'Loan yield dip to affect Allahabad Bank margins'

Hike deposit rates to face competition may impact

The lower yields on loans in a business environment marked by falling interest rates may put pressure on Allahabad Bank’s net interest margins, according to rating agency India Ratings.

The bank may have to offer higher deposit rates to garner resources in a deregulated savings deposit rate environment.

Its operating margins (before making provisions) may come under pressure due to rising credit costs and increasing operating costs, India Ratings said in an update on the Kolkata-based public sector lender.

It said the bank’s net interest margin (NIM) remained healthy at 3.04 per cent in the nine months of FY13 ended December 2012.

For 2011-12, it was 3.42 per cent. They declined to 2.81 per cent for 2012-13, according to latest data.

It had a reasonably strong funding profile. The low-cost current and savings account deposits contributed 30.4 per cent to total domestic deposits at end-December 2012. The bank’s funding mostly comes from retail deposits, with bulk deposits (including certificates of deposits) contributing about 10% to total funding in six months of FY13.

India Ratings said the asset quality of Allahabad Bank had declined. Its gross non-performing asset (gross NPA) ratio increased to 2.91 per cent at end-December 2012 from 1.84 per cent in FY12. For FY13, gross NPAs stood at 3.92 per cent.

Restructured loans increased to 10.8 per cent of advances at the end-9MFY13 (FY12: 5.6 per cent). It is significantly higher than the system average. The deterioration in asset quality was because of increased delinquencies in retail, agriculture and services portfolios.