The recent 50-basis-point increase in the savings bank rate to 4 per cent will hit Punjab National Bank — India’s second largest state-owned bank — and the country’s largest commercial bank, the State Bank of India, the hardest.
The savings bank (SB) rate hike will hurt these banks most as they have the highest proportion of savings bank deposits vis-a-vis their total deposits, thereby raising their costs and impacting their margins.
It is estimated that PNB’s margins could be crimped by as much as 13 basis points, while the SBI could take a hit of 12 basis points.
The share of savings bank deposits in the total deposits of PNB, based on data for 2009-10, is 31.2 per cent and that of SBI is around 32 per cent. Both these banks have a very high share of low-cost current and savings bank accounts (CASA).
Other banks that could suffer include United Bank of India (13 basis points), Dena Bank (12 basis points) and Allahabad Bank (12 basis points).
A report put out by the brokerage today, titled “Savings Bank Deregulation - Back to Basics’’, which also analyzed the impact of a possible deregulation of the only administered interest rate in the banking industry, said the SBI group as a whole would suffer a 10-basis-point hit on margins.
It is known that Every 50 basis point savings bank rate hike (all else remaining constant), negatively impacts margins by around 8 basis points. The PSU banks generally get more impacted because of their higher exposure to savings bank accounts compared to larger private bank peers.
.The study shows IDBI Bank and Yes Bank will be least affected by the hike since their proportion of savings bank deposits are low. But this also means that these two banks could potentially emerge as the biggest rate warriors if the Reserve Bank of India decides to deregulate savings bank interest rates any time soon. The RBI had floated a discussion paper on the subject recently.
IDBI Bank, which had a low CASA ratio of 14.6 per cent in 2009-10, has of late been aggressive on the liabilities (deposit-taking) front. It has announced various steps to boost deposits. Last year, the bank removed various charges applicable to SB and current account holders.
On the other hand, Yes Bank has welcomed any move to deregulate the savings bank rate.
1 comment:
I feel this will greatly help savers as in a unregulated scenario savings bank rate will go up. the best example is suddent 225 basis points hike in SBI's short tern deposit rate.
Also Bank's will now focus more on efficiency and prudent cash management to boost margins. Time for the bankers to shed flab.
Prithviraj
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