Tag: Bank credit growth

Market competition, lower credit offtake push banks to pursue credit growth at lower yields

Banking & Finance

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The country’s largest lender State Bank of India (SBI) saw its yield on domestic advances fall 71 basis points on a year-on-year basis in Q2FY22 to 7.51%.

By Piyush Shukla

Yields on advances by banks have fallen between 54-166 basis points (bps) in the September quarter (Q2FY22) compared to the same period last year, due to interest rate competition from capital markets and lower credit offtake.

The country’s largest lender State Bank of India (SBI) saw its yield on domestic advances fall 71 basis points on a year-on-year basis in Q2FY22 to 7.51%. Its total domestic advances, as on September end, rose 4.6% year on year to Rs 21.56 lakh crore. ICICI Bank, on the other hand, saw its yield on advances fall to 8.34% in Q2FY22 from 8.88% a year ago. The private lender’s total loan book, as on September end stood at Rs 7.65 lakh crore, up 17.2% on year.

“Credit offtake in the system remains weak at around 6%-6.5%. On the capital markets side, the borrowing rates are very fine so some part of the borrowing is moving toward the capital market and thus banks are also passing on the benefit of lower cost of funds to borrowers and which is why you see the yield coming down,” said Karan Gupta, director – financial institutions, India Ratings and Research.

Gupta added that presently banks are not witnessing a significant impact on their net interest margins (NIMs) despite lower yields because of lower cost of funds.
For SBI, the cost of deposit has fell from 4.35% in Q2FY21 to 3.84% as on September end. Similarly, private sector banks including ICICI Bank and IDBI Bank saw their cost of deposits fall to 3.53% and 3.66% in Q2FY22 from 4.22% and 4.53% a year ago, respectively. But while not visible yet, NIMs may be impacted going ahead due to any significant increase in concerns on asset quality deterioration resulting in interest income reversals, Gupta said. In July-September, Bank of Baroda’s global NIM fell 19-bps quarter-on-quarter to 2.85% due to interest income reversal pertaining to a non-banking finance company account, as per an Edelweiss Securities report.

“…If we were to look at the net of one offs, including interest reversals on account where there was a stay, our net interest margins would be broadly unchanged between last quarter and this quarter,” said Sanjiv Chadha, MD and CEO at Bank of Baroda in a post earnings analyst call.

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Bank credit to grow at 7.5- 8.0 per cent for FY’22: CARE Ratings

Banking & Finance

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The outlook for bank credit growth is expected to be in the range of 7.5 per cent to 8.0 per cent for FY22 on the back of a low base effect, economic expansion, extended Emergency Credit (ECLGS) support, and retail credit push, according to CARE Ratings.

On a year-on-year (y-o-y) basis, non-food bank credit growth stood at 4.9 per cent in March 2021 as compared to 6.7 per cent in March 2020, per Reserve Bank of India data.

“The medium-term prospects look promising with diminished corporate stress and increased provisioning levels across banks. Retail loan segment is expected to do well as compared with industry and service segments,” the credit rating agency said in a report.

Q2 disbursements by some banks rise but overall loan growth muted

The agency assessed that y-o-y bank credit growth rate increased by 160 basis points (bps) to 6.7 per cent (fortnight ended September 24, 2021) from the year ago level of 5.1 per cent (fortnight ended September 25, 2020) and remained stable when compared with the previous fortnight.

“The y-o-y increase reflects the low base effect and the easing of lockdown restrictions across regions in India.

“In absolute terms, credit offtake increased by ₹ 6.8 lakh crore over the last twelve months and by ₹ 0.5 lakh crore as compared with the previous fortnight,” the report said.

Festive season credit pick up

The agency expects bank credit to improve further in the coming fortnights led by growth in the retail segment in the wake of onset of the festive season and rate cuts.

“This rise is expected to be supported by rate cuts by banks to push retail credit as several banks are offering loans at record low-interest rate ahead of the festive season,” the credit rating agency said in a report.

For example, in September 2021, banks like Kotak Mahindra Bank and Punjab & Sind Bank cut 1-year MCLR/ marginal cost of funds based lending rate (on m-o-m basis) by 5 basis points (bps) each, respectively.

Also, to attract borrowers several banks have slashed the home loan interest rates as a special offer in the festive season — for example, State Bank of India, Bank of Baroda and Kotak Mahindra Bank have reduced their home loan rates by 45 bps, 25 bps, and 15 bps, respectively, the report said.

Similarly, foreign banks have also started to pitch for home loans at lower interest rates. HSBC India reduced home loan interest rates by 10 bps to 6.45 per cent.

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Finance minister, BFSI News, ET BFSI

Personal Finance

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MUMBAI: Union finance minister Nirmala Sitharaman on Wednesday said it is too early to say if there is a lack of demand for credit and announced a district-wise outreach to be undertaken by banks to help credit growth from October.

A push to credit growth from such outreach efforts will also help the momentum set by the stimulus packages, which have been extended by the government since the onset of the pandemic.

It can be noted that in late 2019, banks had conducted the “loan melas” in 400 districts to push up sagging credit growth. Even now, the credit growth is stuttering at around 6 per cent.

“I think it is too early to conclude whether there is a lack of demand… I don’t think it is time yet to conclude that there is no credit pick-up. Even without awaiting indications, we have taken steps to ramp up credit,” Sitharaman told reporters here.

She noted that over Rs 4.94 lakh crore was disbursed by the banks between October 2019 and March 2021 through the outreach initiatives undertaken by them.

“This year too sometime in October, there will be a credit outreach in every district of the country,” she said.

Sitharaman added that the government had announced that credit up to Rs 1.5 lakh will be given to borrowers through NBFC-MFIs.

“In order to keep up the momentum of stimulus that we are periodically giving, we have also asked banks to go out and give credit,” she said.

Meanwhile, Sitharaman said there is a need to ramp up credit growth in the eastern pockets of the country in states like Jharkhand, West Bengal, and Odisha, where the populations are displaying a higher propensity to deposit money in current and savings accounts.

Banks have also been asked to create state-wise plans for northeastern states to help the logistics sector and exporters.

Apart from that, Sitharaman, who took a review meeting with the chiefs of all the 12 state-run lenders, said banks have been asked to reach out to exporters at the district level to help push the “one district, one export” message of Prime Minister Narendra Modi.

Besides, the finance minister said banks have also been asked to look into the demands of the fintech sector.



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Bank credit growth declines to 5.6 per cent in March

Banking & Finance

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Bank credit growth decelerated to 5.6 per cent in March 2021 from 6.4 per cent a year ago, the Reserve Bank said on Friday.

On the other hand, aggregate deposits growth accelerated to 12.3 per cent in March 2021 from 9.5 per cent in the same month of the previous year.

Lower growth in credit vis-a-vis deposits led to decline in the all-India credit-deposit (C-D) ratio to 71.5 per cent in March 2021 from 76 per cent a year ago.

Bank credit grows 5.33%; deposits rise 10.94%

Combined credit by bank branches in top six centres (Greater Mumbai, Delhi, Bengaluru, Chennai, Hyderabad and Kolkata) declined marginally during 2020-21. These six centres together accounted for over 46 per cent of total bank credit.

“Bank branches in urban, semi-urban and rural areas, on the other hand, recorded 9.4 per cent, 14.3 per cent and 14.5 per cent credit growth, respectively, during the year,” the RBI said while releasing the ‘Quarterly Statistics on Deposits and Credit of SCBs: March 2021’.

Public sector and private sector banks recorded 3.6 per cent and 9.1 per cent credit growth, respectively, whereas lending by foreign banks declined during 2020-21.

Metropolitan branches, which account for over half of total deposits, recorded nearly 15 per cent growth during 2020-21.

The share of current account and savings account (CASA) deposits in total deposits increased to 44.1 per cent in March 2021 from 42.1 per cent a year ago.

“The share of private sector banks in total deposits and credit by SCBs (Scheduled Commercial Banks) increased during 2020-21 at the cost of public sector banks,” it said.

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CARE report, BFSI News, ET BFSI

Banking & Finance

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The rise in retail loans and a slight uptick in corporate borrowings pushed up the bank credit growth marginally during the fortnight ending December 18, though the deposit growth remained flat, CARE Ratings said in a report.

However, as compared to the year-ago period, the credit growth remained low, reflecting subdued demand and risk aversion in the banking system — especially towards the corporate segment. The credit growth on a year-to-year basis worked out to be 7.1 per cent.

The bank credit growth during the reporting fortnight ending December 18, 2020, is being supported by disbursements under the Emergency Credit Line Guarantee Scheme (ECLGS), which has been extended further till March 31, 2020, as per the CARE report.

“The bank credit growth increased marginally compared to last fortnight which can be ascribed to an increase in retail loans along with a marginal uptick in corporate loans,” the report said.

Deposit growth remained flat at 11.3 per cent (as of December 18, 2020) compared to the previous fortnight and increased on a year-on-year basis (10.1 per cent as of December 20, 2019), it added.

“Whereas, in value terms, the bank deposits have declined compared with previous fortnight (decreased by around Rs 1 lakh crore). This similar trend has been observed in the last few years wherein deposits (value) declined during the last fortnight of December,” the report said.

Moreover, as on December 18, 2020, the liquidity surplus in the banking system stood at Rs 4.6 lakh crore. The liquidity surplus can be ascribed to deposit growth outpacing credit growth persistently, CARE Ratings said.

The report further said the credit to deposit (CD) ratio increased marginally over the preceding fortnight but remained low against March 2020 and last year’s level, owing to slower growth in credit.



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High spreads still shows reluctance to lend by banks

Banking & Finance

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While the overall lending rates have declined when we look at the headline rates, the transmission is probably slower when we look at various products or risk segments.

Pace of change slowing down. As per RBI’s latest release, the rate of decline in fresh lending and deposit rates has started to slow down. However, the spread between average lending rate on outstanding and fresh loans stayed around ~110 bps. The headline yield movement suggests spreads are holding up but further expansion looks unlikely. High spreads do not augur well as it still shows reluctance to lend, in our view.

As per the latest data from RBI, TD rates were flat m-o-m at ~5.6% (down ~100 bps y-o-y). Weighted average TD rates were flat m-o-m for both private and PSU banks. Private and PSU banks have reduced their TD rates by ~110 bps and ~90 bps respectively over the past twelve months.

TD rates had been on an upward trend from December 2017 to February 2019, increasing ~40 bps to 6.9%, post which TD rates had been flattish for a few months and started to decline (down ~120 bps since June 2019). Wholesale deposit cost (as measured by CD rates) has seen a much sharper decline of ~320 bps in FY2020 followed by a further decline of ~180 bps in YTD FY2021.

The weighted average TD rate is broadly similar to the TD rate (1-2 year tenor) offered by most banks today; slightly lower than rates offered by SFBs. We have started to see banks, especially private banks, cutting headline TD rates in the past few quarters. The gap between repo and 1-year TD rate for SBI has been flat ~90 bps after declining from peak levels of ~130 bps.

Lending rates on fresh loans were down ~5 bps m-o-m to ~8.3% in November 2020. Fresh lending rates have been range-bound over the past few months after declining from the peak level of ~10% seen in January 2019. Private sector banks saw a decline of ~10 bps m-o-m to ~8.9%, while PSU banks showed a ~10 bps decline. The gap between fresh lending rates of private and PSU banks now stands around the ~100 bps average level seen over the past twelve months.

Lending rates on outstanding loans were marginally down m-o-m to ~9.4% in November 2020, having declined ~80 bps since November 2019. Banks have been cutting their MCLR rates over the past few months. Private banks and PSU banks have cut their MCLR by an average of ~90-100 bps in the past 12 months.

The gap between outstanding and fresh lending rates has been in the range of 110-140 bps for the past nine months. The gap had been increasing before that led by a steady decline in fresh lending rates. Steep decline in bond market rates till July 2020 led to a narrowing of the spread between bank funding and bond rates.
While the overall lending rates have declined when we look at the headline rates, the transmission is probably slower when we look at various products or risk segments.

In a relatively low growth and heightened risk environment, especially after Covid, we note that the spreads have continued to remain high. The spread over G-Sec with deposits and loan rates has widened implying banks are seeing lower spreads on investments and better spreads on loan yields. While we are witnessing some positive trends on recovery in loan enquiries, we still believe that there is still some time before it reflects in loan growth.

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