Kolkata: Early business data from lenders, published ahead of the month-long earnings season starting next week, showed that Indian companies are on track to report yet another quarter of robust performance amid buoyant consumer demand, although rising cost of funds might crimp profitability for financiers as the pace of deposit mobilisation trails credit growth.
Non-banking finance companies (NBFC) are the growth leaders for the financial services sector, with the likes of Bajaj Finance and L&T Finance Holdings reporting a surge in retail loans. State-run lenders, too, have reported growth in their loan books.
Mid-sized lenders, such as Bandhan Bank, Bank of Maharashtra, Federal Bank and RBL Bank have shown credit growth in excess of 18% while Bajaj Finance said its assets under management expanded 35% year-on-year at the end of December. Among large lenders, Punjab National Bank said advances climbed 13.5% – on a relatively high base.
“Credit growth has been increasing as all segments are doing well, except large manufacturing,” said Madan Sabnavis, economist, Bank of Baroda. “I would expect this to be higher for working capital purposes. With the economy doing well, there is fairly broad-based demand for credit.”
Bank credit expanded 11.4% so far in FY24 and deposits rose 9%, excluding the impact of the merger of HDFC with HDFC Bank. The RBI last month raised the fiscal-year economic growth forecast by 50 basis points to 7%.
One basis point is a hundredth of a percentage point.
The high credit growth came at a time when lending rates reached the peak following a 250-basis-point rise in the policy repo rate between May 2022 and February 2023. From May 2022 to October 2023, the weighted average lending rate on fresh rupee loans increased nearly 2 percentage points, including an increase of 18 basis points since April 2023, the RBI said.
“Interest rate is not a limiting factor as business is doing well. This was observed in the past too. At the retail level, the quest to spend has led to borrowing for consumption purposes,” Sabnavis said.
L&T Finance, which has been transforming itself into a retail-focused lender from one that lent to big companies, said its retail loans are estimated to have risen 31% to ₹74,750 crore.
Even the small finance banks are doing brisk business.
