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The Reserve Bank of India – RBI Maintains Data on Frauds on the basis of area of operation under which the frauds have been perpetrated. According to such data pertaining to the calendar year 2009, Top 10 Categories under which Frauds have been reported by banks (number wise and amount wise) are as follows,

Top 10 Categories of Fraud in the Indian Banking Sector [ Based on Number of Complaints]

Ever since the Reserve Bank of India (RBI) hiked policy rates in a mid-cycle move in second half of April 2010, expectations of increase in pace of normalisation of the monetary policy stance have picked up. In case the RBI continues to tighten things aggressively in the forthcoming policy review scheduled for April 20, there is strong possibility that market rates too will start inching upwards.

India’s central bank, in line with most of its global counterparts, cut down policy and reserve rates sharply in a series of moves

Reserve Bank of India’s surprise Rate hike (25bps each for repo and reverse repo) caught the market off-guard, even as the past week’s buying in government bonds indicated a distinct comfort on the part of market participants most of whom anticipated the action at the time of the April policy – scheduled on April 20, 2010. We would expect the impact on the respective fixed income segments as below.

Sovereign bonds – with most of the action concentrated in the 2016 and the benchmark 2020 bonds, we would expect the belly of the curve to steepen and the 2s10s spread to harden as market prices in the distinctly emerging hawkishness on interest rates from the central bank.

Taking a leaf from the Indian Telecom Success story and to emphasize more on inclusive growth story, the RBI is considering a rural and semi-urban stint for the new banks in order to strengthen its prospects of financial inclusion for the unbanked people of India.

A finance ministry official has quoted of saying

new entrants may only be allowed to open branches in rural areas for the first two years and the subsequent period will depend on the basis of their direct lending to the agriculture sector, opening of no-frill accounts and other financial inclusion criteria

HDFC Bank, over the weekend, raised deposit rates by a sharp 50-150 bp, which follows the 25-50 bp rate hike by ICICI Bank and IDBI earlier this month. Notably, this deposit rate action has come, even as system liquidity currently appears adequate (reverse repo outstanding at about USD 15 bn). As the loan growth (14.8% currently) accelerates and central bank tightens, this liquidity will also dry up soon.

As deposit growth (17%YoY) has fallen to a four-year low, with real deposit rates negative, banks need to raise rates.

Read moreIndia Term – Fixed Deposit Rates Rising

PNB’s profits were up 0.5% yoy (+9% qoq, in-line with estimates) and were supported by its high NIMs (expands further), robust loan growth (well above industry), strong deposit franchise and some trading gains in 3Q. However, delinquencies increased substantially (mainly in the agricultural segment) and coverage levels dropped meaningfully – suggests caution given its large (16% of book) agri portfolio.

PNB’s margins expanded more than estimated to 384bps, driven by liability repricing. NPL uptick, lower coverage raises concerns on sustainability of earnings. Expect an EPS of Rs 108 and Rs 124.5 for FY10 and FY11 respectively.