Followings are key observations in Syndicate Bank’s financial
performance:
Improvement in liability profile: In FY12, Syndicate Bank recorded
substantial improvement on deposit profile; whole-sale deposits & CDs
proportion declined by 470bps to 21% from 26% a year back and core retail
deposits increased by almost 430bps to 69%
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Prudent & measured credit book expansion : In FY12, the bank grew its
credit book slower than the industry at 15.8% compared to 17.5% of the
industry with taking higher amount collaterals. On maturity profile front, the
bank’s credit portfolio average maturity remained almost same with 33% of
credit book in less than 1 year maturity buckets. The bank reduced its
concentration risk of credit portfolio & exposure reflecting into lesser
concentration in top twenty loan accounts and borrowers
Rating of credit book: Syndicate Bank’s proportion of unrated credit book
slightly increased to 53% from 51% a year back and share of unrated credit
book (with more 100% risk weight) remained almost constant at 5.9%
Margin and assets’ risk weights: On margin front, the bank managed to
maintain margin even in a difficult scenario mainly on the back of stability on
low-cost deposits share with decrease in bulk deposit proportion on liability
side and marginal increase in exposure to riskier assets. Also, higher
proportion of investments diverted towards longer tenure papers aiding yield
on the book. The bank’s RWAs/assets ratio increased to 53.6% from 51% a
year back aiding asset yield. The bank’s margin improved by 4bps to 3.06%
Revamp of core fee Income: Non-fund revenue stream was robust with
strong core fee income at ` 5.5bn. The incumbent CMD believes that there
is a scope to further strengthen fee income with existing infrastructure
Asset quality under control: In detailed classification of GNPA, proportion
of sub-standard loans went up sharply to 61% from 44% in FY11. On the
fresh restructuring 1front, the bank added ` 31.5bn. Major areas of loan
restructuring were agriculture, MSME, CRE and large industries. Out of total
loan restructured, ` 11bn came from Air India account alone
Steady expansion in foot-prints: The bank added 214 branches in FY12
compared to 186 in FY11 and even in lackluster scenario during FY12, the
bank maintained its pace in customer base expansion which aided core
deposits mobilisation
Overall, we maintain our positive stance on the stock and estimate that the
bank would report RoAA of ~0.8% and RoAE of 16-18% in FY13-14. We reiterate
our stock rating to Buy with a price target of ` 152. At current price, it quotes at
0.7x and 0.6x ABV FY13 and FY14 respectively; based on our target price, the
stock would trade at 0.9x adjusted book value FY14. The stock is available at
an attractive dividend yield of 4.6% (on FY13’s dividend).
Branch expansion: Syndicate Bank added 214 branches in FY12 compared
to 186 in FY11. In FY12, most of the branch addition took place in rural & semiurban
areas towards fulfillment of RBI’s guidelines on financial inclusion. During
the year, 68 branches were opened in under-banked areas and 44 branches
were added in minority concentration districts. In FY12, the bank reached the
financial inclusion target. Like-wise in FY11, out of 188 fresh branches additions,
the bank opened 76 branches in under-banked areas and 36 branches in minority
concentrated districts. In FY13, the bank’s management is planning to add
another 300 branches reach at 3000 mark; Syndicate bank would also add
almost 500 ATMs to take the total to 1750
Steady expansion of customer base: The bank’s customer base enlarged to
28.4mn from 26.4mn a year back registering a growth of 7.6%. In FY11, the
bank maintained similar pace of 7.7%. Even in lackluster scenario during FY12,
the bank maintained its customer base expansion pace. The bank’s credit card
base increased by 13% YoY to 80125.
Improvement in deposit franchise: During FY12, the bank recorded substantial
improvement on deposit profile; whole-sale deposits & CDs proportion declined
by 470bps to 21% from 26% a year back and core retail deposits increased by
almost 430bps to 69%. The bank’s total whole-sale deposits came down by
4.7% YoY to ` 335bn whereas total core deposits increased by 24% YoY to `
1.1tn. The bank’s CASA deposit share drifted down by 130bps to 29.4% mainly
due to tepid mobilization of saving deposits.
The bank’s deposit concentration (deposits of twenty largest depositors) marginally
increased to 14.8% from 14.6% a year back. Average maturity profile of also remained
almost the same at 1.24 years with 54% of deposits in up to 1 year maturity
buckets compared to 52% of deposits in FY11.
On the front of other liabilities, the bank did not raise any tier I or tier II capitals in
FY12; other unsecured borrowings increased in-line with balance-sheet expansion
pace. During the year, the bank raised equity capital of ` 3.3bn at 104 per share.
Credit composition likely to tilt in favor of retail, MSME and agriculture:
In FY12, with respect to tenure of credit book, the bank’s credit composition
increased in favor of term loans to 80% from 77% in FY11. In terms of security
available for the credit book, proportion of secured loans increased to 67% from
62%. Also, exposure to public sector entities came down but on sensitive
exposure front, exposure to commercial real estate (CRE) increased substantially
to 4.4% from 2.5% in FY11. The increased exposure to CRE is backed by lease
rentals.Essentially, in FY12, Syndicate Bank grew its credit book slower than
the industry with taking higher amount collaterals.
On maturity profile front, the bank’s credit portfolio average maturity remained
almost same with 33% of credit book in upto 1 year maturity buckets as compared
to 32% in FY11. The bank’s cumulative domestic asset-liability mismatch (for
maturity buckets up to 1 year) increased to 28% from 23% of total deposits in
FY11. Shorter end of liabilities funded longer-term investment papers.
On credit portfolio & exposure concentration issues, the bank de-risked its
credit portfolio & exposure reflecting into lesser concentration in top twenty loan
accounts and borrowers. Though, concentration of NPA jumped to 23.4% from
8.0% in FY11. The sharp rise was mainly due to addition of two loan accounts
in Q4 FY12.
On credit book front, the bank’s key focus areas remain on retail banking
(particularly Housing loans), MSME and Agriculture. In an effort to enhance
advances yield, the bank would focus more on MSME, agriculture and some of
the retail segments. More credit disbursement would be done at RO/branch
level.
Effective use and more emphasis on SARFAESI: In FY12, the bank made
effective use of SARFAESI by recovering ` 6.9bn against ` 2.7bn in previous
year. Overall, the bank recorded total NPA recovery of ` 11.4bn comprising `
8.4bn of recovery towards principal and ` 3.0bn towards uncharged interest and
` 23mn towards written-off bad debts accounts.
Upward change in “salary increase/future cost” actuarial assumption:
The bank revised its “salary increase/future cost” actuarial assumption to 5%
per year from earlier 4% assumption. The revision also reflected into higher
present value of defined benefit obligation of pension, gratuity and privilege leaves
at ` 51.6bn from ` 48bn in previous year.
Valuation
Overall, we maintain our positive stance on the stock and estimate that the bank
would report RoAA of ~0.8% and RoAE of 16-18% in FY13-14. We reiterate our
stock rating to Buy with a target price of ` 152. At current price, it quotes at 0.7x
and 0.6x ABV FY13 and FY14 respectively; based on our target price, the stock
would trade at 0.9x adjusted book value FY14. The stock is available at an attractive
dividend yield of 4.6% (on FY13’s dividend).
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