New Delhi: Indian banks may see a decline in their earnings as net interest margins (NIMs) stop rising due to the central bank’s decision to extend its pause on rate hikes, S&P Global Market Intelligence said.
Tusharika Aggarwal, a dividend forecasting research analyst at S&P Global Market Intelligence said, “The profitability of banks in the upcoming quarters will depend on interest rate movements and loan growth. If the Reserve Bank of India (RBI) decides to lower interest rates, banks may once again report high NIMs. In such a scenario, interest rates on deposits would be reduced immediately, with a lag on interest rates levied on loans.”
The largest private and public sector banks in India experienced higher net profits in the April-to-June quarter, benefiting from their ability to quickly pass on increased rates to customers while paying less for deposits. But as deposit rates catch up and funding costs increase, several banks have seen a decrease in NIMs from the previous quarter, which has raised concerns about future profitability.
Analysts expect rates to remain unchanged through 2023, though the central bank has left open the possibility of further hikes, pointing to an expected spike in inflation due to supply disruptions.
State Bank of India, the country’s largest bank by assets, saw its NIM contract sharply to 3.15 per cent in the April-June quarter, down from 3.44 per cent in the previous three months, according to S&P Global Market Intelligence data.
The bank’s net income more than doubled to 185.37 billion rupees from 73.25 billion rupees a year earlier. ICICI Bank’s first-quarter net income rose to 106.36 billion rupees, from 73.85 billion in the year-ago period.
