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RBI de-regulates rates on non-resident deposits; limited impact
News
Reserve Bank of India (RBI) has de-regulated interest rates on non-resident
(external) rupee (NRE) deposits and ordinary non-resident (NRO) accounts.
The interest rates offered on non-resident (NR) deposits by the banks
cannot be higher than those offered on comparable INR deposits. The
revised rates will be applicable on new and renewed deposits. Currently,
premature withdrawal is allowed, but no interest is payable on NRE
deposits withdrawn before 12 months (15 days for NRO deposits).
According to RBI, given the current environment of a shortage in dollar
funding and sharp currency depreciation, the de-regulation provides
flexibility to banks in mobilizing NR deposits.
Analysis
The current differential between the INR term deposits and NRE deposits
(LIBOR/Swap +275bp) in the 1-3 year category is 450-575bp industry-wide.
We believe the interest rates on NRE deposits can potentially move up by
200-300bp due to a) greater demand for foreign exchange deposits, and b)
the lower rates relative to even wholesale deposits. However, given the
moderating credit growth, we expect rational behavior by banks on interest
rates offered on NR deposits.
Implications
NR deposits account for 4.5% of total deposits in the system; therefore, we
do not believe the impact on margins for banks would be material, except
for those that have a higher proportion of NR deposits such as Federal
Bank, which has c.7% market share in total NRE deposits in India. Federal
Bank traditionally has had a higher proportion of NR deposits due to its
significant presence in Kerala, a state with a relatively higher NRI
population vs. other states in the country. Federal Bank has c.14% of its
deposit mix in NRE deposits as of 2QFY12. Assuming 50% of NRE deposits
get re-priced, given the revised rates will be applicable to new and
renewed deposits, at a 200bp higher interest rate we estimate the impact
on Federal Bank’s FY13E NIM would be 8-10bp and approx. 2-4% on NII
and PAT, respectively. Given attractive valuations and best-in-class
operating matrix, we maintain our target price and estimates on Federal
Bank.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
RBI de-regulates rates on non-resident deposits; limited impact
News
Reserve Bank of India (RBI) has de-regulated interest rates on non-resident
(external) rupee (NRE) deposits and ordinary non-resident (NRO) accounts.
The interest rates offered on non-resident (NR) deposits by the banks
cannot be higher than those offered on comparable INR deposits. The
revised rates will be applicable on new and renewed deposits. Currently,
premature withdrawal is allowed, but no interest is payable on NRE
deposits withdrawn before 12 months (15 days for NRO deposits).
According to RBI, given the current environment of a shortage in dollar
funding and sharp currency depreciation, the de-regulation provides
flexibility to banks in mobilizing NR deposits.
Analysis
The current differential between the INR term deposits and NRE deposits
(LIBOR/Swap +275bp) in the 1-3 year category is 450-575bp industry-wide.
We believe the interest rates on NRE deposits can potentially move up by
200-300bp due to a) greater demand for foreign exchange deposits, and b)
the lower rates relative to even wholesale deposits. However, given the
moderating credit growth, we expect rational behavior by banks on interest
rates offered on NR deposits.
Implications
NR deposits account for 4.5% of total deposits in the system; therefore, we
do not believe the impact on margins for banks would be material, except
for those that have a higher proportion of NR deposits such as Federal
Bank, which has c.7% market share in total NRE deposits in India. Federal
Bank traditionally has had a higher proportion of NR deposits due to its
significant presence in Kerala, a state with a relatively higher NRI
population vs. other states in the country. Federal Bank has c.14% of its
deposit mix in NRE deposits as of 2QFY12. Assuming 50% of NRE deposits
get re-priced, given the revised rates will be applicable to new and
renewed deposits, at a 200bp higher interest rate we estimate the impact
on Federal Bank’s FY13E NIM would be 8-10bp and approx. 2-4% on NII
and PAT, respectively. Given attractive valuations and best-in-class
operating matrix, we maintain our target price and estimates on Federal
Bank.
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