>Indian Banking Sector (MF GLOBAL)

■ What kind of credit growth can banks achieve? - We expect a credit growth of 16% and deposit growth of 19% in FY10e

■ Where will the interest rates move from here? Waning inflation and declining economic activity would necessitate reduction in interest rate.

■ To what extent can the weakening fiscal position impact G-secs yields? - The long term bonds yield will remain firm on account of swelling fiscal deficit

■ How do the margins of the banks pan outover FY10? - decline in C-D ration & lag effect in repricing deposits to impact margins in FY10e

■ To what extent can NPAs of the banks increase? - GNPA levels could, at worst, rise to 5.8% including assets re-structured under new RBIguidelines on restructuring

■ Are the banks adequately capitalized to overcome the current turmoil? The current level of capital base can enable the banks to achieve a credit growth of 20% CAGR over FY09-11

■ What is the right valuation to enter the stock given the above uncertainty? Stocks are tradig at discount to their historic median valuation after considering worst case credit default assumption

■ Near term trigger
- Further relaxation in key policy rates will provide as near term trigger for the sector.

■ Top picks: Large Cap - SBI, ICICI Bank
Mid Cap - PNB, BOI, BOB & UBI

To see full report: INDIAN BANKING SECTOR