For some private banks, it was the subdued loan demand from corporates which pulled down overall loan growth, while others saw weakness in key consumer segments. In retail, while demand for automobile and housing loans was down, unsecured personal loans, including credit cards, witnessed decent growth. IndusInd Bank, for instance, reported one of its lowest credit growth (19.8 per cent YoY) in a decade because of the slowdown in its corporate and vehicle finance book.
For HDFC Bank, too, net interest income growth of 12.7 per cent YoY was the lowest in 15 quarters. A dismal growth of 1 per cent, both YoY and sequentially in vehicle loans continued to impact its overall retail growth, excluding business banking. However, unsecured retail loans (credit card, personal loans, etc) grew 23-29 per cent YoY and 7-11 per cent sequentially. Although HDFC Bank’s bad loan ratio is still the best in the industry, unsecured loans could prove to be a pain point if the economic slowdown
is prolonged. While the bank reported good growth in corporate credit in Q3, analysts say a rebound in its overall loan growth may not happen anytime soon.
The trend for other players is unlikely to be different. Rohan Mandora, vice president, Equirus Securities says: “The ongoing challenging situation will keep corporate credit growth under pressure. Also, key retail segments like automobile are unlikely to revive soon.”
Smaller players like RBL Bank and Federal Bank also reported slower loan growth in Q3.
Nonetheless, the low cost of funds helped the private lenders. Most private banks
reported a 10-45 basis point YoY expansion in net interest margin in Q3.
However, as many analysts opine, loan growth deceleration and margins are not as much a concern as asset quality. Asset quality was expected to get impeded because of the slowdown and two large corporate accounts (DHFL and Anil Ambani owned group) turning bad. But, the higher-than-expected asset quality pressure, mainly in the retail segment, along with a cautious outlook on segments like agriculture and commercial vehicle, and from areas beyond the known stressed pool (as indicated by some banks) stunned investors.
HDFC Bank’s large chunk of incremental slippages was contributed by agriculture, along with lumpy corporate accounts. HDFC Bank’s slippage ratio in Q3 is the highest in at least 12 quarters.
ICICI Bank on Saturday, too, reported higher slippages in its retail portfolio, mainly from Kisan credit card and commercial vehicle loan segment. The bank’s overall retail slippages jumped 43 per cent sequentially to Rs 1,890 crore in Q3. Others like IndusInd Bank and Axis Bank witnessed elevated stress in some corporate accounts or unsecured loans.
The overall slippage ratio (loans turning bad as a percentage of average loan book) of most private banks
deteriorated over the year-ago quarter and/or sequentially. “Unsecured personal loans segment, including credit cards, could see more problems if the slowdown persists,” says Lalitabh Shrivastawa, deputy vice president at Sharekhan. But, resolution of key large accounts should provide support, he says.
Higher slippages, in turn, resulted in increased provisioning and impacted the operating profits of most banks. What though provides comfort is their provision cover ratio (of 40-119 per cent).
While the situation isn’t alarming yet, how banks mitigate the impact of slowdown would be key. For now, all eyes are on what the upcoming Budget brings to revive the economy.