Sector Performance: Banking - Rising interest rates to hurt

BANKING Sector Performance

• The loan book of scheduled commercial banks has grown by 33.3% during the quarter up to the week ended March 17, 2005. However, the growth in the net interest income (NII) is likely to be moderate. That is because the net interest margin is expected to be under pressure owing to a rise in the borrowing rates after the severe liquidity crunch of the fourth quarter.

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  The mark-to-market losses of the banks are also expected to go up, as the government bond yield has remained flat over the last quarter.
• State Bank of India (SBI) is likely to report a decline in its NII as the margin pressure is likely to continue. The bank's borrowing cost is likely to go up in the wake of the redemption of the India Millennium Deposits in December 2005. Also in Q4FY2005, SBI had earned an interest income on the income tax refund which will result in a lower NII this quarter. The net profit growth is likely to be flat as the other income is also expected to be lower due to a lower income from the government business.
• ICICI Bank is likely to report a strong growth in its NII backed by a strong loan growth. The equity issuance by the bank in the last quarter should help it to achieve a robust growth in its loan book.