Pvt banks see margins drop, small loans sour

High cost of deposits hits margins; Stress in unsecured book at some banks

- Gopika Gopakumar

Private sector banks delivered a strong performance in the September quarter, buoyed by robust loan growth and improved asset quality.

Most banks saw 20% growth in their loan books during the second quarter, led by retail loans. However, unsecured loans grew even stronger, at 35-40%.

Banks' net interest margins, which represent the return they earn on their interest-earning assets, have been shrinking recently due to their rising cost of deposits. ICICI Bank, Kotak Mahindra Bank and Yes Bank have all experienced a sequential drop of 20-35 basis points in their net interest margins. Despite this, their margins continue to be healthy when compared to the previous year.

A basis point is one-hundredth of a percentage point.

The share of current and savings accounts (CASA) in total deposits continued to fall for most banks, adding to margin contraction.