The slowdown in loan growth was largely due to a tepid rise of 7.5% in retail loans over last year, possibly due to conscious moderation in vehicle finance and commercial vehicle book plus a prolonged suspension in new card business acquisition. The silver lining was wholesale loans which though slowed sequentially grew at 21% year-on-year owing to bank’s focus on capturing market share in better rated corporates.
“We believe that HDFC Bank’s business momentum has moderated a bit in Q4,” said Anand Dama, senior research analyst, Emkay Global Financial Services. “On the asset quality front, we believe agriculture and CV portfolios could show some stress, but overall NPA ratios should remain range bound. In our view, the restriction imposed by the RBI on the bank’s credit card business is likely to remain an overhang on the stock as any relief in form of the early lifting of the suspension could be delayed in the wake of recent tech outages.”
In December the RBI imposed business sanctions on the lender barring it from onboarding new card customers and launching new digital products after it faced two significant digital outages in a year.
The bank has changed strategy to offset lower retail lending growth in the first nine months of the last fiscal year through higher corporate loan growth, which grew at an average of 30% year-on-year.
“Lower corporate loan growth (21% at the end of it March 2021) could be due to base-effect, pre-payments, or a competitive market for higher-rated corporate loans,” said Gautam Chhugani, director – financial at Bernstein research. “The market has been pricing in normalised FY22 loan growth and provisioning for the bank. We don’t expect major surprises on asset quality. However, sustained lockdowns could delay the loan growth recovery in retail loans – something we would watch out for.”
Another private lender IndusInd Bank too released business updates with loan growth slowing significantly with a 3% growth over March last year. Though deposits grew at a healthy pace of 27% albeit on a low base. It’s peer lender Yes Bank too reported tepid loan growth numbers with a 0.8% rise in advances over last year. It more than doubled its retail disbursements over March quarter last year when it had faced a moratorium from the Reserve Bank of India. It’s deposits grew at 54.7% bulk of which came from current and savings accounts. Private lender Federal Bank also reported a 9% growth in its advances over same period last year while deposits grew 13%.
Banks are expected to report tepid loan growth numbers, with system loan growth at 6.5% for the fortnight ended March 12, remains weak due to low credit demand. Deposit growth at over 12% continues to outpace credit. Moreover risk aversion in the banking system is evident with almost Rs 5.4 lakh crore of excess liquidity parked in the reverse repo window in the month of March.
“We don’t expect any big bang credit expansion next year, our estimate for FY22 suggests that perhaps at best you could see around 10% loan growth,” said Suresh Ganapathy, associate director at financial services firm Macquarie Capital. “Banks are still cautious doing unsecured loans business, personal loans and credit card loan growth is still well below pre-covid levels. Also, capex demand which is very essential driver for credit growth will take time to recover.”