Tag: kotak institutional equities

Private firms’ bank deposits log 26.5% growth during pandemic, households lag, BFSI News, ET BFSI

Banking & Finance

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In FY21, deposits from private sector companies grew by 26.5%, the biggest jump in nine years, even as the share of household bank deposits declined.

The share of private sector companies in total outstanding bank deposits increasing from 11.3% in FY20 to 12.7% in FY21, according to a report by Kotak Institutional Equities. The growth here has been faster than that of deposits from households, which grew by 12.9% during the year. The ratio of household (bank) deposits to GDP declined to 3 per cent in the third quarter from 7.7 per cent in July-September.

The data shows that the pandemic was not hard on private firms but households suffered.

“The slower growth in retail deposits and solid growth in the private corporate sector gives two opposing signals of the current economic condition. The private sector has accelerated deposit growth for the third consecutive year, giving further evidence that the impact of the pandemic was not negative,” the Kotak report noted.

Households hit

The first wave of Covid last year impacted households as their financial savings moderated to 8.2 per cent of GDP in the December quarter from 10.4 per cent in the previous three-month period, according to RBI data.

The preliminary estimate of household financial savings is placed at 8.2 per cent of GDP in October-December 2020-21, exhibiting a sequential moderation for the second consecutive quarter after having spiked in the pandemic-hit June quarter, RBI said in a release.

“The moderation was driven by a significant weakening in the flow of household financial assets, which more than offset the moderation in the flow of household financial liabilities,” it said.

Household debt to GDP

RBI further said household debt to GDP ratio, which is based on select financial instruments, has been increasing steadily since end-March 2019.

“It (household debt to GDP ratio) rose sharply to 37.9 per cent at end-December 2020 from 37.1 per cent at end-September 2020,” it said.

Despite higher borrowings from banks and housing finance companies, the flow in household financial liabilities was marginally lower in the third quarter following a marked decline in borrowings from non-banking financial companies.

As per the data, financial assets, including deposits, life insurance funds, provident and pension funds, currency, investments in mutual funds and equity, and small savings, stood at Rs 6,93,001.8 crore in the third quarter. It was at Rs 7,46,821.4 crore in July-September 2020-21.

Financial liabilities (loans) stood at Rs 2,48,418.7 crore in the third quarter. In the preceding quarter it was Rs 2,54,915.2 crore.



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Banks set to post weak revenue growth in Q3: Analysts

Personal Finance

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The margin trajectory will remain moderately under pressure, given the continued monetary easing, low lending rates and relatively higher liquidity on bank balance sheets.

Banks are likely to post weak revenue growth for the December quarter, analysts said, even as the loan growth improved and bad loan recognition remained paused. Conversations around asset quality, recognition, provisioning and the recovery cycle are likely to continue this quarter between banks and sector analysts.

Kotak Institutional Equities (KIE) on Wednesday said in a report that the overall revenue growth for banks could stand at around 6% year-on-year (YoY), while net interest income grows 10%. Weak loan growth will have a role to play. According to the latest available data, loan growth has been stuck between 5% and 7% YoY since the onset of Covid, compared to 8-10% a year ago. “While credit demand is recovering from post-lockdown lows along with approval rates and share of NTC (new-to-credit) originations, we expect loan growth recovery to be slower than expectations of market participants,” KIE analysts said. The current account savings account (CASA) ratio will be broadly stable or improving for most players in a low-interest rate environment.

The margin trajectory will remain moderately under pressure, given the continued monetary easing, low lending rates and relatively higher liquidity on bank balance sheets, said analysts from Motilal Oswal Financial Services. “Negative carry on NII on higher slippages could also impact margins. However, banks with a strong liability franchise are better placed to tackle margin pressure,” the brokerage said, adding that there could be a low single-digit impact on margins.

Sector experts will be closely parsing data on slippages and provisioning in the absence of regular non-performing asset (NPA) recognition. KIE said it will be looking at broadly three parts to the asset quality issue – the outstanding overdue book, including special mention accounts (SMA), 90+ days past due (DPD) and pipeline of fresh restructuring of loans; the commentary on provisions that is likely to be used and carried forward; and growth, if business is normalising.

“A higher-than-expected slippage this quarter, but a positive commentary of the future worries the most,” KIE wrote, adding, “It raises uncertainty and would result in investors asking fresh evidence of improvement while a lower slippage and better commentary on growth is probably the best outcome, which appears to be a low probability.”

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