The new challenge on the banking turf

Raising deposits to keep pace with loan growth and keeping credit cost low top the agenda for banks

When a patient is critical, doctors keep checking the level of oxygen in the blood. The "SpO2" reading on a pulse oximeter shows the percentage of oxygen in someone's blood. For a reasonably healthy person, a doctor prefers to check blood pressure and blood sugar.

Replace the patient/healthy person with a bank and the doctor with a banking analyst. When some Indian banks were in a bad shape, the focus was on the quality of assets: How much non-performing assets (NPAS) these banks had on their books. The NPAS were the oximeter. Of course, unlike oxygen in blood, lower the NPA, healthier the bank.

When the sector is in a healthy state, the prime focus is on other parameters: The net interest margin (NIM), loosely the difference between what a bank spends on deposits and what it earns on loans; and the lowcost current and savings accounts (CASA). Of course, neither NIM nor CASA can be seen in isolation. A bank that gives small unsecured loans will have higher NIM than a bank that is into corporate loans, but the unsecured loans can lead to higher NPAs. Similarly, the cost of CASA for one bank could be higher than the cost of fixed deposits for another.

On a year-on-basis (that is, in the December 2023 quarter over the December 2022 quarter), among all listed banks, six have recorded a rise in NIM. These are Bandhan Bank Ltd, RBL Bank Ltd, IDFC First Bank Ltd, IDBI Bank Ltd, Bank of Maharashtra and Canara Bank. For two others - IndusInd Bank Ltd and Punjab National Bank - NIM has remained unchanged.

When it comes to the quarter-onquarter figures (December 2023 over September 2023), there is no uniform trend, but more banks have shown a dip in NIM in December. For four banks, NIM remained unchanged Qo-Q. These are HDFC Bank Ltd (3.4 per cent), Kotak Mahindra Bank Ltd (5.22 per cent), Indian Overseas Bank (3.12 per cent) and Bandhan Bank (7.2 per cent).