State lenders see rising profitability as private banks struggle with soaring funding costs.
Public sector banks are seeing stronger margin growth than private lenders because they manage rising funding costs better.
Public sector banks are currently outpacing their private rivals in profitability metrics. As a result, net interest margins for state lenders look significantly healthier this quarter. Lending yields for these public institutions grew much faster than their funding costs. Private sector banks faced severe pressure from rising deposit expenses.
CareEdge Ratings notes this growing divide in third-quarter financial performance. Select public banks saw their margins rise to 2.58 per cent. This marks a steady 10-basis-point increase from the previous quarter. However, private banks’ margins stagnated at 3.29 per cent.
Furthermore, large private lenders experienced an even sharper margin decline. Their funding costs recently surged by 15 basis points. Analysts attribute this squeeze largely to expensive foreign-currency deposits. Therefore, lending yield increases simply could not offset these rising expenses.
Public lenders successfully expanded their net interest income by 18.4 per cent. They retired expensive bulk deposits to keep their interest expenses low. Private banks instead aggressively chased term deposits. As a result, these private institutions absorbed a 13 per cent spike in interest costs.
Looking ahead, a recent repo rate hike will likely boost banking revenues. Banks quickly adjust their loan rates when central bank benchmarks rise. Deposit rates, however, usually take much longer to reprice completely. As a result, institutions with strong deposit networks will sustain better long-term growth.
(Source: BFSI)
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