Net interest margins could fall by 15-20 bps in H2: CARE Ratings

Updated - March 12, 2018 at 01:55 PM.

Partly due to slowdown in credit off-take

Banks could see their Net Interest Margins (NIMs) fall by 15-20 basis points due to low credit demand.

There could also be a marginal increase in gross non-performing assets to 2.86-2.9 per cent, by the end of the current financial year, on account of slippages due to weak economic conditions and restructured assets, said credit rating agency, CARE Ratings.

According to the report, released on Thursday, NIMs have already seen some compression in the first half of the current financial year due to fall in the credit-deposit ratio as well as hardening of interest rates.

For the second half, liquidity is likely to remain tight owing to higher government borrowings coupled with the continued depreciation of the rupee.

Also, most of the banks have not been able to pass on the entire burden of rate hike partly due to slowdown in credit off-take as well asset quality concerns.

NPA figures

NPA numbers saw a sharp jump in HI FY12 mainly on account of transition to system-based NPA recognition by public sector banks.

Private sector banks have seen only a marginal rise in their NPAs.

As most PSU banks have completed the migration to system-based NPA recognition in September, large-scale surprises are going to be limited in H2 FY12.

“With global economy continuing to look bleak and moderation in domestic GDP numbers, the banking sector is likely to face challenges in terms of steering its growth and profitability numbers while maintaining the asset quality,” said the report.

However, the Indian banking system continues to display resilience despite the pressure on profitability and asset quality, as most banks have a capital-adequacy ratio above 12 per cent and Tier I CAR above 8 per cent.

Growth in advances

For FY12, CARE estimates growth in advances to be around 16-17 per cent and to achieve this banks need to grow their loan book by around 12-13 per cent in H2 FY12 over September 2011 numbers.

Yields on advances are likely to remain stable as banks may not raise lending rates further as already seen in the case of previous two rate hikes by the Reserve Bank of India, said the report.

priyan@thehindu.co.in

Published on December 1, 2011 16:52