Let us talk about the numbers in terms of your cost of funds. The yields have risen and have been hitting the margins of the company. Has the cost of funds peaked out now and should your NIMs be around 9- 9.5% for this financial year?
Let me just focus on NIMs. Our NIM was 9.2% this quarter and we are expecting it to average for the full year at about 9% because we had anticipated a small decline in the interest rates in the second half of the year. That is now looking unlikely and the current interest rate scenario is expected to play out much longer during this financial year, possibly for the whole financial year.
So the cost of funds is going to be slightly higher than what it is today and the NIM for the full year is going to be about 9%. But having said that, there is some increase in yields from the higher interest rates on the micro-banking portfolio. That is yet to play out fully because that was done in two tranches of 0.5%; the first tranche in September of last year and the second tranche in March this year. That applies only to the new portfolio. As the old portfolio runs up, the new portfolio will have a slightly higher interest rate and that benefit will come through during the rest of this year as well. So net-net, we are looking at a 9% net interest margin.
For the first time in a long time you have seen your CASA book contract sequentially. Can we attribute this to competition? Is it a shift to term deposits and what can we expect going forward?
You are right. The contraction is something that we are working on. It is an industry phenomenon. Most of the other banks have seen contraction in CASA during this quarter. And that is a movement to term deposits because a lot of people are of the opinion today that the interest rates have peaked, or at least at the higher level and there is not much more that they can get by higher interest rates. So the movement is more from SAR into term deposits, locking in the interest rates that they can get for whatever period that they can get.
Some of them, for their short-term needs, are also looking at overdraft against these fixed deposits. That is a new phenomenon that we are seeing. People are locking in their term loans and seeking short-term liquidity wherever necessary through overdrafts.
The number of liability customers has gone down sequentially compared to a quarter-on-quarter basis. Are there any concerns on that front?
It is a simple explanation. Part of it, at least, is that we did some housekeeping and some of the inactive accounts and things like that have all been tidied up. But having said that, part of the movement into term deposits is possibly because some of the people have moved out from us to other banks but it is something that we are addressing and we are confident that in the second and third quarter, the growth in the number of customers will be back to where it was before, as far as deposits are concerned. On the loan side, there has been no problem. Our loan customer base still continues to grow.
Your ROA has been greater than 3.5% for the fourth straight quarter. As the cost efficiencies play out, wouldn’t it be right to say that it will rise further?
Our ROAs have been very good and it has played out from all sides. Of course, the credit recoveries have played a significant role. Those recoveries will decline a little bit as we go forward because some of the recoveries are from loans which went bad a long time ago. And through a passage of time that becomes more difficult to recover. So that unusual situation which we had for a part of the last financial year will slowly disappear later into the year. We are still seeing good recoveries but less than before. And as we move out, it is the other efficiencies which will help to offset the credit recoveries. All in all, where we see ourselves on the ROAs is it will start coming down a little bit. But in terms of the industry, our ROAs will be right on top.
What is that update and where are we on the merger front now?
The merger is right now with the NCLT. The NCLT has given an early indication at the end of June. We are waiting for the formal order. Once that comes in, we then have to have whatever the meetings and other things which are required. So we are hoping that it will be completed during this financial year and if everything goes according to plan, hopefully during the third quarter. Otherwise, it will spill into the fourth quarter. But we are hopeful that during this financial year it will be completed.