Credit growth still slow: For the fortnight ended on 11 September 2010, system loan
growth remained moderate at 19.8% YoY. However, on the positive side, incrementally,
credit grew by INR315bn during the fortnight after four sluggish fortnights. The onset of
the busy season in 2H leaves hope for loan growth acceleration, in our view.
CP rates inches up further: CP (commercial paper) intermediation has remained high
post the shift to base rate system in July. However, tight liquidity and a hike in Repo and
reverse Repo rates has driven the 6-month CP rate up further by c50 bps to c8%, largely
nullifying its advantage over bank lending rates. This could be incrementally positive as it
could bring back credit growth in the system.
Deposit growth yet to pick up: Deposit growth also has remained slow at 14.8% YoY,
despite many banks raising rates over the past few days. As we enter 2HFY11, pick up in
credit demand along with continued tightness in liquidity is likely to push up lending and
deposit rates higher. On the balance, higher loan growth is needed to support margin
expansion.
Preferred Play: Overweight (V) rated Yes Bank with a INR402 target price.
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