Hike in savings rate would hit NIM by 15 bps: PNB

Country's second-largest public sector lender Punjab National Bank (PNB) today said an increase in savings interest rate to 4% would hit its net interest margin (NIM) by 15 basis points (bps).

"Definitely, one third of our total deposits are savings...0.5% hike in saving interest rate will make an impact of 15 bps on NIM," PNB Executive Director Mohan V Tanksale said here, while replying to a query that whether hike in savings rate would hit the bank's margin.

Tanksale, who was here to attend state level bankers' committee meeting, said that PNB has total deposits of Rs 3.12 lakh crore and out of which, Rs 90,000 crore are savings deposits.

Bank's NIM stood at 3.96% in 2010-11. NIM represents difference between yield on loans and the interest paid on deposits.

The RBI in its annual monetary policy review had raised the interest rate on saving deposits from 3.5% to 4%.

However, he said increase in saving rate will help in maintaining its present level of CASA (Current Account and Saving Account).

He further said following the 50 bps hike in repo rate by the RBI, the cost of borrowings have gone up. "We have raised our base rate from 9% to 9.5%, while BPLR rate has been increased from 13 to 13.5%," he said.

"Ultimately when rate of interest goes up, the cost of borrowing for borrowers also goes up and borrowers will have to pay more," he said.

When asked about the size of business the bank was expecting in 2011-12, Tanksale said the bank was eyeing deposit growth of 19-20% and 21-22% in advances.

"If we go by an average growth of 20%, our total business should grow by over Rs 100,000 crore in current fiscal," he said.

The bank achieved a business of Rs 5,55,000 crore in 2010-11 with deposits and advance growth of 25% and 30%, respectively.

PNB also plans to open 300 new branches across the country along with three overseas branches, he said.

The bank has planned to open subsidiary in Canada for which it has already applied licence. Besides, it would also open first branch in Australia and convert representative office in Norway to full-fledge branch.