Banking spread up by 32bps

The overall banking spread increased by 32bps to 7.57 percent in January 2011 as compared to 7.25 percent recorded in the same month in 2010. This increase was primarily due to higher interest rates, compared to last year, analysts said. This was evident from the fact that lending rate stood higher at 13.59 percent compared to 13.35 percent last year, up 24bps, though deposit rate remained lower at 6.02 percent as compared to 6.1 percent last year.
However, on month-on-month (MoM) basis, the spread remained marginally lower by 4bps but lending rate continued to remain sticky and higher by 9bps. Similarly, the January spread was 11bps higher than average spread of 7.46 percent in 2010. "We believe the banking spreads would remain on the higher side, particularly in the next six months, led by expected increase in interest rates", Farhan Mahmood, senior analyst at Topline Securities, said.