Chennai, Nov 19 (IANS) Rising interest rates will enable Indian banks to continue posting good profits for the remainder of FY23, according to S&P Global (NYSE: ) Market Intelligence.
In a report on the Indian banking sector, S&P Global Market Intelligence said five of the six largest banks by assets in India reported an increase in net income for the fiscal second quarter ended September 30, 2022.
“Banks took advantage of the higher interest rate environment to increase their net interest margins, while earlier efforts to reduce their non-performing assets resulted in lower loan loss provisions, according to their recently released earnings report,” the report said. that.
The fiscal second-quarter results of the private sector, as well as public sector banks, were “picture perfect,” said Tusharika Aggarwal, research analyst, Asia-Pacific dividend forecast at S&P Global Market Intelligence.
“I remain quite bullish on bank earnings for the rest of the year. The rise in interest rates, even if the quantum will come down, will still benefit Indian banks. And because credit growth is picking up, so even if interest rates are high, net interest income will grow,” he added. Aggarwal.
While lending rates have increased in aggregate with increasing demand, interest rates offered to depositors have increased more slowly. In addition, the gap, along with lower credit loss provisions, has resulted in a better return on assets for the bank, Aggarwal said.
Quoting Reserve Bank of IndiaData (RBI), the S&P Global Market Intelligence report said bank credit growth has picked up for both public and private sector banks in the first half of fiscal 2022-2023.
Private sector bank credit growth for the first half of the fiscal reached 20.4 percent, compared to 13.9 percent for public sector banks.
The central bank expects gross domestic product growth at 7 percent in the current fiscal year ending March 31, 2023, and to slow to 6.5 percent in the next fiscal year, dampened by further monetary tightening in the central bank’s efforts to control inflation.
According to the report, although the RBI has raised its benchmark lending rate by 190 basis points to 5.90 percent since May, further hikes in interest rates may not be steep as inflation may pick up.
The main surprise in the bank’s fiscal second quarter results was a 25 basis point quarter-over-quarter expansion in net interest margin (NIM), said S&P Global Market Intelligence, citing a report by Jefferies.
Most banks report faster credit growth as they rely on increased demand for loans.
With deposit growth lagging behind credit growth, interest rates on term deposits will rise which may result in movement of funds from savings accounts to fixed deposits, the report said.
Some bank chiefs said they would try to maintain NIM by opening more savings accounts with low interest costs.
S&P Market Intelligence said State Bank of India (NS:) reported an increase in fiscal second quarter net profit to Rs 147.52 billion from Rs 88.89 billion, while Bank of Baroda Net profit (NS:) for the period rose 56.8 percent year-on-year to Rs 34 billion from Rs 21.68 billion.
Punjab National Bank (NS:), however, reported that its net profit for the quarter fell 55.3 percent to Rs 4.94 billion as the state-owned lender increased its provision for non-performing assets by 30.9 percent year-on-year to Rs 35.33 billion.
Private sector banks also reported higher earnings, with HDFC Bank (NS:) Ltd posting a 22.3 percent year-on-year increase in consolidated net profit for the September quarter to Rs 111.25 billion, while ICICI Bank (NS:) Ltd reported. a 31.4 percent increase in net profit to Rs 80.07 billion. Axis Bank (NS:) Ltd’s profit rose 65.7 percent to Rs 56.12 billion, S&P Market Intelligence said.