On key parameters of performance, such as net interest margin and quality of loans, private sector banks have outshone their public sector peers in the quarter ending December 2012, a Business Line analysis reveals.
Falling interest rates led to interest incomes growing by just 9 per cent in this quarter for the banking industry as a whole. But private sector banks managed a 22 per cent growth while the public sector banks had to rest content with a mere 3 per cent growth.
The net interest margins (NIMs) for public sector banks declined 26 basis points (bps) on a yearly basis while the margins for private banks remained stable. On a sequential basis, margins improved for most private banks (led by IndusInd bank).
The economic slowdown has moderated overall loan growth for banks at 15 per cent. While industrial credit has slowed, retail loans have shown resilience.
Private banks lend more to the retail segment and have thus managed higher loan offtake. Loans by private banks grew by 20.6 per cent year-on-year in the December quarter, beating the loan growth for public sector banks which was at 14.7 per cent.
Reinforcing the gains from a robust growth in retail loans is the phenomenon of private banks being able to reduce their cost of funds. The interest paid out on deposits did not rise in proportion to the growth in deposits as a whole. ‘Current and savings account (CASA) balances, which are relatively less expensive than term deposits, accounted for a significant chunk of monies mobilised for on-lending.
They also reduced their dependence on high-cost bulk deposits. While the growth in CASA was modest for the entire banking universe at 11 per cent, private banks’ CASA grew 13 per cent while public sector banks’ expanded only by 10.8 per cent.
With the deregulation of savings deposit interest rates, private banks were able to offer competitive rates thus garnering higher share of savings deposits. This has also helped them to maintain their NIMs in a falling interest rate scenario with quicker re-pricing of deposits.
On the other hand, the declining share in CASA, followed by the RBI’s recent directive to reduce their high-cost bulk deposit, resulted in a lower growth of deposits for PSU banks.
Bad loans
The old story of bad loan problems continued to play out against public sector banks this quarter. Gross non-performing assets (GNPAs) for banks increased by 6.7 per cent in December compared to the preceding quarter. They rose 7.5 per cent for public sector banks versus 1.5 per cent for private sector banks.
Within public sector banks, Bank of Baroda witnessed the highest slippages with 24 per cent growth in GNPAs, Punjab National Bank on the other hand surprised with higher recoveries and upgrades in asset quality. Within the private sector banks, HDFC Bank slipped the most with 14 per cent increase over the September quarter.
Radhika.merwin@thehindu.co.in