There are concerns over the loan growth being pulled down by a slowdown in retail lending
An improvement in operating performance and lower slippages are likely to result in an improvement in banks’ earnings for the quarter ended June, with net interest income (NII) rising by over 20% year-on-year (y-o-y), analysts said.
In a recent note, analysts at Kotak Institutional Equities (KIE) wrote they expect banks to show stable operating performance, even as risks could arise from a few one-offs during the quarter. These include the merged financials reported for Bank of Baroda (BoB) with Dena Bank and Vijaya Bank and IndusInd Bank with Bharat Financial Inclusion.
Banks could also take a hit on account of an unfavourable base as interest income from the sale of Bhushan Steel had come in the corresponding quarter of FY19.
On the other hand, a drop in interest rates could boost treasury income for them.
Gross and net non-performing asset (NPA) ratios are likely to improve, experts said, even as resolution through the Insolvency and Bankruptcy Code (IBC) framework has slowed. The three large assets – Essar Steel, Alok Industries and Bhushan Power and Steel – from the central bank’s first list of large NPAs are in different stages of resolution.
However, there are concerns over the loan growth being pulled down by a slowdown in retail lending. “We expect retail loan growth to witness a period of slowdown over the next few months in select segments. As per our discussion with TransUnion CIBIL, loan inquiries have declined in unsecured loans (remain high on absolute basis on a low base),” KIE said in its note. Loan growth has been in the region of 12-13% y-o-y for much of the June quarter.
As revealed by Reserve Bank of India (RBI) data over the past few months, deposit growth may continue to lag the loan growth at around 10% y-o-y.
Non-banking financial companies (NBFCs) are expected to have had a difficult June quarter in terms of growth amid a slump in vehicle sales and delayed government spending. While retail home loans recorded a stable growth, a slowdown in developer loans and the loan against property (LAP) segment may hit the overall loan growth for home financiers.
Analysts will be watching management commentary for clues to growth and liquidity as well as the asset quality in the developer loan segment. There are also some worries around the quality of consumer credit on NBFC books. “Delinquency in each of the segments (of consumer loans) shows that NBFC as a group has been leading delinquency levels in almost all the sub-segments of consumer credit, when uniform delinquency norm of 90 days past due (dpd) is applied,” Edelweiss Securities said in a report late last month.