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RBI Mid-quarter Monetary Policy Review
The Reserve Bank of India (RBI) in line with our as well as street’s expectation resumed its
gradual monetary tightening stance and hiked the repo rate by 25bp. In our view, this hike
is unlikely to cause across-the-board increase in lending rates as witnessed after the last
policy review in May, due to relatively smaller impact on the cost of funds as compared to
a saving rate hike. The banks have already hiked base rate by 150-300bps since it was
introduced in July, 2010. The credit growth has moderated from the recent peaks, as
evident from decline in credit off-take by 23.5% yoy in the last three months.
We believe that the lending rates are likely to peak at a lower level in this cycle compared
to the previous one as the inadequacy of forex inflows in this cycle is likely to lead to a
weaker demand momentum. We expect the lending rates to peak at ~50bp from the
current levels. Hence, we maintain our positive stance on the banking sector, taking into
account the still healthy credit demand and good earnings visibility for large banks. We
continue to recommend selective stock-picking strategy and favour the large private sector
banks over the public ones. Our top picks include Axis Bank and ICICI Bank from the
private banking universe and SBI and Bank of Baroda from the public sector banks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
RBI Mid-quarter Monetary Policy Review
The Reserve Bank of India (RBI) in line with our as well as street’s expectation resumed its
gradual monetary tightening stance and hiked the repo rate by 25bp. In our view, this hike
is unlikely to cause across-the-board increase in lending rates as witnessed after the last
policy review in May, due to relatively smaller impact on the cost of funds as compared to
a saving rate hike. The banks have already hiked base rate by 150-300bps since it was
introduced in July, 2010. The credit growth has moderated from the recent peaks, as
evident from decline in credit off-take by 23.5% yoy in the last three months.
We believe that the lending rates are likely to peak at a lower level in this cycle compared
to the previous one as the inadequacy of forex inflows in this cycle is likely to lead to a
weaker demand momentum. We expect the lending rates to peak at ~50bp from the
current levels. Hence, we maintain our positive stance on the banking sector, taking into
account the still healthy credit demand and good earnings visibility for large banks. We
continue to recommend selective stock-picking strategy and favour the large private sector
banks over the public ones. Our top picks include Axis Bank and ICICI Bank from the
private banking universe and SBI and Bank of Baroda from the public sector banks.
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