50bps rate decline projected in India

Inflation drop was cited as a reason.

India's central bank is expected to further reduce rates by 50bps during 2015 as.

According to a research note from Maybank Kim Eng, this is as inflation drops to RBI’s target rate.

Reduction in rates will provide a breather to the stressed corporates and help reduce asset-quality strain.

Here's more from Maybank Kim Eng:

Improvement in sentiments should help demand in consumer loans. The current drop in inflation will not lead to sharp NIM improvement as sluggish demand and aggressive competition will prompt banks to pass on the benefit to the borrowers.

Treasury profits will also be limited as the proportion of excess SLR is relatively lower compared to the last cycle of FY01-04 (Investments at 27% vs. 40% of assets).

We maintain our OVERWEIGHT stance; loan growth revival and decline in credit costs will be the key catalysts.

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