Banks expect Q4 NIM to dip due to liquidity constraints

Photo : The indian express

In the quarter ending March 2024, banks are expected to face pressure on their net interest margins (NIM) due to tight liquidity conditions and higher funding costs. Analysts predict a sequential decline in NIM, albeit less pronounced compared to previous quarters, ranging from 5-15 basis points (bps) across most lenders. 

Factors contributing to this compression include limited scope for loan re-pricing and increased cost of funds (CoF). Despite these challenges, analysts anticipate relatively stable NII (net interest income) growth for many banks, with NIM compression mainly affecting private banks.

ICICI Securities projects a 20 bps NIM compression for RBL Bank, while it expects IDFC First Bank and Federal Bank to see flattish NIMs. City Union Bank might experience a 15 bps rise in NIM quarter-on-quarter (QoQ), while Karur Vysya Bank could witness a 30 bps dip on a reported basis, adjusted for one-off in Q3. State Bank of India (SBI) is estimated to observe a 5–6 bps QoQ NIM decline.

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Adjusted systemic loan growth is anticipated to decelerate to 15–15.5% year-on-year (YoY) compared to 17-18% YoY in FY23. This moderation in credit growth is attributed to tightened regulatory norms and lenders' caution, particularly in unsecured lending segments.

Deposit growth is expected to lag credit growth, with a projected YoY growth of 13%. However, QoQ deposits growth is expected to increase significantly to around 5.5% in Q4FY24, compared to the range of 2–3.5% in the last three quarters.

Asset quality is expected to remain robust, with controlled gross slippages and healthy recoveries. While select banks may experience elevated slippages in the microfinance institution (MFI) portfolio due to the approaching general elections, overall slippages are likely to decline QoQ across most banks. 

Despite challenges in NIM and credit growth moderation, the banking sector is expected to maintain stability in asset quality and profitability in the face of evolving economic conditions.

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