CAMELS ANALYSIS

BANDHAN IDFC FIRST BANK INDUSIND BANK

Kochi Analyst - JOJO SHAJU 30/04/2021 [email protected] Subsidiaries/Associates ------Bandhan bank is the 6 th largest private bank in in terms of market capitalization with pan India presence. With the objective of serving customers in under banked and Data unbanked areas, Bank have the presence in Rural and Semi-urban areas and focuses on lending to micro borrowers. Currently bank has 19.0 Mn active customers base with the CMP ₹ 328 average loan size of ₹45k. Bandhan Bank is the market leader in micro finance lending Market Cap 52989 Cr with the market share of close to 20% in 2020. The Bank expanded its network to 52 Week High/low 430 – 195 establish 4,559 banking outlets across 34 out of 37 States and Union Territories. This Balance sheet size 107298 Cr includes 1,018 bank branches , 3,346 banking units and 195 home loan centres. The merger with GRUH has helped improve product diversification, reduce concentration Branch Strength 1107 risk and increase cross-sell opportunities No of employees 47260

Valuation data

Other Key points P/E 20.4 P/B 3.51  Bank has the highest yields and NIM ratios on the back of microfinance portfolio.  Bank has the highest Capital adequacy ratio in the Indian banking industry. P/D 0.74  Bank has the lowest cost to income ratio with its peer . Book value 94.37  Bank has the highest return ratios with its peer banks. EPS 18.78 Industry P/E 28.32

Price details as on 30/04/2021 and the valuation details taken as per Q3 FY 2020-21 details Bank Milestones 1% 4% 5% Microloans Mortgage 2000-2005 2005-2010 2010-2015 2015-2020 26% Assets SME Loans NBFC 64% Bandhan acquired an NBFC Other Retail Loans Bandhan started as a society and established Bandhan Bandhan Bank goes public in Bandhan Bank started that stood for financial Private Mar’18. Stock lists at 29% operations as a universal inclusion and women Limited, yet the core premium to issue price of bank on August 23. empowerment objective remained that of INR375 financial inclusion.

It became the first The microfinance portfolio The Bank set up its 1,000 th Started microfinance microfinance company in was transferred from society bank branch and 4,000 th operations in rural Bengal. India to get a universal to NBFC. banking outlet. banking licence. 6% 0%0%

Bandhan Bank begins Bandhan Bank acquired the Term Deposit Bandhan became the largest operations on 23rd August stake of HDFC Limited in 31% microfinance institution when BFSL transferred entire GRUH Finance , one of India’s Savings Account (MFI) in the country. microfinance business to the foremost affordable housing Liabilities bank finance companies. Current Account 63% Subsidiaries/Associates

Federal Bank Federal Operations and Services Ltd 100% Fedbank Financial Services Limited 74.00% Federal Bank is the one of the oldest bank in bank which incorporated in on April 23, IDBI Federal Life Insurance Ltd 26.00% 1931 as the Travancore Federal Bank Limited. Late K.P. Hormis, the visionary banker and Equirus Capital Private Limited 19.90% founder took up the reigns in 1945 and built the Bank a nationwide institution. The Bank’s name was changed to The Federal Bank Limited on December 02,1949 and Data became a scheduled on July 20, 1970. Today, the Bank is present in 24 States, NCT and 4 Union Territories and the Bank is listed in BSE Limited, National CMP ₹ 80.05 Stock Exchange of India Limited and London Stock Exchange. With a customer base of Market Cap 16010 Cr over 10 million, including 1.5 million NRI customers and a large network of remittance 52 Week High/low 92 – 36 partners across the world, Federal Bank handled more than 15% of India's total inward Balance sheet 196847 Cr remittances of $79 billion in 2018. Currently, Bank serves to both retail and corporate Branch Strength 1272 clients. No of employees 12496

Valuation data Other Key points P/E 10.5  Highest retail proportion in deposits side (>90%) P/B 1.04  Well diversified retail and corporate loan book P/D 0.10  Recent surge in Gold loan book. Book value 78.39 EPS 8.04 Industry P/E 28.32 Bank Milestones 9% 12% 33% Retail Corporate loans 1931-2000 2000- 2010 2010-2015 2015-2020 10% Assets Commercial loans Agriculture loans Business banking Started business of auction- Federal Bank was listed chitty and other banking Federal Bank opened its first among the index stocks that Federal Bank ties with Philip transactions connected with overseas representative outperformed the BSE 100 Capital for managing PIS agriculture and industry office in . (2008) index (2012). (1931). 36%

Bank launched FedBook, the The bank name was Bank entered into Life The Bank crossed the first electronic passbook named Federal Bank Limited Insurance Joint Venture with milestone of total business launched by a bank in India. (1949) IDBI & FORTIS (2006) crossing Rs. 2.5 Lakh Crores (2013) 6% 0%0%

Federal Bank open an Federal Bank became a Federal Bank becomes the International Financial 29% Term Deposit Bank crossed the branch scheduled commercial bank first traditional bank to Services Centre (IFSC) network over1250 and ATM and came out with its initial successfully issue GDR. Banking Unit (IBU) in Gujarat over 1669 (2019) Savings Account public offering (1994) (2006) International Finance Tec- Liabilities City (GIFT City). Current Account 65% IDFC First Bank Subsidiaries/Associates

IDFC FIRST Bank was founded by the merger of Erstwhile IDFC Bank and Erstwhile Capital IDFC FIRST Bharat Limited 100% Millennium City First on December 18, 2018. IDFC Limited was incorporated in 1997 to finance private Expressways Pvt Ltd 29.98% sector infrastructure development. In 2014, IDFC Bank was formed by divesting the infrastructure assets. On other hand, Mr. Vaidyanathan who had previously worked with Data ICICI bank retail segment and ICICI prudential life insurance company founded Capital First for financing small entrepreneurs and consumers. With the new entity, they continued CMP ₹ 54.80 their focus on lending to small entrepreneurs and consumers. Today, the bank has 576 Market Cap 33882 Cr branches with pan Indian presence and they are expanding their network, especially in 52 Week High/low 69 – 18 semi -urban and rural areas. Retailisation of assets and liabilities is the bank’s strategy going Balance sheet 155720 Cr forward. With the guidelines set at the merger and new established corporate governance, Branch Strength 576 Bank is set to reach new heights in banking industry. No of employees 20222

Valuation data

Other Key points P/E 80.4 P/B 2.20  High growth in CASA ratio over last few quarters P/D 0.31  Lowest NNPA ratio among the peer banks Book value 30.57  Highest cost to income ratio among the peer banks EPS 0.24  Financial ratios are in track with the guidelines set at the merger of bank Industry P/E 28.32 Bank Milestones 8% 22% 10% Consumer Loans Mortgage 1997- 2005 2005-2010 2010-2015 2015-2020 MSME loans Assets Corporates 21% 22% Infrastructure IDFC Incorporate in Others Acquired SSKI, leading Strategic partnership with in recommendation of Expert IDFC mutual fund ranked domestic investment bank digital payments solution Group of Commercialization 10 th in India by AUM and institutional equities firm company MobiKwik of Infrastructure projects 17%

IDFC raise ₹893 cr for India Merger of Erstwhile IDFC Acquired AMC business of first infrastructure dedicated Secured license from RBI Bank and Erstwhile Capital Bank growth equity fund (2003) First 11% 0%0%

Term Deposit Signed Mr. Amitabh IDFC list on both NSE and IDFC become part of Nifty 50 Launch of IDFC Bank Bachchan as its first brand BSE (2005) 48% ambassador Liabilities Savings Account Current Account 42% IndusInd Bank Subsidiaries/Associates Bharat Financial Inclusion Limited 100% IndusInd Bank Limited is a new-generation headquartered in . The bank IndusInd Marketing and offers commercial, transactional and electronic banking products and services. IndusInd Financial Services Pvt Ltd 74.00% Bank was inaugurated in April 1994 by then Union Finance Minister Manmohan Data Singh. IndusInd Bank is the first among the new-generation private banks in India. The bank began its operations on 17 April 1994 under the chairmanship of S. P. Hinduja with CMP ₹ 934.95 the primary objective of serving the NRI community. The bank started its operations with Market Cap 72295 Cr ₹100 crores in capital, of which ₹60 crores were raised by Indian residents and ₹40 52 Week High/low 1119 - 330 crores were raised by Non -Resident Indians (NRI). With 27 million active customer base , Balance sheet 341446 Cr the bank specializes in corporate and consumer banking services and is also working on Branch Strength 1915* expanding its network of branches all across the country. No of employees 30674 *Including BFIL stores, branch strength is 5004

Valuation data Other Key points P/E 32.1 P/B 2.13  Well diversified corporate and retail loan book P/D 0.26  High Foreign Institutional ownership in Bank (50.33%) Book value 495.57  Lowest NNPA ratio among with the peer banks  Loan growth of over 22% CAGR over 10 year period. EPS 43.90 Industry P/E 28.32 Bank Milestones Vehicle Finance 2% Non Vehicle Retail 21% 29% Microfinance 1994-2000 2000- 2010 2010-2015 2015-2020 Assets Large Corporates 20% Bank formed with Mid size Acquired Deutsche Merger with Bharat the operational Merged with Ashok 17% Corporates bank Financial Inclusion amount of USD 35 Leyland Finance Ltd business in India. Limited Small Corporates million. 11%

Bank raised Rs.146 Supply Chain Finance Issued IPO and raised CR through issuance Bank stock included portfolio crossing Rs. USD 30 Million of Global in Nifty 50 4,000 crore mark 0%0% Depositary Receipts 13%

Widened product Term Deposit portfolio to Home Bank started Micro Reached milestone Branch network loan, auto loan, finance unit of 1000 branches crossed 1900 Liabilities Savings Account Forex services 27% 60% Current Account Quarter results update (Q3(Q3--FY20FY20--2121 Unaudited)

Bandhan Bank Federal Bank IDFC First Bank IndusInd Bank Net Interest Margin 8.3% 3.22% 4.65% 4.12%

Net profit (Quarter) 633 Cr 404 Cr 130 Cr 830 Cr CASA ratio 42.9% 34.48% 48.31% 40.40%

Retail proportion 81% 92% 76% 47%

NNPA 0.3% 1.14% 0.33% 0.22%

Advances 76775 Cr 128180 Cr 106263 Cr 207128 Cr

Deposits 71188 Cr 161670 Cr 84294Cr 239135 Cr

Return on Assets 2.4% 0.84% 0.32% 1.05%

Capital adequacy ratio 7.3% 14.31% 14.33% 16.34%

Cost to income ratio 27.1% 49.82% 79.20% 41.34%

No of branches 1107 1272 576 1915 CAMELS Analysis CAPITAL ADEQUACY Common equity Tier I Capital ratio Capital adequacy ratio 35,00% 30,00% 25,00%

35,00% 20,00% 15,00% 30,00% 10,00% 5,00% 25,00% 0,00% 2015 -16 2016 -17 2017 -18 2018 -19 2019 -20 20,00% Bandhan bank Federal Bank IDFC First Bank IndusInd Bank 15,00% Common equity Tier II Capital ratio 10,00% 2,50%

5,00% 2,00%

1,50% 0,00% 2015 -16 2016 -17 2017 -18 2018 -19 2019 -20 1,00% Bandhan bank 29,01% 26,36% 31,48% 29,20% 27,43% Federal Bank 13,93% 12,39% 14,70% 14,14% 14,35% 0,50% IDFC First Bank 22,04% 18,90% 18,00% 15,47% 13,38% 0,00% IndusInd Bank 15,50% 15,31% 15,03% 14,16% 15,04% 2015 -16 2016 -17 2017 -18 2018 -19 2019 -20

Bandhan bank Federal Bank IDFC First Bank IndusInd Bank CAPITAL ADEQUACY

Notes

 All banks has the capital ratio mandated by RBI which is total capital to be at least 8% of the Risk weighted assets (RWA) and common equity be at least 4.5% of RWA.  Bandhan bank is well capitalized among the peer banks both in total capital ratio and also in terms of common equity capital  Capital ratios slipped slightly in FY 2019 -20 from 2015 -16 levels  All banks has stable capital adequacy ratio over past 4 years except IDFC first bank which slipped from 22.04% in 2015-16 to 13.38% in 2019-20 ASSET Quality Gross NPA Net NPA 7,00% 3,00% 6,00% 2,50% 5,00% 2,00% 4,00% 1,50% 3,00% Concentration of advances 1,00% 2,00% 12,00% 1,00% 0,50% 0,00% 0,00% 10,00% 2015 -16 2016 -17 2017 -18 2018 -19 2019 -20 2015 -16 2016 -17 2017 -18 2018 -19 2019 -20 8,00% Bandhan bank Federal Bank Bandhan bank Federal Bank 6,00% IDFC First Bank IndusInd Bank IDFC First Bank IndusInd Bank 4,00%

2,00% Slippage ratio Provision Coverage ratio 0,00% 120,00% 5,00% Bandhan Federal Bank IDFC First IndusInd 100,00% bank Bank Bank 4,00% 80,00% 3,00% 60,00% 2,00% **Concentration of top 20 advances to total advances in FY 40,00% 2019-20 1,00% 20,00% 0,00% 0,00% 2016 -17 2017 -18 2018 -19 2019 -20 2015 -16 2016 -17 2017 -18 2018 -19 2019 -20 Bandhan bank Federal Bank Bandhan bank Federal Bank IDFC First Bank IndusInd Bank IDFC First Bank IndusInd Bank ASSET Quality

Composition in Balance sheet Bandhan bank Federal Bank IDFC First Bank IndusInd Bank

Advances 72.65% 68.09% 57.39% 67.31% Investments 16.74% 19.48% 30.29% 19.51% Deposits 62.24% 83.04% 43.63% 65.76% Borrowings 17.86% 6.83% 38.48% 19.77% Net worth 16.57% 8.18% 10.33% 11.31% Cash and balance with RBI 6.92% 3.37% 2.24% 4.45% ASSET Quality

Notes

 All banks increased their provision amount upfront for the impact of COVID. IndusInd bank and Bandhan bank had doubled their provisioning amount  IDFC first bank has performed well on net NPA ratio over last four years. All other three banks ratios shows stable or deteriorating performance.  IndusInd Bank and IDFC First bank has the highest slippage ratios among their peer banks  Bandhan Bank has the highest provision coverage (98%) than all other three banks in 2019-20(50-60%)  Federal bank has the highest deposit proportion and lowest borrowings proportion with the total asset size in FY2019-20.  Bandhan bank has the highest net worth proportion in the balance sheet  Advance (as a proportion) is highest for Bandhan bank and lowest for IDFC First bank  Investments (as a proportion) is highest for IDFC First bank and lowest for Bandhan Bank MANAGMENT Quality

Notes

 All bank has strong, experienced and diversified Board of directors and management team as on FY 2019-20.  All banks follow robust corporate governance practices and methods over the last 5 years.  None of the bank had any material impact on the income and return ratios over the period shows management was able to forecast and manage the risk associated with the business.  All banks had the clear business strategy to conduct the business going forward. (next page)  IDFC First bank has been on track with retailising their assets and liabilities and they are achieving it with a very short period of time.  All banks increased the share in deposits (overall all private banks are able to increase their share) relate to the public sector banks  IDFC First bank and IndusInd Bank has the lowest complaints pending (Unresolved at the end of the year)  As a red flag, RBI penalized IDFC Bank (pre merger entity) Rs 20 million and IndusInd Bank, Rs 30 million in FY2016-17. MANAGMENT Strategy (Going forward)

Bandhan Bank Federal Bank

Focus on the micro finance and retail business along with technology Targeting 15-17% CAGR in the business growth over next three year. Bank adoption, widening presence in semi urban and rural areas in India. plans to increase the footprint outside Kerala and use the existing With the expertise from Gruh finance, bank will focus to penetrate strongly technology and capabilities for growth in credit underwriting and risk in the affordable housing segment management.

IDFC First Bank IndusInd Bank

Reducing wholesale funded assets (infrastructure lending) and increase With the current diversified asset loan, bank continues to focus on retail proportion in asset and liabilities of the bank. With the upfront provisioning and improving capital adequacy and reducing the impact of provisioning, Bank set to focus on lending retail, improve CASA ratio and Covid. With the merger of BFIL, bank plans to serve to rural areas for lending increase the presence in semi urban and rural areas. and increasing the deposits Bandhan Bank (Board of directors) IDFC First Bank (Board of directors)

Dr Anup Kumar Sinha Non-Executive Chairman Mr Chandra Shekhar Ghosh Managing Director & CEO Dr Allamraju Subramanyu Ramasastri Independent Director Mr. V. Vaidyanathan Managing Director & CEO Dr Holger Dirk Michaelis Nominee Director Mrs. Brinda Jagirdar Independent Director Mr N V P Tendulkar Additional Director Mr. Hemang Raja Independent Director Mr Ranodeb Roy Non-Executive Non-Independent Director Mr Santanu Mukherjee Independent Director Mr. Pravir Vohra Independent Director Mr Snehomoy Bhattacharya Independent Director Mr. Sunil Kakar Non Executive Non-Independent Director Ms Thekedathumadam Subramani Raji Gai Independent Director Mr. Vishal Mahadevia Non Executive Non-Independent Director Mr Subrata Dutta Gupta Additional Director (Independent) Mr. Aashish Kamat Independent Director Mr Vijay N Bhatt Additional Director (Independent) Mr. Sanjeeb Chaudhuri Independent Director Mr Suhail Chander Additional Director (Independent )

Federal Bank (Board of directors) IndusInd Bank (Board of directors)

Ms. Grace Koshie Chairman Mr. Shyam Srinivasan Managing Director & CEO Mr. Arun Tiwari Chairman Mr. Ashutosh Khajuria Executive Director Mr. Sumant Kathpalia Managing Director & CEO Mr. C Balagopal Independent Director Mr. Shanker Annaswamy Independent Director Mr. A P Hota Independent Director Dr. T. T. Ram Mohan Independent Director Mr. K Balakrishnan Independent Director Mrs. Akila Krishnakumar Independent Director Mr. Siddhartha Sengupta Independent Director Mr. Rajiv Agarwal Independent Director Mr. Manoj Fadnis Independent Director Mr. Sanjay Asher Additional Director Mr. Sudarshan Sen Independent Director Mrs. Bhavna Doshi Additional Director Ms. Shalini Warrier Executive Director Ms. Varsha Purandare Independent Director EARNINGS Quality

NIM Margin Return on Assets Return on Equity 0,12 0,05 0,4 0,1 0,04 0,3 0,08 0,03 0,2 0,02 0,06 0,01 0,1 0,04 0 0 0,02 -0,01 2015 -16 2016 -17 2017 -18 2018 -19 2019 -20 2015 -16 2016 -17 2017 -18 2018 -19 2019 -20 -0,1 0 -0,02 2016 -17 2017 -18 2018 -19 2019 -20 -0,03 -0,2

Bandhan bank Federal Bank Bandhan bank Federal Bank Bandhan bank Federal Bank IDFC First Bank IndusInd Bank IDFC First Bank IndusInd Bank IDFC First Bank IndusInd Bank

Average yield on advances Average yield on investments 0,25 0,1 0,095 0,2 0,09 0,085 Bandhan bank Bandhan bank 0,15 0,08 Federal Bank 0,075 Federal Bank 0,1 IDFC First Bank 0,07 IDFC First Bank 0,065 IndusInd Bank IndusInd Bank 0,05 0,06 0,055 0 0,05 2015 -16 2016 -17 2017 -18 2018 -19 2019 -20 2015 -16 2016 -17 2017 -18 2018 -19 2019 -20 EARNINGS Quality

Bandhan Bank Federal bank

0% 0%

3% 13% 2% 12% 1% 1%

7% 14% Composition of earnings (FY --2020)2020) 76% 71% Interest on advances

Income on investments IDFC First Bank IndusInd Bank Interest on balance with RBI &inter bank funds

0% Other interest income 1% 0%

0% 10% 1% Other income 19% 1% 22% 12%

67% 67% EARNINGS Quality

Notes

 Bandhan bank has the highest NIM and highest yield on advances ratio among the peer banks and highest in the industry. (Because of the high yield micro finance loan book)  Bandhan Bank shown superior performance over last 4 years among the other three banks  IDFC first bank had shown negative return ratios over last two years (Because of the highest provision in the books leads to negative net income)  Return ratio is stable for other three banks over the last four years.  Bandhan Bank has the highest interest income proportion of advances in total income.  Among the four banks, IDFC First bank has the highest investment income proportion in total income  IndusInd Bank has the highest “other income” proportion in total income. Other income consists of commission, exchange, brokerage fees, profit/loss on sale of investments etc.. LIQUIDITY RATIOS

Liquidity Coverage ratio Net Stable Funding ratio 600,00% 210,00% 190,00% 500,00% 170,00% 400,00% 150,00% 300,00% 130,00% 110,00% 200,00% 90,00% 100,00% 70,00% 0,00% 50,00% 2015 -16 2016 -17 2017 -18 2018 -19 2019 -20 2015 -16 2016 -17 2017 -18 2018 -19 2019 -20

Bandhan bank Federal Bank Bandhan bank Federal Bank IDFC First Bank IndusInd Bank IDFC First Bank IndusInd Bank

**Liquidity ratio taken as the figure shown at the last quarter of financial year LIQUIDITY RATIOS

Concentration of Deposits Notes IDFC First Bank,IndusInd Bank, 25,00% 22,83% 22,73%  All banks maintain high liquidity ratio over the last four 20,00% Bandhan bank, years 15,71%  In FY 2019-20 end, all banks has the liquidity ratio over 15,00% 100%, which is mandated by RBI

10,00%  IDFC first bank liquidity ratio has deteriorated from 498% in Federal Bank, 6,03% 2015-16 to 120% in 2019-20, but well within the required 5,00% range  Federal bank has the highest liquidity ratio than other three 0,00% 2019 -20 banks at the FY 2019-20 end.  All banks except IDFC First Bank maintained Net stable funding ratio of 100% or more for the last five years. **Concentration of the top 20 deposits to total deposits  Federal bank has the lowest concentration of the top 20 deposits to total deposits. SENSITIVITY TO MARKET RISK

Bandhan bank Federal Bank IDFC First Bank IndusInd Bank

Exposure to capital markets 354.6 992.694 2198.34 42871.67 Exposure to real estate sector 19596.46 34866.46 13134.54 7444.33 Unhedged Foreign Currency exposure Nil Nil 43.37 135.61 Commodity exposure Nil Nil Nil Nil Figures in Crores

Notes

 Interest rate risk is the major risk that the banks faces. Due to the lack of sufficient data, we are not looking beyond the management opinion on the risk. As per the MD&A and notes to the accounting statements, none of the banks face significant interest rate risk in even very stress scenarios.  IndusInd bank has the highest capital market exposure and Bandhan bank had the lowest exposure  Federal bank has the highest real estate exposure and IndusInd bank has the lowest exposure  IDFC First bank and IndusInd bank has very minimal foreign currency exposure  None of the banks had commodity exposure risk directly CAMELS Score

Weights Bandhan bank Federal Bank IDFC First Bank IndusInd Bank

Capital Adequacy 20% 1 1 1 1 Asset Quality 20% 3 1 2 2 Management 15% 2 2 1 2 Earnings Quality 10% 1 2 2 1 Liquidity 20% 1 1 2 2 Sensitivity 15% 1 2 1 2 TotalScore 100% 15.5 14 15 17

**Due to the Covid impact and economic uncertainty, I give more weights to the Capital position, Liquidity position and asset quality of banks.

**Score of 1 means high ranking and score of 5 means worst ranking. The least scored bank is best bank in the analysis. References & Contact

Primary Sources

• Annual reports of banks • Investor presentation reports • Conference call transcripts • Quarterly and half year reports

Additional Sources

• Company website • RBI website • NSE/BSE website • Moneycontrol/Screener/Economic times

Contact JOJO SHAJU Email ID- [email protected]