CHENNAI: Giving a breather to banks, deposits grew by only 2 per cent year-on-year (y-o-y) during April-September compared with 8.2 per cent of growth witnessed in the corresponding period last year. Following the excess of deposits after demonetisation, banks have seen an increase in their liabilities without adequate means of dispersing the new resources in a low credit off-take environment.
According to CARE Ratings, bank credit grew by 2.1 per cent y-o-y during April-September, lower than the 3.4 per cent growth recorded in the comparable period last year. On a year-to-date basis too growth in credit was around 6.9 per cent, lower than the growth of 10.1 per cent witnessed last year, a study by CARE Ratings that analysed quarterly financial performance of 23 banks (13 private, 10 pubic) that announced results on or before November 6, 2017 found.
With an increase in liabilities (deposits) during a low credit off-take, the quarter saw slower growth in interest income. As a result of this, net profits of banks fell by 17.8 per cent as there was also a fall in non-interest income. Decline in net profit was arrested in some part by banks keeping a rein on their operating expenses.
“There has been a slowdown in banking business which combined with rate movements has affected both interest income and expenditure,” said Madan Sabnavis, chief economist, CARE Ratings. “PSBs (public sector banks) have witnessed positive growth in operating profit but negative growth in net profit due to higher provisions. Private banks have witnessed turnaround in growth in net profit notwithstanding negative growth in operating profits,” he said.
The slowdown can be attributed to lower credit growth and lowering of interest rates by nearly 107 bps (1.07 per cent) during this period. “Growth in other income contracted by 4 per cent during Q2FY18, much lower than the growth of 64 per cent recorded in the same quarter last year. This is due to lower income in the form of fee collected by the banks and lower treasury gains,” CARE Ratings said. Post-demonetisation, fee collected by banks from their ATM networks have been hit due to lower currency in circulation, infrequent supply and disruptions. “It is to be noted that the average yield on 10 year G-Secs have increased from 6.51 per cent in June 2017 to 6.59 per cent in September, capping the prices and hence gains in government securities,” the agency said. “Interest expenses, too, witnessed a contraction of 1.7 per cent in Q2FY18 compared with the growth of 1.5 per cent recorded in Q2FY17.
This may be attributed to a combination of decline in deposit rates that fell about 65 basis points (0.65 per cent) to 6.50 per cent as on Sep 23, 2017 compared with the corresponding period last year and reduction in incremental deposits with banks,” said CARE Ratings.
Provisions that are largely made for NPAs (non-performing assets) continued to increase, though at a lower rate of about 13.6 per cent in Q2FY18 as against significant growth of about 138 per cent in Q2FY17. “After growing by a significant 105 per cent in Q2FY17, growth in gross NPAs slowed down to 26.3 per cent in Q2FY18. This may be ascribed to a cautious approach undertaken by banks while lending to the customers owing to increasing stressed assets in the past few years. Also on an incremental basis the recognition of NPAs has slowed down,” said CARE Ratings.