Bank margins hit by higher funding costs, trend likely to continue
Unsecured loans were another talking point in the bank earnings after the Reserve Bank of India's (RBI) caution post the monetary policy review last month. But lenders have been empathic that all is under control and the risks are in segments that they are not present in.
NIM, the difference between the yield a bank earns on loans and that it pays on deposits, reduced for almost all lenders large and small but in different quantums.
Among the large lenders ICICI held on to its margins at 4.53% from 4.31% a year earlier, it has dropped from 4.78% in the preceding quarter. SBI's NIM dropped to 3.43% from 3.55% a year ago.
Smaller banks like Federal Bank also saw a 14 basis points drop in NIM year on year to 3.16%.
One basis point is 0.01 percentage point.
Mona Khetan, analyst at Dolat Capital said public sector banks also suffered a compression in margin because the benefit of repricing in marginal cost of funds (MCLR) linked yield for public sector banks did not play out as expected.
Public sector banks have a higher share of MCLR linked loans which are repriced every six months than their private sector counterparts.
«We expect margin pressure to continue especially for large private sector banks which have enjoyed the benefit of quicker repricing of loans so far.
Deposits rates are likely to be tighter for longer as banks seek more funds to fuel credit,» Khetan said.
Though analysts expect margins to be under pressure, benign credit costs will continue to support banks. Bankers and analysts both do not expect any sharp rise in delinquences despite expectations of slippages in unsecured loans.
SBI chairman Dinesh Khara allayed concerns over the bank’s unsecured loans saying that the trend for these loans is “better
