Companies & Sectors
Banks’ net interest margin likely to remain under pressure, says Kotak Institutional Equities report

Retail deposit rates are likely to be a bit stickier compared to the earlier cycle, says a Kotak Institutional Equities report

There is a steady decline in market deposits (CD). Cuts in wholesale deposit rates on the back of improving liquidity conditions should benefit select wholesale banks. But NIM (net interest margin) would remain under pressure as pricing power shifts to borrowers. These are the observations made in a Kotak Institutional Equities report.
Retail deposit rates are likely to be a bit stickier compared to the earlier cycle as interest rates are unlikely to come down sharply. Further, RBI (Reserve Bank of India) has directed banks to have a sound policy on differential rates. The government has asked banks to reduce their dependence on bulk deposits. These arguments have been made in the Kotak report.
The Kotak report notes that most banks have started to reduce their wholesale deposit rates with liquidity conditions turning comfortable in recent weeks. Incremental CD ratio (since 6 April 2012) is at 16%, as credit demand is currently in a slack period, while growth in deposits has been strong. There has also been the positive impact from the recent cut in SLR (statutory liquidity ratio) of 1%. Select banks are still offering bulk deposits at a marginal premium over retail term deposits. On the other hand, the government has been insisting on banks to reduce the share of bulk deposits in the overall deposits.
For the banks, the deposit profile has significantly changed (primarily from urban markets, non-individual in nature who are interest-rate sensitive with high degree of awareness of alternate instruments) making it a challenging exercise to mobilize/ retain them. Banks are yet to cut retail term deposit rates materially despite the three month CD currently at 8.4% (10.7% in March 2012 and 9.1% in June 2012). These observations in the banking sector are also made by the Kotak report.
Kotak’s analysts believe that the decline in wholesale rates is likely to benefit Andhra Bank, Central Bank, Corporation Bank, IOB, OBC, UCO and Vijaya Bank, among public banks, and Yes Bank and IndusInd Bank among private banks. High CASA ratio banks like SBI and HDFC Bank are unlikely to be benefitted in the current phase.
NIM is likely to remain under pressure; and Basel-III guidelines and provisions can act as a floor, according to the analysts. The report states that  NIM is likely to remain under pressure in FY13-14E as revenue growth is expected to slow down (13% CAGR) on the back of slower demand for credit (14% CAGR) and NIM compression (about 20 bps) as pricing power shifts to borrowers. Lending spreads, especially for public banks, are at a near-term high (4% as of FY12). Kotak expects a compression of about 40 bps, going forward in FY12-14E. Private banks are likely to report stable performance as NIM is likely to improve for ICICI Bank and mid-tier private banks like Yes Bank and IndusInd Bank.
However, the Kotak report doesn’t expect NIM to compress sharply (similar to FY09-10) for two reasons: (1) Basel-III guidelines require banks to shore up core equity which would require higher internal generation of capital, and (2) overall provisioning environment will remain at elevated levels as banks make higher provisions for fresh slippages. Indian banks make about 70% of their overall revenues from NII (Net Interest Income), as contribution from fee business and treasury income is unlikely to change materially.


IDBI too reduces interest rates on home loans

IDBI has also joined the race as banks have started reducing interest rates after the finance...

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SC asks IT Dept to transcribe taped conversation of Radia in two months

The apex court was annoyed that in such a 'serious matter' the IT department has not prepared the transcript of all the intercepted calls

New Delhi: The Supreme Court on Thursday directed the income tax (IT) department, which had intercepted 5,800 telephone conversations of corporate lobbyist Niira Radia, to get them transcribed within two months for a proper probe as some of them concern national security, reports PTI.


The court was annoyed that in such a 'serious matter' the IT department has not prepared the transcript of all the intercepted calls, some of which relate to 'dubious' fiscal transactions having impact on national security.


A Bench of justices GS Singhvi and SJ Mukhopadhaya expressed unhappiness over the fact the probe into the incident was moving on the basis of the 'analysis' of the transcript provided by the income tax department to the CBI.


When Additional Solicitor General Haren Raval made it clear that the transcript of the entire 5,800 intercepted conversations of Radia was not done, the bench said "it will be appropriate that conversation should be transcribed. Otherwise everything will proceed on the basis of surmises and conjectures."


The court directed the Directorate General of Income Tax (Investigation), who had ordered the tapping of phones of Radia and constituted a team of officers for the job, to get the conversation transcribed and submit complete compilation of conversation within two months in a sealed cover," the bench said.


The bench passed the order after going through the summary of the probe provided by the Government and the fresh status reports into the investigation filed in sealed covers by the CBI and the Enforcement Directorate.


During the hearing, the bench termed as "vague" the reply of another Additional Solicitor General A S Chandhiok that the probe was on into the leakage of the recorded conversation of Radia with Tata Group Chief Ratan Tata and others.


It said three years have gone and the IT department has not prepared the transcripts of the tapped conversation.


"You (Income tax department) should not have taken three years," the bench said adding that the authorities should understand that in law they have to prepare the transcripts as electronic evidence in its original form only was not permitted.


"There were 5,800 conversations recorded. Where is the transcript of the conversations," the bench asked.


It stressed the need for preparing the transcript as a safeguard against rumours about the leakage which will continue to circulate as people are interested in sensationalism.


"Since certain intercepted conversations concern national security and there are some about the fiscal transactions which are dubious, so much needs to be done," the bench observed.


"It is a much more serious matter," the bench emphasised and said "it will be appropriate that all recordings are transcribed".


The conversations were recorded as part of surveillance of Radia's phone on a complaint to Finance Minister on 16 November 2007 alleging that within a span of nine years she had built up a business empire worth Rs300 crore.


The government had recorded 180 days of Radia's conversations--first from 20 August 2008 onwards for 60 days and then from 19th October for another 60 days. Later on 11 May 2009. Her phone was again put on surveillance for another 60 days following a fresh order given on 8th May.


Tata Group Chairman Ratan Tata had moved the apex court on 29 November 2010 for action against those involved in the leakage of the tapes saying that the leakage amounted to infringement of his fundamental right to life, which includes right to privacy under Article 21 of the Constitution.


The NGO, Centre for Public Interest Litigation (CPIL), has also sought a direction that all conversation should be made public except those which are purely personal in nature.


The NGO has said the conversation which show illegality or criminality should be thoroughly investigated.


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