With September already underway and the story of rate hikes toping off likely a thing of the past, banks would have to focus on pruning their balance sheets and maintaining margins as higher fee charges and restricted loan budgets at higher EMIs hit banks retail and corporate customers. The fixed rate home loans that will provide a good segueway for borrowers to get competitive rates are unlikely to be subjected to higher provisions and that is one of the first successes scripted in this case by ICICI Bank without and lead in teasdrer rates. 

However, the obvious changes to the balance sheet and other aggregate statements of the banks may no longer measure the secular growth in Deposits, loans and profits this time around in any segment of the banking sector. Though that does not mean there is a crisis in action, there is already a 12% compression  in demand deposits and less than 8% growth in time deposits as rates moved up in the first five months of the year. Also investment holdings and reported international transactions in Dollar will move back by anywhere between 2-5% with the Euro falling through without any other hardy impact on Indian Balance sheets.

CASA compression has already been showing and the September quarter is unlikely to signal the end of the same in any way, the annual changes in Time and Demand Deposits showing a robust 22% growth in Fixed Deposits where rates have been increased but a 7.5% dip in Savins deposits. ICICI Bank is looking to stabiolise its CASA ratio lower from 42% in June to 40% for the half year. Current Deposits have been moving out to retail investments looking for a higher rate of return to combat inflation with even retail focused banks not looking at extra growth in the sector probably lagging credit growth of 18%

That does mean that NIMS are likely to be challenged though Banks are likely to manage except where asset quality of banks lends to the deterioration n the sector StanC expecting NPLs to grow to 2.6% from 2.3% of the assets in March. We think the NPLs may grow to even 5% with SBI likely tocontinue the higher peg of nearly 3% it reported on its 8 tln book in June. PSBs control 2/3rds ofIndia's credit aswsets and these are spread thru a lot of SME borrowers as well, while he Foreign banks look at leveraging existing arrangements by Swaps and other off balance sheet business

Fee income may not grow again as it did in June but is likely to remain a tthe new higher level achieved , meaning a healthy year on year growth. Also with NBFC lending still on from banks, in July and August there may not be a negative impact in the immediate quarter's financial statements as the NBFCs get down to provisioing it right in the construction sector where growth had exceeded 50% of the new credit in June

 

 

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