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India: Financial Services
Equity Research
Banks follow RBI lead, raising lending and deposit rates
BoB and PNB hike rates
Both PNB and BoB have hiked their PLR and base rate by 75 and 50bps
respectively post the recent RBI repo rate hike of 50 bps. The deposit rates
too have been raised by 50-75 bps.
Lending rate at close to a 15 year peak
The current PLR of BoB at 15%, and PNB at 14.25% is close to a 15 year
peak. We expect other banks to follow suit. Interestingly, banks are raising
deposit rates more on the shorter end and less on the long end. The
maximum deposit rate paid is relatively lower vs. the last peak with the
max rate at around 9.35-9.5% vs. the 10.5% we had seen in October 2008.
We believe margins could therefore be higher than the last cycle, though
compression cannot be avoided as rates peak and start falling.
Higher rates likely to impact credit growth, NPLs
The significant increase in rates is already being reflected in lower credit
off-take (down to 19% from high of 23% in 2H11), NIM pressure and we
believe it could also be seen in higher NPLs for banks over the next couple
of quarters. Margins for corporate India already seems to be under
pressure and we believe this poses a risk to asset quality given the
significant 250-300 bps hike in PLR and the 350 to 525 bps on CPs since the
bottom of December 2009.
We remain selective as earnings growth pressure mounts
While the sector is not overvalued, select sector defensives—HDFC
Bank/HDFC/Kotak—are trading at expensive valuations; allrated Sell. We
suggest being selective and prefer private banks to PSU banks as we
believe they are able to manage their spreads better than PSUs through
the rate cycle (Sell BOI). Our top picks: IndusInd (Buy, on CL) and Yes Bank
(Buy) given their strong earnings growth as we believe margin pressure
will be offset by higher CASA ratio; ICICI Bank (Buy) – better growth
prospects and international book repricing to help sustain its margins.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India: Financial Services
Equity Research
Banks follow RBI lead, raising lending and deposit rates
BoB and PNB hike rates
Both PNB and BoB have hiked their PLR and base rate by 75 and 50bps
respectively post the recent RBI repo rate hike of 50 bps. The deposit rates
too have been raised by 50-75 bps.
Lending rate at close to a 15 year peak
The current PLR of BoB at 15%, and PNB at 14.25% is close to a 15 year
peak. We expect other banks to follow suit. Interestingly, banks are raising
deposit rates more on the shorter end and less on the long end. The
maximum deposit rate paid is relatively lower vs. the last peak with the
max rate at around 9.35-9.5% vs. the 10.5% we had seen in October 2008.
We believe margins could therefore be higher than the last cycle, though
compression cannot be avoided as rates peak and start falling.
Higher rates likely to impact credit growth, NPLs
The significant increase in rates is already being reflected in lower credit
off-take (down to 19% from high of 23% in 2H11), NIM pressure and we
believe it could also be seen in higher NPLs for banks over the next couple
of quarters. Margins for corporate India already seems to be under
pressure and we believe this poses a risk to asset quality given the
significant 250-300 bps hike in PLR and the 350 to 525 bps on CPs since the
bottom of December 2009.
We remain selective as earnings growth pressure mounts
While the sector is not overvalued, select sector defensives—HDFC
Bank/HDFC/Kotak—are trading at expensive valuations; allrated Sell. We
suggest being selective and prefer private banks to PSU banks as we
believe they are able to manage their spreads better than PSUs through
the rate cycle (Sell BOI). Our top picks: IndusInd (Buy, on CL) and Yes Bank
(Buy) given their strong earnings growth as we believe margin pressure
will be offset by higher CASA ratio; ICICI Bank (Buy) – better growth
prospects and international book repricing to help sustain its margins.
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