Can lower interest rates improve asset quality issues of PSBs?

The Reserve Bank of India (RBI) on Tuesday indicatedinterest rates could be cut next year, if inflation continued to moderate and fiscal developments were encouraging. Lower interest rates are good not just for corporate India also for banks, especially state-owned ones. The BSEBankex has risen nine per cent in the past month in anticipation of a rate cut on Tuesday. Lower interest rates could mean lower asset stress for public sector banks.  Indian stock market astrology prediction

Asset quality stress has ballooned recently, as growth slowed and interest rates continued to rise. According to Morgan Stanley, a rate cut will go a long way in pushing up operating profit margins of corporate India. It says rising interest rates have accounted for two-thirds of 500 points margin decline since 2008, so a decline in interest rates would go a long way in improving the balance sheets of stressed companies. Foreign brokerage firm Jefferies believes corporate leverage has plateaued with the number of corporates whose net debt to Ebitda ratio is more than five has come off in FY14. Combined with lower interest rates,  Jackpot Stocks Trading Tips

However, Dhananjay Sinha, head (institutional equities) at Emkay Global, believes lower interest rates result in higher treasury gains, Sinha says a cyclical instrument like rate cut cannot address a structural issue like asset quality. Also, in a deflationary environment, companies’ ability to repay debt would weaken further.  Commodity Market Astrology Tips

Once the rate cycle turns, state-owned banks, which have a substantial portfolio of securities held under the available for sale (AFS) category, will need to sell them, else they will have to book a loss on these securities. Jefferies says of the 12 state-owned banks in its sample, those with a higher proportion of AFS assets and carrying a higher duration AFS book should gain materially from the falling rates.    Nifty Trading Tips

Kotak Institutional Equities likes State Bank of India (SBI), as it expects the macroeconomic recovery to result in strong revenue growth and reduction in credit costs. Also, SBI’s cost control initiatives will result in strong earnings growth and its return ratios are likely to see gradual improvement.     Stock Market Trading Tips