A shift from liquidity tightness to comfortable liquidity marked Q4FY09 for the banking sector. This was evidenced by the fall in corporate bond yields (10 yr AAA corporate bond yield fell by 120 bps). Credit growth slowed down to 17.5%.
While we expect NIMs to decline sequentially on account of downward repricing of the loan book ahead of the deposit book, we still expect banks to post NII growth y-o-y in double digits.
With sovereign bond yields inching up (benchmark 10 yr G Sec Yield up 175 bps), provisions are expected to remain higher. Restructured standard assets reported by the banks needs to be watched.
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