Personal loans expected to support bank lending growth in Q3, asset quality expected to improve

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However, the rapidly spreading Omicron variant of Covid-19 poses a threat to banks’ outlook for credit growth and asset quality in the January-March quarter (Q4)

By Piyush Shukla

Banks are likely to report a gradual increase in loan growth in the December 2021 quarter, driven by demand for retail loans, analysts say. They say the asset quality of lenders is likely to remain stable in the absence of significant corporate slippages during the quarter. However, the rapidly spreading Omicron variant of Covid-19 poses a threat to banks’ prospects for credit growth and asset quality in the January-March quarter (Q4).

Kotak Institutional Equities Research said it expects the recovery in lending growth for the sector to be gradual. As retail credit grows, the self-employed segment will need time to learn about leverage, while mortgages are expected to account for a significant portion of additional retail credit and tied credit. consumption is expected to grow faster. Although bankers are talking about new project proposals from Indian companies, business loans will take some time to increase significantly, he added.

“It should be a good quarter (for credit growth) due to holiday demand and the fact that new cases only started to increase from the last week of December. The Reserve Bank of India (RBI) sector credit deployment data also suggests that the credit draw numbers are good, ”said Karan Gupta, director of financial institution at India Ratings and Research.

Motilal Oswal, in a note on the results, said the retail and small and medium-sized enterprises (SMEs) segment is expected to show a strong recovery, although growth in the business segment will remain weak. Brokerage expects ICICI Bank to show 15% year-on-year loan growth in Q3, Kotak Mahindra Bank to grow 17%, Axis Bank advances to increase 11%, and HDFC Bank and IndusInd Bank recorded 15.7% and 11% increase in total advances for the quarter ended in December, respectively. “… We forecast NII (net interest income) growth of 14% year-on-year, with ICICI Bank at 23%, HDFC Bank at 14%, IndusInd Bank at 12% and Kotak Mahindra Bank and Axis Bank at 10% each, ”he said. .

Growth in deposits is expected to outpace that of credit, as the share of low-cost current and savings accounts is likely to improve for most players in the current low interest rate environment. “There won’t be much change in the margins as some banks have made deposit rate hikes, but towards the end of the quarter the impact of the same on the net interest margin (NIM) would be. minimal, ”said Karan Gupta.

On the asset quality side, slippages and the cost of credit are likely to see a sequential improvement in October-December, although analysts will be examining management’s comments on the performance of advances made under the line guarantee program. emergency credit and monitor trends in banks’ restructured microfinance portfolios.
KIE said retail books will be the main driver of slippages in the quarter under review, and corporate credit quality appears to have improved as rating agency revaluations significantly outpaced downgrades over the course of the year. the last few months.

“Asset quality numbers are expected to improve sequentially due to the general trend of improving economic activity and collections from borrowers. The cost of credit may however increase on a sequential basis in the absence of significant recoveries as seen in Q2 (July-September) from DHFL (Dewan Housing). We will monitor banks’ progress on portfolio performance of delinquent loans and restructured loans, as they remain the main risk to asset quality and earnings, ”said Anil Gupta, vice president of financial sector ratings at ICRA.

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