Banks may see some pressure on their interest margins in the fourth quarter as they may have to raise deposit rates.
They are expected to take the cue from the Reserve Bank of
Repo and reverse repo are the rates at which the Reserve Bank of
In the current quarter, net interest income — profits made from the differences between the cost of mobilising deposits and interest charged on lending — may be squeezed because of higher cost of funds as deposit rates could go up. This could affect their profitability and bankers have not minced their words in expressing this concern.
At a media briefing to announce its third quarter performance, OP Bhatt, chairman of SBI , the country’s largest bank, said: “The bank will try to maintain its net interest margins (NIM) which may come under pressure in the fourth quarter.”
Somnath Sengupta, executive director and CFO, Axis Bank , added: “Going forward, margins will taper off further due to tight liquidity conditions, which would result in higher cost of funds and, in turn, shrink margins.”
An analysis of the financial performance of five large Indian banks in terms of assets, which account for 45-50 % of the total asset pie, shows that three of them recorded a net profit growth of over 30%, with most of this coming from a rise in net interest margin.
The Reserve Bank, on its part, is asking banks to restrain their credit offtake. Deputy governor, Subir Gokarn, in his interview with ET, had said, “The motivation for that is at an aggregate level, we have 24.1% credit growth and 16.5% deposit growth, which itself is a concern because the incremental credit deposit ratio is about 100% there. But when you looked at it across individual disparities , some banks were showing very high number incremental credit deposit ratio. If this is financed by overnight borrowings, it is essentially a risk. So, when we talk of engagement, we are basically seeing it as a prudential systemic risk and not just a monetary issue.”
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