Indian banks to post strong growth numbers, well-placed to manage risks, say experts

Several private and public sector banks in their January-March 2023 quarter preview reported strong advances and deposit growth

With robust growth in advances and deposits, and improvement in the non-performing assets (NPAs), Indian banks are poised towards growth for the fiscal year (FY) 2023-24, experts said.

After the Silicon Valley Bank (SVB) crisis and the subsequent domino effect in Europe with the sale of Credit Suisse, experts said that risks coming out of the global banking crisis will not hit Indian banks as they are well placed to manage the risks.

“Deposit and lending rates have brought in growth for banks. We further expect that the asset quality alongside overall growth will improve for Indian banks,” said Saurabh Bhalerao, associate director, BFSI, Care Ratings.

Loan and deposit growth

Several private and public sector banks in their March 2023 quarter ending results preview showed robust loan and deposit growth.

Also read: HDFC Bank Q4 update: Advances up 16.9%, deposits 20.8%

The country’s largest private sector bank, HDFC Bank, showed a growth of 16.9 percent in advances and 20.8 percent in deposits from the year-ago period.

Bandhan Bank’s advances aggregated to around Rs 1.09 lakh crore as on March 31, 2023, marking a growth of around 9.8 percent from the corresponding quarter last year. The lender’s deposits stood at Rs 1.08 lakh crore at the end of the 2022-2023, 12.2 percent higher than Rs 96,311 crore as on March 31, 2022.

Among the public sector lenders, Bank of Maharashtra’s gross advances for the quarter ended March 31, 2023, were up nearly 30 percent to Rs 1.75 lakh crore, from Rs 1.35 lakh crore in the year-ago period. The lender’s total deposits for the March quarter stood at Rs 2.34 lakh crore, a rise of 15.7 percent year-on-year against Rs 2 lakh crore.

Bhalerao highlighted that in the advances side, overall, public sector banks (PSBs) will outperform private sector peers. “A few big private sector banks will surely produce stronger numbers than some PSBs,” Bhalerao added.

On the deposits side, Emkay Research said that the war for deposits will intensify further to match the credit growth.

Also read: Bank of Maharashtra Q4 update: Gross advances up 29.6% YoY; deposits rise 15.7%

“Deposit growth has picked up from the numbers recorded in November 2022. But a 10.3% year-on-year growth compared to a stronger credit growth is a lingering concern for the sector. We expect the war for deposits to intensify, as banks that have built a strong liability franchisee over the years will gain low-cost deposit market share,” Emkay Research said in a report.

Record-low NPA

NPAs of Indian banks have seen a record decline in the past few years. The Reserve Bank of India (RBI) in its Trend and Progress of Banking in India report for 2021-22 said that NPAs declined sequentially to 5 percent as of September 2022 from 9 percent in 2017-18, mainly due to lower slippages, strong recoveries and write-offs.

Earlier in March 2023, minister of state for finance Bhagwat Karad in the Lok Sabha said that the asset quality of PSBs has improved significantly with the gross NPA ratio declining from a peak of 14.6 percent in March 2018 to 5.53 percent in December 2022.

“Major banking reforms undertaken by the government over the last eight years addressed credit discipline, responsible lending and improved governance, besides adoption of technology, amalgamation of banks, and maintaining general confidence of bankers,” Karad said.

Experts said that banks will continue to improve their asset quality with no major danger from fresh slippages.

“We will see banks improving asset quality in the March 2023 quarter and further in the April-June 2023 quarter. The Covid-19 effect is waning now and. hence, the chances for fresh slippages will not be major,” said Jindal Haria, associate director, India Ratings and Research.

Going ahead, India Ratings in a report in March said that the gross NPA ratio of banks is expected to improve to 3.3 percent in the current fiscal year from 4.2 percent in FY23.

“Private banks’ gross NPA ratio is seen improving to 2 percent in FY24 from 2.5 percent in FY23, and public sector banks’ improving to 4.1 percent from 5.2 percent. This incorporates the effect of the GNPA write-off trend that the banking system is witnessing,” the ratings agency said.

How will banks manage global risks?

The fall of SVB and Signature Bank in the US and the sale of Credit Suisse, a major global bank, led to a global banking crisis. But this, experts said, will not affect Indian banks.

Also read: MC Interview | No impact from global banking crises in India, says UCO Bank MD & CEO Soma Sankara Prasad

In an exclusive interview with Moneycontrol, the managing director and chief executive officer of UCO Bank, Soma Sankara Prasad, said that Indian banks are largely insulated as they mostly depend on retail deposits.

“I don't think there’s any impact from recent banking crises globally as Indian banks depend to the extent of 90 to 95 percent on retail deposits. These are all small depositors spread all over the country,” said Prasad.

Haria also highlighted that there are no major issues with Indian banks compared to their global counterparts. “There are no major global headwinds affecting Indian banks due to the global crisis,” said Haria.