Angel Broking has come with its December`12 quarterly earning estimates for banking sector. The research firm continues to prefer private banks, given their stronger capital adequacy and growth prospects as well as cyclically better asset quality profile, with Yes Bank, Axis Bank and ICICI Bank being top picks.
The deposit rate cuts have made the real interest rates for depositors even more negative (considering persisting CPI inflation levels at around 10%), which is likely to result in moderate deposit growth going ahead as well. Diesel and LPG price revisions, hikes in electricity tariffs, agricultural bottlenecks and increase in MSPs of agriculture products, are yet to fully reflect in generalized inflation and therefore pose significant upside risks to overall inflation expectation and resultant outlook for savings and deposit mobilization.
Margins to find respite in reduced term deposit rates, even as CASA accretion remains modest: In 3QFY2013, 15 out of 27 banks under our coverage reduced their retail term deposit rates (1-3 year tenure) by 25-65bp. Amongst the banks which resorted to lowering term deposit rates during the quarter, 9 had also reduced rates by 25-45bp during the previous quarter, thereby implying a total reduction of 50-110bp for these banks in the span of past six months. Reduction in deposit rates, in our view, was driven by lower incremental credit growth emanating from weak macro fundamentals. Deposit growth has moderated on account of reduced rates (term deposits) and slow economic growth (CASA accretion), thereby leading to tight liquidity conditions. In response to it and to manage their ALM, Dena Bank, Federal Bank and Bank of India, have recently increased their peak term deposits rates (1-3 year tenure) by 25-35bp, respectively.
Unlike in the last quarter, where a 25bp CRR cut in the September policy review prompted banks like SBI, State Bank of Bikaner and Jaipur and State Bank of Mysore to reduce base rates by 25bp, there was no base rate reduction in 3QFY2013 induced after 25bp CRR cut, as banks await the RBI to reduce policy rates. HDFC bank has become the first bank to reduce its base rate by 10bp with effect from December 31, 2012 ahead of RBI's monetary policy review due on January 29, 2013, which in our view, is to manage its ALM.
Short-term borrowing rates have eased further in 3QFY2013, though at a decelerating pace compared to last quarter, as reflected in the slight correction in the three-month CD and CP rates. Easier and cheaper access to short-term funding, in our view, should support margins to some extent. Amongst our coverage universe, only SBI and OBC had reduced their base rates by 25bp and 10bp, respectively in the previous quarter and accordingly on an average basis their base rates were lower by 22bp and 5bp qoq, respectively. On the deposits front, Vijaya Bank, Central Bank, J&K Bank and South Indian Bank have reduced their retail term deposit rates (1-3 year tenure) by 50-65bp, highest within our coverage universe.
Outlook: A decelerating economic growth environment, policy woes in select sectors and elevated inflation and interest rates point towards further economic stress and are not suggesting any conclusive trigger for improvement in asset quality in the near-term. Hence, we continue to prefer private banks, given their stronger capital adequacy and growth prospects as well as cyclically better asset quality profile, with Yes Bank, Axis Bank and ICICI Bank being our top picks. In the backdrop of the near-term environment, in our view, the larger PSU banks like BOB and SBI are better placed.
|Company||Operating Income||Net Profit||Reco|
|3QFY13E ||% chg||3QFY13E ||% chg|
|LIC Housing ||432||13.8||251||-17.8||Accum.|
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