Due to limited liquidity and increased funding costs, banks’ net interest margins (NIM) are probably going to be under pressure in the quarter that ends in March 2024. However, analysts predicted that compared to the preceding two quarters, there will be a smaller quarter-over-quarter (QoQ) fall in the NIM, or the gap between interest received and interest paid by a bank.
According to analysts, the majority of lenders should expect to experience a sequential 5–15 basis point (bps) drop in NIM, a measure of banks’ growth and profitability.
According to a research from JM Financial, “a sequential decline in NIMs is a given – more so for private banks – in a quarter impacted by tight liquidity and continued pressure on deposits.”
NIMs would continue to face challenges due to a restricted window of opportunity for loan repricing and pressure from rising cost of fund (CoF), according to a research study from Axis Securities. We think that for many banks, the amount of margin compression might be gradually reduced over time. For our coverage universe banks, we pen down NII (net interest income) increase of 6.3 percent year-over-year (YoY)/quarter-over-quarter (ex-HDFC) with NIMs compression varying between about 5 and 15 bps across banks (mostly private banks),” the statement stated.
ICICI Securities predicts that RBL Bank’s NIM will compress by about 20 basis points, while IDFC First Bank and Federal Bank’s NIM will remain steady. It projects a 15 bps, off-base increase in City Union’s NIM QoQ.
In Q3, Karur Vysya Bank (KVB) anticipates a 30 basis point decline on a reported basis, but an adjusted one-off decline of roughly 10 to 15 basis points. The QoQ NIM for State Bank of India (SBI) is predicted to decline by roughly 5.6 basis points.
Regarding credit, as of FY23, adjusted systemic loan growth is expected to slow down to 15–15.5 percent YoY from 17–18% YoY (based on RBI trend and development).
According to ICICI Securities’ analysis, the company projects roughly 3.5% QoQ loan growth for Q4FY24, compared to almost 4.5 percent for both Q2 and Q3 FY24. “The retail and SME segments continue to drive credit growth, while corporate lending is gradually increasing.” Axis Securities stated, “We anticipate some moderation in the unsecured lending segment during the quarter due to the regulator’s tightened norms as well as lenders’ caution, given the emergence of stress in certain pockets as seen in the previous quarter.”
The Reserve Bank of India increased risk weights, or the capital banks set aside as provisioning to cover any loan defaults, by 25% to 150% in November of last year. These weights relate to banks’ exposure to consumer lending, credit card receivables, and non-banking financing firms (NBFCs).
Analysts covering the banking industry predicted that the growth of deposits will still trail that of credit. A YoY growth rate of 12% is anticipated for deposits. However, deposits would probably grow significantly, according to ICICI Securities, going from a range of 2-3.5% QoQ during the previous three quarters to 5.5% QoQ in Q4FY24.
Banks could have another robust quarter in terms of asset quality. Healthy recoveries will keep slippages under control and drive ongoing asset quality improvement.
Asset quality should stay stable as long as there are only limited significant slippages and robust recoveries. The monthly bounce rate data point to sound retail asset quality practices. Agriculture slippages, which increased in the previous quarter, ought to likewise exhibit a positive trend, according to the study from ICICI Securities.
It stated that although overall slippages are expected to witness a drop QoQ across nearly all banks, some banks may see heightened slippages in their MFI (micro financing institution) portfolios due to the upcoming general elections.
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