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In FY11, year-to-date, infrastructure loans continue to drive industry loan growth and loans to
NBFC have grown sharply. In the past couple of days, liquidity has steadily improved, loan
growth appears to be moderating and deposit growth is rising. We maintain our cautiously
optimistic view. Buy SBI.
April 2010-January 2011: 15% ytd loan growth
Loans between April 2010 and January 2011 grew about 15%. Within that, loans to industry
and services sector grew 17% each and the personal segment by 13%. Loans growth ytd to
the agricultural sector was the lowest at 5%. In terms of individual segments – loans to nonbanking
finance companies (NBFCs) grew 36% ytd; to professional and other services 33%,
the power sector 35% and the telecom sector 62%.
April 2010-January 2011: Absolute loan growth mix
In that period, absolute net loans grew Rs4,453bn ytd, of which loans to industry (small,
medium and large enterprises) accounted for about 51%; loans to the services sector about
27%; loans to the personal segment 17%; and agriculture and allied activities 5%. Within
industry loans, the infrastructure (power, telecom and transportation) segment contributed
about 52%. Within services, NBFCs contributed about 34%. Within the personal segment,
mortgage/housing loans contributed about 49%.
Deposit mobilisation picking up pace; liquidity improving
In the fortnight ended 25 February 2011, deposits increased Rs417bn while loans grew by
Rs259bn. In the recent past on a fortnightly basis, deposit growth has been higher than loan
growth (Chart 3). Liquidity appears to be improving; Indian banks net borrowed Rs580bn
daily (average) from the Reserve Bank of India (RBI) from 1 March 2011 to date
We maintain our cautiously optimistic view; prefer public-sector banks, Buy SBI
Base rates for lending are now 9.0-9.5% (Chart 5) and we believe a further 50-75bp hike in
lending rates will likely moderate the incremental demand for loans. One-year term deposit rates
are now 8.25-8.50% (Chart 6) and we believe a 50-75bp hike in deposit rates will likely accelerate
deposit growth. Going forward, a combination of rising deposit growth and a moderation in loan
growth should 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 are cautiously
optimistic on the sector. As earlier, we continue to prefer public sector banks (PSBs) over private
sector, (PSBs, in general are trading at 1.0-1.7x FY12 book value and 6.0-9.0x earnings, based
on our estimates. Our top picks among the PSBs are State Bank of India (SBI), Punjab National
Bank (PNB) and Bank of Baroda (BOB).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
In FY11, year-to-date, infrastructure loans continue to drive industry loan growth and loans to
NBFC have grown sharply. In the past couple of days, liquidity has steadily improved, loan
growth appears to be moderating and deposit growth is rising. We maintain our cautiously
optimistic view. Buy SBI.
April 2010-January 2011: 15% ytd loan growth
Loans between April 2010 and January 2011 grew about 15%. Within that, loans to industry
and services sector grew 17% each and the personal segment by 13%. Loans growth ytd to
the agricultural sector was the lowest at 5%. In terms of individual segments – loans to nonbanking
finance companies (NBFCs) grew 36% ytd; to professional and other services 33%,
the power sector 35% and the telecom sector 62%.
April 2010-January 2011: Absolute loan growth mix
In that period, absolute net loans grew Rs4,453bn ytd, of which loans to industry (small,
medium and large enterprises) accounted for about 51%; loans to the services sector about
27%; loans to the personal segment 17%; and agriculture and allied activities 5%. Within
industry loans, the infrastructure (power, telecom and transportation) segment contributed
about 52%. Within services, NBFCs contributed about 34%. Within the personal segment,
mortgage/housing loans contributed about 49%.
Deposit mobilisation picking up pace; liquidity improving
In the fortnight ended 25 February 2011, deposits increased Rs417bn while loans grew by
Rs259bn. In the recent past on a fortnightly basis, deposit growth has been higher than loan
growth (Chart 3). Liquidity appears to be improving; Indian banks net borrowed Rs580bn
daily (average) from the Reserve Bank of India (RBI) from 1 March 2011 to date
We maintain our cautiously optimistic view; prefer public-sector banks, Buy SBI
Base rates for lending are now 9.0-9.5% (Chart 5) and we believe a further 50-75bp hike in
lending rates will likely moderate the incremental demand for loans. One-year term deposit rates
are now 8.25-8.50% (Chart 6) and we believe a 50-75bp hike in deposit rates will likely accelerate
deposit growth. Going forward, a combination of rising deposit growth and a moderation in loan
growth should 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 are cautiously
optimistic on the sector. As earlier, we continue to prefer public sector banks (PSBs) over private
sector, (PSBs, in general are trading at 1.0-1.7x FY12 book value and 6.0-9.0x earnings, based
on our estimates. Our top picks among the PSBs are State Bank of India (SBI), Punjab National
Bank (PNB) and Bank of Baroda (BOB).
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