Private banks? profit rises on healthy loan growth

Private sector banks continued their run of strong bottomline growth, driven by healthy loan growth, at a time when credit demand has been weak.

India?s second-largest private sector bank HDFC Bank?s net profit continued to grow at 30% to R1,889.8 crore, boosted by a 23% rise year-on-year (y-o-y) to R2,39,721 crore for the January-March period. The bank went for an aggressive increase in the number of branches, adding 518 new branches during the year. Of these, 193 were micro branches, which will help the bank improve its footprint in rural locations, analysts said.

?Of the 3,062 branches, 53% are now in semiurban and rural areas. We look forward to the increasing support of rural business flowing through these branches, which we believe is equally profitable in return on assets (ROA) terms as its urban business,? analysts from HSBC Global Research said in their report.

Meanwhile, Axis Bank saw a steady run of 22% growth in its bottomline, aided by a 16% growth in net advances. The largest private lender ICICI Bank?s y-o-y profit growth rate dipped a bit to 21%, the lowest since the July-September quarter of 2011, but was still able to meet analysts? expectations. ICICI Bank?s loan growth was the weakest among the three top private players at 14%. Analysts believe that while ICICI Bank?s performance was fine, the outlook may prove to be a bit of a problem.

Loan growth for most banks has slowed this year as the country?s growth rate slipped, leading to halt in new infrastructure projects and a bulk of the growth seen by these banks have come from retail advances.

In the entire banking system, non-food credit growth slumped to a decade low in 2012-13, falling short of Reserve Bank of India?s (RBI?s) projection of 16% as demand for loans from companies remained weak. As on March 22, non-food loans grew by 14.04% y-o-y to R51,66,414 crore against a growth of 16.8% in 2011-12. The last time credit growth was this low was in 2001-02, when it grew at 13.2%.

Private lenders were able to leverage upon their retail portfolio to improve their individual credit growths.

HDFC Bank managed to grow its retail advances by 27.3% y-o-y, hence, the share of retail advances to overall loan book increased by around 200 basis points y-o-y and by 300 basis points q-o-q to 56.9%. For Axis Bank, corporate loan growth remained weak at 7.9% y-o-y growth during the January-March period. Retail loans, however, were up 43.6% y-oy, supported by robust growth in car and mortgage loans. Loans to the small and medium enterprises (SMEs) also saw a sharp uptick during the quarter, up 18.3% sequentially.

ICICI Bank?s mortgage loans grew 18.2%, auto loans (24.9%) and personal loans (51.9%) y-o-y.

All the banks agreed that retail will continue to be the driver in FY14 as demand from companies will be weak at least in the first half of the financial year.

?As of now, there are still not any new projects that are coming up? The demand for financing from the corporates are really coming from working capital and its coming from refinancing high costs load with more efficient loans. We are assuming that the industry credit will grow 16-17% in FY14,? Chanda Kochhar, MD and CEO, ICICI Bank, said.

Axis Bank executive director Somnath Sengupta said, ?We were under served in the retail segment, which we are growing now. Retail assets have grown to 27% from the earlier 22% and I see them touching 30% by FY14 end.?

Axis Bank, HDFC Bank and ICICI?s net interest margins (NIMs), a key gauge of profitability, grew 10-23 bps y-o-y, largely driven by the improving mix of retail and SME loans during the quarter and improvement in current account and savings account (CASA) share.

Non-performing assets (NPAs) remained stable for the three top private banks. ICICI?s net NPA sequentially rose just 1 basis point to 0.77%, Axis and HDFC Bank?s net NPAs was flat sequentially at 0.32% and 0.2%, respectively.

Smaller private banks IndusInd Bank and Yes Bank also saw their profit shooting up 38% y-o-y and 33% y-o-y, respectively, backed by a y-o-y loan growth of 26% and 24%, respectively.