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Banks' loan growth picks up pace at 3-5%, asset quality stress to remain elevated in Q2

Banks recent disclosure on advances in second quarter reveal economic recovery has kicked-in, analysts believe the numbers are encouraging but asset quality stress could remain elevated in second quarter.

October 13, 2021 / 07:42 PM IST
In the second quarter of FY22, data released by lenders reveal the loan growth has been around 3-5 percent on a sequential basis. (Representative image)

In the second quarter of FY22, data released by lenders reveal the loan growth has been around 3-5 percent on a sequential basis. (Representative image)

As the economy revives post deadly second wave of COVID-19, backed by festive demand and season, banks have started seeing growth in their loan disbursals.

In the second quarter of FY22, data released by lenders reveal the loan growth has been around 3-5 percent on a sequential basis.

Back to Normal (Q4FY21)

India’s largest private sector bank, HDFC Bank, saw a 4.4 percent sequential growth in its loans and advances. Its outstanding advances were at Rs 11,98,500 crore in the September quarter as compared to Rs 11,47,700 crore in the June quarter of FY22.

South-based lender, Federal Bank reported a 3 percent growth in its advances. Its gross advances touched Rs 1,37,309 crore in the September quarter as compared to Rs 1,32,787 crore in the June quarter of FY 22.

Close

IndusInd Bank posted a growth of 5 percent on a sequential basis. The Hinduja-owned bank’s net advances were at Rs 2,21,821 crore as compared to Rs 2,10,727 crore in the June quarter.

IDFC First Bank too saw a 3.03 percent growth in its advances. Its advances as of September quarter stood at Rs 1,17,243 crore as compared Rs 1,13,794 crore in June quarter.

YES Bank reported the highest growth in advances at 5.7 percent at Rs 1,72,945 crore in the September quarter as compared to Rs 1,63,654 crore in September quarter.

Momentum to continue

The loan growth is back to the Q4FY21 level and probably the sequential momentum will continue to improve in the third quarter, Jyoti Roy, an analyst at Angel Broking said.

Elara Capital in a note said it expects loan growth of 3.7 percent for private banks whereas 0.7 percent for state banks, on a sequential basis, and expects net interest margins to remain stable for most banks.

There’s hardly system-wide growth but the current numbers are encouraging and comforting in aiding the recovery, said Nitin Aggarwal, VP – Research, Institutional Equities, Motilal Oswal Financial Services.

The momentum is expected to continue on a sequential basis, Aggarwal added.

Asset Quality & Slippages

Analysts said most banks in Q1FY22 had recognised the stress emerging from second wave impact and slippages could decline sequentially.

For public sector banks, slippages could remain elevated on account of SREI but recovery from DHFL could offset it.

Asset quality will remain elevated due to the COVID-19 second wave-related stress but the second half will be much better, Aggarwal said. Provisioning trends will gradually subside for all banks from current levels on an average basis.

Roy of Angel Broking said it is important to see the sequential improvement in asset quality of banks, as provisioning costs have been high in the past.

If the provisioning costs go down, the RoE, RoA will increase and so will the profitability of these banks, Roy added.

Core Fee Income To Boost

Banks’ core fee income would probably rise in the September quarter as higher disbursements lead to an addition in processing fees and high card fees due to high payment transactions, YES Securities said in a note.

Bank with sizeable third party distribution on the retail side and banks which are leveraged to card fees would see a rise in their core fee income, it added.

Similarly, Elara Capital said the bank’s fee growth on a sequential basis will rebound from the lows of Q1FY22 due to the COVID impact.
Ishan Shah
first published: Oct 13, 2021 07:42 pm

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