Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Banks-Retail
RBI: FY11-12 Monetary Policy
„RBI raises repo, savings rates by 50bps in monetary policy
RBI today announced its monetary policy for FY11-12. The focus of policy is on
containing inflationary pressures and simultaneously managing growth. The key
measures are 1) Repo rate hiked by 50bps (to 7.25%); 2) Savings rate hiked to
4.0% (from 3.5%) but still regulated; 3) increased provisioning across all NPL
categories based on NPL ageing profile. RBI has also 1) capped banks’
investment in liquid funds of MFs to 10% of previous year’s net worth; 2) banks to
open at least 25% of their incremental branches in tier 5 & 6 cities; 3) finally, RBI
has accepted the broad framework of regulations recommended by the Malegam
Committee by classifying MFI loans as ‘Priority sector’. CRR unchanged at 6%.
Saving hike can hurt; but may be offset by loan rate hikes
We had highlighted in our report on savings rate de-regulation (see- Savings rate
de-regulation, 14 March 2011) that increase in savings rate by 50bps may hurt
banks’ margins (see Table 1) by +8-11bps (earnings by ~3-6%) assuming no pass
through. But we believe banks will raise lending rates by +25-50bps (see Table 2)
that will more than offset savings hike impact owing to ALM mismatch that Indian
Banks enjoy. Yes Bank is least affected (1% of total dep. are savings).
…But loan growth may moderate to ~18%
The expected rise in lending rates may, however, impact growth during the course
of the year. We think loan growth could moderate to 18% v/s our current estimate
of 20%. But, the sensitivity of earnings to growth Is much less. For every 100bps
change in loan growth, earnings impacted by 80-100bps. We believe that the
impact on growth is likely to be more visible in FY13.
Provisioning norm change- impact may be minimal
RBI has increased provisioning norms across all categories based on NPL ageing
profile (by 5-10 percentage points). But most banks today have cover of +70-85%,
hence impact minimal. SBI, the only bank with cover of ~65% may be impacted,
but impact likely to be minimal and moreover we are still building in higher credit
costs for SBI (~80bps for FY12). More importantly, overall impact from these
changes likely will be much less than burden of maintaining 70% cover at all times
(see- Provisioning cover norms, 25 April 2011),. Impact from change in
restructured provisions (2% flat for first 2 years vs. 0.25-1.0% earlier) to be
minimal, as most banks have reported coverage of +70-85%.
Frontline banks (SBI, ICICI, HDFC Bk) better positioned
We believe frontline banks (SBI, ICICI, and HDFC BK) are still amongst the better
positioned banks to manage the rising rates and macro headwinds and deliver on
+30% earnings growth in FY12. Private banks, especially ICICI and HDFC Bank
also offer high asset-quality comfort. Amongst govt. banks, we still like SBI that
still provides high earnings visibility and most leveraged to any lending rate hikes.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Banks-Retail
RBI: FY11-12 Monetary Policy
„RBI raises repo, savings rates by 50bps in monetary policy
RBI today announced its monetary policy for FY11-12. The focus of policy is on
containing inflationary pressures and simultaneously managing growth. The key
measures are 1) Repo rate hiked by 50bps (to 7.25%); 2) Savings rate hiked to
4.0% (from 3.5%) but still regulated; 3) increased provisioning across all NPL
categories based on NPL ageing profile. RBI has also 1) capped banks’
investment in liquid funds of MFs to 10% of previous year’s net worth; 2) banks to
open at least 25% of their incremental branches in tier 5 & 6 cities; 3) finally, RBI
has accepted the broad framework of regulations recommended by the Malegam
Committee by classifying MFI loans as ‘Priority sector’. CRR unchanged at 6%.
Saving hike can hurt; but may be offset by loan rate hikes
We had highlighted in our report on savings rate de-regulation (see- Savings rate
de-regulation, 14 March 2011) that increase in savings rate by 50bps may hurt
banks’ margins (see Table 1) by +8-11bps (earnings by ~3-6%) assuming no pass
through. But we believe banks will raise lending rates by +25-50bps (see Table 2)
that will more than offset savings hike impact owing to ALM mismatch that Indian
Banks enjoy. Yes Bank is least affected (1% of total dep. are savings).
…But loan growth may moderate to ~18%
The expected rise in lending rates may, however, impact growth during the course
of the year. We think loan growth could moderate to 18% v/s our current estimate
of 20%. But, the sensitivity of earnings to growth Is much less. For every 100bps
change in loan growth, earnings impacted by 80-100bps. We believe that the
impact on growth is likely to be more visible in FY13.
Provisioning norm change- impact may be minimal
RBI has increased provisioning norms across all categories based on NPL ageing
profile (by 5-10 percentage points). But most banks today have cover of +70-85%,
hence impact minimal. SBI, the only bank with cover of ~65% may be impacted,
but impact likely to be minimal and moreover we are still building in higher credit
costs for SBI (~80bps for FY12). More importantly, overall impact from these
changes likely will be much less than burden of maintaining 70% cover at all times
(see- Provisioning cover norms, 25 April 2011),. Impact from change in
restructured provisions (2% flat for first 2 years vs. 0.25-1.0% earlier) to be
minimal, as most banks have reported coverage of +70-85%.
Frontline banks (SBI, ICICI, HDFC Bk) better positioned
We believe frontline banks (SBI, ICICI, and HDFC BK) are still amongst the better
positioned banks to manage the rising rates and macro headwinds and deliver on
+30% earnings growth in FY12. Private banks, especially ICICI and HDFC Bank
also offer high asset-quality comfort. Amongst govt. banks, we still like SBI that
still provides high earnings visibility and most leveraged to any lending rate hikes.
No comments:
Post a Comment