The possibility of a reduction in the margins of banks will have an impact on the profitability of banks

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New delhi date. 13 July 2020, Monday

The April-June quarter for the country's banking sector has been completely washed away due to the lockdown that followed the Corona epidemic. During this period, loan growth is likely to slow down as well as banks' margins are likely to decline, informed sources said.

Policy rates were aggressively reduced by the Reserve Bank to boost the stagnant economy due to the lockdown. On the other hand, due to rapid growth in deposits during the lockdown period, banks' margins are also likely to decline by 0.10-0.18 per cent during the April-June quarter. Which will have a direct impact on the profitability of banks in the first quarter.

According to available data, in the fortnight ended June 4, credit growth slowed to 7.5 per cent, but against it, the deposit growth rate remained as high as 11.5 per cent. This figure means that the growth rate of loans in banks has not been as fast as that of deposits.

It may be mentioned here that the credit growth rate was more than 11 per cent a year ago, which has come down significantly. In addition, net interest margin is also projected to decline by 0.10-0.16 per cent in the first quarter. Banks have not been able to raise assets during the period due to falling interest rates. In addition, revenue from various fees is also likely to decline.

According to the Reserve Bank of India (RBI), the weighted average lending rate of new commercial banks declined by 0.2 per cent in the March-May period. However, the reduction is much lower than the 1.18 per cent rate cut by the Reserve Bank. The aggressive decline in MCLR / base rate and deposit rates will have an adverse effect on banks' margins.

Analysts do not anticipate a large increase in NPAs due to the moratorium, but some banks may make additional provision to protect against any kind of growth in bad loans in the near future, which may lead to differences in the amount of provision between different banks. However, the extension of the moratorium is likely to stabilize the NPA figures. Which can thus be considered unrealistic.

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