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Deposits increased by Rs565bn in the fortnight ended 11 March 2011 (Rs417bn growth in the
previous fortnight). Deposit growth was 16.6% yoy as of 11 March 2011 (18.1% yoy as of 12
March 2010). Deposit mobilisation has picked up in the recent past and appears to be gaining
some momentum, partly due to 100-150bp hikes in deposit rates by most banks since August -
September 2010.
Loans grew 23.2% yoy as of 11 March 2011 (16% yoy as of 12 March 2010). Absolute net loans
grew Rs456bn for the fortnight ended 11 March 2011 (vs Rs259bn growth in the previous
fortnight).
The liquidity situation appears to be improving marginally. Banks have been net borrowers from
Reserve Bank of India to the tune of about Rs830bn average daily in March 2011 till date (about
Rs900bn average in January 2011 and Rs780bn in February 2011).
The three-month certificate of deposit (CD) rate has risen to 10.1% (+490bp yoy) and the 12-
month CD rate has gone up to 10.2% (+380bp yoy). In general, a sustained flattening of this yield
curve will put pressure on net interest margins.
The ytd deposit growth was 14.4%, ytd loan growth was 18.9% and the incremental ytd loan-todeposit
ratio is about 95%.
Base rates for lending are now 9.0-9.5% 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% 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 PSB picks are the State Bank of India, Punjab National Bank and Bank of Baroda
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Deposits increased by Rs565bn in the fortnight ended 11 March 2011 (Rs417bn growth in the
previous fortnight). Deposit growth was 16.6% yoy as of 11 March 2011 (18.1% yoy as of 12
March 2010). Deposit mobilisation has picked up in the recent past and appears to be gaining
some momentum, partly due to 100-150bp hikes in deposit rates by most banks since August -
September 2010.
Loans grew 23.2% yoy as of 11 March 2011 (16% yoy as of 12 March 2010). Absolute net loans
grew Rs456bn for the fortnight ended 11 March 2011 (vs Rs259bn growth in the previous
fortnight).
The liquidity situation appears to be improving marginally. Banks have been net borrowers from
Reserve Bank of India to the tune of about Rs830bn average daily in March 2011 till date (about
Rs900bn average in January 2011 and Rs780bn in February 2011).
The three-month certificate of deposit (CD) rate has risen to 10.1% (+490bp yoy) and the 12-
month CD rate has gone up to 10.2% (+380bp yoy). In general, a sustained flattening of this yield
curve will put pressure on net interest margins.
The ytd deposit growth was 14.4%, ytd loan growth was 18.9% and the incremental ytd loan-todeposit
ratio is about 95%.
Base rates for lending are now 9.0-9.5% 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% 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 PSB picks are the State Bank of India, Punjab National Bank and Bank of Baroda
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