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SBI Raises Lending Rates
Quick Comment – What's new: SBI has increased
lending rates – both the prime lending rate and the base
rate – by 75 bps to 14% for the prime lending rate and to
9.25% for the base rate.
SBI increased the deposit rates but only in the shorter
maturity buckets (by 75-225 bps) – the deposit rate in
the key 1-2 year bucket (555 day maturity) has been left
unchanged at 9.25%.
Buffer against intensifying funding pressure... The
lending rate hike was clearly sharper than expectations.
Indeed, following today's move, SBI's PLR at 14.0% has
gone past the previous cycle peak level of 13.75%.
In our view, the intensifying funding pressures on
account of deposit repricing has driven this sharp
increase in lending rates in a bid to buffer margin
compression (which was already evident in the results of
other SOE banks that have reported so far).
While this move could temper the pace of margin
compression in the near term (assuming deposit rates
continue to remain around the current levels), we
continue to believe that SBI and other SOE banks will
continue to see margin pressure intensifying in the
coming quarters. This hike will only be applicable on
60-70% of the loan book which is floating rate in nature –
yields on the balance interest earning assets, i.e. fixed
rate loans and the bond book, will continue to remain
sticky. Further, the incremental loan to deposit ratio
since mid-December (when SBI starting raising deposit
rates aggressively) is running at 54%.
Outlook for loan growth and asset quality getting
more uncertain: We maintain our Cautious industry
view. Given that lending rates have now moved up by
225 bps from bottom and are now beyond previous peak
levels, it increases the uncertainty with regards both
loan demand and more importantly asset quality
outlook.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
SBI Raises Lending Rates
Quick Comment – What's new: SBI has increased
lending rates – both the prime lending rate and the base
rate – by 75 bps to 14% for the prime lending rate and to
9.25% for the base rate.
SBI increased the deposit rates but only in the shorter
maturity buckets (by 75-225 bps) – the deposit rate in
the key 1-2 year bucket (555 day maturity) has been left
unchanged at 9.25%.
Buffer against intensifying funding pressure... The
lending rate hike was clearly sharper than expectations.
Indeed, following today's move, SBI's PLR at 14.0% has
gone past the previous cycle peak level of 13.75%.
In our view, the intensifying funding pressures on
account of deposit repricing has driven this sharp
increase in lending rates in a bid to buffer margin
compression (which was already evident in the results of
other SOE banks that have reported so far).
While this move could temper the pace of margin
compression in the near term (assuming deposit rates
continue to remain around the current levels), we
continue to believe that SBI and other SOE banks will
continue to see margin pressure intensifying in the
coming quarters. This hike will only be applicable on
60-70% of the loan book which is floating rate in nature –
yields on the balance interest earning assets, i.e. fixed
rate loans and the bond book, will continue to remain
sticky. Further, the incremental loan to deposit ratio
since mid-December (when SBI starting raising deposit
rates aggressively) is running at 54%.
Outlook for loan growth and asset quality getting
more uncertain: We maintain our Cautious industry
view. Given that lending rates have now moved up by
225 bps from bottom and are now beyond previous peak
levels, it increases the uncertainty with regards both
loan demand and more importantly asset quality
outlook.
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