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ICICI Securities Report
Deciphering the trends in banks' marginal cost of funds-based lending rate (MCLR), deposit rates, lending spreads (both over deposit rates as well as outstanding over marginal rates), asset mix change and stress recognition, we fear more downside risk to banks' net interest margin (NIM) trajectory.
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What can drag NIMs down -
1. Spread of outstanding over-marginal loan yields has widened to as high as more than 180 basis points/100 basis points for private/public sector undertaking (PSU) banks;
2. lending spread (average lending rate over deposit rate) at its peak ever at 470 basis points (for private banks) poses a downside risk;
3. loan to deposit ratio moderating to 72%;
4. portfolio mix shift towards better-rated low yield lending; and
5. recognition of stress, interest derecognition and downward loan repricing (under restructuring scheme).
Nonetheless, hopes are on benefit of low deposit rates - though flexibility to further tweak seems limited and lower spread (outstanding over marginal) suggests limited repricing benefit.
All in all, pressure on NIMs appear imminent; we are revising NIM estimate down by 5-15 basis points in FY21/FY22 across our coverage universe.
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