New Delhi: Better times are ahead for the
banking sector as a revival in the economic activity coupled
with inflation is likely to boost the credit growth in the
second half of current financial year, says a study.
"The credit blues are behind ... and better times are
ahead ... the second half of fiscal year 2010, is likely to
witness a revival in economic activity and inflation to drive
a pick up in credit growth from current levels," the report by
brokerage firm IDFC SSKI said.
The sequential expansion in margin is also going to
continue in the said period of time as "largely stable lending
rates, coupled with traction in credit growth would support
margins in the second half of FY`10," the report said.
However, the current and saving accounts (CASA) ratio
may face some pressure in the fourth quarter of FY`10, as
deposit growth accelerates and interest rates harden, the
Regarding gross non-performing assets (NPAs), the report
said, "Accelerated provisioning in the context of RBI`s new
floor on total coverage of 70 per cent likely to limit decline
in provision costs."
The Reserve Bank in the second quarter monetary review in
October left rates unchanged as there was excess liquidity and
weak credit demand, but going forward, RBI may tighten the
rates in a bid to ward-off inflationary pressures in the
second half of FY`10.
In the second quarter of this financial year, banks
reported a net profit growth of 25 per cent year-on-year
ahead of market estimate of 14 per cent.
The CASA ratio of the banks also recovered from low
levels in the first quarter of 2010, driven by "sanguine
interest rates at a systemic level", besides, lower deposit
growth in line with muted credit off-take also helped.
Besides, the contained rise in gross NPAs, given the
large restructuring of stressed advances by banks till first
quarter of FY`10 and improvement in growth conditions likely
to alleviate credit quality concerns in the long term.
So far this year, NIMs have shown an improvement on a
quarter on quarter basis. The CASA ratio also increased across
banks, aided by benign systemic interest rates, the report