Banks that have higher proportion of deposits maturing in the second half of this financial year are likely to restrict further decline in their net interest margin as interest rates are expected to fall in coming months.
In 2011-12, most public sector banks reported a drop in their net interest margin as the rise in cost of funds outpaced the increase in yield on advances. As loan demand has remained largely muted so far this year the stress on their margins is expected to intensify further.
However, lenders like Andhra Bank and Central Bank of India may weather the crisis as a significant part of their deposits will get re-priced during October-March period.
While around 28% of Central Bank of India's deposits will mature during the second half of current financial year, Andhra Bank will re-price close to 31% of its deposits in the next six months. These lenders will gain cost advantage as the new deposits are expected to come at lower rates.
"Our economist expects decline of 50-75 basis points in interest rates in the second half of 2012-13. Banks that are likely to see a greater percentage of their deposits maturing during this period will be in an advantageous position, considering the expected fall in interest rates," Alpesh Mehta, analyst with brokerage Motilal Oswal Securities, wrote in his recent note to clients.
State Bank of India (SBI), Punjab National Bank and Bank of India have only a small portion of their deposits maturing in the second half. "The decline in their cost of funds would be gradual. To maintain net interest margins, it is imperative for them to maintain their yields on assets," Mehta added.
Other banks such as Bank of Baroda, Corporation Bank and Indian Overseas Bank are expected to re-price around 22-26% of their deposits in the second half.
Motilal Oswal Securities said some of these state-run lenders may see 15-20 basis points decline in their margin in the current financial.
