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Economic Times
11-07-2025
- Business
- Economic Times
Dull loan growth, margin pressure, credit cost to weigh on bank earnings
Mumbai: The country's largest lender State Bank of India (SBI) is expected to report lacklustre results for the first quarter ended June, weighed down by a dip in margins and sluggish loan growth and fee income, with analyst estimates ranging from a 3% decline in profits to a 4.8% growth. ADVERTISEMENT Leading private lender HDFC Bank is seen posting a 4% to 6.3% rise in net profit, driven by a strong rise in core operating income, even as muted loan growth, margin compression, seasonally weak fee income, and elevated credit costs are expected to impact most banks, according to estimates from five brokerage houses. "We expect SBI to post muted loan and deposit growth with net interest margins (NIMs) declining by 13 basis points sequentially," Ankit Bhilani, analyst at Nomura, said in a note. "Credit cost is expected to remain contained at 0.5%." SBI's domestic NIM was at 3.35% in the first quarter of FY25. HDFC Bank's loan book rose 6.7% year-on-year in the June quarter to ₹26.53 lakh crore while deposits grew 16% to 27.64 lakh crore, it informed exchanges last week. "If the gap in loan and deposit growth has been offset by a rundown in borrowings, the margin trajectory (of HDFC Bank) could turn out to be healthier relative to peers-especially if the bank has continued to run down low-yielding corporate credit," said Pranav Gundlapalle, head of India financials at across the sector, banks are expected to report weak earnings for the June quarter, strong treasury gains, aided by a 25-basis point decline in 10-year G-sec yields, are expected to offer some cushion, according to Nomura. ADVERTISEMENT In the PSU banking space, Motilal Oswal projects modest profit after tax growth of 4.8% year-on-year, reflecting a decline in NIMs, normalised operating expenses, and higher provisions following the one-time reversal of provisioning on security receipts in Q4. Net interest income (NII) is also expected to remain flat year-on-year. Private sector banks may see a 2.5% decline in profit after tax, with pre-provision operating profit (PPOP) expected to grow only 4.2% year-on-year, according to the brokerage. NII for the sector is likely to grow just 3.1%, amid rising pressure on margins following the 100 basis points cut in the repo rate this year. Analysts expect NIMs across the sector to decline by 12 to 25 basis points. ADVERTISEMENT System-wide loan growth moderated to 10.6% year-on-year in the June quarter, with the MSME segment being the only outlier. Deposit growth is expected to remain subdued, ranging between 0% and 16% the asset quality front, fresh slippages in the first quarter are likely to remain elevated for banks with significant exposure to unsecured retail and microfinance segments. ADVERTISEMENT "NPA formation should inch up due to seasonality from the agri sector," said Bunty Chawla, analyst at IDBI Capital. (You can now subscribe to our ETMarkets WhatsApp channel)
Time of India
11-07-2025
- Business
- Time of India
Dull loan growth, margin pressure, credit cost to weigh on bank earnings
Mumbai: The country's largest lender State Bank of India (SBI) is expected to report lacklustre results for the first quarter ended June, weighed down by a dip in margins and sluggish loan growth and fee income, with analyst estimates ranging from a 3% decline in profits to a 4.8% growth. Leading private lender HDFC Bank is seen posting a 4% to 6.3% rise in net profit, driven by a strong rise in core operating income, even as muted loan growth, margin compression, seasonally weak fee income, and elevated credit costs are expected to impact most banks, according to estimates from five brokerage houses. "We expect SBI to post muted loan and deposit growth with net interest margins (NIMs) declining by 13 basis points sequentially," Ankit Bhilani, analyst at Nomura, said in a note. " Credit cost is expected to remain contained at 0.5%." SBI's domestic NIM was at 3.35% in the first quarter of FY25. HDFC Bank's loan book rose 6.7% year-on-year in the June quarter to ₹26.53 lakh crore while deposits grew 16% to 27.64 lakh crore, it informed exchanges last week. Agencies "If the gap in loan and deposit growth has been offset by a rundown in borrowings, the margin trajectory (of HDFC Bank) could turn out to be healthier relative to peers-especially if the bank has continued to run down low-yielding corporate credit," said Pranav Gundlapalle, head of India financials at Bernstein. While across the sector, banks are expected to report weak earnings for the June quarter, strong treasury gains, aided by a 25-basis point decline in 10-year G-sec yields, are expected to offer some cushion, according to Nomura. In the PSU banking space, Motilal Oswal projects modest profit after tax growth of 4.8% year-on-year, reflecting a decline in NIMs, normalised operating expenses, and higher provisions following the one-time reversal of provisioning on security receipts in Q4. Net interest income (NII) is also expected to remain flat year-on-year. Private sector banks may see a 2.5% decline in profit after tax, with pre-provision operating profit (PPOP) expected to grow only 4.2% year-on-year, according to the brokerage. NII for the sector is likely to grow just 3.1%, amid rising pressure on margins following the 100 basis points cut in the repo rate this year. Analysts expect NIMs across the sector to decline by 12 to 25 basis points. System-wide loan growth moderated to 10.6% year-on-year in the June quarter, with the MSME segment being the only outlier. Deposit growth is expected to remain subdued, ranging between 0% and 16% year-on-year. On the asset quality front, fresh slippages in the first quarter are likely to remain elevated for banks with significant exposure to unsecured retail and microfinance segments. " NPA formation should inch up due to seasonality from the agri sector," said Bunty Chawla, analyst at IDBI Capital.
India Today
26-06-2025
- Business
- India Today
Are your savings at risk? Government may slash PPF, NSC rates next week
The government may lower interest rates on small savings schemes like the Public Provident Fund (PPF), National Savings Certificate (NSC), and others during its upcoming quarterly review on June 30, 2025, reported The Economic Times (ET).If rates are revised, the changes will come into effect from July 1 for the July–September quarter of far this year, interest rates for schemes such as Sukanya Samriddhi Yojana (SSY), Senior Citizens Savings Scheme (SCSS), and Post Office term deposits have remained unchanged. However, this may not continue in the next A RATE CUT IS BEING CONSIDEREDOne of the key reasons behind this expected change is the Reserve Bank of India's decision to cut the repo rate by a total of 1% so far in 2025. The central bank reduced the repo rate in February and April by 25 basis points each, followed by a larger 50 basis points cut in have already responded by lowering interest rates on fixed deposits. Some have even discontinued special FDs that offered higher returns for limited yields, which influence the interest rates of small savings, have also fallen. According to the 10-year government bond yield dropped from 6.779% on January 1 to 6.247% by June 24 — a decline of 0.532%. Lower bond yields are usually a sign that small savings rates may be THESE RATES ARE CALCULATEDInterest rates for small savings are set based on the Shyamala Gopinath Committee's recommendations. The formula uses the average yield of government securities in the secondary market and adds a 25-basis-point instance, the average 10-year G-sec yield between March 24 and June 24, 2025, is 6.325%. Adding 25 basis points brings it to 6.575%. Currently, PPF offers 7.10%, which is much higher than the formula suggests. This difference is why a cut is being considered, though the government may still choose to hold rates to ET, Rajani Tandale, Senior Vice President – Mutual Fund at 1 Finance, said the RBI's 50-basis-point cut in June, along with earlier reductions, brings the total repo rate cut in 2025 to 1%. She said this aligns with the central bank's aim to support growth by lowering borrowing costs.'As a result, interest rates for small savings schemes are likely to be lowered,' she said, while noting the final call will depend on the government's review and current market Shinghal, Founder and CEO of Scripbox, also told ET, 'SSS rates, while administratively set, are typically aligned with prevailing interest rate trends and yields on government securities.'He added that several banks have already reduced fixed deposit rates, and this shows broader rate transmission is happening. According to him, it is likely that PPF, SSY, and NSC interest rates could be cut by 25 to 50 basis Sarkar, Co-Founder of Wealth Redefine, shared a slightly different explained that while a 1% cut in repo rate points towards lower returns on small savings, the decision isn't automatic.'These schemes are lifelines for pensioners, retirees and middle-class households. A big cut could hurt them, especially when inflation is low and FD rates are already falling,' he told added that while a small cut of 0.1% to 0.3% is possible, a sharp drop seems unlikely. The government, he noted, may even choose to keep rates steady to protect INVESTORS SHOULD DO NOWThose planning to invest in small savings schemes should consider doing so before June 30. If they invest before the new rates take effect on July 1, their returns, especially for time-bound schemes like NSC, SCSS, and time deposits, will remain locked at the current rates until and SSY, however, are not fixed-rate investments. Their interest rates change over time and are calculated monthly. So, even if you invest now, future interest payments could be affected by a rate said 'Investors may consider locking into current Small Savings Scheme rates before the revision.' He also suggested that in a falling interest rate environment, long-term debt funds and target maturity bonds might become attractive alternatives for those looking to preserve real returns.(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)- EndsMust Watch advertisement
Economic Times
26-06-2025
- Business
- Economic Times
Are PPF, NSC and other small savings schemes headed for historic low interest rates? Govt to decide next week
iStock The interest rates for PPF, NSC and other small savings schemes are set to be reviewed on June 30, 2025. The new rates will take effect for the July-September quarter of FY 2025-26. So far this year, the interest rates for Post Office savings schemes, including the Sukanya Samriddhi Yojana and the Senior Citizens Savings Scheme, have remained unchanged. But this could change starting July 1, 2025. The Reserve Bank of India (RBI) has cut the repo rate thrice since the start of 2025. The central bank first cut the repo rate by 25 basis points in February, then again by 25 basis points in April and by 50 basis points in June. To date, the central bank has cut the repo rate by 1%. The banks have reduced the interest rate on fixed deposits in response to the repo rate cut. Some banks have also discontinued their special FDs, which offered higher interest rates compared to normal bank FDs for a specified period. The 1% cut in repo rates has also brought down bond yields. Investors need to keep in mind that there is a positive correlation between bond yields and the RBI's policy rates. So, whenever market expects the RBI to reduce the repo rate, bond yields tend to drop as per data from the 10-year G-sec bond yield was at 6.779% on January 1, 2025. But by June 24, 2025, it had fallen to 6.247%. This means the bond yield has decreased by 0.532% so far and a further downward adjustment cannot be ruled out. Why bond yield and repo rate cuts matter The interest rate on the Post Office Savings Scheme is determined on the basis of the recommendations of the Shyamala Gopinath Committee. According to the recommendations accepted by the Finance Ministry, secondary market yields on Central Government Securities of comparable maturities should serve as benchmarks for the interest rates on various small savings instruments, along with a positive spread of 25 basis points. This means that the interest rate of a 5-year time deposit should be based on the yield of 5-year G-secs prevailing in the secondary market plus 25 basis points. For PPF, the average yield of 10-year G-sec between March 24, 2025, and June 24, 2025, is 6.325%, according to Adding 25 bps on this, will bring the PPF interest rate to 6.575% as per the formula recommended by the committee. Currently, PPF offers 7.10% to the investors. Going by the set methodology, a repo rate cut and a fall in bond yield indicate that interest rate on small savings scheme may also be cut keeping in view of the prevailing interest rate in the market. However, this does not always reflect in the final decision taken by the government. Will interest rate on PPF, NSC, SCSS and other small savings be cut? ET Wealth Online spoke to experts to determine whether interest rates on PPF, NSC, and other small savings are likely to be cut. Here's what they have to say: Rajani Tandale, Senior Vice President, Mutual Fund at 1 Finance, says: Given its focus on fostering economic growth through a more accommodative monetary policy, the Reserve Bank of India (RBI) reduced the repo rate by 0.5% on June 6th, bringing the total reduction to 1% in 2025. As a result, interest rates for small savings scheme are likely to be lowered. So, a reduction in interest rates for small savings schemes is anticipated. Since the RBI is prioritising growth through lower borrowing costs, a corresponding rate cut for small savings schemes is expected in the next update. The final decision will depend on the government's quarterly review and prevailing economic conditions. According to Atul Shinghal, Founder & CEO of Scripbox, says: With the Reserve Bank of India cutting the repo rate by a cumulative 100 basis points in 2025, attention is now on the upcoming quarterly revision of small savings scheme (SSS) interest rates. SSS rates, while administratively set, are typically aligned with prevailing interest rate trends and yields on government securities. In recent weeks, several banks have already begun reducing their fixed deposit rates, signalling broader rate transmission across the financial system. Given the sharp monetary easing and the government's emphasis on fiscal prudence, it is likely that SSS rates for instruments such as the Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), and National Savings Certificate (NSC) could be cut by 25-50 basis points. Soumya Sarkar, Co-Founder, Wealth Redefine, says: These interest rates on small svaings schemes usually move with market trends, but the decision is not automatic as while deciding rates, the government also takes note of savers' needs. This year, the RBI has cut the repo rate by 1%, pushing overall interest rates lower. Normally, this would mean small savings rates could drop too, to stay in line with bank FDs and bonds. But there's a catch: these schemes are a lifeline for retirees, pensioners, and middle-class households. A big cut could hurt their income, especially when inflation is low and bank FD rates are already falling. The government also keeps political and social factors in mind, after all, millions depend on these schemes. So, while a small cut (say, 0.1-0.3%) is possible, a sharp reduction seems unlikely. The government might even hold rates steady to support savers, now that elections are over and inflation isn't a worry. A minor trim could happen, but don't expect a major drop. The government will likely balance market trends with savers' interests. Investors planning to invest in various small savings schemes should do so on or before June 30, 2025. This is because any rate cut will take effect from July 1, 2025. If you invest in time deposits, recurring deposits, Senior Citizens Savings Scheme, Monthly Income Account, National Savings Certificate and Kisan Vikas Patra, on or before June 30, 2025, your investment will be locked at current high interest rate and will not be impacted by subsequent rate cut effective from July 1. This is because once the investment is made, then interest rates are locked till maturity investment in PPF and SSY will be impacted, as interest on account balances keep changing with time and are calculated on a monthly says, "Investors may consider locking into current Small Savings Scheme rates before the revision. Additionally, as interest rates trend lower, long-duration debt funds and target maturity bonds become more attractive for investors seeking to preserve real returns in a softening rate environment."
Time of India
16-06-2025
- Business
- Time of India
How will RBI's STRIPS facility impact insurance companies?
Mumbai: The Reserve Bank of India last week allowed the STRIPS (Separate Trading of Registered Interest and Principal of Securities) facility in state government bonds-a seemingly technical change that could be a game changer for insurers. This facility is expected to allow insurance companies to manage cash flows and align their income from investments with future pay-outs to policyholders. STRIPS allows bond traders to strip principal and coupon payments and sell them separately. That means, the cash flows of a bond can be bought and sold. Bonds Corner Powered By How will RBI's STRIPS facility impact insurance companies? The Reserve Bank of India's decision to allow STRIPS in state government bonds is poised to revolutionize cash flow management for insurers. This move enables insurers to sell near-term asset inflows, aligning investment income with long-term policy payouts. STRIPS in state bonds offer a yield advantage and reduce reinvestment risk, making them attractive for long-term investors. RBI cancels 30-year green bond auction amid high bids India bond yields hit 5-week high as surging oil prices add to bearishness before auction RBI allows trading of state govt securities in STRIPS Banks see 15% rise in non-SLR investments in FY25 amid strong market returns Browse all Bonds News with "Insurance companies have long-term liabilities in our books, with little need for cash in the near term. STRIPS enables us to sell our near-term asset inflows, allowing better matching of our asset and liability cash flows," said Churchil Bhatt, executive vice president-investment at Kotak Mahindra Life Insurance Company. "STRIPS in state bonds add a dash of yield uptick to the already existing dual benefits of the product, namely additional duration and reduction in reinvestment risk," he added. Live Events STRIPS are bought at a deep discount and redeemed at face value, making them attractive to long-term, hold-to-maturity investors such as insurers, pension funds and passive debt funds. A key appeal of STRIPS in state bonds is their 30- to 40-basis-point yield pickup over STRIPS in central government securities (G-sec), along with the same sovereign backing, said Venkatakrishnan Srinivasan, managing partner, Rockfort Fincap, a fixed-income institutional advisory firm. In a notification on Thursday, the RBI said all fixed-coupon bonds issued by state governments with a residual maturity of up to 14 years and a minimum outstanding of Rs1,000 crore are eligible for STRIPS. However, these securities must be eligible for meeting the bank's statutory liquidity ratio requirements. Insurance companies have seen higher demand over the past few years for long-term products offering guaranteed returns. These companies look to deploy the inflows in such products in long-term assets like G-Secs and state bonds. According to bond market participants, STRIP has been permitted in eligible central government securities since April 2010. Extension of STRIPS will also help insurers reduce reinvestment risk, referring to the possibility of investors not being able to deploy proceeds from bonds at a desirable rate of interest. Transaction volumes in STRIPS have increased in recent years. According to data published by Clearing Corporation of India, the face value of STRIPS trades in G-secs rose to ₹2.47 lakh crore in FY25 from ₹38,383 crore pre-Covid in FY20. ETMarkets WhatsApp channel )
