Net interest margin, a key profitability gauge, is facing pressure amid the softer interest rate cycle.
Chief executives of these lenders are expecting the full impact of the policy rate cut in December to play out in the fourth quarter and therefore are taking steps to realign their business strategy to offset it.
Federal and Yes Bank have slowed retail lending, especially low-yielding housing loans, as well as lending to large corporations which seek fine rates. South Indian Bank too is planning to take a little extra risk and lend to lower-rated corporate customers to boost its margin, backed by the confidence of multi-decade low non-performing assets ratio.
“We are seeing increasing benefits from a calibrated shift in asset mix towards segments that offer superior risk-adjusted returns,” Federal Bank managing director KVS Manian said last week after announcing the quarterly numbers.
The bank’s net interest margin for the third quarter ended December 31 was 3.18%, compared with 3.06% in the preceding quarter.
The bank grew the share of medium-yielding assets to 47.7% from 46% over the year. Among medium yielding assets is gold loans which rose 12% to Rs 35,221 crore. The bank brought down the share of low-yielding assets like housing loans to 44.3% from 45.3% even as overall advance expanded 11% on-year to Rs 2.56 lakh crore.The Ernakulam-headquartered lender reported mere 1% growth in retail loans year-on-year to Rs 69,186 crore. Its housing loans portfolio remained nearly flat at Rs 36,004 crore, compared with Rs 35,967 crore a year back.
Yes Bank’s advances grew 5% year-on-year, significantly lower than the industry average of 14.5%, which managing director Prashant Kumar attributed to a strategy of only targeting profitable loan growth.
Kumar said the bank is slowing down lending to the prime housing segment while turning cautious on lending to large corporations, the segment which is known for eliciting a pricing battle.
South Indian Bank with a 63% share of corporate loans to AAA-rated borrowers grew the share of lending to A- and AA-rated corporations to 33.3% from 29.6% a year earlier.
“We are taking small bites in lower-than-AAA customers because the interest spread is very tight for the highest-rated customers,” managing director PR Seshadri told ET.