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.
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.
Analysts have attributed the shrinkage in credit to large industry to lower utilisation of sanctioned limits and reduction in exposures by banks.
The value of outstanding loans to large industries shrank for the 11th straight month in July 2021, showed data released by the Reserve Bank of India (RBI). Much of incremental growth in bank credit has been led by the retail segment as a trend of deleveraging among corporates continues.
Analysts have attributed the shrinkage in credit to large industry to lower utilisation of sanctioned limits and reduction in exposures by banks. In a report on Wednesday, ICICI Securities said under-utilisation of limits, a modest demand outlook and rundown of exposure in few sectors have resulted in a fall in bank credit to industry.
Last month, State Bank of India (SBI) chairman Dinesh Khara said sanctioned limits are still under-utilised to the extent of 25%. Similarly, banks with a significant presence in corporate lending, such as Bank of Baroda (BoB), have admitted to consciously running down some low-margin loans.
Sanjiv Chadha, MD & CEO of BoB, told FE in August that an abundance of liquidity has resulted in pricing pressure on the corporate side. “The only reason that growth was subdued in this quarter (Q1) was that we allowed some cheaply-priced corporate loans to run off because we believe that the liquidity scenario should start changing over the next few months,” he added.
Despite a low-interest rate environment, bank lending to corporates has not seen much traction. “Interest rate environment is quite favourable but spreads are still holding up at elevated levels suggesting that lenders are still reluctant to relax lending standards or borrowers are not comfortable to leverage, as yet,” Kotak Institutional Equities (KIE) said in a note on Wednesday.
There may be an improvement in corporate lending trends in the months ahead, though. ICICI Securities said the demand prospects are improving. “We believe India Inc, after undergoing a phase of deleveraging over the past few years, is now better positioned and confident to anvil on the path of re-leveraging,” the brokerage said, adding Indian financiers, too, have saddled themselves with ample liquidity and capital buffers to tap into the emerging opportunity.
Pricing trends, too, are likely to improve, according to BoB’s Chadha. “There is an opportunity to price corporate loans in a slightly better manner as compared to what was possible in the last 12 months,” he said, adding that there is a fair bit of activity in sectors like roads, city gas projects and renewable energy. Brownfield expansion is also going on, he said.
A steep decline in bond market rates till July 2020 had led to a narrowing of the spread between bank funding and bond rates, but bond yields seem to be trending upwards now, KIE analysts wrote in a report.
Vikramaditya Singh Khichi, executive director (ED), BoB
Bank of Baroda (BoB) expects to grow above industry levels in the next financial year. In an interview, Vikramaditya Singh Khichi, executive director (ED), BoB, highlights the reasons to Ankur Mishra for the bank’s stellar growth in the home loan segment. Excerpts:
What has been your strategy for retail loans amid Covid-19? Is there a deliberate move to focus more on retail loans?
Though the pandemic brought tough challenges, it also gave us the opportunity to make greater use of the digital mode to get leads and keep our focus intact. The retail loan segment is an important part of our growth story and it figures prominently in our overall strategy.
Do you believe the momentum in retail loans will be maintained? What is your outlook on growth in advances in the current financial year and the next one (FY22)?
Yes, we are optimistic about continuing growth in retail loans as the macro-economic indicators point at under penetration in this segment. For example, in home loans, the penetration level is just 10%. At Bank of Baroda, the retail loan book is growing at more than 13% on a year-on-year (y-o-y basis and in the home loan segment, by around 12% y-o-y, which are above industry levels.
Growth is expected to be robust in the next financial year, and we hope to continue growing at above industry levels. By when will the bank achieve double-digit growth in (overall) advances?
The bank is doing well in various retail loan products, viz housing loan, auto loan (around 22% y-o-y growth) and education loan (around 10% y-o-y growth), and is also growing higher than the industry in overall advances. We expect to maintain the same tempo in the future, even accelerate growth further.
How are you placed on disbursements and collections? Are these back to pre-Covid-19 levels?
We are almost at pre-Covid19 levels on disbursement and collection parameters.
You have achieved double-digit growth in the home loan segment. What strategy have you employed?
It is a result of good products, pricing and processes, the hallmark of our bank. We have access to high-quality borrowers through bureau scores and we are able to price our products very competitively. The repo rate changes made by the Reserve Bank of India (RBI) in the early part of the financial year provided existing home loan borrowers an option to shift their home loans from non-banking financial companies (NBFCs)/housing finance companies (HFCs). And this came as an opportunity for us to grow the home loan business. The launch of new specialised mortgage stores and product innovation also contributed to the growth we have achieved. The third quarter of this fiscal saw perceptible growth in new home sales across the metro cities, thanks to good offers from developers, some property price correction and interest rates being at an all-time low in the segment.
Do you think there could be a build-up of stress in the retail book? To what levels do you expect retail NPAs to rise? How do you plan to address the issue?
As we are already at the pre-Covid-19 level, we do not foresee any major increase in stress in the retail book. As I mentioned earlier, we are focused on quality growth. Around 73% of our borrowers have a bureau score above 725 and 84%, above 700. There is therefore no cause for undue concern as regards the stress levels.
How are you placed on provisioning?
The bank has made adequate provisions as of December 2020 (Q3 FY21), in conformity with regulatory guidelines as well as the Supreme Court (SC) order. The Provision Coverage Ratio (including Two) was above 85% in Q3FY21. The bank is setting aside 20% for substandard category assets, as against the regulatory requirement of 15%. We make appropriate provisions whenever the situation warrants.
Any plans to raise more capital this fiscal, given that you have already raised over `3,700 crore through tier-1 bonds? The raising of capital depends on the bank’s requirements and the market scenario. In FY2020-21, we have raised a little over Rs 8,200 crore, which includes equity capital of Rs 4,500 crore through the qualitative institutional placement (QIP) route recently.
For raising equity through QIP or FPO, the bank will take a call based on the market scenario and requirement.
Indian Bank is looking at diversifying loan growth across sectors and geographies by targeting manufacturing, service and infrastructure companies with good rating. It will also focus on refinancing of well-rated corporates where cash flows are strong. In an interview with FE’s Sajan C Kumar, Indian Bank MD & CEO, Padmaja Chunduru said the bank proposes to concentrate on industries with low and moderate risk due to the Covid impact. Excerpts:
The bank recently raised funds bonds. What was it for?
Bonds totalling Rs 1,608 crore were raised for augmenting the AT-1 capital and overall capital adequacy. During FY21, out of existing tier 1/tier 2 bonds, Rs 1,000 crore was repaid on maturity or exercise of call option and further there is a call option due in March 2021 for Rs 500 crore. There will be no additional interest burden as these bonds mainly replace the ones paid out during the year. Currently, we have no plan to raise equity capital from the Centre or financial institutions. For raising equity through QIP or FPO, the bank will take a call based on the market scenario and requirement.
Due to pandemic what kind of restructuring of accounts are you anticipating?
Owing to Covid-19 pandemic, stress was expected in almost all the sectors. Restructuring expected is up to 2% of total standard advances, of which corporate will be up to 1.5%. The retail segment has not approached much for restructuring, MSME has the same pace as in the previous tranches. Corporate restructuring requests are in line with expectations. The overall collection efficiency in November 2020 was at 86%.
Did disbursement improve in the third quarter ?
There has been discernible improvement in disbursements under retail assets in the first two months of Q3. In corporate and mid-corporate sector, up to November 2020, the bank had accorded approval for good number of proposals and while half of them have been disbursed, there is still a significant undisbursed amount. Corporate and agriculture credit has picked up in Q3. Also, the bank will look at diversifying growth across sectors and geographies by targeting manufacturing, services and infrastructure companies with good rating, along with refinancing well rated corporates where cash flows are strong.
What will be Indian Bank’s approach towards corporate lending?
Our endeavour is to maintain a good mix of RAM (retail, agri and MSME) and corporate portfolios. The bank is well positioned to grow in both the segments. Our RAM portfolio, at present, is 56% of the total credit. The share of retail assets is 32% of the RAM portfolio and 18% of the total credit portfolio. The bank proposes to concentrate on industries with low and moderate risk due to Covid impact. We are targeting a moderate growth of 10% in corporate credit. So far, the growth in corporate sector has been mostly for NBFC/govt/PSE segments. We expect private investments to pick up in Q4.
Indian Bank MD & CEO, Padmaja Chunduru
How much recovery do you expect by the end of this fiscal?
Under NPA management, focus is on arresting fresh slippages and recovery in the existing accounts. Credit monitoring – a vertical with centres in Chennai and Kolkata, monitors and reviews on a daily basis all accounts showing incipient signs of any irregularity. Accounts in the watch list are closely monitored. SARFAESI action is being initiated in all eligible NPA accounts to speed up the recovery. Recently we have conducted mega e-auctions in which total 166 properties were sold. Online OTS (one-time settlement) portal has been implemented for small accounts up to outstanding of Rs 1 crore and field functionaries are advised to mobilise maximum OTS proposals.
How is your CASA position? Any plans to enhance it?
CASA being the core strength, the bank has been striving hard to increase the CASA ratio on a continuous basis. These efforts are getting translated every quarter as it has improved from 41.28% in March 2020 to 41.90% in September 2020. The bank will be leveraging data analytics and market research to constantly upgrade its product offerings for customer retention. It is also increasing its wallet share by aggressively cross selling other products such as retail loans, credit card, insurance products, mutual fund products and trading account services.
How well has the bank proceeded on integration of Allahabad Bank with Indian Bank?
Treasury operations have been fully integrated. Harmonised products, interest rates and service charges have been made available to customers of the amalgamated entity. A common gateway software (Co-Ex) is being used to provide interface to the two CBS systems to carry out basic financial and non-financial transactions from either bank branch. We expect to complete the CBS integration in this financial year as planned.
What is the update on finding a minority partner for Ind Bank Housing?
Our subsidiary IBHL is in process of engaging consultant to assist the company in its revival plan. The company is also engaged in informal discussion with potential investors. At present, we have not received any formal expression.
Financial Express is now on Telegram. 
