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India: Financial Services
Equity Research
RBI hikes rates by 50 bp; savings rate up to 4%
RBI hikes repo/reverse repo rates; introduces MSF; CRR unchanged
The RBI raised the repo rate by 50 bp from 6.75% to 7.25%. As per the new
operating procedure that was announced in the monetary policy, the
reverse repo rate—determined with a 100 bp spread below the repo rate—
is now at 6.25%. The Marginal Standing Facility (MSF) rate—the rate at
which banks can borrow overnight from the MSF up to 1% of their net
demand and time liabilities (NDTL) and determined with a spread of 100 bp
above the repo rate—is set at 8.25%.
Savings rate up to 4% from 3.5%; will enhance provisioning norms
for NPA/restructured advances
RBI increased the savings bank deposit interest rate to 4.0% from 3.5% with
immediate effect. RBI will also enhance provisioning requirements on
certain categories of non-performing advances and restructured advances,
the details of which are awaited.
Savings rate hike impact likely to be negative, unless banks pass
on costs
We believe the impact of the saving rate hike on banks’ margins could be
negative, unless: (1) banks pass on the higher cost to borrowers, (2) they
charge higher fees for transactions, (3) require higher account balances,
remove other free services that come along with such deposits. We believe
it will be a combination of both, but banks may still see a net impact on
margins and profit in the short to medium-term until rates stabilize. Our
sensitivity analysis indicates that the impact on margins could range
between -0.02 bp to - 0.64 bp and PBT by -0.4% to -36% for FY2012E (for
details, refer to our report RBI favours savings rate deregulation; negative
near-term for banks, dated April 29, 2011).
Given the combination of savings rate increase and repo rate hike, banks
would likely need to hike their prime lending rates and base rates by 50 bp,
in our view, to maintain margins.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India: Financial Services
Equity Research
RBI hikes rates by 50 bp; savings rate up to 4%
RBI hikes repo/reverse repo rates; introduces MSF; CRR unchanged
The RBI raised the repo rate by 50 bp from 6.75% to 7.25%. As per the new
operating procedure that was announced in the monetary policy, the
reverse repo rate—determined with a 100 bp spread below the repo rate—
is now at 6.25%. The Marginal Standing Facility (MSF) rate—the rate at
which banks can borrow overnight from the MSF up to 1% of their net
demand and time liabilities (NDTL) and determined with a spread of 100 bp
above the repo rate—is set at 8.25%.
Savings rate up to 4% from 3.5%; will enhance provisioning norms
for NPA/restructured advances
RBI increased the savings bank deposit interest rate to 4.0% from 3.5% with
immediate effect. RBI will also enhance provisioning requirements on
certain categories of non-performing advances and restructured advances,
the details of which are awaited.
Savings rate hike impact likely to be negative, unless banks pass
on costs
We believe the impact of the saving rate hike on banks’ margins could be
negative, unless: (1) banks pass on the higher cost to borrowers, (2) they
charge higher fees for transactions, (3) require higher account balances,
remove other free services that come along with such deposits. We believe
it will be a combination of both, but banks may still see a net impact on
margins and profit in the short to medium-term until rates stabilize. Our
sensitivity analysis indicates that the impact on margins could range
between -0.02 bp to - 0.64 bp and PBT by -0.4% to -36% for FY2012E (for
details, refer to our report RBI favours savings rate deregulation; negative
near-term for banks, dated April 29, 2011).
Given the combination of savings rate increase and repo rate hike, banks
would likely need to hike their prime lending rates and base rates by 50 bp,
in our view, to maintain margins.
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