Large banks, including State Bank of India (SBI), HDFC Bank, ICICI Bank, Bank of Baroda, and Punjab National Bank (PNB), have posted 13-19% year-on-year (y-o-y) rise in their advances during Q4FY23, boosting their net interest income (NII) and bottom-line growth, data compiled by FE showed.

While SBI’s advances rose 16% y-o-y to Rs 32.69 trillion as of March-end, HDFC Bank’s grew 17% to Rs 16 trillion. PNB’s total advances grew 13% y-o-y to Rs 8.84 trillion. ICICI Bank and Bank of Baroda, meanwhile, posted 19% y-o-y growth in advances each during Q4, at Rs 10.19 trillion and Rs 9.69 trillion, respectively.

Also read: Rs 2000 notes withdrawal by RBI won’t impact traders: CAIT

The growth in SBI’s loan book was primarily led by retail personal loans, which grew 17.6% y-o-y to Rs 11.79 trillion, while corporate loans grew 12.5% y-o-y to Rs 9.79 trillion. Retail advances boosted HDFC Bank’s loan growth as well, increasing from Rs 5.31 trillion in Q4FY22 to Rs 6.34 trillion in Q4FY23. Personal, auto, and home loans formed the largest part of the bank’s retail advances.

“Credit growth has continued… in double digits and has been broad-based across sectors in FY23. During FY23, all scheduled commercial banks’ credit grew 19% y-o-y, as against 9.6% y-o-y in FY22,” said SBI chairman Dinesh Khara in a post-Q4 earnings call on Thursday. “In the Budget for FY24, several steps have been taken to push up capital investment in the country, which will eventually boost the credit demand. We expect credit demand to continue in FY24, although some moderation may happen here and there,” he added.

During FY24, SBI is aiming for an on-year loan growth between 12-14%, Khara said, adding that the growth in advances will be backed by retail loans, small and medium enterprises (SME), and the expectation of more traction in the large corporate segment, and renewable energy and allied sectors. “When it comes to corporates, about Rs 1.75 trillion worth of proposals are in the pipeline. Also, when we look at the proposals which we have already sanctioned and are awaiting disbursements, even that amount is Rs 7 trillion to Rs 8 trillion. So all said and done, about Rs 10.5 trillion worth of proposals are either in the pipeline or they have already been sanctioned,” Khara said.

Sanjay Agarwal, senior director at CareEdge Ratings, shared similar views, saying higher credit growth in FY23 was partially due to pent-up demand after the pandemic. “The biggest trend is that credit cost is pretty robust in the banking system and expected to remain lower in FY24, and credit quality is robust,” he said.

Also read: Marketing, supply chain ‘main weakness’ in cross-border trade: Amazon Seller Report

Improving asset quality

During Q4FY23, nearly all large banks reported an improvement in asset quality, which led to lower provisions and subsequent bottom-line growth. For example, in absolute terms, the total gross non-performing assets (GNPAs) of SBI reduced 19% y-o-y to Rs 90,928 crore as of March 31, PNB’s fell 16% to Rs 77,328 crore, and Bank of Baroda’s decreased 32% to Rs 36,764 crore.

“We have seen very clearly that there is a definite reduction in SMA-1 (special mention account-1) and SMA-2 book over a period of time as compared to March 2022 where it was Rs 3,544 crore… it peaked somewhere around Rs 8,000 crore in September 2022, but again it has come down to Rs 3,200-odd crore,” Khara said.

SMA accounts reflect potential bad loans on banks’ books; SMA-1 accounts reflect loans that are overdue between 31 and 60 days, while the SMA-2 book indicates those overdue for 61-90 days. Banks mark an account as NPA if loan repayment is overdue for over 90 days.

“We are in a position to have a very effective follow-up mechanism wherein we are in a position to recover all these stressed accounts, so I think to my mind (asset) quality should be what we are seeing today, we should be in a position to sustain,” Khara said. As of March-end, SBI’s GNPA ratio reduced to 2.78% and 0.67% from 3.97% and 1.02% a year ago, respectively. Subsequently, total provisions also lowered from Rs 10,603 crore in Q4FY22 to Rs 7,927 crore during Q4FY23.

Speaking to FE, Canara Bank MD and CEO K Satyanarayana Raju said recoveries will be a major focus area for the bank in FY24. “All banks have a huge book under technical written-off (accounts), so whatever efforts we are taking (in recovery), that will help the balance sheet. Since banks’ existing asset base is improving, slippages are coming down, naturally provisions will come down,” he said.

During Q4, Canara Bank’s total cash recoveries, including recovery in written-off accounts, stood at Rs 4,349 crore, higher than Rs 3,157 crore during the corresponding period a year ago.

While banks are seen comfortably placed on loan growth and asset quality fronts, experts see a slight moderation in their net interest margins (NIMs) in the current fiscal. ICICI Bank, which has posted the highest 90 basis points (bps) y-o-y rise in its NIMs during Q4 at 4.90%, is expecting a moderation hereon.

Anindya Banerjee, chief financial officer at ICICI Bank, said, “Deposit costs have also started to reflect the higher rates at which deposits are being raised incrementally. So, I think, we would believe that the NIMs are at kind of peak or near-peak levels. And from here, we should see a moderation,” Banerjee said.

He said it’s difficult to give a precise outlook. “So I wouldn’t want to get into the level of NIM for next year… Our focus will be on growing the business in a sustainable way,” Banerjee said.

CareEdge’s Agarwal echoed his views, saying NIMs are on a relatively higher level right now and he does not expect NIMs to expand in the current fiscal. “The larger issue will be inflation and interest rates. In terms of interest rates, if the deposit rates increase more and lending rates remain tight due to stiff competition, then there is a challenge, and it will have an impact on the NIM.”