Table of Contents

Investment summary ........................................................................ 4
Liquidity deficit can change for the better...................................... 7
Timing mismatch between government revenues and spending should reduce......................8
Currency in circulation could decline with acceleration of deposit growth ...............................9
However, oil companies’ borrowings can upset the balance .................................................11
Impact on margins and growth manageable ................................ 13
Pricing power does exist despite “weak” loan growth ..........................................................14
Impact on specific banks; Axis Bank, BoB, Canara Bank, and HDFC Bank appear better placed
...............................................................................................................................................16
Loan growth not just driven by interest rates .........................................................................19
Asset quality risks declining........................................................... 23
Profitability-interest rate gap remains a buffer against credit quality deterioration .................23
Seasoning-related downside minimal due to low growth in the last two years......................25
Credit cost decline in FY12E could be a significant source of profitability upside...................27
Valuations, stock performance, and top picks.............................. 28
Correction has brought valuations to reasonable levels..........................................................28
Assessing the downside case – lessons from prior cycles.....................................................30
Changes to estimates, ratings, target prices, and top picks ...................................................33
Companies section .......................................................................... 36