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Event Note : Savings bank deposit rates may be freedEvent: The Reserve Bank of India may soon set up a working group to look intthe issue of deregulation of savings bank interest rate.

Impact: Banks with lower CASA base may hike SB rate to lure more depositoCompetition may eat up NIM by few basis point as it will make blended averacost of funds to inch higher for banks. However if more depositors are to opt fsavings bank ac instead of putting their money in other asset classes, that maact as a positive trigger for deposit growth which was lagging behind the credgrowth in the country for last couple of months. In another case, RBI may ofor artial dere ulation b fixin a Ca & Floor on SB rate. Banks can also m

up slightly longer term funds by offering higher savings rate which is a positias it will increase the average duration of liabilities and will reduce ALM risk case the bank put more focus on long term financing like infrastructufinancing.

What is savings bank ac?Savings bank account is the most common operating account for individuals anothers for non-commercial transactions. It helps people to put through day-tday banking transactions besides earning 3.5% return on the savings madBanks generally put some ceiling on the total number of withdrawals permitteduring specific time periods. Banks also stipulate certain minimum balance to maintained in savings accounts.

Credit demand slowdue to higher base ofortnight basis. Duerising interest rate adaily computation rbank deposits

Daily computation ofavings bank ac interest has

been received well by thedepositors. Freeing up of

showing the rec

growth.

SB ac rate (if implemented)

s expected to help thedepositors further.

Microsec Researchth September 2010

Abhisek Sasmal3051-2000mal@microsec.in Microsec Research reports are also available on Bloomberg

8/8/2019 Event Note - Proposal on Freeing Savings Bank Rate

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Banks with low CASA & reasonable CDR may go for higher Savings deposit rateLower CASA base impedes banks in generating higher spreads over its cost of funBanks with higher CASA base usually deployed their incremental deposits towards higyielding advances. We believe that further improvement in NIM for banks with high C

Public Sector Bank CASA ratio NIM% Cost of liabilities CDRFY09 FY10 FY09 FY10 FY09 FY10 FY09 FY10

> g > wou e cu as an s wou nee o nves a partheir incremental deposits to meet the NDTL requirement of 25%.

Allahbad bank 34.60 34.50 2.21 2.18 6.06 5.32 69.2 67.52Andhra bank 31.00 29.43 2.38 2.43 6.17 5.17 74.32 72.23

Bank of Baroda 29.60 29.65 2.25 2.13 5.03 4.23 74.84 72.62

Bank of India 26.76 27.80 2.44 2.10 5.45 4.81 75.33 73.33

Canara Bank 30.00 29.00 2.15 2.15 6.40 5.40 73.96 72.2

Central Bank 33.40 34.60 1.51 1.40 6.23 5.77 65.12 65

Corporation Bank 31.44 28.60 1.95 1.98 5.55 5.00 65 68

ena an . . . . . .

IOB 30.55 32.55 2.37 2.42 6.35 5.91 74.8 71.3

IDBI Bank 14.80 14.60 0.72 0.97 6.80 6.21 92 82.4

OBC 23.75 24.97 1.77 2.12 6.77 5.87 69 69

PNB 38.50 40.83 2.85 2.87 5.74 4.82 74 75

UCO 24.11 24.65 1.47 1.69 6.33 5.60 69 67

Union Bank 30.17 31.00 2.37 2.15 5.66 5.26 69 70

Vi a a Bank 24.00 24.62 1.80 2.06 7.46 6.03 65 67

Banks with Lows CASAbase and low CDR ratio

Private sector bank CASA ratio NIM% Cost of liabilities CDRFY09 FY10 FY09 FY10 FY09 FY10 FY09 FY10

Axis bank 43.15 46.73 2.50 2.77 5.38 4.20 69.48 74

Bank of Rajasthan 27.41 32.79 2.19 1.94 6.57 6.80 51 55

City Union Bank 18.90 21.86 2.62 2.41 6.85 6.60 69 66

Development credit bank 31.00 35.40 3.32 2.31 8.97 6.17 70.5 72.3

are sure to increasecompetition if theproposal goes through.

Dhanalaxmi bank 24.30 21.86 2.16 1.74 5.77 5.50 64.3 70.53

HDFC Bank 44.40 52.00 4.05 3.77 6.12 4.48 69 75.2ICICI Bank 28.70 41.90 2.21 2.23 7.30 5.94 99 89.7

Indusind Bank 19.24 23.70 1.66 2.51 7.72 6.00 71 77

ING Vysya Bank 27.00 32.50 2.04 2.45 5.66 4.75 67 72

J&K Bank 38.11 40.61 2.65 2.63 5.85 5.05 63.4 61.9

Karnataka Bank 19.95 23.26 2.07 1.24 7.10 7.09 58 61

Microsec Researchth September 2010 Microsec Researchth September 2010

. . . . . .

Lakshmi Vilas Bank 16.88 17.22 1.85 2.40 6.82 7.15 71.3 69

South Indian Bank 23.80 23.13 2.57 2.23 6.35 5.94 65.5 68.8

YES Bank 8.73 10.52 2.22 2.20 8.13 5.40 76.7 82.7

Source: Bloomberg, Microsec Research

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