India Banking - Deciphering Interest Rate Sensitivity In EBR Rate Regime: ICICI Securities
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ICICI Securities Report
We expect the Reserve Bank of India to normalise the liquid asset facility corridor fully by April Monetary Policy Committee meeting, and MPC to change its monetary policy stance by June meeting. One can expect more than two-three repo rate hikes in FY23, given the expectations of sticky inflation, favorable growth and FED tightening.
In this report, we assess the implication of a rise in interest rates for banks’ net interest margin trajectory.
Nearly 62% of private bank FY21 advances were floating rate loans and 43% of the same were external benchmark rate linked.
Every 100 basis points increase in benchmark rates would likely lead to 50-70 bps repricing of yields.
State Bank of India, Kotak Mahindra Bank Ltd., Axis Bank Ltd. and Federal Bank Ltd. will see relatively more favorable yields compared to HDFC Bank Ltd., IndusInd Bank Ltd., RBL Bank Ltd. and Bandhan Bank Ltd.
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