Private sector banks delivered another strong performance in the December quarter as credit growth in the system remained strong. Following the RBI's rapid rate hikes, banks raised lending rates quickly but went slow on deposit rates, resulting in higher net interest margins. In addition, lower provisions have also contributed to the bank's profitability.
In Q3FY23, private banks posted a 31.7 percent YoY rise in the net profit to ₹35,166 crore. Sequentially, the net profit rose by 12.6 percent over ₹31,218 crore, a report by Business Standard said.
Banks gained from higher increases in lending rates compared to the rise in deposit rates. The Reserve Bank of India (RBI)’s latest data showed that the weighted average lending rate (WALR) on outstanding rupee loans of private banks rose by 67 bps from 9.77 percent in December 2021 to 10.44 percent in November 2022, the report said.
The weighted average domestic term deposit rate (WADTDR) on outstanding rupee term deposits went up by 54 bps from 5.18 percent in December 2021 to 5.72 percent in November 2022, it added.
Meanwhile, the core income stream showed a robust trend, the contribution from non-interest income was subdued (11.3 percent YoY) as the investment portfolio was impacted by 225 basis point hike in the policy repo rates since May 2022, it added.
While the loan portfolio of the banks under review expanded by 17.8 percent YoY on robust festive season demand, their deposits grew by 14.1 percent YoY, according to the report.
On the trend of interest income and rate trajectory, Anil Gupta, vice-president and co-group head of ICRA, told BS that the policy repo rate may go up in February 2023. The balance sheets of banks in Q3 got a partial benefit (one month) of a 35-basis point repo rate hike in December. They are expected to enjoy the full benefit of that hike in the fourth quarter (Q4 FY23), said the report.
"The liquidity is getting deployed at a higher rate." This provides an upside to the income. Deposits will come up for major renewal (repricing) in early next financial year (FY24). So, the fourth quarter should also be stronger in terms of margins. “Banks have hiked in deposit rates but its effects would be only in subsequent years and margins should compress in every quarter of the next financial year (FY24),” Gupta was quoted as saying.
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