Five of the seven public sector banks that have declared their quarterly earnings so far have reported low NIMs for the September quarter. However, these banks managed to register gains. Net Profit Mainly on account of bad debt recovery and withdrawal of provision made in the previous quarters.
Banking industry captains said they would rely on credit growth to boost NIMs over the next two quarters as lending rates remain muted unless the Monetary Policy Authority continues its accommodative stance for support. economic recovery.
The banking sector’s weighted average lending rates fell 31 basis points to 7.20% in September, the biggest monthly decline since November 2016. Public sector banks lead the race in reducing credit costs. Lending rates were already low as banks followed regulatory cues on a softer interest rate regime over the past two years.
The scope for further reduction in deposit rates is not available to lenders as the real interest rate is already negative, with NIMs kept below 3% for most of them.
Punjab National Bank reported the highest drop of 25% in net interest income among state-owned lenders that have declared their quarterly earnings so far. Canara Bank and Indian Bank have lower NII and NIM for the quarter under review.
Indian Overseas Bank chief executive Partha Pratim Sengupta said last week that reducing interest rates by all major banks has made the market too competitive, leading to a fall in NIMs. However, IOB saw net interest income higher by 4.6%, while its NIM fell to 2.51% in the quarter ended September 30, from 2.57% in the year-ago period.
Punjab and Sind Bank’s NII has increased marginally while its NIM has fallen. On the other hand, Bank of Maharashtra and UCO Bank registered growth in both NII and NIM.
Indian Bank Chief Executive Officer Shanti Lal Jain expects interest income to increase with higher credit offtake in the next two quarters, in line with the expected economic recovery. AK Goyal of UCO Bank also shared a similar view.
However, public sector banks may face a challenge in terms of credit growth from their private sector peers, who are generally more aggressive in retail lending.
In the last five years, the market share of public sector banks in both deposits and advances has declined by about 10%. “Clearly, asset quality and resultant profitability, as well as capital challenges, have been a major factor in the slowdown for public sector banks,” Acuite Ratings and Research said in a note.