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Banks will continue to witness a compression in their critical net interest margins even during the current fiscal, due to slowing credit growth and inability to raise deposits at low costs, brokerage firm Kotak Institutional Equities has said.
A majority of commercial banks, excluding Bank of India, Jammu & Kashmir Bank and Indian Overseas Bank, reported a contraction of 0.2 per cent in their NIMs (net interest margins) on a sequential basis in the March quarter.
“Slowing loan growth and inability to raise deposits at lower rates will continue to compress NIMs,” Kotak Institutional Equities said.
The report maintained a cautious stance on credit growth for the next two fiscals at around 15 per cent yearly, which is lower than the RBI guidance of 16 per cent announced in its annual credit policy.
On the deposits front, analysts have for long been raising question mark over the feasibility of the competition-induced elevated rates. Bankers have repeatedly opined the deposit rates are at peak but the system has not seen major corrections.
In spite of the elevated rates, deposits failed to pick up in FY'12, with many banks also reporting single-digit increases much below the targeted levels.
SEBs restructuring
On the restructuring front, which ended up affecting banks’ bottomlines due to extra provisioning, Kotak said there can be more shocks in store, though at a lower pace, as many banks are yet to restructure part of their exposures to the state electricity boards (SEBs) segment.
“Nearly 35 per cent of SEB exposures for banks have been restructured by March 2012 and we expect an increase, though at s lower pace, in first quarter of FY’13 as select SEBs restructuring was not reported by few banks,” it said.
In FY’12, close to Rs 30,000-crore SEB debts went for CDRs, with two Rajasthan SEBs getting Rs 12,000 crore of its debt restructured and Rs 8,000 crore by one of the three SEBs of Haryana. Though the Tamilnadu SEB also went for the CDR, the quantum is not known.
A recent Crisil report said losses of discoms rose 24 per cent to Rs 27,500 crore between 2006-07 and 2009-10, which might have risen to Rs 35,000-40,000 crore in 2010-11.
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