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In a surprise move, SBI has raised both the prime lending rate and the base rate by 25bp to
14.25% and 9.50%, respectively, with effect from 11 July 2011. The cumulative increase in
lending rates is about 190bp since December 2010 (see Table 1 below).
Further, the bank has increased the term deposit rates by 75-100bp (see table below) across
various maturity buckets.
Impact analysis:
In recent days, the 3-month certificate of deposit rate (a reflection of wholesale borrowing costs)
has increased from 8.4% on 1 July to 9.0% as of 7 July. The one-year CD rates have remained
largely stable in the range of 9.8-9.9%.
SBI has increased the retail term deposit rates to 7.0% for deposits up to 90 days and to 9.25%
for deposits over one year.
At present, it is difficult to assess the impact of the above measures on the bank’s NIMs.
However, management had earlier guided for NIMs of 3.5% for FY12 vs 3.3% in FY11.
Valuation
SBI (including associate banks) trades at 1.6x FY12F book value and 9.0x FY12F earnings. We
maintain Buy on SBI.
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