India Financials Bank Ahead – May 2012 :Prabhudas Lilladher,

􀂄 Growth monitor (April 2012 sectoral trends): Overall loan growth continues to
moderate, with 16.5% YoY growth in non-food credit. Infra credit moderated
significantly with growth in power+roads portfolio down to ~18% (first <20% y/y
growth in the last five years). Ex-Infra Industrial credit surprised with 22%
growth largely driven by undefined other industries growing by ~47% YoY.
Services growth remained stable with wholesale trade/NBFCs aiding growth.
However, the biggest drag on services growth was fleet operator portfolio
growth moderating to 11% YoY growth. Retail credit continues to remain
sluggish with mortgages growth moderating to ~11%.

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􀂄 Liquidity monitor: Liquidity largely remained in the narrow band of Rs700-
1000bn deficit in May 2012. With weak credit growth and weaker GDP growth
prints, G-Secs came off by ~20bps with some expectations being built of a rate
cut in May end. ~Rs330bn of OMOs conducted has largely aided to counter large
dollar intervention in May-12.
􀂄 Rates monitor: Deposit/lending rates have stayed constant after ~25bps cut in
base /deposit rates in April 12 after RBI’s surprise 50bps cut. Though 5.3% GDP
imprint will force RBI to consider rate cuts sooner than market expectations, rise
in inflation again is a concern. However, some more weakness in crude prices
will give the central bank a leeway to move on rates. G-Secs have corrected in
May end as credit demand has remained weak. But overall tightness in rupee
liquidity has led to 10-20bps inch-up in ST wholesale rates.
􀂄 Outperformance/Underperformance monitor: May 2012 was a month of
negative returns, with even the defensive names correcting. SBI outperformed
large PSU peers, given strong asset quality trend. With the correction in MAY,
BOB now is lower than December 2011 lows and with relatively smaller ticket
Infra book, we see limited risk of lumpy asset quality issues, going forward.
􀂄 Relative trade monitor: ICICI v/s HDFCB: Our relative trade monitor shows the
divergence sustaining, with HDFCB trading at ~75% premium to ICICI and with
strong asset quality reported in Q4FY12, we prefer ICICI/Axis over HDFCB in the
medium term. SBI delivered very strong Q4FY12 results. However, some
positives seem to be priced in with valuations at ~25% premium valuations to
BOB/PNB. LICHF has remained a preferred pick among NBFCs and at the current
valuations, we also like HDFC, given reasonable valuations (11x FY14 EPS) +
defensive nature of the business.