Retail segment likely to be key driver: Bankers see credit growth momentum sustaining

As the credit growth picks up, top bankers are optimistic that the momentum will sustain in the coming quarters as the economy opens up. Offshoots of growth in corporate loan were visible, but retail and MSME remained the drivers of credit growth during the previous financial year.    

While the rise in total advances for public sector banks was 7.2% in FY22, the growth rate of private banks was at nearly 16%, according to data compiled by Capitaline. “Recovery in economic activity, derivative effect of increased investments and spending on consumption may sustain the momentum of over 12% growth over FY22-FY25,” ICICI Securities said in a report.  

For SBI, the retail segment was the key driver for loan growth, according to ICICI Securities. SBI’s retail loans grew 15%. A bulk of these loans consisted of home loans, which grew 11.5% on year. Chairman Dinesh Khara expects the current loan growth momentum to sustain, both in the retail and corporate portfolios.

HDFC Bank expects demand for credit to remain strong. The lender is likely to witness a 15-16% loan growth in the medium term, according to Kotak Institutional Equities Research. The bank’s credit will be supported by retail and commercial segments. Retail loans of the bank faced significant headwinds since the onset of the Covid, but the brokerage expects the hurdles to abate as the impact of the pandemic recedes.

To give credit growth a leg-up, ICICI Bank is ramping up its insta-biz platform for SME business, Jefferies said in a report. The brokerage expects this segment to grow at a CAGR of 25% between FY22 and FY24.

The loan growth momentum of Bank of Baroda was at 11.6% in Q4FY22. The growth was driven by retail loans, including home, auto and gold loans. The bank has stepped up on unsecured personal loans, but the base is quite small, Nomura Research said in a report. The management said it will maintain its loan growth in line with the industry standard of 7-10%, but wants to focus on segments such as retail which will allow it to protect margins.  

Punjab National Bank MD & CEO Atul Kumar Goel is optimistic of improvement in loan disbursal in the current fiscal. The management has given a guidance of 10% credit growth in FY23, compared with a 6.2% credit growth achieved in FY22.

Credit deployment data released by the Reserve Bank of India for April suggest that retail loans will continue the upward trajectory. Non-food credit growth rose by double-digit, but that is also due to lower base in April 2021.

Despite a significant improvement in net profits in Q4FY22, pre-provisioning profits of lenders remained in single digits.

ICICI Bank was the outlier in terms of a weak recovery in operating profit. The lender posted 19% growth in core operating profit to Rs 10,293 crore. Lower provisioning, along with a sharp decline in credit costs, aided the profitability in Q4, Jefferies said.

Since banks will have free capital due to lower provisioning, analysts expect that the loan growth momentum will help drive the growth in operating profits.

HDFC Bank’s pre-provisioning profit rose by 5.3% to Rs 16,357 crore in Q4. “We believe that strong retail credit demand will be the key for preserving pre-provisioning profit growth for the banking system in the current environment,” Nomura Research said.

Non-interest income of public sector banks in the pool took a notable hit of 27% in Q4FY22 due to unfavourable movement in the government securities market. SBI’s other income declined close to 27% to Rs 11,880 crore. G-Sec yields sharply reacted to policy measures which will have an adverse impact on the treasury performance and banks are likely to report mark-to-market losses in the first quarter of FY23, Motilal Oswal said in a report.

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