Private banks see margins drop, small loans sour

livemint.com:

ICICI Bank, Kotak Mahindra Bank and Yes Bank have all experienced a sequential drop of 20-35 basis points in their net interest margins. Despite this, their margins continue to be healthy when compared to the previous year. A basis point is one-hundredth of a percentage point.

The share of current and savings accounts (CASA) in total deposits continued to fall for most banks, adding to margin contraction. ICICI Bank reported a 36% jump in net profit to ₹10,261 crore, while Kotak Mahindra Bank reported a 24% increase to ₹3,191 crore during the September quarter. “Margins contract due to higher cost of deposits.

Margin compression has resulted in a fall in net interest income by 3.3%. Otherwise, it would have been 4.5% growth. NIM (net interest margin) is a function of loan spreads, which have compressed.

Term deposit (TD) deposit repricing had to be absorbed. From here on, we don’t see TD repricing affecting margins. The CASA ratio has seen a downward trajectory.

Any drop in CASA balances results in NIM compression. We see improvement in CASA ratio going forward," said Niranjan Banodkar, chief financial officer, Yes Bank, after the earnings announcement. Overall asset quality remained steady, but slippages in the small-ticket unsecured loan portfolio saw a sharp rise.

RBL Bank, for instance, saw a sequential rise in credit card slippages to the extent of ₹334 crore in the second quarter compared to ₹312 crore in the previous quarter. The Yes Bank management also cautioned about the rise in unsecured loans in small-ticket personal loans in the sub- ₹50,000 loan category. “On unsecured loans, we have seen slight deterioration.