Private banks showed resilience in the face of difficult economic conditions, reporting a good set of numbers in the April-June quarter. Loan growth and credit quality remained robust, but high cost of funds meant that some private banks did not enjoy net interest margin (NIM) expansion.
ICICI Bank led the earnings growth with a strong 36% year-on-year (y-o-y) growth. HDFC Bank, YES Bank and IndusInd Bank clocked above 30% y-o-y growth. However, Axis Bank and Kotak Mahindra Bank recorded more modest numbers at 22% y-o-y and 12% y-o-y growth respectively.
ICICI Bank and YES Bank managed to keep their net interest margins (NIMs) stable for the quarter. But Axis Bank saw 18 bps fall in NIMs due to rising cost of funds and declining current account-savings account (CASA) ratio.
Unlike the public sector banks, the asset quality of private banks did not deteriorate significantly in the quarter. HDFC Bank saw its net non-performing asset (NPA) levels remain flat at 0.2% with an overall restructured book of just 0.3%.
ICICI Bank also kept its net NPA levels on check at 0.71% and fresh restructuring activity at R350 crore was lower than in previous quarters. The management said that it does not expect any significant rise in slippages going ahead.
A Citigroup report notes that Axis Banks? overall asset quality remains reasonably good and deterioration (NPAS ?1.1%, restructured ? 1.4%) is largely in line with the previous quarter guidance.
?That said, recoveries have slowed, the overall credit profile has slipped and some lumpy infrastructure loans are showing up in restructured assets,? it adds.
The mid-sized banks YES Bank and IndusInd Bank also maintained good asset quality, but Kotak Mahindra Bank remained an outlier with concerns over asset quality emerging in the quarter. The net NPAs of Kotak rose to 0.8% from 0.61% largely due to stress in the bank’s commercial vehicle (CV) portfolio. A JP Morgan report states that they expect the weak macros to drive up NPAs and credit costs for the bank going ahead.
The net interest income (NII) of private banks were boosted by strong loan growth. ICICI Bank?s 22% y-o-y growth in advances was led by corporate sector loans, while retail loan growth was flat. HDFC Bank and Axis Bank saw good all round loan growth at 22% yoy and 30% yoy respectively.
A Motilal Oswal report notes that the loan growth of 31% yoy for IndusInd Bank was led by the retail loans which for the first time accounts for over 50% of the overall loan book. YES Bank however saw more modest loan growth numbers at 16% yoy, preferring credit substitutes like bonds over aggressive loan expansion due to the risky environment, Private banks expect loans to grow above the industry average of 16-17% for the rest of the fiscal. Despite the slowdown bankers say that the corporate loan book will see continued growth due to pent up demand for working capital. Mortgage loans are expected to lead growth on the retail side.
