Several private banks, including IndusInd Bank, Federal Bank, Karur Vysya Bank, and Dhanlaxmi Bank, have reported robust loan growth figures in their initial business updates for the second quarter, sparking optimism about the broader banking sector’s loan growth in the same period.
IndusInd Bank stands out with the highest loan growth, reporting a 21% year-on-year increase in net advances, which surged from Rs 2.60 lakh crore in September 2022 to Rs 3.14 lakh crore as of September 30, 2023. The bank also noted a 14% growth in deposits, reaching Rs 3.59 lakh crore in the second quarter, up from Rs 3.15 trillion previously.
Federal Bank reported strong figures, with gross advances surging by 20% to reach Rs 1.9 lakh crore by the end of the second quarter, compared to Rs 1.6 lakh crore in the same quarter the previous year. Deposits also saw substantial growth, increasing by 23% to reach Rs 2.3 lakh crore during the same period.
Karur Vysya Bank recorded a 15.3% growth in advances during the same period, with total advances amounting to Rs 70,446 crore as of September 30, 2023. Meanwhile, Dhanlaxmi Bank’s gross advances grew by 13.2%, reaching Rs 10,312 crore by the end of the second quarter, compared to Rs 9,109 crore in the same quarter the previous fiscal year.
While the loan growth appears promising, experts warn that high loan and deposit growth may not necessarily translate into higher profits for banks. The key factor impacting profitability will be the trend in bad loans or non-performing assets (NPAs). Additionally, banks have aggressively raised term deposit rates in the past two quarters, which could affect their cost of funds.
Credit offtake strong
Credit offtake rose by 15.9 % (y-o-y) for the first quarter of FY24. In absolute terms, credit expanded by Rs 9.8 lakh crore from June 2022. The growth has been driven by sustained personal loan demand and NBFCs.
Deposits witnessed a slower (compared to credit) growth at 12.6% (y-o-y), supported by term deposits which were offset by high base and slow CASA growth.
Scheduled Commercial Banks’ (SCBs) y-o-y growth in term deposits at 17.4% outperformed current account and saving account (CASA) growth at 6.4% as term deposits have seen a sharper growth in interest rates, and hence customers are shifting, as well as adding funds from low yielding CASA deposits to term deposits.
In the last three years, (i.e., from March 2020) credit offtake has mostly overcome the Covid-induced lag and has grown by around 35.8% to almost catch up with deposit growth of 36.6% over the same period.
The Credit Deposit (CD) ratio of SCBs rose by 210 bps y-o-y at the end of June 2023, due to higher credit growth and reached 75.8%.
