Interest on bank deposits rising fast than on loans, to impact NIM: CARE Ratings

Chennai, May 2 (SocialNews.XYZ) With demand for credit growing, banks are increasing their lending rates and also the deposit rates to mobilise funds to meet the borrowers' demands.

According to CARE Ratings report, the deposit rates are rising faster than lending rates and going forward it may impact the banks net interest margin (NIM).

Further, the rates on fresh business have risen faster when compared to rates on outstanding business.

The weighted average lending rate (WALR) on fresh rupee loans of scheduled commercial banks (SCB) increased by 8 basis points (bps) to 9.32 per cent in March 2023 from 9.24 per cent in February 2023.

Meanwhile, WALR on outstanding rupee loans of SCBs increased by 5 bps to 9.72 per cent in March 2023 from 9.67 per cent in February 2023, the CARE Ratings report said.

The weighted average domestic term deposit rate (WADTDR) on fresh rupee term deposits of SCBs increased by 23 bps to 6.48 per cent in March 2023 from 6.25 per cent in February 2023.

On the other hand, WADTDR on outstanding rupee term deposits of SCBs increased by 14 bps to 6.16 per cent in March 2023 from 6.02 per cent in February 2023.

The one year median Marginal Cost of Fund based Lending Rate (MCLR) of SCBs increased from 8.55 per cent in March 2023 to 8.60 per cent in April 2023.

Both private and government banks maintained high spreads between lending and deposit rates, with the former seeing higher spreads, as banks raised rates amid RBI's tightening moves.

The RBI's policy rate hikes and subsequent resets in lending and deposit rates have led to NIM expansion in the near term however, the widening gap between credit and deposit growth amidst tightening liquidity is leading to aggressive pricing of deposits. This is expected to impact the NIMs going forward, the report said.

Source: IANS