Expect decision on issue of tax-free infra bonds by banks: Prabhudas Lilladher

What is your expectation as to what may actually come about for the banking sector this time around?

Abhijit Majumder: We are expecting that in terms of infrastructure, there could be some announcements in terms of whether banks would be allowed to also issue tax free infrastructure bonds in line with other infrastructure companies. Also there are some expectations that because after the RBI provisioning hike the tax amount that is allowed, that provisioning amount is also increased. So these are the things that we are expecting.

What do you think the Finance Minister could do or he should do in order to protect the CASA ratios for some of the PSU banks because at a time when liquidity is tight, it is going to be difficult for banks to maintain a high CASA level?

Abhijit Majumder: I do not think it is Finance Minister’s job to look into what is CASA ratio for bank. It is a function of liquidity. Currently if you just go back a year ago, a lot of the deposits were raised in March. So it is a pretty high base and that time liquidity was slightly better. After that, liquidity has drained out. So automatically CASA does get impacted and term deposit rates are higher. So you will have some cannibalisation, some more savings but all in all, some primary liquidity is injected into the system, then only the current account balances will improve. Otherwise CASA will obviously get impacted going forward.

The margin outlook and whether or not how do you foresee, with inflation still being in the upward trajectory, for how long do you see the margins to be under pressure for the banking space as a whole?

Abhijit Majumder: We were expecting margins to come under pressure but the banks have gone ahead and hiked the PLRs. So in Q4 also, we do not expect significant margin erosion compared to Q3. There may be some downward bias but because of the PLR hike, your loan gets re-priced faster than the deposits. Some odd small and midcap banks may get impacted but otherwise, we do not see any margin erosion largely in Q4 but in Q1 and Q2 what will happen if you see 12 months ago, the deposit rates were 6-6.5. So all this will come up for re-pricing at 8-8.5. So that is going to slowly incrementally eat away into the margins as a possible rise. So from Q1-Q2, we will see a sharper increase in cost and decrease in margins, not in Q4.