Cost of funds puts a squeeze on banks' H1 profit growth

Core Insights - The aggregate net profit of state-owned, private, and small-finance banks increased by 2.5% to ₹1.92 lakh crore in the six months ending September, compared to ₹1.87 lakh crore in the same period last year [1][11] - Net Interest Income (NII) rose by approximately 2% to ₹4.36 lakh crore, while other income, including treasury gains and fee income, surged by 19% to ₹2.06 lakh crore [1][11] - The State Bank of India (SBI) reported a potential increase in Net Interest Margins (NIMs) from the current level of 3.09% if there are no rate cuts in December [1][11] Bank Performance - Private banks outperformed Public Sector Undertaking (PSU) banks, with aggregate net profits of ₹97,790 crore for private banks compared to ₹93,674 crore for PSU banks [4][11] - Small finance banks reported a net profit of ₹684 crore [5][11] Market Dynamics - Higher advances typically boost interest income; however, margins were compressed in the first half due to immediate drops in lending rates following policy easing, while deposit repricing lagged [7][11] - The Reserve Bank of India's (RBI) repo rate was reduced by 100 basis points since February, leading to a significant decline in lending rates [7][11] Loan and Deposit Trends - Gross advances increased by 11.3% to ₹197 lakh crore, driven by strong retail growth, while deposits rose by 10% to ₹236 lakh crore [9][11] - Stressed loans for all listed banks decreased, with gross non-performing loans down 10.3% to ₹4.11 lakh crore and net NPA reduced by 8% to ₹92,302 crore as of September 30 [8][11]