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India - Banking & Finance (Concern on lending margin decline overstated):
Bank stocks have underperformed recently, presumably on fears that lending margins would decline, driven by: a) the Reserve Bank of India (RBI) Governor’s comment that banks should lower NIM to achieve double-digit and inclusive growth; and b) announcement of deposit rate increases by SBI and BOI without an increase in lending rate. In our view, fears of a margin decline are overdone—increases in lending rates typically trail those in deposit rates, and yesterday’s deposit rate increase without a lending rate increase is not a step towards lowering NIM as suggested by the Governor of RBI, in our view.
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