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Stocks of major banks are likely to trade with an upward bias but equity market will draw cues from the action and statement from the Reserve Bank of India's monetary policy review on Monday. Expectations are mixed on whether the RBI will cut rates or not. In a Cogencis poll of 30 market participants, including economists, treasurers, and mutual fund houses, 21 said they expect the RBI to leave the repo rate unchanged at 7.25%. The remaining nine respondents said the central bank might cut the repo rate by 25 basis points.
Six respondents said they expect a 25 bps cut in banks' cash reserve ratio, of which only one said the repo rate may also be lowered by the same quantum, and 17 expect the RBI to maintain status quo on both the repo rate and the CRR. Recent trend has shown that banks are likely to pass on the benefits of a lower repo rate to customers as the cost of funds in the system remains high. However, recent statements from the finance ministry indicate some pressure on state-owned banks to start reducing lending rates. As state-owned banks account for over 70% of the banking business in the country, any such loan rate cut will have a cascading impact on other banks too. Markets have also drawn comfort from Fitch Ratings revising the rating outlook to stable on 10 financial institutions, including State Bank of India, Punjab National Bank, Bank of Baroda, Canara Bank, IDBI Bank, ICICI Bank and Axis Bank.
The rating has been revised upwards to stable from negative, indicating improved fundamentals for these players. We expect YES Bank to achieve a 21% earnings growth between 2013-2015. We believe that Yes Bank is ideally placed in the current environment, as it benefits from improving margins and reasonably strong treasury gains while management highlights no concerns on asset quality. We expects ING Vysya Bank to hit new 52-week highs in the coming months due to improvement in asset quality, provision coverage ratio above 90% and improvement in fee income. (The) bank looks adequately capitalized and may not need to raise further capital for next 2-3 years.
