The Net Interest Margin (NIM) for PVBs declined by 34 bps y-o-y and stood at 3.60%, as the rising cost of deposits impacted the NIM margin.
Net Interest Income (NII) of select Private Banks (PVBs) grew by 16.3% year-on-year (y-o-y) to Rs. 0.75 lakh crore in Q4FY24 due to healthy loan growth and a higher yield on advances compared to the year-ago period. (normalising for HDFC merger impact, NII grew by 7.4% for PVBs) .
PVBs reported a robust rise in advances at 30.8% y-o-y in Q4FY24 driven by the merger and growth in personal loans, a CareEdge report said. The corporate sector saw a gradual pickup, aided by MSME growth. Meanwhile, PVBs witnessed a 27.0% y-o-y deposit growth for the quarter. Large PVBs’ deposits rose by 29.0% y-o-y while other PVBs registered a slower pace at 17.0%.
Deposit growth
Deposit growth continued to lag credit growth with sluggish current account and saving account (CASA) growth (7.7% y-o-y), which was offset by the growth in Time Deposits (30.7% y-o-y), CASA for PVBs dropped by 432 bps over the last twelve months and stood at 39.8%.
The Credit and Deposit (C/D) ratio stood at 100.9% as of March 31, 2024, expanding by ~787 bps yo-y over a year ago due to widening credit-deposit growth and HDFC merger impact.
Sequentially, growth in the CASA ratio has impacted the cost of funds declining by 4 bps, and NIM for PVBs declined by 7 bps q-o-q, driven by sequential strong growth in the liabilities franchise of 4.8%.
NII of Large PVBs and other PVBs grew by 16.1% and 16.9% y-o-y, respectively, in Q4FY24. The growth was driven by the merger, robust personal loan growth, and higher yields on advances compared to the same period last year (normalising for HDFC merger impact, NII grew by 7.4% for PVBs). The corporate sector too saw a gradual pickup, aided by MSME growth.
Meanwhile, sequentially, NII reported a moderate growth of 2.8%, due to sequential robust growth in liability franchise of 4.8%. Within PVBs, large PVBs and other PVBs, NII were up by 3.6% and 2.6% respectively.
The forecast
Credit offtake experienced for PVBs robust growth of 30.8% in Q4FY24 (driven by merger impact and personal loans). Deposit growth was also healthy primarily attributable to the growth in term deposits which have transitioned to a higher rate. CASA growth picked up sequentially, which aided the deposit growth. Additionally, as the credit-to-deposit ratio remains elevated, growth in the liability franchise would play a significant role in sustaining loan growth, according to CareEdge.
The competition for deposits is likely to intensify even further. Hence the NIM trajectory is expected to remain stressed and moderate even further in coming quarters as competition would also cap the interest rates charged at a certain level. The HDFC merger is also leading to tighter NIMs for PVBs as typically NBFCs operate at lower NIM when compared to a bank and this effect is likely to persist.
