Key Points
The net interest margins of Indian banks are likely to narrow 10-20 basis points in the next two years on rising funding costs due to greater competition for deposits, fuelled by the normalising liquidity conditions and elevated loan growth, Fitch Ratings said on Tuesday...
"This would be driven by cost control and increasing efficiency from digitalisation, and scope for impaired-loan ratios to fall further across most banks," Fitch said.. Yet, an additional improvement in banks' operating profit /risk-weighted assets (OP/RWAs) could be limited if banks continue to fund higher risk-weighted loans, such as consumer credit and loans to non-bank financial institutions, aggressively...
"We expect earnings to be resilient despite the sector's dependence on net interest income, which contributed 75 per cent of total operating income in the nine months of the financial year ending March 2024," Fitch said.. Banks' share of low-cost deposits fell around 490 bps to around 39 per cent of system deposits in 9MFY24, from FY22..
If sustainable, this could support higher EP scores in the future and potentially influence the Viability Ratings of some of these banks, provided higher EP scores are coupled with better scores on other key rating drivers, especially the risk profile," Fitch said..
