Bank of Baroda's exposure to Dubai accounts for 2% of its total assets and 7% of its international assets. For all other large banks exposure is not significant.


Except for Bank of Baroda, no bank has provided quantitative details of its Dubai exposures. Among non-banks, Kotak Mahindra Bank has insurance policies generated from Dubai, runs an offshore mutual fund and has other investments and broking revenuescoming out of Dubai.


ICICI Bank management provided the following details

• Loans for the UAE region are booked at the Bahrain branch. The Bahrain balance sheet is US$6bn. Separate Dubai exposure is

not available.

• Non-India corporate exposure in Dubai is not material.

• India exposure to Dubai is with recourse to the parent’s balance sheet.

• The bank does not see any material impact from the current environment.

Valuation Methodology: We value ICICI Bank's core business at 1.7x P/BV FY11F. We have valued life insurance at 20x one-year forward new business profit, asset management at 7% of equity funds and 2% of debt funds, ICICI Ventures at 18x one-year forward earnings, general insurance at 10x one-year forward P/E, ICICI Securities at 18x one-year forward P/E and I-Sec PD at 5x one-year forward P/E. We have applied a 15% subsidiary discount to arrive at our final consolidated subsidiary value.

Risks Which May Impede the Achievement of the Price Target: Upside risks to our estimates from faster-than-expected growth: we build in 5% loan growth for FY10F and 15% for FY11F. We believe the bank could review its strategy of slow growth in certain segments, especially mortgages if there are favourable policy changes, such as tax sops in the budget.

Downside risks to our earnings estimates: slower-than-expected economic growth, a rapid rise in bond yields owing to rising fiscal deficit and increasing global stress that will hurt ICICI's international book, are key downside risks to our estimates.

State Bank of India

SBI only has a representative office in Dubai. The bank was granted a full-fledged banking license at end-September 2009. It is trying to build out business and has no significant exposure to Dubai yet.

Valuation Methodology: We value SBI using a sum-of-the-parts (SOTP) valuation, valuing the banking and non-banking businesses separately. Our 12-month price target of INR2,590 for SBI comprises INR2,356 for the banking business and INR231 for subsidiaries.

Our price target for the core bank is derived using a target RoE of 17.1% and CoE of 12.0% arriving at a multiple of 1.8x P/BV. Our fair value of INR231 for the subsidiaries comprises insurance and asset management business. We have valued life insurance at 18x oneyear

forward NBAP (New business acheived profit). We have valued SBI's asset management business at 3% of debt funds and 7% of equity funds.

Risks Which May Impede the Achievement of the Price Target: A faster than expected rise in rates or slower than expected loan growth are key risks to our ratings and price targets for Indian banks.

Bank of Baroda

• BoB's total exposure to Dubai is US$833mn or INR40bn, which is 7% of total international assets and 2% of total assets as of September 2009. Total exposure to UAE is INR100bn or US$2bn. The numbers provided by management are lower than street estimates.

• BoB's exposure to Dubai World is US$200mn and the first repayment is due only in 2011 and the next one in 2013.

• Over and above Dubai World, BoB has an exposure of US$120mn to other Gulf properties. We estimate that at least 60% of this would be to Dubai.

• BoB does not have exposure to Nakheel.

• The exposure to both Dubai and UAE is diversified between local and trade finance exposure but no proportion has been made available.

• The gross NPLs on the total Dubai balance sheet are low at 0.3% and net NPLs are zero.

• All property exposures in Dubai are standard accounts as of now.

• BoB stopped lending to Dubai real estate 1.5 years ago.

• BoB has said that it will revert on the size of the Dubai balance sheet.

• Other than Dubai, BoB has exposure to other Emirates nations, including the Abu Dhabi government.

• UAE operations account for 12% of BoB's earnings but the proportion of earnings from Dubai is not known.


• HDFC has a representative office in Dubai to finance India property. HDFC does not have Dubai exposure.

Valuation Methodology: We value the core business at INR1,264 and subsidiaries at INR702, which gives us our consolidated fair value of INR1,970. We have valued the core business on a sustainable RoE of 22.9% and CoE of 11.4%, which yields a P/BV multiple

of 3.2x. We have valued life insurance at 18x FY11E NBAP. We have valued HDFC’s stake in its asset management company at 7% of equity funds and 2% of debt funds.

Risks Which May Impede the Achievement of the Price Target: (1) Subsidiary valuations have moved up sharply in the recent past, driven by strong business performance. In our valuations, HDFC's subsidiaries account for more than 30% of the fair value. Hence, stronger-than-expected performance by the subsidiaries could provide upside to our valuation. The two largest subsidiaries are the life insurance business and HDFC Bank. We estimate taht a life insurance premium CAGR of 58% over FY07-FY10, compared with our current assumption of a 48% CAGR, would add INR50, or 2%, to fair value. (2) Continued strong performance in a period of prolonged sector weakness would warrant a premium, in our view. (3) The current strong performance has likely been driven by HDFC's ability to deliver in a severely weak mortgage market in the past two quarters. If the housing market were to witness prolonged weakness in the

next quarters as HDFC sustained its growth rates, we believe the market would likely ascribe a premium to the franchise value of HDFC, which is a potential upside risk too.

Axis Bank

• The Dubai balance sheet is 1.3% of Axis Bank’s total balance sheet.

Other banks operating out of South India, such as Federal Bank and South Indian Bank, could be sourcing a lot of their deposits from


Valuation Methodology: We value Axis Bank at 2.5x P/BV FY11 (sustainable RoE of 19.4% and growth rate of 7%).

Risks Which May Impede the Achievement of the Price Target: A faster-than-expected rise in interest rates and higher delinquencies are key risks to our rating and price target for Axis Bank.


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