The Hindu Business Line : Bank stocks: Rate movements keenly watched

Kolkata, July 24 Banking stocks, which are generally being feted for what market circles concede are positives going in favour of the sector, are being monitored intently in view of the latest consolidation in interest rates.

The sector, select stocks in which are being billed by some sections as potential outperformers, has lately seen a round of rate changes, resulting in reduced rates.

In some cases, rates are being reduced, typically for deposits in the range of 1 year to less than 3 years, by 50 basis points or so. Bankers attribute the development to recent trends in the money market.

Among the players that have already decided to reduce rates is Union Bank, which will charge 9 per cent for 1-3 year deposits effective August 1. According to Mr M.V. Nair, Chairman and Managing Director,the come-down in inflation rate and comfortable liquidity conditions have prompted the move.

Bankers nevertheless hope that the industry will be able to meet deposit raising targets for the rest of the year, the softening of rates notwithstanding.

Mr B. Sambamurthy, Chairman and Managing Director, Corporation Bank, felt the sector will be able to close the fiscal with satisfactory performance in terms of mobilisation.

Market circles refer to the recent upsurge in select banking stocks, reflected in the Bank Nifty which closed at 7075.60 points on Tuesday. As Emkay Share & Stock Brokers has pointed out, the index, after seeing a low of 3,408 points in June last year, has bounced back. In recent months, it has started correcting markedly, Emkay has noted, adding that investors may expect 30-40 per cent returns in select stocks in the next 6-8 months.

Some of the factors that are said to be generally working in favour of the sector are growth in the SME and retail businesses, more focussed efforts by banks to reduce non-performing assets, higher fee-based income, network expansion etc. These will collectively enable banks to rake in more profits, it is felt. A likely improvement in asset quality is also being cited in this context.

Among the concerns that market sources warn about are questions related to increase in banks’ non-interest income (that is, share of such income in their total income), potential pressure on net interest margin, possibility of having high-cost bulk deposits in the books and the like.

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