ICICI Bank sees moderation in NIM in next few quarters

ICICI Bank, the country’s second-largest private lender, expects its net interest margin (NIM) to remain under pressure in the next few quarters due to higher cost of funds.

The bank also expects hiring growth to be slower in the coming quarter compared to the previous quarters. “We will see some increase in deposit costs as repricing comes through and given the increase in retail deposit rates during Q4,” said Anindya Banerjee, CFO, ICICI Bank.

“So, I guess we could see some further moderation in the NIM but I would expect it to be pretty range bound… for the next few quarters until a rate cut actually happens,” he added.

The trend of contraction in the NIM was also seen in the previous quarter, with the bank’s NIM declining to 4.40% in the fourth quarter from 4.43% in the third quarter and 4.90% in the same quarter of 2022-23.

The net interest margin was 4.53% in 2023-24.

Its cost of deposits was 4.82% in the fourth quarter compared to 4.72% in the previous quarter.

The bank had raised deposit rates by 10 basis points in February this year.

Most of the banks are expected to see pressure on their NIMs in the current financial year, impacted by tighter liquidity conditions and rising deposit costs.

The private lender had started slowing its pace of hiring from the third quarter of the previous fiscal and it expects it to moderate going forward.

“We have been saying that we definitely don’t expect the headcount to increase at the pace at which it had increased over the previous 12 to 15 months,” said Banerjee. “So, we will continue to open branches and expand the franchise and for that, whatever employee base addition will need to be done will happen, but it would be at a much, much more measured level than what it was over the last 12 to 15 months,” he added.

The bank does not see any challenges to its business growth in the current financial year. “We have always been focused on organising our business around micro markets and ecosystems,” said Banerjee. “We believe that given our current market shares in different micro markets and ecosystems, there is sufficient room for us to grow and we will just take that as it comes, but I don’t see sitting here today any particular growth challenge in the environment,” he added.

In terms of credit demand, the current financial year is expected to be slightly less buoyant than last year, as the banking sector is likely to experience some moderation in credit growth. Rating agency ICRA expects the credit growth to moderate to 11.6-12.5% in the current financial year from 16.3% (excluding the impact of the HDFC twins merger) in the previous fiscal, while the lower net interest income margins on higher deposit rate payouts will lead to a dip in profits.