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Deposits increased by Rs 377bn in the fortnight ended 28 Jan 2011 (Rs257bn degrowth in
the previous fortnight). Deposit growth was about 16% yoy as of 28 Jan 2011 (17% yoy as of
29 Jan 2010). Note, deposit mobilisation had picked up steadily in the recent past partly on
account of 100-150bp hike in deposit rates by most banks since Aug-Sept 2010.
Loans grew 23.2% yoy as of 28 Jan 2011 (14.8% yoy as of 29 Jan 2010). Absolute net loans
grew Rs153bn for the fortnight ended 28 Jan 2011 (vs Rs433bn degrowth in the previous
fortnight).
Investments grew 5.6% yoy as of 28 Jan 2011 (20.0% yoy as of 29 Jan 2010)
Liquidity deficit apperas to have come down marginally in the very recent past. Banks have
been net borrowers from RBI to the tune of about Rs600bn average daily in Feb 2011 till date
(about Rs900bn average in Jan 2011). Investments by banks in mutual funds were Rs710bn
as of 14 Jan 2011 (the last reported period).
The three-month certificate of deposit (CD) rate has gone up to 9.75% (+440bp yoy) and 12-
month CD rate has gone up to about 10% (+350bp yoy). In general, a sustained flattening of
this yield curve will put pressure on net interest margins.
The ytd deposit growth was 10.9% and ytd loan growth was about 15%. Deposit growth
seems to be catching up steadily but still lags the loan growth and loan-deposit 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 turn 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 377bn in the fortnight ended 28 Jan 2011 (Rs257bn degrowth in
the previous fortnight). Deposit growth was about 16% yoy as of 28 Jan 2011 (17% yoy as of
29 Jan 2010). Note, deposit mobilisation had picked up steadily in the recent past partly on
account of 100-150bp hike in deposit rates by most banks since Aug-Sept 2010.
Loans grew 23.2% yoy as of 28 Jan 2011 (14.8% yoy as of 29 Jan 2010). Absolute net loans
grew Rs153bn for the fortnight ended 28 Jan 2011 (vs Rs433bn degrowth in the previous
fortnight).
Investments grew 5.6% yoy as of 28 Jan 2011 (20.0% yoy as of 29 Jan 2010)
Liquidity deficit apperas to have come down marginally in the very recent past. Banks have
been net borrowers from RBI to the tune of about Rs600bn average daily in Feb 2011 till date
(about Rs900bn average in Jan 2011). Investments by banks in mutual funds were Rs710bn
as of 14 Jan 2011 (the last reported period).
The three-month certificate of deposit (CD) rate has gone up to 9.75% (+440bp yoy) and 12-
month CD rate has gone up to about 10% (+350bp yoy). In general, a sustained flattening of
this yield curve will put pressure on net interest margins.
The ytd deposit growth was 10.9% and ytd loan growth was about 15%. Deposit growth
seems to be catching up steadily but still lags the loan growth and loan-deposit 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 turn 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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