A flat road for banks

Updated: Nov 17 2012, 08:58am hrs
The difficult economic environment took a toll on the performance of banks in the July-September 2012 quarter with asset quality woes and moderating credit growth standing out as the main pain points for banks.

The rise in slippages and restructured accounts, led by public sectors lenders, had a deteriorating impact on the net interest incomes and profitability of banks. The asset quality of private banks, however, remained largely unscathed with their NPA levels under check and profitability intact.

However, both private and public sector bankers acknowledge that troubles around bad loans are far from over and the coming quarters could throw up more surprises. The overall loan growth of 18.80% year-on-year (y-o-y) could have looked much worse if not for the strong demand coming in from the retail side thanks to the recent rate cuts and the festive season demand for loans.

Pratip Chaudhuri, chairman of SBI, noted that the bank has seen a pile-up of deposits and liquidity as demand for loans, mainly from the mid-corporate and SME segments, remains tepid. With banks having to deploy these funds in lower-yielding government securities, net interest margin expansion remains challenging.

Bankers have indicated that they will have to moderate their deposit growth if credit demand remains weak. However, with corporate demand for loans typically seeing traction in the second quarter, they remain hopeful of a better credit environment.