Monday June 22, 2009
MUMBAI: Indian banks are likely to resist mounting government pressure to sharply cut rates as they grapple with expensive deposits raised at the height of the credit crisis and rising bond yields.
India's newly elected government wants its banks to lend more and cheaply to boost economic growth, following other Asian economies such as China, which lifted limits on bank lending to grease the wheels of its economy.
The pressure is adding to the risks for shares of state-run banks, which have underperformed the bank index and privately held banks this year.
"Profitability and margins could be under pressure particularly if specific Indian banks pursue a very aggressive growth strategy and decrease the spread earned on banking products," said Brayan Lai, a credit analyst at Calyon in Hong Kong.
"From a top down perspective, I prefer Indian state-run banks due to their quasi-sovereign backing and recapitalisation plans but, from a bottom-up approach, I'd be worried as some dubious lending may take place," he said.
Shares of the country's biggest lender State Bank of India have gained 32 percent so far this year, lagging a 46 percent gain in the bank index and a 57 percent jump in shares of privately held ICICI Bank. SBI and its associates control a quarter of all loans, and state-run banks as a sector corner 55 percent of all assets.
SBI cut its deposit rate by 25 basis points, its fourth cut in 2009, but has yet to reduce its lending rate. Chairman O.P. Bhatt said the economic recovery was yet to reflect on banks' asset growth and passing on rate cuts to customers will take time.
With bank loan growth slowing sharply, policymakers worry that by not passing on to customers the deep cuts in official rates these banks may threaten an economic revival. While the central bank has cut its main lending rate by 425 basis points since October, state-run banks have cut their lending rates by 150-200 bps.
Loan growth has slowed from around 27 percent in November to around 15 percent in early June and halved from rates of around 30 percent seen in the financial year to March 2008.
(Reuters)
MUMBAI: Indian banks are likely to resist mounting government pressure to sharply cut rates as they grapple with expensive deposits raised at the height of the credit crisis and rising bond yields.
India's newly elected government wants its banks to lend more and cheaply to boost economic growth, following other Asian economies such as China, which lifted limits on bank lending to grease the wheels of its economy.
The pressure is adding to the risks for shares of state-run banks, which have underperformed the bank index and privately held banks this year.
"Profitability and margins could be under pressure particularly if specific Indian banks pursue a very aggressive growth strategy and decrease the spread earned on banking products," said Brayan Lai, a credit analyst at Calyon in Hong Kong.
"From a top down perspective, I prefer Indian state-run banks due to their quasi-sovereign backing and recapitalisation plans but, from a bottom-up approach, I'd be worried as some dubious lending may take place," he said.
Shares of the country's biggest lender State Bank of India have gained 32 percent so far this year, lagging a 46 percent gain in the bank index and a 57 percent jump in shares of privately held ICICI Bank. SBI and its associates control a quarter of all loans, and state-run banks as a sector corner 55 percent of all assets.
SBI cut its deposit rate by 25 basis points, its fourth cut in 2009, but has yet to reduce its lending rate. Chairman O.P. Bhatt said the economic recovery was yet to reflect on banks' asset growth and passing on rate cuts to customers will take time.
With bank loan growth slowing sharply, policymakers worry that by not passing on to customers the deep cuts in official rates these banks may threaten an economic revival. While the central bank has cut its main lending rate by 425 basis points since October, state-run banks have cut their lending rates by 150-200 bps.
Loan growth has slowed from around 27 percent in November to around 15 percent in early June and halved from rates of around 30 percent seen in the financial year to March 2008.
(Reuters)
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