The economy may be progressively unlocking, but India’s private sector lenders have yet to see a quick recovery in their lending business.
Updates from two private sector lenders indicate that loan growth is not out of the woods yet. IndusInd Bank in a performance update on stocks said its loan book grew just 2% in the September quarter. Analysts believe part of this was by design, as management had indicated that it would not pursue growth, but would be pragmatic in credit decisions. Since the financial health of many companies is uncertain due to the pandemic, banks have become cautious in their incremental exposures. “Overall, we expect loan growth to remain subdued, led by a weak environment amid current challenges,” analysts at Motilal Oswal Financial Services wrote in a note.
The story is also similar for the Most Valuable Lender HDFC Bank. The lender saw its loan book grow 16% in the September quarter, according to an update on exchanges. That’s much slower than the 21% growth it reported during the first quarter. Remember that the first quarter was pretty much closed, causing a drastic drop in retail loan disbursements. Analysts believe slow retail loan growth is behind the overall sluggish credit growth in the second quarter. In fact, even in the first quarter, HDFC Bank’s loan growth was primarily driven by corporate loans.
With loan growth slower than before for private sector lenders, the performance of public sector banks is likely to be even worse. Public sector banks have been ceding their share of the loan market to private sector banks for a long time.
The deposit side of the balance sheet is an upbeat story for lenders. HDFC Bank reported a 29% increase in its low-cost checking and savings account (CASA) deposits. These deposits now make up 42% of total deposits. Overall deposit growth was an impressive 20%. IndusInd Bank has also seen a stabilization in its deposit growth.
While deposit growth is likely to comfort investors, moderate loan growth may still bother. The silent response of the actions of both lenders shows that investors would want to wait longer.
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