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Union Bank has cut base rate by 10 bps to 10.65%. The rationale stems
from easing cost of funds for the bank, primarily on wholesale deposits
front. The bank is first in the lot to implement a rate cut, surely signaling
the peak of the current high interest rate regime. However, we do not
foresee other banks to match the move as any meaningful decline can
take place only after retail deposit rate cut –direct consequence of a repo
rate cut by RBI or post the end of busy credit season (till March 2012).
Base rate cut driven by easing pressure on cost of funds
Our interaction with the management indicates that this is in response to 5‐6bps
benefit on cost of funds witnessed by the bank in December due to some downward
repricing of high cost wholesale deposits coupled with reduced proportion of CDs
(came off from INR100bn to INR40bn over Q3FY12). The bank expects further
moderation in funding costs in the coming quarter. At present, 60% of its loans are
linked to base rate which will now be reprised lower by 10bps.
Across the board rate cuts still some time away
Union Bank is the first to cut base rate. While directionally, it marks the peak of lending
rate cycle, we do not expect rates to come down in a hurry till banks start cutting retail
deposit rates as well (which may not be the case during the busy credit season till
March). Higher rates offered on NRE/NRO deposits will also keep cost of deposits a bit
stickier on its way down. Along with this, any rate hike on savings bank accounts by a
large bank (SBI, ICICI, PNB etc.) can restrict decline in cost of deposits for the industry.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Union Bank has cut base rate by 10 bps to 10.65%. The rationale stems
from easing cost of funds for the bank, primarily on wholesale deposits
front. The bank is first in the lot to implement a rate cut, surely signaling
the peak of the current high interest rate regime. However, we do not
foresee other banks to match the move as any meaningful decline can
take place only after retail deposit rate cut –direct consequence of a repo
rate cut by RBI or post the end of busy credit season (till March 2012).
Base rate cut driven by easing pressure on cost of funds
Our interaction with the management indicates that this is in response to 5‐6bps
benefit on cost of funds witnessed by the bank in December due to some downward
repricing of high cost wholesale deposits coupled with reduced proportion of CDs
(came off from INR100bn to INR40bn over Q3FY12). The bank expects further
moderation in funding costs in the coming quarter. At present, 60% of its loans are
linked to base rate which will now be reprised lower by 10bps.
Across the board rate cuts still some time away
Union Bank is the first to cut base rate. While directionally, it marks the peak of lending
rate cycle, we do not expect rates to come down in a hurry till banks start cutting retail
deposit rates as well (which may not be the case during the busy credit season till
March). Higher rates offered on NRE/NRO deposits will also keep cost of deposits a bit
stickier on its way down. Along with this, any rate hike on savings bank accounts by a
large bank (SBI, ICICI, PNB etc.) can restrict decline in cost of deposits for the industry.
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