The net interest spread between outstanding loans and deposits of banks has been compressed over the last year and touched a 8-year low in August, according to RBI data.

The spread between WALR (weighted average lending rate) and WADTDR (weighted average domestic term deposit rate) stood at 3.11 per cent for fresh rates and at 3.22 per cent for outstanding rates in August 2023, with private banks continuing to maintain a higher spread than PSU banks.

“In August 2023, outstanding deposit rates increased while outstanding lending rates remained flat. Meanwhile, rates on fresh business climbed,” said CareEdge in a note, adding that while the WALR on outstanding loans was flat sequentially at 9.82 per cent, WADTDR increased by 5 bps to 6.60 per cent.

WALR for PSU banks was up 2 bps, whereas for private and foreign banks it declined by 1 bps. Outstanding deposit rates for private banks were up 5 bps, but higher by 8 bps for PSU banks.

The WALR on fresh rupee loans rose 3 bps sequentially to 9.47 per cent in August 2023, whereas on fresh deposits rose 1 bps to 6.36 per cent.

“Spreads between the outstanding WALR and WADTDR have fallen below pre-pandemic levels since June 2023, which is exerting pressure on NIMs. Notably, the spread between the fresh WALR and WADTDR remains narrower than that between the outstanding WALR and WADTDR,” said CARE Ratings.

Credit off-take has increased by 19.8 per cent y-o-y as of September 8, including the impact of the merger of HDFC with HDFC Bank. This amounted to ₹24.6-lakh crore, taking total credit to ₹150.4-lakh crore as of September 8.

Excluding the impact of the merger, credit growth was up 15.1 per cent y-o-y, driven by continued demand for personal loans, said the note. The share of External Benchmark Lending Rate (EBLR) linked loans in total outstanding floating rate loans stood at 50.2 per cent at the end of June, whereas Marginal Cost of funds-based Lending Rate (MCLR) linked loans was 44.8 per cent.

Private banks had a higher share of EBLR-linked loans at 73.2 per cent followed by PSU banks at 36.1 per cent, leading to faster rate transmission in private banks. Post May 2022, the beginning of the rate hike cycle, fresh WALR for private banks increased by 215 bps and for PSU banks by 161 bps.

Deposits were up 13.6 per cent y-o-y on an absolute basis, and 12.8 per cent excluding erstwhile HDFC to ₹193.8-lakh crore.

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