Higher borrowing, deposit rates raise banks' funding costs

economictimes.indiatimes.com:

Bankers say the cost of funds will continue to be on the rise for a few quarters till the entire deposit repricing cost is factored in. India's largest private lender HDFC Bank has seen the cost of funds rise nearly 100 basis points as compared with last year. For the lender, the cost of funds stood at 4% at the end of the June quarter versus 3.1% in the same period last year.

For ICICI Bank, the cost of funds stood at 4.60% at the end of the June quarter. These rates have risen nearly 93 basis points in a year and were at 3.67% during the June quarter last year. «We will see the cost of funds continue to increase I would guess, for the next couple of quarters,» said Anindya Banerjee, CFO of ICICI Bank while addressing a man analyst call recently.

«And by then, the repricing impact should have largely taken place, that trajectory will continue.» Peer private lender Axis Bank reported the cost of funds at 5.03% at the end of the June quarter, a rise of 114 basis points in just one year. These rates were at 3.89% at the end of the June quarter last year. «The marginal cost of deposits has stabilised for the last few months,» said Puneet Sharma, CFO of Axis Bank.

«We expect deposit costs to further increase over the remaining part of the financial year. But the pace of growth of deposit cost is most likely to moderate. So if you recollect, in the Axis context, we had a deposit cost increase that took place in quarter 4 of last year, followed by a deposit costs or cost of funds increase in quarter 1 of the current year.