New Delhi [India], October 1 (ANI): Bank margins are expected to improve from the third quarter of FY27 as fresh lending rates have increased across most loan segments, although margins could remain under pressure in the near term due to the impact of FCNR deposits, IIFL Capital said in a report.
“Margins should improve from 3Q/4Q onwards as fresh lending rates have inched up 2-24bps QTD across most segments,” IIFL Capital said, pointing to a gradual improvement in lending spreads.
The brokerage also noted that the median one-year Marginal Cost of Funds based Lending Rate (MCLR) rose 7 basis points quarter-on-quarter in the second quarter.
The report, however, expects the second-quarter margin performance to remain subdued. “We expect FCNR to drag NIM in 2Q (impact of 3-40bps), but drive EPS upgrades of 1-16%,” it said.
The report said fresh spreads have already expanded by 16 basis points for private banks and 2 basis points for public sector banks during the quarter so far, while outstanding spreads have remained broadly flat compared with the average for the first quarter of FY27.
The improvement in lending rates is visible across several segments. Fresh lending rates increased by 2-24 basis points quarter-to-date in most categories, with increases seen in large industry, MSME, infrastructure, trade, education and other personal loans, according to the report.
At the same time, credit growth remains strong. Domestic system loans grew 20.1 per cent year-on-year and 2.1 per cent quarter-to-date in August. As of September 15, system loan growth stood at 18.8 per cent year-on-year, compared with 16.7 per cent for deposits, while the loan-to-deposit ratio eased to around 81 per cent.
Quarter-to-date loan growth has been led by gold, NBFC, MSME and vehicle loans, while large corporate loans have declined. IIFL Capital expects banks with strong FCNR mobilisation to report growth above the domestic system in the second quarter, led by overseas loans extended against FCNR self-leverage.
The report expects the combination of higher fresh lending rates, residual term-deposit repricing at select banks and deployment of FCNR liquidity to support margins from the third quarter onward. (ANI)
Bank margins likely to recover from Q3 as fresh lending rates rise: Report
