>INDIA BANKS: Looking for some cheer in the New Year 2012

We (HSBC Research team) met YES Bank, HDFC Bank and ICICI Bank for a quick update, particularly on a asset quality, in particular power loans, b) growth prospects given near peak rates, and c) the impact of savings account deregulation.

■ Asset quality: Overall, the private banks do not face the same set of problems as public sector banks (PSUs), evidenced by their lower NPLs, restructured book, credit costs and higher coverage ratios. We think the gulf in asset quality between the private and PSU banks is likely to remain wide for a few more quarters before we see the bottom of the current credit downcycle. The state and central governments need to address problems in the power sector related to SEBs and coal availability. If the erstwhile go/no-go problems are largely resolved, coal shortages may not be as significant as perceived currently.

■ Growth prospects: Most private banks are likely to outpace system growth by anywhere between 3% and 10% over our forecast period to 2014e. YES is more focused on liabilities and we believe its growth is likely to be dominated by wholesale for now. On our estimates, HDBK is likely to maintain strong growth in the consumer segment although we expect a slowdown in vehicle loans to a more moderate pace averaging 25% over the medium term. We think ICBK is likely to grow in line with the system as retail loan repayments could hamper any acceleration in mortgage growth in the near term; thus its focus remains more on leveraging its now-large branch franchise for retail liabilities, assets and fees.

■ Savings account deregulation: YES has seen improving customer traction with new account additions roughly doubling, although the balance build-up will occur over time, as it leverages off both retail and its corporate relationships. It is also targeting bulk savings accounts with trusts and societies, albeit these are a small part of the pie.

■ Waiting for the pause: Although widely expected at the 16 December meeting, we are hearing increasing talk of an earlier-than-expected cut in rates by the RBI, particularly if inflation eases and growth slows more quickly than expected (watch out for loan and industrial growth data reported in December). Private banks remain our favourites on a 12-month basis.

To read the full report: INDIA BANKS

RISH TRADER