Despite pressure on margins and concerns over asset quality, the banking sector as a whole will continue to display resilience, says a report by Care Rating based on the performance of 39 banks during the first nine months of this fiscal.
“Though pressure on margins coupled with higher provisioning have impacted the profitability parameters of the banks during the first nine months of the fiscal, we believe that banks can weather the pressures as they are well capitalised,” says the report.
This optimism comes against the backdrop of a slowing economy and the resultant moderation in credit offtake and deposit mobilisation during the reporting period. However, it notes that the asset quality has seen some pressure on account of migration of public sector banks to system based bad assets recognition as well as the overall slowdown.
The study covers 39 banks of which 26 were public sector banks and 13 private lenders.
For these 39 banks, total income grew a robust 31.8 per cent during the period. However, with tight interest rates, net interest income slowed to 15.45 per cent with private banks faring better than their public sector peers. Net interest margin ratio also moderated marginally from around 3.02 per cent to 2.94 per cent.
On an overall basis, other income remained stagnant on the back of decline in treasury gains with firming up of yields. While PSBs saw a marginal rise of around 4 per cent, private lenders fared better with a 15 per cent rise. The disparity is mainly on account of relatively higher proportion of fee-based income in the income profile of private sector banks, says the report.
Rise in provisioning coupled with pressure on margins have resulted in a near flat net profit growth of 5 per cent for banks. In fact, PSU banks recorded a marginal dip in profits, despite the fact that their overall cost of funds remained almost flat.
The overall cost-to-income ratio remained at near the same level at 44.53 per cent against 44.23 per cent. While PSUs banks saw their cost-to-income ratio almost flat at 44 per cent against 44.03 per cent, private banks saw a marginal rise from 44.86 to 46.15 per cent.
PSU banks could maintain their cost at stable rate as both NII growth and increase in operating expenses was muted at 14.6 per cent and 12 per cent respectively.
On an overall basis, provisioning rose 30.43 per cent on the back of higher NPAs as the RBI mandated higher specific provisioning.