Table of Contents
Expectations of reforms – a reality check........................................ 4
Insurance foreign ownership liberalization – the only realistic and meaningful one ..................4
Other expectations could be non-starters or cosmetic .............................................................5
Too early to call a fundamental reversal ......................................... 6
Interest rate outlook no longer benign......................................................................................6
Loan growth slowdown may continue......................................................................................9
Net interest margins could remain under pressure.................................................................10
Asset Quality – Stress testing Indian Banks ................................. 14
Deterioration can be manageable ...........................................................................................14
Rating agency’s study corroborates our view.........................................................................14
Private banks sufficiently capitalised, PSU banks not that well-cushioned .............................15
PSU banks could face headwinds.................................................. 17
Growth slowdown can begin and margin pressures continue................................................17
Operating expenses could negatively surprise .......................................................................17
Asset quality – restructuring has been high ............................................................................18
Increasingly less of a bond yield play......................................................................................18
Valuations and stock picks ............................................................. 20
Raising TP mainly on re-rating, remain cautious on fundamentals ..........................................20
Key recommendation and target price changes......................................................................21
Current valuation multiples higher than historical averages ....................................................35
In relative terms, prefer private banks to PSU banks ..............................................................36
Comparing with Asian peers – Indian banks no longer cheap.................................................38
Appendix A – Institutional flows into financials ........................... 50
FIIs overweight position on financials decreasing...................................................................50
Foreign holdings in PSU banks have declined sharply ............................................................51
Appendix B – Key sector data......................................................... 52