Quarterly provisional business figures released by a few private banks indicate that smaller private lenders are able to attract fresh deposit inflow while credit demand from new borrowers continues to remain largely low. There is an attempt to strengthen the portfolio of cheaper deposits. Overall, the numbers look good.
Take the case of Yes Bank, which is rebuilding its business after last year’s bail-out. The lender on January 4 said that its total loans grew by 1.3 percent in the December quarter to Rs 1,69,050 crore from Rs 166923 crore in the September quarter. Gross retail disbursements in the quarter stood at Rs 7,563 crore, up 109 percent compared with Rs 3,764 crore in the September quarter.
The credit-to-deposit ratio in the December quarter stood at 115.6 percent as compared with 122.9 percent in the previous quarter. The liquidity coverage ratio, a key financial indicator, stood at 115.5 percent compared with 107.3 percent in the previous quarter.
As against this, Kerala-based CSB Bank managed a Q-o-Q loan growth of 5.2 percent while Karur Vysya logged a 9 percent growth over the quarter in loans. Kerala-based Federal Bank said it grew the loan book by 2.3 percent in the December quarter.
Yes Bank’s deposits, over a quarter-on-quarter basis, grew by 7.7 percent to Rs 1,46,233 crore from Rs 1,35,815 crore in the year-ago quarter. Further, certificate of deposits (CDs) grew by 1.9 percent to Rs 7,395 crore from Rs 7,259 crore in the preceding quarter.
As against this, Federal Bank, another Kerala-based lender, saw a deposit growth of 3.1 percent in the December quarter while CSB and Karur Vysya grew deposits by 1.6 percent each.
Cheaper CASA (current, savings account) deposits grew by 12.6 percent to Rs 37,973 crore from Rs 33713 crore over the quarter while the proportion of total CASA deposits to total deposits grew to 27.4 percent in the December quarter from Rs 26.2 percent in the previous quarter. CASA deposits of Federal Bank grew by 6 percent and that of CSB Bank and ING Vysya grew by 5 percent and 3.9 percent respectively. There is an increase in the share of CASA as a share of total deposits of all four banks which have posted an interim update.
What is the takeaway from these numbers? Despite the high risk aversion on the part of depositors after the Yes Bank fiasco last year, smaller private banks still manage to attract depositors, particularly, cheaper retail deposits. Growing CASA is key since this brings down the overall cost of funds. But, challenges persist on the loan growth as demand remains muted due to the overall economic slowdown and impact of COVID-19.
This was reflected in the RBI credit growth numbers as well. Bank credit grew by six percent on a year-on-year basis in November compared with 7.2 percent in the corresponding period in the previous year, the latest data from the Reserve Bank of India (RBI) showed.
“The SCBs continue to remain risk averse due to the pandemic-led uncertainty and due to asset quality concerns. In addition to this, though the interest rates of SCBs are falling (by 115bps from November 2019 to November 2020) we are not seeing a pickup in the incremental credit,” rating agency CARE said in a note on Monday.
Credit to industry contracted marginally by 0.7 percent in November 2020 as compared with 2.4 percent growth in November 2019, mainly due to contraction in credit to large industries by 1.8 percent in November, according to RBI data. However, credit to medium industries registered a robust growth of 20.9 percent in November vis-a-vis contraction of 2.4 percent a year ago.
What lies ahead?
It is too early to say that business recovery has happened. Much will depend on how the economic recovery shapes up; and the availability of COVID vaccines. The demand for loans is a direct function of economic activity on the ground. The good news is that even at a tough phase, smaller private banks have managed to come with a healthy set of numbers.
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