The spreads were higher, at 3.5%, in October 2016.
Banks’ spread on loans over deposits has expanded to a two-year high of 3.4%, led by an improvement in the CASA (current account savings account) ratio of banks. The spreads were higher, at 3.5%, in October 2016.
On a year-on-year basis, the bank credit growth was 15.1% till November 23, while deposit growth stood at 9.4%, according to data from the Reserve Bank of India (RBI). The lower deposit growth amid higher credit growth has been a factor fuelling the liquidity constrains within the banking system. State Bank of India’s one- to three-year deposit stands at 6.8% compared to one-year marginal cost of funds-based lending rate (MCLR) of 8.5%, placing the spread at 1.7%.
“Weaker inflow into debt mutual funds is driving shift of market share to banks,” said analysts at CLSA.
This can lead to expansion in net interest margins (NIMs) by 5-10bps and drive net interest income (NII) to grow over 2-3 quarters, especially for high CASA banks.
Banks are now resorting to increasing deposit rates to curb liquidity constrains. SBI recently hiked its deposit rates following rate hikes by HDFC Bank and ICICI Bank earlier last month.
The country’s largest bank hiked rates with a maturity period between one year and less than two years to 6.80% from 6.70%, a 10 basis points (bps) hike and for the period ranging between two years to less than three years, the bank hiked rates by 5 bps to 6.80% from 6.75% effective from November 28. Deposit rates for other tenures ranging from 7 days to 10 years remain unchanged.
Lending rates have trended up over the last four or five months. The MCLR— the minimum interest rate below which a bank cannot lend — saw an upward movement over the past 4-5 months leading to a hike in the lending and deposit rates, according to RBI data.