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India Equity Research Reports, IPO and Stock News
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BANKING & NBFCS
Current view
q The credit growth in recent past has remained strong at around 23-24%; however,
deposit mobilization has not been commensurate with this leading to rise
in C/D ratio (~75% as on January 28, 2011 vs. ~72% as on October 22, 2010).
The loan book of banking system grew at 23.3% (as on January 28, 2011) as
against only 16.0% traction in deposits.
The mismatch between expansion of credit and deposit collection has been
partly responsible for tight liquidity condition in the system, forcing banks to
borrow money from RBI under LAF window. Although there is some volatility in
the initial days of a new reporting fortnight when banks tend to borrow more
to meet their regulatory requirements in advance, situation tends to improve
after few days. However, overall situation has improved with banks borrowing
lower under LAF window (average of ~Rs.750 bn during February 2011) as
against an average amount of Rs.1200 bn in December 10.
q Reported WPI for January 2011 came at 8.2% (YoY), lower than 8.4% (YoY)
witnessed during December 2010. On a YoY basis, core inflation fell to 6.9%
(YoY) in January 11 from 7.6% (YoY) in the previous month. This core inflation
is being driven by prices of non-food primary articles which grew 3% MoM in
January 11 as compared to 1.4% MoM in December 10. We believe core inflation
is still at elevated levels along with the known increase in primary articles.
It is to be noted that core inflation has shown significant sequential increases in
recent months, largely due to non-food primary articles. Going forward, we believe
its trajectory would largely depend on primary articles, although high inflationary
expectations and rising commodity prices may continue to put upward
pressure on prices.
However, we believe recent policy rate hikes would keep manufacturing inflation
under check. Even food prices have also softened in recent past which
would translate into lower food inflation in coming weeks. We opine that softening
inflation and moderating growth (visible from recent IIP numbers) would
aid RBI to calibrate its policy rate hikes.
q We believe liquidity situation will improve in next 2-3 months (except during
mid March when advance tax payments occur) as Government spending is likely
to improve leading to lower wholesale borrowing rates, going forward. Banks
and NBFCs have raised their lending rates in response to rise in policy rates by
RBI in midst of tighter liquidity condition. However, we believe they would manage
their margin pressure as their loans get re-priced faster than their deposits
and also due to return of some pricing power to them.
q In a competitive scenario, PSU banks are facing problem of trained specialists.
On the other hand, automation has made many jobs quite redundant. It would
be beneficial if the Government allowed another round of VRS and permitted
banks to recruit specialists.
q There is a great appetite for bank stocks in the system, but FII/FDI limit is acting
against it. We would love to see a relaxation in this, but do not expect FII/FDI
limit in PSU banks to be hiked in this Budget from the current cap of 20%. We
also do not expect any relaxation in voting rights (Cap 10%) in the private
banks.
q Last but not the least, consolidation in the industry has so far only been restricted
to roundtables (except few deals). Now is the time to act on this, as
duplication of IT infrastructure, manpower and capital is becoming prohibitively
costly.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BANKING & NBFCS
Current view
q The credit growth in recent past has remained strong at around 23-24%; however,
deposit mobilization has not been commensurate with this leading to rise
in C/D ratio (~75% as on January 28, 2011 vs. ~72% as on October 22, 2010).
The loan book of banking system grew at 23.3% (as on January 28, 2011) as
against only 16.0% traction in deposits.
The mismatch between expansion of credit and deposit collection has been
partly responsible for tight liquidity condition in the system, forcing banks to
borrow money from RBI under LAF window. Although there is some volatility in
the initial days of a new reporting fortnight when banks tend to borrow more
to meet their regulatory requirements in advance, situation tends to improve
after few days. However, overall situation has improved with banks borrowing
lower under LAF window (average of ~Rs.750 bn during February 2011) as
against an average amount of Rs.1200 bn in December 10.
q Reported WPI for January 2011 came at 8.2% (YoY), lower than 8.4% (YoY)
witnessed during December 2010. On a YoY basis, core inflation fell to 6.9%
(YoY) in January 11 from 7.6% (YoY) in the previous month. This core inflation
is being driven by prices of non-food primary articles which grew 3% MoM in
January 11 as compared to 1.4% MoM in December 10. We believe core inflation
is still at elevated levels along with the known increase in primary articles.
It is to be noted that core inflation has shown significant sequential increases in
recent months, largely due to non-food primary articles. Going forward, we believe
its trajectory would largely depend on primary articles, although high inflationary
expectations and rising commodity prices may continue to put upward
pressure on prices.
However, we believe recent policy rate hikes would keep manufacturing inflation
under check. Even food prices have also softened in recent past which
would translate into lower food inflation in coming weeks. We opine that softening
inflation and moderating growth (visible from recent IIP numbers) would
aid RBI to calibrate its policy rate hikes.
q We believe liquidity situation will improve in next 2-3 months (except during
mid March when advance tax payments occur) as Government spending is likely
to improve leading to lower wholesale borrowing rates, going forward. Banks
and NBFCs have raised their lending rates in response to rise in policy rates by
RBI in midst of tighter liquidity condition. However, we believe they would manage
their margin pressure as their loans get re-priced faster than their deposits
and also due to return of some pricing power to them.
q In a competitive scenario, PSU banks are facing problem of trained specialists.
On the other hand, automation has made many jobs quite redundant. It would
be beneficial if the Government allowed another round of VRS and permitted
banks to recruit specialists.
q There is a great appetite for bank stocks in the system, but FII/FDI limit is acting
against it. We would love to see a relaxation in this, but do not expect FII/FDI
limit in PSU banks to be hiked in this Budget from the current cap of 20%. We
also do not expect any relaxation in voting rights (Cap 10%) in the private
banks.
q Last but not the least, consolidation in the industry has so far only been restricted
to roundtables (except few deals). Now is the time to act on this, as
duplication of IT infrastructure, manpower and capital is becoming prohibitively
costly.
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