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Synopsis

• Net Interest Income (NII) of Scheduled Commercial Banks (SCBs) grew by 26.5% year-on-year (y-o-y) to Rs. 1.84 lakh crore in Q1FY24 due to healthy loan growth and a higher yield on advances over the year-ago period.

• The Net Interest Margin (NIM) of SCBs witnessed a year-on-year improvement of 36 basis points (bps), reaching 3.27% in Q1FY24. This enhancement can be attributed to the faster repricing of loans, whereas deposit rates have not yet reflected the increased interest rates. Besides, SCBs witnessed higher-than-expected deposit growth in the quarter. The anticipated rise in deposit costs, which is expected to be a lag effect, is likely to put continued pressure on NIM in Q2FY24.

• SCBs reported a robust rise in advances at 16.7% y-o-y in Q1FY24 mainly driven by personal loans, NBFCs and MSMEs, with similar growth for private sector banks (PVBs) and public sector banks (PSBs). SCBs witnessed a 13.5% y-o-y deposit growth in the quarter, within this PVBs’ deposits rose by 17.4% y-o-y in Q1FY24 while PSBs registered at a slower pace of 10.9% in the same period. Meanwhile, deposit growth lagged in credit growth with sluggish current account and saving account (CASA) growth. Other PSBs’ NIM expanded by 41 bps y-o-y at 2.85% in Q1FY24, outperforming large PSBs and PVBs.

• In terms of sequential performance, SCBs’ NIM contracted by 2 bps to 3.27% due to a drop in the NIM of large PSBs. Though, the NIM of Other PSBs and other PVBs expanded by 8 bps and 6 bps in the quarter.

• The Credit and Deposit (C/D) ratio stood at 75.1% as of July 01, 2023, expanding by ~210 bps y-o-y over a year ago due to faster y-oy growth in credit compared to deposits.

Figure 1: NIM Movement (%)

Figure 2: NII (Rs. Lakh Cr.) and Growth (%)

NII of PSBs and PVBs grew by 26.7% and 26.3% y-o-y, respectively, in Q1FY24. The growth was driven by robust loan growth and higher yields on advances; however, it was partially offset by a rise in the cost of deposits. Transmission for the May 2022 - June 2023 period has been uneven. The increases in Weighted Average Domestic Term Deposit Rates (WADTDR) on fresh rupee deposits and Weighted Average Lending Rates (WALR) on fresh rupee loans were higher in the case of PSBs, while the increases in WADTDR on outstanding deposits and WALR on outstanding loans were higher for PVBs.

Figure 3: Changes in Yield on Advances and Movement in Cost of Funds

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