32% in 4Q FY13. The earnings impact of improved delinquency will thus be delayed, and could also put further strain on capital. Lowest Tier-1 capital: Despite the bank raising capital in Mar-13, its tier-1 capital at 8.2% is the lowest among its peers. The bank will have frequent recapitalization by GOI, which could have a negative impact on the return ratios and thereby valuations going forward. It could also affect growth. Large international book: Given its very large international book 30% of overall loans we believe it is more susceptible than peers to any negative surprise on asset quality. So far the book has held up well, but given the overall weak macro environment and substantial part of the book to domestic corporates, we expect asset quality to deteriorate.
Figure 13: BOI: T1 CAR is a worry
10.40 9.40 8.40 7.40 6.40 5.40 4.40 3.40 2.40 1.40 0.40 10.06 8.20 9.76 10.13
Figure 14: BOI: Provision coverage ratio (%)

60 50 40 30 20 10 0 BOI 32.1 46.3 47.5 52.5
BOI
PNB
SBI
PNB
BOB
Source: Company data, J.P. Morgan estimates (FY13)
BOB
Source: Company data. Note: Our calculations ignoring historic write-offs
Figure 15: BOI: P/BV history

2.3 2.1 1.9 1.7 1.5 1.3 1.1 0.9 0.7 0.5 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 PB1yf mean +1sd -1sd
Figure 16: BOI: P/E history

14 12 10 8 6 4 2 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 PE1yf mean +1sd -1sd
SBI
Company Description

PPOP impact (%) 5.0% 2.0% 0.0%
EPS impact (%) 8.5% 3.8% 8.5%
Bank of India (BOI) is the fourth-largest public sector bank in the India, with a loan book of US$48B, which grew at a ~25% CAGR over FY07-12. Overseas business constitutes ~30% of the loan book for BOI, which is one of the highest among PSU banks.
PT and valuation analysis
Our Mar-14 PT for BOI of Rs275 (up from Rs250) is based on our 2stage Gordon growth model and implies 0.6x FY14E book. Our valuations factor in a cost of equity of 15.5%, normalized ROE of 11%, and terminal growth of 5%. Our PT change is driven by our new second-stage growth and ROE assumptions.
Sectoral credit breakdown
Risk free rate Equity Risk Premium 9% 30% 9% 12% 40% Beta Cost of Equity Terminal growth Stage 2 growth Mar-14 PT Normalized ROE NII/assets Non Int. Inc.
Agri Retail SME Large corp Overseas
8.0% 6.0% 1.25 15.5% 5.0% 13% 275 2.8% 0.8% 1.8% -1.5% 0.9% 0.6% 11%
Opex/Assets LLP/Loans Pre tax ROA Normalized ROA Nomalized ROE
Source: Company
EPS: J.P. Morgan vs consensus

Rs FY14E FY15E
Source: Bloomberg, J.P. Morgan.
J. P. Morgan 52.5 55.5
Consensus 57.8 67.0
Key risks to our recommendation and price target are: 1) improvement in asset quality if economic growth bounces back; and 2) greater policy support from the government, especially in rural lending
393.00-253.30 186,575 3,406 575 Mar 324.75 17 May 13 324.17 5.9 1.01 2,0247.33 54.79
Bank of India (Reuters: BOI.BO, Bloomberg: BOI IN) Rs in mn, year-end Mar FY11A FY12A Operating Profit (Rs mn) 50,624 62,844 Net Profit (Rs mn) 24,887 26,775 Cash EPS (Rs) 45.48 46.60 Fully Diluted EPS (Rs) 39.60 39.48 DPS (Rs) 7.00 7.00 EPS growth (%) 37.4% 2.5% ROE 15.1% 12.7% P/E (x) 7.1 7.0 BVPS (Rs) 291.87 343.35 P/BV (x) 1.1 0.9 Dividend Yield 2.2% 2.2%
FY13E 69,446 27,525 46.13 37.42 6.92 (1.0%) 9.9% 7.0 424.11 0.8 2.1%
FY14E 86,185 31,353 52.55 44.17 7.88 13.9% 9.9% 6.2 467.44 0.7 2.4%
FY15E 94,919 33,130 55.53 47.15 8.33 5.7% 9.6% 5.8 513.22 0.6 2.6%
Bank of India: Summary of Financials

Income Statement Rs in millions, year end Mar NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Net Interest Income Total Non-Interest Income Fee Income Total operating revenues Operating costs Pre-Prov. Profits Provisions Other Inc (treasury Income) Other Exp. Exceptionals Associate Pre-tax Tax Minorities Attributable Income FY11 2.6% 94.5% 2.4% 78,107 23,199 16,835 101,306 (50,682) FY12 2.4% 96.4% 2.3% 83,134 29,116 18,608 112,250 (49,407) FY13E 2.3% 96.6% 2.2% 90,376 32,465 21,958 122,841 (53,395) FY14E 2.6% 96.5% 2.5% 116,862 35,771 25,471 152,633 (66,448) Growth Rates FY15E 2.6% Loans 96.7% Deposits 2.5% Assets Equity 132,430 RWA 41,901 Net Interest Income 30,056 Non-Interest Income of which Fee Grth 174,331 Revenues Costs (79,411) Pre-Provision Profits Loan Loss Provisions 94,919 Pre-Tax (55,149) Attributable Income - EPS - DPS 5,000 - Balance Sheet Gearing 44,770 Loan/deposit (11,640) Investment/assets 0 Loan/Assets 33,130 Customer deposits/liab. LT debt/liabilities Asset Quality/Capital Loan loss reserves/loans NPLs/loans Specific loan loss reserves/NPLs Growth in NPLs Tier 1 Ratio Total CAR Du-Pont Analysis NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Non-Int. Rev./ Revenues Non IR/Avg. Assets Revenue/Assets Cost/Income Cost/Assets Pre-Provision ROA LLP/Loans Loan/Assets Other Prov, Income/ Assets Operating ROA Pre-Tax ROA Tax rate Minorities & Outside Distbn. ROA RORWA Equity/Assets ROE FY11 26.2% 30.1% 27.9% 24.8% 26.5% 35.7% 14.7% 14.7% 30.2% 38.2% 23.1% (14.6%) 40.2% 42.9% 37.4% 0.0% FY11 71.3% 3.8% 62.1% 89.5% 7.5% FY11 (1.3%) 2.5% 57.1% (1.7%) 8.3% 12.2% FY11 2.6% 94.5% 2.4% 22.9% 0.7% 3.3% 50.0% 1.6% 1.6% (1.0%) 62.1% 0.1% 1.0% 1.1% 28.8% 0.0% 0.7% 1.2% 4.6% 15.1% FY12 16.3% 6.5% 9.6% 23.5% 15.0% 6.4% 25.5% 10.5% 10.8% (2.5%) 24.1% 65.0% 2.3% 7.6% 2.5% 0.0% FY12 78.2% 4.0% 63.7% 87.5% 7.8% FY12 (0.9%) 2.3% 47.7% 22.5% 8.6% 12.0% FY12 2.4% 96.4% 2.3% 25.9% 0.8% 3.1% 44.0% 1.3% 1.7% (1.3%) 63.7% 0.1% 0.9% 1.0% 25.2% 0.0% 0.6% 1.0% 4.9% 12.7% FY13E 15.8% 14.1% 14.8% 28.3% 39.0% 8.7% 11.5% 18.0% 9.4% 8.1% 10.5% 43.0% (15.9%) 2.8% (1.0%) (1.1%) FY13E 79.3% 3.2% 65.8% 87.5% 8.8% FY13E (1.0%) 2.7% 34.4% 48.1% 7.9% 10.6% FY13E 2.3% 96.6% 2.2% 26.4% 0.8% 3.0% 43.5% 1.3% 1.7% (1.6%) 65.8% 0.1% 0.6% 0.7% 8.5% 0.0% 0.5% 0.8% 5.5% 9.9% FY14E 13.9% 14.7% 13.8% 10.2% 12.8% 29.3% 10.2% 16.0% 24.3% 24.4% 24.1% 12.0% 37.1% 13.9% 13.9% 13.9% FY14E 78.0% 3.0% 66.1% 88.0% 8.5% FY14E (1.9%) 3.7% 39.4% 63.3% 7.7% 10.4% FY14E 2.6% 96.5% 2.5% 23.4% 0.8% 3.2% 43.5% 1.4% 1.8% (1.6%) 66.1% 0.1% 0.8% 0.9% 24.0% 0.0% 0.6% 0.8% 5.7% 9.9% FY15E 14.0% 12.9% 11.6% 9.8% 13.0% 13.3% 17.1% 18.0% 14.2% 19.5% 10.1% 10.5% 8.5% 5.7% 5.7% 5.7% FY15E 78.1% 2.8% 66.8% 89.0% 8.0% FY15E (2.7%) 4.9% 47.5% 44.1% 7.5% 10.1% FY15E 2.6% 96.7% 2.5% 24.0% 0.8% 3.3% 45.6% 1.5% 1.8% (1.6%) 66.8% 0.1% 0.8% 0.8% 26.0% 0.0% 0.5% 0.7% 5.5% 9.6%
50,624 62,844 69,446 86,185 (18,888) (31,164) (44,564) (49,931) 3,218 4,096 5,200 5,000 34,954 35,775 30,082 41,255 (10,067) (9,000) (2,557) (9,901) 0 0 0 0 24,887 26,775 27,525 31,353
FY11 45.48 7.00 15.4% 291.87 547 FY11 2,130,962 (28,666) 2,159,627 48,116 162,477 124,132 3,015,398 3,498,530 2,988,858 220,213 91,598 2,865,345 3,116,954 159,712 2,047,620 1,833,095
FY12 46.60 7.00 15.0% 343.35 575 FY12 2,488,333 (22,376) 2,510,709 58,940 129,483 114,657 3,532,884 3,832,996 3,182,160 321,142 93,655 3,356,187 3,665,763 197,259 2,354,660 2,201,140
FY13E 46.13 6.92 15.0% 424.11 597 FY13E 2,879,161 (27,939) 2,907,100 87,311 137,620 130,566 3,976,890 4,400,466 3,629,988 366,625 103,655 3,749,958 4,116,731 253,043 3,272,977 2,813,819
FY14E 52.55 7.88 15.0% 467.44 597 FY14E 3,247,406 (62,720) 3,310,126 142,546 145,288 152,297 4,541,452 5,007,247 4,161,839 390,603 113,655 4,274,528 4,703,857 278,894 3,691,592 3,482,285
FY15E 55.53 8.33 15.0% 513.22 597 FY15E 3,669,949 (102,719) 3,772,668 205,438 154,085 145,212 5,125,092 5,589,881 4,700,684 415,261 123,655 4,834,193 5,298,564 306,210 4,171,931 3,931,761
10
Punjab National Bank

Deposit franchise improving. PNB showed strong improvement in deposit costs in 4Q13, helped by low growth and CASA momentum. If rates start easing rapidly, this trend could start to be accentuated in FY14 and drive significant NIM benefits. Moreover, it could arrest the downward growth momentum seen in FY13. The delta could be significant. Recoveries accelerating. PNB had some forward momentum in bad loan recoveries (upgrades, too, but that was offset by higher restructuring) in 4Q FY13. We think this momentum could continue, given the strong efforts on the part of the banks in this context, PNB has more to gain than the others given its large base of NPLs. Delinquencies could continue. We are worried that delinquencies could continue despite the higher base of NPLs. We foresee the economy staying weak for a few more quarters, and that could drive continued delinquencies. On the margin, however, accelerated recoveries could offset that. We expect PNBs ROE to stabilize at 14-15% over FY15. The upside surprises could come from better asset quality (PNB has probably the most leverage there) and improved margins. Valuations appear undemanding and PNB is at a steep discount to historical P/BV levels. Any improvement in fundamentals could trigger a strong recovery, in our view.
Figure 4: PNB: P/E history
11 10 9 8 7 6 5 4 3 2 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 PE1yf mean +1sd -1sd
Figure 5: PNB: P/BV history

2.1 1.9 1.7 1.5 1.3 1.1 0.9 0.7 0.5 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 PB1yf mean +1sd -1sd
11
Company Description

PPOP impact (%) 4.0% 1.8% 0.0%
EPS impact (%) 7.5% 3.4% 7.5%
Punjab National Bank (PNB) is the second-largest public sector bank in India, with a loan book size of ~US$54B that grew by ~25% over FY07-12. It has one of the best liability franchises, with a CASA of ~36% leading to relatively high NIMs among PSU banks.
Our Mar-14 PT for PNB of Rs925 (previously Rs650) is based on our 2-stage Gordon growth model and implies 0.9x FY14E book. Our valuations factor in a cost of equity of 15.2%, normalized ROE of ~11.5%, and terminal growth of 5%. Our PT change is driven by our new second-stage growth and ROE assumptions.
Cost of Equity 15.2% 20.3% 19.0% 5.0% 925 0.9 3.1% 0.9% 1.8% -1.3% 1.4% 0.9% 11.5%
Sectoral breakdown
15% 31% 10% 11% 33%
Historic book growth (%) Stage-2 book growth (%) - FY13-18E Terminal growth (%) Mar-14 PT Implied FY14E book multiple Normalized ROE NII/assets Non Interest Income/Assets Opex/Assets LLP/Loans Pre tax ROA Normalized ROA Nomalized ROE
Agri
Retail
SME
Large corp
Services and others
Source: Company

Rs FY14E FY15E
J. P. Morgan 156.6 182.5
Consensus 158.5 182.3
The key risks to our OW rating and PT are 1) a significant rollover to NPLs from restructured loans, which would negate the gains of slowing delinquencies, and 2) declining branch productivity, which would affect the ability to aggressively cut deposit rates.
922.10-659.00 282,960 5,165 339 Mar 834.25 17 May 13 631.19 11.5 0.82 2,0247.33 54.79
Punjab National Bank (Reuters: PNBK.BO, Bloomberg: PNB IN) Rs in mn, year-end Mar FY11A FY12A FY13E Operating Profit (Rs mn) 87,534 102,631 114,536 Net Profit (Rs mn) 44,334 48,841 47,319 Cash EPS (Rs) 139.94 144.00 133.87 Fully Diluted EPS (Rs) 133.49 136.81 126.40 DPS (Rs) 24.00 22.00 25.00 EPS growth (%) 13.0% 2.9% (7.0%) ROE 23.3% 20.0% 15.5% P/E (x) 6.0 5.8 6.2 BVPS (Rs) 632.49 777.39 885.88 P/BV (x) 1.3 1.1 0.9 Dividend Yield 2.9% 2.6% 3.0%
FY14E 130,765 55,348 156.59 144.07 25.00 17.0% 15.2% 5.3 1,013.22 0.8 3.0%
FY15E 143,816 64,520 182.53 170.39 30.00 16.6% 15.7% 4.6 1,160.65 0.7 3.6%
12
Punjab National Bank: Summary of Financials

Income Statement Rs in millions, year end Mar NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Net Interest Income Total Non-Interest Income Fee Income Total operating revenues Operating costs Pre-Prov. Profits Provisions Other Inc (treasury Income) Other Exp. Exceptionals Associate Pre-tax Tax Minorities Attributable Income FY11 3.6% 97.4% 3.5% 118,073 33,104 24,502 151,177 (63,642) 87,534 (24,920) 3,022 65,637 (21,303) 0 44,334 FY12 3.3% 97.4% 3.2% 134,143 38,515 29,788 172,658 (70,028) 102,631 (35,773) 3,511 70,369 (21,528) 0 48,841 FY13E 3.2% 97.8% 3.2% 153,119 43,522 33,661 196,641 (82,105) 114,536 (46,841) 4,000 71,695 (24,376) 0 47,319 FY14E 3.3% 98.1% 3.2% 179,286 49,180 38,037 228,465 (97,700) 130,765 (53,604) 6,700 83,861 (28,513) 0 55,348 Growth Rates FY15E 3.3% Loans 98.1% Deposits 3.2% Assets Equity 204,136 RWA 56,556 Net Interest Income 43,742 Non-Interest Income of which Fee Grth 260,693 Revenues Costs (116,877) Pre-Provision Profits Loan Loss Provisions 143,816 Pre-Tax (52,559) Attributable Income - EPS - DPS 6,500 - Balance Sheet Gearing 97,757 Loan/deposit (33,237) Investment/assets 0 Loan/Assets 64,520 Customer deposits/liab. LT debt/liabilities Asset Quality/Capital Loan loss reserves/loans NPLs/loans Specific loan loss reserves/NPLs Growth in NPLs Tier 1 Ratio Total CAR Du-Pont Analysis NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Non-Int. Rev./ Revenues Non IR/Avg. Assets Revenue/Assets Cost/Income Cost/Assets Pre-Provision ROA LLP/Loans Loan/Assets Other Prov, Income/ Assets Operating ROA Pre-Tax ROA Tax rate Minorities & Outside Distbn. ROA RORWA Equity/Assets ROE FY11 29.5% 25.5% 27.7% 23.5% 30.8% 38.5% 20.0% 21.3% 34.0% 33.6% 34.2% 75.3% 11.2% 13.5% 13.0% 9.1% FY11 77.4% 4.0% 64.5% 87.7% 8.0% FY11 (0.9%) 1.8% 58.9% 36.3% 8.4% 12.4% FY11 3.6% 97.4% 3.5% 21.9% 1.0% 4.5% 42.1% 1.9% 2.6% (1.2%) 64.5% 0.1% 1.9% 2.0% 32.5% 0.0% 1.3% 1.9% 5.4% 23.3% FY12 21.9% 21.3% 21.2% 31.6% 17.3% 13.6% 16.3% 21.6% 14.2% 10.0% 17.2% 43.5% 7.2% 10.2% 2.9% (8.3%) FY12 77.4% 4.6% 65.1% 88.2% 8.7% FY12 (1.4%) 2.4% 49.5% 99.1% 9.3% 12.6% FY12 3.3% 97.4% 3.2% 22.3% 0.9% 4.1% 40.6% 1.7% 2.5% (1.3%) 65.1% 0.1% 1.6% 1.7% 30.6% 0.0% 1.1% 1.7% 5.6% 20.0% FY13E 15.7% 13.3% 12.8% 18.8% 13.8% 14.1% 13.0% 13.0% 13.9% 17.2% 11.6% 30.9% 1.9% (3.1%) (7.0%) 13.6% FY13E 78.5% 4.8% 66.1% 88.9% 8.8% FY13E (2.0%) 3.3% 52.1% 43.1% 9.6% 12.6% FY13E 3.2% 97.8% 3.2% 22.1% 0.9% 4.0% 41.8% 1.7% 2.4% (1.5%) 66.1% 0.1% 1.4% 1.5% 34.0% 0.0% 0.9% 1.4% 5.9% 15.5% FY14E 15.6% 13.5% 14.1% 14.4% 16.6% 17.1% 13.0% 13.0% 16.2% 19.0% 14.2% 14.4% 17.0% 17.0% 17.0% 0.0% FY14E 79.5% 4.4% 67.4% 88.4% 9.1% FY14E (2.5%) 4.1% 55.0% 44.2% 9.5% 12.1% FY14E 3.3% 98.1% 3.2% 21.5% 0.9% 4.1% 42.8% 1.8% 2.4% (1.4%) 67.4% 0.1% 1.4% 1.5% 34.0% 0.0% 0.9% 1.4% 6.1% 15.2% FY15E 15.5% 13.4% 14.1% 14.6% 14.1% 13.9% 15.0% 15.0% 14.1% 19.6% 10.0% (2.0%) 16.6% 16.6% 16.6% 20.0% FY15E 80.7% 4.1% 68.2% 87.9% 9.6% FY15E (2.9%) 4.9% 55.0% 35.4% 9.5% 11.8% FY15E 3.3% 98.1% 3.2% 21.7% 0.9% 4.1% 44.8% 1.9% 2.3% (1.2%) 68.2% 0.1% 1.4% 1.6% 34.0% 0.0% 1.0% 1.5% 6.1% 15.7%
FY11 139.94 24.00 17.2% 632.49 317 FY11 2,421,067 (22,968) 2,444,034 43,799 152,867 82,591 3,273,795 3,768,541 3,128,987 315,897 111,903 3,065,402 3,359,973 200,378 2,487,600 2,194,965
FY12 144.00 22.00 15.3% 777.39 339 FY12 2,937,748 (41,841) 2,979,588 87,196 226,467 97,929 4,060,962 4,567,445 3,795,885 372,643 111,903 3,806,706 4,167,993 263,675 2,919,190 2,703,395
FY13E 133.87 25.00 18.7% 885.88 353 FY13E 3,378,410 (68,609) 3,447,019 124,744 235,632 79,705 4,753,382 5,153,065 4,301,498 428,358 111,903 4,449,192 4,860,255 313,135 3,321,475 3,120,332
FY14E 156.59 25.00 16.0% 1,013.22 353 FY14E 3,885,171 (98,943) 3,984,114 179,897 248,461 90,490 5,411,685 5,880,063 4,883,975 512,975 111,903 5,063,403 5,516,564 358,145 3,872,797 3,597,136
FY15E 182.53 30.00 16.4% 1,160.65 353 FY15E 4,467,947 (134,003) 4,601,950 243,642 263,216 102,674 6,177,793 6,711,703 5,536,678 622,972 111,903 5,778,300 6,295,883 410,257 4,420,541 4,146,669
13
State Bank of India

Strong liability franchise: SBI has one of the strongest liability franchises and thus has an advantage on the cost front with the lowest cost of funds among PSU banks. This has resulted in the bank offering the lowest base rate and thereby capturing market share. The bank is creating serious competition for private banks by offering the lowest prices in home loans. We expect this trend to result in higher loan growth, and therefore higher profitability, for the bank in FY14. Low restructured loan book: SBI has one of the lowest restructured loan books among PSU banks, at 4.1% of loans. This implies that the bank has been upfront in recognizing the stress on asset quality, and that any further negative surprises in asset quality should be more limited than for other banks. We expect the bank to re-rate from the current level as a result of an improvement in asset quality. Lowest base rate: The advantage of having the lowest base rate is that it has increased the level lending to high-rated corporates. This should result in better asset quality for SBI, particularly in the weak macro environment. We also expect the bank to show strong loan growth, and therefore higher profitability, in FY14.
Figure 6: SBI: P/E history (consol)
18 16 14 12 10 8 6 4 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 PE1yf mean +1sd -1sd
Figure 7: SBI: P/BV history (consol)

2.5 2.3 2.1 1.9 1.7 1.5 1.3 1.1 0.9 0.7 0.5 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 PB1yf mean +1sd -1sd
14
Company Description

EBITDA impact (%) 5.4% 3.2% 0.0%
EPS impact (%) 7.0% 4.2% 7.0%
State Bank of India (SBI) is the largest bank in India, with a 61.6% government stake. It has a loan book of ~US$170B with exposure corporate, SME, retail, international and Agri sectors, and forms >20% of total system credit. It has the highest number of branches and a strong rural presence, leading to high CASA of ~47%.
Our Mar-14 PT of Rs2,700 (Rs2,200 previously) is based on our Gordon growth model with a normalized ROE of ~15.8%, 2nd-stage growth of ~14% and Rs108/share for the insurance business. The change in our PT change is due to our new second-stage growth and ROE assumptions.
ROE 15.8% 14.3% 5.0% 105 2,700 1.2
Loan Breakdown
3% 15% 18% 17% 13%
Large Mid SME Agri
2nd stage growth Terminal growth Insurance business valuation Mar-14 PT Implied FY14 P/B ex insurance Normalized ROE NII/Assets Other income/assets
Intern Retail Other
20%
14%
3.7% 1.1% 4.8% 2.1% 1.0% 1.1% 15.8%
Revenues/assets Costs/assets Provisions/assets
Source: Company
ROA ROE

Rs FY14E FY15E
J. P. Morgan 393 434
Consensus 311 366
Key risks: 1) Slower economic growth leading to higher delinquencies 2) Lower loan growth 3) Rising restructuring leading to higher NPAs
Company Data 52-week Range (Rs) Market Cap (Rs mn) Market Cap ($ mn) Shares O/S (mn) Fiscal Year End Price (Rs) Date Of Price 3M - Avg daily value (Rs mn) 3M - Avg daily value ($ mn) 3M - Avg daily volume (mn) NIFTY Exchange Rate
2,551.701,815.15 1,627,171 29,701 671 Mar 2,424.85 17 May 13 5,078.07 92.7 2.32 6169.90 54.79
State Bank of India (Reuters: SBI.BO, Bloomberg: SBIN IN) Rs in mn, year-end Mar FY11A FY12A FY13E Operating Profit (Rs mn) 321,781 428,572 427,037 Net Profit (Rs mn) 111,798 159,733 202,096 Cash EPS (Rs) 176.06 238.04 295.45 Fully Diluted EPS (Rs) 159.35 267.84 286.68 DPS (Rs) 30.00 35.00 42.00 EPS growth (%) (4.4%) 35.2% 24.1% ROE 12.1% 18.9% 16.9% P/E (x) 13.8 10.2 8.2 BVPS (Rs) 1,314.53 1,583.07 1,843.22 P/BV (x) 1.8 1.5 1.3 Dividend Yield 1.2% 1.4% 1.7%
FY14E 536,463 268,605 392.68 357.59 50.40 32.9% 17.8% 6.2 2,176.93 1.1 2.1%
FY15E 592,872 297,141 434.39 399.31 60.48 10.6% 16.9% 5.6 2,540.56 1.0 2.5%
15
State Bank of India: Summary of Financials

Income Statement Rs in millions, year end Mar NIM (as % of avg. assets) Earning assets/assets Margins (as % of Avg. Assets) Net Interest Income Total Non-Interest Income Fee Income Total operating revenues Operating costs Pre-Prov. Profits Provisions Other Inc (treasury Income) Other Exp. Exceptionals Associate Pre-tax Tax Minorities Attributable Income FY11 3.1% 96.2% 2.9% 455,500 184,197 0 639,698 FY12 3.5% 96.0% 3.3% 578,778 318,354 0 897,132 FY13E 3.3% 95.9% 3.2% 620,714 330,724 0 FY14E 3.5% 96.0% 3.4% 771,767 355,848 0 Growth Rates FY15E 3.6% Loans 96.0% Deposits 3.4% Assets Equity 914,186 RWA 383,087 Net Interest Income 0 Non-Interest Income of which Fee Grth 1,297,274 Revenues Costs (704,402) Pre-Provision Profits Loan Loss Provisions 592,872 Pre-Tax (166,659) Attributable Income - EPS - DPS 24,000 - Balance Sheet Gearing 450,213 Loan/deposit (153,072) Investment/assets 0 Loan/Assets 297,141 Customer deposits/liab. LT debt/liabilities FY11 16.1% 12.5% 13.6% 0.4% 16.7% 36.2% 17.0% 30.0% 19.3% 42.7% 116.4% 8.5% (4.4%) (4.4%) 0.0% FY11 80.2% 5.8% 61.5% 80.4% 9.0% FY12 FY13E FY14E FY15E 16.7% 17.6% 18.4% 18.3% 12.7% 14.7% 18.6% 18.9% 11.0% 14.4% 17.5% 17.6% 27.3% 18.7% 18.1% 16.7% 11.0% 12.0% 14.0% 14.0% 27.1% 7.2% 24.3% 18.5% 72.8% 3.9% 7.6% 7.7% 40.2% 6.1% 18.5% 15.0% 47.4% 11.9% 12.7% 19.2% 33.2% (0.4%) 25.6% 10.5% 22.0% (21.9%) 21.0% 8.6% 23.6% 24.4% 32.9% 10.6% 42.9% 26.5% 32.9% 10.6% 35.2% 24.1% 32.9% 10.6% 16.7% 20.0% 20.0% 20.0% FY12 82.3% 5.9% 63.8% 82.2% 9.2% FY13E FY14E FY15E 83.9% 83.5% 82.9% 5.3% 4.7% 4.3% 66.3% 67.4% 67.9% 82.6% 83.4% 84.3% 9.0% 8.4% 7.8%
951,438 1,127,615
(317,917) (468,560) (524,402) (591,153) 321,781 428,572 427,037 536,463 (133,198) (162,444) (126,830) (153,485) 10,614 (19,999) 6,000 24,000 199,197 246,128 306,207 406,978 (87,399) (86,395) (104,110) (138,372) 0 0 0 0 111,798 159,733 202,096 268,605
FY11 FY12 FY13E FY14E FY15E 176.06 238.04 295.45 392.68 434.39 30.00 35.00 42.00 50.40 60.48 17.0% 14.7% 14.2% 12.8% 13.9% 1,314.53 1,583.07 1,843.22 2,176.93 2,540.56 635 671 684 684 684 FY11 FY12 FY13E FY14E FY15E 10,064,015 11,636,702 13,614,941 16,065,631 18,957,444 (160,431) (294,895) (415,592) (550,678) (696,204) 10,224,447 11,931,597 14,030,533 16,616,309 19,653,648 323,163 507,735 716,538 949,445 1,200,351 968,601 1,065,152 1,019,940 1,105,005 1,200,574 575,346 666,124 763,407 900,290 1,064,864 14,875,001 16,665,528 18,786,609 21,804,573 25,635,534 16,449,168 18,262,305 20,897,032 24,549,256 28,877,266 12,555,625 14,146,894 1,424,708 1,579,914 437,576 485,245 13,182,812 14,853,570 15,462,097 17,355,737 834,712 1,062,300 10,584,651 11,751,362 9,826,913 11,168,006 16,220,163 19,238,108 22,870,403 1,724,503 1,876,783 2,031,969 450,423 450,423 450,423 16,835,737 19,529,779 23,008,632 19,579,668 22,723,144 26,713,261 1,260,823 1,489,092 1,737,830 13,161,525 15,004,139 17,104,718 12,456,443 14,082,832 16,054,428
Asset Quality/Capital FY11 FY12 FY13E FY14E FY15E Loan loss reserves/loans (1.6%) (2.5%) (3.0%) (3.3%) (3.5%) NPLs/loans 3.0% 3.8% 4.7% 5.4% 5.9% Specific loan loss reserves/NPLs 47.5% 54.8% 58.0% 58.0% 58.0% Growth in NPLs 29.8% 57.1% 41.1% 32.5% 26.4% Tier 1 Ratio 7.8% 9.8% 10.1% 10.0% 9.8% Total CAR 12.0% 13.9% 13.7% 13.1% 12.6% Du-Pont Analysis FY11 FY12 FY13E FY14E FY15E NIM (as % of avg. assets) 3.1% 3.5% 3.3% 3.5% 3.6% Earning assets/assets 96.2% 96.0% 95.9% 96.0% 96.0% Margins (as % of Avg. Assets) 2.9% 3.3% 3.2% 3.4% 3.4% Non-Int. Rev./ Revenues 28.8% 35.5% 34.8% 31.6% 29.5% Non IR/Avg. Assets 1.2% 1.8% 1.7% 1.6% 1.4% Revenue/Assets 4.1% 5.2% 4.9% 5.0% 4.9% Cost/Income 49.7% 52.2% 55.1% 52.4% 54.3% Cost/Assets 2.1% 2.7% 2.7% 2.6% 2.6% Pre-Provision ROA 2.1% 2.5% 2.2% 2.4% 2.2% LLP/Loans (1.4%) (1.5%) (1.0%) (1.0%) (0.9%) Loan/Assets 61.5% 63.8% 66.3% 67.4% 67.9% Other Prov, Income/ Assets 0.1% (0.1%) 0.0% 0.1% 0.1% Operating ROA 1.2% 1.5% 1.5% 1.7% 1.6% Pre-Tax ROA 1.3% 1.4% 1.6% 1.8% 1.7% Tax rate 43.9% 35.1% 34.0% 34.0% 34.0% Minorities & Outside Distbn. 0.0% 0.0% 0.0% 0.0% 0.0% ROA 0.7% 1.0% 1.0% 1.1% 1.0% RORWA 1.0% 1.6% 1.6% 1.7% 1.7% Equity/Assets 5.4% 5.5% 5.9% 6.1% 6.0% ROE 12.1% 18.9% 16.9% 17.8% 16.9%
16
JPM Q-Profile
Bank of Baroda (INDIA / Financials)
As Of: 17-May-2013 Quant_Strategy@jpmorgan.com
Local Share Price

1,200.00 1,000.00 800.00 600.00 400.00 200.00 0.00 Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09
Current:
728.65
12 Mth Forward EPS

200.00 150.00 100.00 50.00 0.00 -50.00
Current:
130.21
Dec/09
Jul/10
Feb/11
Sep/11
Apr/12
Nov/12
-100.00 May/02 Jul/03 May/09 Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 Dec/02 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 Dec/09 Jul/10 Feb/11 Sep/11 Sep/11 Apr/12 Apr/12 Apr/12 Apr/12 Nov/12 Nov/12 Nov/12 Nov/12
Earnings Yield (& local bond Yield)

70% 60% 50% 40% 30% 20% 10% 0% Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09
12Mth fwd EY India BY Proxy
Current:
18%
Implied Value Of Growth*

1.50 1.00 0.50 0.00 -0.50 -1.00 -1.50 -2.00 -2.50 -3.00 -3.50 Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09 Dec/09
Current:
-29.69%
Dec/09
Jul/10
Feb/11
Sep/11
Apr/12
Nov/12
Jul/10
PE (1Yr Forward)
12.0x 10.0x 8.0x
Current:
5.6x
Price/Book Value
2.5x 2.0x 1.5x
PBV hist PBV Forward
Current:
Feb/11
1.1x
6.0x 4.0x 2.0x 0.0x Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09 Dec/09 Jul/10 Feb/11 Sep/11 Apr/12 Nov/12 1.0x 0.5x 0.0x Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09 Dec/09 Jul/10 Feb/11 Sep/11
ROE (Trailing)
25.00 20.00 15.00
Current:
20.85
Dividend Yield (Trailing)

12.0 10.0 8.0 6.0
Current:
2.43
10.00 5.00 0.00 Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09 Dec/09 Jul/10 Feb/11 Sep/11 Apr/12 Nov/12
4.0 2.0 0.0 Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09 Dec/09 Jul/10 Feb/11 Sep/11
Summary
Bank of Baroda INDIA Financials 12mth Forward PE P/BV (Trailing) Dividend Yield (Trailing) ROE (Trailing) Implied Value of Growth 5275.90 1.504914 SEDOL 6099778 Commercial Banks Latest Min 1.52 5.60x 0.32 1.05x 1.31 2.43 8.33 20.85 -2.98 -29.7% 17-May-13 As Of: 728.65 Local Price: 130.21 EPS: % to Max % to Med % to Avg 96% 0% -8% 123% -6% -6% 361% 17% 67% 13% -21% -19% 189% -42% -178%
Max 10.95 2.34 11.20 23.62 0.26
Median 5.60 0.99 2.84 16.40 -0.42
Average 5.15 0.99 4.05 16.87 -0.82
2 S.D.+ 9.52 1.87 9.22 24.96 0.87
2 S.D. 0.78 0.11 -1.11 8.77 -2.52
% to Min -73% -69% -46% -60% -905%
Source: Bloomberg, Reuters Global Fundamentals, IBES CONSENSUS, J.P. Morgan Calcs
* Implied Value Of Growth = (1 - EY/Cost of equity) where cost of equity =Bond Yield + 5.0% (ERP)
17
JPM Q-Profile
Bank of India (INDIA / Financials)
Local Share Price

600.00 500.00 400.00 300.00 200.00 100.00
Current:
328.25
12 Mth Forward EPS

100.00 80.00 60.00 40.00 20.00 0.00 -20.00
Current:
60.69
0.00 Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09 Dec/09 Jul/10 Feb/11 Sep/11 Apr/12 Nov/12

70% 60% 50% 40% 30% 20% 10% 0% Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09
Current:
18%

2.00 1.00 0.00 -1.00 -2.00 -3.00 -4.00
Current:
-34.17%
Dec/09
Jul/10
Feb/11
Sep/11
Apr/12
Nov/12
-5.00 Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09 Dec/09 Jul/10 Feb/11
PE (1Yr Forward)
14.0x 12.0x 10.0x 8.0x 6.0x 4.0x 2.0x 0.0x Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09
Current:
5.4x
Price/Book Value
3.5x 3.0x 2.5x 2.0x 1.5x 1.0x 0.5x 0.0x
Current:
0.9x
Dec/09
Jul/10
Feb/11
Sep/11
Apr/12
Nov/12
-0.5x Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09 Dec/09 Jul/10 Feb/11 Sep/11
ROE (Trailing)
30.00 25.00 20.00 15.00 10.00 5.00 0.00 Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09
Current:
13.96

16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09 Dec/09
Current:
2.13
Jul/10
Feb/11
Dec/09
Feb/11
Sep/11
Summary
Bank of India INDIA Financials 12mth Forward PE P/BV (Trailing) Dividend Yield (Trailing) ROE (Trailing) Implied Value of Growth 3370.84 0.9304414 SEDOL 6099789 Commercial Banks Latest Min 1.68 5.41x 0.25 0.88x 0.96 2.13 7.03 13.96 -4.61 -34.2% 17-May-13 As Of: 328.25 Local Price: 60.69 EPS: % to Max % to Med % to Avg 117% -2% -2% 236% 3% 14% 584% 14% 97% 93% 7% 18% 195% -20% -120%
Max 11.73 2.96 14.60 26.91 0.33
Median 5.28 0.91 2.44 14.90 -0.41
Nov/12
Average 5.28 1.00 4.20 16.41 -0.75
2 S.D.+ 9.55 2.11 10.46 30.13 1.13
2 S.D. 1.02 -0.10 -2.06 2.70 -2.63
% to Min -69% -72% -55% -50% -1248%
18
Sep/11
Jul/10
Apr/12
JPM Q-Profile
Punjab National Bank (INDIA / Financials)
Local Share Price

1,400.00 1,200.00 1,000.00 800.00 600.00 400.00 200.00 0.00 Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09
Current:
822.95
12 Mth Forward EPS

250.00 200.00 150.00 100.00 50.00 0.00
Current:
158.84
Dec/09
Jul/10
Feb/11
Sep/11
Apr/12
Nov/12

30% 25% 20% 15% 10% 5% 0% Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09
Current:
19%

0.40 0.20 0.00 -0.20 -0.40 -0.60 -0.80 -1.00 -1.20
Current:
-40.07%
Dec/09
Jul/10
Feb/11
Sep/11
Apr/12
Nov/12
-1.40 Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09 Dec/09 Jul/10 Feb/11
PE (1Yr Forward)
12.0x 10.0x 8.0x
Current:
5.2x
Price/Book Value
2.5x 2.0x 1.5x
Current:
1.0x
6.0x 4.0x 2.0x 0.0x Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09 Dec/09 Jul/10 Feb/11 Sep/11 Apr/12 Nov/12 1.0x 0.5x 0.0x Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09 Dec/09 Jul/10 Feb/11 Sep/11
ROE (Trailing)
30.00 25.00 20.00 15.00 10.00 5.00 0.00 Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09
Current:
19.40

6.0 5.0 4.0 3.0 2.0 1.0 0.0 Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09 Dec/09
Current:
2.86
Jul/10
Feb/11
Dec/09
Feb/11
Sep/11
Summary
Punjab National Bank INDIA Financials 12mth Forward PE P/BV (Trailing) Dividend Yield (Trailing) ROE (Trailing) Implied Value of Growth 4739.90 1.453325 SEDOL 6526759 Commercial Banks Latest Min 3.72 5.18x 0.61 0.96x 0.87 2.86 15.56 19.40 -1.14 -40.1% 17-May-13 As Of: 822.95 Local Price: 158.84 EPS: % to Max % to Med % to Avg 90% 28% 24% 133% 45% 46% 70% -30% -27% 25% 3% 4% 145% 34% 15%
Max 9.84 2.23 4.86 24.32 0.18
Median 6.61 1.38 2.00 19.94 -0.27
Nov/12
Average 6.42 1.40 2.09 20.17 -0.34
2 S.D.+ 9.19 2.11 3.51 25.83 0.28
2 S.D. 3.64 0.69 0.66 14.51 -0.96
% to Min -28% -36% -69% -20% -185%
Sep/11
Jul/10
Apr/12
19
JPM Q-Profile
State Bank of India (INDIA / Financials)
Local Share Price

3,500.00 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 500.00 0.00 Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09
Current:
2384.50
12 Mth Forward EPS

300.00 250.00 200.00 150.00 100.00 50.00 0.00 -50.00
Current:
249.66
Dec/09
Jul/10
Feb/11
Sep/11
Apr/12
Nov/12

40% 35% 30% 25% 20% 15% 10% 5% 0% Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09
Current:
10%

1.00 0.50 0.00 -0.50 -1.00 -1.50 Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09 Dec/09
Current:
24.01%
Dec/09
Jul/10
Feb/11
Sep/11
Apr/12
Nov/12
Jul/10
PE (1Yr Forward)
25.0x 20.0x 15.0x 10.0x 5.0x 0.0x Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09
Current:
9.6x
Price/Book Value
4.0x 3.5x 3.0x 2.5x 2.0x 1.5x 1.0x 0.5x
Current:
Feb/11
1.3x
Dec/09
Jul/10
Feb/11
Sep/11
Apr/12
Nov/12
0.0x Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09 Dec/09 Jul/10 Feb/11 Sep/11
ROE (Trailing)
25.00 20.00 15.00 10.00 5.00 0.00 Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09
Current:
17.49

3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Apr/98 Nov/98 Jun/99 Jan/00 Aug/00 Mar/01 Oct/01 May/02 Dec/02 Jul/03 Feb/04 Sep/04 Apr/05 Nov/05 Jun/06 Jan/07 Aug/07 Mar/08 Oct/08 May/09 Dec/09
Current:
1.55
Jul/10
Feb/11
Dec/09
Feb/11
Sep/11
Summary
State Bank of India INDIA Financials 12mth Forward PE P/BV (Trailing) Dividend Yield (Trailing) ROE (Trailing) Implied Value of Growth 28065.46 14.622932 SEDOL 6100799 Commercial Banks Latest Min 2.73 9.55x 0.60 1.31x 0.59 1.55 10.27 17.49 -1.22 24.0% 17-May-13 As Of: 2,384.50 Local Price: 249.66 EPS: % to Max % to Med % to Avg 115% -18% -14% 124% -6% -2% 104% 9% 17% 27% -6% -5% 153% -107% -155%
Max 20.56 2.93 3.15 22.14 0.61
Median 7.86 1.23 1.69 16.40 -0.02
Nov/12
Average 8.23 1.29 1.81 16.58 -0.13
2 S.D.+ 16.02 2.24 2.97 22.87 0.81
2 S.D. 0.44 0.34 0.65 10.28 -1.07
% to Min -71% -55% -62% -41% -609%
20
Sep/11
Jul/10
Apr/12
Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.
Important Disclosures
Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Bank of India, State Bank of India within the past 12 months. Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Bank of Baroda, Bank of India, Punjab National Bank, State Bank of India. Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: Bank of India, State Bank of India. Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-investment-banking, securities-related: Bank of Baroda, Bank of India, Punjab National Bank, State Bank of India. Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-securities-related: Bank of Baroda, Bank of India, Punjab National Bank, State Bank of India. Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment banking Bank of India, State Bank of India. Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Bank of India, State Bank of India. Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from Bank of Baroda, Bank of India, Punjab National Bank, State Bank of India. J.P. Morgan Securities plc and/or its affiliates (J.P. Morgan) is acting as a Joint Lead Manager and Bookrunner to State Bank of India on its fixed Rate Senior Unsecured USD-denominated 144A/Reg S bond offering as announced on 3 Apr 2013. J.P. Morgan will be receiving fees for so acting. J.P. Morgan may perform, or may seek to perform, other financial or advisory services for State Bank of India and/or its affiliates and may have other interests in or relationships with State Bank of India and/or its affiliates, and receive fees, commissions or other compensation in such capacities. This research report and the information herein is not intended to serve as an endorsement of the proposed transaction or result in procurement, withholding or revocation of a proxy or any other action by a security holder. This report is based solely on publicly available information. No representation is made that it is accurate or complete. Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan covered companies by visiting https://mm.jpmorgan.com/disclosures/company, calling 1-800-477-0406, or e-mailing research.disclosure.inquiries@jpmorgan.com with your request. J.P. Morgans Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail research.disclosure.inquiries@jpmorgan.com.
21
Bank of Baroda (BOB.BO, BOB IN) Price Chart
1,674
Date
OW Rs1,125 N Rs900 UW Rs700
Rating Share Price (Rs) N UW N OW OW OW N N N UW UW UW UW UW 357.25 610.35 734.20 887.20 1011.00 883.25 941.80 863.95 728.20 760.25 672.40 633.10 723.50 648.75
Price Target (Rs) 420.00 590.00 800.00 1025.00 1125.00 1050.00 1000.00 900.00 750.00 675.00 650.00 600.00 700.00 625.00
21-Nov-07
1,395 N Rs420 OW Rs1,025 N Rs1,000 UW Rs675 UW Rs600 UW Rs590 N Rs800 OW Rs1,050
09-Mar-10 30-Jul-10
1,116 Price(Rs)
N Rs750 UW Rs650UW Rs625 02-Oct-10
29-Oct-10
837
06-Mar-11 29-Apr-11 01-Jun-11 13-Jan-12 26-Jan-12 31-Jul-12 11-Sep-12

Oct 06 Jul 07 Apr 08 Jan 09 Oct 09 Jul 10 Apr 11 Jan 12 Oct 12
558 279
21-Nov-12 11-Apr-13
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Nov 21, 2007.
Bank of India (BOI.BO, BOI IN) Price Chart
Date
894 745 UW Rs110 596 Price(Rs) 447 N Rs380 N Rs590 N Rs450
Rating Share Price (Rs) UW N UW OW OW N OW OW UW UW UW UW UW 162.05 348.50 341.05 435.90 525.10 537.45 443.15 460.35 457.10 448.15 403.30 327.80 299.80 261.00
Price Target (Rs) 110.00 380.00 340.00 485.00 590.00 590.00 590.00 520.00 450.00 405.00 360.00 315.00 270.00 250.00
18-Oct-06
OW Rs590 OW Rs520 UW Rs360 UW Rs270 UW Rs340 OW Rs485 OW Rs590 UW Rs405 UW Rs315 UW Rs250
21-Nov-07 09-Mar-10 11-Aug-10 02-Oct-10 24-Oct-10 06-Jan-11 06-Mar-11 01-Jun-11 26-Jul-11 08-Nov-11
298 149 0 Oct 06 Jul 07 Apr 08 Jan 09 Oct 09 Jul 10 Apr 11 Jan 12 Oct 12
03-May-11 N
13-Jan-12 11-Sep-12
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Oct 18, 2006.
22
Punjab National Bank (PNBK.BO, PNB IN) Price Chart
Date
2,166 1,805 OW Rs678 UW Rs678 OW Rs1,200OW Rs1,200 N Rs1,050 UW Rs700 UW Rs700
Rating Share Price (Rs) UW OW OW OW OW OW OW OW UW UW UW UW UW 612.45 553.30 927.75 1014.05 1038.85 1307.80 1081.40 1091.50 1099.60 902.85 955.80 767.45 755.95 685.95 730.45 709.60
Price Target (Rs) 678.00 678.00 1000.00 1050.00 1200.00 1525.00 1350.00 1300.00 1200.00 975.00 850.00 700.00 675.00 650.00 700.00 650.00
20-Nov-07 21-Nov-07 08-Mar-10
OW Rs1,300 UW Rs850 UW Rs650
10-May-10 N
1,444 Price(Rs) 1,083 OW Rs1,000 OW Rs1,525 OW Rs1,350 OW Rs975 UW Rs675UW Rs650 27-Jul-10
02-Oct-10 06-Mar-11 01-Jun-11 13-Jan-12

361 0 Oct 06 Jul 07 Apr 08 Jan 09 Oct 09 Jul 10 Apr 11 Jan 12 Oct 12
05-May-11 OW
722
01-Feb-12 28-Jul-12 11-Sep-12 21-Nov-12 11-Apr-13
10-May-12 UW
State Bank of India (SBI.BO, SBIN IN) Price Chart
Date
5,268 4,390 3,512 Price(Rs) 2,634 1,756 878 0 Oct 06 Jul 07 Apr 08 Jan 09 Oct 09 Jul 10 Apr 11 Jan 12 Oct 12 OW Rs2,847 OW Rs2,700 OW Rs2,20020-Nov-07
Rating Share Price (Rs) OW N N UW N N OW OW OW OW OW OW OW OW OW 2150.85 2305.80 2044.60 2650.85 3272.15 2560.70 2861.15 2414.70 2237.30 2196.95 1764.40 2176.05 1968.75 2066.50 2486.70 2042.35
Price Target (Rs) 2847.00 2300.00 2100.00 2400.00 3300.00 2800.00 3200.00 3000.00 2700.00 2400.00 1950.00 2300.00 2100.00 2300.00 2600.00 2200.00
06-Jan-10
N Rs2,100 N Rs3,300 OW Rs3,000 OW Rs2,300OW Rs2,600 N Rs2,300 UW Rs2,400 N Rs2,800 OW Rs3,200 OW Rs2,400 OW Rs1,950 OW OW Rs2,100 Rs2,300
09-Mar-10 11-Aug-10 02-Oct-10 14-Jan-11 25-Apr-11 01-Jun-11 14-Aug-11 13-Jan-12 06-Mar-12 11-Aug-12 21-Nov-12 04-Jan-13 11-Apr-13
18-May-11 OW
The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return is compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research website, www.jpmorganmarkets.com.
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Coverage Universe: Sen, Seshadri K: Axis Bank Ltd (AXBK.BO), Bank of Baroda (BOB.BO), Bank of India (BOI.BO), HDFC (Housing Development Finance Corporation) (HDFC.BO), HDFC Bank (HDBK.BO), ICICI Bank (ICBK.BO), IDFC (IDFC.BO), ING Vysya Bank (VYSA.NS), IndusInd Bank (INBK.BO), Kotak Mahindra Bank (KTKM.BO), Punjab National Bank (PNBK.BO), Reliance Capital (RLCP.BO), State Bank of India (SBI.BO), Yes Bank (YESB.BO) J.P. Morgan Equity Research Ratings Distribution, as of March 30, 2013
J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients* Overweight (buy) 43% 54% 42% 74% Neutral (hold) 44% 47% 50% 64% Underweight (sell) 13% 38% 9% 57%
*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.
Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst or your J.P. Morgan representative, or email research.disclosure.inquiries@jpmorgan.com. Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues. Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US affiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMS, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.
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India PSU Banks

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Asia Pacific Equity Research

India PSU banks

India Banks Seshadri K Sen, CFA

(91-22) 6157-3575 seshadri.k.sen@jpmorgan.com J.P. Morgan India Private Limited

Seshadri K Sen, CFA (91-22) 6157-3575 seshadri.k.sen@jpmorgan.com

Asia Pacific Equity Research 19 May 2013

Earnings estimate revisions

Punjab National Bank BOI Bank of Baroda State Bank of India

Source: Bloomberg, J.P. Morgan estimates. Share prices as of 17 May 2013.

Table 2: Estimate changes key financials

Source: J.P. Morgan estimates.

YOA COF NIM

Seshadri K Sen, CFA (91-22) 6157-3575 seshadri.k.sen@jpmorgan.com

Asia Pacific Equity Research 19 May 2013

Figure 1: Proforma impact on earnings from bond gains

Figure 2: CASA growth momentum picking up

Source: J.P. Morgan estimates, Company data.

Source: Company data.

Figure 4: Recoveries could accelerate in FY14

Source: Company data. Source: Company data.

Seshadri K Sen, CFA (91-22) 6157-3575 seshadri.k.sen@jpmorgan.com

Asia Pacific Equity Research 19 May 2013

Strong rally in bond markets

CP rates 3 months CD rates 3 months

Figure 8: AAA yields well below base rates

Figure 9: AAA yields collapse partial proxy to PSU lending yields

Figure 10: Short-term rates are down, despite durationlengthening

CP rates 3 months CD rates 3 months

Seshadri K Sen, CFA (91-22) 6157-3575 seshadri.k.sen@jpmorgan.com

Asia Pacific Equity Research 19 May 2013

Figure 11: BOB: P/E history

Figure 12: BOB: P/BV history

Source: Company reports and J.P. Morgan estimates.

Source: Company reports and J.P. Morgan estimates.

Seshadri K Sen, CFA (91-22) 6157-3575 seshadri.k.sen@jpmorgan.com

Asia Pacific Equity Research 19 May 2013

P&L sensitivity metrics

PPOP impact (%) 5.0% 2.0% 0.0%

EPS impact (%) 8.5% 3.8% 8.5%

Price target and valuation analysis

15% 14% 16% 38% 17%

Adjusted EPS: J.P. Morgan vs consensus

J. P. Morgan 136.6 149.9

Seshadri K Sen, CFA (91-22) 6157-3575 seshadri.k.sen@jpmorgan.com

Asia Pacific Equity Research 19 May 2013

Bank of Baroda: Summary of Financials

Source: Company reports and J.P. Morgan estimates.

Seshadri K Sen, CFA (91-22) 6157-3575 seshadri.k.sen@jpmorgan.com

Asia Pacific Equity Research 19 May 2013

Figure 14: BOI: Provision coverage ratio (%)

Source: Company data, J.P. Morgan estimates (FY13)

Source: Company data. Note: Our calculations ignoring historic write-offs

Figure 15: BOI: P/BV history

Figure 16: BOI: P/E history

Source: Company reports and J.P. Morgan estimates.

Source: Company reports and J.P. Morgan estimates.

Seshadri K Sen, CFA (91-22) 6157-3575 seshadri.k.sen@jpmorgan.com

Asia Pacific Equity Research 19 May 2013

P&L sensitivity metrics

PPOP impact (%) 5.0% 2.0% 0.0%

EPS impact (%) 8.5% 3.8% 8.5%

PT and valuation analysis

Opex/Assets LLP/Loans Pre tax ROA Normalized ROA Nomalized ROE

EPS: J.P. Morgan vs consensus