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Indian Banking – Sector data update (data as of 3 December 2010)
Deposits declined Rs117bn in the fortnight ended 3 December 2010 (Rs394bn growth in
the previous fortnight). Deposit growth was 15.0% yoy as of 3 December 2010 (18.3%
yoy as of 4 November 2009). Deposit mobilisation had picked up steadily in the past few
fortnights, partly due to 100-125bp hikes in deposit rates by most banks since August
2010.
Loans grew 23.0% yoy as of 3 December 2010 (10.5% yoy as of 4 December 2009).
Absolute net loans grew Rs365bn for the fortnight ended 3 December 2010 (vs Rs273bn
growth in the previous fortnight).
Investments grew 6.9% yoy as of 3 December 2010 (25.6% yoy as of 4 December 2009)
Liquidity remains in deficit mode. The banks borrowed about Rs1,025bn net under the
repo window from RBI as on 16 December 2010. Banks have been net borrowers from
RBI of about Rs 990bn average daily since November 2010 to date. Investments by
banks in mutual funds were Rs455bn as of 19 November 2010 (the last reported period).
Deposit growth seems to be catching up steadily, but still lags loan growth, and loan-todeposit ratios (about 72%) appear close to cyclical peaks. We continue to believe, the
emerging risk is a faster-than-expected rise in the cost of deposits, which could act as a
headwind for the sector in the near term. The three-month certificate of deposit (CD) rate
has spiked to 9.1% (+100bp mom; +535bp yoy) and the 12-month CD rate has gone up
to 9.5% (+84bp mom; + 379bp yoy).
In a rising interest rate scenario, we thus reiterate Buy on banks with high low-cost
deposit ratios such as SBI (48% CASA ratio) and HDFC Bank (about 51% CASA). If
deposit rates rise sharply, we believe that non-banks will feel the pinch, too. We reiterate
Sell on HDFC Limited and Power Finance Corporation.
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