Banks may report strong deposit growth, stable asset quality in April-June quarter: Analysts

Experts said that bank deposits are expected to grow further this quarter, primarily aided by the withdrawal of Rs 2,000 notes

Indian banks may see strong deposit growth for the quarter ended June 2023, analysts said ahead of earning announcements by major banks. Also, they may report stable asset quality and healthy rate of recoveries, the analysts added. “The asset quality is expected to remain stable with lower slippage ratios, a decent rate of recoveries and upgrades, and a further decline in the restructuring of stressed accounts,” said brokerage firm KR Choksey Securities in a report dated July 11.

However, the net interest margin (NIM) of banks is expected to show a slight decline for the April-June 2023 quarter due to the rising cost of funds, analysts added. NIM is the difference between the interest earned and interest paid.

“We may see a 5-15 basis point (bps) decline in NIMs for the quarter. This is because of the rising cost of funds,” said Anand Dama, Senior Research Analyst, BFSI, Emkay Global Financial Services.

Brokerage firm Sharekhan said in a report that the NIM is expected to be flat or decline marginally on a quarterly basis, and banks are expected to give a negative outlook on NIMs in the near term.

Dama added that bank NIMs had also been affected as they had to reprice assets. ``For FY 23-24, NIMs will either be flat or decline slightly owing to economic conditions,” he added.

Per Reserve Bank of India (RBI) data, bank deposits grew 9.6 percent in the fiscal year (FY) 2022-23, while credit grew 15 percent.

Experts said that bank deposits are expected to grow further this quarter, primarily aided by the withdrawal of Rs 2,000 notes.

“We expect a deposit growth of 16.4 percent year-on-year (YoY) and 2.7 percent quarter-on-quarter (QoQ),” the report by KR Choksey Securities said. But after robust FY22-23, credit growth is projected to moderate in FY23-24, experts said.

“Expect a credit growth of 13-14 percent in FY23-24. This can be attributed to the anticipated slowdown in GDP growth, lower working capital requirements, and a higher base effect,” said Vijay Gaur, Lead BFSI Analyst, Care Ratings.

Most analysts expect the net interest income (NII) of banks to grow at an average of 24.2 percent YoY. This growth, experts said, will primarily be led by continued traction in credit, with stable yields on assets.

Data with CareEdge Ratings showed that the GNPAs (gross non-performing assets) of scheduled commercial banks (SCB) had reduced by 23.5 percent YoY to Rs 5.5 lakh crore as of March 31, 2023, vs Rs 7.3 lakh crore a year ago.

This trend, experts said, is expected to continue in FY23-24 due to several factors, including lower slippage, a reduction in restructured portfolios, and healthy growth in advances driven by an uptick in economic activity.

“SCBs have maintained substantial provisions, which positions them well to address any asset quality concern,” Gaur said.

On July 13, private sector lender Federal Bank reported a net profit of Rs 854 crore for the April-June 2023 quarter, a jump from Rs 600 crore in the corresponding period last year. The bank's GNPA also improved to 2.38 percent, from 2.69 percent last year.

The lender's net NPA stood at 0.69 percent, an improvement from 0.94 percent in the corresponding quarter last year. Shyam Srinivasan, Chief Executive Officer and Managing Director (CEO and MD), Federal Bank, said that the company is looking at raising Rs 4,000 crore in FY 2024.