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Banks to report healthy bottom line on high credit growth

October 06, 2023

Banks to report healthy bottom line on high credit growth
Benefitting from a rise in lending rates, high credit offtake, and lower credit costs, banks are likely to report about an 18 per cent rise in net interest income (NII) and 23 per cent in profit year-on-year (Y-o-Y) in the first quarter ended September 2023 (Q1FY24).

NII, a key earning source for lenders, may show higher growth in private banks (24.4 per cent Y-o-Y) compared to public sector banks (12.1 per cent Y-o-Y) in Q2FY24.
 
Nitin Aggarwal, Research Analyst, Motilal Oswal said while the focus is on NII, there will be pressure on interest margins due to aspects like repricing of deposits.
 
In the current interest rate cycle, banks benefited from an immediate increase in lending rates. Later, a rise in deposit rates came with a lag, creating pressure on margins.
 
The Net Interest Margin (NIM) of banks had witnessed an improvement of 36 basis points (bps) Y-o-Y, reaching 3.27 per cent in Q1FY24 due to faster repricing of loans, whereas deposit rates have not yet fully reflected the increased interest rates, according to CARE Ratings.
 
Higher growth in bank credit has pushed up interest income. Reserve Bank of India data showed bank loans grew by 15.27 per cent Y-o-Y growth in advances to ₹145.58 trillion till September 22, 2023, and deposits expanded by 12.34 per cent growth on Y-o-Y basis to ₹191.33 trillion till September 22, 2023.
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