UBS: Fast Take: India Banks "Top Management exits and appointments at key..."

Research evidence excerpt

UBS: Fast Take: India Banks "Top Management exits and appointments at key..."

Valuation Method and Risk Statement

Although we expect economic growth to remain healthy, a sustained economic slowdown

could impact India’s banking and finance sector (including banks and NBFCs in our coverage

universe) on several fronts: it may lead to a slowdown in credit, increase the risk of non-

performing loans/non-performing assets (NPLs/NPAs), impact fee income and pressure NIM.

An increase in deposit cost could put pressure on margins, and we expect stable-to-declining

margins for banks we cover. A sharp drop in lending rates could also exacerbate the potential

decline in margins and profitability. We will remain watchful of the performance of the retail

books (particularly those of unsecured loans) and business loans/CV loans. Corporate asset

quality remains stable but exposure to large leveraged corporates remains a risk, and a default

by a large corporate could significantly impact some banks in our coverage. Potential

downside risks could also include high crude oil prices and global uncertainties due to US

tariffs.

We value the stocks under our coverage using a sum-of-the-parts (SOTP) methodology and

our residual income model.

Axis Bank

We value Axis Bank on a sum-of-the-parts methodology and its banking business on a

residual income model.

We expect a gradual recovery in economic growth. However, a sustained economic

slowdown could impact the banking and finance sector on several fronts – it may lead to a

slowdown in credit, increased NPL risk, impact fee income and pressure NIM. We expect

margin to moderate from FY23 levels; however, a sharp decline in lending rates could lead to

a higher-than-expected decline in margin and profitability. We expect asset quality to remain