The macro environment in India in 2011 was not
conducive for businesses across sectors. In order to tackle the rising
inflation in the country the Reserve Bank of India (RBI) hiked the lending
rates throughout the year. Adding to the woos was the weakness in the Indian
currency, the rupee tumbled to an all-time low of Rs 54.17 vs. the US dollar on
Thursday, December 15.
I have been following the Q3 results of Indian banks and to my
surprise they have posted good results, both in the public as well as in the
private space. Allahabad Bank, a public sector bank, has posted a net
profit of Rs. 560.43 crore for the Dec'11 quarter. The net profit
figures of the bank increased by about 15% over the previous quarter and about
35% year-on-year. On similar lines ICICI Bank, which is India's
largest private sector bank, posted a 20% year-on-year rise in its net profit
for the third quarter (Oct - Dec 2011) to Rs. Rs 1,728 crore.
Despite an unfavorable macro environment, banks have cited that
increase in loan growth and high net interest margins (NIMs) led to the
increase in their net profit figures. This has led me to infer that 'high
interest rates and weak currency augurs well for the banking sector!'
One explanation I have is that the strengthening of the US
dollar may have caused a decline in External Commercial Borrowing (ECB) and in
turn might have led to increase in domestic borrowing.
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