Banks see pressure on interest margins as high provisions, lower interest rates pinch

#Banks, #margins, #NIM

Some banks have said low interest rates and poor credit growth are the reasons behind margins falling.

Banks, especially state-run banks, are seeing increasing pressure on their net interest margins (NIMs) which bankers attributed to a mix of factors including a low interest-rate regime, high provisioning on stressed assets and the lack of meaningful credit growth.

NIM is the difference between interest earned on loans and interest paid on deposits.

A Moneycontrol analysis of the margins of nine top banks showed that public sector banks have seen a clear decline in NIMs between the October-December and January-March quarter of FY21. NIMs fell up to 56 basis points (bps) on a sequential basis. A basis point is one-hundredth of a percentage point. In comparison, private banks either saw NIMs remain stable or increase.


In a report dated May 2, Nomura analysts Nilanjan Karfa, Amit Nanavati and Tanuj Kyal said that the average spread for private banks and public sector banks stood at 4.6 percent and 3.2 percent, respectively. Spread refers to the difference between the average rate of interest on loans and that on deposits.

“The sharp divergence in spreads is mostly reflecting on the higher share of higher-yielding loans for private sector banks than SOE (state-owned enterprise) banks,” Nomura said.

Some banks have said low interest rates and poor credit growth are the reasons behind margins falling. “The primary reason for our net interest margin to see a decline is a fall in yield on advances, which was more than the fall in our cost of deposits,” AK Das, MD & CEO, Bank of India, said on 4 June.

Das added that another factor was muted growth in advances. Bank credit growth has been languishing in the five-six percent range for a year now, which means banks have fewer opportunities to earn interest income.

“Slowly but surely, we are moving towards a regime where we have to operate within a lower margin because a lot of transmission is happening. That may bring us in line with our foreign counterparts who operate within a smaller margin,” Das added.


Das referred to the directive of the central bank to link new loans to retail and small enterprise borrowers to an external benchmark, which came into effect in April 2019. As a result of that regulation, much of the new loans in the system are priced over the repo rate, which has fallen by 115 bps since March 2020.

High provisions hurt

Analysts said there are also other factors at work. “NIMs have been hit also because banks have been making a lot of accelerated provisions in anticipation of new stress emerging,” said Madan Sabnavis, Chief Economist, CARE Ratings. Of course, stable interest rates are also playing a part because they limit the gains banks make on sale of government securities, Sabnavis added.

Public sector banks may also be getting affected harder because of their presence in international markets where loan yields are low. The management of Bank of Baroda, which has historically had a significant overseas presence, told analysts after the March quarter results that NIMs are under pressure in the international book. “We are trying to focus on geographies where we actually are making very good money,” said Sanjiv Chadha, MD & CEO, Bank of Baroda. The bank expects to see the trend of negative growth in international loans continuing.

Even though private banks have been able to manage their NIMs better, they are having to put in some effort in an environment of excess liquidity. HDFC Bank’s March quarter core NIM remained unchanged sequentially at 4.2 percent. Its Chief Financial Officer Srinivasan Vaidyanathan told analysts after the bank’s results that its average liquidity coverage ratio was 138 percent.

“The excess liquidity position of the bank impacts current NIM 10 basis points to 15 basis points or so. This drag was offset by monetising some of the investments in the form of trading gains, which we have described in the past quarters,” Vaidyanathan said, adding that this was part of the bank’s asset liability committee strategy.

News Related

OTHER NEWS

HDFC to raise up to Rs 2,000 crore by issuing bonds

Housing Development Finance Corporation Ltd Mortgage lender HDFC Ltd will raise up to Rs 2,000 crore by issuing debt securities on a private placement basis to augment its long-term resources. The secured redeemable… Read more »

Will the monsoon drown the pandemic blues? India Inc hopes so

Monsoon is expected to be normal this year, the IMD said. | Representative image (Source: Reuters) As the monsoon advances rapidly into many parts of the country and several areas witness the first… Read more »

Walmart open to Flipkart IPO, but no specific timeline yet: CEO Judith McKenna

Social distancing compulsions, massive smartphone base and reliable broadband have galvanised e-commerce uptake beyond metros US retail giant Walmart, which owns a majority stake in the Indian e-commerce retailer Flipkart, gave a green… Read more »

Leading retailers, QSRs flock to high street locations amidst the COVID-19 pandemic

Representative Image Shopping malls, it seems, have run out of favour with retail brands, who are increasingly eyeing high street locations for expansion. Top retail and QSR(Quick service restaurant) brands such as Starbucks,… Read more »

Profile | Shyam Srinivasan, who adores ‘Rahul Dravid’, is ready for his new innings

In an interview with Moneycontrol in March this year, Shyam Srinivasan, Managing director and Chief Executive Officer of Kerala-based Federal Bank said he always wanted to be a banker. But, his first job wasn’t… Read more »

General insurance companies see 11.3% growth in gross premium in May 2021

General insurance companies saw a 11.3 percent year-on-year (YoY) growth in the gross direct premium for May 2021 at Rs 12,316.50 crore. Among listed insurers, New India Assurance collected premiums of Rs 2,207.78… Read more »

Deutsche Bank to hire 1,000 people in India this year

Companies are increasingly seeing candidates with multiple job offers and financial compensation being the key factor getting the talents on board. Deutsche Bank will hire 1,000 people in India this year. The Germany-based… Read more »

Central govt's large order may compensate SII, Bharat Biotech for loss of high-priced states orders

Cumulatively, 2,58,45,901 people in the age group across 36 states and union territories have received their first dose and 1,18,299 their second dose since the vaccination drive began for them from May 1.… Read more »

COVID-19 impact: Underwriting losses set to rise in FY22 for general insurers

Representational image. (Image: AP) General insurance companies will see underwriting losses widen in FY22 due to a rise in medical claims following the second wave of COVID-19 infections, coupled with a decline in… Read more »

Bajaj Allianz Life Insurance declares bonus of Rs 1,156 crore for policyholders

Private life insurer Bajaj Allianz Life Insurance has declared bonuses amounting to Rs 1,156 crore to its policyholders. This includes a special one-time bonus of Rs 315 crore, which is over and above… Read more »

NPA woes: Banks write off Rs 1.53 lakh crore in FY21, 6% up from previous year

The last date for submitting an Expression of Interest for the bid is May 17, 2021. Indian banks have written off a combined Rs 1.53 lakh crore worth loans in financial year2021, nearly… Read more »

HDFC Bank plans big digital play even as it strives to come out of RBI ban

HDFC Bank has big plans for the digital space as it battles to emerge from a central bank ban on the launch of new digital financial products and services because of frequent outages… Read more »

Bharat Biotech to make Covaxin's Phase-3 results data public in July

The NASDAQ-listed Ocugen has rights to commercialise Covaxin in the US. Bharat Biotech said it will make Covaxin Phase-3 results data public in July. The company added that once the data from final… Read more »

RBI okays 3-year extension to Bandhan Bank’s Chandra Shekhar Ghosh as against 5 years sought

The Reserve Bank of India (RBI) has cleared the re-appointment of Chandra Shekhar Ghosh as the Managing Director and Chief executive officer (CEO) of Kolkata-based Bandhan Bank, but only for a period of… Read more »

IPO impact? LIC chairman M R Kumar tenure extended till March 2022

The appointments committee of the cabinet (ACC) has extended the term of Life Insurance Corporation (LIC) chairman M R Kumar till March 13, 2022. This is amid the proposed initial public offering (IPO)… Read more »

Expect system to stabilise this week: Infosys on I-T portal glitch

Image: Reuters A day after Finance Minister Nirmala Sitharaman flagged technical glitches on the income tax department’s new e-filing website, IT major Infosys said it expects the system to stabilise in the course… Read more »

DRDO invites applications from pharma companies for tech transfer of COVID drug 2-DG

The DCGI has granted permission for the emergency use of 2-DG drug as an adjunct therapy in moderate to severe COVID-19 patients. (Image: Screenshot/@rajnathsingh) The Defence Research and Development Organisation (DRDO) has called… Read more »

Retailers lose $25-30 billion in revenue, pin hopes on festive season

Retail Sector | Representative Image (PC-Shutterstock) India’s retailers have been on a roller-coaster ride since last year, when the first wave of the COVID-19 pandemic struck the country. Without any sales in the… Read more »

Rockwell Industries ties up with DRL for freezers to store Sputnik V COVID-19 vaccine

File image (Source: Reuters) Rockwell Industries, a cold chain appliance manufacturer on Wednesday announced its strategic partnership with Dr Reddy’s Labs, to provide its World Health Organisation – Performance, Quality and Safety certified… Read more »

B2B marketing: Connecting people between two businesses

Rarely does a company see a return on any investment in marketing the company brand among the buyers of those services and products marketed under their own individual names To many of my… Read more »

Privatisation plans for Central Bank of India, Indian Overseas Bank likely to face hurdles: Analysts

The weak financial metrics of lenders like Central Bank of India and Indian Overseas Bank (IOB) may throw unexpected hurdles to the government’s plan to privatise at least two of the state-run banks… Read more »

Uber to hire close to 250 engineers in India to expand tech, product teams

Source: AP Uber on Wednesday announced it is recruiting close to 250 engineers for its Bengaluru and Hyderabad-based teams, as the company continues to expand the scope of operations for its engineering and… Read more »

RBI Auditor Appointments | The slip between the cup and the lip

Representative Image The Reserve Bank of India’s spate of new measures on auditor appointment(1) allude that the RBI is worried about audit quality. Having taken the flak for a series of bank and… Read more »

Hester Biosciences Q4 profit jumps over two folds to Rs 10 crore

Hester Biosciences on June 8 reported an over two-fold jump in consolidated net profit at Rs 10.09 crore for the quarter ended March 31, 2021 mainly on account of robust sales. The company… Read more »

NCLT clears Vedanta Group firm Twin Star’s bid for Videocon Group

The Mumbai bench of the National Company Law Tribunal (NCLT) on June 8 approved Vedanta Group subsidiary Twin Star Technologies’ resolution plan for Videocon Industries and 12 other companies of the Videocon Group.… Read more »

RBI imposes Rs two-lakh fine on Dhrangadhra People’s Co-op Bank for non-compliance with directions

RBI | PC-Shutterstock The Reserve Bank of India (RBI) on Tuesday imposed a penalty of Rs two lakh on The Dhrangadhra People’s Co-operative Bank based in Surendranagar, Gujarat, for non-compliance with the central… Read more »

Glenmark says post-marketing study of COVID-19 antiviral Fabiflu supports the drug safety and effectiveness

Glenmark on June 8 said that the interim data of the Post Marketing Surveillance (PMS) study on COVID-19 antiviral drug Fabiflu (Favipiravir) in India, supports the drug safety and effectiveness in real world… Read more »

Bank of Baroda to sell 46 NPA accounts to recover Rs 597 crore

State-owned Bank of Baroda will conduct an e-auction of as many as 46 NPA accounts later this month to recover dues of Rs 597.41 crore. The lender, in a notification, said it intends… Read more »

Minda Corp forms JV with South Korean firm for automotive antenna systems

Auto components maker Minda Corporation on Tuesday said it has joined hands with South Korea-based INFAC Elecs Co Ltd to introduce an automotive antenna range in the country. The companies have inked an… Read more »

Michelin to hike tyre prices by up to 8% in India

French tyre major Michelin on Tuesday said it will increase prices by up to 8 per cent in India with effect from June 18. The company will hike prices in the Africa, India… Read more »

London Marathon announces TCS as title sponsor

Virgin Money chose not to extend its sponsorship deal with London Marathon Events beyond the 2021 race. Tata Consultancy Services (TCS) will become the title sponsor for the London Marathon in a six-year… Read more »

Exclusive interview | Arcil MD & CEO Pallav Mohapatra says stress seen in retail, MSME segments; ARCs must prepare

Arcil MD & CEO Pallav Mohapatra Much of the stress in the financial system over the next few months is set to emerge from the retail and micro, small and medium enterprises (MSMEs)… Read more »

EESL inks pact with Lemon Tree Hotels to implement energy efficiency measures

Saurabh Kumar, Executive Vice Chairperson (EVC) of EESL, said, “We hope that the success we will achieve through our projects will encourage many more players to explore avenues for strengthening their energy efficiency… Read more »

Proxy advisory firm SES raises corporate governance issues in PNB HF deal, questions PNB for surrendering control to Carlyle at depressed price

PNB CEO SS Mallikarjuna Rao told CNBC-TV18 on June 8 that the pricing of the deal was decided as per SEBI’s formula (Image: Wikimedia) In a scathing report, proxy advisory firm Stakeholders Empowerment… Read more »

Indian Hotels Company to have Vivanta, Ginger outside Bengaluru airport

Indian Hotels Company (IHCL), has signed a management contract agreement with Bengaluru Airport City for two hotels at the Kempegowda International Airport (KIA), Bengaluru. The two hotels with a combined inventory of 775… Read more »

Hyatt Regency Mumbai owners defaulted on loan repayment before shutting operations

A week before Hyatt Regency, one of Mumbai’s popular five-star hotels near the airport, shut operations due to the non-payment of staff salaries, its owners had defaulted on bank loan repayments, including a… Read more »

FMCG CEO Salaries: Who took a cut and who got a hike in FY21

HUL Chairman and MD Sanjiv Mehta The COVID-19 pandemic didn’t spare the top honcho of Hindustan Unilever, India’s largest FMCG company, in terms of remuneration. The annual pay package of HUL chairman and… Read more »

Consumers most concerned about fake UPI payment links: Survey

71 percent of consumers who were surveyed said they were more concerned about scams and frauds because of COVID-19 As contactless payments become the need of the hour, digital payment mechanisms such as… Read more »

Tata Steel BSL sets up 100-bed COVID hospital in Odisha

Tata Steel BSL has set up a 100-bed COVID-19 hospital facility near its plant in Odisha’s Dhenkanal district. Petroleum and Natural Gas and Steel Minister Dharmendra Pradhan inaugurated the COVID-19 hospital facility virtually… Read more »

Exclusive Interview | Morgan Stanley's Sumeet Kariwala says impaired loan formation will remain elevated in H1-F22; mid-sized banks, PSBs to see relatively higher impact

Sumeet Kariwala, Executive Director, India Banks Analyst, Morgan Stanley The Indian banking sector will see elevated levels of impaired loans in the second half of fiscal year 2022. While the Gross NPLs of… Read more »

IndiGo expects further momentum in air travel demand by July

Representative image Air travel demand is expected to gain “further momentum” by early July, the country”s largest airline IndiGo said on Monday and emphasised that managing cash position remains its primary focus. The… Read more »

Franklin Templeton 'strongly disagrees' with SEBI order, says will move SAT: Read full statement here

Sebi | PC-Shutterstock Shortly after the Securities and Exchange Board of India (SEBI) ordered Franklin Templeton India mutual fund to return over Rs 500 crore to investors, the company issued a statement marking… Read more »

Hyatt Regency Mumbai suspends operations after owner fails to pay salaries

(Photo: Reuters) Hyatt Regency Mumbai said it has temporarily suspended operations after its owner Asian Hotels (West) allegedly failed to provide funds and salaries to staff. The five-star property, which lies in close proximity to… Read more »

Board has approved IPO proposal, Paytm tells stakeholders

One97 Communications that owns and operates mobile payments firm Paytm has finally made its decision to go public. In a letter addressed to its stakeholders, the company has said it has received in-principle approval… Read more »

Zee's Marathi movie channel registers over 39% reach in opening week on Free Dish in Maharashtra

Media company Zee Entertainment’s new Marathi movie channel on Free Dish has registered 39.1 percent share in Maharashtra. The company in a release said that the channel has garnered over two-thirds of the market… Read more »

Tata Digital to invest up to $75 million in CureFit Healthcare

Representative image Tata Digital, a wholly-owned subsidiary of Tata Sons, will invest up to $75 million in CureFit Healthcare Private Limited, the company announced on June 7. As part of the agreement, CureFit founder and… Read more »

Private hospitals divided on Rs 150 cap on COVID-19 vaccine administration charges

Public health activists say the government should create a compensation mechanism on the lines of countries like the UK. (Representative image: Reuters) Private Hospitals are divided on Rs 150 cap on COVID-19 vaccine… Read more »

UCO Bank knocks on RBI’s door seeking removal of PCA tag

Representative image (Source: Shutterstock) Kolkata-based lender UCO Bank has requested the Reserve Bank of India (RBI) to take it out of the prompt corrective action (PCA) framework following an improvement in its financial parameters. The… Read more »

Banks to transfer 22 loan accounts worth Rs 89,000 crore to proposed Bad Bank, says IBA Chairman

Indian banks are sitting on gross NPAs of nearly 8 percent. Indian banks have identified 22 loan accounts worth a total outstanding of Rs 89,000 crore to shift to the proposed National Asset… Read more »

Parle forays into wheat flour segment with eponymous 'Parle G' branding

Source: Shutterstock Confectionaries maker Parle Products has further extended its flagship brand Parle-G and launched wheat flour or ‘atta’ under it. Called Parle G Chakki Atta, the product is currently being launched in… Read more »