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http://content.icicidirect.com/mailimages/ICICIdirect_RBIActions_March2012.pdf
W H A T ’ S C H A N G E D …
CRR......................................................................................................Unchanged to 4.75%
Repo Rate, .............................................................................................Unchanged at 8.5%
No change post inter-policy meet CRR cut…
Key statements….
ƒ The RBI kept the repo rate unchanged at 8.5% and indicated that
future actions will be towards lowering rates
ƒ The central bank kept the bank rate and CRR unchanged at 9.5% and
4.75%, respectively
ƒ Marginal standing facility (MSF) rate for banks unchanged at 9.5%
ƒ GDP growth target in line with CSO at 6.9% for FY12
ƒ Borrowings under the LAF window remain high averaging over
| 120,000 crore during the last four months from around | 49,000
crore during April-October 2011. OMO operations conducted to the
tune of | 1,24,700 crore by RBI during November 2011 – March
9,2012
RBI continues to show concerns as below…
The fiscal deficit has been adding to inflationary pressures. Credible fiscal
consolidation, therefore, will be an important factor in shaping the
inflation outlook.
Our view
Though inflation has moderated from its peak to 6.95% in February 2012,
upside risks persist as input price pressure still remains. Elevated crude
oil prices, weakness in the rupee and slippages on fiscal deficit will impact
inflation. The RBI also highlighted that ‘there continues to be significant
suppressed inflation in fuel, fertiliser and power as administered prices do
not fully reflect the costs of production’. Hence, even if the rate reversal
cycle begins in April, it may be only 25 bps and not substantial.
CRR cut of 125 basis points (50 basis points effective January 28 and 75
basis points effective March 10), injected primary liquidity of about | 800
billion. The liquidity situation has since improved and it is expected to
ease further in the weeks ahead. Short-term rates (CPs and CDs) have
corrected to the tune of 10-15 bps only mainly due to advance tax
demand. Ten year G-Sec yields have remained in the 8.15-8.30% range in
the last couple of months. However, a large fiscal budget borrowing
programme may lead to yields spiking to 8.5%.
We have tried to analyse the benefit to banks due to the released CRR
balance of | 80,000 crore. The impact is unlikely to be substantial if credit
growth does not pickup (our base case). Then, the funds will get diverted
to reduce borrowings and deposits will benefit. We expect only a 3-7 bps
increase in NIM for most banks. This will favour banks with higher
exposure to wholesale funds than CASA deposits e.g. Yes Bank, OBC and
IDBI Bank may benefit.
The impact on profitability will be a marginal 2-3% for large banks while
smaller banks may see an increase of 4-5% in earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://content.icicidirect.com/mailimages/ICICIdirect_RBIActions_March2012.pdf
W H A T ’ S C H A N G E D …
CRR......................................................................................................Unchanged to 4.75%
Repo Rate, .............................................................................................Unchanged at 8.5%
No change post inter-policy meet CRR cut…
Key statements….
ƒ The RBI kept the repo rate unchanged at 8.5% and indicated that
future actions will be towards lowering rates
ƒ The central bank kept the bank rate and CRR unchanged at 9.5% and
4.75%, respectively
ƒ Marginal standing facility (MSF) rate for banks unchanged at 9.5%
ƒ GDP growth target in line with CSO at 6.9% for FY12
ƒ Borrowings under the LAF window remain high averaging over
| 120,000 crore during the last four months from around | 49,000
crore during April-October 2011. OMO operations conducted to the
tune of | 1,24,700 crore by RBI during November 2011 – March
9,2012
RBI continues to show concerns as below…
The fiscal deficit has been adding to inflationary pressures. Credible fiscal
consolidation, therefore, will be an important factor in shaping the
inflation outlook.
Our view
Though inflation has moderated from its peak to 6.95% in February 2012,
upside risks persist as input price pressure still remains. Elevated crude
oil prices, weakness in the rupee and slippages on fiscal deficit will impact
inflation. The RBI also highlighted that ‘there continues to be significant
suppressed inflation in fuel, fertiliser and power as administered prices do
not fully reflect the costs of production’. Hence, even if the rate reversal
cycle begins in April, it may be only 25 bps and not substantial.
CRR cut of 125 basis points (50 basis points effective January 28 and 75
basis points effective March 10), injected primary liquidity of about | 800
billion. The liquidity situation has since improved and it is expected to
ease further in the weeks ahead. Short-term rates (CPs and CDs) have
corrected to the tune of 10-15 bps only mainly due to advance tax
demand. Ten year G-Sec yields have remained in the 8.15-8.30% range in
the last couple of months. However, a large fiscal budget borrowing
programme may lead to yields spiking to 8.5%.
We have tried to analyse the benefit to banks due to the released CRR
balance of | 80,000 crore. The impact is unlikely to be substantial if credit
growth does not pickup (our base case). Then, the funds will get diverted
to reduce borrowings and deposits will benefit. We expect only a 3-7 bps
increase in NIM for most banks. This will favour banks with higher
exposure to wholesale funds than CASA deposits e.g. Yes Bank, OBC and
IDBI Bank may benefit.
The impact on profitability will be a marginal 2-3% for large banks while
smaller banks may see an increase of 4-5% in earnings.
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