• Wed. Nov 16th, 2022

The retail segment is expected to be the main driver: bankers expect credit growth momentum to continue

ByElla E. Kidwell

Jun 2, 2022

As credit growth picks up, major bankers are optimistic that momentum will continue over the coming quarters as the economy opens up. The ramifications of business loan growth were visible, but individuals and MSMEs remained the drivers of credit growth in the prior year.

While the rise in total advances for public sector banks was 7.2% in FY22, the growth rate for private banks was nearly 16%, according to data compiled by Capitaline. “The pick-up in economic activity, the spin-off effect of increased investment and consumer spending could sustain the momentum for growth of more than 12% in FY22-25,” he said. said ICICI Securities in a report.

For SBI, the retail segment was the main driver of loan growth, according to ICICI Securities. SBI retail lending increased 15%. Most of these loans are home loans, which grew by 11.5% over one year. Chairman Dinesh Khara expects the current momentum of loan growth to continue, in both retail and corporate portfolios.

HDFC Bank expects credit demand to remain strong. The lender is expected to experience 15-16% loan growth over the medium term, according to Kotak Institutional Equities Research. The bank’s credit will be supported by the retail and commercial segments. The bank’s retail lending has faced significant headwinds since the onset of Covid, but the brokerage expects the hurdles to ease as the impact of the pandemic recedes.

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

Bank of Baroda’s loan growth momentum was 11.6% in Q4FY22. Growth was driven by retail lending, including home, auto and gold lending. The bank has stepped up its unsecured personal lending, but the base is quite small, Nomura Research said in a report. Management said it will keep 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 its margins.

Atul Kumar Goel, Managing Director and CEO of National Bank of Punjab, is optimistic about the improvement in loan disbursement in the current financial year. Management announced credit growth of 10% in FY23, compared to credit growth of 6.2% achieved in FY22.

Credit deployment data released by the Reserve Bank of India for April suggests that retail lending will continue its upward trajectory. Non-food credit growth increased by double digits, but this is also due to a weaker base in April 2021.

Despite a significant improvement in net earnings in Q4FY22, lender pre-provisioning earnings remained in single digits.

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

As banks will have free capital due to lower provisioning, analysts expect loan growth momentum to help drive operating profit growth.

HDFC Bank’s pre-provision profit rose 5.3% to Rs 16,357 crore in the fourth quarter. “We believe strong demand for retail credit will be key to sustaining pre-provision earnings growth for the banking system in the current environment,” Nomura Research said.

Pool public sector bank non-interest income took a notable hit of 27% in Q4FY22 due to unfavorable government securities market developments. SBI’s other income declined by nearly 27% to Rs 11,880 crore. G-Sec yields reacted strongly to policy measures that will negatively impact Treasury performance and banks are expected to experience market value losses in the first quarter of FY23, Motilal Oswal said in a report.