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With loan growth slower than before for private sector lenders, the performance of public sector banks is likely to be even worse. (Mint)
With loan growth slower than before for private sector lenders, the performance of public sector banks is likely to be even worse. (Mint)

Two pvt lenders show loan growth is a tough battle, deposits come easy

A persistent large divide between the deposit and loan growth bites lenders on the margin front

The economy may be progressively unlocking, but India’s private sector banks are yet to see a quick recovery in their lending business.

Updates by two private sector lenders indicate that loan growth is yet to be out of the woods. IndusInd Bank Ltd, in a performance update on the exchanges, said its loan book grew by a mere 2% in the September quarter, unchanged from the June quarter. The country’s most valuable lender, HDFC Bank Ltd reported a 16% loan growth in the September quarter, down from 21% in the previous quarter. Recall that the June quarter was largely under lockdown with little to no economic activity.

The fact that loan growth has been weak despite swathes of the economy opening up is a worry, but more or less expected. As such, economists have warned that loan growth is likely to be tepid this year. This column, too, said so on 31 August.

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The slowdown is likely to be led by a deceleration in both retail and corporate loans. Different lenders are likely to see different degrees of slowdown in their retail books. On an aggregate level, data from the regulator showed that loans to industry did not grow much in August, while those to services grew by 9%. Retail loans grew by 11%, the data showed. This reflects, to some extent, on both the private banks’ metrics.

Slow growth in corporate, microfinance and commercial vehicle loans is said to be behind IndusInd Bank’s loan growth, according to Jefferies India Pvt. Ltd analysts. The outlook for IndusInd Bank on loan growth is not entirely certain. “Overall, we expect loan growth to remain moderate, led by a weak environment amid the current challenges," wrote Motilal Oswal Financial Services Ltd analysts in a note.

HDFC Bank had reported a massive 37% growth in corporate loans in the June quarter. While Jefferies analysts said retail loans could be behind the slower growth for the September quarter, those from Emkay Global Financial Services Ltd noted that the bank’s growth may trump the rest of the industry.

With loan growth slower than before for private sector lenders, the performance of public sector banks is likely to be even worse. Public sector banks have been ceding their share in the loan market to private sector banks for long now.

Even as lenders see normalcy returning, banks have been garnering deposits by the droves. In fact, HDFC Bank reported a 29% jump in its low-cost current account and savings account (CASA) deposits. IndusInd Bank, too, showed that deposit growth is improving. Safety amid crisis and a general increase in savings may be behind this strong deposit growth. But a persistent large gap between deposit and loan growth bites banks on margins. Margin compression and an uninspiring landscape for loan growth should weigh on investor sentiment in the coming months.

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