Banks: CD rollovers not a risk as liquidity likely to improve: Nomura

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􀁾 Action
The proportion of high cost CDs maturing in 3QFY11 is unusually high for the
banking system. We believe bond yields have peaked and retail deposit growth is
picking up which lowers the risk of banks having to roll over these CDs at very high
rates.
􀁡 Catalysts
With loan growth having moderated and deposit rates rising, we recommend banks
with strong deposit franchises.
Anchor themes
India banks will roll over Rs1.8trn worth of CDs in the next three months, 32% of
incremental deposits. This is a large sum and twice the amount rolled over in
1QFY11. While this is risky in a rising rate scenario, we believe rates have peaked,
liquidity will likely improve and retail deposit growth is picking up for banks, which
will help banks cope with CD roll-overs without too much pressure on margins.


CD rollovers not a risk as liquidity likely
to improve
􀁣 Yields have peaked, deposit growth to pick up
We believe rates (bond yields) have peaked, liquidity will likely improve and retail
deposit growth will likely pick up, which is why we believe banks will be able to roll
over CDs without too much pressure on NIMs. In this report we have a table on
bank-wise CD rollovers.
􀁤 Huge amount of CD rollovers
Banks will roll over Rs1.8trn of CDs in 3QFY11, twice the value of rollovers in
1QFY11 and 32% of incremental deposits for FY10. CD rollovers are a risk in a
rising rate environment. But we believe rates have peaked, liquidity will improve
and retail deposit growth will pick up, helping banks to roll over CDs without
pressure on NIMs.
􀁥 PNB, Canara, Allahabad Bank, Central Bank, Andhra Bank, ING
Vysya and SBI Associates have high rollovers
The large PSU banks believe that the maturing CDs can be replaced with retail
deposits where they have increased rates recently but are still cheaper than CDs.
􀁦 Slower than expected retail growth is key risk to our call
If retail deposit growth does not pick up these banks will see lower NIMs, in our
view.