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India Equity Research Reports, IPO and Stock News
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The Reserve Bank of India (RBI), in its second quarter review of the monetary
policy, persevered with its anti-inflationary stance and raised repo rate by 25bp to
8.5%. The Central Bank maintained status quo on CRR and SLR at 6.0% and
24.0%, respectively. The policy action was in-line with ours and street’s
expectations. However, importantly, this policy also carried guidance to the effect
that in light of the expected inflation and growth trajectory in the coming months,
the probability of further rate hikes by the RBI is quite low. We have also held the
view that policy rates are close to peak levels; but with this policy, the RBI has
increased the certainty that interest rates have now peaked. In our view, the actual
decline in policy rates is unlikely until the RBI becomes quite confident that
inflationary expectations are well anchored. In any case, term deposit rates are
unlikely to go up from current levels, although banks may likely wait till the end of
the busy season and a material decline in FD rates may happen from April 2012.
On the saving rate deregulation front, in our view, public trust and a wider network
reach will remain the key factors in maintaining/gaining retail customer market
share and, hence, we would not expect any material change in market share
dynamics due to savings rate deregulation. In our view, the advantage of savings
accounts being low-cost deposits will remain, irrespective of savings rate
deregulation. However, the advantage of savings accounts being fixed rate
deposits will clearly vanish – and this, we believe, is the key negative impact of
savings rate deregulation. We have accordingly recalibrated our target multiples to
an extent, as we believe that the premium commanded by the larger, high savings
banks (HDFC Bank amongst private banks and SBI and PNB amongst PSU banks)
will marginally erode. While, at the other end of the spectrum, the disadvantage of
having relatively lesser share of low-cost funding will reduce to an extent for low
savings banks (such as Yes Bank).
We have recalibrated our target P/ABV multiples for this change in regulation and
will look to revise earnings estimates depending on the actual changes in rates in
the coming weeks. In our view, among banks that are expected to gain the most
from this move will be new-age banks such as Yes Bank. These banks will also
gain from further liberalization of branch-licensing norms, in terms of not requiring
RBI approval for opening branches in Tier 2 to Tier 6 centers. We maintain our Buy
recommendation on Yes Bank with a target price of `347, implying an upside of
23.4% from current levels. Amongst PSU banks, banks that stand to benefit the
most include Corporation Bank on which we maintain our Buy rating with a target
price of `489, implying an upside of 20.8%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The Reserve Bank of India (RBI), in its second quarter review of the monetary
policy, persevered with its anti-inflationary stance and raised repo rate by 25bp to
8.5%. The Central Bank maintained status quo on CRR and SLR at 6.0% and
24.0%, respectively. The policy action was in-line with ours and street’s
expectations. However, importantly, this policy also carried guidance to the effect
that in light of the expected inflation and growth trajectory in the coming months,
the probability of further rate hikes by the RBI is quite low. We have also held the
view that policy rates are close to peak levels; but with this policy, the RBI has
increased the certainty that interest rates have now peaked. In our view, the actual
decline in policy rates is unlikely until the RBI becomes quite confident that
inflationary expectations are well anchored. In any case, term deposit rates are
unlikely to go up from current levels, although banks may likely wait till the end of
the busy season and a material decline in FD rates may happen from April 2012.
On the saving rate deregulation front, in our view, public trust and a wider network
reach will remain the key factors in maintaining/gaining retail customer market
share and, hence, we would not expect any material change in market share
dynamics due to savings rate deregulation. In our view, the advantage of savings
accounts being low-cost deposits will remain, irrespective of savings rate
deregulation. However, the advantage of savings accounts being fixed rate
deposits will clearly vanish – and this, we believe, is the key negative impact of
savings rate deregulation. We have accordingly recalibrated our target multiples to
an extent, as we believe that the premium commanded by the larger, high savings
banks (HDFC Bank amongst private banks and SBI and PNB amongst PSU banks)
will marginally erode. While, at the other end of the spectrum, the disadvantage of
having relatively lesser share of low-cost funding will reduce to an extent for low
savings banks (such as Yes Bank).
We have recalibrated our target P/ABV multiples for this change in regulation and
will look to revise earnings estimates depending on the actual changes in rates in
the coming weeks. In our view, among banks that are expected to gain the most
from this move will be new-age banks such as Yes Bank. These banks will also
gain from further liberalization of branch-licensing norms, in terms of not requiring
RBI approval for opening branches in Tier 2 to Tier 6 centers. We maintain our Buy
recommendation on Yes Bank with a target price of `347, implying an upside of
23.4% from current levels. Amongst PSU banks, banks that stand to benefit the
most include Corporation Bank on which we maintain our Buy rating with a target
price of `489, implying an upside of 20.8%.
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