The net interest margins of banks are likely to stabilise from the January quarter as one-year deposits start maturing and due to revision in prime lending and base rates, said a report by Mape Securities.
Also, as credit growth opportunities remain muted, banks are likely to refrain from re-pricing maturing deposits, said the report.
In fact, improvements in margins are likely to start from the July-September quarter of 2012-13, the report said.
Credit growth
Credit growth expectations have been impacted due to higher interest rates, stress in key sectors impacting investments, slowdown in retail credit and government policy logjam, the report said.
Credit growth will slow down for all banks in 2012-13. “We believe credit growth to be within 16-18 per cent year-on-year,” the report said.
Retail and small and medium enterprises credit could slow down due to prevalent higher interest rates, while infrastructure credit — which has been the main growth driver — could slow down due to higher slippages and restructuring.
Stress building
With regard to the non-performing loans' cycle, the report said that there is stress building up in sectors such as telecom (due to high input prices and ongoing investigations), real estate (due to high interest rate and leverage), textiles (due to global slowdown), SMEs (due to domestic growth slowdown and high interest rate) and construction (due to domestic slowdown).
The report said that the Reserve Bank of India is likely to take a breather in its interest rate tightening cycle this month to balance the objectives of maintaining economic growth with controlling inflation.
“Both local and global macroeconomic environments have turned considerably bad, which should lead the RBI into considering the pause very seriously. This should result in considerably better sentiments on banks' overall performance and stock prices. However, a 25 basis points hike will not change any assumption in our models,” Mape Securities added.