Mumbai: India's benchmark stock index fell yesterday. Lenders led declines amid concern that competition for funds will increase costs and lower loan profitability.
State Bank of India, the nation's biggest lender, dropped to a seven-day low after increasing the rate it pays customers for deposits by as much as 1.5 percentage points. A wider gap between lending and deposit rates may reduce lenders' earnings growth, Macquarie Group Ltd. wrote in a note to investors. ICICI Bank Ltd. dropped the most in more than six months.
"We are increasing our cash levels," said K.K. Mital, a New Delhi-based fund manager with Globe Capital Market Ltd. "The banks are raising deposit rates without a commensurate increase in lending rates. Foreign fund flows are also slowing down."
The Bombay Stock Exchange's Sensitive Index, or Sensex, declined 46.67, or 0.2 per cent, to 19,934.64, at close in Mumbai. The S&P CNX Nifty Index on the National Stock Exchange slid 0.3 per cent to 5,976.55. The BSE 200 Index lost 0.4 per cent to 2,486.45.
State Bank retreated 3 per cent to Rs2,864.5, extending Monday's 3.9 per cent slide. The lender yesterday increased the amount it pays for deposits by 50 to 150 basis points, according to its statement. A basis point is equivalent to 0.01 percentage point.
State Bank's net interest margin, a measure of lending profitability, will narrow in the second half of the year ending March 31 because of the deposit rate increases, Manish Karwa, M.B. Mahesh and Nischint Chawathe, analysts at Kotak Institutional Equities, said in a note to clients on Tuesday.
