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ƒ This note analyses the impact of savings rate hike and new provisions
ƒ Lower incremental provisions should offset higher interest costs
ƒ Bank stocks likely to be rangebound until the impact becomes clearer
ƒ We recommend buying on dips – top picks: IIB, Axis and ICICI
Quantifying savings rate hike
Higher savings rate offset by lower provision norms
This note quantifies the indicative impact of two policy measures from RBI’s May
3 monetary policy on our coverage universe – we assess the impact on FY12E
earnings from the higher rate on savings deposits (4% versus the earlier 3.5%)
and the new provision coverage norms versus the earlier 70%.
What is not accounted for in this calculation
1 Potential increase in lending and term deposit rates on loan growth, NIMs and
credit costs – on the back of Tuesday’s (3 May) 50bp hike in repo and
reverse repo rates.
2 Potential increase in transaction fees by banks to offset increase in savings
deposit rate.
3 We assume that the current available counter-cyclical provision buffer cannot
be used to offset incremental FY12 provisions.
What we found
1 The negative impact from the higher savings account interest rate will likely
be offset by the lower expected provisions on incremental slippages into
FY12.
2 In terms of our FY12E earnings, SBI, PNB, and IIB are potential beneficiaries
(in the range of 4-8%). We expect them to have the highest headroom to
manage their earnings growth in FY12.
3 HDFC Bank could see a negative earnings impact of about 8%, due to higher
savings account interest cost and little benefits from lower provisions.
Sector outlook
In our current estimates (not yet revised after 4Q11 results), we are factoring in
average loan growth of 20% for FY12 and NIM compression of 20-30bp. Our loan
loss provisions for FY12 are 15% higher than FY11. The sector is likely to be
under pressure till the higher savings deposit rate, revised provision norms and
policy rate hikes are digested into the Street estimates. We recommend investors
to be selective buyers in stocks where the risk-reward is attractive at the current
levels – IIB, Axis, ICICI Bank. Key risks – higher-than-expected inflation levels
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ƒ This note analyses the impact of savings rate hike and new provisions
ƒ Lower incremental provisions should offset higher interest costs
ƒ Bank stocks likely to be rangebound until the impact becomes clearer
ƒ We recommend buying on dips – top picks: IIB, Axis and ICICI
Quantifying savings rate hike
Higher savings rate offset by lower provision norms
This note quantifies the indicative impact of two policy measures from RBI’s May
3 monetary policy on our coverage universe – we assess the impact on FY12E
earnings from the higher rate on savings deposits (4% versus the earlier 3.5%)
and the new provision coverage norms versus the earlier 70%.
What is not accounted for in this calculation
1 Potential increase in lending and term deposit rates on loan growth, NIMs and
credit costs – on the back of Tuesday’s (3 May) 50bp hike in repo and
reverse repo rates.
2 Potential increase in transaction fees by banks to offset increase in savings
deposit rate.
3 We assume that the current available counter-cyclical provision buffer cannot
be used to offset incremental FY12 provisions.
What we found
1 The negative impact from the higher savings account interest rate will likely
be offset by the lower expected provisions on incremental slippages into
FY12.
2 In terms of our FY12E earnings, SBI, PNB, and IIB are potential beneficiaries
(in the range of 4-8%). We expect them to have the highest headroom to
manage their earnings growth in FY12.
3 HDFC Bank could see a negative earnings impact of about 8%, due to higher
savings account interest cost and little benefits from lower provisions.
Sector outlook
In our current estimates (not yet revised after 4Q11 results), we are factoring in
average loan growth of 20% for FY12 and NIM compression of 20-30bp. Our loan
loss provisions for FY12 are 15% higher than FY11. The sector is likely to be
under pressure till the higher savings deposit rate, revised provision norms and
policy rate hikes are digested into the Street estimates. We recommend investors
to be selective buyers in stocks where the risk-reward is attractive at the current
levels – IIB, Axis, ICICI Bank. Key risks – higher-than-expected inflation levels
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