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Takeaways-management meeting and interviews
Our recent interaction with the banks indicates that credit demand is slowing at
margin. While disbursements are still healthy due to the earlier pipeline, sanctions
have been lower due to the political imbroglio, high commodity prices and rising
interest rates. Banks expect liquidity to remain tight till Mar-11 as the likely pickup in government spending may get offset by advance tax collections. Even as
some banks have raised lending rates recently by ~50bps, the deposit rate hikes
have been more and this is likely to put pressure on margins. While banks do not
see an immediate asset quality risk emanating from the interest rate hikes, but a
100-150bps hike in rates in a short span can raise such risks. During 3QFY11, the
banking sector (40 listed banks) reported 41% YoY growth in NII, 25% growth in
profit, but just 9% growth in net NPLs (see figure 26 for details).
Sector round-up– banks outperform market
Over past month, banks have outperformed the market (Bankex up 3% vs Sensex
down 5%) partly as banks reported stronger earnings growth during 3QFY11 (up
22% YoY) than many other sectors. Key positives were in healthy loan growth and
better than expected NIMs, but we see pressure going forward as loan growth
moderates and margins contract. Asset quality pressures seem to be moderating
and this will be the key to earnings growth in FY12. Among banks we prefer HDFC
Bank and ICICI due to their high CASA ratio and low asset quality pressure.
Among wholesale funded institutions we prefer HDFC, IDFC and Yes Bank; ease in
liquidity can drive some re-rating.
Update on insurance and mutual funds- Dec-10/ Jan-11
In Dec-10, NBP for the sector fell by 18% YoY due to 43% YoY decline in NBP of
private sector whereas LIC reported 19% growth. Among the private insurers only
HDFC Life reported growth while ICICI and SBI reported a decline. In Jan-11,
AUMs of mutual funds grew by 10% MoM to Rs6.9tn (down 9% YoY); debt
schemes saw good inflow while equity schemes reported marginal net inflows.
Regulatory and sector newsflows
‰ The RBI appointed committee on micro-finance institutions has recommended that RBI
should form a new class of NBFC that focus on providing micro-finance (NBFC-MFI). It
has also recommended cap on yields and margins of such NBFCs.
‰ RBI’s investments in US treasury bonds reached an all-time high of US$41bn in
December.
‰ RBI has notified that by Mar-12, all deposit-taking non-banking finance companies
(NBFC) and systemically important (ie NBFCs with asset base in excess of Rs1bn) nondeposit taking NBFCs need to have a total capital adequacy ratio (Tier I + Tier II) at
15% of their risk weighted assets.
‰ RBI has notified that the exposure of banks (in the form of loans or purchase of
securitisation paper) to non-bank finance companies (NBFCs) for on-lending to
individuals or other entities against gold jewellery are not eligible for priority sector
targets under agriculture sector.
‰ RBI has permitted banks to amortise their new pension liabilities and additional
liabilities towards gratuity benefits over a period of five years starting from FY11
onwards. RBI plans to make banks IFRS compliant from FY14 onwards and has asked
banks to reduce the amount of unamortized liabilities from the reserves, with the
charge relating to retired employees being written-off.
Company newsflows
‰ Government has approved the infusion of capital in some of the PSU banks through
preferential allotment of equity shares. These banks are Corporation Bank (Rs3.1bn),
Dena Bank (Rs5.4bn), UCO Bank (Rs9.4bn) and United Bank of India (Rs3.1bn).
Allahabad Bank, Andhra Bank and Syndicate Bank are also likely to receive capital
infusion.
‰ SBI plans to raise Rs20bn through issue of tier II capital eligible retail bonds with
maturity of 10-15 years and interest rate of 9.75-9.95%.
‰ SBI has modified its dual rate home loan product by setting floating rates for the first
three years of the home loans, in stead of charging fixed rates. The rates are linked to
the Base Rate- in 1-3 years SBI offers 25-125bps discount to Base Rate (now at
9.75%) and thereafter at spread of 150bps over Base Rate.
‰ The government has approved follow-on public (FPO) offer of Power Finance
Corporation- the offer will involve issue of 15% of fresh stake and 5% divestment by
the government.
‰ Credit Suisse has become exclusive distributor of HDFC AMC's investment products
outside India, and HDFC AMC will be Credit Suisse's exclusive partner in the long-only
asset management space in India.
‰ IDFC has raised Rs7.6bn through its second issue of retail infrastructure bonds;
through the fist issue IDFC had raised Rs4.7bn.
‰ PFC, REC, L&T Infrastructure Finance and India Infrastructure Finance Company
(IIFCL) also plan to raise funds through issue of retail infrastructure bonds
‰ ICICI Bank has signed an agreement with telecom service provider Aircel towards plan
of financial inclusion.
‰ IDFC has appointed Mr. Sunil Kakar as Group Chief Financial Officer and he would be
succeeding Mr. LK Narayan. Previously Mr. Kakar was the CFO of Max New York Life
Insurance.
Interesting interviews
Mr. V K Sharma, (CEO, LIC Housing Finance): Surprised with the speed of recovery
I am really surprised with the speed at which things have come back to normalcy. I have
been travelling across the country to verify how the company was functioning at the grass
root level. I was expecting it would be some time before we return to normal business, but
what has touched me the most is the dedication and commitment displayed by the
employees. After a virtual moratorium of one month (December), we are steady now. We
hope to maintain steady growth in the current quarter and hope to build on it in the next
financial year as well.
Prime Minister Manmohan Singh's interaction with Editors of the Electronic Media
on Feb.16, 2011 (click). Some interesting comments from the interaction:
1. I wish to assure you (media) and I wish to assure the country as a whole that our
Government is dead serious in bringing to book all the wrong doers, regardless of the
position they may occupy.
2. I wish to tell you that our economy is in good shape. We will have a growth rate of
8.5% this fiscal year and that the way India has come out and tackled the aftermath
of international financial crisis, I think does our country a great credit. It is certainly
true that in recent months inflation and food inflation in particular has been a problem.
We want to deal it in a manner that the growth rhythm is not disturbed.
3. Comment on government’s biggest failure and achievement: It is a big regret that
these irregularities have happened, these should not have happened. That is certain I
am not very happy about these developments. Achievements, the very fact that
despite very unfavourable international economic environment, we have managed to
ensure that our economy’s growth rhythm is not grossly affected.
Industry Interactions
Axis Bank (AXSB IN – Rs1,293 - BUY)
Management:
Ms. Shikha Sharma (MD and CEO)
1. Management expects lending and deposit rates to rise gradually by
75-100bps.
2. An increasingly competitive environment for deposit mobilisation and
the upward bias on rates is likely to lead to rising margin pressures
for the sector.
3. Axis Bank is however confident of maintaining its margins at the
higher-end of its guidance of 3.25-3.5% (at present NIMs are 3.8%).
4. Bank is targeting balance sheet growth of 25-30% (30% higher than
sector growth).
5. Bank is confident of maintaining its CASA ratio at +40% even with
such a healthy asset growth trajectory.
6. Bank also plans to scale up its retail platform by focusing on a) retail
assets (20% of loans), b) wealth management and c) retail broking.
7. In the last one year, Axis has strengthened processes in its retail
asset business and is now targeting to scale-up this business.
8. Overseas loans account for 17% of Axis’ loans (up 87% YoY in 3Q).
Bank’s international strategy remains focused on Indian corporate.
9. Management believes that slippages have peaked and expect credit
cost to fall to 1.1-1.2% of loans in FY12 from 1.6% in FY11.
10. Axis has Rs12bn of micro finance exposure; management believes a
significant portion will be restructured and 25% may have to be
provided for by way of credit cost
IndusInd Bank (IIB IN – Rs227 – No Rec)
Management:
Mr. Sohail Chander (Head Corporate and Commercial Banking) and
Mr. KS Sridhar (Chief Risk Officer)
1. Bank now benchmarks itself on 6 parameters (ROA, ROE, revenue
per employee, NIM, net NPL and cost/ income ratio) and aims to be
among top 3 banks in each of these parameters.
2. Over the next three years, focus will be to get scale (balance sheet
growth) while maintaining efficiency.
3. Most banks encourage liability balances by clients, but IndusInd
incentivizes transactions through various promotions and rewards.
4. Key difference in client-type for IndusInd Bank versus others is that
most of its clients are self employed, unlike salaried clients for others
5. Nearly 58% of loans are to corporate and balance is retail. Out of
retail loans, half is commercial vehicle (CV) financing.
6. Out of corporate loans, nearly half is to large corporate, 40% to mid
corporate and only 10% is small enterprises.
7. IndusInd Bank is market leader in CV financing and in 3w (goods not
people transporting 3w) and No2 in 2w and construction equipments.
8. Bank is targeting CASA ratio of 35% by Mar-13 and plans to expand
the branch network from 240 branches currently to 600 branches.
9. Branches take 9 months to break-even which is a function of deposit
franchise and third party distribution as branches don't book assets.
10. Cost/ income ratio is already sub 50% and given the retail dominated
business mix it is unlikely to fall to below 45%.
11. Bank is expanding the knowledge of being present across the value
chain of a CV / car industry to other industries like watches, jewelry,
chemicals and fertilizers.
12. Historically haven't done infra lending due to ALM issues, but now
with improved liability duration bank is looking at infra selectively.
REC (RECL – Rs237 – O-PF)
Management:
Mr. H D Khunteta (Director Finance) and Mr. Ajeet Agarwal (General
Manager Finance and Accounts)
1. During FY11, REC expects to see 22-24% growth in loans. Most of
the sanctioned projects have complete clearances.
2. Participation in consortium helps meet exposure norms and that's
why REC will be part of most consortiums.
3. T&D capex has faced some delays in certain states which resulted in
lower disbursals in FY11. However, this is likely to pick-up in FY12.
4. T&D cost is lower than generation projects and banks can compete
more as ticket size is smaller and consortium funding is not required.
5. Funding cost for the long term loans has risen by 20-40bps on
incremental basis.
6. REC generally raises Rs30-40bn annually through issue of capital
gains tax exemption bonds, but this year the demand is higher.
7. Duration of assets and liabilities is well matched- average duration of
assets is 6 years and of liabilities is 5.25 years.
8. REC does not carry and surplus liquidity and uses the working capital
lines mostly from banks.
9. REC generally prefers to fully hedge the forex loans, but considering
the pressure on domestic spreads and likely structural appreciation in
rupee, REC may not hedge future forex loans.
10. REC would not need to raise fresh capital for the next 2 years.
Yes Bank (YES IN – Rs284– BUY)
Management:
Mr. Rajat Monga (Chief Financial Officer)
1. Loan growth is likely to be approximately twice that of the sector, but
could moderate from current levels.
2. Liquidity situation has been tight, but not unmanageable and this
reflects in the fact that inter-bank call money rates have been in the
affordable range of 6-7%.
3. While cost of funds is rising, the broad-based credit demand is giving
pricing power to banks and bank has raised its lending rates.
4. Currently, 75% of its loans are concentrated in just five sectors
where bank has developed strong domain expertise.
5. The exposure to microfinance sector is manageable close to 1% of
loans and management is keeping a close watch on the development
in the sector.
OBC (OBC IN – Rs330 – O-PF)
Management:
Mr. SC Sinha (Executive Director) and RL Aggarwal (Head F&A)
1. During FY11, bank is targeting business growth (growth in loans and
deposits) of 20% YoY (at 16% in Dec-10).
2. Bank has lower CASA ratio compared to sector (25% versus +30%).
It is now working towards CASA ratio of 30% by Mar-12.
3. Each branch has been given a target to open 5 accounts everyday and
the scheme has received good response from employees. Top
management monitors this on a regular basis.
4. NIMs are likely to be 3% plus during FY11 (3.25% in 9MFY11)
5. In order to improve margins, the bank is lowering share of short-term
loans and targeting to improve CASA ratio.
6. The size of restructured portfolio is Rs52bn (5.7% of loans) of which
11% have slipped into NPLs.
7. The liability towards the second pension option is estimated at Rs11-
12bn against which the bank has an ad-hoc provision of Rs3.6bn. Rest
will be provided over five years.
8. In spite of the provisioning towards pension liabilities, cost/ income
ratio to stay below 40%.
9. Treasury gains will remain low. The bank is increasing the proportion
of bonds held in the AFS portion to be able to sell without having to
comply with new disclosure norms. AFS portfolio is hedged till 8% of
10 year paper.
10. The bank has made a representation to the government for capital
infusion (Tier I ratio is at 9%)
Max New York Life Insurance (subsidiary of Max India)
Management:
Mr. Sunil Kakar (CFO) and Mr. Jatin Khanna (Manager – Finance)
1. The new IRDA norms will have a significant impact on their new business
premium (NBP) growth.
2. As a result, in spite of the recent tie-up with Axis Bank that expanded their
distribution network and access to client-base, management expects 0-10%
growth in NBP in FY11 (7% in YTDFY11 vs private sector’s decline of 10%).
3. Expect 15-20% annualized premium growth from FY13 onwards.
4. Product mix has changed significantly and Ulips currently form only 20% of
new sales compared to 70% previously.
5. With focus on cost control and streamlining of distribution network over
FY11-12, NBP growth is likely to remain modest in FY12 as well.
6. In order to cut on distribution network management has (1) cut agents by
~30% to ~55K, (2) nearly halved the commission rates on Ulips and (3) is
also cutting / optimizing on distribution related costs.
7. MNYL sees ~30% reduction in operating costs over FY12, albeit with onetime cost of Rs1.3-1.5bn in FY11 (10-12% of costs), even as premiums grow
8. Initiatives are being taken to improve conservation ratio (currently at 78%).
Management believes that NBAP margins are likely to stabilise in the range
of to 12-14%
9. As new sales have moderated, company would not need fresh capital infusion
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Takeaways-management meeting and interviews
Our recent interaction with the banks indicates that credit demand is slowing at
margin. While disbursements are still healthy due to the earlier pipeline, sanctions
have been lower due to the political imbroglio, high commodity prices and rising
interest rates. Banks expect liquidity to remain tight till Mar-11 as the likely pickup in government spending may get offset by advance tax collections. Even as
some banks have raised lending rates recently by ~50bps, the deposit rate hikes
have been more and this is likely to put pressure on margins. While banks do not
see an immediate asset quality risk emanating from the interest rate hikes, but a
100-150bps hike in rates in a short span can raise such risks. During 3QFY11, the
banking sector (40 listed banks) reported 41% YoY growth in NII, 25% growth in
profit, but just 9% growth in net NPLs (see figure 26 for details).
Sector round-up– banks outperform market
Over past month, banks have outperformed the market (Bankex up 3% vs Sensex
down 5%) partly as banks reported stronger earnings growth during 3QFY11 (up
22% YoY) than many other sectors. Key positives were in healthy loan growth and
better than expected NIMs, but we see pressure going forward as loan growth
moderates and margins contract. Asset quality pressures seem to be moderating
and this will be the key to earnings growth in FY12. Among banks we prefer HDFC
Bank and ICICI due to their high CASA ratio and low asset quality pressure.
Among wholesale funded institutions we prefer HDFC, IDFC and Yes Bank; ease in
liquidity can drive some re-rating.
Update on insurance and mutual funds- Dec-10/ Jan-11
In Dec-10, NBP for the sector fell by 18% YoY due to 43% YoY decline in NBP of
private sector whereas LIC reported 19% growth. Among the private insurers only
HDFC Life reported growth while ICICI and SBI reported a decline. In Jan-11,
AUMs of mutual funds grew by 10% MoM to Rs6.9tn (down 9% YoY); debt
schemes saw good inflow while equity schemes reported marginal net inflows.
Regulatory and sector newsflows
‰ The RBI appointed committee on micro-finance institutions has recommended that RBI
should form a new class of NBFC that focus on providing micro-finance (NBFC-MFI). It
has also recommended cap on yields and margins of such NBFCs.
‰ RBI’s investments in US treasury bonds reached an all-time high of US$41bn in
December.
‰ RBI has notified that by Mar-12, all deposit-taking non-banking finance companies
(NBFC) and systemically important (ie NBFCs with asset base in excess of Rs1bn) nondeposit taking NBFCs need to have a total capital adequacy ratio (Tier I + Tier II) at
15% of their risk weighted assets.
‰ RBI has notified that the exposure of banks (in the form of loans or purchase of
securitisation paper) to non-bank finance companies (NBFCs) for on-lending to
individuals or other entities against gold jewellery are not eligible for priority sector
targets under agriculture sector.
‰ RBI has permitted banks to amortise their new pension liabilities and additional
liabilities towards gratuity benefits over a period of five years starting from FY11
onwards. RBI plans to make banks IFRS compliant from FY14 onwards and has asked
banks to reduce the amount of unamortized liabilities from the reserves, with the
charge relating to retired employees being written-off.
Company newsflows
‰ Government has approved the infusion of capital in some of the PSU banks through
preferential allotment of equity shares. These banks are Corporation Bank (Rs3.1bn),
Dena Bank (Rs5.4bn), UCO Bank (Rs9.4bn) and United Bank of India (Rs3.1bn).
Allahabad Bank, Andhra Bank and Syndicate Bank are also likely to receive capital
infusion.
‰ SBI plans to raise Rs20bn through issue of tier II capital eligible retail bonds with
maturity of 10-15 years and interest rate of 9.75-9.95%.
‰ SBI has modified its dual rate home loan product by setting floating rates for the first
three years of the home loans, in stead of charging fixed rates. The rates are linked to
the Base Rate- in 1-3 years SBI offers 25-125bps discount to Base Rate (now at
9.75%) and thereafter at spread of 150bps over Base Rate.
‰ The government has approved follow-on public (FPO) offer of Power Finance
Corporation- the offer will involve issue of 15% of fresh stake and 5% divestment by
the government.
‰ Credit Suisse has become exclusive distributor of HDFC AMC's investment products
outside India, and HDFC AMC will be Credit Suisse's exclusive partner in the long-only
asset management space in India.
‰ IDFC has raised Rs7.6bn through its second issue of retail infrastructure bonds;
through the fist issue IDFC had raised Rs4.7bn.
‰ PFC, REC, L&T Infrastructure Finance and India Infrastructure Finance Company
(IIFCL) also plan to raise funds through issue of retail infrastructure bonds
‰ ICICI Bank has signed an agreement with telecom service provider Aircel towards plan
of financial inclusion.
‰ IDFC has appointed Mr. Sunil Kakar as Group Chief Financial Officer and he would be
succeeding Mr. LK Narayan. Previously Mr. Kakar was the CFO of Max New York Life
Insurance.
Interesting interviews
Mr. V K Sharma, (CEO, LIC Housing Finance): Surprised with the speed of recovery
I am really surprised with the speed at which things have come back to normalcy. I have
been travelling across the country to verify how the company was functioning at the grass
root level. I was expecting it would be some time before we return to normal business, but
what has touched me the most is the dedication and commitment displayed by the
employees. After a virtual moratorium of one month (December), we are steady now. We
hope to maintain steady growth in the current quarter and hope to build on it in the next
financial year as well.
Prime Minister Manmohan Singh's interaction with Editors of the Electronic Media
on Feb.16, 2011 (click). Some interesting comments from the interaction:
1. I wish to assure you (media) and I wish to assure the country as a whole that our
Government is dead serious in bringing to book all the wrong doers, regardless of the
position they may occupy.
2. I wish to tell you that our economy is in good shape. We will have a growth rate of
8.5% this fiscal year and that the way India has come out and tackled the aftermath
of international financial crisis, I think does our country a great credit. It is certainly
true that in recent months inflation and food inflation in particular has been a problem.
We want to deal it in a manner that the growth rhythm is not disturbed.
3. Comment on government’s biggest failure and achievement: It is a big regret that
these irregularities have happened, these should not have happened. That is certain I
am not very happy about these developments. Achievements, the very fact that
despite very unfavourable international economic environment, we have managed to
ensure that our economy’s growth rhythm is not grossly affected.
Industry Interactions
Axis Bank (AXSB IN – Rs1,293 - BUY)
Management:
Ms. Shikha Sharma (MD and CEO)
1. Management expects lending and deposit rates to rise gradually by
75-100bps.
2. An increasingly competitive environment for deposit mobilisation and
the upward bias on rates is likely to lead to rising margin pressures
for the sector.
3. Axis Bank is however confident of maintaining its margins at the
higher-end of its guidance of 3.25-3.5% (at present NIMs are 3.8%).
4. Bank is targeting balance sheet growth of 25-30% (30% higher than
sector growth).
5. Bank is confident of maintaining its CASA ratio at +40% even with
such a healthy asset growth trajectory.
6. Bank also plans to scale up its retail platform by focusing on a) retail
assets (20% of loans), b) wealth management and c) retail broking.
7. In the last one year, Axis has strengthened processes in its retail
asset business and is now targeting to scale-up this business.
8. Overseas loans account for 17% of Axis’ loans (up 87% YoY in 3Q).
Bank’s international strategy remains focused on Indian corporate.
9. Management believes that slippages have peaked and expect credit
cost to fall to 1.1-1.2% of loans in FY12 from 1.6% in FY11.
10. Axis has Rs12bn of micro finance exposure; management believes a
significant portion will be restructured and 25% may have to be
provided for by way of credit cost
IndusInd Bank (IIB IN – Rs227 – No Rec)
Management:
Mr. Sohail Chander (Head Corporate and Commercial Banking) and
Mr. KS Sridhar (Chief Risk Officer)
1. Bank now benchmarks itself on 6 parameters (ROA, ROE, revenue
per employee, NIM, net NPL and cost/ income ratio) and aims to be
among top 3 banks in each of these parameters.
2. Over the next three years, focus will be to get scale (balance sheet
growth) while maintaining efficiency.
3. Most banks encourage liability balances by clients, but IndusInd
incentivizes transactions through various promotions and rewards.
4. Key difference in client-type for IndusInd Bank versus others is that
most of its clients are self employed, unlike salaried clients for others
5. Nearly 58% of loans are to corporate and balance is retail. Out of
retail loans, half is commercial vehicle (CV) financing.
6. Out of corporate loans, nearly half is to large corporate, 40% to mid
corporate and only 10% is small enterprises.
7. IndusInd Bank is market leader in CV financing and in 3w (goods not
people transporting 3w) and No2 in 2w and construction equipments.
8. Bank is targeting CASA ratio of 35% by Mar-13 and plans to expand
the branch network from 240 branches currently to 600 branches.
9. Branches take 9 months to break-even which is a function of deposit
franchise and third party distribution as branches don't book assets.
10. Cost/ income ratio is already sub 50% and given the retail dominated
business mix it is unlikely to fall to below 45%.
11. Bank is expanding the knowledge of being present across the value
chain of a CV / car industry to other industries like watches, jewelry,
chemicals and fertilizers.
12. Historically haven't done infra lending due to ALM issues, but now
with improved liability duration bank is looking at infra selectively.
REC (RECL – Rs237 – O-PF)
Management:
Mr. H D Khunteta (Director Finance) and Mr. Ajeet Agarwal (General
Manager Finance and Accounts)
1. During FY11, REC expects to see 22-24% growth in loans. Most of
the sanctioned projects have complete clearances.
2. Participation in consortium helps meet exposure norms and that's
why REC will be part of most consortiums.
3. T&D capex has faced some delays in certain states which resulted in
lower disbursals in FY11. However, this is likely to pick-up in FY12.
4. T&D cost is lower than generation projects and banks can compete
more as ticket size is smaller and consortium funding is not required.
5. Funding cost for the long term loans has risen by 20-40bps on
incremental basis.
6. REC generally raises Rs30-40bn annually through issue of capital
gains tax exemption bonds, but this year the demand is higher.
7. Duration of assets and liabilities is well matched- average duration of
assets is 6 years and of liabilities is 5.25 years.
8. REC does not carry and surplus liquidity and uses the working capital
lines mostly from banks.
9. REC generally prefers to fully hedge the forex loans, but considering
the pressure on domestic spreads and likely structural appreciation in
rupee, REC may not hedge future forex loans.
10. REC would not need to raise fresh capital for the next 2 years.
Yes Bank (YES IN – Rs284– BUY)
Management:
Mr. Rajat Monga (Chief Financial Officer)
1. Loan growth is likely to be approximately twice that of the sector, but
could moderate from current levels.
2. Liquidity situation has been tight, but not unmanageable and this
reflects in the fact that inter-bank call money rates have been in the
affordable range of 6-7%.
3. While cost of funds is rising, the broad-based credit demand is giving
pricing power to banks and bank has raised its lending rates.
4. Currently, 75% of its loans are concentrated in just five sectors
where bank has developed strong domain expertise.
5. The exposure to microfinance sector is manageable close to 1% of
loans and management is keeping a close watch on the development
in the sector.
OBC (OBC IN – Rs330 – O-PF)
Management:
Mr. SC Sinha (Executive Director) and RL Aggarwal (Head F&A)
1. During FY11, bank is targeting business growth (growth in loans and
deposits) of 20% YoY (at 16% in Dec-10).
2. Bank has lower CASA ratio compared to sector (25% versus +30%).
It is now working towards CASA ratio of 30% by Mar-12.
3. Each branch has been given a target to open 5 accounts everyday and
the scheme has received good response from employees. Top
management monitors this on a regular basis.
4. NIMs are likely to be 3% plus during FY11 (3.25% in 9MFY11)
5. In order to improve margins, the bank is lowering share of short-term
loans and targeting to improve CASA ratio.
6. The size of restructured portfolio is Rs52bn (5.7% of loans) of which
11% have slipped into NPLs.
7. The liability towards the second pension option is estimated at Rs11-
12bn against which the bank has an ad-hoc provision of Rs3.6bn. Rest
will be provided over five years.
8. In spite of the provisioning towards pension liabilities, cost/ income
ratio to stay below 40%.
9. Treasury gains will remain low. The bank is increasing the proportion
of bonds held in the AFS portion to be able to sell without having to
comply with new disclosure norms. AFS portfolio is hedged till 8% of
10 year paper.
10. The bank has made a representation to the government for capital
infusion (Tier I ratio is at 9%)
Max New York Life Insurance (subsidiary of Max India)
Management:
Mr. Sunil Kakar (CFO) and Mr. Jatin Khanna (Manager – Finance)
1. The new IRDA norms will have a significant impact on their new business
premium (NBP) growth.
2. As a result, in spite of the recent tie-up with Axis Bank that expanded their
distribution network and access to client-base, management expects 0-10%
growth in NBP in FY11 (7% in YTDFY11 vs private sector’s decline of 10%).
3. Expect 15-20% annualized premium growth from FY13 onwards.
4. Product mix has changed significantly and Ulips currently form only 20% of
new sales compared to 70% previously.
5. With focus on cost control and streamlining of distribution network over
FY11-12, NBP growth is likely to remain modest in FY12 as well.
6. In order to cut on distribution network management has (1) cut agents by
~30% to ~55K, (2) nearly halved the commission rates on Ulips and (3) is
also cutting / optimizing on distribution related costs.
7. MNYL sees ~30% reduction in operating costs over FY12, albeit with onetime cost of Rs1.3-1.5bn in FY11 (10-12% of costs), even as premiums grow
8. Initiatives are being taken to improve conservation ratio (currently at 78%).
Management believes that NBAP margins are likely to stabilise in the range
of to 12-14%
9. As new sales have moderated, company would not need fresh capital infusion
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