Both public and private banks are facing a similar predicament today – the lying mirror! manish k. pandey discusses the dangers ahead, and how strong numbers during the past quarter were simply, just numbers...
A small data crunching allows us to easily figure out that the net repo volumes (funds kept by banks in aggregate with RBI at a paltry rate of 3.25%), at present stand at a staggering Rs.1.68 trillion. In fact, the situation seems to be touching alarming proportions when one considers how the amount parked under this window is more than double the new incremental deposits (about Rs.620 billion) brought in by the banking system during the year. “Banks fear a rise in non-performing assets (NPAs), so much that they are willing to sacrifice the [negative] differential in deposit rates offered to customers and the interest earned from RBI at reverse repo rates,” says Ashok Jainani, VP, Khandwala Securities. The average rate offered on one-year fixed deposits is about 7.25% currently, while the reverse repo rate is 3.25%! It clearly shows that banks are suffering a killing margin loss of almost 4% for every rupee being kept with RBI; a trend which, if it continues into the next quarter, has the potential to wipe out clean the past year’s profits of many banks within one quarter.
Even if one looks at the broader picture, one can easily figure out that NIMs have been on a declining mode for the last three quarters now. Amit Saxena, CEO, Planman Financial says that there’s worse in the banquet hall – the Incremental LDR (Loan-Deposit Ratio) has already fallen to an eight-year low of 14%. Evidently, the outstanding credit-deposit (CD) ratio of scheduled commercial banks has dropped below 70% for the first time in almost three years (The CD ratio currently stands at 69.01%, the lowest since May 2006 when it stood at 69.89%). Add to this the fact that the credit off-take growth too has come down to 16% – as compared to 25% a year back – and you start wondering whether the house that actually collapsed was insured or not.
Even if one looks at the broader picture, one can easily figure out that NIMs have been on a declining mode for the last three quarters now. Amit Saxena, CEO, Planman Financial says that there’s worse in the banquet hall – the Incremental LDR (Loan-Deposit Ratio) has already fallen to an eight-year low of 14%. Evidently, the outstanding credit-deposit (CD) ratio of scheduled commercial banks has dropped below 70% for the first time in almost three years (The CD ratio currently stands at 69.01%, the lowest since May 2006 when it stood at 69.89%). Add to this the fact that the credit off-take growth too has come down to 16% – as compared to 25% a year back – and you start wondering whether the house that actually collapsed was insured or not.
Source : IIPM Editorial, 2012. An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri’s Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM’s Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri – A Man For The Society….
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
IIPM : The B-School with a Human Face
