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| Edited By: Neelasri Barman |Source: DNA |Updated: Mar 30, 2018, 03:29 AM IST
Bank funds have emerged as the best performers in the last six months, with the net asset values (NAV) of several funds touching 52-week highs on Monday.
NAV is a mutual fund’s price per unit. Bank funds, which invest in stocks of banks, got a boost as shares shot up after the Reserve Bank of India (RBI) raised key policy rates in the mid-quarter monetary policy review last week.
The RBI move is likely to trigger a hike in base rate by banks. The base rate is the benchmark based on which banks decide the interest rate to be charged on a particular loan.
It factors in a bank’s cost of deposits, operating costs (expenses of running its branches, for instance), the cost of statutory drafts on bank funds imposed by the Reserve Bank of India and the profit margin.
An increase in lending rates at a time when credit growth is also picking up lifts the interest income of banks, boosting their shares.
“Credit demand is expected to pick up in the festival season. While retail credit will drive growth, corporate credit will follow. Banks are likely to pass on their increased cost of borrowings (owing to the RBI move) to customers by increasing their base rate,” said Deepak Tiwari, banking analyst, KR Choksey Shares & Securities.
Banks had already raised their benchmark prime lending rate (BPLR) in August and, after the mid-quarter monetary policy review, they are mulling a second round of hikes in BPLR and even a hike in base rate in the next quarter.
“I expect the base rate of banks to go up by 25-50 basis points in the next six to nine months. We may also see more increase in the deposit rates due to which banks will have the funds to meet the credit demand,” said Vaibhav Agrawal, vice-president (research), Angel Broking.
This means the outlook for the banking sector is certainly bright. “In the India growth story, the banking sector is the main beneficiary,” said Chaitra Bhat, banking analyst, LKP Securities.
A Balasubramanian, chief executive officer, Birla Sun Life Mutual Fund, said bank stocks will be a preferred choice by fund managers.
