Bank of India sees NIM improving to 2.55% in H2 FY27 after RBI rate hike

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Bank of India expects its net interest margin (NIM) to improve to around 2.55% in the second half of FY27, from 2.47% in the September quarter, as the Reserve Bank of India's 25-basis-point repo rate hike supports lending yields and deposit costs adjust gradually.

The bank has already revised lending rates on loans linked to external benchmarks following the RBI's decision to raise the repo rate to 5.50%. Around 66% of Bank of India's advances are linked to external benchmarks, allowing the rate increase to feed through to lending rates more quickly.

“The day the RBI increased the interest rate, we raised our lending rates in line with our policy,” MD and CEO Rajneesh Karnatak said at the bank's post-results media conference.

On the liability side, the impact is expected to take longer to emerge. Around 60% of the bank's deposits are in the 12- to 18-month maturity bucket, limiting the pace at which existing term deposits can be repriced. Savings account rates, meanwhile, will depend on market conditions and the bank's decision on whether to revise them.

“Existing term deposits will mature over different time periods, after which they will be repriced,” Karnatak said. The bank expects margins to improve over the next two to three quarters, although it did not quantify the expected increase in basis points.

The NIM of 2.47% also reflects the bank's international operations, which account for around 15% of its loan book. Bank of India operates in 15 countries, and its international NIM stood at around 1.14% in the September quarter. Its domestic NIM was above 2.70%.

FCNR(B) inflows widen deposit-credit growth gap

Bank of India's global deposits rose by Rs 79,000 crore sequentially and Rs 1.84 lakh crore year-on-year to Rs 10.37 lakh crore. Deposit growth exceeded advances growth, partly reflecting funds mobilised under the RBI's FCNR(B) swap facility.

Excluding the FCNR(B) component, year-on-year deposit growth would moderate from 21.13% to 18.44%, while sequential growth would fall from 7.80% to 5.44%, the bank said. The figures indicate that FCNR(B) inflows contributed materially to the reported increase in deposits.

The bank's FCNR(B) mobilisation stood at $2.2 billion. Karnatak said 80-90% of the deposits mobilised by banks under the facility had been leveraged. Bank of India's FCNR(B) deposits were fully hedged, with interest rates of 6.25% for deposits of up to three years and 6.50% for those of up to five years.

He said the bank's international operations gave it the flexibility to deploy the funds across geographies, supported by its foreign-currency assets and existing international business.

Corporate pipeline at Rs 65,000 crore

The bank's corporate credit pipeline stood at around Rs 65,000 crore as of September 30, including sanctioned proposals and those awaiting committee consideration. Power accounted for around Rs 10,000 crore, followed by roads at Rs 5,600 crore and oil and gas at more than Rs 4,000 crore. The pipeline also included proposals in cement, manufacturing, construction, automobiles, iron and steel, and shipbuilding.

On asset quality, Karnatak said slippages in the September quarter were lower than in the June quarter. While weather-related pressures could affect some regions, he said the bank did not expect a significant overall impact, citing improvements in irrigation, warehousing and cold-storage infrastructure.

The bank will also maintain its existing IT expenditure guidance for FY27. Karnatak said its digital initiatives during the quarter included new products across agriculture, retail and liabilities, digital credit cards, a UPI-linked credit card under the PM SVANidhi scheme, and the launch of its Freedom mobile banking app in New Zealand.

Analytics-led initiatives had generated 21,567 loan sanctions over the preceding four to six quarters across home, MSME, personal and vehicle loans, as well as MSME cash-credit facilities.