Banks in the last reporting quarter of FY2023-24 reported a better-than-expected net interest margin (NIM) but some concerns still remain on high volume of bad loans for some banks, said industry experts. An analysis of financials of at least 15 banks for the January-March quarter of FY24 showed them reporting robust net profit, deposit and credit growth, NIM and asset quality.
The NIM of most of the banks showed healthy YoY growth with some witnessing pressure sequentially. But Sanjay Agarwal, Senior Director, BFSI, CareEdge and Anand Dama, Head BFSI, Emkay Global Financial Services, said that the banks reported better than expected NIM numbers for the fourth quarter of FY24. “The NIMs were better than expected for banks in Q4,” Dama said, and Agarwal highlighted that some NIM pressure was seen but it was still better.
Among mid-sized private sector lenders, IDFC First Bank’s NIM was as high as 6.35 percent and RBL Bank’s NIM stood at 5.45 percent. Whereas some top banks like Kotak Mahindra Bank and Axis Bank reported NIMs of 5.28 percent and 4.06 percent respectively.
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Public Sector Banks (PSBs) too reported strong NIM with Bank of Maharashtra’s reporting 3.97 percent and Bank of India reporting NIM of 2.92 percent.
On the asset quality front, among some of the top PSBs, Union Bank of India reported a gross non-performing asset (GNPA) of 4.76 percent and net NPA(NNPA) of 1.03 percent compared to 7.53 percent and 1.70 percent respectively last year. Punjab National Bank reported a GNPA of 5.73 percent and a NNPA 0.73 percent versus 8.74 percent and 2.72 percent last year.
Among the private sector banks, HDFC Bank’s GNPA stood at 1.2 percent and NNPA at 0.3 percent compared to 1.3 percent and 0.3 percent last year. ICICI Bank’s GNPA was at 2.16 percent and NNPA at 0.42 percent compared to 2.81 percent and 0.48 percent in the previous year.
Agarwal highlighted that asset quality of some banks, especially some public sector banks, is high. “Some asset quality improvement is seen in PSBs and private banks, but some banks still have high asset quality numbers,” Agarwal said.
Credit and deposit growth
In the past few quarters, banks have been reporting higher credit growth compared to deposit growth. The same was the trend in the fourth quarter of FY24, barring a few banks which reported higher deposit growth. These banks were ICICI Bank, IDFC First Bank and RBL Bank, all private sector lenders.
The country’s largest bank, the State Bank of India (SBI), reported a 15.24 percent credit growth compared to 11.3 percent deposit growth. SBI’s Chairman, Dinesh Khara, in the post results press conference, said that the bank is maintaining a credit growth trajectory of 15-16 percent in FY25 and a deposit growth of around 13-14 percent.
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Among private sector lenders, HDFC Bank reported 7.5 percent credit growth and 1.6 percent deposit growth. The numbers for HDFC Bank are not comparable on a year-on-year basis as the bank merged with its parent entity, HDFC Ltd. on July 1, 2022.
Some other PSBs and private sector banks which reported robust growth include Axis Bank with 14 percent credit growth and 13 percent deposit growth, Bank of Baroda with 12.2 percent credit growth and 10.5 percent deposit growth, etc.
Sachin Sachdeva, Vice President, Sector Head - Financial Sector Ratings, ICRA, said: "The banks have been able to report a healthy deposit growth, though the same lags the credit growth, which has led to increase in credit-deposit ratio. Given the large base and persisting challenges in mobilising deposits, ICRA expects the deposit growth to moderate in FY2025 in line with expected decline in growth rate for non-food bank credit."
Here, Dama said that banks have cut down their credit growth post the Reserve Bank of India’s concerns on high credit-deposit ratio of some banks. A high CD ratio indicates liquidity and credit risks for banks.
The central bank in January 2024 expressed discomfort with the high CD ratio in the banking industry. Additionally, data and commentary from the central bank and banking experts show that the CD ratio of some banks has been high, leading to pressure on their net interest margin (NIM).
Dama said: “Most banks have cut down their credit growth and reported slight contraction. Deposit growth has been robust and in line with RBI’s caution.”
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