3 Jul 2023 , 11:00 AM
With slower deposit rate resetting, banks’ net interest margin (NIM), a key profitability indicator, increased 46 basis points to 3.3% in the January-March quarter, according to an analysis. According to a Care Ratings examination of the banks’ balance sheets, this has helped lenders record a 29.5% increase in their net interest revenue over time.
The money that banks make from lending and paying to depositors is known as net interest income or NII, and it increased to Rs 1.83 lakh crore in Q4FY23 as a result of strong loan growth and a better yield on loans compared to the same quarter the previous year, the statement said.
Due to the quicker repricing of loans, the NIM climbed by 46 basis points (bps) year over year to 3.3% in the fourth quarter, although deposit rates have not yet reflected the higher interest rates.
The removal of the Rs 2,000 banknotes in May of this year is likely to balance off the predicted hike in deposit rates, which is anticipated to have a delayed effect.
The NIM for private sector lenders was 4.03%, up 43 basis points, while the NIM for public sector lenders was 2.85%, up 46 basis points.
Banks reported a strong 17.3% increase in advances, mostly driven by personal loans, NBFCs, and MSMEs, bringing the full year credit offtake to 15% in FY23 despite rising interest rates on loans and higher credit demand. Significantly, during the reporting period, both public and private sector banks reported equal rates of loan growth.
However, compared to their private sector competitors, public sector banks reported a larger NII growth of 31.6%.
However, interest income increased 32.1% overall, driven by lenders in the private sector, who saw a jump of 32.6%. Their state-owned competitors had a quarter-over-quarter increase in interest income of 31.7%. This was predicated on a 17.3% increase in advances and a 130 bps improvement in yields from 7.5% in Q4FY22 to 8.8% in Q4FY23.
Lending rates have changed as a result of banks realigning their interest rates, which were typically reset within a one-year interval. Since deposit rates are typically not changed before maturity, it hasn’t completely reflected in those rates.
According to a report on the effect of the withdrawal of Rs 2,000 notes worth Rs.3.62 lakh crore since May 19, these increases are anticipated to account for roughly 0.5% to 1% of all deposits in the banking sector.
According to the RBI, deposits account for up to 85% of the entire amount of Rs 2.55 lakh crore that has returned to the system as of June 20.
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