The retail segment is likely to be the main driver: bankers see continued credit growth momentum
As credit growth picks up, top bankers are optimistic the momentum will continue in the coming quarters as the economy opens up. Offshoots of corporate loan growth were visible, but retail and MSMEs remained the drivers of loan growth over the past fiscal year.
While the increase in total advances for public sector banks was 7.2% in FY22, the growth rate for private banks was nearly 16%, according to data compiled by Capitaline. “The recovery in economic activity, the derived effect of increased investment and consumer spending, may sustain momentum of over 12% growth in FY22-FY25,” ICICI Securities said in a report.
For SBI, the retail segment was the key driver of loan growth, according to ICICI Securities. SBI’s personal loans grew 15%. A majority of these loans consisted of home loans, which increased by 11.5% year-on-year. Chairman Dinesh Khara expects the current loan growth momentum to continue in both the retail and corporate portfolios.
HDFC Bank expects the demand for credit to remain strong. According to Kotak Institutional Equities Research, the lender should see loan growth of 15-16% over the medium term. The bank’s creditworthiness is supported by the retail and commercial segments. The bank’s personal loans have faced significant headwinds since the outbreak of Covid, but brokers expect the hurdles will ease as the impact of the pandemic wears off.
To spur loan growth, ICICI Bank is expanding its Insta-Biz platform for SME deals, Jefferies said in a report. The brokerage firm expects this segment to grow at a CAGR of 25% between FY22 and FY24.
The Bank of Baroda’s loan growth momentum was 11.6% in Q4 FY22. Growth was driven by personal loans, including home equity, auto and gold loans. The bank has increased unsecured personal loans, but the base is quite small, Nomura Research said in a report. Management said it will keep its loan growth in line with the industry norm of 7-10% but wants to focus on segments like retail to protect margins.
Atul Kumar Goel, MD and CEO of Punjab National Bank, is optimistic that loan disbursement will improve in the current fiscal year. Management has issued a guidance of 10% loan growth in FY23 compared to 6.2% loan growth in FY22.
Credit provision data released by the Reserve Bank of India for April suggests that retail credit will continue on the upward trend. Non-food loan growth increased at double-digit rates, but this is also due to a lower baseline in April 2021.
Despite a significant improvement in net earnings in Q4 FY22, pre-deployment lender earnings remained in the single digits.
ICICI Bank was the outlier on a weak rebound in operating profit. The lender posted core operating profit growth of 19% to Rs.10,293 crore. Lower provisions along with a sharp decline in borrowing costs supported profitability in the fourth quarter, Jefferies said.
As banks will have spare capital due to lower provisions, analysts expect momentum in loan growth to help propel operating profit growth.
HDFC Bank’s pre-provision profit rose 5.3% to Rs.16,357 crore in the fourth quarter. “We believe strong demand for retail credit will be key to sustaining earnings growth ahead of delivery to the banking system in the current environment,” Nomura Research said.
Noninterest earnings of the public sector banks in the pool suffered a notable 27% decline in the fourth quarter of FY22 on unfavorable movements in the government bond market. SBI’s Other Revenue fell nearly 27% to Rs 11,880 crore. G-Sec yields reacted sharply to policy measures that will adversely affect Treasury performance, and banks are likely to report 23 mark-to-market losses in the fiscal first quarter, Motilal Oswal said in a report.