Rising Deposit Costs Cut Banks' Net Interest Margin in June Quarter, Says CareEdge Report

The rising costs of deposits amid the ongoing 'war for deposits' have led to a reduction in banks' net interest margin for the June quarter, according to a report released on Monday.

The NIM, which is a crucial measure of banks' profitability and their core income, decreased by 0.13 percentage points to 2.94% compared to the same period last year, as noted by CareEdge Ratings.

Compared to the previous March quarter, the NIM also fell by 0.04 percentage points, the report added.

Private sector banks have been particularly affected, experiencing a 0.25 percentage point reduction in NIM to 3.20% year-on-year. However, larger private banks saw a smaller decline of just 0.07 percentage points.

In contrast, private sector banks outperformed state-run banks sequentially, with a 0.03 percentage point increase in NIM compared to a 0.09 percentage point decrease for public sector banks.

Deposit growth for all scheduled commercial banks was 13.7%, while private sector banks reported a higher growth rate of 23.2% year-on-year.

The narrowing of the NIMs at a system level had an impact on the net interest income, and the core revenue line moved up by a relatively slower 9.7% to Rs 2.03 lakh crore, the agency said.

The 18.1% credit growth helped the core income growth, but rise in deposit costs and dip in yields on advances restricted the growth, it said.

The credit deposit ratio stood at 80.6%, up over 4 percentage points, the report said, adding that apart from the slower deposit mobilisation growth, the HDFC merger also had an impact on the same.

(With Inputs From PTI)