Rising interest rates in the June quarter, coupled with increased credit demand, helped banks post a strong 14.6 per cent growth in net interest income, compared to last year’s, after the Reserve Bank of India (RBI) hiked rates It was almost double.
A report by Bank of Baroda economist Dipanvita Majumdar analyzed the financial performance of 35 banks, including 12 public sector, 19 private sector and four small finance banks. It looked at key indicators of profitability, margin and efficiency ratio for the consolidated groups. For public sector and private banks, net interest income – the difference between earned and expenditure – grew sharply at 11.9% and 17.2% in Q1 FY23, respectively, from 5.4% and 10.5% in Q1FY22.
Data from RBI showed that the weighted average lending rate on fresh bank loans rose 31 basis points (bps) to 7.94% between March and June. On existing loans, it rose 19 bps to 8.93%. RBI’s Monetary Policy Committee (MPC) has hiked the repo rate by 140 bps in three tranches between May and August. In the three months through June, the effective rate increase was 90 bps. But bankers do not anticipate a decline in credit demand despite higher interest rates.
“Despite the interest rate hike that has been talked about, now the retail engine continues to deliver on its promise and we expect the retail sector to see decent growth going forward. Rather, when it comes to corporate growth, we expect that we will have better traction this year,” SBI Chairman Dinesh Khara told analysts on August 6.
Despite a gradual revival of corporate credit, where a major chunk of sanctioned loans are yet to be utilised, it is the retail segment that fueled credit growth in the June quarter. Analysts at Kotak Institutional Equities pointed out in a report on 16 August that corporate debt has not yet grown in a meaningful way, growing only 3% in June 2022. “Some lenders are indicating caution due to concerns related to the global macroeconomic environment. But, incrementally, banks saw better growth opportunities in sectors such as non-bank lenders and infrastructure (roads and telecommunications),” the report said, adding that banks have been using higher working capital limits by borrowers in the past few quarters. giving indications.
The report said large private sector banks have outperformed small and mid-tier banks, which are struggling due to exposure to the Covid-affected sectors such as commercial vehicles, microfinance, small businesses and self-employed retail. are. However, mid-tier banks are also now indicating a strong outlook for credit growth as most asset-quality challenges have been resolved, capital levels are healthy and credit underwriting has been tested, it said.
Analysts at Emkay Global Financial Services Ltd said most banks have raised their growth guidance for FY13, due to strong factoring in the June quarter and improving growth impulses across retail, small businesses and corporate portfolios. “Within the retail sector, mortgage growth remains healthy, while signs of pick-up are visible in otherwise weak vehicle finance as well. Unsecured credit growth continues to remain strong, driven by cards and personal loans, due to underlying strong demand and banks being risk-averse,” it said in a note on August 11.
This said, funding as well as operating cost pressures are mounting and thus, banks with the ability to pass on rate hikes, floating rate books and drive-up fees should be able to protect their core profitability, it said. Told. Emkay sees ICICI Bank and SBI in a better position to improve their margins with a higher share of retail book including mortgage, while SBI may additionally benefit from retirement liability due to absence of family pension provisions unlike last year