Rates may increase by 75 bps: Vetri Subramaniam , Religare

Vetri Subramaniam, Head – Equity Funds, Religare Mutual Fund in an interview with ET Now, gives his view on the banking sector

Axis Bank disappointed, possibility of ICICI also doing the same. What’s your own sense about what the RBI could do in the credit policy?

Latter question is easier to answer. We think RBI has got to hike rates given the current inflation and the strength in aggregate demand. There is very strong reason for RBI to continue hiking rates. We could easily see another 75 basis points in the next six months or definitely by the end of the year. There are people calling for even more, so rates will continue pushing higher from the central bank.

As far as the banks are concerned, this was the sector, which was very quick to react to the fact that RBI would tighten and, therefore, it was one of the worst performing sectors somewhere November through March. We have incrementally added money into some of the banks that we like where we thought their liability franchises were extremely strong but we are still underweight the sector because I do not think the full extent of margin pressures has passed through balance sheets as yet. Banks are benefiting from lower credit costs no doubt but the pressure on the core net interest margin still remains and banks, which do not have the strong liability franchise will perhaps continue to witness some deterioration in margins over the next one or two quarters.