Goldman Sachs, India: Savings bank deregulation negative for most, positive for few

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India: Banks
Equity Research
Savings bank deregulation negative for most, positive for few
RBI deregulates savings account deposit rates, near-term negative
RBI has deregulated savings account (SA) deposit rates (currently is at 4%)
effectively immediately, with the following two conditions: (1) Banks will have to
offer a uniform interest rate on SAs up to Rs0.1mn, regardless of the amount in
the account within this limit; (2) for deposits over Rs0.1mn, bank may provide
differential interest rates; however, there should not be any discrimination
between customers on interest rates for similar deposit amounts.
Large private banks likely more impacted vs. public banks
Near term, private banks will likely be impacted more than PSU banks as they
have greater exposure to high net-worth individuals (>Rs0.1mn). An analysis
of avg. balance shows that the PSU banks’ average deposit to be Rs15,000-
Rs20,000 vs. private banks that are at Rs26,000-Rs30,000. Further, the RBI data
suggest that rural and semi-urban deposits (sticky in nature) contribute around
20%-30% of total deposits for PSU banks, and 12% for private banks. Long
term, banks with strong franchise should gain market share.
Rates likely to rise 50bp-100bp, likely higher in some cases
We believe that banks may not raise the savings rates for deposits less
than Rs0.1mn, as the cost of operations are higher vs. >Rs0.1mn deposits.
However, we expect a 50bp-100bp rate hike for the higher-value deposits,
which could also see the greatest competition. Smaller banks may be more
aggressive than the larger banks, in our view.
Margin likely to be impacted if banks do not hike lending rates
We believe SA deregulation could have a negative impact in the near term as
it would: 1) increase volatility in ALM; 2) put pressure on NIMs; and 3) lead to
asset quality issues if banks hike lending rates. We will review numbers once
rates stabilize to understand the impact on individual banks. Our sensitivity
analysis shows that a 50bp and 100bp increase in cost could impact PBT by
1% to 10% and 1% to 20%, respectively, assuming banks do not raise rates or
charge fees to offset the hike. Longer term, banks will likely adjust rates/fees
to recover the additional costs. In the near term, banks that we believe will
be most impacted by deregulation are: HDBK (Sell), ICBK (Buy), SBI
(Neutral), and PNB (Buy) where the share of SA is c.30%, and AXBK (Buy),
BoB (Buy), and BoI (Sell) at c.20-24%. Banks that have the lowest proportion
of SA deposits will benefit, including: Yes (2%), INBK (9%) and KTKM (10%)
Other key takeaways from the monetary policy
 The policy repo rate has gone up by 25bp to 8.5%. Accordingly, the reverse repo
rate has been adjusted to 7.5%, effective immediately.
 RBI has permitted domestic scheduled commercial banks to open branches in Tier
2 centres (with population of 50-100,000) without any RBI approval. We view this
as strategically positive for the banks.
 RBI stated it will issue draft guidelines for implementing the Basel III framework by
end-December.  
 RBI stated it will set up a working committee to look into principles governing
proper, transparent, and non-discriminatory pricing of credit.
 RBI proposed to constitute a working group to review existing prudential
guidelines on restructuring of advances by banks/FIs.