The Reserve Bank of India (RBI) raised the policy rate by 40 bps by introducing permanent deposit facility (SDF) at 3.35% versus reverse repo of 3.35%, highlighted global brokerage Jefferies. It believes that banks may start raising loan/deposit rates in the next 1-2 months and may need to toggle rates till the RBI raises the repo rate.
“RBI introduces SDF which provides headroom reserve Bank of India To absorb surplus-liquidity from banks without issuing G-Secs and expands its ability to absorb liquidity based on bank’s need rather than RBI’s appetite. SDF replaces the reverse repo rate at 3.75% at 3.35%; This effectively raises the benchmark rate without any change in the repo rate or reverse repo rate,” the note said.
Banks are better placed in a higher rate environment as most major banks have a higher CASA ratio (current and savings account ratio) and have been quick to adjust rates to manage margins. Therefore, Jefferies prefers bank stock Like ICICI Bank with a target price of 1,050 and Bandhan Bank. with a price target of 380.
Jefferies expects banks to raise rates in the coming month as April is a lean month, with immediate rate hikes likely to soften. One aspect that banks will need to manage is that the RBI has so far not raised the repo rate which serves as the benchmark for pricing of loans (mostly retail and mortgages) of around 40%.
Jefferies said banks can either increase the spread on the benchmark on fresh loans or extract some juice from the hike in MCLR rates for other loans, unless the repo rates are raised.
The brokerage also has a buy rating on Axis Bank (Target Price: 1,040), Kotak Mahindra Bank (TP: 2,560), SBI (TP: 650), and IndusInd Bank (TP: 1,220).
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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