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The RBI's decision today to deregulate the interest rate on savings bank deposits (fixed at 4.0%
pa) is on the margin a positive for YES Bank (Buy) and IndusInd Bank (Hold). However, with little
incentive for large incumbents to engage in a rate war, we believe a material market share shift in
savings deposits is unlikely.
Deregulation of the savings deposits rate…
The Reserve Bank of India today announced deregulation of the savings bank deposit interest
rate subject to the following: 1) a bank must offer a uniform interest rate on savings bank deposits
with a ticket size of less than or equal to Rs0.1m; and 2) banks may offer differential pricing to
savings deposits of ticket sizes exceeding Rs0.1m, but uniform pricing must be applied to similarsized
deposits.
… a positive for smaller players such as YES Bank, IndusInd Bank, and IDBI Bank
We believe savings deposits accretion in a deregulated environment is likely to be easier for
smaller players such as YES (Buy), IndusInd Bank (Hold) and IDBI Bank (Hold), which had
savings deposits at 2.0%, 8.9% and 8.7% (of total deposits), respectively, as of September.
Earlier this evening, YES raised its savings deposit rate to 6.0% pa. However, the transactional
nature of these deposits implies that the smaller banks must continue to invest in a branch
network and IT infrastructure to penetrate the savings deposits market.
We believe impact on incumbents may be negligible
We believe deregulation’s impact on large incumbents (which together control more than 60% of
the saving banks deposit market share in India) is unlikely to be significant if those incumbents
themselves do not engage in a rate war (similar to SBI’s ‘teaser’ mortgage scheme). We believe
smaller players’ ability to drive price competition in savings deposits is limited. As of this date,
large incumbent banks generally pay 50-100bp lower on term deposits (see Table 5).
Economics of a savings bank deposit
The average ticket size of savings deposits in India’s banking system is about Rs25,000 (about
US$500). Even at a 100bp incremental deposit rate (over incumbents), it may be difficult to attract
customers, because the economic loss would be a mere Rs250 per year (about US$5) (see
Table 6). In large-ticket accounts, where freefloat (to the bank) is significant, most customers
avail themselves of the ‘sweep facility’. Thus, rate-sensitive high-end savings bank customers are
taken care of. In the current environment, savings deposits appear fairly priced at 4% as the
estimated cost of servicing ranges from 1.5% to 2.5% and the current 90-day term deposits cost
6.5-7.0%
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
The RBI's decision today to deregulate the interest rate on savings bank deposits (fixed at 4.0%
pa) is on the margin a positive for YES Bank (Buy) and IndusInd Bank (Hold). However, with little
incentive for large incumbents to engage in a rate war, we believe a material market share shift in
savings deposits is unlikely.
Deregulation of the savings deposits rate…
The Reserve Bank of India today announced deregulation of the savings bank deposit interest
rate subject to the following: 1) a bank must offer a uniform interest rate on savings bank deposits
with a ticket size of less than or equal to Rs0.1m; and 2) banks may offer differential pricing to
savings deposits of ticket sizes exceeding Rs0.1m, but uniform pricing must be applied to similarsized
deposits.
… a positive for smaller players such as YES Bank, IndusInd Bank, and IDBI Bank
We believe savings deposits accretion in a deregulated environment is likely to be easier for
smaller players such as YES (Buy), IndusInd Bank (Hold) and IDBI Bank (Hold), which had
savings deposits at 2.0%, 8.9% and 8.7% (of total deposits), respectively, as of September.
Earlier this evening, YES raised its savings deposit rate to 6.0% pa. However, the transactional
nature of these deposits implies that the smaller banks must continue to invest in a branch
network and IT infrastructure to penetrate the savings deposits market.
We believe impact on incumbents may be negligible
We believe deregulation’s impact on large incumbents (which together control more than 60% of
the saving banks deposit market share in India) is unlikely to be significant if those incumbents
themselves do not engage in a rate war (similar to SBI’s ‘teaser’ mortgage scheme). We believe
smaller players’ ability to drive price competition in savings deposits is limited. As of this date,
large incumbent banks generally pay 50-100bp lower on term deposits (see Table 5).
Economics of a savings bank deposit
The average ticket size of savings deposits in India’s banking system is about Rs25,000 (about
US$500). Even at a 100bp incremental deposit rate (over incumbents), it may be difficult to attract
customers, because the economic loss would be a mere Rs250 per year (about US$5) (see
Table 6). In large-ticket accounts, where freefloat (to the bank) is significant, most customers
avail themselves of the ‘sweep facility’. Thus, rate-sensitive high-end savings bank customers are
taken care of. In the current environment, savings deposits appear fairly priced at 4% as the
estimated cost of servicing ranges from 1.5% to 2.5% and the current 90-day term deposits cost
6.5-7.0%
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