Tag: credit demand

Lenders expect pick up in credit demand in H2FY22

Banking & Finance

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Most lenders are hopeful of improved customer sentiments and higher disbursements in the second half of the fiscal with a drop in Covid-19 infections and normalisation of economic activities.

Second-quarter results of private banks and non banking finance companies indicated improved sentiments and higher disbursements. Most lenders said they expect a pick-up in corporate loans as well in the second half of the fiscal.

“Most private banks demonstrated a steady recovery in loan growth, led by the retail, SME and business banking portfolios. Most banks also reported a decline in gross and net non-performing assets ratio due to higher recoveries/upgrades during the quarter,” said a report by Motilal Oswal.

In the second quarter of the fiscal, all NBFCs exhibited a sharp improvement in disbursements which had been impacted by the second Covid wave in the prior quarter, it further said.

HDFC Bank reported a 15.5 per cent increase in its total advances as of September 30, 2021 to ₹11,98,837 crore from a year ago while ICICI Bank reported 17 per cent growth in advances on a year-on-year basis.

“Festive season demand is much higher than what we saw last fiscal. Further, typically the second half of the year is busier in terms of disbursements. We expect that with the economy opening up and hopefully no third wave, loan demand should pick up further, especially in the fourth quarter of the fiscal,” explained a senior bank executive.

NBFC performance

Mahindra & Mahindra Financial Services reported that in October 2021, the business continued its momentum with disbursement of about ₹2,650 crore, which is a 20 per cent y-o-y growth.

“In the absence of a third wave, (we are) quite confident about the second half of the year on growth, risk and financial metrics,” Bajaj Finance said in its investor presentation for the second quarter of the fiscal, adding that under such circumstances, it expects quarterly AUM growth rate to be strong for the rest of the year.

Bajaj Finance had reported a 75 per cent jump in new loans booked during the second quarter at 63.3 lakh from 36.2 lakh in the second quarter last fiscal.

Credit growth has seen some pick-up in recent weeks. Data with the Reserve Bank of India shows that on a y-o-y basis, non-food bank credit growth accelerated to 6.8 per cent in September 2021 as compared to 5.1 per cent in September 2020.

Credit growth to industry picked-up to 2.5 per cent in September 2021 from 0.4 per cent in September 2020. Credit growth to the services sector decelerated to 0.8 per cent in September 2021 from 9.2 per cent in September 2020, mainly due to contraction in credit growth to NBFCs, trade and commercial real estate. However personal loans grew by 12.1 per cent in September 2021 as compared to 8.4 per cent a year ago.

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Bank, NBFCs report spurt in Q2 advances as lending recovery picks up, BFSI News, ET BFSI

Banking & Finance

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Most banks and non-banking finance companies reported a jump in disbursal of advances in the quarter ended September in a sign that credit uptake is rising.

HDFC Bank saw its advances book grow by around 15.4% year on year at the end of the September quarter, proforma numbers released by the private sector lender showed. Its total loans aggregated to Rs 11.98 lakh crore at the end of September, up 4.4% sequentially. Its total loans were at Rs 10.38 lakh crore at the end of September 2020.

As per the bank’s internal business classification, retail loans during the September quarter grew by around 13% year on year and 5.5% over June quarter. Commercial and rural banking loans grew by around 27.5% y-o-y while other wholesale loans grew by around 6%.

Mortgage lender HDFC assigned loans amounting to Rs 7,132 crore at the end of the September quarter versus Rs 3,026 crore a year earlier. It sold loans

worth Rs 27,199 crore in the preceding 12 months versus Rs 14,138 crore in the previous year, regulatory filings show.

Private sector lender

IndusInd Bank

IndusInd Bank reported better-than-expected credit growth of 10% with total loans at Rs 2.2 lakh crore at the end of the September quarter, preliminary numbers filed with stock exchanges showed.

IDFC First Bank posted 9.75% growth in advances at Rs 1,17,243 crore for the second quarter ended September.

Private lender Yes Bank posted a 3.6% rise in its advances to Rs 1.72 lakh crore, though retail disbursements grew at a faster rate and grew by 126.6% over last

year to Rs 8531 crore at the end of the September quarter as against Rs 3764 crore a year ago.

NBFCs

Leading non-bank lender Bajaj Finance reported it had booked 6.3 million new loans at the end of the September quarter versus 3.6 million a year ago. It’s

assets under management (AUM) stood at Rs 1.66 lakh crore for the quarter under review as against Rs 1.37 lakh crore a year earlier.

Non-bank lender Mahindra & Mahindra Financial Services posted a 60% year-on-year growth in disbursements at Rs 6,450 crore at the end of the September

quarter. With further improvement in mobility during September, the collection efficiency for the NBFC was reported at 100% for September 2021.

Subject to improvement in auto supply chain, the company is hopeful of a good Q3 FY22 ahead, supported by festival season and harvest cash flow.” M&M Finance said.

AU Small Finance Bank

AU Small Finance Bank Ltd’s total deposits were up 45% on year at Rs 39,030 crore as of September 30, according to provisional data from the bank. Gross advances rose 32% on year to Rs 36,405 crore. Of the total gross advances, the small finance bank restructured 800 accounts worth Rs 800 crore in July-September. Disbursements rose 57% on year and 171% on quarter to Rs 5135 crore. It also made disbursements worth 530 mln rupees under the Reserve Bank of India’s targeted long-term repo operations.

RBL Bank’s total deposits rose 17% on year as of Sep 30, according to provisional data from the bank. Deposits stood at 755.9 bln rupees, up 1% on quarter. The bank’s gross advances rose 1% on year to Rs 58,046 crore as on September 30. Of the gross advances, 55% comprised retail advances while the remaining 45% is in the wholesale category.



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Bank FD rates set to rise as inflation, recovery take hold, BFSI News, ET BFSI

Banking & Finance

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Banks and non-banking finance companies have started increasing deposit rates across tenures, especially rates on longer-term FDs on likely recovery in credit demand and rising inflation.

The number of lenders offering higher rates may go up over the next few months.

HDFC, Bajaj Capital

Mortgage lender HDFC has increased rates on fixed deposits maturing between 33 and 99 months by 10-25 basis points for the first time in 29 months. HDFC said from March 30, fixed deposits of 33-month duration will fetch 6.2% annualised returns while fixed deposits with 66-month maturity will now fetch 6.6% interest rate and the 99-month deposits will receive 6.65% interest rate. Further, senior citizens would get 0.25% more on the above-mentioned rates. Worth mentioning here is that this is the first time after October 2018 that HDFC Ltd has raised deposit rates. In February, Bajaj Finance, another top-rated lender had raised interest rates on fixed deposits by 40 basis points. Fixed deposits from Bajaj Finance with tenures of three to five years earn 7%.

Negative rate prospects

The finance ministry gave a scare of a rate cut on small savings schemes as such a move would have put pressure on reduction in bank deposit rates.

With inflation above 5%, deposit rates are already threatening to veer into negative territory, any rate cut would be a double whammy for depositors.

Retail depositors have struggled during the pandemic to maintain their earnings and also ensure inflation doesn’t erode their savings.

If inflation continues to rise, banks will have to offer higher deposit rates to investors, who in sight of negative returns, may shift their money elsewhere.

Rates kept down

In 2020, due to the pandemic, the Reserve Bank of India’s (RBI) adopted an accommodative stance with measures to keep the policy rates down throughout the year. It also announced measures to infuse liquidity in the banking system to be able to provide affordable financing and hence, support economic growth. Extra liquidity also kept interest rates down. The credit offtake was low as banks adopted a cautious stance towards lending across all sectors of the economy, which led to lower rates.

Growth this year

However, the banking system’s credit growth will almost double to 10 per cent in 2021-22 on the economic recovery and policy interventions.

The economic growth pegged at 10.5% by RBI for FY21-22 and 12% by foreign rating agencies. From a banks’ credit growth perspective, the agency said the expansion will accelerate by 4-5 percentage points to 9-10 per cent in 2021-22.

The faster credit growth will be led by retail loans, which are expected to grow in mid-teens, while corporate loans, which de-grew during 2020-21, are also likely to show a 5-6 per cent jump. This is expected to be driven by investment demand from infrastructure and real estate sectors as well as the release of pent-up consumer demand, thus resulting in high growth in retail finance.

The growth and demand for credit is likely to push up fixed deposit rates in the next 3-9 months.

RBI measures

Contrary to its accommodative stance, RBI has already reduced its liquidity support to the market with no additional liquidity measures announced in the latest monetary policy review in February 2021. It has withdrawn the 1% Cash Reserve Ratio relaxation for banks and now the CRR must be brought up to 4% in two tranches. A hike in CRR will lead to a reduction in liquidity available with banks which may force them to look out for more funds from retail depositors to meet their credit demand, thus adding another factor that can result in higher deposit rates.



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Marginal impact of SC verdict on moratorium on earnings

Banking & Finance

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With banks gearing up to close the financial year and announce results for the fourth quarter and full fiscal 2020-21 in the coming weeks, analysts and experts believe that the Supreme Court verdict on loan moratorium will have marginal impact in terms of their earnings. It is expected that most lenders are likely to move into expansion mode now thanks to signs of economic recovery and improved credit demand.

“Our analysis indicates the earnings impact of the residual exposure is not very material,” said Edelweiss Research in a recent report.

Also read: Loan moratorium: SC orders full waiver of interest on interest

It has worked out three scenarios of such loans being 15 per cent, 20 per cent and 25 per cent of the moratorium books of its coverage banks. “The impact of a hit from loss of interest on interest for this moratorium period will, at most, result in a few basis points dent to the annual net interest margin, even if incremental costs are entirely borne by the banks and with no further government contribution,” it said.

Private sector lenders are set to announce their fourth quarter results in the coming weeks in April followed by public sector banks. HDFC Bank is scheduled to announce its results for the quarter ended March 31, 2021 and the fiscal year 2020-21 on April 17 while ICICI Bank will announce it on April 24.

A report by Axis Securities said it is not yet clear whether this incremental hit will be absorbed by the government or passed on to the banks.

“Even so, it will be a one-time hit and not have a material impact as it only pertains to interest on interest for five months period only. We expect that with NPA standstill withdrawn, banks will report actual NPAs in the fourth quarter of 2020-21 instead of reporting proforma NPAs, which could lead to some margin compression,” it said, adding that with better clarity on asset quality, banks with excess provisions such as ICICI Bank could result in some provision write-backs.

“On overall basis, we remain positive on banks due to improving macro-economic recovery feeding into better credit growth and limited asset quality disruption,” said Emkay Financial Services in a recent note.

Improved credit demand

Bankers have also been talking about increased credit demand in recent months.

CARE Ratings noted bank credit growth has stood largely stable compared to the last fortnight and returned to the levels observed in the early months of the pandemic (the bank credit growth ranged between 6.1 per cent to 7 per cent during March and February 2020).

“The credit growth stood at an almost similar level during the last two fortnights at 6.6 per cent and 6.5 per cent, marginally higher compared with last year’s level of around 6.1 per cent, as economic activities gather pace,” it said.

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