… Continued from PART 1 & PART 2 of the series …
@ Banking
The credit growth as on November 28 has jumped up to 29.8% yoy, the highest in the past one year. The credit demand has grown mainly on account of the drying up of the alternative sources of funds due to which corporates are turning to banks for meeting their working capital requirements. The deployment rate (i.e. the credit-deposit ratio) declined to 73.2% while the incremental credit-deposit ratio slipped to 87.9% as on November 21, as deposit growth had picked up sharply in the previous month.
The RBI has announced another cut of 100 basis points in the repo and reverse repo rates to 6.5% and 5.0% respectively. The money supply (M3) growth declined to 19.0% as on November 21 as compared with 19.9% in the previous month. The M3 growth has tapered off significantly from the high of 22.5% seen in May 2008.
The public sector banks have announced a special home loan package for home loans of up to Rs 5 lakh with interest rate of up to 8.5% and for home loans of Rs 5-20 lakh with interest rate of up to 9.25%. With the deposit rates still ruling high at ~9-10%, this move is likely to adversely affect the margins of these public sector banks.
The bond yields on government securities (G-Secs) have eased off significantly to ~6% levels (from 9.4% seen in July) for the long-term maturities. This is in line with easing in the inflation rate and the recent cuts announced by the RBI. The decline in the bond yields augurs well for banks, as this would allow them to write back the marked-to-market (MTM) losses incurred during Q1FY2009.
WHAT LIES AHEAD…
For the period December 1–15, the BSE Bankex grew by 15.1% against an increase of 11.2% in the same period last month. The credit demand is likely to remain strong in the near term due to drying up of the alternative sources of funds. However, credit demand may remain lower going forward as economic activity slows down further. Those stocks which exhibited eroding performance and dwindling quality of assets in last 2 months now seem a little more attractive in their valuations, thanks to slide in bond yields, easing in corporate spreads and rapid rate cuts.
