Last week, State Bank of India (SBI) hiked its fixed deposit (FD) rates in select tenures by 25 to 50 basis points. The bank is also offering a special 7.10% deposit for a tenure of 400 days which is valid till March 31, 2024. One basis point is 0.01 percentage point.
India Business News: FD rates: Analysts predict that deposit rates in India will stay elevated due to strong credit growth, tight liquidity, and fierce competition for fun
NIM, the difference between the yield a bank earns on loans and that it pays on deposits, dropped to 3.43% for SBI but ICICI held on to its margins at 4.53%. Smaller banks like Federal Bank also saw a 14 basis points drop in NIM year on year to 3.16%.
The profitability of banks is likely to be affected in the second quarter due to higher deposit rates and rising treasury yields. This will slow profit growth as the higher cost of funds impacts banks net interest margins. The advantage that banks had on net interest margins will decrease as deposit rates reprice higher. US-based brokerage Jefferies expects banks profit growth to slow to 12% as margins contract.
In keeping with the trend seen in the past few quarters, the credit growth was broad based across segments including retail and corporate segments, though it was mostly led by retail.