Equity Analysis

• The bank has exhibited healthy growth in its topline as well as in operating profits in the quarter ended September 2019. The benefits of the merger with Bharat Financial Inclusion are visible and accretive to earnings.

• The actual net profit of the bank stood at Rs 1667 crore in Q1FY2020, while the bank has chosen to strengthen the Balance Sheet by accelerating the Provision Coverage Ratio (PCR) from 43% end June 2019 to 50% September 2019 impacting the profitability for Q2FY2020.

• Deposit growth has been very strong in the last few quarters and has continued to remain robust in this quarter as well.

• CASA ratio of the bank stood at 41.5%. The CASA was impacted due to large quarter end saving account withdrawals, which have returned to the bank now. The escrow account in the current account side showed outflows on account of recoveries also impacted CASA ratio in Q1FY2020.

• The bank would further accelerate provisions coverage ratio in Q3FY2020, while targets to improve it to 60% eventually.

• The reduction in the corporate tax rate was positive for the bank that provided benefit of Rs 186 crore for H1FY2020 net of mark down for deferred tax assets.

• The bank has maintained stable asset quality in Q2FY2020, while the net slippages of loans has dipped to 0.35% in Q2FY2020 from 0.54% in Q1FY2020.

• The microfinance loan book has witnessed increase in NPAs mainly on account of floods in various parts of the country including states such as Odisha, Bihar, Maharashtra, Madhya Pradesh etc, which have also impacted disbursements.

• The normal credit cost for the bank stood at 18%, while the bank has made accelerated provisions of 18 bps in Q2FY2020. The bank expects the exposure to decline to 0.8% by end October 2019 with repayments.

• The bank's exposure to the three groups in the media/diversified/housing finance has further declined to 1.1% end September 2019 from 1.7% end June 2019 from 1.9% end March 2019.

• The bank has exhibited rise in SMA-2 loan book to 0.58% end September 2019 from 0.17% end June 2019, while SMA 2 book is expected to decline to 0.45% by end October 2019.

• The exposure to accounts were ICA is signed stands at 0.18% end September 2019.

• The bank had disclosed exposure to a HFC-RE Developer Group of 0.35% of loans to their financing businesses, which has now decline to 0.27%, while the exposure to Real Estate businesses of the Group as on date is at 0.45% and expected to reduce to 0.2% with scheduled repayments / prepayments in Q3FY2020.

• The bank expects positive trend for margins with decline in the cost of funds and fixed rate loan book which stands at nearly half of the loan book. On standalone basis, the bank has further improved net interest margin to 3.69% in Q2FY2020 from 3.64% in Q1FY2020 and 3.59% in Q4FY2019. The bank expects to improve standalone margins back to 3.9-4.0% level, while the overall margins would be above 4.25% with contributions of 35-40 bps from Bharat Financial Inclusion's microfinance loan book.

• Segment wise, the vehicle loan growth of the bank stood at 21%, non-vehicle retail 18% and MFI 32% end September 2018. The corporate loan book growth of the bank was impacted to large sell down of Rs 3000 crore in Q2FY2020 after Rs 6000 crore in Q1FY2020, while large repayment and recoveries also impacted the corporate loan book growth. The loan growth is expected to be in 20's for FY2020.

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