Author Topic: Banking Sector Review  (Read 2283 times)

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Banking Sector Review
« on: January 07, 2011, 10:39:30 AM »
In the current scenario – rising interest rates, asset quality deterioration and pension liability provisions – will remain an overhang on the financial performance of the banking sector.

Going forward, we expect front-loaded data-driven tightening of ~50 bps (i.e., fuel price hikes, sudden spikes in WPI) along with some  liquidity management actions with CRR likely to be a preferred policy tool. We believe that the impact of rate hike is primarily going to be felt on the treasury gains and investment portfolios.

Pension liability to be a big overhang for PSU banks and old private sector banks. Reportedly, the total estimated liability of second option pension is ~Rs 210 bn which is over ~8% of FY10 PSU Banks’ net worth.

The recent negative news flow emanating from various sectors such as micro-finance, telecom (2G), real estate and diamond loans, along with corporate governance issues, have heightened fears that NPAs will become a big challenge for Indian banks if there is a serious level of default arising from these (or other) sectors.