ARE INDIAN PRIVATE BANKS IN TROUBLE?

A lot was expected from the latest RBI Governor Rajan, when he set out to pronounce the busy season credit policy. A minute into the speech all hopes of the new “Suit” from Harvard and Chicago’s Booth school, vanished. Infact, there was no possibility apparent that this guy will toe the populist line advocated and forced upon the previous guvnor Rao. Reduction in MSF and increase in Repo implies that Banks have to go forth and fend for themselves.

Kotak Bank was off the gates on September 21, doubling the interest rates on deposits of above Rs 1 crore to 9 per cent for maturities of 9 per cent and as much as 9.25 per cent for deposits of 270 days.

Compare this to the rate tariff of August 20, 2013 and Kotak was offering a mere 4 per cent on similar deposits with maturities of 7 days and above. Clearly, most private banks from IndusInd, Yes Bank and HDFC were leaning heavily on the Repo market to finance the growth in loans now running at 17 per cent.

This is against the norm. A economy growing at 4 per cent cannot have loan growth of 17 per cent, unless more good money is being thrown at bad money or in other words the NPA/NPLs are being “greened” to fool the RBI.

With Deposit growth at 14 per cent yoy, this 3 per cent gap in CD ratio will have to be filled with high cost bulk deposits obtained from cash rich corporates. The results will become negatively visible in Q3 and Q4 NIMs unless, the banks find a new way to cook books