Banks’ top line swells over healthy Q3 credit off-take

Mumbai: Net interest income of banks grew by a record 25.5 per cent to Rs1.78 lakh crore in the December 2022 quarter on-year, driven by a healthy credit off-take and higher yield on advances, according to an analysis. The quarter saw banks booking higher yields on advances as the system-wide core profitability metric net interest margin (NIM) rose by 17 basis points (bps) to 3.28 per cent. This was possible as banks repriced existing loans higher at a faster rate and also increased the new loan pricing, but kept deposit rates almost unchanged, according to an analysis by Care Ratings' senior director Sanjay Agarwal. But the rise in NIM was led by private sector banks, thanks to their operational efficiencies, at 4.03 per cent, up 15 bps on-year. State-owned banks registered NIM at 2.85 per cent, up 17 bps on-year.

Net interest income or NII is the main revenue head for banks and is the difference between interest earned on advances and the interest paid to depositors/funds raised from markets. NIM is the profit margin/profitability gauge earned from advances and other credit businesses as a percentage of cost. Agarwal expects the NIM to stabilise going forward due to repricing of liabilities -- of late major banks have begun to offer higher returns to depositors as credit demand continues to remain in high double-digits while deposits are hardly coming in.

The Reserve Bank of India has increased the key fund rate -- repo rate -- by 60 bps in the December quarter -- 35 bps in the October policy review and 25 in December -- and banks have quickly passed on the fund cost differences to borrowers. Cumulatively, the cost of funds have gone up by 250 bps since May 2022 as inflation remained above the RBI's tolerance level of 6 per cent throughout the year. Even on sequential basis, NIM has improved from 3.11 per cent for the system -- from 2.67 per cent in case of state-owned banks and from 3.88 per cent in case of private banks.