Most top public sector lenders are confident of holding the net interest margin (NIM) at the current levels though the pressure from higher cost of deposits has started to build up. The banks plan to maintain their margins as they may be able to squeeze in benefits of transmission of policy rates to lending rates, in addition to surplus liquidity at their disposal.
Banks have seen their NIM expanding so far in the current financial year, with State Bank of India (SBI) leading the pack at 3.69% in Q3FY23, higher by 14 bps sequentially. The margin for the bank will be more or less stable going ahead, chairman Dinesh Khara said in an analyst call.
The bank is increasing interest rates to attract retail deposits to plug the gap between growth rates of credit and deposits. However, the bank will calibrate its marginal cost of funds-based lending rates (MCLR), giving it the elbow room to ensure that the margin is not affected, Khara said. The bank has an MCLR book of around 40% of its advances. Additionally, the bank has excess liquidity to the tune of Rs 3.2 trillion, which will enable it to support the credit growth.
The improvement in NIM was driven by increase in yield on advances, which was partially offset by a marginal rise in cost of deposits, but the scope for further re-pricing in cost of deposits is very limited for the bank, analysts at Kotak Institutional Equities said in a report. The bank has raised retail term deposit rates in the 211 days-to-one-year bucket by 115 bps in Q3FY23, as per bank data.
However, the loan repricing is likely to more than offset any deposit cost pressure and the NIM should be stable, ICICI Securities said in a note. SBI is focusing more on margins in overseas book rather than growth in overseas portfolio, which should provide incremental delta, the brokerage said.
The repricing of loans is not the only tool to preserve margin, according to Sanjiv Chadha, MD & CEO, Bank of Baroda. The changing composition of the book will also give the lender scope to withstand rising costs. The bank expects that the upside to the margin will come from increasing its retail portfolio and within unsecured personal loans, he said, adding that the earlier benefit that the lender saw on account of a lag in pricing of loans and deposits will soon vanish.
The bank is also looking to shore up its deposits in shorter tenures as the rate movement a year from now seems uncertain, he added. “What we are trying to make sure is that we do not commit the bank to an interest rate cycle about which we are not confident today. As we move forward, there may be enough confidence for us to broaden time segments where we believe that there is visibility of stable rates,” Chadha said in an analyst call.
Punjab National Bank has maintained its earlier guidance of 2.8-3% for the NIM, but the lender is relying on excess liquidity, which is close to Rs 50,000 crore, Atul Goel, MD & CEO, said.
Canara Bank has guided for a margin of around 2.9% in the coming quarter although the actual NIM has overshoot its guidance, as the lender has started giving higher rates on deposits Q3FY23 onwards. “The cost of deposit has increased from 4.09% to 4.19%, whereas yield on advances has increased by almost 20 bps. So, with that comfort, we are sure that we can manage this,” K Satyanarayana Raju, MD & CEO, said earlier.