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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://content.icicidirect.com/mailimages/ICICIdirect_RBIActions_April2012.pdf
Positive surprise of 50 bps but future cuts?
Key policy statements….
ƒ The RBI surprised us with a repo rate cut of 50 bps to 8%. However,
the central bank indicated that future rate cuts may be limited due to
upside risks in inflation
ƒ The central bank kept the CRR unchanged 4.75%
ƒ The marginal standing facility (MSF) borrowing limit was raised by
100 bps to 2% of NDTL while the MSF rate was changed to 9.0%
ƒ GDP growth target for FY13 was projected at 7.3%. Also, FY12
growth is expected to be 7%
ƒ M3 growth for FY13 is projected at 15% whereas it has fallen to 13%
as on March 2012
ƒ The path of inflation in FY13 could remain sticky around current
levels due to high oil prices, large suppressed inflation, exchange
rate pass-through, impact of freight and tax hikes, wage pressure
and structural impediments to supply response. Inflation is expected
to be 6.5% for FY13
ƒ Growth in non-food credit of SCBs is projected at 17%. FY12 credit
growth of 19.3% came way above RBI’s projection of 16%, thanks to
last 20 days lending in March 2012.
ƒ Aggregate deposits of SCBs are projected to grow by 16 %.
Developmental steps announced…
ƒ Banks cannot levy foreclosure charges/pre-payment penalties on
home loans on a floating interest rate basis
ƒ The final guidelines on the implementation of Basel III capital
regulations will be issued by end-April 2012
ƒ The final guidelines on liquidity risk management and Basel III
framework on liquidity standards will be issued by end-May 2012,
after taking into account the suggestions/ feedback received
ƒ To check finance to NBFCs predominantly engaged in lending
against gold via reduction of their regulatory exposure ceiling in a
single NBFC, with gold loans to the extent of 50% or more of its
total financial assets, from the existing 10% to 7.5% of bank’s capital
funds
ƒ To issue final guidelines on securitisation by end-April 2012
ƒ To issue guidelines on licensing for setting up new urban
cooperative banks (UCBs) by end-June 2012. Also, in order to
facilitate enhanced priority sector lending, the RBI has decided to
permit UCBs to utilise the additional limit of 5% of their total assets
for granting housing loans up to | 25 lakh, which is covered under
the priority sector
ƒ Banks should have a board approved transparent policy on pricing
of liabilities. They should also ensure that variation in interest rates
on single term deposits of | 15 lakh and above and other term
deposits is minimal
ƒ As a step towards implementing Unique Customer Identification
Code (UCIC) for banks’ customers in India, banks are advised to
initiate steps to allot UCIC number to all their customers while
entering into any new relationships in case of all individual
customers to begin with. Similarly, existing individual customers
may also be allotted unique customer identification code by endApril 2013
ƒ To mandate state level bankers’ committees (SLBCs) to prepare a
roadmap covering all unbanked villages of population less than
2,000 and notionally allot these villages to banks for providing
banking services in a time-bound manner. Detailed guidelines in this
regard will be issued separately by the RBI
ƒ To set up a Working Group to assess the feasibility of introducing
more long-term fixed interest rate loan products by bank
As per RBI, policy actions taken are expected to:
ƒ Stabilise growth around its current post-crisis trend;
ƒ Contain risks of inflation and inflation expectations re-surging; and
ƒ Enhance the liquidity cushion available to the system
Gold loan NBFCs to be impacted due to pressure on incremental funds
The RBI has guided that a ceiling be placed on credit to NBFCs with gold
loan exposure to the extent of 50% or more of its total financial assets.
This ceiling has been reduced from the existing 10% to 7.5% of bank’s
capital funds. However, the exposure ceiling may go up by 5%, i.e., up to
12.5% of bank’s capital funds if the additional exposure is on account of
funds on-lent by NBFCs to the infrastructure sector. Also, banks will have
an internal sub-limit on their aggregate exposure to all such NBFCs, with
gold loans to the extent of 50% or more of their total financial assets,
taken together.
This exposure ceiling should impact rapidly growing gold loan NBFCs like
Mannapuram Finance and Muthoot Finance limiting sources of fund from
bank financing. It may also keep a tab on rapid lending against loan done
by players like India Infoline where gold loan forms 32% of the loan book
as on Q3FY12 as against 10% in Q1FY12.
We expect the impact on south-based banks like Federal Bank, South
Indian Bank, etc., with high gold credit to be limited as they majorly
disburse gold loans directly rather than through gold loan NBFCs.
Detailed guidelines in this regard will be issued separately.
Our view
RBI’s action is quite evident of its stance moving towards growth faster
than anticipated. As inflation has moderated from its peak to 6.89% in
March 2012 with average full year inflation now standing at 8.85% for
FY12 and LAF borrowing under control at |70000-80000 crore, room for
repo rate cut was created.
Also, slowing IIP growth at just 3.5% YTD basis dropped substantially.
With the deceleration in overall GDP growth being sharp and a hard
recovery being seen, an aggravated rate cut can be justified.
Ten year G-Sec yields have slipped sharply by nearly 10 bps to 8.35%
post rate cut. We believe the current rate cut augurs well for government
borrowing programme as it provides both a reduction in interest coupon.
The increase in the marginal standing facility (MSF) window to 2% offers
liquidity cushion to banks.
Short-term rates (CPs and CDs) are expected to correct by 20-30 bps as
50 bps repo rate should lead to higher easing of interest rates.
Wholesale funded banks like Yes Bank, IDBI and south based banks with
lower CASA may benefit due to immediate easing in funding costs.
Overall, due to repricing of loans happening faster than deposit repricing,
NIMs may contract in the near term for banking sector. A slower first
quarter should add to the woes. However, we expect credit growth to get
a boost on account of increased demand from corporates undertaking
capex.
We expect banks to cut the base rate by 25 bps. However, as base rates
are a function of cost of funds, deposit rates and other borrowing costs
should also decline for banks. However, the RBI has indicated that future
rate cuts may be limited due to upside risk in inflation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://content.icicidirect.com/mailimages/ICICIdirect_RBIActions_April2012.pdf
Positive surprise of 50 bps but future cuts?
Key policy statements….
ƒ The RBI surprised us with a repo rate cut of 50 bps to 8%. However,
the central bank indicated that future rate cuts may be limited due to
upside risks in inflation
ƒ The central bank kept the CRR unchanged 4.75%
ƒ The marginal standing facility (MSF) borrowing limit was raised by
100 bps to 2% of NDTL while the MSF rate was changed to 9.0%
ƒ GDP growth target for FY13 was projected at 7.3%. Also, FY12
growth is expected to be 7%
ƒ M3 growth for FY13 is projected at 15% whereas it has fallen to 13%
as on March 2012
ƒ The path of inflation in FY13 could remain sticky around current
levels due to high oil prices, large suppressed inflation, exchange
rate pass-through, impact of freight and tax hikes, wage pressure
and structural impediments to supply response. Inflation is expected
to be 6.5% for FY13
ƒ Growth in non-food credit of SCBs is projected at 17%. FY12 credit
growth of 19.3% came way above RBI’s projection of 16%, thanks to
last 20 days lending in March 2012.
ƒ Aggregate deposits of SCBs are projected to grow by 16 %.
Developmental steps announced…
ƒ Banks cannot levy foreclosure charges/pre-payment penalties on
home loans on a floating interest rate basis
ƒ The final guidelines on the implementation of Basel III capital
regulations will be issued by end-April 2012
ƒ The final guidelines on liquidity risk management and Basel III
framework on liquidity standards will be issued by end-May 2012,
after taking into account the suggestions/ feedback received
ƒ To check finance to NBFCs predominantly engaged in lending
against gold via reduction of their regulatory exposure ceiling in a
single NBFC, with gold loans to the extent of 50% or more of its
total financial assets, from the existing 10% to 7.5% of bank’s capital
funds
ƒ To issue final guidelines on securitisation by end-April 2012
ƒ To issue guidelines on licensing for setting up new urban
cooperative banks (UCBs) by end-June 2012. Also, in order to
facilitate enhanced priority sector lending, the RBI has decided to
permit UCBs to utilise the additional limit of 5% of their total assets
for granting housing loans up to | 25 lakh, which is covered under
the priority sector
ƒ Banks should have a board approved transparent policy on pricing
of liabilities. They should also ensure that variation in interest rates
on single term deposits of | 15 lakh and above and other term
deposits is minimal
ƒ As a step towards implementing Unique Customer Identification
Code (UCIC) for banks’ customers in India, banks are advised to
initiate steps to allot UCIC number to all their customers while
entering into any new relationships in case of all individual
customers to begin with. Similarly, existing individual customers
may also be allotted unique customer identification code by endApril 2013
ƒ To mandate state level bankers’ committees (SLBCs) to prepare a
roadmap covering all unbanked villages of population less than
2,000 and notionally allot these villages to banks for providing
banking services in a time-bound manner. Detailed guidelines in this
regard will be issued separately by the RBI
ƒ To set up a Working Group to assess the feasibility of introducing
more long-term fixed interest rate loan products by bank
As per RBI, policy actions taken are expected to:
ƒ Stabilise growth around its current post-crisis trend;
ƒ Contain risks of inflation and inflation expectations re-surging; and
ƒ Enhance the liquidity cushion available to the system
Gold loan NBFCs to be impacted due to pressure on incremental funds
The RBI has guided that a ceiling be placed on credit to NBFCs with gold
loan exposure to the extent of 50% or more of its total financial assets.
This ceiling has been reduced from the existing 10% to 7.5% of bank’s
capital funds. However, the exposure ceiling may go up by 5%, i.e., up to
12.5% of bank’s capital funds if the additional exposure is on account of
funds on-lent by NBFCs to the infrastructure sector. Also, banks will have
an internal sub-limit on their aggregate exposure to all such NBFCs, with
gold loans to the extent of 50% or more of their total financial assets,
taken together.
This exposure ceiling should impact rapidly growing gold loan NBFCs like
Mannapuram Finance and Muthoot Finance limiting sources of fund from
bank financing. It may also keep a tab on rapid lending against loan done
by players like India Infoline where gold loan forms 32% of the loan book
as on Q3FY12 as against 10% in Q1FY12.
We expect the impact on south-based banks like Federal Bank, South
Indian Bank, etc., with high gold credit to be limited as they majorly
disburse gold loans directly rather than through gold loan NBFCs.
Detailed guidelines in this regard will be issued separately.
Our view
RBI’s action is quite evident of its stance moving towards growth faster
than anticipated. As inflation has moderated from its peak to 6.89% in
March 2012 with average full year inflation now standing at 8.85% for
FY12 and LAF borrowing under control at |70000-80000 crore, room for
repo rate cut was created.
Also, slowing IIP growth at just 3.5% YTD basis dropped substantially.
With the deceleration in overall GDP growth being sharp and a hard
recovery being seen, an aggravated rate cut can be justified.
Ten year G-Sec yields have slipped sharply by nearly 10 bps to 8.35%
post rate cut. We believe the current rate cut augurs well for government
borrowing programme as it provides both a reduction in interest coupon.
The increase in the marginal standing facility (MSF) window to 2% offers
liquidity cushion to banks.
Short-term rates (CPs and CDs) are expected to correct by 20-30 bps as
50 bps repo rate should lead to higher easing of interest rates.
Wholesale funded banks like Yes Bank, IDBI and south based banks with
lower CASA may benefit due to immediate easing in funding costs.
Overall, due to repricing of loans happening faster than deposit repricing,
NIMs may contract in the near term for banking sector. A slower first
quarter should add to the woes. However, we expect credit growth to get
a boost on account of increased demand from corporates undertaking
capex.
We expect banks to cut the base rate by 25 bps. However, as base rates
are a function of cost of funds, deposit rates and other borrowing costs
should also decline for banks. However, the RBI has indicated that future
rate cuts may be limited due to upside risk in inflation.
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