Private sector banks reported healthy credit growth in the April-June quarter, even as deposit mobilisation remained relatively slower and net interest margins (NIMs) continued to face pressure, according to the earnings of eight private sector lenders released so far. Bank executives, however, said margins have likely bottomed out and are expected to improve in the coming quarters.
“Our NIM for the first quarter at 3.46% is our cycle bottom. With the FCNR (B) deposit opportunity in the near term, we will focus on growth and deployment of the additional liquidity raised through this route,” Axis Bank management said during the post-earnings conference call.
Despite healthy business expansion, profitability metrics reflected the impact of policy rate cuts. HDFC Bank’s NIM narrowed to 3.26% from 3.40% a year earlier, Axis Bank’s fell to 3.46% from 3.80%, Kotak Mahindra Bank’s eased to 4.53% from 4.65%, and RBL Bank’s declined to 4.13% from 4.50%. ICICI Bank was the exception, with its NIM improving marginally to 4.36% from 4.34%. Federal Bank expects NIMs to widen by about 5-6 basis points (bps) every quarter over the next three to four quarters, managing director and chief executive officer KVS Manian said during the post-earnings call.
Corporate Advances Lead
Loan growth remained robust across lenders. HDFC Bank’s advances rose 15.4% year-on-year to `30.61 lakh crore, while ICICI Bank and Axis Bank maintained strong momentum with growth of 19.6% and 19.1%, respectively. RBL Bank posted the fastest growth in advances, with its loan book expanding 23.1% year-on-year to `1.16 lakh crore, followed by IDBI Bank at 21.5%. Federal Bank and Kotak Mahindra Bank recorded loan growth of 13.3% and 15%, respectively.
Corporate lending emerged as the key driver of credit growth. Axis Bank’s corporate advances surged 37.5% year-on-year, while YES Bank reported a sharp 41.4% increase as it continued rebuilding its wholesale book. HDFC Bank and ICICI Bank recorded corporate loan growth of around 18.6% and 18.5%, respectively. In contrast, RBL Bank’s corporate portfolio contracted 4.2% from a year ago.
Retail credit growth remained relatively muted across most lenders. ICICI Bank led the pack with retail advances growing 12% year-on-year, followed by Federal Bank at 10.6% and Axis Bank at 8.4%. HDFC Bank‘s retail loan book expanded 7.2%, while YES Bank reported growth of 6.9%.
“The loan growth is across all segments. During the quarter, we saw a lot of working capital requirements. We could also capitalise on the moderation in the equity and bond markets,” said Sandeep Batra, executive director at ICICI Bank.
Deposit growth largely remained in the low-to-mid teens across lenders. HDFC Bank’s deposits increased 14.7% year-on-year to `31.71 lakh crore, while Axis Bank reported growth of 18.2%. ICICI Bank’s deposits rose 14%, Federal Bank’s increased 11.4%, and RBL Bank’s grew 10.7%. Kotak Mahindra Bank’s deposits rose 11.7% from a year earlier, although they were flat sequentially. Banks also reported a moderation in their CASA ratios during the June quarter, with most private sector lenders recording sequential declines in the share of low-cost deposits.
Shift From CD Ratios
Even as several private sector banks continued to report credit-deposit (CD) ratios of over 90%, executives said the liquidity coverage ratio has become the more relevant metric for managing balance sheets.
“It’s very amply clear that the CD ratio is not an indicator that is going to be focused on in the near future. It’s going to be the liquidity coverage ratio. So that is exactly what we are also focusing on. We are reasonably comfortable with a liquidity coverage ratio and that’s a metric. So CD ratio is not something that we will be focussing for some time,” HDFC Bank MD & CEO Sashidhar Jagdishan said.
Asset quality remained stable or improved across most lenders. RBL Bank reported the sharpest improvement, with its gross non-performing asset (GNPA) ratio falling to 1.3% from 2.78% a year earlier. ICICI Bank’s GNPA ratio improved to 1.38%, Kotak Mahindra Bank’s to 1.18%, HDFC Bank’s to 1.17%, and Federal Bank’s to 1.52%, indicating that stress in loan books remained contained despite a challenging operating environment.
Banks also said the West Asia conflict has not had any material impact on their portfolios so far, though they are closely monitoring developments and assessing potential risks.
