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�� Deposits increased by Rs 588bn in the fortnight ended 11 Feb 2011 (Rs 377bn growth in the
previous fortnight). Deposit growth was 16.9% yoy as of 11 Feb 2011 (16.6% yoy as of 12
Feb 2010). Note, deposit mobilisation appears to be steadily picking pace in the recent past
partly on account of 100-150bps hike in deposit rates by most banks since Aug-Sept 2010.
�� Loans grew 23.9% yoy as of 11 Feb 2011 (15.1% yoy as of 12 Feb 2010). Absolute net loans
grew Rs 493bn for the fortnight ended 11 Feb 2011 (vs Rs 153bn growth in the previous
fortnight).
�� Liquidity deficit appears to have come down, albiet marginally in the very recent past. Banks
have been net borrowers from RBI to the tune of about Rs 778bn average daily in Feb 2011
till date (about Rs 900bn average in Jan 2011). Investments by banks in mutual funds were
Rs 755bn as of 28 Jan 2011 (the last reported period).
�� The 3 month certificate of deposit (CD) rate has gone up to 10.06% (+420bp yoy) and 12
month CD rate has gone up to 10.13% (+310bp yoy). In general, a sustained flattening of this
yield curve will put pressure on net interest margins.
�� The ytd deposit growth was 12.2%, ytd loan growth was 16.7% and incremental ytd loan to
deposit ratio is about 100%.
�� Deposit growth seems to be catching up steadily but still lags the loan growth and loandeposit
ratios appear close to its technical peak. We believe further rate hikes are on the
cards. Base rates for lending are now 9.0-9.5% and we believe a further 50-75bp hike in
lending rates would moderate the incremental demand for loans. One-year term deposit rates
are now 8.25-8.50% and we believe a 50-75bp hike in deposit rates would likely lead to
acceleration in deposit growth.
�� Going forward, a combination of rising deposit growth and a moderation in loan growth will
lead to a more balanced scenario. Given the stock-price correction and our expectation that
the gap between deposit growth and loan growth will narrow, we have turned cautiously
optimistic. As earlier, we continue to prefer public sector banks (PSBs) in general over private
sector (PSBs trading at about 1.0-1.7x FY12F book value and 6.0-9.0x earnings). Our top
picks among the PSBs: SBI, PNB and BOB.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
�� Deposits increased by Rs 588bn in the fortnight ended 11 Feb 2011 (Rs 377bn growth in the
previous fortnight). Deposit growth was 16.9% yoy as of 11 Feb 2011 (16.6% yoy as of 12
Feb 2010). Note, deposit mobilisation appears to be steadily picking pace in the recent past
partly on account of 100-150bps hike in deposit rates by most banks since Aug-Sept 2010.
�� Loans grew 23.9% yoy as of 11 Feb 2011 (15.1% yoy as of 12 Feb 2010). Absolute net loans
grew Rs 493bn for the fortnight ended 11 Feb 2011 (vs Rs 153bn growth in the previous
fortnight).
�� Liquidity deficit appears to have come down, albiet marginally in the very recent past. Banks
have been net borrowers from RBI to the tune of about Rs 778bn average daily in Feb 2011
till date (about Rs 900bn average in Jan 2011). Investments by banks in mutual funds were
Rs 755bn as of 28 Jan 2011 (the last reported period).
�� The 3 month certificate of deposit (CD) rate has gone up to 10.06% (+420bp yoy) and 12
month CD rate has gone up to 10.13% (+310bp yoy). In general, a sustained flattening of this
yield curve will put pressure on net interest margins.
�� The ytd deposit growth was 12.2%, ytd loan growth was 16.7% and incremental ytd loan to
deposit ratio is about 100%.
�� Deposit growth seems to be catching up steadily but still lags the loan growth and loandeposit
ratios appear close to its technical peak. We believe further rate hikes are on the
cards. Base rates for lending are now 9.0-9.5% and we believe a further 50-75bp hike in
lending rates would moderate the incremental demand for loans. One-year term deposit rates
are now 8.25-8.50% and we believe a 50-75bp hike in deposit rates would likely lead to
acceleration in deposit growth.
�� Going forward, a combination of rising deposit growth and a moderation in loan growth will
lead to a more balanced scenario. Given the stock-price correction and our expectation that
the gap between deposit growth and loan growth will narrow, we have turned cautiously
optimistic. As earlier, we continue to prefer public sector banks (PSBs) in general over private
sector (PSBs trading at about 1.0-1.7x FY12F book value and 6.0-9.0x earnings). Our top
picks among the PSBs: SBI, PNB and BOB.
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