Banks gain from higher lending rates compared to higher deposit rates

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Banks gain from higher lending rates compared to higher deposit rates

Banks gained from higher lending rates compared to rise in deposit rates. The weighted average lending rate on outstanding rupee loans increased by 67 basis points from 9.77 per cent in December 2021 to 10.44 per cent in November 2022, according to the latest data from Reserve Bank of India RBI. The average domestic term deposit rate WADTDR on outstanding rupee term deposits went up by 54 bps from 5.18 per cent in December 2021 to 5.72 per cent in November 2022.

The contribution from non-interest income was subdued by 11.3 per cent YoY as the investment portfolio was affected by 225 basis points hike in policy repo rates since May 2022, despite the strong trend in the core income stream. The loan portfolio of banks under review increased by 17.8 per cent YoY on robust festive season demand, but their deposits increased by 14.1 per cent YoY.

Anil Gupta, vice-president and co-group head, Icra, said the policy repo rate could go up in February 2023, as a result of the trend of interest income and rate trajectory. The balance sheets of banks in Q 3 received partial benefit of a 35 basis point repo rate hike in December. They are expected to have full benefit from the hike in the fourth quarter of Q 4 FY 23. The liquidity is getting deployed at a higher rate. The income is upside-up. Deposits will come up for major renewal repricing in early next financial year, so the fourth quarter should be stronger in terms of margins. Banks have hiked deposit rates, but their effects would only be in subsequent years and margins should compress in every quarter of the next financial year, according to Gupta.

Motilal Oswal Securities said that banks' credit costs have remained in control and are expected to stay that way for the next one-two quarters, and that the provisions for bad loans grew moderately 6.9 per cent YoY and 13.9 per cent QoQ Nitin Aggarwal, Research analyst.

Bankers said banks reported falling in non-performing assets in absolute terms and in percentage terms in 2022. This has resulted in a less burden for setting aside money as provisions for stressed assets.

At the end of December 2022, the gross bad loans fell to Rs 1.4 trillion from Rs 1.88 trillion a year ago. In September 2022, Rs 1.69 trillion was also generated.