Yes bank - 10 reasons to buy at the current valuations

Asset Quality

- Diversification of the book since 2008:, Mid corporate exposure was 45% - today it has reduced to 20%
- Most corporates are rated now and level of risk level may have reduced as indicated by:
 RWA proportion of total assets - this metric reduced from 89% to 68% currently
- Investment (credit substitutes book) is AA+ - names include Tatas, Reliance and other large corporates - it is quite clear that this market does not exist for smaller players still
- GNPA, slippages and NNPA are lowest in the industry and have been so for a period of time; highest provision cost was in 2009 of 0.33%; also has negligible restructuring book
- Top 20 loan accounts form 16% of the loan book - not a very reliable metric
- More importantly, bank came out of problem accounts ahead of other banks in several instances

Assuming that the bank trades at its historical average valuations - the current price =>
credit costs to increase by 300 bps, which is a highly unlikely event

Assuming that the bank trades at 1 SD away - the current price =>
credit costs to increase by 80 bps - It is highly unlikely that this is a permanent damage to the book multiples

Computation below:

Price	270
Book Value
FY13	162		1.67
FY14E	193		1.40
Book Value at average valuation
FY13	112.5		2.40
FY14E	135.0		2.00
Book Value at 1SD
FY13	150.0		1.80
FY14E	180.0		1.50
Book Erosion at average valuation
FY13	49.5		No. of Shares
FY14E	58.0		35.862
Book Erosion at 1SD
FY13	12.0
FY14E	13.0
Implied NPA formation at average valuation (in INR MM)
FY13	1775	3.3%			53971
FY14E	2080	3.2%			64186
Implied NPA formation at 1SD
FY13	430	0.8%
FY14E	466	0.7%