JPMorgan Sees 50-Basis-Point Rate Cut By RBI In Current Cycle, Says Saurabh Kumar

JPMorgan Chase & Co. has estimated a 50-basis-point rate cut by the Reserve Bank of India in the current cycle, said Saurabh Kumar, Head, India Banking and Financials Research. Indian banks' margins, which have been a matter of concern, are expected to face pressure from the rate reduction, and slow current account and savings deposit growth before rebounding, he said.

However, Kumar expects the lenders to pass the pressure on within 12–24 months as they generally do.

"You'll get a NIM comeback. Eventually, what dictates a NIM is a mix. I think, if unsecured loans continue to slow down, you'll get degradation in terms of margin," Kumar said while speaking to NDTV Profit during India Investors Summit. 

The New York-based investment bank expects 10 basis-point effect on margin.

Rebound in deposit growth depends on macroeconomic tightening, quantitative tightening from the regulator. But, the basic question remains whether the nominal Gross Domestic Product will go up.

If the nominal GDP surprises on the upside, then, there will be upside in the deposit growth, Kumar said.

Deposits cannot grow at isolation, he said, adding that if the nominal GDP growth is about 10%, and deposit growth is about 12%, credit growth needs to follow.

"I would say, deposit growth is going to be 2–3 basis points above nominal GDP."

JPMorgan Chase & Co is seeing the credit cost cycle coming through in microfinance space and unsecured loan space. "That's linked to some level of higher leverage in the broader Indian consumer," said Kumar.

By quarter three or quarter four of this year, the unsecured cycle will peak out, according to him, who added that credit will remain largely benign in this cycle. "The growth in unsecured space may come off."

The credit cost for top three public-sector banks will lower, Kumar expects.

The New York-based investment bank sees some pressure in lenders who are exposed to agricultural and unsecured loans.

The state-owned banks have capital, and are not exposed to the segments which bring strain on assets. From a competitive positioning they look much better. Their asset quality will continue to hold up as far as corporate asset quality holds up, Kumar said.