The hike in lending rates and lowering of credit cost is likely to result in banks reporting a significant rise in net interest income (NII) and profits year-on-year (YoY) in the quarter ended June 2022 (Q1FY23), experts believe. In other words, loan growth, higher margins and lower costs will affect the profit of the banks positively.
The major banks are expected to register robust progress in profit after tax. The bank lending spreads had surged back with the 90 basis point repo rate hike. The positive result will be visible in Q2 thanks to new loans and the resetting of interest rates in existing loans. Lending rates on new loans have increased 35 basis points month-on month.
Experts estimate that with overall asset quality getting better and the risk of a fresh NPA cycle remaining low, banks should be able to show healthy profitability and return ratios. Analysts point out that arrested slippages, increased recoveries, and crystalized provision coupled with better credit growth and rising interest rates could do the trick for maintaining positive margins, especially for banks that have a higher share of floating rate books.
Having said that, the Stress behaviour in the MSME segment would be required to be monitored as increasing interest rates and end of moratorium could have built up pressure.