Smaller banks like Federal Bank also saw a 14 basis points drop in NIM year on year to 3.16%. One basis point is 0.01 percentage point.
Mona Khetan, analyst at Dolat Capital said public sector banks also suffered a compression in margin because the benefit of repricing in marginal cost of funds (MCLR) linked yield for public sector banks did not play out as expected. Public sector banks have a higher share of MCLR linked loans which are repriced every six months than their private sector counterparts.
“We expect margin pressure to continue especially for large private sector banks which have enjoyed the benefit of quicker repricing of loans so far. Deposits rates are likely to be tighter for longer as banks seek more funds to fuel credit,” Khetan said.Though analysts expect margins to be under pressure, benign credit costs will continue to support banks. Bankers and analysts both do not expect any sharp rise in delinquences despite expectations of slippages in unsecured loans.
SBI chairman Dinesh Khara allayed concerns over the bank’s unsecured loans saying that the trend for these loans is “better than secured loans,” with a gross NPA of 0.69%. The bank has a Rs 3.20-lakh crore exposure in unsecured loans, called Xpress credit.
“About 94% of our loans are to government employees and paramilitary and armed forces with the remaining 6% to highly rated companies. There is no apprehension regarding these loans,” Khara said.
Some others like Axis Bank also said they will continue to grow their personal loan portfolio but within risk guard rails. “Nothing in the book is indicating a rise in risk. We continue to watch for any risks emanating in the economy,” Amitabh Chaudhry, CEO Axis Bank said. Axis saw a 25% rise in unsecured personal loans year-on-year.
Analysts said besides the squeeze in margins operational and employee costs could also hurt banks especially for public sector lenders.
“Some banks have a large plan for branch expansion and some public sector banks have to provide for employee wage expenses. These operational costs could also impact bank profits,” said Ajit Kabi, analyst at LKP Securities.
A 37% increase in expenses at Rs 92,753 crore caused a drop in operating profit. The bank provided Rs 3,417 crore in the quarter to account for wages, pensions and gratuity revisions, anticipating salary revisions that would take effect from late last year. The bank has been setting aside money for a likely salary revision effective November 2022.
SBI also plans to increase branches by 600 by next fiscal which also lead to higher operational costs.